q1_2008form10q.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
FORM
10-Q
(Mark
One)
|
|
[X]
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
|
For
the quarterly period ended March 31, 2008
|
|
OR
|
[ ]
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
|
For
the transition period from ______________ to
______________
|
Commission
file number 1-12626
|
EASTMAN
CHEMICAL COMPANY
|
(Exact
name of registrant as specified in its
charter)
|
Delaware
|
|
62-1539359
|
(State
or other jurisdiction of
|
|
(I.R.S.
employer
|
incorporation
or organization)
|
|
identification
no.)
|
|
|
|
200
South Wilcox Drive
|
|
|
Kingsport,
Tennessee
|
|
37660
|
(Address
of principal executive offices)
|
|
(Zip
Code)
|
|
|
|
Registrant’s
telephone number, including area code: (423)
229-2000
|
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES
[X] NO [ ]
|
|
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definition of "large accelerated filer,"
"accelerated filer" and "smaller reporting company" in Rule 12b-2 of the
Exchange Act.
Large
accelerated filer
[X] Accelerated
filer [ ]
Non-accelerated
filer
[ ] Smaller
reporting company [ ]
(Do
not check if a smaller reporting company)
|
|
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act) YES
[ ] NO [X]
|
Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.
|
Class
|
Number
of Shares Outstanding at March 31, 2008
|
Common
Stock, par value $0.01 per share
|
|
76,234,567
|
|
|
|
--------------------------------------------------------------------------------------------------------------------------------
PAGE
1 OF 46 TOTAL SEQUENTIALLY NUMBERED PAGES
EXHIBIT
INDEX ON PAGE 45
TABLE
OF CONTENTS
PART
I. FINANCIAL INFORMATION
1.
|
Financial
Statements
|
|
|
|
|
|
|
3
|
|
|
4
|
|
|
5
|
|
|
6
|
|
|
|
2.
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20
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|
|
|
3.
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|
40
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|
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|
4.
|
|
40
|
PART
II. OTHER INFORMATION
SIGNATURES
COMPREHENSIVE
INCOME AND RETAINED EARNINGS
|
|
First
Three Months
|
(Dollars
in millions, except per share amounts)
|
|
2008
|
|
2007
|
|
|
|
|
|
Sales
|
$
|
1,727
|
$
|
1,637
|
Cost
of sales
|
|
1,390
|
|
1,351
|
Gross
profit
|
|
337
|
|
286
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
110
|
|
98
|
Research
and development expenses
|
|
42
|
|
34
|
Asset
impairments and restructuring charges, net
|
|
17
|
|
--
|
Operating
earnings
|
|
168
|
|
154
|
|
|
|
|
|
Interest
expense, net
|
|
16
|
|
17
|
Other
(income) charges, net
|
|
(1)
|
|
(3)
|
Earnings
from continuing operations before income taxes
|
|
153
|
|
140
|
Provision
for income taxes from continuing operations
|
|
38
|
|
47
|
Earnings
from continuing operations
|
|
115
|
|
93
|
|
|
|
|
|
Loss
from discontinued operations, net of tax
|
|
--
|
|
(3)
|
Gain
(loss) from disposal of discontinued operations, net of
tax
|
|
18
|
|
(13)
|
Net
earnings
|
$
|
133
|
$
|
77
|
|
|
|
|
|
Basic
earnings per share
|
|
|
|
|
Earnings
from continuing operations
|
$
|
1.47
|
$
|
1.11
|
Earnings
(loss) from discontinued operations
|
|
0.23
|
|
(0.19)
|
Basic
earnings per share
|
$
|
1.70
|
$
|
0.92
|
|
|
|
|
|
Diluted
earnings per share
|
|
|
|
|
Earnings
from continuing operations
|
$
|
1.46
|
$
|
1.10
|
Earnings
(loss) from discontinued operations
|
|
0.22
|
|
(0.19)
|
Diluted
earnings per share
|
$
|
1.68
|
$
|
0.91
|
|
|
|
|
|
Comprehensive
Income
|
|
|
|
|
Net
earnings
|
$
|
133
|
$
|
77
|
Other
comprehensive income (loss)
|
|
|
|
|
Change
in cumulative translation adjustment, net of tax
|
|
(36)
|
|
(3)
|
Change
in pension liability, net of tax
|
|
8
|
|
2
|
Change
in unrealized gains (losses) on derivative instruments, net of
tax
|
|
(26)
|
|
7
|
Change
in unrealized gains (losses) on investments, net of tax
|
|
--
|
|
(1)
|
Total
other comprehensive income (loss)
|
|
(54)
|
|
5
|
Comprehensive
income
|
$
|
79
|
$
|
82
|
|
|
|
|
|
Retained
Earnings
|
|
|
|
|
Retained
earnings at beginning of period
|
$
|
2,349
|
$
|
2,186
|
Net
earnings
|
|
133
|
|
77
|
Cash
dividends declared
|
|
(34)
|
|
(37)
|
Adoption
of accounting standard
|
|
--
|
|
8
|
Retained
earnings at end of period
|
$
|
2,448
|
$
|
2,234
|
The
accompanying notes are an integral part of these consolidated financial
statements.
|
|
March
31,
|
|
December
31,
|
(Dollars
in millions, except per share amounts)
|
|
2008
|
|
2007
|
|
|
(Unaudited)
|
|
|
Assets
|
|
|
|
|
Current
assets
|
|
|
|
|
Cash
and cash equivalents
|
$
|
793
|
$
|
888
|
Trade
receivables, net of allowance of $7 and $6
|
|
599
|
|
546
|
Miscellaneous
receivables
|
|
105
|
|
112
|
Inventories
|
|
670
|
|
539
|
Other
current assets
|
|
64
|
|
74
|
Current
assets related to discontinued operations
|
|
--
|
|
134
|
Total
current assets
|
|
2,231
|
|
2,293
|
|
|
|
|
|
Properties
|
|
|
|
|
Properties
and equipment at cost
|
|
8,263
|
|
8,152
|
Less: Accumulated
depreciation
|
|
5,356
|
|
5,306
|
Net
properties
|
|
2,907
|
|
2,846
|
|
|
|
|
|
Goodwill
|
|
318
|
|
316
|
Other
noncurrent assets
|
|
350
|
|
313
|
Noncurrent
assets related to discontinued operations
|
|
--
|
|
241
|
Total
assets
|
$
|
5,806
|
$
|
6,009
|
|
|
|
|
|
Liabilities
and Stockholders’ Equity
|
|
|
|
|
Current
liabilities
|
|
|
|
|
Payables
and other current liabilities
|
$
|
1,036
|
$
|
1,013
|
Borrowings
due within one year
|
|
72
|
|
72
|
Current
liabilities related to discontinued operations
|
|
--
|
|
37
|
Total
current liabilities
|
|
1,108
|
|
1,122
|
|
|
|
|
|
Long-term
borrowings
|
|
1,557
|
|
1,535
|
Deferred
income tax liabilities
|
|
273
|
|
300
|
Post-employment
obligations
|
|
851
|
|
852
|
Other
long-term liabilities
|
|
121
|
|
118
|
Total
liabilities
|
|
3,910
|
|
3,927
|
|
|
|
|
|
Stockholders’
equity
|
|
|
|
|
Common
stock ($0.01 par value – 350,000,000 shares authorized; shares issued –
93,927,780 and 93,630,292 for 2008 and 2007, respectively)
|
|
1
|
|
1
|
Additional
paid-in capital
|
|
587
|
|
573
|
Retained
earnings
|
|
2,448
|
|
2,349
|
Accumulated
other comprehensive loss
|
|
(82)
|
|
(28)
|
|
|
2,954
|
|
2,895
|
Less:
Treasury stock at cost (17,775,887 shares for 2008 and 13,959,951 shares
for 2007)
|
|
1,058
|
|
813
|
|
|
|
|
|
Total
stockholders’ equity
|
|
1,896
|
|
2,082
|
|
|
|
|
|
Total
liabilities and stockholders’ equity
|
$
|
5,806
|
$
|
6,009
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
|
|
First
Three Months
|
(Dollars
in millions)
|
|
2008
|
|
2007
|
|
|
|
|
|
Cash
flows from operating activities
|
|
|
|
|
Net
earnings
|
$
|
133
|
$
|
77
|
|
|
|
|
|
Adjustments
to reconcile net earnings to net cash provided by (used in) operating
activities:
|
|
|
|
|
Depreciation
and amortization
|
|
65
|
|
84
|
Asset
impairments
|
|
1
|
|
22
|
Gains
on sale of assets
|
|
(7)
|
|
--
|
Provision
(benefit) for deferred income taxes
|
|
(56)
|
|
(15)
|
Changes
in operating assets and liabilities:
|
|
|
|
|
(Increase)
decrease in receivables
|
|
(40)
|
|
(29)
|
(Increase)
decrease in inventories
|
|
(116)
|
|
15
|
Increase
(decrease) in trade payables
|
|
(47)
|
|
(80)
|
Increase
(decrease) in liabilities for employee benefits and incentive
pay
|
|
(61)
|
|
(165)
|
Other
items, net
|
|
75
|
|
25
|
|
|
|
|
|
Net
cash provided by (used in) operating activities
|
|
(53)
|
|
(66)
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
Additions
to properties and equipment
|
|
(132)
|
|
(86)
|
Proceeds
from sale of assets and investments
|
|
323
|
|
(2)
|
Additions
to capitalized software
|
|
(3)
|
|
(3)
|
Other
items, net
|
|
(6)
|
|
--
|
|
|
|
|
|
Net
cash provided by (used in) investing activities
|
|
182
|
|
(91)
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
Net
increase (decrease) in commercial paper, credit facility and other
borrowings
|
|
48
|
|
73
|
Dividends
paid to stockholders
|
|
(35)
|
|
(38)
|
Treasury
stock purchases
|
|
(245)
|
|
(33)
|
Proceeds
from stock option exercises and other items
|
|
7
|
|
49
|
|
|
|
|
|
Net
cash provided by (used in) financing activities
|
|
(225)
|
|
51
|
|
|
|
|
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
1
|
|
--
|
|
|
|
|
|
Net
change in cash and cash equivalents
|
|
(95)
|
|
(106)
|
|
|
|
|
|
Cash
and cash equivalents at beginning of period
|
|
888
|
|
939
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
$
|
793
|
$
|
833
|
The
accompanying notes are an integral part of these consolidated financial
statements.
|
Page
|
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7
|
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7
|
|
9
|
|
9
|
|
9
|
|
10
|
|
10
|
|
11
|
|
13
|
|
13
|
|
14
|
|
15
|
|
16
|
|
16
|
|
16
|
|
18
|
|
19
|
NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
The
accompanying unaudited consolidated financial statements have been prepared by
Eastman Chemical Company (the "Company" or "Eastman") in accordance and
consistent with the accounting policies stated in the Company's 2007 Annual
Report on Form 10-K, except as described below with respect to the adoption of
Statement of Financial Accounting Standards ("SFAS") No. 157, "Fair Value
Measurements," ("SFAS No. 157"), and should be read in conjunction with the
consolidated financial statements in Part II, Item 8 of the Company’s 2007
Annual Report on Form 10-K. The unaudited consolidated
financial statements are prepared in conformity with generally accepted
accounting principles ("GAAP") and, of necessity, include some amounts that are
based upon management estimates and judgments. Future actual results
could differ from such current estimates. The unaudited consolidated
financial statements include assets, liabilities, revenues and expenses of all
majority-owned subsidiaries and joint ventures. Eastman accounts for
other joint ventures and investments in minority-owned companies where it
exercises significant influence on the equity basis. Intercompany
transactions and balances are eliminated in consolidation.
The
Company adopted SFAS 157 as of January 1, 2008, with the exception of the
application of the statement to non-recurring nonfinancial assets and
nonfinancial liabilities, which has been deferred until January 1, 2009. The
standard establishes a valuation hierarchy for disclosure of the inputs to the
valuation used to measure fair value. This hierarchy prioritizes the inputs into
three broad levels. Level 1 inputs are quoted prices (unadjusted) in active
markets for identical assets or liabilities. Level 2 inputs are quoted prices
for similar assets and liabilities in active markets or inputs that are
observable for the asset or liability, either directly or indirectly through
market corroboration, for substantially the full term of the financial
instrument. Level 3 inputs are unobservable inputs based on the Company's
assumptions used to measure assets and liabilities at fair value. A financial
asset or liability’s classification within the hierarchy is determined based on
the lowest level input that is significant to the fair value measurement.
The following chart shows the securities valued on a recurring
basis.
(Dollars
in millions)
|
|
Fair
Value Measurements at March 31, 2008
|
Description
|
|
March 31, 2008
|
|
Quoted Prices in
Active Markets for Identical Assets (Level 1)
|
|
Significant Other
Observable Inputs (Level 2)
|
|
Significant
Unobservable Inputs (Level 3)
|
Derivative
Assets
|
$
|
34
|
$
|
--
|
$
|
34
|
$
|
--
|
Derivative
Liabilities
|
|
(61)
|
|
--
|
|
(61)
|
|
--
|
|
$
|
(27)
|
$
|
--
|
$
|
(27)
|
$
|
--
|
|
|
|
|
|
|
|
|
|
The Company will be
required to measure the assets of its defined benefit pension and
post-retirement welfare plans pursuant to SFAS No. 157 at the next measurement
date, which will be December 31, 2008.
In first
quarter 2008, the Company sold its polyethylene terephthalate ("PET") polymers
and purified terephthalic acid ("PTA") production facilities in the Netherlands
and its PET production facility in the United Kingdom and related businesses for
approximately $340 million, subject to working capital adjustments and retained
approximately $10 million of working capital. The Company recognized
a gain of $18 million, net of tax, related to the sale of these businesses which
includes the recognition of deferred currency translation adjustments of
approximately $40 million, net of tax. In addition, the Company
indemnified the buyer against certain liabilities primarily related to taxes,
legal matters, environmental matters, and other representations and
warranties. As of December 31, 2007, the Company had definitive
agreements to sell assets and liabilities related to these businesses, resulting
in them being classified as assets held for sale at December 31,
2007. The Company also entered into contracts with the buyer for
transition services to supply raw materials for a period of less than one
year. During first quarter 2007, the Company recorded asset impairments and
restructuring charges of $21 million for its PET polymers manufacturing facility
in Spain, which it sold in second quarter 2007. Net proceeds from the sale
of the San Roque site were approximately $42 million. In addition,
the Company indemnified the buyer against certain liabilities primarily related
to taxes, legal matters, environmental matters, and other representations and
warranties.
NOTES TO THE UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
The
manufacturing facilities in the Netherlands, United Kingdom, and Spain, and
related businesses represent the Company's European PET business and qualify as
a component of an entity under SFAS 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," accordingly, their results are presented as
discontinued operations and are not included in the results from continuing
operations for all periods presented in the Company's unaudited consolidated
financial statements. In fourth quarter 2007, the Company sold its
PET polymers production facilities in Mexico and Argentina and the related
businesses. The results related to the Mexico and Argentina
facilities are not presented as discontinued operations due to continuing
involvement of the Company's Performance Polymers segment in the region
including contract polymer intermediates sales under a transition supply
agreement to the divested sites.
Operating
results of the discontinued operations which were formerly included in the
Performance Polymers segment are summarized below:
|
|
|
(Dollars
in millions)
|
|
2008
|
|
2007
|
|
|
|
|
|
Sales
|
$
|
169
|
$
|
158
|
Earnings
(loss) before income taxes
|
|
2
|
|
(2)
|
Loss
from discontinued operations, net of tax
|
|
--
|
|
(3)
|
Gain
(loss) on disposal, net of tax
|
|
18
|
|
(13)
|
Assets
and liabilities of the discontinued operations classified as held for sale as of
December 31, 2007 are summarized below:
|
|
December
31,
|
(Dollars
in millions)
|
|
2007
|
Current
assets
|
|
|
Trade
receivables
|
$
|
85
|
Inventories
|
|
49
|
Total
current assets held for sale
|
|
134
|
|
|
|
Non-current
assets
|
|
|
Properties
and equipment, net
|
|
236
|
Other
non-current assets
|
|
5
|
Total
non-current assets held for sale
|
|
241
|
|
|
|
Total
assets
|
$
|
375
|
|
|
|
Current
liabilities
|
|
|
Payables
and other current liabilities, net
|
$
|
37
|
Total
current liabilities held for sale
|
|
37
|
|
|
|
Total
liabilities
|
$
|
37
|
NOTES TO THE UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
|
March
31,
|
|
December
31,
|
(Dollars
in millions)
|
2008
|
|
2007
|
|
|
|
|
At
FIFO or average cost (approximates current cost)
|
|
|
|
Finished
goods
|
$
|
688
|
$
|
607
|
Work
in process
|
219
|
|
195
|
Raw
materials and supplies
|
279
|
|
247
|
Total
inventories
|
1,186
|
|
1,049
|
LIFO
Reserve
|
(516)
|
|
(510)
|
Total
inventories
|
$
|
670
|
$
|
539
|
Inventories
valued on the LIFO method were approximately 75% as of March 31, 2008 and 70% as
of December 31, 2007 of total inventories.
|
|
March
31,
|
|
|
(Dollars
in millions)
|
|
2008
|
|
2007
|
|
|
|
|
|
Trade
creditors
|
$
|
549
|
$
|
578
|
Accrued
payrolls, vacation, and variable-incentive compensation
|
|
82
|
|
138
|
Accrued
taxes
|
|
76
|
|
36
|
Post-employment
obligations
|
|
51
|
|
60
|
Interest
payable
|
|
23
|
|
31
|
Bank
overdrafts
|
|
58
|
|
6
|
Other
|
|
197
|
|
164
|
Total
payables and other current liabilities
|
$
|
1,036
|
$
|
1,013
|
The
current portion of post-employment obligations is an estimate of current year
payments in excess of plan assets.
|
First
Quarter
|
(Dollars
in millions)
|
2008
|
|
2007
|
|
Change
|
|
|
|
|
|
|
Provision
for income taxes
|
$
|
38
|
$
|
47
|
|
(19)
%
|
Effective
tax rate
|
|
25
%
|
|
34
%
|
|
|
The first
quarter 2008 effective tax rate reflects an $8 million benefit from the reversal
of a U.S. capital loss valuation allowance associated with the sale of
businesses and a $6 million benefit from the settlement of a non-U.S. income tax
audit. Excluding discrete items, the first quarter 2008 and 2007 effective tax
rates reflect the Company's expected full year tax rate on reported operating
earnings from continuing operations before income tax, of approximately 34
percent and 33 percent, respectively.
The
Company or one of its subsidiaries files tax returns in the U.S. federal
jurisdiction, and various states and foreign jurisdictions. With few exceptions,
the Company is no longer subject to U.S. federal, state and local, or non-U.S.
income tax examinations by tax authorities for years before 2002. It is
reasonably possible that within the next 12 months the Company will recognize
approximately $2 million of unrecognized tax benefits as a result of the
expiration of the relevant statute of limitations.
NOTES TO THE UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
|
|
March
31,
|
|
December
31,
|
(Dollars
in millions)
|
|
2008
|
|
2007
|
|
|
|
|
|
Borrowings
consisted of:
|
|
|
|
|
3
1/4% notes due 2008
|
$
|
72
|
$
|
72
|
7%
notes due 2012
|
|
153
|
|
148
|
6.30%
notes due 2018
|
|
195
|
|
188
|
7
1/4% debentures due 2024
|
|
497
|
|
497
|
7
5/8% debentures due 2024
|
|
200
|
|
200
|
7.60%
debentures due 2027
|
|
298
|
|
298
|
Credit
facility borrowings
|
|
198
|
|
188
|
Other
|
|
16
|
|
16
|
Total
borrowings
|
|
1,629
|
|
1,607
|
Borrowings
due within one year
|
|
(72)
|
|
(72)
|
Long-term
borrowings
|
$
|
1,557
|
$
|
1,535
|
At March
31, 2008, the Company has credit facilities with various U.S. and non-U.S. banks
totaling approximately $900 million. These credit facilities consist of a $700
million revolving credit facility (the "Credit Facility") and a 125 million euro
credit facility ("Euro Facility"). These credit facilities will expire in 2012
and 2013. Borrowings under these credit facilities are subject to
interest at varying spreads above quoted market rates. The Credit
Facility requires a facility fee on the total commitment that is based on
Eastman’s credit rating. In addition, these credit facilities contain
a number of customary covenants and events of default, including the maintenance
of certain financial ratios. The Company was in compliance with all
such covenants for all periods presented. At March 31, 2008, the
Company’s credit facility borrowings totaled $198 million at an effective
interest rate of 4.73 percent. At December 31, 2007, the Company's
credit facility borrowings were $188 million at an effective interest rate of
4.79 percent.
The
Credit Facility provides liquidity support for general corporate
purposes.
At March
31, 2008 and December 31, 2007, the Company had outstanding interest rate swaps
associated with the entire outstanding principle of the 7% notes due in 2012 and
$150 million of the outstanding principle of the 6.30% notes due in
2018. The average variable interest rate on the 7% notes was 5.14
percent and 7.12 percent for March 31, 2008 and December 31, 2007,
respectively. The average variable interest rate on the 6.30% notes
was 3.54 percent and 5.52 percent for March 31, 2008 and December 31, 2007,
respectively. See the table in Note 1 for the
fair value of the interest rate swaps.
In the
first quarter 2008, asset impairments and restructuring charges totaled $17
million primarily for severance and pension charges in the Performance
Chemicals and Intermediates ("PCI") segment resulting from the decision to close
a previously impaired site in the United Kingdom.
In the
first quarter 2007, asset impairments and restructuring charges of $5 million,
primarily related to the impairment and removal of assets from the fourth
quarter 2006 shut down of the cyclohexane dimethanol ("CHDM") manufacturing
facility, were offset by the reversal of the $5 million severance accrual
related to the shut down of the same manufacturing facility.
NOTES TO THE UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
Changes
in Reserves for Asset Impairments, Restructuring Charges, and Severance
Charges
The
following table summarizes the beginning reserves, charges to and changes in
estimates to the reserves as described above, and the cash and non-cash
reductions to the reserves attributable to asset impairments and the cash
payments for severance and site closure costs for the full year 2007 and the
first quarter 2008:
(Dollars
in millions)
|
|
Balance
at
January
1, 2007
|
|
Provision/
Adjustments
|
|
Non-cash
Reductions
|
|
Cash
Reductions
|
|
Balance
at
December
31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash
charges
|
$
|
--
|
$
|
122
|
$
|
(122)
|
$
|
--
|
$
|
--
|
Severance
costs
|
|
34
|
|
(9)
|
|
--
|
|
(18)
|
|
7
|
Site
closure and other restructuring costs
|
|
14
|
|
(1)
|
|
--
|
|
(2)
|
|
11
|
Total
|
$
|
48
|
$
|
112
|
$
|
(122)
|
$
|
(20)
|
$
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at
January
1, 2008
|
|
Provision/
Adjustments
|
|
Non-cash
Reductions
|
|
Cash
Reductions
|
|
Balance
at
March
31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash
charges
|
$
|
--
|
$
|
11
|
$
|
(11)
|
$
|
--
|
$
|
--
|
Severance
costs
|
|
7
|
|
5
|
|
--
|
|
(3)
|
|
9
|
Site
closure and other restructuring costs
|
|
11
|
|
1
|
|
--
|
|
(4)
|
|
8
|
Total
|
$
|
18
|
$
|
17
|
$
|
(11)
|
$
|
(7)
|
$
|
17
|
A
majority of the remaining severance and site closure costs is expected to be
applied to the reserves within one year.
DEFINED
BENFIT PENSION PLANS
Eastman
maintains defined benefit pension plans that provide eligible employees hired
prior to January 1, 2007, with retirement benefits. Costs recognized
for these benefits are recorded using estimated amounts, which may change as
actual costs derived for the year are determined.
Below is
a summary of the components of net periodic benefit cost recognized for
Eastman's significant defined benefit pension plans:
Summary
of Components of Net Periodic Benefit Costs
|
|
|
|
|
First
Quarter
|
(Dollars
in millions)
|
|
2008
|
|
2007
|
|
|
|
|
|
Service
cost
|
$
|
12
|
$
|
11
|
Interest
cost
|
|
21
|
|
21
|
Expected
return on assets
|
|
(26)
|
|
(25)
|
Curtailment
charge
|
|
9
|
|
--
|
Amortization
of:
|
|
|
|
|
Prior
service credit
|
|
(3)
|
|
(2)
|
Actuarial
loss
|
|
6
|
|
9
|
Net
periodic benefit cost
|
$
|
19
|
$
|
14
|
The
Company contributed $100 million to its U.S. defined benefit pension plan in
first quarter 2007.
The
curtailment charge is primarily related to the decision to close a previously
impaired site in the United Kingdom.
NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
POSTRETIREMENT
WELFARE PLANS
Eastman
provides a subsidy toward life insurance and health care and dental benefits for
eligible retirees hired prior to January 1, 2007, and a subsidy toward health
care benefits for retirees' eligible survivors. In general, Eastman
makes those benefits to retirees eligible under the Company's U.S.
plans. Similar benefits are also made available to retirees of
Holston Defense Corporation ("HDC"), a wholly-owned subsidiary of the Company
that, prior to January 1, 1999, operated a government-owned ammunitions
plant.
Employees
hired on or after January 1, 2007 will have access to post-retirement health
care benefits only, but Eastman will not provide a subsidy toward the premium
cost of post-retirement benefits for those employees.
In
general, Eastman makes those benefits available to retirees eligible under the
Company's U.S. defined benefit pension plans. A few of the Company's
non-U.S. operations have supplemental health benefit plans for certain retirees,
the cost of which is not significant to the Company. Costs recognized
for these benefits are recorded using estimated amounts, which may change as
actual costs derived for the year are determined. Below is a summary
of the components of net periodic benefit cost recognized for the Company’s U.S.
plans:
Summary
of Components of Net Periodic Benefit Costs
|
|
|
|
|
First
Quarter
|
(Dollars in
millions)
|
|
2008
|
|
2007
|
|
|
|
|
|
Service
cost
|
$
|
2
|
$
|
2
|
Interest
cost
|
|
11
|
|
11
|
Expected
return on assets
|
|
(1)
|
|
(1)
|
Amortization
of:
|
|
|
|
|
Prior
service credit
|
|
(6)
|
|
(6)
|
Actuarial
loss
|
|
2
|
|
3
|
Net
periodic benefit cost
|
$
|
8
|
$
|
9
|
NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
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". 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, results of
operations or cash flows. The Company’s reserve for environmental
contingencies was $42 million at March 31, 2008 and December 31, 2007,
representing the minimum or best estimate for remediation costs and the best
estimate accrued to date over the facilities' estimated useful lives for asset
retirement obligation costs. Estimated future environmental
expenditures for remediation costs range from the minimum or best estimate of
$13 million to the maximum of $17 million at March 31, 2008 and December 31,
2007.
Purchasing
Obligations and Lease Commitments
At March
31, 2008, the Company had various purchase obligations totaling approximately
$2.3 billion over a period of approximately 15 years for materials, supplies,
and energy incident to the ordinary conduct of business. The Company
also had various lease commitments for property and equipment under cancelable,
non-cancelable, and month-to-month operating leases totaling approximately $200
million over a period of several years. Of the total lease
commitments, approximately 10 percent relate to machinery and equipment,
including computer and communications equipment and production equipment;
approximately 60 percent relate to real property, including office space,
storage facilities and land; and approximately 30 percent relate to vehicles,
primarily railcars.
Accounts
Receivable Securitization Program
In 1999,
the Company entered into an agreement that allows the Company to sell certain
domestic accounts receivable under a planned continuous sale program to a third
party. The agreement permits the sale of undivided interests in
domestic trade accounts receivable. Receivables sold to the third
party totaled $200 million at March 31, 2008 and December 31,
2007. Undivided interests in designated receivable pools were sold to
the purchaser with recourse limited to the purchased interest in the receivable
pools. Average monthly proceeds from collections reinvested in the
continuous sale program were approximately $328 million and $293 million in the
first quarter 2008 and 2007, respectively.
Guarantees
Interpretation
No. 45, "Guarantor’s Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others" ("FIN 45"), clarifies
the requirements of SFAS No. 5, "Accounting for Contingencies," relating to
the guarantor’s accounting for, and disclosure of, the issuance of certain types
of guarantees. If certain operating leases are terminated by the
Company, it guarantees a portion of the residual value loss, if any, incurred by
the lessors in disposing of the related assets. Under these operating
leases, the residual value guarantees at March 31, 2008 totaled $152 million and
consisted primarily of leases for railcars, aircraft, and other
equipment. The Company believes, based on current facts and
circumstances, that a material payment pursuant to such guarantees is
remote. Leases with guarantee amounts totaling $2 million, $11
million, and $139 million will expire in 2008, 2011, and 2012,
respectively. The Company believes, based on current facts and
circumstances, that the likelihood of a material payment pursuant to such
guarantees is remote.
NOTES TO THE UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
Variable
Interest Entities
The
Company has evaluated its material contractual relationships and has concluded
that the entities involved in these relationships are not Variable Interest
Entities ("VIEs") or, in the case of Primester, a joint venture that
manufactures cellulose acetate at the Company's Kingsport, Tennessee plant, the
Company is not the primary beneficiary of the VIE. As such, in
accordance with Financial Accounting Standards Board,
("FASB") Interpretation Number 46, "Consolidation of Variable Interest
Entities" ("FIN
46R"), the Company is not required to consolidate these entities. In
addition, the Company has evaluated long-term purchase obligations with an
entity that may be a VIE at March 31, 2008. This potential VIE is a joint
venture from which the Company has purchased raw materials and utilities for
several years and purchases approximately $60 million of raw materials and
utilities on an annual basis. The Company has no equity interest in this entity
and has confirmed that one party to this joint venture does consolidate the
potential VIE. However, due to competitive and other reasons, the Company has
not been able to obtain the necessary financial information to determine whether
the entity is a VIE, and whether or not the Company is the primary
beneficiary.
Hedging
Programs
The
Company is exposed to market risk, such as changes in currency exchange rates,
raw material and energy costs and interest rates. The Company uses
various derivative financial instruments pursuant to the Company's hedging
policies to mitigate these market risk factors and their effect on the cash
flows of the underlying transactions. Designation is performed on a specific
exposure basis to support hedge accounting. The changes in fair value
of these hedging instruments are offset in part or in whole by corresponding
changes in the cash flows of the underlying exposures being
hedged. The Company does not hold or issue derivative financial
instruments for trading purposes. For further information, see Note 10 to the
consolidated financial statements in Part II, Item 8 of the Company's 2007
Annual Report on Form 10-K.
At March
31, 2008, net mark-to-market losses from raw material and energy, currency and
certain interest rate hedges that were included in accumulated other
comprehensive loss totaled approximately $29 million. If realized,
approximately $17 million in losses will be reclassified into earnings during
the next 12 months. The mark-to-market gains or losses on
non-qualifying, excluded and ineffective portions of hedges are immediately
recognized in cost of sales or other income and charges. Such amounts
did not have a material impact on earnings during the first quarter of
2008.
NOTES TO THE UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
A
reconciliation of the changes in stockholders’ equity for the first three months
2008 is provided below:
(Dollars
in millions)
|
Common
Stock at Par Value
$
|
Paid-in
Capital
$
|
Retained
Earnings
$
|
Accumulated
Other Comprehensive Income (Loss)
$
|
Treasury
Stock
at
Cost
$
|
Total
Stockholders' Equity
$
|
Balance
at December 31, 2007
|
1
|
573
|
2,349
|
(28)
|
(813)
|
2,082
|
|
|
|
|
|
|
|
Net
Earnings
|
--
|
--
|
133
|
--
|
--
|
133
|
Cash
Dividends Declared (1)
|
--
|
--
|
(34)
|
--
|
--
|
(34)
|
Other
Comprehensive Income
|
--
|
--
|
--
|
(54)
|
--
|
(54)
|
Stock
Based Compensation and Other Items (2)(3)
|
--
|
14
|
--
|
--
|
--
|
14
|
Stock
Repurchases
|
--
|
--
|
--
|
--
|
(245)
|
(245)
|
Balance
at March 31, 2008
|
1
|
587
|
2,448
|
(82)
|
(1,058)
|
1,896
|
(1)
|
Includes
dividends declared but unpaid.
|
(2) |
The
tax benefits relating to the difference between the amounts deductible for
federal income taxes over the amounts charged to income for book value
purposes have
been credited
to paid-in capital. |
(3)
|
Includes
the fair value of equity share-based awards recognized under SFAS No. 123
Revised December 2004 ("SFAS No. 123(R)"), "Share-Based
Payment".
|
ACCUMULATED
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX
(Dollars
in millions)
|
Cumulative
Translation Adjustment
$
|
Unfunded
Additional
Minimum
Pension Liability
$
|
Unrecognized
Loss and Prior Service
Cost
$
|
Unrealized
Gains (Losses) on Derivative Instruments
$
|
Unrealized
Gains/(Losses) on Investments
$
|
Accumulated
Other Comprehensive Income (Loss)
$
|
Pre-SFAS
No. 158 (1)
balance at December 31, 2006
|
121
|
(207)
|
--
|
(6)
|
(1)
|
(93)
|
Adjustments
to apply SFAS No. 158
|
--
|
207
|
(288)
|
--
|
--
|
(81)
|
Balance
at December 31, 2006
|
121
|
--
|
(288)
|
(6)
|
(1)
|
(174)
|
Period
change
|
36
|
--
|
106
|
3
|
1
|
146
|
Balance
at December 31, 2007
|
157
|
--
|
(182)
|
(3)
|
--
|
(28)
|
Period
change
|
(36)
|
--
|
8
|
(26)
|
--
|
(54)
|
Balance
at March 31, 2008
|
121
|
--
|
(174)
|
(29)
|
--
|
(82)
|
(1)
|
SFAS
No. 158, "Employers' Accounting for Defined Benefit Pension and
Other Postretirement Plans" ("SFAS No.
158")
|
Amounts
of other comprehensive income (loss) are presented net of applicable
taxes. The Company records deferred income taxes on the cumulative
translation adjustment related to branch operations and other entities included
in the Company's consolidated U.S. tax return. No deferred income
taxes are provided on the cumulative translation adjustment of subsidiaries
outside the United States, as such cumulative translation adjustment is
considered to be a component of permanently invested, unremitted earnings of
these foreign subsidiaries.
NOTES TO THE UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
|
First
Quarter
|
|
2008
|
|
2007
|
|
|
|
|
Shares
used for earnings per share calculation (in millions):
|
|
|
|
Basic
|
78.2
|
|
83.9
|
Diluted
|
79.2
|
|
85.0
|
In first quarter 2008 and 2007, common shares
underlying options to purchase 642,484 shares of common stock and 1,453,300
shares of common stock, respectively, were excluded from the computation of
diluted earnings per share, because the total market value of option exercises
for these awards was less than the total proceeds that would be received for
these awards. Additionally, the basic and diluted shares were reduced
in first quarter 2008 and 2007 as a result of the Company's share repurchase
programs. For first quarter 2008, a total of 3,814,578 shares were
repurchased under the current $700 million share repurchase
authorization. For first quarter 2007, a total of 560,100 shares
were repurchased under a prior $300 million share repurchase
authorization.
The
Company declared cash dividends of $0.44 per share in first quarter 2008
and 2007.
The
Company utilizes share-based awards under employee and non-employee director
compensation programs. These share-based awards may include
restricted and unrestricted stock grants, restricted stock units, stock options
and performance shares. In the first quarter 2008 and 2007,
approximately $8 million and $6 million, respectively, of compensation expense
before tax were recognized in selling, general and administrative expense in the
earnings statement for all share-based awards. The impact on first quarter 2008
and 2007 net earnings of $5 million and $4 million, respectively, is net of
deferred tax expense related to share-based award compensation for each
period.
In the
first quarter 2008, the Company granted 3,250 restricted stock units and 225,790
performance share awards. The restricted stock units were valued at
$64.76 per unit, the closing market price of the Company's stock on the grant
date. The performance shares were valued at $84.11 per share based upon the
grant date fair value. Both types of awards will be expensed over
their expected term of three years.
In the
first quarter 2007, the Company granted 28,000 shares of restricted stock,
66,200 stock options and 152,631 performance share awards. The
weighted-average price per share of restricted stock was $58.96 to be expensed
over three years. The stock options were valued at $10.27 per option
based upon the grant date fair value and expensed over an expected term of 4.5
years. The performance shares were valued at the market price of the
Company's common stock on March 31, 2007 of $63.33 per share with expense
recognized ratably over an expected term of three years.
Additional
information regarding share-based compensation plans and awards may be found in
Note 16 to the consolidated financial statements in Part II, Item 8 of the
Company's 2007 Annual Report on Form 10-K.
The
Company's products and operations are managed and reported in five reportable
operating segments, consisting of the Coatings, Adhesives, Specialty Polymers,
and Inks ("CASPI") segment, the Fibers segment, the PCI segment, the Performance
Polymers segment, and the Specialty Plastics ("SP") segment. For
additional information concerning the Company's segments' businesses and
products, refer to Note 23 to the consolidated financial statements in Part II,
Item 8 of the Company's 2007 Annual Report on Form 10-K.
NOTES TO THE UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
Research
and development and other expenses not identifiable to an operating segment are
not included in segment operating results for either of the periods presented
and are shown in the tables below as "other" operating losses.
|
|
First
Quarter
|
(Dollars
in millions)
|
|
2008
|
|
2007
|
Sales
by Segment
|
|
|
|
|
CASPI
|
$
|
389
|
$
|
345
|
Fibers
|
|
254
|
|
234
|
PCI
|
|
556
|
|
498
|
Performance
Polymers
|
|
304
|
|
348
|
SP
|
|
224
|
|
212
|
Total
Sales
|
$
|
1,727
|
$
|
1,637
|
|
|
First
Quarter
|
(Dollars
in millions)
|
|
2008
|
|
2007
|
Operating
Earnings (Loss)
|
|
|
|
|
CASPI
|
$
|
59
|
$
|
65
|
Fibers
|
|
68
|
|
59
|
PCI
(1)
|
|
44
|
|
54
|
Performance
Polymers (2)
|
|
(6)
|
|
(32)
|
SP
|
|
17
|
|
18
|
Total
Operating Earnings by Segment
|
|
182
|
|
164
|
Other
|
|
(14)
|
|
(10)
|
Total
Operating Earnings
|
$
|
168
|
$
|
154
|
(1)
|
PCI
includes $16 million in first quarter 2008 in asset impairments and
restructuring charges primarily related to severance and pension costs
from the decision to close a previously impaired site in the United
Kingdom and $1 million and $7 million in first quarter 2008 and first
quarter 2007, respectively, in accelerated depreciation costs related to
cracking units at the Company's Longview, Texas
facility.
|
(2)
|
Performance Polymers includes $1
million and $7 million in first quarter 2008 and first quarter 2007,
respectively, in accelerated depreciation costs related to assets in
Columbia, South Carolina and $1 million in first quarter 2008 in asset
impairments and restructuring charges, net related to restructuring at the
South Carolina facility using IntegRexTM
technology.
|
NOTES TO THE UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
|
|
March
31,
|
|
December
31,
|
(Dollars
in millions)
|
|
2008
|
|
2007
|
Assets
by Segment (1)
|
|
|
|
|
CASPI
|
$
|
1,184
|
$
|
1,114
|
Fibers
|
|
714
|
|
692
|
PCI
|
|
1,017
|
|
1,062
|
Performance
Polymers
|
|
741
|
|
727
|
SP
|
|
697
|
|
622
|
Total
Assets by Segment
|
|
4,353
|
|
4,217
|
Corporate
Assets
|
|
1,453
|
|
1,417
|
Total
Assets Before Assets Related to Discontinued Operations
|
|
5,806
|
|
5,634
|
Assets
Related to Discontinued Operations (2)
|
|
--
|
|
375
|
Total
Assets
|
$
|
5,806
|
$
|
6,009
|
(1)
|
Assets
managed by the Chief Operating Decision Maker include accounts receivable,
inventory, fixed assets, and
goodwill.
|
(2)
|
For
more information regarding assets related to discontinued operations, see
Note 2 to the Company's unaudited consolidated
financial statements.
|
General
From time
to time, the Company and its operations are parties to, or targets of, lawsuits,
claims, investigations and proceedings, including product liability, personal
injury, asbestos, patent and intellectual property, commercial, contract,
environmental, antitrust, health and safety, and employment matters, which are
being handled and defended in the ordinary course of business. While
the Company is unable to predict the outcome of these matters, it does not
believe, based upon currently available facts, that the ultimate resolution of
any such pending matters, including the asbestos litigation (described below),
will have a material adverse effect on its overall financial condition, results
of operations or cash flows. However, adverse developments could
negatively impact earnings or cash flows in a particular future
period.
Asbestos
Litigation
Over the
years, Eastman has been named as a defendant, along with numerous other
defendants, in lawsuits in various state courts in which plaintiffs have alleged
injury due to exposure to asbestos at Eastman’s manufacturing
sites. More recently, certain plaintiffs have claimed exposure to an
asbestos-containing plastic, which Eastman manufactured in limited amounts
between the mid-1960’s and the early 1970’s.
To date,
the Company has obtained dismissals or settlements of its asbestos-related
lawsuits with no material effect on its financial condition, results of
operations or cash flows, and over the past several years, has substantially
reduced its number of pending asbestos-related claims. The Company
has also obtained insurance coverage that applies to a portion of certain of the
Company’s defense costs and payments of settlements or judgments in connection
with asbestos-related lawsuits.
Based on
an ongoing evaluation, the Company believes that the resolution of its pending
asbestos claims will not have a material impact on the Company’s financial
condition, results of operations, or cash flows, although these matters could
result in the Company being subject to monetary damages, costs or expenses, and
charges against earnings in particular periods.
NOTES TO THE UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
Effective
for first quarter 2008, the Company adopted SFAS No. 157, except
as it applies to those nonfinancial assets and nonfinancial liabilities
addressed in FASB Staff Position FAS 157-2 ("FSP FAS
157-2"). The FASB issued FSP FAS 157-2 which delays the effective
date of SFAS No. 157 to fiscal years beginning after November 15, 2008
for all nonfinancial assets and nonfinancial liabilities, except those that are
recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually). The Company is currently evaluating the effect
FSP FAS 157-2 will have on its consolidated financial statements.
In December 2007, the FASB issued SFAS
No. 141 (revised 2007) "Business Combinations" ("SFAS No. 141R") which replaces
SFAS No. 141 "Business Combinations" ("SFAS No. 141"). SFAS No. 141R
retains the fundamental requirements of SFAS No. 141 that the acquisition method
of accounting be used for all business combinations. However, SFAS
No. 141R provides for the following changes from SFAS No. 141: an
acquirer will record 100% of assets and liabilities of acquired business,
including goodwill, at fair value, regardless of the level of interest acquired;
certain contingent assets and liabilities will be recognized at fair value at
the acquisition date; contingent consideration will be recognized at fair value
on the acquisition date with changes in fair value to be recognized in earnings
upon settlement; acquisition-related transaction and restructuring costs will be
expensed as incurred; reversals of valuation allowances related to acquired
deferred tax assets and changes to acquired income tax uncertainties will be
recognized in earnings; and when making adjustments to finalize preliminary
accounting, acquirers will revise any previously issued post-acquisition
financial information in future financial statements to reflect any adjustments
as if they occurred on the acquisition date. SFAS No. 141R applies
prospectively to business combinations for which the acquisition date is on or
after January 1, 2009. SFAS No. 141R will not have an impact on the
Company's consolidated financial statements when effective, but the nature and
magnitude of the specific effects will depend upon the nature, terms, and size
of the acquisitions consummated after the effective date.
In
December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in
Consolidated Financial Statements—an amendment of ARB No. 51" ("SFAS No. 160"),
which establishes accounting and reporting standards for the noncontrolling
interest in a subsidiary and for the deconsolidation of a
subsidiary. SFAS No. 160 provides that accounting and reporting for
minority interests be recharacterized as noncontrolling interests and
classified as a component of equity. This Statement also establishes
reporting requirements that provide sufficient disclosures that clearly identify
and distinguish between the interests of the parent and the interests of the
noncontrolling owners. SFAS No. 160 applies to all entities that
prepare consolidated financial statements but will affect only those entities
that have an outstanding noncontrolling interest in one or more subsidiaries or
that deconsolidate a subsidiary. This Statement is effective as of
the beginning of an entity’s first fiscal year beginning after December 15,
2008. The Company is currently evaluating the effect SFAS No. 160
will have on its consolidated financial position, liquidity, or results of
operations.
In March
2008, the FASB issued SFAS Statement No. 161 "Disclosures about Derivative
Instruments and Hedging Activities" ("SFAS No. 161"). The new standard is
intended to improve financial reporting about derivative instruments and hedging
activities by requiring enhanced disclosures to enable investors to better
understand their effects on an entity’s financial position, financial
performance, and cash flows. It is effective for financial statements issued for
fiscal years and interim periods beginning after November 15, 2008, with early
application encouraged. The new standard also improves transparency about the
location and amounts of derivative instruments in an entity’s financial
statements; how derivative instruments and related hedged items are accounted
for under SFAS No. 133 "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS No. 133"); and how derivative instruments and related hedged
items affect its financial position, financial performance, and cash flows. The
Company is currently evaluating the effect SFAS No. 161 will have on its
financial statement presentations.
ITEM
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
ITEM
|
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|
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|
|
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31
|
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|
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36
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37
|
|
|
This
Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with Eastman Chemical Company's (the
"Company" or "Eastman") audited consolidated financial statements,
including related notes, and Management’s Discussion and Analysis of Financial
Condition and Results of Operations contained in the Company's 2007 Annual
Report on Form 10-K, and the Company's unaudited consolidated financial
statements, including related notes, included elsewhere in this
report. All references to earnings per share contained in this report
are diluted earnings per share unless otherwise noted.
As
described below in "Strategic Actions and Related Presentation of Non-GAAP
Financial Measures", the Company sold its polyethylene terephthalate ("PET")
manufacturing facility in Spain in the second quarter 2007 and sold its PET
polymers and purified terephthalic acid ("PTA") manufacturing facilities in the
Netherlands and its PET manufacturing facility in the United Kingdom and the
related businesses in first quarter 2008. Because the Company has
exited the PET business in the European region, results from sales of PET
products manufactured at the Spain, the Netherlands, and the United Kingdom
sites, including impairments and restructuring charges of those operations, and
gains and losses from disposal of those assets and businesses, are presented as
discontinued operations for all periods presented and are therefore not included
in results from continuing operations under generally accepted accounting
principles ("GAAP"). For additional information, see Note 2, "Discontinued Operations ", to the Company's
unaudited consolidated financial statements in Part I, Item 1 of this
quarterly report on Form 10-Q. Also in 2007, the Company
sold its Mexico and Argentina PET manufacturing sites. Sales and
results from these sites are not presented as discontinued operations due to the
Performance Polymers segment's continuing involvement in the Latin American
region and polymer intermediates sales to the divested facilities.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
In
preparing the consolidated financial statements in conformity with GAAP in the
United States, the Company's management must make decisions which impact the
reported amounts and the related disclosures. Such decisions include
the selection of the appropriate accounting principles to be applied and
assumptions on which to base estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. On an ongoing basis, the Company
evaluates its estimates, including those related to impairment of assets,
environmental costs, U.S. pension and other post-employment benefits, litigation
and contingent liabilities, and income taxes. The Company bases its
estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or
conditions. The Company’s management believes the critical accounting
estimates listed and described in Part II, Item 7 of the Company's 2007 Annual
Report on Form 10-K are the most important to the fair presentation of the
Company’s financial condition and results. These estimates require
management’s most significant judgments in the preparation of the Company’s
consolidated financial statements.
During
2007 and 2008, the Company took strategic actions in its Performance Polymers
segment to address its underperforming PET manufacturing facilities outside the
United States. In second quarter 2007, the Company completed the sale of its PET
manufacturing facility in Spain and in first quarter 2008, the Company
completed the sale of its PET polymers and PTA manufacturing facilities in the
Netherlands and the PET manufacturing facility in the United Kingdom and related
businesses. Results from, charges related to, and gains and losses
from disposal of the Spain, the Netherlands, and the United Kingdom assets
and businesses are presented as discontinued operations. In
fourth quarter 2007, the Company completed the sale of its Mexico and Argentina
manufacturing facilities. As part of this divestiture, the Company entered
into transition agreements for polymer intermediates. In order to provide a
better understanding of the impact on Performance Polymers segment results of
the divested Latin American PET assets, this Management's Discussion and
Analysis includes certain financial measures with and without sales and
operating results in Latin America from PET manufacturing facilities and related
businesses in Mexico and Argentina and with and without contract polymer
intermediates sales.
In fourth
quarter 2006, the Company sold its polyethylene ("PE") and EpoleneTM polymer
businesses and related assets of the Performance Polymers and Coatings,
Adhesives, Specialty Polymers, and Inks ("CASPI") segments. As part
of the PE divestiture, the Company entered into a transition agreement for
contract ethylene sales, from which sales revenue and operating earnings
are included in the Performance Chemicals and Intermediates ("PCI") segment
results in 2007.
Also in
the fourth quarter 2006, the Company made strategic decisions relating to the
scheduled shutdown of cracking units in Longview, Texas and a planned shutdown
of higher cost PET assets in Columbia, South Carolina. Accelerated
depreciation costs resulting from these decisions were $2 million and $14
million in first quarter 2008 and first quarter 2007,
respectively. For more information on accelerated depreciation
costs, see "Gross Profit" in the "Results of Operations" section of this
Management's Discussion and Analysis.
This
Management's Discussion and Analysis includes the following non-GAAP financial
measures and accompanying reconciliations to the most directly comparable GAAP
financial measures:
·
|
Company
sales and segment sales and results from continuing operations excluding
sales revenue and results from continuing operations from sales in Latin
America of PET products manufactured at the divested Mexico and Argentina
PET manufacturing sites;
|
·
|
Company
and segment sales excluding contract ethylene sales under a transition
agreement related to the divestiture of the PE product
lines;
|
·
|
Company
and segment sales excluding contract polymer intermediates sales under a
transition supply agreement related to the divestiture of the PET
manufacturing facilities and related businesses in Mexico and
Argentina;
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
·
|
Company
and segment gross profit, operating earnings and net earnings excluding
accelerated depreciation costs and asset impairments and restructuring
charges; and
|
·
|
Company earnings
from continuing operations excluding net deferred tax benefits
related to the previous divestiture of
businesses.
|
Eastman's
management believes that contract ethylene sales under the transition agreement
related to the divestiture of the PE product lines and the contract polymer
intermediates sales under the transition supply agreement related to the
divestiture of the PET manufacturing facilities and related businesses in Mexico
and Argentina do not reflect the continuing and expected future business of
the PCI and Performance Polymers segments. In addition, for
evaluation and analysis of ongoing business results and of the impact on the
Company and segments of strategic decisions and actions to reduce costs and to
improve the profitability of the Company, management believes that Company and
segment earnings from continuing operations should be considered both with and
without accelerated depreciation costs, asset impairments and restructuring
charges, and deferred tax benefits related to the previous divestiture of
businesses, and that Company and segment sales and results from continuing
operations should be considered both with and without sales revenue and results
from continuing operations from sales in Latin America of PET products
manufactured at the divested Mexico and Argentina manufacturing
facilities. Management believes that investors can better evaluate
and analyze historical and future business trends if they also consider the
reported Company and segment results, respectively, without the identified
items. Management utilizes Company and segment results including and excluding
the identified items in the measures it uses to evaluate business performance
and in determining certain performance-based compensation. These measures,
excluding the identified items, are not recognized in accordance with GAAP and
should not be viewed as alternatives to the GAAP measures of
performance
The
Company generated sales revenue of $1.7 billion and $1.6 billion for the first
quarter 2008 and the first quarter 2007, respectively. Excluding the
results of contract ethylene sales, contract polymer intermediates sales,
and sales from divested PET facilities in Mexico and Argentina, sales revenue
increased by 9 percent. Operating earnings were $168 million in first
quarter 2008, a 9 percent increase compared with first quarter
2007. Excluding accelerated depreciation costs from both the first
quarter 2008 and 2007 and asset impairments and restructuring charges from first
quarter 2008, operating earnings were $187 million in first quarter 2008
compared with $168 million in first quarter 2007. The Company's broad
base of businesses continues to have strong results with significant improvement
in the Performance Polymers and Fibers segments.
As a
result of strategic decisions related to the Performance Polymers and PCI
segments, operating earnings in first quarter 2008 were negatively impacted by
$2 million of accelerated depreciation costs and $17 million in asset
impairments and restructuring charges. Operating earnings in first
quarter 2007 were negatively impacted by $14 million of accelerated depreciation
costs.
Despite
economic uncertainty, earnings from continuing operations increased by $22
million for first quarter 2008 as compared to first quarter
2007. Excluding accelerated depreciation costs, asset impairments and
restructuring charges, and net deferred tax benefits related to the previous
divestiture of businesses, earnings were $117 million and $102 million,
respectively.
The
Company used $53 million in cash in operating activities during first quarter
2008 compared to $66 million used in operating activities in the first quarter
2007. The difference was primarily due to a seasonal build up in
working capital. In first quarter 2007, the Company contributed $100
million to its U.S. defined benefit pension plan and does not plan to make any
contributions in 2008. In first quarter 2008, the Company received
proceeds from sales of assets and investments of $323 million and repurchased
shares totaling $245 million.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
In
addition to the completion of the sale of its PET polymers and PTA manufacturing
facilities in the Netherlands and the PET manufacturing facility in the United
Kingdom in first quarter 2008, Eastman continued to progress on its overall
growth objectives including the industrial gasification projects in the
U.S. Gulf Coast and actions to improve the performance of its Performance
Polymers segment including the transformation at the South Carolina
facility.
|
First
Quarter
|
|
Volume
Effect
|
|
Price
Effect
|
|
Product
Mix
Effect
|
|
Exchange
Rate
Effect
|
(Dollars
in millions)
|
2008
|
|
2007
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
$
|
1,727
|
$
|
1,637
|
|
6
%
|
|
(6)
%
|
|
10
%
|
|
1
%
|
|
1
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
from Mexico and Argentina PET manufacturing facilities (1)
|
|
--
|
|
125
|
|
|
|
|
|
|
|
|
|
|
Sales
- contract polymer intermediates sales (2)
|
|
56
|
|
--
|
|
|
|
|
|
|
|
|
|
|
Sales
- contract ethylene sales (3)
|
|
92
|
|
70
|
|
|
|
|
|
|
|
|
|
|
Sales
– excluding listed items
|
|
1,579
|
|
1,442
|
|
9
%
|
|
(2)
%
|
|
9
%
|
|
1
%
|
|
1
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Sales
revenue and operating results for 2007 include sales revenue from PET
manufacturing facilities and related businesses in Cosoleacaque, Mexico
and Zarate, Argentina divested in fourth quarter
2007.
|
(2)
|
Included
in first quarter 2008 sales revenue are contract polymer intermediates
sales under the transition supply agreement related to the divestiture of
the PET manufacturing facilities and related businesses in Mexico and
Argentina in fourth quarter 2007.
|
(3)
|
Included
in first quarter 2008 and 2007 sales revenue are contract ethylene sales
under the transition supply agreement related to the divestiture of the PE
businesses.
|
Sales
revenue in first quarter 2008 compared to the first quarter
2007 increased $90 million. Excluding revenue from the contract
ethylene and polymer intermediates sales and the sales from Mexico and Argentina
PET manufacturing facilities, sales revenues increased $137 million primarily
due to higher selling prices in all segments.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
|
First
Quarter
|
(Dollars
in millions)
|
2008
|
|
2007
|
|
Change
|
|
|
|
|
|
|
Gross
Profit
|
$
|
337
|
$
|
286
|
|
18
%
|
As
a percentage of sales
|
|
19.5
%
|
|
17.5
%
|
|
|
|
|
|
|
|
|
|
Accelerated
depreciation costs included in cost of goods sold
|
|
2
|
|
14
|
|
|
|
|
|
|
|
|
|
Gross
Profit excluding accelerated depreciation costs
|
|
339
|
|
300
|
|
13
%
|
As
a percentage of sales
|
|
19.6
%
|
|
18.3
%
|
|
|
Gross
profit and gross profit as a percentage of sales for first quarter 2008
increased compared to the first quarter 2007 due to improved performance in the
Performance Polymers and Fibers segments. In addition, first quarter
2008 and 2007 included accelerated depreciation costs of $2 million and $14
million, respectively, resulting from the previously reported shutdown of the
cracking units in Longview, Texas and of higher cost PET polymer assets in
Columbia, South Carolina. The Company's first quarter 2008 raw
material and energy costs increased by greater than $150 million compared with
first quarter 2007.
|
First
Quarter
|
(Dollars
in millions)
|
2008
|
|
2007
|
|
Change
|
|
|
|
|
|
|
Selling,
General and Administrative Expenses
|
$
|
110
|
$
|
98
|
|
12
%
|
Research
and Development Expenses
|
|
42
|
|
34
|
|
24
%
|
|
$
|
152
|
$
|
132
|
|
15
%
|
As
a percentage of sales
|
|
8.8
%
|
|
8.1
%
|
|
|
Selling,
general and administrative expenses for first quarter 2008 increased compared to
first quarter 2007 primarily due to higher compensation expense in first quarter
2008 and unusually low bad debt expense in first quarter 2007.
Research
and development ("R&D") expenses increased $8 million in first quarter 2008
compared to first quarter 2007 primarily due to higher expenses related to the
industrial gasification projects.
Asset
Impairments and Restructuring Charges, Net
In the
first quarter 2008, asset impairments and restructuring charges totaled $17
million, primarily for severance and pension charges in the PCI segment
resulting from the decision to close a previously impaired site in the United
Kingdom.
Operating
Earnings
|
|
|
|
|
|
|
First
Quarter
|
|
|
(Dollars
in millions)
|
|
2008
|
|
2007
|
|
Change
|
|
|
|
|
|
|
|
Operating
earnings
|
$
|
168
|
$
|
154
|
|
9
%
|
Accelerated
depreciation costs included in cost of goods sold
|
|
2
|
|
14
|
|
|
Asset
impairments and restructuring charges, net
|
|
17
|
|
--
|
|
|
Operating
earnings excluding accelerated depreciation costs and asset impairments
and restructuring charges, net
|
$
|
187
|
$
|
168
|
|
11
%
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
Interest
Expense, Net
|
First
Quarter
|
(Dollars
in millions)
|
2008
|
|
2007
|
|
Change
|
|
|
|
|
|
|
Gross
interest costs
|
$
|
26
|
$
|
28
|
|
|
Less: Capitalized
interest
|
|
1
|
|
1
|
|
|
Interest
expense
|
|
25
|
|
27
|
|
(7)
%
|
Interest
income
|
|
9
|
|
10
|
|
|
Interest
expense, net
|
$
|
16
|
$
|
17
|
|
(6)
%
|
|
|
|
|
|
|
Gross
interest costs for the first quarter 2008 were lower compared to the first
quarter 2007 due to lower average interest rates.
For 2008,
the Company expects net interest expense to increase compared with 2007
primarily due to lower interest income, driven by declining interest rates and
lower average invested cash balances.
Other
(Income) Charges, Net
|
First
Quarter
|
(Dollars
in millions)
|
2008
|
|
2007
|
|
|
|
|
Other
income
|
$
|
(9)
|
$
|
(6)
|
Other
charges
|
8
|
|
3
|
Other
(income) charges, net
|
$
|
(1)
|
$
|
(3)
|
Included
in other income are gains from the sale of non-operating assets, net gains on
foreign exchange transactions, other non-operating income related to Holston
Defense Corporation, and the Company's portion of net earnings from its equity
investments. Included in other charges are net losses on foreign
exchange transactions, the Company's portion of losses from its equity
investments, and fees on securitized receivables.
Provision
for Income Taxes
|
First
Quarter
|
(Dollars
in millions)
|
|
2008
|
|
2007
|
|
Change
|
|
|
|
|
|
|
|
Provision
for income taxes
|
$
|
38
|
$
|
47
|
|
(19)
%
|
Effective
tax rate
|
|
25
%
|
|
34
%
|
|
|
The first
quarter 2008 effective tax rate reflects an $8 million benefit from the reversal
of a U.S. capital loss valuation allowance and a $3 million benefit from the
settlement of a non-U.S. income tax audit from previously divested businesses
and a $3 million benefit from the settlement of a non-U.S. income tax
audit. Excluding discrete items, the first quarter 2008 and 2007
effective tax rates reflect the Company's expected full year tax rate on
reported operating earnings from continuing operations before income tax of
approximately 34 percent and 33 percent, respectively.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
Earnings
from Continuing Operations
|
|
|
|
|
|
|
First
Quarter
|
|
|
(Dollars
in millions)
|
|
2008
|
|
2007
|
|
Change
|
|
|
|
|
|
|
|
Earnings
from continuing operations
|
$
|
115
|
$
|
93
|
|
24
%
|
Accelerated
depreciation costs included in cost of goods sold, net of
tax
|
|
1
|
|
9
|
|
|
Asset
impairments and restructuring charges, net of tax
|
|
12
|
|
--
|
|
|
Net
deferred tax benefits related to the previous divestiture
of businesses
|
|
(11)
|
|
--
|
|
|
Earnings
from continuing operations excluding accelerated depreciation costs and
asset impairments and restructuring charges, net of tax
|
$
|
117
|
$
|
102
|
|
16
%
|
Net
Earnings
|
|
|
|
|
|
|
First
Quarter
|
|
|
(Dollars
in millions)
|
|
2008
|
|
2007
|
|
Change
|
|
|
|
|
|
|
|
Earnings
from continuing operations
|
$
|
115
|
$
|
93
|
|
24
%
|
Loss
from discontinued operations, net of tax
|
|
--
|
|
(3)
|
|
|
Gain
(loss) from disposal of discontinued operations
|
|
18
|
|
(13)
|
|
|
Net
earnings
|
$
|
133
|
$
|
77
|
|
73
%
|
The gain
on disposal of discontinued operations, net of tax of $18 million for first
quarter 2008 is from the sale of the Company's PET polymers and PTA production
facilities in the Netherlands and its PET production facility in the United
Kingdom and related businesses for approximately $340 million in first quarter
2008. The loss on disposal of discontinued operations, net of tax of
$13 million for first quarter 2007 is from the sale of the Company's PET
polymers manufacturing facility in Spain for approximately $42 million in second
quarter 2007. For additional information, see Note
2, "Discontinued Operations", to the Company's unaudited
consolidated financial statements.
R&D
and other expenses not identifiable to an operating segment are not included in
segment operating results for either of the periods presented and are shown in
Note 15, "Segment Information", as "other" operating
losses in this Form 10-Q.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
CASPI
Segment
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
|
|
|
|
|
$
|
|
%
|
(Dollars
in millions)
|
|
2008
|
|
2007
|
|
Change
|
|
Change
|
|
|
|
|
|
|
|
|
|
Sales
|
$
|
389
|
$
|
345
|
$
|
44
|
|
13
%
|
Volume
effect
|
|
|
|
|
|
6
|
|
2
%
|
Price
effect
|
|
|
|
|
|
25
|
|
7
%
|
Product
mix effect
|
|
|
|
|
|
5
|
|
2
%
|
Exchange
rate effect
|
|
|
|
|
|
8
|
|
2
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
earnings
|
|
59
|
|
65
|
|
(6)
|
|
(9)
%
|
|
|
|
|
|
|
|
|
|
Sales
revenue increased $44 million in first quarter 2008 compared to first quarter
2007 due to higher selling prices in response to higher raw material and energy
costs and the favorable euro versus the U.S. dollar exchange
rate. Sales volume increased slightly as higher volume in Europe and
Asia more than offset lower volume in North America.
Operating
earnings decreased $6 million for first quarter 2008 compared to first quarter
2007 as higher raw material and energy costs were partially offset by
higher selling prices.
Fibers
Segment
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
|
|
|
|
|
$
|
|
%
|
(Dollars
in millions)
|
|
2008
|
|
2007
|
|
Change
|
|
Change
|
|
|
|
|
|
|
|
|
|
Sales
|
$
|
254
|
$
|
234
|
$
|
20
|
|
8
%
|
Volume
effect
|
|
|
|
|
|
11
|
|
5
%
|
Price
effect
|
|
|
|
|
|
12
|
|
5
%
|
Product
mix effect
|
|
|
|
|
|
(4)
|
|
(2)
%
|
Exchange
rate effect
|
|
|
|
|
|
1
|
|
--
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
earnings
|
|
68
|
|
59
|
|
9
|
|
15
%
|
|
|
|
|
|
|
|
|
|
Sales
revenue increased $20 million in first quarter 2008 compared to first quarter
2007 due to increased sales volume and higher selling prices. The increased
sales volume was attributed to customer buying patterns for acetate tow product
lines in the Asia Pacific region. The higher selling prices were in response to
higher raw material and energy costs, particularly for wood pulp and
methanol.
Operating
earnings increased $9 million for first quarter 2008 compared to first quarter
2007 primarily due to higher sales volume and selling prices.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
PCI
Segment
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
|
|
|
|
|
$
|
|
%
|
(Dollars
in millions)
|
|
2008
|
|
2007
|
|
Change
|
|
Change
|
|
|
|
|
|
|
|
|
|
Sales
|
$
|
556
|
$
|
498
|
$
|
58
|
|
12
%
|
Volume
effect
|
|
|
|
|
|
(44)
|
|
(9)
%
|
Price
effect
|
|
|
|
|
|
88
|
|
18
%
|
Product
mix effect
|
|
|
|
|
|
10
|
|
2
%
|
Exchange
rate effect
|
|
|
|
|
|
4
|
|
1
%
|
|
|
|
|
|
|
|
|
|
Sales
– contract ethylene sales
|
|
92
|
|
70
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
Sales
– continuing product lines
|
|
464
|
|
428
|
|
36
|
|
9
%
|
Volume
effect
|
|
|
|
|
|
(33)
|
|
(8)
%
|
Price
effect
|
|
|
|
|
|
59
|
|
14
%
|
Product
mix effect
|
|
|
|
|
|
6
|
|
2
%
|
Exchange
rate effect
|
|
|
|
|
|
4
|
|
1
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
earnings
|
|
44
|
|
54
|
|
(10)
|
|
(19)
%
|
|
|
|
|
|
|
|
|
|
Accelerated
depreciation costs included in cost of goods sold
|
|
1
|
|
7
|
|
(6)
|
|
|
|
|
|
|
|
|
|
|
|
Asset
impairments and restructuring charges, net
|
|
16
|
|
--
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
Operating
earnings excluding accelerated depreciation costs and asset impairments
and restructuring charges, net
|
|
61
|
|
61
|
|
--
|
|
--
%
|
Sales
revenue increased $58 million in first quarter 2008 compared to first quarter
2007. Excluding contract ethylene sales under the transition
agreement resulting from the divestiture of the Performance Polymers segment's
PE business in the fourth quarter 2006, sales revenue increased due to higher
selling prices in response to higher raw material and energy costs more than
offsetting lower sales volume. The lower sales volume was primarily due to lower
production volumes for bulk olefins product lines resulting from the previously
reported shutdown of a cracking unit in fourth quarter 2007. Contract
ethylene sales increased due to higher selling prices more than offsetting lower
sales volumes resulting from the shut down of one of the cracking
units.
Excluding
accelerated depreciation costs and asset impairments and restructuring charges,
net in first quarter 2008 and first quarter 2007, operating earnings were
constant, with contract ethylene sales having minimal impact. The
accelerated depreciation costs are related to the continuation of the previously
reported planned staged phase-out of older cracking units in 2007 at the
Company's Longview, Texas facility. Asset impairments and restructuring
charges consisted primarily of severance and pension costs from the decision to
close a previously impaired site in the United Kingdom.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
Performance
Polymers Segment
As a
result of the Company's strategic actions in the Performance Polymers segment,
the discussion below is of results from continuing operations in all
periods presented. For additional information, see Note 2, "Discontinued Operations", to the Company's unaudited
consolidated financial statements.
|
|
First
Quarter
|
(Dollars
in millions)
|
2008
|
|
2007
|
|
$
Change
|
|
%
Change
|
|
|
|
|
|
|
|
|
Sales
|
$
|
304
|
$
|
348
|
$
|
(44)
|
|
(13)
%
|
Volume
effect
|
|
|
|
|
|
(76)
|
|
(22)
%
|
Price
effect
|
|
|
|
|
|
33
|
|
9
%
|
Product
mix effect
|
|
|
|
|
|
(1)
|
|
--
%
|
Exchange
rate effect
|
|
|
|
|
|
--
|
|
--
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
from Mexico and Argentina PET manufacturing facilities (1)
|
--
|
|
125
|
|
(125)
|
|
|
Sales
– contract polymer intermediates sales (2)
|
56
|
|
--
|
|
56
|
|
|
|
|
|
|
|
|
|
|
Sales
– U.S. PET manufacturing facilities
|
248
|
|
223
|
|
25
|
|
11
%
|
Volume
effect
|
|
|
|
|
(7)
|
|
(3)
%
|
Price
effect
|
|
|
|
|
33
|
|
14
%
|
Product
mix effect
|
|
|
|
|
(1)
|
|
--
%
|
Exchange
rate effect
|
|
|
|
|
--
|
|
--
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
loss (3)
|
(6)
|
|
(32)
|
|
26
|
|
81
%
|
Operating
loss – from sales from Mexico and Argentina PET manufacturing
facilities
(1)(4)
|
--
|
|
--
|
|
--
|
|
--
%
|
Operating
loss – U.S. PET manufacturing facilities (3)(4)
|
(6)
|
|
(32)
|
|
26
|
|
81
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
loss excluding items (3)(5)
|
(4)
|
|
(25)
|
|
21
|
|
84
%
|
Operating
loss excluding items – from sales from Mexico and Argentina PET
manufacturing facilities
(1)(4)
|
--
|
|
--
|
|
--
|
|
--
%
|
Operating
loss excluding items – U.S. PET manufacturing facilities (3)(4)(5)
|
(4)
|
|
(25)
|
|
21
|
|
84
%
|
|
|
|
|
|
|
|
|
(1)
|
Sales
revenue and operating results for 2007 includes sales revenue from PET
manufacturing facilities and related businesses in Cosoleacaque, Mexico
and Zarate, Argentina divested in fourth quarter
2007.
|
(2)
|
Sales
revenue for 2008 includes contract polymer intermediates sales under the
transition supply agreement related to the divestiture of the PET
manufacturing facilities and related businesses in Mexico and Argentina in
fourth quarter 2007.
|
(3)
|
Includes
allocated costs not included in discontinued operations, some of which may
remain and could be reallocated to the remainder of the segment and other
segments.
|
(4)
|
Includes
allocated costs consistent with the Company’s historical practices, some
of which may remain and could be reallocated to the remainder of the
segment and other segments.
|
(5)
|
Items
are accelerated depreciation costs and asset impairments and restructuring
charges, net. Accelerated depreciation costs of $1 million in
first quarter 2008 and $7 million in first quarter 2007 resulted from
restructuring actions associated with higher cost PET polymer assets in
Columbia, South Carolina. Asset impairments and restructuring
charges of $1 million in first quarter 2008 related to restructuring at
the South Carolina facility using IntegRexTM
technology.
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
Sales
revenue decreased $44 million in first quarter 2008 compared to first quarter
2007 due to the divestiture of PET manufacturing facilities and related
businesses in Cosoleacaque, Mexico and Zarate, Argentina. For U.S.
PET manufacturing facilities excluding contract polymer intermediates sales to
the buyer of the divested Mexico and Argentina facilities and sales from the
divested PET facilities in Mexico and Argentina, sales revenue increased $25
million due to higher selling prices attributed to higher raw material and
energy costs and transition issues in first quarter 2007 from the Company's
ParaStarTM
PET facility based on IntegRexTM
technology. Selling prices were partially offset by decreased
sales volume resulting from actions associated with the transformation of the
PET business.
Excluding
accelerated depreciation costs and asset impairments and restructuring charges,
net operating results increased $21 million for first quarter 2008 compared to
first quarter 2007 due primarily to improved operation of the South
Carolina PET facility based on IntegRex™ technology. The results in first
quarter 2007 were impacted by costs associated with the new PET facility based
on IntegRexTM
technology becoming fully operational and the timing of the commercial
launch of ParaStarTM
PET. Contract polymer intermediates sales had minimal impact
on earnings.
Production
began in November 2006 at the Company's new PET manufacturing facility utilizing
IntegRexTM technology in Columbia,
South Carolina. Manufacturing ParaStarTM PET
resins, the 350,000 metric tons facility was fully operational in first quarter
of 2007. The Company plans to debottleneck this facility beginning in
the second half of 2008 to increase capacity to over 525,000 metric tons of
ParaStarTM PET
resins and to reduce annual costs at this facility by $30 million by the middle
of 2008.
SP
Segment
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
|
|
|
|
|
|
$
|
|
%
|
(Dollars
in millions)
|
|
2008
|
|
2007
|
|
Change
|
|
Change
|
|
|
|
|
|
|
|
|
|
Sales
|
$
|
224
|
$
|
212
|
$
|
12
|
|
6
%
|
Volume
effect
|
|
|
|
|
|
2
|
|
1
%
|
Price
effect
|
|
|
|
|
|
2
|
|
1
%
|
Product
mix effect
|
|
|
|
|
|
3
|
|
1
%
|
Exchange
rate effect
|
|
|
|
|
|
5
|
|
3
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
earnings
|
|
17
|
|
18
|
|
(1)
|
|
(6)
%
|
|
|
|
|
|
|
|
|
|
Sales
revenue increased $12 million in first quarter 2008 compared to first quarter
2007 primarily due to favorable foreign exchange rates. Sales
volume increased slightly as increased volume for copolyester products primarily
in packaging, durable and consumer goods markets was mostly offset by lower
volumes in polyester products used for photographic and optical films due to
customer buying patterns, which were unusually high in first quarter
2007.
Operating
earnings decreased $1 million for first quarter 2008 compared to first quarter
2007 due to higher raw material and energy costs which were mostly offset by
favorable foreign currency exchange rates.
The SP
segment is progressing with the commercialization of its new copolyester,
Eastman TritanTM
copolyester including a new 30,000 metric ton TritanTM manufacturing
facility expected to be online in late 2009 or early 2010.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
Sales
Revenue
|
First
Quarter
|
|
|
|
|
|
|
|
|
(Dollars
in millions)
|
|
2008
|
|
2007
|
|
Change
|
|
Volume
Effect
|
|
Price
Effect
|
|
Product
Mix
Effect
|
|
Exchange
Rate
Effect
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States and Canada
|
$
|
1,056
|
$
|
967
|
|
9
%
|
|
(5)
%
|
|
14
%
|
|
--
%
|
|
--
%
|
Europe,
Middle East, and Africa
|
|
254
|
|
218
|
|
17
%
|
|
8
%
|
|
1
%
|
|
1
%
|
|
7
%
|
Asia
Pacific
|
|
275
|
|
253
|
|
9
%
|
|
--
%
|
|
5
%
|
|
2
%
|
|
2
%
|
Latin
America
|
|
142
|
|
199
|
|
(29)
%
|
|
(34)
%
|
|
3
%
|
|
2
%
|
|
--
%
|
|
$
|
1,727
|
$
|
1,637
|
|
6
%
|
|
(6)
%
|
|
10
%
|
|
1
%
|
|
1
%
|
Sales
revenue in the United States and Canada increased primarily due to higher
selling prices particularly in the PCI segment partially offset by lower sales
volumes for contract ethylene sales in the PCI segment. Excluding contract
ethylene sales, sales revenue increased 7 percent primarily due to higher
selling prices in the Performance Polymers, PCI, and CASPI
segments.
Sales
revenue in Europe, Middle East and Africa increased for first quarter 2008
compared to first quarter 2007, primarily due to higher sales volume and a
favorable foreign exchange rate in all segments excluding the Performance
Polymers segment.
Sales
revenue in Asia Pacific increased for first quarter 2008 compared to first
quarter 2007 primarily due to higher selling prices in all
segments. Higher sales volume in the Fibers, SP, and CASPI segments
were offset by lower sales volume in the PCI and Performance Polymers
segments.
Sales
revenue in Latin America decreased for first quarter 2008 compared to first
quarter 2007 primarily due to lower sales volume due to divesting PET
manufacturing facilities and related businesses in Cosoleacaque, Mexico and
Zarate, Argentina in fourth quarter 2007. Excluding divested product lines and
contract polymer intermediates sales to the divested facilities, sales revenue
increased 17 percent.
With a
substantial portion of sales to customers outside the United States, Eastman is
subject to the risks associated with operating in international
markets. To mitigate its exchange rate risks, the Company frequently
seeks to negotiate payment terms in U.S. dollars. In addition, where
it deems such actions advisable, the Company engages in foreign currency hedging
transactions and requires letters of credit and prepayment for shipments where
its assessment of individual customer and country risks indicates their use is
appropriate. For additional information, see Note 10 to the
consolidated financial statements in Part II, Item 8 and Part II, Item 7A of the
Company’s 2007 Annual Report on Form 10-K and Forward-Looking Statements and
Risk Factors of this Quarterly Report on Form 10-Q.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
Cash
Flows
|
|
First
Quarter
|
(Dollars
in millions)
|
|
2008
|
|
2007
|
|
|
|
|
|
Net
cash provided by (used in)
|
|
|
|
|
Operating
activities
|
$
|
(53)
|
$
|
(66)
|
Investing
activities
|
|
182
|
|
(91)
|
Financing
activities
|
|
(225)
|
|
51
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
1
|
|
--
|
Net
change in cash and cash equivalents
|
|
(95)
|
|
(
106)
|
|
|
|
|
|
Cash
and cash equivalents at beginning of period
|
|
888
|
|
939
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
$
|
793
|
$
|
833
|
Cash used
in operating activities was $53 million during first quarter 2008 compared to
$66 million used in operating activities in first quarter 2007. The
cash used in first quarter 2008 was primarily due to a seasonal build up in
working capital and an increase in inventory in preparation for a planned
maintenance shutdown in second quarter 2008. In first quarter 2007,
the Company contributed $100 million to its U.S. defined benefit pension plan
and does not plan to make contributions to the pension plan in
2008.
Cash
provided by investing activities was $182 million in first quarter 2008
compared to $91 million used in first quarter 2007. Proceeds of $323
million were received in first quarter 2008 primarily related to the sale of the
Company's PET polymers and PTA manufacturing facilities in the Netherlands and
the PET manufacturing facility in the United Kingdom. Capital
spending of $132 million increased consistent with the Company's higher
expected capital spending in 2008.
Cash used
in financing activities totaled $225 million in first quarter 2008 compared
to $51 million provided by financing activities in first quarter 2007 and
included cash paid for share repurchases totaling $245 million, an increase in
credit facility and other borrowings, including bank overdrafts, of $48 million,
partially offset by cash received from stock option exercises of $7
million.
The
payment of dividends is also reflected in financing activities in all
periods.
Liquidity
At March
31, 2008, the Company had credit facilities with various U.S. and foreign banks
totaling approximately $900 million. These credit facilities consist
of a $700 million revolving credit facility (the "Credit Facility") and a 125
million euro credit facility ("Euro Facility"). These credit facilities will
expire in 2012 and 2013. Borrowings under these credit facilities are
subject to interest at varying spreads above quoted market rates. The
Credit Facility requires a facility fee on the total commitment that is based on
Eastman’s credit rating. In addition, these credit facilities contain
a number of customary covenants and events of default, including the maintenance
of certain financial ratios. The Company was in compliance with all
such covenants for all periods presented. At March 31, 2008, the
Company’s credit facility borrowings totaled $198 million at an effective
interest rate of 4.73 percent. At December 31, 2007, the Company's
credit facility borrowings were $188 million at an effective interest rate of
4.79 percent.
The
Company plans to use part of the proceeds from the sale of its PET polymers and
PTA production facilities in the Netherlands and its PET production facility in
the United Kingdom and related businesses to reduce the balance outstanding on
its Euro Facility by approximately 65 million euro in the second
quarter.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
The
Credit Facility provides liquidity support for general corporate
purposes.
For more
information regarding interest rates, refer to Note 6,
"Borrowings", to the Company's unaudited consolidated financial
statements.
The
Company has $72 million of 3 1/4% notes maturing June 15, 2008, which is
reflected in borrowings due within one year in the unaudited Consolidated
Statements of Financial Position at March 31, 2008. The Company
expects to pay this debt from cash provided by
operating activities.
The
Company has effective shelf registration statements filed with the Securities
and Exchange Commission ("SEC") to issue a combined $1.1 billion of debt or
equity securities.
The
Company is repurchasing shares of the Company's outstanding stock at such times,
in such amounts, and on such terms, as determined to be in the best interests of
the Company. For additional information, see Treasury Stock
below.
The
Company contributed $100 million to its U.S. defined benefit pension plan in the
first quarter 2007 and expects no contributions to this plan during
2008.
Cash
flows from operations and the sources of capital described above are expected to
be available and sufficient to meet foreseeable cash flow
requirements. However, the Company’s cash flows from operations can
be affected by numerous factors including risks associated with global
operations, raw material availability and cost, demand for and pricing of
Eastman’s products, capacity utilization, and other factors described under
"Forward-Looking Statements and Risk Factors" below. The Company
believes maintaining a financial profile consistent with an investment grade
company is important to its long term strategic and financial
flexibility.
Capital
Expenditures
Capital
expenditures were $132 million and $86 million for the first quarter 2008 and
2007, respectively. The Company expects capital spending in 2008 will
be above $600 million, with the increase over 2007 primarily due to completing
the acetate tow capacity expansion in Workington, England, debottlenecking the
South Carolina PET manufacturing facility utilizing IntegRexTM
technology, completing front-end engineering and design for the industrial
gasification projects, increasing capacity of cellulose triacetate ("CTA") for
liquid crystal display ("LCD") screens, and increasing manufacturing capacity
for Eastman TritanTM
copolyester .
Other
Commitments
At March
31, 2008, the Company’s obligations related to notes and debentures totaled
approximately $1.4 billion to be paid over a period of up to 20
years. Other borrowings, related primarily to credit facility
borrowings, totaled approximately $200 million.
The
Company had various purchase obligations at March 31, 2008 totaling
approximately $2.3 billion over a period of approximately 15 years for
materials, supplies and energy incident to the ordinary conduct of business. For
information regarding the Company's lease commitments, refer to Note 10, "Commitments", to the Company's unaudited
consolidated financial statements.
In
addition, the Company had other liabilities at March 31, 2008 totaling
approximately $1.0 billion primarily related to pension, retiree medical, and
other post-employment obligations.
Off-Balance
Sheet and Other Financing Arrangements
If
certain operating leases are terminated by the Company, it guarantees a portion
of the residual value loss, if any, incurred by the lessors in disposing of the
related assets. For information on the Company's residual value
guarantees, refer to Note 10, "Commitments", to the
Company's unaudited consolidated financial statements.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
Eastman
entered into an agreement in 1999 that allows it to generate cash by reducing
its working capital through the sale of undivided interests in certain domestic
trade accounts receivable under a planned continuous sale program to a third
party. For information on the Company's accounts receivable
securitization program, refer to Note 10, "Commitments",
to the Company's unaudited consolidated financial statements.
The
Company did not have any other material relationships with unconsolidated
entities or financial partnerships, including special purpose entities, for the
purpose of facilitating off-balance sheet arrangements with contractually narrow
or limited purposes. Thus, Eastman is not materially exposed to any
financing, liquidity, market, or credit risk related to the above or any other
such relationships.
The
Company has evaluated its material contractual relationships and has concluded
that the entities involved in these relationships are not Variable Interest
Entities ("VIEs") or, in the case of Primester, a joint venture that
manufactures cellulose acetate at the Company's Kingsport, Tennessee plant, the
Company is not the primary beneficiary of the VIE. As such, in
accordance with Financial Accounting Standards Board,
("FASB") Interpretation Number 46, "Consolidation of Variable Interest
Entities" ("FIN
46R"), the Company is not required to consolidate these entities. In
addition, the Company has evaluated long-term purchase obligations with an
entity that may be a VIE at March 31, 2008. This potential VIE is a joint
venture from which the Company has purchased raw materials and utilities for
several years and purchases approximately $60 million of raw materials and
utilities on an annual basis. The Company has no equity interest in this entity
and has confirmed that one party to this joint venture does consolidate the
potential VIE. However, due to competitive and other reasons, the Company has
not been able to obtain the necessary financial information to determine whether
the entity is a VIE, and whether or not the Company is the primary
beneficiary.
The
Company has equity interests in two development stage joint ventures related to
the industrial gasification initiatives and accounts for these investments under
the equity method of accounting. As these joint ventures evolve and
enter into material contractual relationships with the Company, its co-investors
in the joint ventures, and third parties, the Company will evaluate whether the
joint ventures are VIEs and whether the Company is the primary
beneficiary.
Guarantees
and claims also arise during the ordinary course of business from relationships
with suppliers, customers, and non-consolidated affiliates when the Company
undertakes an obligation to guarantee the performance of others if specified
triggering events occur. Non-performance under a contract could
trigger an obligation of the Company. These potential claims include actions
based upon alleged exposures to products, intellectual property and
environmental matters, and other indemnifications. The ultimate
effect on future financial results is not subject to reasonable estimation
because considerable uncertainty exists as to the final outcome of these
claims. However, while the ultimate liabilities resulting from such
claims may be significant to results of operations in the period recognized,
management does not anticipate they will have a material adverse effect on the
Company's consolidated financial position or liquidity.
Treasury
Stock
In
February 2007, the Company's Board of Directors authorized the repurchase of up
to $300 million of the Company's outstanding common stock. In first
quarter 2007, the Company repurchased 560,100 shares for a total cost of $33
million. In September 2007, the Company completed the $300 million
authorization repurchasing a total of 4.6 million shares. In October
2007, the Board of Directors authorized an additional $700 million for the
repurchase of the Company's outstanding common shares at such times, in such
amounts, and on such terms, as determined to be in the best interests of the
Company. As of December 31, 2007, a total of 1.3 million shares had
been repurchased under this authorization for a total amount of $82
million. During first quarter 2008,
the Company repurchased an additional 3.8 million shares of common stock for a
cost of $245 million. Additional share repurchases are anticipated in
2008.
Dividends
The
Company declared cash dividends of $0.44 per share in the first quarter 2008 and
2007.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
Effective
for first quarter 2008, the Company adopted Statement of Financial
Accounting Standard ("SFAS") No. 157, "Fair Value Measurements", ("SFAS
No. 157"), except as it applies to those nonfinancial assets and nonfinancial
liabilities addressed in FASB Staff Position FAS 157-2 ("FSP FAS
157-2"). The FASB issued FSP FAS 157-2 which delays the effective
date of SFAS No. 157 to fiscal years beginning after November 15, 2008 for
all nonfinancial assets and nonfinancial liabilities, except those that are
recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually). The Company is currently evaluating the effect
FSP FAS 157-2 will have on its consolidated financial statements.
In December 2007, the FASB issued SFAS
No. 141 (revised 2007) "Business Combinations" ("SFAS No. 141R") which replaces
SFAS No. 141 "Business Combinations" ("SFAS No. 141"). SFAS No. 141R
retains the fundamental requirements of SFAS No. 141 that the acquisition method
of accounting be used for all business combinations. However, SFAS
No. 141R provides for the following changes from SFAS No. 141: an
acquirer will record 100% of assets and liabilities of acquired business,
including goodwill, at fair value, regardless of the level of interest acquired;
certain contingent assets and liabilities will be recognized at fair value at
the acquisition date; contingent consideration will be recognized at fair value
on the acquisition date with changes in fair value to be recognized in earnings
upon settlement; acquisition-related transaction and restructuring costs will be
expensed as incurred; reversals of valuation allowances related to acquired
deferred tax assets and changes to acquired income tax uncertainties will be
recognized in earnings; and when making adjustments to finalize preliminary
accounting, acquirers will revise any previously issued post-acquisition
financial information in future financial statements to reflect any adjustments
as if they occurred on the acquisition date. SFAS No. 141R applies
prospectively to business combinations for which the acquisition date is on or
after January 1, 2009. SFAS No. 141R will not have an impact on the
Company's consolidated financial statements when effective, but the nature and
magnitude of the specific effects will depend upon the nature, terms, and size
of the acquisitions consummated after the effective date.
In
December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in
Consolidated Financial Statements—an amendment of ARB No. 51" ("SFAS No. 160"),
which establishes accounting and reporting standards for the noncontrolling
interest in a subsidiary and for the deconsolidation of a
subsidiary. SFAS No. 160 provides that accounting and reporting for
minority interests be recharacterized as noncontrolling interests and
classified as a component of equity. This Statement also establishes
reporting requirements that provide sufficient disclosures that clearly identify
and distinguish between the interests of the parent and the interests of the
noncontrolling owners. SFAS No. 160 applies to all entities that
prepare consolidated financial statements but will affect only those entities
that have an outstanding noncontrolling interest in one or more subsidiaries or
that deconsolidate a subsidiary. This Statement is effective as of
the beginning of an entity’s first fiscal year beginning after December 15,
2008. The Company is currently evaluating the effect SFAS No. 160
will have on its consolidated financial position, liquidity, or results of
operations.
In March
2008, the FASB issued SFAS Statement No. 161 "Disclosures about Derivative
Instruments and Hedging Activities" ("SFAS No. 161"). The new standard is
intended to improve financial reporting about derivative instruments and hedging
activities by requiring enhanced disclosures to enable investors to better
understand their effects on an entity’s financial position, financial
performance, and cash flows. It is effective for financial statements issued for
fiscal years and interim periods beginning after November 15, 2008, with early
application encouraged. The new standard also improves transparency about the
location and amounts of derivative instruments in an entity’s financial
statements; how derivative instruments and related hedged items are accounted
for under SFAS No. 133 "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS No. 133"); and how derivative instruments and related hedged
items affect its financial position, financial performance, and cash flows. The
Company is currently evaluating the effect SFAS No. 161 will have on its
financial statement presentations.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
For 2008,
the Company expects:
·
|
to
maintain strong volumes due to continued substitution of Eastman products
for other materials, and new applications for existing
products despite uncertain prospects for the U.S. and global
economies;
|
·
|
the
volatility of raw material and energy costs to continue and that
the Company will continue to use pricing strategies and ongoing cost
control initiatives to offset the effects on gross
profit;
|
·
|
to
improve the profitability of its PET product lines in the Performance
Polymers segment, including completing the divestiture of its
underperforming PET manufacturing facilities outside the United States
(which was completed in first quarter 2008); debottlenecking the new South
Carolina PET facility utilizing IntegRexTM technology
beginning in the second half of 2008 for a total capacity of 525,000
metric tons of ParaStarTM
PET; shutting down another 300,000 metric tons of conventional PET
polymers capacity at the South Carolina manufacturing facility and
dimethyl terephthalate ("DMT") assets (which were completed in first
quarter 2008); eliminating approximately $30 million of annual costs at
the South Carolina site by the middle of 2008; and continuing to pursue
options to create additional value from its IntegRexTM technology,
primarily by actively pursing licensing
opportunities;
|
·
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to
improve SP segment results by completing the conversion of 50,000 metric
tons of PET capacity to copolyester by the middle of 2008 and continue
progress with the commercialization of its new copolyester, Eastman
TritanTM
copolyester including a new 30,000 metric ton TritanTM manufacturing
facility expected to be online in late 2009 or early
2010;
|
·
|
that
the staged phase-out of older cracking units in Longview, Texas and a
planned shut down of higher cost PET assets in Columbia, South Carolina
will result in accelerated depreciation costs of approximately $10
million;
|
·
|
ethylene
volumes to decline in the PCI segment due to the staged phase-out of older
cracking units at the Company's Longview, Texas
facility;
|
·
|
to
increase volumes in the Performance Polymers segment due to the transition
agreement pertaining to the PET manufacturing facilities and related
businesses in Cosoleacaque, Mexico and Zarate, Argentina divested in
fourth quarter 2007; the Company will supply polymer
intermediates to the buyer on a short-term
basis;
|
·
|
modest
sales volume growth for acetate tow in the Fibers segment, to complete the
expansion of its acetate tow plant in Workington, England, in the second
half of 2008, and to announce plans for new acetate tow capacity in
Asia;
|
·
|
the
PCI segment to have operating margins at the high end of the 5 to 10
percent range;
|
·
|
the
CASPI segment to maintain solid earnings at the low end of the 15 to
20 percent operating margin range, with continued weakness in the U.S.
housing and automotive sectors offset by strength in Europe
and Asia;
|
·
|
front-end
engineering and design for the industrial gasification
projects to be completed in the second half of 2008, and project
financing to be obtained by the end of the
year;
|
·
|
net
interest expense to increase compared with 2007 primarily due to lower
interest income, driven by declining interest rates and lower average
invested cash balances;
|
·
|
the
effective tax rate to be approximately 34
percent;
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
·
|
capital
spending will be above $600 million as it funds targeted growth efforts,
including the debottlenecking of the South Carolina manufacturing
facility utilizing IntegRexTM
technology, the completion of front-end engineering and design for the two
industrial gasification projects, increased capacity of CTA for LCD
screens, increased capacity for Eastman TritanTM
copolyester, and the completion of the acetate tow expansion in
Workington, England; and
|
·
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priorities
for uses of available cash to be to pay the quarterly cash dividend, fund
targeted growth initiatives, fund debt service commitments, and repurchase
shares.
|
As a
result of the expectations listed above and strategic and other actions taken in
recent years to improve profitability, the Company expects continued solid
results in all of the Company's segments and second quarter 2008 earnings per
share to be slightly above first quarter 2008 earnings per share, excluding
gains and charges in both periods related to strategic decisions.
In
addition to the above, the Company expects to improve earnings significantly
through strategic efforts in industrial gasification and growth initiatives in
existing businesses over the next five years, and expects:
·
|
the
industrial gasification projects in Texas and Louisiana to break
ground in early 2009, with the facilities online by 2011, and expects
these projects to contribute significantly to earnings in
2012;
|
·
|
the
SP segment further to improve earnings by completing the conversion of an
additional 50,000 metric tons of PET to be converted by 2010, increasing
sales revenue from cellulose esters used in LCD screens and continued
progress with the commercialization of its high performance
copolyesters;
|
·
|
to
pursue licensing opportunities for the PCI segment's acetyl and oxo
technologies and for the Performance Polymers segment's IntegRexTM technology;
|
·
|
to
pursue growth opportunities in Asia for acetate tow in the Fibers segment;
and
|
·
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to
complete an additional 30 percent expansion of its CASPI segment's
hydrogenated hydrocarbon resins manufacturing capacity in Middelburg, the
Netherlands in early 2009.
|
See
“Forward-Looking Statements and Risk Factors below.”
The
expectations under "Outlook" and certain other statements in this Quarterly
Report on Form 10-Q may be forward-looking in nature as defined in the Private
Securities Litigation Reform Act of 1995. These statements and other written and
oral forward-looking statements made by the Company from time to time may relate
to, among other things, such matters as planned and expected capacity increases
and utilization; anticipated capital spending; expected depreciation and
amortization; environmental matters; legal proceedings; exposure to, and effects
of hedging of, raw material and energy costs, foreign currencies and interest
rates; global and regional economic, political, and business conditions;
competition; growth opportunities; supply and demand, volume, price, cost,
margin, and sales; earnings, cash flow, dividends and other expected financial
results and conditions; expectations, strategies, and plans for individual
assets and products, businesses and segments as well as for the whole of Eastman
Chemical Company; cash requirements and uses of available cash; financing plans;
pension expenses and funding; credit ratings; anticipated restructuring,
divestiture, and consolidation activities; cost reduction and control efforts
and targets; integration of acquired businesses; strategic initiatives and
development, production, commercialization, and acceptance of new products,
services and technologies and related costs; asset, business and product
portfolio changes; and expected tax rates and net interest costs.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
These
plans and expectations are based upon certain underlying assumptions, including
those mentioned with the specific statements. Such assumptions are in
turn based upon internal estimates and analyses of current market conditions and
trends, management plans and strategies, economic conditions and other
factors. These plans and expectations and the assumptions underlying
them are necessarily subject to risks and uncertainties inherent in projecting
future conditions and results. Actual results could differ materially
from expectations expressed in the forward-looking statements if one or more of
the underlying assumptions and expectations proves to be inaccurate or is
unrealized. In addition to the factors described in this report, the
following are some of the important factors that could cause the Company's
actual results to differ materially from those in any such forward-looking
statements:
·
|
The
Company is reliant on certain strategic raw materials and energy
commodities for its operations and utilizes risk management tools,
including hedging, as appropriate, to mitigate short-term market
fluctuations in raw material and energy costs. There can be no
assurance, however, that such measures will result in cost savings or that
all market fluctuation exposure will be eliminated. In
addition, natural disasters, changes in laws or regulations, war or other
outbreak of hostilities or terrorism or other political factors in any of
the countries or regions in which the Company operates or does business or
in countries or regions that are key suppliers of strategic raw materials
and energy commodities, or breakdown or degradation of transportation
infrastructure used for delivery of strategic raw materials and energy
commodities, could affect availability and costs of raw materials and
energy commodities.
|
·
|
While
temporary shortages of raw materials and energy may occasionally occur,
these items have historically been sufficiently available to cover current
and projected requirements. However, their continuous
availability and price are impacted by natural disasters, plant
interruptions occurring during periods of high demand, domestic and world
market and political conditions, changes in government regulation, war or
other outbreak of hostilities or terrorism, and breakdown or degradation
of transportation infrastructure. Eastman’s operations or
products may, at times, be adversely affected by these
factors.
|
·
|
The
Company's competitive position in the markets in which it participates is,
in part, subject to external factors in addition to those that the Company
can impact. Natural disasters, pandemic illnesses, changes in
laws or regulations, war or other outbreak of hostilities or terrorism, or
other political factors in any of the countries or regions in which the
Company operates or does business or in countries or regions that are key
suppliers of strategic raw materials, and breakdown or degradation of
transportation infrastructure used for delivery of raw
materials and energy supplies to the Company and for delivery of the
Company's products to customers, could negatively impact the Company’s
competitive position and its ability to maintain market
share. For example, supply and demand for certain of the
Company's products is driven by end-use markets and worldwide capacities
which, in turn, impact demand for and pricing of the Company's
products.
|
·
|
Limitation
of the Company's available manufacturing capacity due to significant
disruption in its manufacturing operations, including natural disasters,
pandemic illnesses, changes in laws or regulations, war or other outbreak
of hostilities or terrorism, or other political factors in any of the
countries or regions in which the Company operates or does business, or
breakdown or degradation of transportation infrastructure used for
delivery of raw materials and energy supplies to the Company
and for delivery of the Company's products to customers, could have a
material adverse affect on sales revenue, costs and results of operations
and financial condition.
|
·
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The
Company has an extensive customer base; however, loss of, or material
financial weakness of, certain of the largest customers could adversely
affect the Company's financial condition and results of operations until
such business is replaced and no assurances can be made that the Company
would be able to regain or replace any lost
customers.
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
·
|
The
Company has efforts underway to exploit growth opportunities in certain
core businesses by developing new products and technologies, expanding
into new markets, and tailoring product offerings to customer
needs. Current examples include IntegRexTM
technology and new PET polymers products and copolyester product
innovations. There can be no assurance that such efforts will result in
financially successful commercialization of such products or acceptance by
existing or new customers or new markets or that large capital projects
for such growth efforts can be completed within the time or at the costs
projected due, among other things, to demand for and availability of
construction materials and labor.
|
·
|
The
Company has made, and intends to continue making, strategic investments,
including industrial gasification, and has entered, and expects to
continue to enter, into strategic alliances in technology, services
businesses, and other ventures in order to build, diversify, and
strengthen certain Eastman capabilities, improve Eastman's raw materials
and energy cost and supply position, and maintain high utilization of
manufacturing assets. There can be no assurance that such
investments and alliances will achieve their underlying strategic business
objectives or that they will be beneficial to the Company's results of
operations or that large capital projects for such growth efforts can be
completed within the time or at the costs projected due, among other
things, to demand for and availability of construction materials and labor
and obtaining regulatory approvals and operating permits and reaching
agreement on terms of key agreements and arrangements with potential
suppliers and customers. Such delays or cost overruns or inability to
obtain such approvals or to reach such agreements on acceptable terms
could negatively affect the returns from these strategic investments and
projects.
|
·
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The
Company anticipates obtaining non-recourse financing for the two
industrial gasification projects. There is risk that such financing cannot
be obtained or if, obtained, may be on terms different than those assumed
in the Company's projections for financial performance of the projects,
due to any circumstance, change, or condition in the loan syndication,
financial, or capital markets generally that could reasonably be expected
to materially affect availability, terms, and syndication of such
financing. The ability to enter into financially acceptable
project commercial agreements for such elements as engineering,
procurement, and construction, off-take agreements, commodity and/or
interest hedges, utilities, administrative services, and others, as well
as obtaining all necessary regulatory approvals and operating permits, may
impact the available financing for the projects or the terms of such
financing, if available, including the nature and terms of any recourse
back to the Company or other project equity
owners.
|
·
|
In
addition to productivity and cost reduction initiatives, the Company is
striving to improve margins on its products through price increases where
warranted and accepted by the market; however, the Company's earnings
could be negatively impacted should such increases be unrealized, not be
sufficient to cover increased raw material and energy costs, or have a
negative impact on demand and volume. There can be no
assurances that price increases will be realized or will be realized
within the Company's anticipated
timeframe.
|
·
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The
Company has undertaken and expects to continue to undertake productivity
and cost reduction initiatives and organizational restructurings to
improve performance and generate cost savings. There can be no
assurance that these will be completed as planned or beneficial or that
estimated cost savings from such activities will be
realized.
|
·
|
The
Company's facilities and businesses are subject to complex health, safety
and environmental laws and regulations, which require and will continue to
require significant expenditures to remain in compliance with such laws
and regulations currently and in the future. The Company's
accruals for such costs and associated liabilities are subject to changes
in estimates on which the accruals are based. The amount
accrued reflects the Company’s assumptions about remediation requirements
at the contaminated site, the nature of the remedy, the outcome of
discussions with regulatory agencies and other potentially responsible
parties at multi-party sites, and the number and financial viability of
other potentially responsible parties. Changes in the estimates
on which the accruals are based, unanticipated government enforcement
action, or changes in health, safety, environmental, chemical control
regulations, and testing requirements could result in higher or lower
costs.
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
·
|
The
Company and its operations from time to time are parties to or targets of
lawsuits, claims, investigations, and proceedings, including product
liability, personal injury, asbestos, patent and intellectual property,
commercial, contract, environmental, antitrust, health and safety, and
employment matters, which are handled and defended in the ordinary course
of business. The Company believes amounts reserved are adequate
for such pending matters; however, results of operations could be affected
by significant litigation adverse to the
Company.
|
·
|
The
Company has deferred tax assets related to capital and operating
losses. The Company establishes valuation allowances to reduce
these deferred tax assets to an amount that is more likely than not to be
realized. The Company’s ability to utilize these deferred tax
assets depends on projected future operating results, the reversal of
existing temporary differences, and the availability of tax planning
strategies. Realization of these assets is expected to occur
over an extended period of time. As a result, changes in tax laws,
assumptions with respect to future taxable income, and tax planning
strategies could result in adjustments to these
assets.
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·
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Due
to the Company's global sales, earnings, and asset profile, it is exposed
to volatility in foreign currency exchange rates and interest
rates. The Company may use derivative financial instruments,
including swaps, options and forwards, to mitigate the impact of changes
in exchange rates and interest rates on its financial
results. However, there can be no assurance that these efforts
will be successful and operating results could be affected by significant
adverse changes in currency exchange rates or interest
rates.
|
The
foregoing list of important factors does not include all such factors nor
necessarily present them in order of importance. This disclosure,
including that under "Outlook" and "Forward-Looking Statements and Risk
Factors," and other forward-looking statements and related disclosures made by
the Company in this Quarterly Report on Form 10-Q and elsewhere from time to
time, represents management's best judgment as of the date the information is
given. The Company does not undertake responsibility for updating any
of such information, whether as a result of new information, future events, or
otherwise, except as required by law. Investors are advised, however,
to consult any further public Company disclosures (such as in filings with the
Securities and Exchange Commission or in Company press releases) on related
subjects.
There are
no material changes to the Company's market risks since February 29,
2008. For more information regarding the Company's disclosure about
market risks, see Part II, Item 7A of the Company's 2007 Annual Report on Form
10-K.
Disclosure Controls and
Procedures
The
Company maintains a set of disclosure controls and procedures designed to ensure
that information required to be disclosed by the Company in reports that it
files or submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized, and reported within the time periods specified in
Securities and Exchange Commission rules and forms. Disclosure
controls and procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed by the Company in
the reports that it files or submits under the Securities and Exchange Act of
1934 is accumulated and communicated to the issuer's management, including its
principal executive and principal financial officers, or persons performing
similar functions, as appropriate to allow timely decisions regarding required
disclosure. An evaluation was carried out under the supervision and
with the participation of the Company's management, including the Chief
Executive Officer ("CEO") and Chief Financial Officer ("CFO"), of the
effectiveness of the Company’s disclosure controls and
procedures. Based on that evaluation, the CEO and CFO have concluded
that the Company's disclosure controls and procedures are effective as of March
31, 2008.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
Changes in Internal Control
Over Financial Reporting
There has
been no change in the Company’s internal control over financial reporting that
occurred during the first quarter of 2008 that has materially affected, or is
reasonably likely to materially affect, the Company’s internal control over
financial reporting.
PART
II. OTHER INFORMATION
General
From time
to time, the Company and its operations are parties to, or targets of, lawsuits,
claims, investigations and proceedings, including product liability, personal
injury, asbestos, patent and intellectual property, commercial, contract,
environmental, antitrust, health and safety, and employment matters, which are
being handled and defended in the ordinary course of business. While
the Company is unable to predict the outcome of these matters, it does not
believe, based upon currently available facts, that the ultimate resolution of
any such pending matters, including the asbestos litigation, will have a
material adverse effect on its overall financial condition, results of
operations or cash flows. However, adverse developments could
negatively impact earnings or cash flows in a particular future
period. For additional information about the asbestos litigation,
refer to Note 16, "Legal Matters", to the Company's
unaudited consolidated financial statements.
Middelburg
(Netherlands) Environmental Proceeding
In June
2005, Eastman Chemical Middelburg, B.V., a wholly owned subsidiary of the
Company (the "Subsidiary"), received a summons from the Middelburg (Netherlands)
District Court Office to appear before the economic magistrate of that District
and respond to allegations that the Subsidiary's manufacturing facility in
Middelburg had exceeded certain conditions in the permit that allows the
facility to discharge wastewater into the municipal wastewater treatment system.
The summons proposed penalties in excess of $100,000 as a result of the alleged
violations. A hearing in this matter took place on July 28, 2005, at which time
the magistrate bifurcated the proceeding into two phases: a compliance phase and
an economic benefit phase. With respect to the compliance phase, the magistrate
levied a fine of less than $100,000. With respect to the economic benefit phase,
where the prosecutor proposed a penalty in excess of $100,000, the district
court in November 2006 assessed against the Subsidiary a penalty of less than
$100,000. The prosecutor has appealed this ruling, and the appeal is
pending. This disclosure is made pursuant to SEC Regulation S-K, Item
103, Instruction 5.C., which requires disclosure of administrative proceedings
commenced under environmental laws that involve governmental authorities as
parties and potential monetary sanctions in excess of $100,000. The
Company believes that the ultimate resolution of this proceeding
will not have a material impact on the Company’s financial condition, results of
operations, or cash flows.
Jefferson
(Pennsylvania) Environmental Proceeding
In
December 2005, Eastman Chemical Resins, Inc., a wholly-owned subsidiary of the
Company (the "ECR Subsidiary"), received a Notice of Violation ("NOV") from the
United States Environmental Protection Agency's Region III Office ("EPA")
alleging that the ECR Subsidiary's West Elizabeth, Jefferson Borough, Allegheny
County, Pennsylvania manufacturing operation (the "Jefferson Facility") violated
certain federally enforceable local air quality regulations and certain
provisions in a number of air quality-related permits. The NOV did
not assess a civil penalty and EPA has to date not proposed any specific civil
penalty amount. In October 2006, EPA referred the matter to the
United States Department of Justice's Environmental Enforcement Section
("DOJ"). Company representatives met with EPA and DOJ in November
2006 and again in December 2007, and determined that it is not reasonably likely
that any civil penalty assessed by the EPA and DOJ will be less than $100,000.
While the Company intends to vigorously defend against these allegations, this
disclosure is made pursuant to SEC Regulation S-K, Item 103, Instruction 5.C.,
which requires disclosure of administrative proceedings commenced under
environmental laws that involve governmental authorities as parties and
potential monetary sanctions in excess of $100,000. The Company
believes that the ultimate resolution of this proceeding will not have a
material impact on the Company's financial condition, results of operations, or
cash flows.
For
identification and discussion of the most significant risks applicable to the
Company and its business, see Part I – Item 2 – Management's Discussion and
Analysis of Financial Condition and Results of Operations – Forward-Looking
Statements and Risk Factors of this Quarterly Report on Form 10-Q.
(c) Purchases
of Equity Securities by the Issuer
Period
|
Total
Number
of
Shares
Purchased
(1)
|
|
Average
Price Paid Per Share
(2)
|
|
Total
Number of Shares Purchased as Part of Publicly Announced
Plans
or
Programs
(3)
|
|
Approximate
Dollar
Value
(in millions) that May Yet Be Purchased Under the Plans or
Programs
(3)
|
January
1- 31, 2008
|
645,790
|
$
|
60.23
|
|
645,300
|
$
|
579
|
February
1-29, 2008
|
1,335,250
|
$
|
65.94
|
|
1,334,578
|
$
|
491
|
March
1-31, 2008
|
1,834,896
|
$
|
64.51
|
|
1,834,700
|
$
|
373
|
Total
|
3,815,936
|
$
|
64.29
|
|
3,814,578
|
|
|
(1)
|
Shares repurchased under a Company announced repurchase
plan and shares surrendered to the Company by employees to satisfy
individual tax withholding obligations upon vesting of previously issued
shares of restricted common stock.
|
(2)
|
Average
price paid per share reflects the weighted average purchase price paid for
share repurchases and the closing price of Eastman stock on the business
date the shares were surrendered by the employee stockholder to satisfy
individual tax withholding obligations upon vesting of restricted common
stock.
|
(3)
|
In
October 2007, the Board of Directors approved a new authorization for the
repurchase of up to $700 million of the Company's outstanding common stock
at such times, in such amounts, and on such terms, as determined to be in
the best interests of the Company. As of March 31, 2008, a
total of 5.1 million shares have been repurchased under this authorization
for a total amount of $327 million. For additional information, see
Note 12, "Stockholders' Equity", to the Company's
unaudited consolidated financial statements in Part I, Item 1 of this
Quarterly Report on Form 10-Q. Repurchased shares may be used for
compensation and benefit plans and other corporate
purposes.
|
Exhibits
filed as part of this report are listed in the Exhibit Index appearing on page
45.
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 thereunto
duly authorized.
|
|
|
Eastman
Chemical Company
|
|
|
|
|
|
|
|
|
|
|
|
|
Date: April
28, 2008
|
|
By:
|
/s/ Richard A. Lorraine |
|
|
|
Richard
A. Lorraine
|
|
|
|
Senior
Vice President and Chief Financial
Officer
|
|
|
EXHIBIT
INDEX
|
|
Sequential
|
Exhibit
|
|
|
|
Page
|
Number
|
|
Description
|
|
Number
|
|
|
|
|
|
3.01
|
|
Amended
and Restated Certificate of Incorporation of Eastman Chemical Company, as
amended (incorporated herein by reference to Exhibit 3.01 to Eastman
Chemical Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 2001)
|
|
|
|
|
|
|
|
3.02
|
|
Amended
and Restated Bylaws of Eastman Chemical Company, as
amended November 9, 2007 (incorporated herein by referenced to
Exhibit 3.02 to Eastman Chemical Company’s Quarterly Report on
Form 10-Q for the quarter ended September 30, 2007 (the September 30, 2007
10-Q)
|
|
|
|
|
|
|
|
4.01
|
|
Form
of Eastman Chemical Company common stock certificate as amended February
1, 2001 (incorporated herein by reference to Exhibit 4.01 to Eastman
Chemical Company’s Quarterly Report on Form 10-Q for the quarter ended
March 31, 2001)
|
|
|
|
|
|
|
|
4.02
|
|
Indenture,
dated as of January 10, 1994, between Eastman Chemical Company and The
Bank of New York, as Trustee (the "Indenture") (incorporated herein by
reference to Exhibit 4(a) to Eastman Chemical Company's Current Report on
Form 8-K dated January 10, 1994 (the "8-K"))
|
|
|
|
|
|
|
|
4.03
|
|
Form
of 7 1/4% Debentures due January 15, 2024 (incorporated herein by
reference to Exhibit 4(d) to the 8-K)
|
|
|
|
|
|
|
|
4.04
|
|
Officers’
Certificate pursuant to Sections 201 and 301 of the Indenture
(incorporated herein by reference to Exhibit 4(a) to Eastman Chemical
Company's Current Report on Form 8-K dated June 8, 1994 (the "June
8-K"))
|
|
|
|
|
|
|
|
4.05
|
|
Form
of 7 5/8% Debentures due June 15, 2024 (incorporated herein by reference
to Exhibit 4(b) to the June 8-K)
|
|
|
|
|
|
|
|
4.06
|
|
Form
of 7.60% Debentures due February 1, 2027 (incorporated herein by reference
to Exhibit 4.08 to Eastman Chemical Company's Annual Report on Form 10-K
for the year ended December 31, 1996 (the "1996 10-K"))
|
|
|
|
|
|
|
|
4.07
|
|
Form
of 7% Notes due April 15, 2012 (incorporated herein by reference to
Exhibit 4.09 to Eastman Chemical Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 2002)
|
|
|
|
|
|
|
|
4.08
|
|
Officer's
Certificate pursuant to Sections 201 and 301 of the Indenture related to
7.60% Debentures due February 1, 2027 (incorporated herein by reference to
Exhibit 4.09 to the 1996 10-K)
|
|
|
|
|
|
|
|
4.09
|
|
$200,000,000
Accounts Receivable Securitization agreement dated April 13, 1999 (amended
April 11, 2000), between the Company and Bank One, N.A., as agent.
Pursuant to Item 601(b)(4)(iii) of Regulation S-K, in lieu of filing a
copy of such agreement, the Company agrees to furnish a copy of such
agreement to the Commission upon request
|
|
|
|
|
|
|
|
|
|
Letter
Amendments dated November 16, 2007 and March 10, 2008 to the Amended and
Restated Credit Agreement, dated as of April 3, 2006 (the "Credit
Agreement") among Eastman Chemical Company, the Lenders named therein, and
Citigroup Global Markets , Inc. and J. P. Morgan Securities Inc.,
as joint lead arrangers (incorporated herein by reference to
Exhibit 4.11 to Eastman Chemical Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 2006)
|
|
47
|
|
|
EXHIBIT INDEX
|
|
Sequential
|
Exhibit
|
|
|
|
Page
|
Number
|
|
Description
|
|
Number
|
|
|
|
|
|
4.11
|
|
Form
of 3 ¼% Notes due June 16, 2008 (incorporated herein by reference to
Exhibit 4.13 to Eastman Chemical Company’s Quarterly Report on Form 10-Q
for the quarter ended June 30, 2003)
|
|
|
|
|
|
|
|
4.12
|
|
Form
of 6.30% Notes due 2018 (incorporated herein by reference to Exhibit 4.14
to Eastman Chemical Company’s Quarterly Report on Form 10-Q for the
quarter ended September 30, 2003)
|
|
|
|
|
|
|
|
|
|
Statement
re: Computation of Ratios of Earnings (Loss) to Fixed
Charges
|
|
55
|
|
|
|
|
|
|
|
Rule
13a – 14(a) Certification by J. Brian Ferguson, Chairman of the Board and
Chief Executive Officer, for the quarter ended March 31,
2008
|
|
56
|
|
|
|
|
|
|
|
Rule
13a – 14(a) Certification by Richard A. Lorraine, Senior Vice President
and Chief Financial Officer, for the quarter ended March 31,
2008
|
|
57
|
|
|
|
|
|
|
|
Section
1350 Certification by J. Brian Ferguson, Chairman of the Board and Chief
Executive Officer, for the quarter ended March 31, 2008
|
|
58
|
|
|
|
|
|
|
|
Section
1350 Certification by Richard A. Lorraine, Senior Vice President and Chief
Financial Officer, for the quarter ended March 31, 2008
|
|
59
|