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 September 30, 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 the definitions 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 September 30, 2008
|
Common
Stock, par value $0.01 per share
|
|
72,543,848
|
|
|
|
--------------------------------------------------------------------------------------------------------------------------------
PAGE
1 OF 53 TOTAL SEQUENTIALLY NUMBERED PAGES
EXHIBIT
INDEX ON PAGE 52
TABLE
OF CONTENTS
PART
I. FINANCIAL INFORMATION
1.
|
Financial
Statements
|
|
|
|
|
|
|
3
|
|
|
4
|
|
|
5
|
|
|
6
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2.
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20
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|
3.
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|
48
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|
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|
4.
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|
48
|
PART
II. OTHER INFORMATION
SIGNATURES
|
|
Third
Quarter
|
|
|
First
Nine Months
|
|
(Dollars
in millions, except per share amounts)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$ |
1,819 |
|
|
$ |
1,692 |
|
|
$ |
5,380 |
|
|
$ |
5,093 |
|
Cost
of sales
|
|
|
1,497 |
|
|
|
1,385 |
|
|
|
4,400 |
|
|
|
4,191 |
|
Gross
profit
|
|
|
322 |
|
|
|
307 |
|
|
|
980 |
|
|
|
902 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
107 |
|
|
|
104 |
|
|
|
324 |
|
|
|
311 |
|
Research
and development expenses
|
|
|
39 |
|
|
|
43 |
|
|
|
120 |
|
|
|
115 |
|
Asset
impairments and restructuring charges, net
|
|
|
2 |
|
|
|
114 |
|
|
|
22 |
|
|
|
116 |
|
Operating
earnings
|
|
|
174 |
|
|
|
46 |
|
|
|
514 |
|
|
|
360 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense, net
|
|
|
19 |
|
|
|
16 |
|
|
|
53 |
|
|
|
47 |
|
Other
(income) charges, net
|
|
|
7 |
|
|
|
(10 |
) |
|
|
7 |
|
|
|
(18 |
) |
Earnings
from continuing operations before income taxes
|
|
|
148 |
|
|
|
40 |
|
|
|
454 |
|
|
|
331 |
|
Provision
for income taxes from continuing operations
|
|
|
48 |
|
|
|
15 |
|
|
|
124 |
|
|
|
111 |
|
Earnings
from continuing operations
|
|
|
100 |
|
|
|
25 |
|
|
|
330 |
|
|
|
220 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from discontinued operations, net of tax
|
|
|
-- |
|
|
|
(5 |
) |
|
|
-- |
|
|
|
(7 |
) |
Gain
(loss) from disposal of discontinued operations, net of
tax
|
|
|
-- |
|
|
|
-- |
|
|
|
18 |
|
|
|
(11 |
) |
Net
earnings
|
|
$ |
100 |
|
|
$ |
20 |
|
|
$ |
348 |
|
|
$ |
202 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
from continuing operations
|
|
$ |
1.35 |
|
|
$ |
0.30 |
|
|
$ |
4.34 |
|
|
$ |
2.63 |
|
Earnings
(loss) from discontinued operations
|
|
|
-- |
|
|
|
(0.06 |
) |
|
|
0.23 |
|
|
|
(0.22 |
) |
Basic
earnings per share
|
|
$ |
1.35 |
|
|
$ |
0.24 |
|
|
$ |
4.57 |
|
|
$ |
2.41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
from continuing operations
|
|
$ |
1.33 |
|
|
$ |
0.30 |
|
|
$ |
4.27 |
|
|
$ |
2.60 |
|
Earnings
(loss) from discontinued operations
|
|
|
-- |
|
|
|
(0.06 |
) |
|
|
0.23 |
|
|
|
(0.22 |
) |
Diluted
earnings per share
|
|
$ |
1.33 |
|
|
$ |
0.24 |
|
|
$ |
4.50 |
|
|
$ |
2.38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
$ |
100 |
|
|
$ |
20 |
|
|
$ |
348 |
|
|
$ |
202 |
|
Other
comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in cumulative translation adjustment, net of tax
|
|
|
(27 |
) |
|
|
21 |
|
|
|
(68 |
) |
|
|
31 |
|
Change
in pension liability, net of tax
|
|
|
(1 |
) |
|
|
22 |
|
|
|
7 |
|
|
|
18 |
|
Change
in unrealized losses on derivative instruments, net of tax
|
|
|
(6 |
) |
|
|
(8 |
) |
|
|
(3 |
) |
|
|
(5 |
) |
Change
in unrealized gains on investments, net of tax
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
1 |
|
Total
other comprehensive income (loss)
|
|
|
(34 |
) |
|
|
35 |
|
|
|
(64 |
) |
|
|
45 |
|
Comprehensive
income
|
|
$ |
66 |
|
|
$ |
55 |
|
|
$ |
284 |
|
|
$ |
247 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained
Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained
earnings at beginning of period
|
|
$ |
2,529 |
|
|
$ |
2,302 |
|
|
$ |
2,349 |
|
|
$ |
2,186 |
|
Net
earnings
|
|
|
100 |
|
|
|
20 |
|
|
|
348 |
|
|
|
202 |
|
Cash
dividends declared
|
|
|
(31 |
) |
|
|
(36 |
) |
|
|
(99 |
) |
|
|
(110 |
) |
Adoption
of accounting standard
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
8 |
|
Retained
earnings at end of period
|
|
$ |
2,598 |
|
|
$ |
2,286 |
|
|
$ |
2,598 |
|
|
$ |
2,286 |
|
The
accompanying notes are an integral part of these consolidated financial
statements.
|
|
September
30,
|
|
|
December
31,
|
|
(Dollars
in millions, except per share amounts)
|
|
2008
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
337 |
|
|
$ |
888 |
|
Trade
receivables, net of allowance of $2 and $6
|
|
|
548 |
|
|
|
546 |
|
Miscellaneous
receivables
|
|
|
99 |
|
|
|
112 |
|
Inventories
|
|
|
715 |
|
|
|
539 |
|
Other
current assets
|
|
|
66 |
|
|
|
74 |
|
Current
assets related to discontinued operations
|
|
|
-- |
|
|
|
134 |
|
Total
current assets
|
|
|
1,765 |
|
|
|
2,293 |
|
|
|
|
|
|
|
|
|
|
Properties
and equipment
|
|
|
|
|
|
|
|
|
Properties
and equipment at cost
|
|
|
8,448 |
|
|
|
8,152 |
|
Less: Accumulated
depreciation
|
|
|
5,355 |
|
|
|
5,306 |
|
Net
properties and equipment
|
|
|
3,093 |
|
|
|
2,846 |
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
325 |
|
|
|
316 |
|
Other
noncurrent assets
|
|
|
346 |
|
|
|
313 |
|
Noncurrent
assets related to discontinued operations
|
|
|
-- |
|
|
|
241 |
|
Total
assets
|
|
$ |
5,529 |
|
|
$ |
6,009 |
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
Payables
and other current liabilities
|
|
$ |
1,019 |
|
|
$ |
1,013 |
|
Borrowings
due within one year
|
|
|
-- |
|
|
|
72 |
|
Current
liabilities related to discontinued operations
|
|
|
-- |
|
|
|
37 |
|
Total
current liabilities
|
|
|
1,019 |
|
|
|
1,122 |
|
|
|
|
|
|
|
|
|
|
Long-term
borrowings
|
|
|
1,436 |
|
|
|
1,535 |
|
Deferred
income tax liabilities
|
|
|
283 |
|
|
|
300 |
|
Post-employment
obligations
|
|
|
862 |
|
|
|
852 |
|
Other
long-term liabilities
|
|
|
109 |
|
|
|
118 |
|
Total
liabilities
|
|
|
3,709 |
|
|
|
3,927 |
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity
|
|
|
|
|
|
|
|
|
Common
stock ($0.01 par value – 350,000,000 shares authorized; shares issued –
94,492,047 and 93,630,292 for 2008 and 2007, respectively)
|
|
|
1 |
|
|
|
1 |
|
Additional
paid-in capital
|
|
|
627 |
|
|
|
573 |
|
Retained
earnings
|
|
|
2,598 |
|
|
|
2,349 |
|
Accumulated
other comprehensive loss
|
|
|
(92 |
) |
|
|
(28 |
) |
|
|
|
3,134 |
|
|
|
2,895 |
|
Less:
Treasury stock at cost (22,030,873 shares for 2008 and 13,959,951 shares
for 2007)
|
|
|
1,314 |
|
|
|
813 |
|
|
|
|
|
|
|
|
|
|
Total
stockholders’ equity
|
|
|
1,820 |
|
|
|
2,082 |
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ equity
|
|
$ |
5,529 |
|
|
$ |
6,009 |
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
|
|
First
Nine Months
|
|
(Dollars
in millions)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
Net
earnings
|
|
$ |
348 |
|
|
$ |
202 |
|
|
|
|
|
|
|
|
|
|
Adjustments
to reconcile net earnings to net cash provided by (used in) operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
199 |
|
|
|
247 |
|
Asset
impairments
|
|
|
1 |
|
|
|
138 |
|
Gains
on sale of assets
|
|
|
(13 |
) |
|
|
(3 |
) |
Provision
(benefit) for deferred income taxes
|
|
|
(56 |
) |
|
|
(23 |
) |
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
(Increase)
decrease in receivables
|
|
|
(16 |
) |
|
|
22 |
|
(Increase)
decrease in inventories
|
|
|
(170 |
) |
|
|
1 |
|
Increase
(decrease) in trade payables
|
|
|
(49 |
) |
|
|
(63 |
) |
Increase
(decrease) in liabilities for employee benefits and incentive
pay
|
|
|
(6 |
) |
|
|
(88 |
) |
Other
items, net
|
|
|
55 |
|
|
|
(22 |
) |
|
|
|
|
|
|
|
|
|
Net
cash provided by operating activities
|
|
|
293 |
|
|
|
411 |
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
Additions
to properties and equipment
|
|
|
(430 |
) |
|
|
(346 |
) |
Proceeds
from sale of assets and investments
|
|
|
333 |
|
|
|
43 |
|
Investments
in and acquisitions of joint ventures
|
|
|
(38 |
) |
|
|
(12 |
) |
Additions
to capitalized software
|
|
|
(8 |
) |
|
|
(8 |
) |
Other
items, net
|
|
|
(2 |
) |
|
|
24 |
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) investing activities
|
|
|
(145 |
) |
|
|
(299 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in commercial paper, credit facility and other
borrowings
|
|
|
42 |
|
|
|
53 |
|
Repayment
of borrowings
|
|
|
(175 |
) |
|
|
(11 |
) |
Dividends
paid to stockholders
|
|
|
(103 |
) |
|
|
(112 |
) |
Treasury
stock purchases
|
|
|
(501 |
) |
|
|
(300 |
) |
Proceeds
from stock option exercises and other items
|
|
|
38 |
|
|
|
100 |
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) financing activities
|
|
|
(699 |
) |
|
|
(270 |
) |
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
-- |
|
|
|
-- |
|
|
|
|
|
|
|
|
|
|
Net
change in cash and cash equivalents
|
|
|
(551 |
) |
|
|
(158 |
) |
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of period
|
|
|
888 |
|
|
|
939 |
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
|
$ |
337 |
|
|
$ |
781 |
|
The
accompanying notes are an integral part of these consolidated financial
statements.
|
Page
|
|
|
|
7
|
|
7
|
|
9
|
|
9
|
|
9
|
|
10
|
|
10
|
|
11
|
|
12
|
|
13
|
|
13
|
|
14
|
|
14
|
|
15
|
|
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 No. 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 September 30, 2008
|
|
Description
|
|
September 30, 2008
|
|
|
Quoted Prices in Active Markets for Identical
Assets (Level 1)
|
|
|
Significant Other Observable Inputs (Level
2)
|
|
|
Significant Unobservable Inputs (Level
3)
|
|
Derivative
Assets
|
|
$ |
51 |
|
|
$ |
-- |
|
|
$ |
51 |
|
|
$ |
-- |
|
Derivative
Liabilities
|
|
|
(50 |
) |
|
|
-- |
|
|
|
(50 |
) |
|
|
-- |
|
|
|
$ |
1 |
|
|
$ |
-- |
|
|
$ |
1 |
|
|
$ |
-- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 Spain 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 No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," and 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:
|
|
Third
Quarter
|
|
|
First
Nine Months
|
|
(Dollars
in millions)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$ |
-- |
|
|
$ |
121 |
|
|
$ |
169 |
|
|
$ |
410 |
|
Earnings
before income taxes
|
|
|
-- |
|
|
|
(8 |
) |
|
|
2 |
|
|
|
(7 |
) |
Earnings
(loss) from discontinued operations, net of tax
|
|
|
-- |
|
|
|
(5 |
) |
|
|
-- |
|
|
|
(7 |
) |
Gain
(loss) on disposal, net of tax
|
|
|
-- |
|
|
|
-- |
|
|
|
18 |
|
|
|
(11 |
) |
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
|
September
30,
|
|
December
31,
|
(Dollars
in millions)
|
2008
|
|
2007
|
|
|
|
|
At
FIFO or average cost (approximates current cost)
|
|
|
|
Finished
goods
|
$
|
737
|
$
|
607
|
Work
in process
|
235
|
|
195
|
Raw
materials and supplies
|
333
|
|
247
|
Total
inventories
|
1,305
|
|
1,049
|
LIFO
Reserve
|
(590)
|
|
(510)
|
Total
inventories
|
$
|
715
|
$
|
539
|
Inventories
valued on the LIFO method were approximately 80 percent as of September 30, 2008
and 70 percent as of December 31, 2007 of total inventories.
|
ACQUISITION
AND DIVESTITURE OF INDUSTRIAL GASIFICATION
INTERESTS
|
In
October 2007, the Company entered into an agreement with Green Rock Energy,
L.L.C. ("Green Rock") to jointly develop an industrial gasification facility in
Beaumont, Texas through TX Energy, L.L.C. ("TX Energy"). In June
2008, the Company acquired Green Rock’s 50 percent ownership interest in TX
Energy for approximately $35 million, which is primarily allocated to properties
and equipment.
The
results of operations of TX Energy for the periods subsequent to the acquisition
have been included in Eastman's consolidated financial statements. If
TX Energy had been consolidated for the periods prior to the acquisition, the
Company’s consolidated revenue, net income and earnings per share would not have
been materially different than reported. With this acquisition, the
Company became the sole owner and developer of the industrial gasification
facility in Beaumont, Texas.
Eastman
had also begun to participate in an industrial gasification project in St. James
Parish, Louisiana sponsored by Faustina Hydrogen Products, L.L.C.
("Faustina"). Through May 2008, the Company had invested
approximately $11 million in Faustina. In June 2008, the Company sold
its ownership interest in Faustina for approximately $11 million and will no
longer participate in the project.
|
PAYABLES
AND OTHER CURRENT LIABILITIES
|
|
|
September
30,
|
|
|
December
31,
|
|
(Dollars
in millions)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Trade
creditors
|
|
$ |
551 |
|
|
$ |
578 |
|
Accrued
payrolls, vacation, and variable-incentive compensation
|
|
|
123 |
|
|
|
138 |
|
Accrued
taxes
|
|
|
50 |
|
|
|
36 |
|
Post-employment
obligations
|
|
|
54 |
|
|
|
60 |
|
Interest
payable
|
|
|
23 |
|
|
|
31 |
|
Bank
overdrafts
|
|
|
44 |
|
|
|
6 |
|
Other
|
|
|
174 |
|
|
|
164 |
|
Total
payables and other current liabilities
|
|
$ |
1,019 |
|
|
$ |
1,013 |
|
The
current portion of post-employment obligations is an estimate of current year
payments in excess of plan assets.
NOTES TO THE UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
|
PROVISION
FOR INCOME TAXES
|
|
|
Third
Quarter
|
|
|
First
Nine Months
|
|
(Dollars
in millions)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
$ |
48 |
|
|
$ |
15 |
|
|
$ |
124 |
|
|
$ |
111 |
|
Effective
tax rate
|
|
|
33 |
% |
|
|
38 |
% |
|
|
27 |
% |
|
|
34 |
% |
The third
quarter 2008 and 2007 effective tax rates, excluding discrete items, were
approximately 33 percent. The Company expects a full year tax rate
for 2008 on earnings from continuing operations before income tax, excluding
discrete items, of approximately 30 percent. The variance in third
quarter and expected full year tax rates is due to timing of recognition of
general business credits expected during 2008.
The
effective tax rate for first nine months 2008 reflects an estimated benefit
resulting from a federal gasification investment tax credit associated with the
Company’s expected capital spending in 2008 on the Beaumont, Texas industrial
gasification project. Excluding discrete items, first nine months
2008 and 2007 effective tax rates reflect the Company’s expected full year rate
on reported operating earnings before income tax of approximately 30 percent and
33 percent, respectively. The full year effective tax will also
reflect the recognition of the research and development tax credit that was
renewed on October 3, 2008 as part of the Emergency Economic Stabilization Act
of 2008.
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.
|
|
September
30,
|
|
|
December
31,
|
|
(Dollars
in millions)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Borrowings
consisted of:
|
|
|
|
|
|
|
3
1/4% notes due 2008
|
|
$ |
-- |
|
|
$ |
72 |
|
7%
notes due 2012
|
|
|
149 |
|
|
|
148 |
|
6.30%
notes due 2018
|
|
|
191 |
|
|
|
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
facilities borrowings
|
|
|
85 |
|
|
|
188 |
|
Other
|
|
|
16 |
|
|
|
16 |
|
Total
borrowings
|
|
|
1,436 |
|
|
|
1,607 |
|
Borrowings
due within one year
|
|
|
-- |
|
|
|
(72 |
) |
Long-term
borrowings
|
|
$ |
1,436 |
|
|
$ |
1,535 |
|
At
September 30, 2008, the Company has credit facilities with various U.S. and
non-U.S. banks totaling approximately $800 million. These credit
facilities consist of a $700 million revolving credit facility (the "Credit
Facility") and a 60 million euro credit facility ("Euro
Facility"). The Credit Facility has two tranches, with $125 million
expiring in 2012 and $575 million expiring in 2013. The Euro Facility
expires in 2012. 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. 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 September 30, 2008, the Company’s credit
facility borrowings totaled $85 million, primarily the Euro Facility, at an
effective interest rate of 5.36 percent. At December 31, 2007,
borrowings on these credit facilities were $188 million, primarily from the Euro
Facility, at an effective interest rate of 4.79 percent.
The
Credit Facility provides liquidity support for general corporate
purposes.
NOTES TO THE UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
At
September 30, 2008 and December 31, 2007, the Company had outstanding interest
rate swaps associated with the entire outstanding principal of the 7% notes due
in 2012 and $150 million of the outstanding principal of the 6.30% notes due in
2018. The average variable interest rate on the 7% notes was 6.50
percent and 7.12 percent for September 30, 2008 and December 31, 2007,
respectively. The average variable interest rate on the 6.30% notes
was 4.91 percent and 5.52 percent for September 30, 2008 and December 31, 2007,
respectively.
|
ASSET
IMPAIRMENTS AND RESTRUCTURING CHARGES,
NET
|
In third
quarter and first nine months 2008, asset impairments and restructuring charges,
net totaled $2 million and $22 million, respectively, primarily for severance,
pension charges and site closure costs in the Performance Chemicals and
Intermediates ("PCI") segment resulting from the decision to close a previously
impaired site in the United Kingdom, and in the Performance Polymers segment for
restructuring at the South Carolina facility and the divestiture of the PET
manufacturing facilities in Mexico and Argentina.
In third
quarter 2007 and first nine months 2007, asset impairments and restructuring
charges, net totaled $114 million and $116 million, respectively, related
primarily to the impairment of assets of Eastman's PET manufacturing facilities
in Cosoleacaque, Mexico, and Zarate, Argentina which were classified as held for
sale in third quarter 2007. The Company impaired the assets of these
facilities in third quarter 2007 to adjust the asset values to the expected
sales price less cost to sell. These charges were reflected in the
Performance Polymers segment. Also in third quarter 2007, the Company
adjusted the severance accrual recorded in fourth quarter 2006 which resulted in
a reversal reflected in all segments.
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 first
nine months 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
September
30,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash
charges
|
|
$ |
-- |
|
|
$ |
1 |
|
|
$ |
(1 |
) |
|
$ |
-- |
|
|
$ |
-- |
|
Severance
costs
|
|
|
7 |
|
|
|
5 |
|
|
|
-- |
|
|
|
(11 |
) |
|
|
1 |
|
Site
closure and other restructuring costs
|
|
|
11 |
|
|
|
16 |
|
|
|
-- |
|
|
|
(20 |
) |
|
|
7 |
|
Total
|
|
$ |
18 |
|
|
$ |
22 |
|
|
$ |
(1 |
) |
|
$ |
(31 |
) |
|
$ |
8 |
|
A
majority of the remaining severance and site closure costs is expected to be
applied to the reserves within one year.
NOTES TO THE UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
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
|
|
|
|
|
|
|
|
|
Third
Quarter
|
|
|
First
Nine Months
|
|
(Dollars
in millions)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
11 |
|
|
$ |
12 |
|
|
$ |
34 |
|
|
$ |
36 |
|
Interest
cost
|
|
|
22 |
|
|
|
23 |
|
|
|
66 |
|
|
|
68 |
|
Expected
return on assets
|
|
|
(26 |
) |
|
|
(26 |
) |
|
|
(79 |
) |
|
|
(78 |
) |
Curtailment
charge
|
|
|
-- |
|
|
|
-- |
|
|
|
9 |
|
|
|
-- |
|
Amortization
of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior
service credit
|
|
|
(5 |
) |
|
|
(2 |
) |
|
|
(12 |
) |
|
|
(6 |
) |
Actuarial
loss
|
|
|
7 |
|
|
|
8 |
|
|
|
21 |
|
|
|
25 |
|
Other
loss
|
|
|
-- |
|
|
|
4 |
|
|
|
-- |
|
|
|
4 |
|
Net
periodic benefit cost
|
|
$ |
9 |
|
|
$ |
19 |
|
|
$ |
39 |
|
|
$ |
49 |
|
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.
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
provides those benefits to retirees eligible under the Company's U.S.
plans. Similar benefits are also made available to retirees of
Holston Defense Corporation, 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; Eastman will not provide a subsidy toward the premium cost
of post-retirement benefits for those employees.
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 benefits for eligible retirees hired
prior to January 1, 2007 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
|
|
|
|
|
|
|
|
|
Third
Quarter
|
|
|
First
Nine Months
|
|
(Dollars
in millions)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
2 |
|
|
$ |
1 |
|
|
$ |
5 |
|
|
$ |
5 |
|
Interest
cost
|
|
|
11 |
|
|
|
11 |
|
|
|
33 |
|
|
|
32 |
|
Expected
return on assets
|
|
|
(1 |
) |
|
|
(1 |
) |
|
|
(3 |
) |
|
|
(2 |
) |
Amortization
of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior
service credit
|
|
|
(6 |
) |
|
|
(6 |
) |
|
|
(17 |
) |
|
|
(17 |
) |
Actuarial
loss
|
|
|
2 |
|
|
|
3 |
|
|
|
7 |
|
|
|
9 |
|
Net
periodic benefit cost
|
|
$ |
8 |
|
|
$ |
8 |
|
|
$ |
25 |
|
|
$ |
27 |
|
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", to the consolidated financial statements in Part II, Item
8 of the Company’s 2007 Annual Report on Form 10-K. 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 $41 million and $42
million at September 30, 2008 and December 31, 2007, respectively, 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 $11 million to the
maximum of $21 million at September 30, 2008 and $13 million to the maximum of
$17 million at December 31, 2007.
Purchasing
Obligations and Lease Commitments
At
September 30, 2008, the Company had various purchase obligations totaling
approximately $2.0 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 $120 million over a period of several
years. Of the total lease commitments, approximately 15 percent
relate to machinery and equipment, including computer and communications
equipment and production equipment; approximately 35 percent relate to real
property, including office space, storage facilities and land; and approximately
50 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 September 30, 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 $370 million and $320 million in
third quarter 2008 and 2007, respectively, and $345 million and $310 million for
first nine months of 2008 and 2007, respectively.
Guarantees
Financial
Accounting Standards Board, ("FASB") Interpretation No. 45, "Guarantor’s
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others", 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 September 30, 2008 totaled $152 million and
consisted primarily of leases for railcars, aircraft, and other
equipment. 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 FASB Interpretation Number 46, "Consolidation of Variable
Interest Entities", 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 September 30,
2008. This potential VIE is a joint venture from which the Company
has purchased raw materials and utilities for several years and purchases
approximately $50 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.
|
FAIR
VALUE OF FINANCIAL INSTRUMENTS
|
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
September 30, 2008, net mark-to-market gains from raw material and energy,
currency and certain interest rate hedges that were included in accumulated
other comprehensive income totaled $3 million. If realized,
approximately $20 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 third quarter of
2008.
A
reconciliation of the changes in stockholders’ equity for first nine 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
|
|
|
-- |
|
|
|
-- |
|
|
|
348 |
|
|
|
-- |
|
|
|
-- |
|
|
|
348 |
|
Cash
Dividends Declared (1)
|
|
|
-- |
|
|
|
-- |
|
|
|
(99 |
) |
|
|
-- |
|
|
|
-- |
|
|
|
(99 |
) |
Other
Comprehensive Income
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
(64 |
) |
|
|
-- |
|
|
|
(64 |
) |
Stock-Based
Compensation and Other Items
(2)(3)
|
|
|
-- |
|
|
|
54 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
54 |
|
Share
Repurchases
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
(501 |
) |
|
|
(501 |
) |
Balance
at September 30, 2008
|
|
|
1 |
|
|
|
627 |
|
|
|
2,598 |
|
|
|
(92 |
) |
|
|
(1,314 |
) |
|
|
1,820 |
|
(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 , "Share-Based
Payment".
|
NOTES TO THE UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
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 and Other
$
|
|
|
Accumulated
Other Comprehensive Income (Loss)
$
|
|
Pre-SFAS
No. 158 (1)
balance at December 31, 2006
|
|
|
121 |
|
|
|
(207 |
) |
|
|
-- |
|
|
|
(7 |
) |
|
|
(93 |
) |
Adjustments
to apply SFAS No. 158
|
|
|
-- |
|
|
|
207 |
|
|
|
(288 |
) |
|
|
-- |
|
|
|
(81 |
) |
Balance
at December 31, 2006
|
|
|
121 |
|
|
|
-- |
|
|
|
(288 |
) |
|
|
(7 |
) |
|
|
(174 |
) |
Period
change
|
|
|
36 |
|
|
|
-- |
|
|
|
106 |
|
|
|
4 |
|
|
|
146 |
|
Balance
at December 31, 2007
|
|
|
157 |
|
|
|
-- |
|
|
|
(182 |
) |
|
|
(3 |
) |
|
|
(28 |
) |
Period
change
|
|
|
(68 |
) |
|
|
-- |
|
|
|
7 |
|
|
|
(3 |
) |
|
|
(64 |
) |
Balance
at September 30, 2008
|
|
|
89 |
|
|
|
-- |
|
|
|
(175 |
) |
|
|
(6 |
) |
|
|
(92 |
) |
(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.
|
EARNINGS
AND DIVIDENDS PER SHARE
|
|
Third
Quarter
|
|
First
Nine Months
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
Shares
used for earnings per share calculation (in millions):
|
|
|
|
|
|
|
|
Basic
|
74.2
|
|
82.6
|
|
76.1
|
|
83.6
|
Diluted
|
75.1
|
|
83.6
|
|
77.2
|
|
84.6
|
In third
quarter and first nine months 2008, common shares underlying options to purchase
655,884 shares of common stock and 596,784 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 third quarter and first nine months
2008 as a result of the share repurchase program. For third quarter
and first nine months 2008, a total of 3,867,770 shares and 8,065,948 shares,
respectively, were repurchased under the current $700 million share repurchase
authorization.
In third
quarter and first nine months 2007, common shares underlying options to purchase
20,000 shares of common stock and 591,233 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 third quarter and first nine months
2007 as a result of the share repurchase programs. For third quarter
and first nine months 2007, a total of 3,231,348 shares and 4,601,448 shares,
respectively were repurchased under a prior $300 million share repurchase
authorization.
NOTES TO THE UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
|
SHARE-BASED
COMPENSATION AWARDS
|
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 third quarter 2008 and 2007, approximately
$6 million and $5 million, respectively, of compensation expense before tax was
recognized in selling, general and administrative expense in the earnings
statement for all share-based awards. The impact on third quarter
2008 and 2007 net earnings of $4 million and $3 million, respectively, is net of
deferred tax expense related to share-based award compensation for each
period. In first nine months 2008 and 2007, approximately $19 million
and $18 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 nine months
2008 and 2007 net earnings of $12 million and $11 million, respectively, is net
of deferred tax expense related to share-based award compensation for each
period.
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.
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.
|
|
Third
Quarter
|
|
(Dollars
in millions)
|
|
2008
|
|
|
2007
|
|
Sales
by Segment
|
|
|
|
|
|
|
CASPI
|
|
$ |
410 |
|
|
$ |
368 |
|
Fibers
|
|
|
269 |
|
|
|
258 |
|
PCI
|
|
|
594 |
|
|
|
509 |
|
Performance
Polymers
|
|
|
293 |
|
|
|
340 |
|
SP
|
|
|
253 |
|
|
|
217 |
|
Total
Sales
|
|
$ |
1,819 |
|
|
$ |
1,692 |
|
|
|
First
Nine Months
|
|
(Dollars
in millions)
|
|
2008
|
|
|
2007
|
|
Sales
by Segment
|
|
|
|
|
|
|
CASPI
|
|
$ |
1,213 |
|
|
$ |
1,089 |
|
Fibers
|
|
|
783 |
|
|
|
731 |
|
PCI
|
|
|
1,768 |
|
|
|
1,559 |
|
Performance
Polymers
|
|
|
886 |
|
|
|
1,070 |
|
SP
|
|
|
730 |
|
|
|
644 |
|
Total
Sales
|
|
$ |
5,380 |
|
|
$ |
5,093 |
|
NOTES TO THE UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
|
|
Third
Quarter
|
|
(Dollars
in millions)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Operating
Earnings (Loss)
|
|
|
|
|
|
|
CASPI
(1)
|
|
$ |
55 |
|
|
$ |
59 |
|
Fibers
|
|
|
65 |
|
|
|
66 |
|
PCI
(2)
|
|
|
62 |
|
|
|
50 |
|
Performance
Polymers (3)
|
|
|
(1 |
) |
|
|
(128 |
) |
SP
|
|
|
6 |
|
|
|
13 |
|
Total
Operating Earnings by Segment
|
|
|
187 |
|
|
|
60 |
|
Other
(4)
|
|
|
(13 |
) |
|
|
(14 |
) |
|
|
|
|
|
|
|
|
|
Total
Operating Earnings
|
|
$ |
174 |
|
|
$ |
46 |
|
(1)
|
CASPI
includes $1 million in third quarter 2007 gains for an adjustment to
severance charges recorded in fourth quarter
2006.
|
(2)
|
PCI
includes $2 million in both third quarter 2008 and third quarter 2007 in
accelerated depreciation costs related to cracking units at the Company's
Longview, Texas facility and $1 million in third quarter 2008 in asset
impairments and restructuring charges, net, primarily related to severance
and pension costs from the decision to close a previously impaired site in
the United Kingdom and $(1) million in third quarter 2007 related
primarily to an adjustment to severance charges recorded in fourth quarter
2006.
|
(3)
|
Performance
Polymers includes $1 million and $7 million in third quarter 2008 and
third quarter 2007, respectively, in accelerated depreciation costs
related to assets in Columbia, South Carolina and asset impairments and
restructuring charges, net of $1 million in third quarter 2008 related to
previously divested manufacturing facilities in Mexico and Argentina and
restructuring at the South Carolina facility using IntegRexTM
technology, partially offset by a resolution of a contingency from
the sale of the Company’s polyethylene (“PE”) and EpoleneTM
polymer businesses divested in fourth quarter 2006, and $114 million in
third quarter 2007 primarily related to the divested PET manufacturing
facilities in Mexico and Argentina.
|
(4)
|
Other
includes $2 million in third quarter 2007 in intangible asset impairment
charges.
|
|
|
First
Nine Months
|
|
(Dollars
in millions)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Operating
Earnings (Loss)
|
|
|
|
|
|
|
CASPI(1)
|
|
$ |
167 |
|
|
$ |
190 |
|
Fibers
|
|
|
195 |
|
|
|
176 |
|
PCI
(2)
|
|
|
160 |
|
|
|
161 |
|
Performance
Polymers (3)
|
|
|
(5 |
) |
|
|
(181 |
) |
SP
(4)
|
|
|
36 |
|
|
|
49 |
|
Total
Operating Earnings by Segment
|
|
|
553 |
|
|
|
395 |
|
Other
(5)
|
|
|
(39 |
) |
|
|
(35 |
) |
|
|
|
|
|
|
|
|
|
Total
Operating Earnings
|
|
$ |
514 |
|
|
$ |
360 |
|
(1)
|
CASPI
includes $2 million in first nine months 2008 gains for an adjustment to a
reserve for asset impairments and restructuring costs for the first
quarter divestiture of certain product lines and $1 million in first nine
months 2007 gains for an adjustment to severance charges recorded in
fourth quarter 2006.
|
(2)
|
PCI
includes $4 million and $16 million in first nine months 2008 and first
nine months 2007, respectively, in accelerated depreciation costs related
to cracking units at the Company's Longview, Texas facility and $20
million in first nine months 2008 in asset impairments and restructuring
charges, net, primarily related to severance and pension costs from the
decision to close a previously impaired site in the United Kingdom and
$(1) million in first nine months 2007 related primarily to an adjustment
to severance charges recorded in fourth quarter
2006.
|
(3)
|
Performance
Polymers includes $4 million and $20 million in first nine months 2008 and
first nine months 2007, respectively, in accelerated depreciation costs
related to assets in Columbia, South Carolina and asset impairments and
restructuring charges, net of $4 million in first nine months 2008 related
to previously divested manufacturing facilities in Mexico and Argentina
and restructuring at the South Carolina facility using IntegRexTM
technology partially offset by a resolution of a contingency from the sale
of the Company’s PE and EpoleneTM
polymer businesses divested in fourth quarter 2006, and $115 million in
first nine months 2007 primarily related to the divested PET manufacturing
facilities in Mexico and Argentina.
|
(4)
|
SP
includes $1 million in first nine months 2007 in accelerated depreciation
costs related to assets in Columbia, South Carolina and $1 million in
first nine months 2007 in asset impairments and restructuring charges, net
related to the discontinued production of cyclohexane dimethanol (“CHDM”)
at the San Roque, Spain facility.
|
(5)
|
Other
includes $2 million in first nine months 2007 in intangible asset
impairment charges.
|
NOTES TO THE UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
|
|
September
30,
|
|
|
December
31,
|
|
(Dollars
in millions)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Assets
by Segment (1)
|
|
|
|
|
|
|
CASPI
|
|
$ |
1,231 |
|
|
$ |
1,114 |
|
Fibers
|
|
|
789 |
|
|
|
692 |
|
PCI
|
|
|
959 |
|
|
|
1,062 |
|
Performance
Polymers
|
|
|
637 |
|
|
|
727 |
|
SP
|
|
|
839 |
|
|
|
622 |
|
Total
Assets by Segment
|
|
|
4,455 |
|
|
|
4,217 |
|
Corporate
Assets
|
|
|
1,074 |
|
|
|
1,417 |
|
|
|
|
|
|
|
|
|
|
Total
Assets Before Assets Related to Discontinued Operations
|
|
|
5,529 |
|
|
|
5,634 |
|
Assets
Related to Discontinued Operations (2)
|
|
|
-- |
|
|
|
375 |
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$ |
5,529 |
|
|
$ |
6,009 |
|
(1)
|
Assets
managed by segment are accounts receivable, inventory, fixed assets, and
goodwill.
|
(2)
|
For
more information regarding assets related to discontinued operations, see
Note 2, “Discontinued Operations”.
|
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. Additionally, 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
|
RECENTLY
ISSUED ACCOUNTING STANDARDS
|
Effective
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 has concluded that SFAS No. 160 will not have a
material impact on the Company’s consolidated financial statements.
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"; and how derivative instruments and related
hedged items affect its financial position, financial performance, and cash
flows. The Company has concluded that SFAS No. 161 will not have a
material impact on the Company’s consolidated financial statements.
In
June 2008, the FASB issued FASB Staff Position ("FSP") Emerging Issues Task
Force ("EITF") Issue No. 03-6-1, "Determining Whether Instruments Granted
in Share-Based Payment Transactions Are Participating Securities" ("EITF Issue
No. 03-6-1"). The FSP addresses whether instruments granted in
share-based payment transactions are participating securities prior to vesting
and, therefore, need to be included in the earnings allocation in computing
earnings per share under the two-class method. The FSP affects
entities that accrue dividends on share-based payment awards during the awards’
service period when the dividends do not need to be returned if the employees
forfeit the award. This FSP is effective for fiscal years beginning
after December 15, 2008. The Company has concluded that EITF
Issue No. 03-6-1 will not have a material impact on the Company’s consolidated
financial statements.
ITEM
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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 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 including 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 supply 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 supply agreement
for contract ethylene sales, from which sales revenue and operating earnings are
included in the Performance Chemicals and Intermediates ("PCI") segment results
in 2008 and 2007.
Also in
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 $3 million and $9 million
in third quarter 2008 and third quarter 2007, respectively, and $8 million and
$37 million in first nine months 2008 and first nine months 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 earnings from continuing
operations 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 $1.8 billion for third quarter 2008 and $1.7
billion for third quarter 2007. 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 12
percent. The Company generated sales revenue of $5.4 billion for
first nine months 2008 compared to $5.1 billion for first nine months
2007. 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 10 percent. Sales revenue
increases for both third quarter and first nine months 2008 compared to
comparable periods 2007 were due to increased selling prices in response to
higher raw material and energy costs more than offsetting lower sales
volume.
Operating
earnings were $174 million in third quarter 2008 compared to $46 million in
third quarter 2007. Excluding accelerated depreciation costs and asset
impairments and restructuring charges from both third quarter 2008 and 2007,
operating earnings were $179 million in third quarter 2008 compared with $169
million in third quarter 2007. Operating earnings were $514 million
in first nine months 2008 compared to $360 million in first nine months
2007. Excluding accelerated depreciation costs and asset impairments
and restructuring charges from first nine months 2008, operating earnings were
$544 million in first nine months 2008 compared with $513 million in first nine
months 2007. The Company's broad base of businesses continues to have
strong results, despite increasing and volatile raw material and energy
costs. The Performance Polymers segment had significant improvement
due primarily to improved operation of the South Carolina PET facility based on
the IntegRexTM
technology.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
Primarily
as a result of strategic actions related to the Performance Polymers and PCI
segments, operating earnings in third quarter 2008 were negatively impacted by
$3 million of accelerated depreciation costs and $2 million in asset impairments
and restructuring charges. Operating earnings in third quarter 2007
were negatively impacted by $9 million of accelerated depreciation costs and
$114 million in asset impairments and restructuring
charges. Operating earnings in first nine months 2008 were negatively
impacted by $8 million of accelerated depreciation costs and $22 million in
asset impairments and restructuring charges. Operating earnings in
first nine months 2007 were negatively impacted by $37 million of accelerated
depreciation costs and $116 million in asset impairments and restructuring
charges. Asset impairments and restructuring charges for both third
quarter and first nine months 2007 were primarily related to the divestiture of
the Company’s Mexico and Argentina PET manufacturing sites.
Earnings
from continuing operations increased by $75 million for third quarter 2008 as
compared to third quarter 2007. Excluding accelerated depreciation
costs and asset impairments and restructuring charges, net, earnings from
continuing operations were $102 million and $107 million,
respectively. Earnings from continuing operations increased by $110
million for first nine months 2008 compared to first nine months
2007. Excluding accelerated depreciation costs, asset impairments and
restructuring charges, net, and net deferred tax benefits related to the
previous divestiture of businesses, earnings from continuing operations were
$338 million and $322 million, respectively. Earnings from continuing
operations for first nine months 2008 compared to first nine months 2007
included a reduction in the provision for income taxes resulting from an
estimated benefit from a federal gasification investment tax credit associated
with the Company’s expected capital spending in 2008 on the Beaumont, Texas
industrial gasification project.
The
Company generated $293 million in cash from operating activities during first
nine months 2008 compared to $411 million generated by operating activities in
first nine months 2007. The difference was primarily due to a greater
increase in working capital largely resulting from an increase in inventory
attributable to higher raw material costs, which was partially offset by lower
pension contributions. In first nine months 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 nine months 2008,
the Company received proceeds from sales of assets and investments of $333
million, repurchased shares totaling $501 million, and repaid $175 million of
borrowings.
The
Company believes that cash balances, cash flows from operations, and external
sources of liquidity will be available and sufficient to meet foreseeable cash
flow requirements. As of September 30, 2008, the Company had $337 million
of cash and cash equivalents and an undrawn $700 million committed revolving
credit facility. The revolving credit facility (the “Credit
Facility”) is available through 2013, is supported by a diverse group of banks,
and can be drawn for general corporate purposes. The Company is
currently in compliance with all covenants under the Credit
Facility. In addition, there are no material debt maturities until
2012. The Company believes the combination of cash from operations,
manageable leverage, and committed external sources of liquidity provides a
solid financial foundation that positions it well in the current volatile
economic and financial environments.
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 project 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. In June
2008, the Company acquired the remaining ownership interest in TX Energy, LLC
(“TX Energy”) for approximately $35 million. With this acquisition,
the Company became the sole owner and developer of the industrial gasification
facility in Beaumont, Texas. Additionally in June 2008, the Company
sold its ownership interest in the St. James Parish, Louisiana industrial
gasification project for approximately $11 million and will no longer
participate in the project.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
|
|
Third
Quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars
in millions)
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
Volume
Effect
|
|
|
Price
Effect
|
|
|
Product
Mix
Effect
|
|
|
Exchange
Rate
Effect
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$ |
1,819 |
|
|
$ |
1,692 |
|
|
|
8 |
% |
|
|
(8 |
)
% |
|
|
14 |
% |
|
|
1 |
% |
|
|
1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
from Mexico and Argentina PET manufacturing facilities (1)
|
|
|
-- |
|
|
|
90 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
- contract polymer intermediates sales (2)
|
|
|
35 |
|
|
|
-- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
- contract ethylene sales (3)
|
|
|
89 |
|
|
|
84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
– excluding listed items
|
|
|
1,695 |
|
|
|
1,518 |
|
|
|
12 |
% |
|
|
(3 |
)
% |
|
|
14 |
% |
|
|
-- |
% |
|
|
1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Nine Months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars
in millions)
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
Volume
Effect
|
|
|
Price
Effect
|
|
|
Product
Mix
Effect
|
|
|
Exchange
Rate
Effect
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$ |
5,380 |
|
|
$ |
5,093 |
|
|
|
6 |
% |
|
|
(8 |
)
% |
|
|
11 |
% |
|
|
2 |
% |
|
|
1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
from Mexico and Argentina PET manufacturing facilities (1)
|
|
|
-- |
|
|
|
325 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
- contract polymer intermediates sales (2)
|
|
|
117 |
|
|
|
-- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
- contract ethylene sales (3)
|
|
|
283 |
|
|
|
228 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
– excluding listed items
|
|
|
4,980 |
|
|
|
4,540 |
|
|
|
10 |
% |
|
|
(4 |
)
% |
|
|
11 |
% |
|
|
2 |
% |
|
|
1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Sales revenue 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 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 2008 and 2007 sales revenue are contract ethylene sales
under the transition supply agreement related to the divestiture of the PE
businesses.
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
Sales
revenue in third quarter and first nine months 2008 compared to third quarter
and first nine months 2007 increased $127 million and $287 million,
respectively. Excluding the results of contract ethylene sales,
contract polymer intermediates sales, and sales from divested Mexico and
Argentina PET manufacturing facilities, sales revenue increased $177 million and
$440 million for third quarter and first nine months 2008 compared to third
quarter and first nine months 2007, respectively. The increases were
primarily due to higher selling prices in all segments in response to higher raw
material and energy costs partially offset by lower sales
volume. Lower sales volume for the Performance Polymers, CASPI, and
PCI segments was partially offset by higher sales volume in the Specialty
Plastics (“SP”) segment.
|
|
Third
Quarter
|
|
|
First
Nine Months
|
|
(Dollars
in millions)
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Profit
|
|
$ |
322 |
|
|
$ |
307 |
|
|
|
5 |
% |
|
$ |
980 |
|
|
$ |
902 |
|
|
|
9 |
% |
As
a percentage of sales
|
|
|
18 |
% |
|
|
18 |
% |
|
|
|
|
|
|
18 |
% |
|
|
18 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accelerated
depreciation costs included in cost of goods sold
|
|
|
3 |
|
|
|
9 |
|
|
|
|
|
|
|
8 |
|
|
|
37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Profit excluding accelerated depreciation costs
|
|
|
325 |
|
|
|
316 |
|
|
|
3 |
% |
|
|
988 |
|
|
|
939 |
|
|
|
5 |
% |
As
a percentage of sales
|
|
|
18 |
% |
|
|
19 |
% |
|
|
|
|
|
|
18 |
% |
|
|
18 |
% |
|
|
|
|
Gross
profit for third quarter 2008 increased $15 million compared to third quarter
2007, primarily in the PCI, Performance Polymers, and CASPI segments partially
offset by the SP segment, as higher selling prices were partially offset by
higher raw material and energy costs. Third quarter 2008 and 2007
included accelerated depreciation costs of $3 million and $9 million,
respectively, resulting from the previously reported shutdowns of the cracking
units in Longview, Texas and of higher cost PET polymer assets in Columbia,
South Carolina. The Company's third quarter 2008 raw material and
energy costs increased by approximately $225 million compared with third quarter
2007.
Gross
profit for first nine months 2008 increased $78 million compared to first nine
months 2007, primarily in the Performance Polymers, PCI, and Fibers segments
partially offset by the SP segment, as higher selling prices were partially
offset by higher raw material and energy costs. First nine months
2008 and 2007 included accelerated depreciation costs of $8 million and $37
million, respectively, resulting from the previously reported shutdowns of the
cracking units in Longview, Texas and of higher cost PET polymer assets in
Columbia, South Carolina. The Company's first nine months 2008 raw
material and energy costs increased by approximately $575 million compared with
first nine months 2007.
|
|
Third
Quarter
|
|
|
First
Nine Months
|
|
(Dollars
in millions)
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
General and Administrative Expenses
|
|
$ |
107 |
|
|
$ |
104 |
|
|
|
3 |
% |
|
$ |
324 |
|
|
$ |
311 |
|
|
|
4 |
% |
Research
and Development Expenses
|
|
|
39 |
|
|
|
43 |
|
|
|
(9 |
)% |
|
|
120 |
|
|
|
115 |
|
|
|
4 |
% |
|
|
$ |
146 |
|
|
$ |
147 |
|
|
|
(1 |
)% |
|
$ |
444 |
|
|
$ |
426 |
|
|
|
4 |
% |
As
a percentage of sales
|
|
|
8 |
% |
|
|
9 |
% |
|
|
|
|
|
|
8 |
% |
|
|
8 |
% |
|
|
|
|
Selling,
general and administrative ("SG&A") expenses for third quarter 2008
increased compared to third quarter 2007 primarily due to higher compensation
expense in third quarter 2008. SG&A costs for first nine months
2008 increased compared to first nine months 2007 primarily due to higher
compensation expense and higher expenses related to corporate
initiatives.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
Research
and development ("R&D") expenses decreased $4 million in third quarter 2008
compared to third quarter 2007 primarily due to higher pre-commercialization
expenses for Eastman TritanTM copolyester
in the SP segment in third quarter 2007. R&D expenses increased
$5 million in first nine months 2008 compared to first nine months 2007
primarily due to higher expenses related to corporate initiatives.
Asset
Impairments and Restructuring Charges, Net
Asset
impairments and restructuring charges, net, totaled $2 million and $22 million
for third quarter and first nine months 2008, respectively, compared to $114
million and $116 million for third quarter and first nine months 2007,
respectively. For more information regarding asset impairments and
restructuring charges, net see the CASPI, PCI, Performance Polymers, and SP
segment discussions and Note 8, “Asset Impairments and Restructuring Charges,
Net” to the Company's unaudited consolidated financial
statements.
Operating
Earnings
|
|
|
|
|
|
|
|
Third
Quarter
|
|
First
Nine Months
|
|
(Dollars
in millions)
|
|
2008
|
|
|
2007
|
|
Change
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
earnings
|
|
$ |
174 |
|
|
$ |
46 |
|
>100
%
|
|
$ |
514 |
|
|
$ |
360 |
|
|
|
43 |
% |
Accelerated
depreciation costs included in cost of goods sold
|
|
|
3 |
|
|
|
9 |
|
|
|
|
8 |
|
|
|
37 |
|
|
|
|
|
Asset
impairments and restructuring charges, net
|
|
|
2 |
|
|
|
114 |
|
|
|
|
22 |
|
|
|
116 |
|
|
|
|
|
Operating
earnings excluding accelerated depreciation costs and asset impairments
and restructuring charges, net
|
|
$ |
179 |
|
|
$ |
169 |
|
6
%
|
|
$ |
544 |
|
|
$ |
513 |
|
|
|
6 |
% |
Interest
Expense, Net
|
|
Third
Quarter
|
|
|
First
Nine Months
|
|
(Dollars
in millions)
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
interest costs
|
|
$ |
26 |
|
|
$ |
30 |
|
|
|
|
|
$ |
80 |
|
|
$ |
86 |
|
|
|
|
Less: Capitalized
interest
|
|
|
3 |
|
|
|
3 |
|
|
|
|
|
|
7 |
|
|
|
8 |
|
|
|
|
Interest
expense
|
|
|
23 |
|
|
|
27 |
|
|
|
(15 |
)% |
|
|
73 |
|
|
|
78 |
|
|
|
(6 |
)
% |
Interest
income
|
|
|
4 |
|
|
|
11 |
|
|
|
|
|
|
|
20 |
|
|
|
31 |
|
|
|
|
|
Interest
expense, net
|
|
$ |
19 |
|
|
$ |
16 |
|
|
|
19 |
% |
|
$ |
53 |
|
|
$ |
47 |
|
|
|
13 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
interest costs for third quarter and first nine months 2008 were lower compared
to third quarter and first nine months 2007 due to lower average interest rates
and lower average borrowings. Interest income for third quarter and first nine
months 2008 was lower compared to third quarter and first nine months 2007 due
to lower cash balances and 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 lower average cash balances
and lower average interest rates.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
Other
(Income) Charges, Net
|
|
Third
Quarter
|
|
|
First
Nine Months
|
|
(Dollars
in millions)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
(income)
|
|
$ |
(2 |
) |
|
$ |
(12 |
) |
|
$ |
(1 |
) |
|
$ |
(21 |
) |
Other
charges
|
|
|
9 |
|
|
|
2 |
|
|
|
8 |
|
|
|
3 |
|
Other
(income) charges, net
|
|
$ |
7 |
|
|
$ |
(10 |
) |
|
$ |
7 |
|
|
$ |
(18 |
) |
Included
in other income are gains from the sale of non-operating assets, other
non-operating income related to Holston Defense Corporation, the Company's
portion of net earnings from its equity investments, net gains on foreign
exchange transactions, and gains on the sale of business venture
investments. Included in other charges are net losses on foreign
exchange transactions, the Company's portion of losses from its equity
investments, write-downs to fair value of business venture investments due to
other than temporary declines in value, and fees on securitized
receivables.
The
change in third quarter and first nine months 2008 compared to third quarter and
first nine months 2007 is primarily due to losses on foreign
exchange.
Provision
for Income Taxes
|
|
Third
Quarter
|
|
|
First
Nine Months
|
|
(Dollars
in millions)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
$ |
48 |
|
|
$ |
15 |
|
|
$ |
124 |
|
|
$ |
111 |
|
Effective
tax rate
|
|
|
33 |
% |
|
|
38 |
% |
|
|
27 |
% |
|
|
34 |
% |
The third
quarter 2008 and 2007 effective tax rates, excluding discrete items, were
approximately 33 percent. The Company expects a full year tax rate on
earnings from continuing operations before income tax, excluding discrete items,
of approximately 30 percent. The variance in third quarter and
expected full year tax rates is due to timing of recognition of general business
credits during 2008.
The
effective tax rate for first nine months 2008 reflects an estimated benefit
resulting from a federal gasification investment tax credit, an $11 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. The full year effective tax will also reflect
the recognition of the research and development tax credit that was renewed on
October 3, 2008 as part of the Emergency Economic Stabilization Act of
2008.
In 2006,
the Company was awarded a federal investment tax credit of $130 million related
to a project which was to be located at the Company’s Longview, Texas
facility. Subsequently, the Company decided to relocate the project to
Beaumont, Texas. Federal legislation enacted during the second
quarter of 2008 directed the transfer of federal investment tax credits between
sites for projects meeting specific criteria. The Company included
the estimated benefit of the federal investment tax credit in the effective tax
rate commencing in the second quarter 2008. The use of the credit is
dependent on the level of annual qualified capital spending on the gasification
project. The Company expects to continue to benefit from this credit
through 2010, as qualifying capital expenditures are incurred.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
Earnings
from Continuing Operations
|
|
|
|
|
|
|
|
|
|
|
|
Third
Quarter
|
|
|
First
Nine Months
|
|
(Dollars
in millions)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
from continuing operations
|
|
$ |
100 |
|
|
$ |
25 |
|
|
$ |
330 |
|
|
$ |
220 |
|
Accelerated
depreciation costs included in cost of goods sold, net of
tax
|
|
|
2 |
|
|
|
6 |
|
|
|
5 |
|
|
|
24 |
|
Asset
impairments and restructuring charges, net of tax
|
|
|
3 |
|
|
|
76 |
|
|
|
17 |
|
|
|
78 |
|
Net
deferred tax benefits related to the previous divestiture
of businesses
|
|
|
(3 |
) |
|
|
-- |
|
|
|
(14 |
) |
|
|
-- |
|
Earnings
from continuing operations excluding accelerated depreciation costs and
asset impairments and restructuring charges, net of tax
|
|
$ |
102 |
|
|
$ |
107 |
|
|
$ |
338 |
|
|
$ |
322 |
|
Net
Earnings
|
|
|
|
|
|
|
|
|
|
|
|
Third
Quarter
|
|
|
First
Nine Months
|
|
(Dollars
in millions)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
from continuing operations
|
|
$ |
100 |
|
|
$ |
25 |
|
|
$ |
330 |
|
|
$ |
220 |
|
Loss
from discontinued operations, net of tax
|
|
|
-- |
|
|
|
(5 |
) |
|
|
-- |
|
|
|
(7 |
) |
Gain
(loss) from disposal of discontinued operations
|
|
|
-- |
|
|
|
-- |
|
|
|
18 |
|
|
|
(11 |
) |
Net
earnings
|
|
$ |
100 |
|
|
$ |
20 |
|
|
$ |
348 |
|
|
$ |
202 |
|
The gain
on disposal of discontinued operations, net of tax of $18 million for first nine
months 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
$11 million for first nine months 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 16, "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
|
|
Third
Quarter
|
|
First
Nine Months
|
|
|
|
|
|
Change
|
|
|
|
|
|
Change
|
(Dollars
in millions)
|
2008
|
|
2007
|
|
$
|
|
%
|
|
2008
|
|
2007
|
|
$
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
$
|
410
|
$
|
368
|
$
|
42
|
|
11
%
|
$
|
1,213
|
$
|
1,089
|
$
|
124
|
|
11
%
|
|
Volume
effect
|
|
|
|
|
(35)
|
|
(10)
%
|
|
|
|
|
|
(43)
|
|
(4)
%
|
|
Price
effect
|
|
|
|
|
60
|
|
16
%
|
|
|
|
|
|
119
|
|
11
%
|
|
Product
mix effect
|
|
|
|
|
11
|
|
3
%
|
|
|
|
|
|
26
|
|
2
%
|
|
Exchange
rate effect
|
|
|
|
|
6
|
|
2
%
|
|
|
|
|
|
22
|
|
2
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
earnings
|
55
|
|
59
|
|
(4)
|
|
(7)
%
|
|
167
|
|
190
|
|
(23)
|
|
(12)
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset
impairments and restructuring gains
|
--
|
|
(1)
|
|
1
|
|
|
|
(2)
|
|
(1)
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
earnings excluding asset impairments and restructuring
gains
|
55
|
|
58
|
|
(3)
|
|
(5)
%
|
|
165
|
|
189
|
|
(24)
|
|
(13)
%
|
Sales
revenue increased $42 million in third quarter 2008 compared to third quarter
2007 due to higher selling prices in response to higher raw material and energy
costs, particularly for propylene, propane, and adhesives raw
materials. Sales volume declined due primarily to lower sales volume
in North America in part due to the divestiture of certain adhesives product
lines, and lower sales volume in Europe which was partially offset by higher
sales volume in Asia Pacific.
Sales
revenue increased $124 million in first nine months 2008 compared to first nine
months 2007 due to higher selling prices in response to higher raw material and
energy costs, particularly for propylene, propane, and adhesives raw
materials. Sales volume declined due primarily to lower sales volume
in North America which was partially offset by higher sales volume in Asia
Pacific and to the divestiture of certain adhesives product lines.
Excluding
asset impairments and restructuring gains, operating earnings decreased $3
million for third quarter 2008 compared to third quarter 2007 and $24 million
for first nine months 2008 compared to first nine months 2007 as lower sales
volume and higher raw material and energy costs were partially offset by higher
selling prices. The segment was less successful in offsetting higher
raw material and energy costs for its specialty products. Asset
impairments and restructuring charges, net for nine months 2008 reflects an
adjustment to a reserve for the first quarter 2008 divestiture of certain
product lines.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
Fibers
Segment
|
|
Third
Quarter
|
|
First
Nine Months
|
|
|
|
|
|
Change
|
|
|
|
|
|
Change
|
(Dollars
in millions)
|
2008
|
|
2007
|
|
$
|
|
%
|
|
2008
|
|
2007
|
|
$
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
$
|
269
|
$
|
258
|
$
|
11
|
|
4
%
|
$
|
783
|
$
|
731
|
$
|
52
|
|
7
%
|
|
Volume
effect
|
|
|
|
|
5
|
|
2
%
|
|
|
|
|
|
16
|
|
2
%
|
|
Price
effect
|
|
|
|
|
12
|
|
5
%
|
|
|
|
|
|
39
|
|
5
%
|
|
Product
mix effect
|
|
|
|
|
(6)
|
|
(3)
%
|
|
|
|
|
|
(5)
|
|
--
%
|
|
Exchange
rate effect
|
|
|
|
|
--
|
|
--
%
|
|
|
|
|
|
2
|
|
--
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
earnings
|
65
|
|
66
|
|
(1)
|
|
(2)
%
|
|
195
|
|
176
|
|
19
|
|
11
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
revenue increased $11 million in third quarter 2008 compared to third quarter
2007 and $52 million in first nine months 2008 compared to first nine months
2007 due to higher selling prices. The higher selling prices were in
response to higher raw material and energy costs, particularly for wood pulp and
methanol. An increase in acetate tow sales volume was offset by a
decrease in acetyl chemical sales volume.
Operating
earnings decreased $1 million for third quarter 2008 compared to third quarter
2007 primarily due to higher raw material and energy costs more than offsetting
higher selling prices.
Operating
earnings increased $19 million for first nine months 2008 compared to first nine
months 2007 primarily due to customer buying patterns in the Asia Pacific region
and higher selling prices for acetate tow products in all
regions.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
PCI
Segment
|
|
Third
Quarter
|
|
First
Nine Months
|
|
|
|
|
|
Change
|
|
|
|
|
|
Change
|
(Dollars
in millions)
|
2008
|
|
2007
|
|
$
|
|
%
|
|
2008
|
|
2007
|
|
$
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
$
|
594
|
$
|
509
|
$
|
85
|
|
17
%
|
$
|
1,768
|
$
|
1,559
|
$
|
209
|
|
13
%
|
Volume
effect
|
|
|
|
|
|
(42)
|
|
(8)
%
|
|
|
|
|
|
(128)
|
|
(8)
%
|
Price
effect
|
|
|
|
|
|
120
|
|
24 %
|
|
|
|
|
|
312
|
|
20
%
|
Product
mix effect
|
|
|
|
|
|
4
|
|
1
%
|
|
|
|
|
|
14
|
|
1
%
|
Exchange
rate effect
|
|
|
|
|
|
3
|
|
--
%
|
|
|
|
|
|
11
|
|
--
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
– contract ethylene sales
|
89
|
|
84
|
|
5
|
|
|
|
283
|
|
228
|
|
55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
– continuing product lines
|
505
|
|
425
|
|
80
|
|
19
%
|
|
1,485
|
|
1,331
|
|
154
|
|
12
%
|
Volume
effect
|
|
|
|
|
(9)
|
|
(2)
%
|
|
|
|
|
|
(80)
|
|
(6)
%
|
Price
effect
|
|
|
|
|
86
|
|
20
%
|
|
|
|
|
|
222
|
|
17
%
|
Product
mix effect
|
|
|
|
|
--
|
|
--
%
|
|
|
|
|
|
1
|
|
--
%
|
Exchange
rate effect
|
|
|
|
|
3
|
|
1
%
|
|
|
|
|
|
11
|
|
1
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
earnings
|
62
|
|
50
|
|
12
|
|
24
%
|
|
160
|
|
161
|
|
(1)
|
|
(1)
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accelerated
depreciation costs included in cost of goods sold
|
2
|
|
2
|
|
--
|
|
|
|
4
|
|
16
|
|
(12)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset
impairments and restructuring charges (gains)
|
1
|
|
(1)
|
|
2
|
|
|
|
20
|
|
(1)
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
earnings excluding accelerated depreciation costs and asset impairments
and restructuring charges (gains)
|
65
|
|
51
|
|
14
|
|
27
%
|
|
184
|
|
176
|
|
8
|
|
5
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
revenue increased $85 million in third quarter 2008 compared to third quarter
2007. Excluding contract ethylene sales under the transition
agreement resulting from the divestiture of the Performance Polymers segment's
PE business in fourth quarter 2006, sales revenue increased due to higher
selling prices in response to higher raw material and energy
costs. Contract ethylene sales revenues increased due to higher
selling prices more than offsetting lower sales volume resulting from the
shutdown of one of the cracking units.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
Sales
revenue increased $209 million in first nine months 2008 compared to first nine
months 2007. Excluding contract ethylene sales under the transition
agreement resulting from the divestiture of the Performance Polymers segment's
PE business in fourth quarter 2006, sales revenue increased due to higher
selling prices in response to higher raw material and energy. The
lower sales volume was primarily due to lower production volume for bulk olefins
product lines resulting from the previously reported shutdown of a cracking unit
in fourth quarter 2007. Contract ethylene sales revenues increased due to
higher selling prices more than offsetting lower sales volume resulting from the
shutdown of one of the cracking units.
Excluding
accelerated depreciation costs and asset impairments and restructuring charges
(gains), operating earnings increased $14 million in third quarter 2008 compared
to third quarter 2007 and $8 million in first nine months 2008 compared to first
nine months 2007 due to higher selling prices more than offsetting higher raw
material and energy costs, particularly for propylene, propane, and natural
gas. Contract ethylene sales had minimal impact. The
accelerated depreciation costs are related to the continuation of the previously
reported planned staged phase-out of older cracking units at the Company's
Longview, Texas facility. Asset impairments and restructuring charges
in third quarter and first nine months 2008 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.
|
Third
Quarter
|
|
First
Nine Months
|
|
|
|
|
|
Change
|
|
|
|
|
|
Change
|
(Dollars
in millions)
|
2008
|
|
2007
|
|
$
|
|
%
|
|
2008
|
|
2007
|
|
$
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
$
|
293
|
$
|
340
|
$
|
(47)
|
|
(14)
%
|
$
|
886
|
$
|
1,070
|
$
|
(184)
|
|
(17)
%
|
|
Volume
effect
|
|
|
|
|
(86)
|
|
(25)
%
|
|
|
|
|
|
(302)
|
|
(28)
%
|
|
Price
effect
|
|
|
|
|
42
|
|
12
%
|
|
|
|
|
|
80
|
|
8
%
|
|
Product
mix effect
|
|
|
|
|
(3)
|
|
(1)
%
|
|
|
|
|
|
36
|
|
3
%
|
|
Exchange
rate effect
|
|
|
|
|
--
|
|
--
%
|
|
|
|
|
|
2
|
|
--
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
from Mexico and Argentina PET manufacturing facilities (1)
|
--
|
|
90
|
|
(90)
|
|
|
|
--
|
|
325
|
|
(325)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
– contract polymer intermediates sales (2)
|
35
|
|
--
|
|
35
|
|
|
|
117
|
|
--
|
|
117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales – U.S. PET manufacturing
facilities
|
258
|
|
250
|
|
8
|
|
4
%
|
|
769
|
|
745
|
|
24
|
|
3
%
|
Volume
effect
|
|
|
|
|
(30)
|
|
(12)
%
|
|
|
|
|
|
(94)
|
|
(13)
%
|
Price
effect
|
|
|
|
|
41
|
|
17
%
|
|
|
|
|
|
80
|
|
11
%
|
Product
mix effect
|
|
|
|
|
(3)
|
|
(1)
%
|
|
|
|
|
|
36
|
|
5
%
|
Exchange
rate effect
|
|
|
|
|
--
|
|
--
%
|
|
|
|
|
|
2
|
|
--
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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.
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
|
Third
Quarter
|
|
First
Nine Months
|
|
|
|
|
|
Change
|
|
|
|
|
|
Change
|
(Dollars
in millions)
|
2008
|
|
2007
|
|
$
|
|
%
|
|
2008
|
|
2007
|
|
$
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
earnings (loss) (1)
|
$
|
(1)
|
$
|
(128)
|
$
|
127
|
|
99
%
|
$
|
(5)
|
$
|
(181)
|
$
|
176
|
|
97
%
|
Operating
loss – from sales from Mexico and Argentina PET manufacturing facilities
(1)(2)
|
(3)
|
|
(121)
|
|
118
|
|
98
%
|
|
(3)
|
|
(125)
|
|
122
|
|
98
%
|
Operating
earnings (loss) – U.S. PET manufacturing facilities (1)
|
2
|
|
(7)
|
|
9
|
|
>100
%
|
|
(2)
|
|
(56)
|
|
54
|
|
96
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
earnings (loss) excluding items (1)(3)
|
1
|
|
(7)
|
|
8
|
|
>100
%
|
|
3
|
|
(46)
|
|
49
|
|
>100
%
|
Operating
loss excluding items – from sales from Mexico and Argentina PET
manufacturing facilities
(1)(2)(4)
|
--
|
|
(4)
|
|
4
|
|
100
%
|
|
--
|
|
(8)
|
|
8
|
|
100
%
|
Operating
earnings (loss) excluding items – U.S. PET manufacturing facilities (1)(5)
|
1
|
|
(3)
|
|
4
|
|
>100
%
|
|
3
|
|
(38)
|
|
41
|
|
>100
%
|
|
(1)
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.
|
|
(2) 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.
|
|
(3)
Items are accelerated depreciation costs
and asset impairments and restructuring charges,
net. Accelerated depreciation costs of $1 million and $7
million in third quarter of 2008 and 2007, respectively, and $4 million
and $20 million for first nine months 2008 and 2007, respectively,
resulted from restructuring actions associated with higher cost PET
polymer assets in Columbia, South Carolina. In third quarter
and first nine months, 2008, asset impairments and restructuring charges,
net of $1 million and $4 million, respectively, related to restructuring
at the South Carolina facility using IntegRexTM
technology and to the divested PET manufacturing facilities in Mexico and
Argentina, partially offset by a resolution of a contingency from the sale
of the Company’s PE and EpoleneTM
polymer businesses divested in fourth quarter 2006. Asset
impairments and restructuring charges, net of $114 million for third
quarter 2007 and $115 for first nine months 2007 primarily related to the
divested PET manufacturing facilities in Mexico and
Argentina.
|
|
(4)
Items are asset impairments and
restructuring charges, net, relating to the Mexico and Argentina PET
manufacturing facilities. Asset impairments and restructuring
charges, net were $3 million in third quarter and first nine months 2008,
and $117 million for third quarter and first nine months
2007.
|
|
(5)
Items are accelerated depreciation costs
and asset impairments and restructuring charges (gains) related to U.S.
PET manufacturing sites. Accelerated depreciation costs were $1
million and $7 million in third quarter of 2008 and 2007, respectively,
and $4 million and $20 million for first nine months 2008 and 2007,
respectively. Asset impairments and restructuring charges (gains) were
$(2) million and $1 million in third quarter and first nine months 2008,
respectively, and $(3) million and $(2) million for third quarter and
first nine months, 2007.
|
Sales
revenue decreased $47 million in third quarter 2008 compared to third quarter
2007 and $184 million in first nine months 2008 compared to first nine months
2007 due to the divestiture of PET manufacturing facilities and related
businesses in Cosoleacaque, Mexico and Zarate, Argentina.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
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 $8 million in third quarter 2008
compared to third quarter 2007 and $24 million in first nine months 2008
compared to first nine months 2007 due to higher selling prices more than
offsetting lower sales volume. Higher selling prices were in response
to higher raw material and energy costs, particularly for paraxylene and
ethylene glycol. The decline in sales volume was due to the shutdown
of higher cost PET assets in first half of 2008 and was also attributed to
weaker demand for bottled carbonated soft drinks and lighter-weight water
bottles.
Excluding
accelerated depreciation costs and asset impairments and restructuring charges,
operating results for U.S. PET manufacturing facilities increased $4 million for
third quarter 2008 compared to third quarter 2007 and $41 million for first nine
months 2008 compared to first nine months 2007 due primarily to higher selling
prices and actions to improve results at the Company’s South Carolina PET
facility, including the new PET facility based on IntegRex™ technology,
partially offset by higher raw material and energy costs. The results
in first nine months 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.
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 ton facility was fully operational in first quarter
of 2007. A previously disclosed reduction of $30 million in annual
costs at this facility was completed in second quarter 2008. The
Company plans to debottleneck this facility beginning in fourth quarter of 2008
to increase capacity to over 525,000 metric tons of ParaStarTM PET
resins.
SP
Segment
|
|
Third
Quarter
|
|
First
Nine Months
|
|
|
|
|
|
Change
|
|
|
|
|
|
Change
|
(Dollars
in millions)
|
2008
|
|
2007
|
|
$
|
|
%
|
|
2008
|
|
2007
|
|
$
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
$
|
253
|
$
|
217
|
$
|
36
|
|
17
%
|
$
|
730
|
$
|
644
|
$
|
86
|
|
13
%
|
|
Volume
effect
|
|
|
|
|
18
|
|
8
%
|
|
|
|
|
|
37
|
|
6
%
|
|
Price
effect
|
|
|
|
|
10
|
|
5
%
|
|
|
|
|
|
20
|
|
3
%
|
|
Product
mix effect
|
|
|
|
|
4
|
|
2
%
|
|
|
|
|
|
13
|
|
2
%
|
|
Exchange
rate effect
|
|
|
|
|
4
|
|
2
%
|
|
|
|
|
|
16
|
|
2
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
earnings
|
6
|
|
13
|
|
(7)
|
|
(54)
%
|
|
36
|
|
49
|
|
(13)
|
|
(27)
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accelerated
depreciation costs included in cost of goods sold
|
--
|
|
--
|
|
--
|
|
|
|
--
|
|
1
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset
impairments and restructuring charges, net
|
--
|
|
--
|
|
--
|
|
|
|
--
|
|
1
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
earnings excluding accelerated depreciation costs and asset impairments
and restructuring charges, net
|
6
|
|
13
|
|
(7)
|
|
(54)
%
|
|
36
|
|
51
|
|
(15)
|
|
(29)
%
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
Sales
revenue increased $36 million in third quarter 2008 compared to third quarter
2007 and $86 million in first nine months 2008 compared to first nine months
2007 due to increased sales volume, particularly in Asia Pacific and North
America and higher selling prices. Selling prices increased in
response to higher raw material and energy costs particularly for paraxylene and
ethylene glycol. Sales volume increased primarily due to growth in
copolyester products in packaging, consumer and durable goods and cellulose
esters used in liquid crystal display (“LCD”) screens.
Excluding
accelerated depreciation costs and asset impairments and restructuring charges,
operating earnings decreased $7 million for third quarter 2008 compared to third
quarter 2007 and $15 million in first nine months 2008 compared to first nine
months 2007 due to higher raw material and energy costs more than offsetting
higher selling prices and the impact of increased sales volume. First
nine months 2007 operating results included $1 million in asset impairment and
restructuring costs primarily for the Spain cyclohexane dimethanol ("CHDM")
facility and $1 million of accelerated depreciation costs for restructuring
actions associated with higher cost PET polymer assets in Columbia, South
Carolina.
The SP
segment is progressing with the introduction of its new copolyester, Eastman
TritanTM
copolyester, including a new 30,000 metric ton TritanTM
manufacturing facility expected to be online by early 2010.
Sales
Revenue
|
|
Third
Quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars
in millions)
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
Volume
Effect
|
|
|
Price
Effect
|
|
|
Product
Mix
Effect
|
|
|
Exchange
Rate
Effect
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States and Canada
|
|
$ |
1,124 |
|
|
$ |
1,021 |
|
|
|
10 |
% |
|
|
(9 |
)
% |
|
|
19 |
% |
|
|
-- |
% |
|
|
-- |
% |
Asia
Pacific
|
|
|
309 |
|
|
|
259 |
|
|
|
20 |
% |
|
|
6 |
% |
|
|
10 |
% |
|
|
3 |
% |
|
|
1 |
% |
Europe,
Middle East, and Africa
|
|
|
248 |
|
|
|
231 |
|
|
|
7 |
% |
|
|
(2 |
)
% |
|
|
4 |
% |
|
|
1 |
% |
|
|
4 |
% |
Latin
America
|
|
|
138 |
|
|
|
181 |
|
|
|
(24 |
)
% |
|
|
(32 |
)
% |
|
|
6 |
% |
|
|
2 |
% |
|
|
-- |
% |
|
|
$ |
1,819 |
|
|
$ |
1,692 |
|
|
|
8 |
% |
|
|
(8 |
)
% |
|
|
14 |
% |
|
|
1 |
% |
|
|
1 |
% |
Sales
revenue in the United States and Canada increased for third quarter 2008
compared to third quarter 2007 primarily due to higher selling prices
particularly in the PCI and CASPI segments partially offset by lower sales
volume in all segments excluding the SP segment. Excluding contract
ethylene sales, sales revenue increased 10 percent. Lower sales
volume was attributed to generally weakened economic
conditions. Higher selling prices for contract ethylene was mostly
offset by lower sales volume for contract ethylene.
Sales
revenue in Asia Pacific increased for third quarter 2008 compared to third
quarter 2007 primarily due to higher selling prices in all segments and
increased sales volume in the SP, Fibers, and CASPI segments partially offset by
lower sales volume in the PCI segment.
Sales
revenue in Europe, Middle East and Africa increased for third quarter 2008
compared to third quarter 2007, primarily due to a favorable foreign exchange
rate in all segments and higher selling prices in all segments excluding the SP
segment.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
Sales
revenue in Latin America decreased for third quarter 2008 compared to third
quarter 2007 primarily due to lower sales volume resulting from the divestiture
of the 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 14 percent due to increased selling prices
in all segments.
|
|
First
Nine Months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars
in millions)
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
Volume
Effect
|
|
|
Price
Effect
|
|
|
Product
Mix
Effect
|
|
|
Exchange
Rate
Effect
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States and Canada
|
|
$ |
3,287 |
|
|
$ |
3,053 |
|
|
|
8 |
% |
|
|
(8 |
)
% |
|
|
16 |
% |
|
|
-- |
% |
|
|
-- |
% |
Asia
Pacific
|
|
|
921 |
|
|
|
782 |
|
|
|
18 |
% |
|
|
5 |
% |
|
|
8 |
% |
|
|
4 |
% |
|
|
1 |
% |
Europe,
Middle East, and Africa
|
|
|
774 |
|
|
|
694 |
|
|
|
12 |
% |
|
|
2 |
% |
|
|
-- |
% |
|
|
4 |
% |
|
|
6 |
% |
Latin
America
|
|
|
398 |
|
|
|
564 |
|
|
|
(29 |
)
% |
|
|
(35 |
)
% |
|
|
4 |
% |
|
|
2 |
% |
|
|
-- |
% |
|
|
$ |
5,380 |
|
|
$ |
5,093 |
|
|
|
6 |
% |
|
|
(8 |
)
% |
|
|
11 |
% |
|
|
2 |
% |
|
|
1 |
% |
Sales
revenue in the United States and Canada increased for first nine months 2008
compared to first nine months 2007 primarily due to higher selling prices
particularly in the PCI segment partially offset by lower sales volume for
contract ethylene sales in the PCI segment. Excluding contract
ethylene sales, sales revenue increased 6 percent primarily due to higher
selling prices in the PCI, Performance Polymers, and CASPI segments, partially
offset by lower sales volume in the same segments.
Sales
revenue in Asia Pacific increased for first nine months 2008 compared to first
nine months 2007 primarily due to higher selling prices, increased sales volume,
and a favorable shift in product mix. Higher selling prices and a
favorable shift in product mix were in all segments excluding
PCI. Higher sales volume in the Fibers, SP, and CASPI segments were
partially offset by lower sales volume in the Performance Polymers and PCI
segments.
Sales
revenue in Europe, Middle East and Africa increased for first nine months 2008
compared to first nine months 2007, primarily due to a favorable foreign
exchange rate in all segments and a favorable shift in product mix in all
segments excluding the Fibers segment.
Sales
revenue in Latin America decreased for first nine months 2008 compared to first
nine months 2007 primarily due to lower sales volume resulting from the
divestiture of the 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 18
percent primarily due to higher selling prices in all segments.
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 Nine
Months
|
|
(Dollars
in millions)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in)
|
|
|
|
|
|
|
Operating
activities
|
|
$ |
293 |
|
|
$ |
411 |
|
Investing
activities
|
|
|
(145 |
) |
|
|
(299 |
) |
Financing
activities
|
|
|
(699 |
) |
|
|
(270 |
) |
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
-- |
|
|
|
-- |
|
Net
change in cash and cash equivalents
|
|
|
(
551 |
) |
|
|
(
158 |
) |
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of period
|
|
|
888 |
|
|
|
939 |
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
|
$ |
337 |
|
|
$ |
781 |
|
Cash
provided by operating activities was $293 million in first nine months 2008
compared to $411 million provided by operating activities in first nine months
2007. The lower level of cash provided by operating activities in
first nine months 2008 was primarily due to a greater increase in working
capital largely resulting from an increase in inventory attributable to higher
raw material costs. In first nine months 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. Depreciation
and amortization expense for first nine months 2008 decreased compared to first
nine months 2007 resulting from the divestitures of manufacturing facilities and
related assets in Latin America and Europe in fourth quarter 2007 and first
quarter 2008, respectively and due to a reduction in accelerated depreciation
costs.
Cash used
in investing activities was $145 million in first nine months 2008 compared to
$299 million used in first nine months 2007. Proceeds of $333 million
were received in first nine months 2008 primarily from 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
$430 million increased consistent with the Company's higher expected capital
spending in 2008.
Cash used
in financing activities totaled $699 million in first nine months 2008 compared
to $270 million used in financing activities in first nine months 2007 and
included cash paid for share repurchases totaling $501 million in the first nine
months 2008 and $300 million in the first nine months 2007 and a repayment of
borrowings of $175 million in the first nine months 2008 and $11 million in the
first nine months 2007.
The
payment of dividends is also reflected in financing activities in all
periods.
Liquidity
At
September 30, 2008, the Company had credit facilities with various U.S. and
foreign banks totaling approximately $800 million. These credit
facilities consist of the $700 million Credit Facility and a 60 million euro
credit facility ("Euro Facility"). The Credit Facility has two
tranches, with $125 million expiring in 2012 and $575 million expiring in
2013. The Euro Facility expires in 2012. 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 September 30, 2008, the Company’s credit facility
borrowings totaled $85 million, primarily the Euro Facility, at an effective
interest rate of 5.36 percent. At December 31, 2007, borrowings on
these credit facilities were $188 million, primarily from the Euro Facility, at
an effective interest rate of 4.79 percent.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
The
Company used 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 $103 million in second quarter 2008.
The
Credit Facility provides liquidity support for general corporate
purposes. Accordingly, any outstanding commercial paper borrowings
reduce borrowings available under the Credit Facility. Since the
Credit Facility expires in April 2012, any commercial paper borrowings supported
by the Credit Facility are classified as long-term borrowings because the
Company has the ability to refinance such borrowings on a long-term
basis.
For more
information regarding interest rates, refer to Note 7, "Borrowings", to the
Company's unaudited consolidated financial statements.
The
Company repaid $72 million of 3 1/4% notes that matured June 15,
2008.
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 has repurchased 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
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 $430 million and $346 million for first nine months for 2008
and 2007, respectively. The Company expects capital spending in 2008
will be between $625 million and $650 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, front-end engineering and design for the industrial gasification
project, increasing capacity of cellulose triacetate (“CTA”) for LCD screens,
and increasing manufacturing capacity for Eastman TritanTM
copolyester.
Other
Commitments
At
September 30, 2008, the Company’s obligations related to notes and debentures
totaled approximately $1.3 billion to be paid over a period of up to 20
years. Other borrowings, related primarily to credit facility
borrowings, totaled approximately $100 million.
The
Company had various purchase obligations at September 30, 2008 totaling
approximately $2.0 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 11, "Commitments", to the Company's unaudited consolidated
financial statements.
In
addition, the Company had other liabilities at September 30, 2008 totaling
approximately $1.0 billion primarily related to pension, retiree medical, and
other post-employment obligations.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
The items
described above are summarized in the following table:
(Dollars
in millions)
|
|
Payments
Due for
|
Period
|
|
Notes
and Debentures
|
|
Credit
Facility Borrowings and Other
|
|
Interest
Payable
|
|
Purchase
Obligations
|
|
Operating
Leases
|
|
Other
Liabilities (a)
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
$
|
--
|
$
|
--
|
$
|
17
|
$
|
118
|
$
|
9
|
$
|
20
|
$
|
164
|
2009
|
|
--
|
|
14
|
|
94
|
|
489
|
|
30
|
|
117
|
|
744
|
2010
|
|
--
|
|
--
|
|
94
|
|
468
|
|
26
|
|
70
|
|
658
|
2011
|
|
2
|
|
--
|
|
94
|
|
260
|
|
24
|
|
59
|
|
439
|
2012
|
|
149
|
|
85
|
|
84
|
|
254
|
|
13
|
|
55
|
|
640
|
2013
and beyond
|
|
1,186
|
|
--
|
|
948
|
|
394
|
|
18
|
|
653
|
|
3,199
|
Total
|
$
|
1,337
|
$
|
99
|
$
|
1,331
|
$
|
1,983
|
$
|
120
|
$
|
974
|
$
|
5,844
|
(a)
Amounts represent the current estimated cash payments to be made by the Company
primarily for pension and other post-employment benefits and taxes payable in
the periods indicated. The amount and timing of such payments is
dependent upon interest rates, health care trends, actual returns on plan
assets, retirement and attrition rates of employees, continuation or
modification of the benefit plans, and other factors. Such factors
can significantly impact the amount and timing of any future contributions by
the Company.
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 11, "Commitments", to the Company's unaudited
consolidated financial statements.
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 11, "Commitments", to the Company's
unaudited consolidated financial statements. The Company has had
on-going access to this accounts receivable securitization program and further
expects its continued availability, subject to annual renewals.
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", 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
September 30, 2008. This potential VIE is a joint venture from which the
Company has purchased raw materials and utilities for several years and
purchases approximately $50 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.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
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
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 stock 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 the first nine
months 2008, the Company repurchased an additional 8.1 million shares of common
stock for a cost of $501 million.
Dividends
The
Company declared cash dividends of $0.44 per share in third quarter 2008 and
2007 and $1.32 per share in first nine months 2008 and 2007.
Effective
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.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
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 has concluded that SFAS No. 160 will not have a
material impact on the Company’s consolidated financial statements.
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"; and how derivative instruments and related
hedged items affect its financial position, financial performance, and cash
flows. The Company has concluded that SFAS No. 161 will not have a
material impact on the Company’s consolidated financial statements.
In
June 2008, the FASB issued FASB Staff Position ("FSP") Emerging Issues Task
Force (" EITF") Issue No. 03-6-1, " Determining Whether Instruments Granted
in Share-Based Payment Transactions Are Participating Securities" (" EITF Issue
No. 03-6-1"). The FSP addresses whether instruments granted in
share-based payment transactions are participating securities prior to vesting
and, therefore, need to be included in the earnings allocation in computing
earnings per share under the two-class method. The FSP affects
entities that accrue dividends on share-based payment awards during the awards’
service period when the dividends do not need to be returned if the employees
forfeit the award. This FSP is effective for fiscal years beginning
after December 15, 2008. The Company has concluded that EITF
Issue No. 03-6-1 will not have a material impact on the Company’s consolidated
financial statements.
For 2008,
the Company expects:
·
|
minimal
declines in volume due to continued substitution of Eastman products for
other materials, and new applications for existing products despite the
softening U.S. and global
economies;
|
·
|
the
volatility of raw material and energy cost increases to continue and that
the Company will continue to use pricing strategies and ongoing cost
control initiatives in an attempt to offset the effects on gross
profit;
|
·
|
to
improve the profitability of its PET product lines in the Performance
Polymers segment. The Company expects
to debottleneck the new South Carolina PET facility utilizing
IntegRexTM technology
beginning in fourth quarter of 2008 for a total capacity of 525,000 metric
tons of ParaStarTM
PET; and continue to pursue options to create additional value from its
IntegRexTM technology,
primarily by actively pursuing licensing opportunities. In
addition to the above, the Company has already completed the divestiture
of its underperforming PET manufacturing facilities outside the United
States in first quarter 2008; the shut down of another 300,000
metric tons of conventional PET polymers capacity at the South Carolina
manufacturing facility and dimethyl terephthalate assets in first quarter
2008; and the elimination approximately $30 million of annual costs at the
South Carolina site in second quarter
2008;
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
·
|
to
position the SP segment for improved results. The Company will
continue to progress with the introduction of its new copolyester, Eastman
TritanTM
copolyester, including a new 30,000 metric ton TritanTM
manufacturing facility expected to be online by early
2010. In addition to the above, the Company has already
completed the conversion of 50,000 metric tons of PET capacity to
copolyester in second quarter 2008;
|
·
|
that
the staged phase-out of older cracking units in Longview, Texas and a
planned shutdown of higher cost PET assets in Columbia, South Carolina
will result in accelerated depreciation costs of approximately $10
million;
|
·
|
ethylene
volume 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 volume in the Performance Polymers segment due to the transition
agreement for polymer
intermediates;
|
·
|
modest
sales volume growth for acetate tow in the Fibers segment. The
Company expects to announce plans for new acetate tow capacity in
Asia. In addition to the above, the Company has already
completed the expansion of its acetate tow plant in Workington, England,
in October 2008;
|
·
|
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 slightly below the typical range
of 15 to 20 percent operating margin, with continued weakness in the U.S.
housing and automotive sectors offset by strength in Europe and
Asia;
|
·
|
to
rework the front-end engineering and design for the industrial
gasification project due to higher than expected interim capital
estimates, thus delaying completion of this phase of the project to 2009
and to evaluate project financing after completion of the front-end
engineering and design rework;
|
·
|
net
interest expense to increase compared with 2007 primarily due to lower
interest income, driven by lower average invested cash balances and lower
average interest rates;
|
·
|
the
effective tax rate to be approximately 30 percent including the benefit of
the federal gasification investment tax credit and a federal research and
development credit;
|
·
|
capital
spending will be between $625 million and $650 million as it funds
targeted growth efforts, including the debottlenecking of the South
Carolina manufacturing facility utilizing IntegRexTM
technology, the front-end engineering and design for the industrial
gasification project, 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
|
·
|
priorities
for uses of available cash to be to pay the quarterly cash dividend, fund
targeted growth initiatives, repay debt (which was completed in second
quarter 2008), and repurchase
shares.
|
For
fourth quarter 2008, the Company expects:
·
|
continued
economic weakness in North America and Europe, and slowing demand growth
in Asia;
|
·
|
continued
volatility in our raw material and energy costs;
and
|
·
|
due
to its global geographic profile, diverse product portfolio, and solid
financial position, earnings per share from continuing operations,
excluding items related to strategic actions, to be approximately $0.90
per share.
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
In
addition to the above, the Company expects to improve earnings significantly
through strategic efforts and growth initiatives in existing businesses over the
next five years, and expects:
·
|
the
SP segment further to improve earnings by completing the conversion of an
additional 50,000 metric tons of PET capacity to co-polyester capacity in
2011, increasing sales revenue from cellulose esters used in LCD screens
and continued progress with the introduction 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
|
·
|
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.
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.
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
·
|
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.
|
·
|
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.
|
·
|
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 TritanTM
and other 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.
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
·
|
The
Company anticipates obtaining non-recourse financing for its industrial
gasification project. 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 project, 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 project or the terms of such
financing, if available, including the nature and terms of any recourse
back to the Company.
|
·
|
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.
|
·
|
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.
|
·
|
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.
|
·
|
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.
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
·
|
The
Company’s sources of liquidity have been and are expected to be
cash from operating activities, available cash balances, the commercial
paper market, the revolving $700 million credit facility, and sales of
domestic receivables under the $200 million accounts receivable
securitization program. Additionally, the Company relies upon
third parties to provide it with trade credit for purchases of various
products and services. While the Company maintains business
relationships with a diverse group of financial institutions, their
continued viability is not certain and could lead them not to honor their
contractual credit commitments or to renew their extensions of credit or
provide new sources of credit. Furthermore, trade
creditors may be unable to obtain credit and reduce their
trade credit extension. Recently, the capital and credit
markets have become increasingly volatile as a result of adverse
conditions that have caused the failure and near failure of a number of
large financial services companies. If the capital and credit
markets continue to experience volatility and the availability of funds
remains limited, the Company may incur increased costs associated with
borrowings. In addition, it is possible that the Company’s
ability to access the capital and credit markets may be limited by these
or other factors at a time when it would like, or need, to do so, which
could have an impact on the Company’s ability to finance its business or
react to changing economic and business conditions. While the
Company believes that recent governmental and regulatory actions reduce
the risk of a further deterioration or systemic contraction of capital and
credit markets, there can be no certainty that the
Company’s liquidity will not be
negatively impacted. In addition, the Company’s cash flows
from operations may be adversely affected by adverse consequences to the
Company’s customers and the markets in which the Company competes as a
result of the current financial, economic, and capital and credit market
conditions and uncertainty.
|
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
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 Exchange Act of 1934
is accumulated and communicated to the Company’s management, including its
principal executive and principal financial officers 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 as of September 30, 2008, the Company’s disclosure controls and procedures
were effective to ensure that information required to be disclosed was
accumulated and communicated to management as appropriate to allow timely
decisions regarding required disclosure.
Changes in Internal Control
Over Financial Reporting
There has
been no change in the Company’s internal control over financial reporting that
occurred during third 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 17, "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 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.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES
AND USE OF PROCEEDS
(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)
|
July
1-31, 2008
|
149,365
|
$
|
66.12
|
|
149,200
|
$
|
338
|
August
1-31, 2008
|
3,473,054
|
$
|
59.57
|
|
3,472,453
|
$
|
131
|
September
1-30, 2008
|
246,117
|
$
|
60.27
|
|
246,117
|
$
|
117
|
Total
|
3,868,536
|
$
|
59.87
|
|
3,867,770
|
|
|
(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 authorized 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 September 30, 2008, a total of 9.4
million shares have been repurchased under this authorization for a total
amount of $583 million. For
additional information, see Note 14, "Earnings and Dividends Per Share",
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
52.
SIGNATURES
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: October
28, 2008
|
|
By:
|
/s/ Curtis E. Espeland |
|
|
|
Curtis
E. Espeland
|
|
|
|
Senior
Vice President and Chief Financial
Officer
|
|
|
|
|
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, July 14, 2005, and July 9, 2008), between the Company and
The Bank of Tokyo-Mitsubishi UFJ, Ltd., 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
|
|
|
|
|
|
|
|
4.10
|
|
Letter
Amendments dated November 16, 2007 and March 10, 2008 (incorporated herein
by reference to Exhibit 4.10 to Eastman Chemical Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 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 June 30, 2006)
|
|
|
|
|
EXHIBIT
INDEX
|
|
Sequential
|
Exhibit
|
|
|
|
Page
|
Number
|
|
Description
|
|
Number
|
|
|
|
|
|
4.11
|
|
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 June 30, 2006)
|
|
|
|
|
|
|
|
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)
|
|
|
|
|
|
|
|
10.01
|
|
|
|
54-55
|
|
|
|
|
|
10.02
|
|
|
|
56-57
|
|
|
|
|
|
10.03
|
|
|
|
58-70
|
|
|
|
|
|
10.04
|
|
|
|
71-83
|
|
|
|
|
|
10.05
|
|
|
|
84-90
|
|
|
|
|
|
12.01
|
|
|
|
91
|
|
|
|
|
|
31.01
|
|
|
|
92
|
|
|
|
|
|
31.02
|
|
|
|
93
|
|
|
|
|
|
32.01
|
|
|
|
94
|
|
|
|
|
|
32.02
|
|
|
|
95
|
53