emn2009q1_10q.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
FORM
10-Q
(Mark
One)
|
|
[X]
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
|
For
the quarterly period ended March 31, 2009
|
|
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
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|
37662
|
(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 has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such
files).
YES
[ ] 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 March 31, 2009
|
Common
Stock, par value $0.01 per share
|
|
72,644,214
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|
|
|
--------------------------------------------------------------------------------------------------------------------------------
PAGE
1 OF 45 TOTAL SEQUENTIALLY NUMBERED PAGES
EXHIBIT
INDEX ON PAGE 44
TABLE
OF CONTENTS
PART
I. FINANCIAL INFORMATION
1.
|
Financial
Statements
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|
|
|
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3
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|
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4
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5
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6
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2.
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19
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3.
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40
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4.
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40
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PART
II. OTHER INFORMATION
SIGNATURES
COMPREHENSIVE
INCOME AND RETAINED EARNINGS
|
|
First
Three Months
|
(Dollars
in millions, except per share amounts)
|
|
2009
|
|
2008
|
|
|
|
|
|
Sales
|
$
|
1,129
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$
|
1,727
|
Cost
of sales
|
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950
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|
1,390
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Gross
profit
|
|
179
|
|
337
|
|
|
|
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Selling,
general and administrative expenses
|
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94
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|
110
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Research
and development expenses
|
|
34
|
|
42
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Asset
impairments and restructuring charges, net
|
|
26
|
|
17
|
Operating
earnings
|
|
25
|
|
168
|
|
|
|
|
|
Interest
expense, net
|
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19
|
|
16
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Other
charges (income), net
|
|
4
|
|
(1)
|
Earnings
from continuing operations before income taxes
|
|
2
|
|
153
|
Provision
for income taxes from continuing operations
|
|
--
|
|
38
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Earnings
from continuing operations
|
|
2
|
|
115
|
|
|
|
|
|
Earnings
from disposal of discontinued operations, net of tax
|
|
--
|
|
18
|
Net
earnings
|
$
|
2
|
$
|
133
|
|
|
|
|
|
Basic
earnings per share
|
|
|
|
|
Earnings
from continuing operations
|
$
|
0.03
|
$
|
1.47
|
Earnings
from discontinued operations
|
|
--
|
|
0.23
|
Basic
earnings per share
|
$
|
0.03
|
$
|
1.70
|
|
|
|
|
|
Diluted
earnings per share
|
|
|
|
|
Earnings
from continuing operations
|
$
|
0.03
|
$
|
1.46
|
Earnings
from discontinued operations
|
|
--
|
|
0.22
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Diluted
earnings per share
|
$
|
0.03
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$
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1.68
|
|
|
|
|
|
Comprehensive
Income
|
|
|
|
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Net
earnings
|
$
|
2
|
$
|
133
|
Other
comprehensive income (loss)
|
|
|
|
|
Change
in cumulative translation adjustment, net of tax
|
|
(10)
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|
(36)
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Change
in pension liability, net of tax
|
|
--
|
|
8
|
Change
in unrealized gains (losses) on derivative instruments, net of
tax
|
|
9
|
|
(26)
|
Total
other comprehensive income (loss)
|
|
(1)
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|
(54)
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Comprehensive
income
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$
|
1
|
$
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79
|
|
|
|
|
|
Retained
Earnings
|
|
|
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Retained
earnings at beginning of period
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$
|
2,563
|
$
|
2,349
|
Net
earnings
|
|
2
|
|
133
|
Cash
dividends declared
|
|
(32)
|
|
(34)
|
Retained
earnings at end of period
|
$
|
2,533
|
$
|
2,448
|
The
accompanying notes are an integral part of these consolidated financial
statements.
|
|
March
31,
|
|
December
31,
|
(Dollars
in millions, except per share amounts)
|
|
2009
|
|
2008
|
|
|
(Unaudited)
|
|
|
Assets
|
|
|
|
|
Current
assets
|
|
|
|
|
Cash
and cash equivalents
|
$
|
340
|
$
|
387
|
Trade
receivables, net
|
|
264
|
|
275
|
Miscellaneous
receivables
|
|
89
|
|
79
|
Inventories
|
|
561
|
|
637
|
Other
current assets
|
|
49
|
|
45
|
Total
current assets
|
|
1,303
|
|
1,423
|
|
|
|
|
|
Properties
|
|
|
|
|
Properties
and equipment at cost
|
|
8,557
|
|
8,527
|
Less: Accumulated
depreciation
|
|
5,329
|
|
5,329
|
Net
properties
|
|
3,228
|
|
3,198
|
|
|
|
|
|
Goodwill
|
|
324
|
|
325
|
Other
noncurrent assets
|
|
342
|
|
335
|
Total
assets
|
$
|
5,197
|
$
|
5,281
|
|
|
|
|
|
Liabilities
and Stockholders' Equity
|
|
|
|
|
Current
liabilities
|
|
|
|
|
Payables
and other current liabilities
|
$
|
756
|
$
|
819
|
Borrowings
due within one year
|
|
13
|
|
13
|
Total
current liabilities
|
|
769
|
|
832
|
|
|
|
|
|
Long-term
borrowings
|
|
1,437
|
|
1,442
|
Deferred
income tax liabilities
|
|
111
|
|
106
|
Post-employment
obligations
|
|
1,250
|
|
1,246
|
Other
long-term liabilities
|
|
107
|
|
102
|
Total
liabilities
|
|
3,674
|
|
3,728
|
|
|
|
|
|
Stockholders'
equity
|
|
|
|
|
Common
stock ($0.01 par value – 350,000,000 shares authorized; shares issued –
94,593,224 and 94,495,860 for 2009 and 2008, respectively)
|
|
1
|
|
1
|
Additional
paid-in capital
|
|
639
|
|
638
|
Retained
earnings
|
|
2,533
|
|
2,563
|
Accumulated
other comprehensive loss
|
|
(336)
|
|
(335)
|
|
|
2,837
|
|
2,867
|
Less:
Treasury stock at cost (22,031,684 shares for 2009 and 22,031,357 shares
for 2008)
|
|
1,314
|
|
1,314
|
|
|
|
|
|
Total
stockholders' equity
|
|
1,523
|
|
1,553
|
|
|
|
|
|
Total
liabilities and stockholders' equity
|
$
|
5,197
|
$
|
5,281
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
|
|
First
Three Months
|
(Dollars
in millions)
|
|
2009
|
|
2008
|
|
|
|
|
|
Cash
flows from operating activities
|
|
|
|
|
Net
earnings
|
$
|
2
|
$
|
133
|
|
|
|
|
|
Adjustments
to reconcile net earnings to net cash provided by (used in) operating
activities:
|
|
|
|
|
Depreciation
and amortization
|
|
67
|
|
65
|
Asset
impairments charges
|
|
--
|
|
1
|
Gains
on sale of assets
|
|
--
|
|
(7)
|
Provision
(benefit) for deferred income taxes
|
|
(13)
|
|
(56)
|
Changes
in operating assets and liabilities, net of effect of acquisitions and
divestitures:
|
|
|
|
|
(Increase)
decrease in trade receivables
|
|
5
|
|
(40)
|
(Increase)
decrease in inventories
|
|
70
|
|
(116)
|
Increase
(decrease) in trade payables
|
|
(17)
|
|
(47)
|
Increase
(decrease) in liabilities for employee benefits and incentive
pay
|
|
(55)
|
|
(61)
|
Other
items, net
|
|
23
|
|
75
|
|
|
|
|
|
Net
cash provided by (used in) operating activities
|
|
82
|
|
(53)
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
Additions
to properties and equipment
|
|
(110)
|
|
(132)
|
Proceeds
from sale of assets
|
|
24
|
|
323
|
Additions
to capitalized software
|
|
(2)
|
|
(3)
|
Other
items, net
|
|
(20)
|
|
(6)
|
|
|
|
|
|
Net
cash provided by (used in) investing activities
|
|
(108)
|
|
182
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
Net
increase in commercial paper, credit facility, and other
borrowings
|
|
6
|
|
48
|
Dividends
paid to stockholders
|
|
(32)
|
|
(35)
|
Treasury
stock purchases
|
|
--
|
|
(245)
|
Proceeds
from stock option exercises and other items
|
|
5
|
|
7
|
|
|
|
|
|
Net
cash used in financing activities
|
|
(21)
|
|
(
225)
|
|
|
|
|
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
--
|
|
1
|
|
|
|
|
|
Net
change in cash and cash equivalents
|
|
(47)
|
|
(95)
|
|
|
|
|
|
Cash
and cash equivalents at beginning of period
|
|
387
|
|
888
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
$
|
340
|
$
|
793
|
The
accompanying notes are an integral part of these consolidated financial
statements.
ITEM
|
Page
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7
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7
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7
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8
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8
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9
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9
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10
|
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11
|
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12
|
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13
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15
|
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16
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16
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16
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17
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18
|
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 2008 Annual
Report on Form 10-K and should be read in conjunction with the consolidated
financial statements in Part II, Item 8 of the Company's 2008 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.
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 $329 million. 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.
The sale
of the manufacturing facilities in the Netherlands and United Kingdom, and
related businesses completed the Company's exit from the European PET business
and qualifies as a component of an entity under Statement of Financial
Accounting Standards ("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 were 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 through 2008.
Operating
results of the discontinued operations which were formerly included in the
Performance Polymers segment are summarized below:
|
|
First
Three Months
|
(Dollars
in millions)
|
|
2008
|
|
|
|
Sales
|
$
|
169
|
Earnings
before income taxes
|
|
2
|
Gain
on disposal, net of tax
|
|
18
|
|
March
31,
|
|
December
31,
|
(Dollars
in millions)
|
2009
|
|
2008
|
|
|
|
|
At
FIFO or average cost (approximates current cost)
|
|
|
|
Finished
goods
|
$
|
594
|
$
|
634
|
Work
in process
|
181
|
|
200
|
Raw
materials and supplies
|
288
|
|
328
|
Total
inventories
|
1,063
|
|
1,162
|
LIFO
Reserve
|
(502)
|
|
(525)
|
Total
inventories
|
$
|
561
|
$
|
637
|
Inventories
valued on the LIFO method were approximately 75 percent of total inventories as
of March 31, 2009 and December 31, 2008.
NOTES TO THE UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS
|
PAYABLES
AND OTHER CURRENT LIABILITIES
|
|
|
March
31,
|
|
December 31,
|
(Dollars
in millions)
|
|
2009
|
|
2008
|
|
|
|
|
|
Trade
creditors
|
$
|
371
|
$
|
390
|
Accrued
payrolls, vacation, and variable-incentive compensation
|
|
70
|
|
129
|
Accrued
taxes
|
|
54
|
|
41
|
Post-employment
obligations
|
|
59
|
|
60
|
Interest
payable
|
|
25
|
|
30
|
Bank
overdrafts
|
|
9
|
|
4
|
Other
|
|
168
|
|
165
|
Total
payables and other current liabilities
|
$
|
756
|
$
|
819
|
The
current portion of post-employment obligations is an estimate of current year
payments in excess of plan assets.
|
PROVISION
FOR INCOME TAXES
|
|
First
Quarter
|
|
(Dollars
in millions)
|
2009
|
|
2008
|
|
Change
|
|
|
|
|
|
|
Provision
for income taxes
|
$
|
--
|
$
|
38
|
|
(100)
%
|
Effective
tax rate
|
|
N/A
|
|
25
%
|
|
|
First
quarter 2009 effective tax rate, excluding discrete items, reflects the
Company's expected full year tax rate on reported operating earnings from
continuing operations before income tax of approximately 32
percent. First quarter 2008 effective tax rate reflects an $8 million
benefit from the reversal of a U.S. capital loss valuation allowance associated
with the sale of businesses and a $6 million benefit from the settlement of a
non-U.S. income tax audit.
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
2003. It is reasonably possible that within the next 12 months the
Company will recognize approximately $3 million of unrecognized tax benefits as
a result of the expiration of the relevant statute of limitations.
NOTES TO THE UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS
|
|
March
31,
|
|
December
31,
|
(Dollars
in millions)
|
|
2009
|
|
2008
|
|
|
|
|
|
Borrowings
consisted of:
|
|
|
|
|
7%
notes due 2012
|
$
|
153
|
$
|
154
|
6.30%
notes due 2018
|
|
207
|
|
207
|
7
1/4% debentures due 2024
|
|
497
|
|
497
|
7
5/8% debentures due 2024
|
|
200
|
|
200
|
7.60%
debentures due 2027
|
|
298
|
|
298
|
Credit
facility borrowings
|
|
80
|
|
84
|
Other
|
|
15
|
|
15
|
Total
borrowings
|
|
1,450
|
|
1,455
|
Borrowings
due within one year
|
|
(13)
|
|
(13)
|
Long-term
borrowings
|
$
|
1,437
|
$
|
1,442
|
At March
31, 2009, the Company had credit facilities with various U.S. and foreign banks
totaling approximately $800 million. These credit facilities consist
of a $700 million revolving credit facility (the "Credit Facility"), as well as
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 March 31, 2009, the Company's credit facility
borrowings totaled $80 million at an effective interest rate of 1.90
percent. At December 31, 2008, the Company's credit facility
borrowings totaled $84 million at an effective interest rate of 3.74
percent.
The
Credit Facility provides liquidity support for commercial paper borrowings and
general corporate purposes. Accordingly, any outstanding commercial
paper borrowings reduce borrowings available under the Credit
Facility. Given the expiration dates of the Credit Facility, any
commercial paper borrowings supported by the Credit Facility are classified as
long-term borrowings because the Company has the ability and intent to refinance
such borrowings on a long-term basis.
|
ASSET
IMPAIRMENTS AND RESTRUCTURING CHARGES,
NET
|
In first
quarter 2009, restructuring charges totaled $26 million primarily for severance
charges resulting from the announced reduction in force of approximately 300
employees.
In first
quarter 2008, asset impairments and restructuring charges totaled $17 million
primarily for severance and pension charges in the Performance Chemicals
and Intermediates ("PCI") segment resulting from the decision to close a
previously impaired site in the United Kingdom.
NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Changes
in Reserves for Asset Impairments, Restructuring Charges, and Severance
Charges
The
following table summarizes the beginning reserves, charges to and changes in
estimates to the reserves as described above, and the cash and non-cash
reductions to the reserves attributable to asset impairments and the cash
payments for severance and site closure costs for full year 2008 and first
quarter 2009:
(Dollars
in millions)
|
|
Balance
at
January
1, 2008
|
|
Provision/
Adjustments
|
|
Non-cash
Reductions
|
|
Cash
Reductions
|
|
Balance
at
December
31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash
charges
|
$
|
--
|
$
|
2
|
$
|
(2)
|
$
|
--
|
$
|
--
|
Severance
costs
|
|
7
|
|
10
|
|
--
|
|
(12)
|
|
5
|
Site
closure and other restructuring costs
|
|
11
|
|
34
|
|
--
|
|
(20)
|
|
25
|
Total
|
$
|
18
|
$
|
46
|
$
|
(2)
|
$
|
(32)
|
$
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at
January
1, 2009
|
|
Provision/
Adjustments
|
|
Non-cash
Reductions
|
|
Cash
Reductions
|
|
Balance
at
March
31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash
charges
|
$
|
--
|
$
|
--
|
$
|
--
|
$
|
--
|
$
|
--
|
Severance
costs
|
|
5
|
|
27
|
|
--
|
|
(2)
|
|
30
|
Site
closure and other restructuring costs
|
|
25
|
|
(1)
|
|
--
|
|
1
|
|
25
|
Total
|
$
|
30
|
$
|
26
|
$
|
--
|
$
|
(1)
|
$
|
55
|
A
majority of all severance and site closure costs is expected to be applied to
the reserves within one year.
DEFINED
BENFIT PENSION PLANS
Eastman
maintains defined benefit pension plans that provide eligible employees hired
prior to January 1, 2007, with retirement benefits. Costs recognized
for these benefits are recorded using estimated amounts, which may change as
actual costs derived for the year are determined.
Below is
a summary of the components of net periodic benefit cost recognized for
Eastman's significant defined benefit pension plans:
Summary
of Components of Net Periodic Benefit Costs
|
|
|
|
|
First
Quarter
|
(Dollars
in millions)
|
|
2009
|
|
2008
|
|
|
|
|
|
Service
cost
|
$
|
11
|
$
|
12
|
Interest
cost
|
|
21
|
|
21
|
Expected
return on assets
|
|
(24)
|
|
(26)
|
Curtailment
charge
|
|
--
|
|
9
|
Amortization
of:
|
|
|
|
|
Prior
service credit
|
|
(4)
|
|
(3)
|
Actuarial
loss
|
|
7
|
|
6
|
Net
periodic benefit cost
|
$
|
11
|
$
|
19
|
The
curtailment charge in first quarter 2008 is primarily related to the decision to
close a previously impaired site in the United Kingdom.
NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
POSTRETIREMENT
WELFARE PLANS
Eastman
provides a subsidy toward life insurance and health care and dental benefits for
eligible retirees hired prior to January 1, 2007, and a subsidy toward health
care benefits for retirees' eligible survivors. In general, Eastman
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 postretirement health care
benefits only; Eastman will not provide a subsidy toward the premium cost of
postretirement 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
|
|
|
|
|
First
Quarter
|
(Dollars
in millions)
|
|
2009
|
|
2008
|
|
|
|
|
|
Service
cost
|
$
|
2
|
$
|
2
|
Interest
cost
|
|
11
|
|
11
|
Expected
return on assets
|
|
(1)
|
|
(1)
|
Amortization
of:
|
|
|
|
|
Prior
service credit
|
|
(6)
|
|
(6)
|
Actuarial
loss
|
|
3
|
|
2
|
Net
periodic benefit cost
|
$
|
9
|
$
|
8
|
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 2008 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 at both March
31, 2009 and December 31, 2008, 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
$23 million at March 31, 2009, and $11 million to the maximum of $21 million at
December 31, 2008.
NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Purchasing
Obligations and Lease Commitments
At March
31, 2009, the Company had various purchase obligations totaling approximately
$1.5 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,
noncancelable, and month-to-month operating leases totaling $109 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 40 percent
relate to real property, including office space, storage facilities and land;
and approximately 45 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
trade receivables on a non-recourse basis to a consolidated special purpose
entity which in turn may sell interests in those receivables to a third party
purchaser which generally funds its purchases via the issuance of commercial
paper backed by the receivables interests. The agreement permits the
sale of undivided interests in domestic trade accounts
receivable. The assets of the special purpose entity are not
available to satisfy the Company's general obligations. Receivables
sold to the third party totaled $200 million at March 31, 2009 and December 31,
2008. 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 $211 million and $328 million in
first quarter 2009 and 2008, 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 March 31, 2009 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 2009, 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.
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 March 31, 2009. This
potential VIE is a joint venture from which the Company has purchased raw
materials and utilities for several years. The Company purchased
approximately $50 million of raw materials and utilities during 2008
and expects to purchase approximately $35 million in
2009. 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.
NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
|
FAIR
VALUE OF FINANCIAL INSTRUMENTS
|
Fair
Value Measurements
The
Company adopted SFAS No. 157, "Fair Value Measurements," ("SFAS No. 157") on
January 1, 2008. The standard establishes a valuation hierarchy for
disclosure of the inputs to the valuation used to measure fair value of certain
assets and liabilities. 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 financial instruments valued on a recurring
basis.
(Dollars
in millions)
|
|
Fair
Value Measurements at March 31, 2009
|
Description
|
|
March
31, 2009
|
|
Quoted
Prices in Active Markets for Identical Assets (Level 1)
|
|
Significant
Other Observable Inputs (Level 2)
|
|
Significant
Unobservable Inputs (Level 3)
|
Derivative
Assets
|
$
|
24
|
$
|
--
|
$
|
24
|
$
|
--
|
Derivative
Liabilities
|
|
--
|
|
--
|
|
--
|
|
--
|
|
$
|
24
|
$
|
--
|
$
|
24
|
$
|
--
|
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,
"Fair Value of Financial Instruments", to the consolidated financial statements
in Part II, Item 8 of the Company's 2008 Annual Report on Form
10-K.
Fair Value
Hedges
Fair
value hedges are defined by SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133") as derivative or non-derivative
instruments designated as and used to hedge the exposure to changes in the fair
value of an asset or a liability or an identified portion thereof that is
attributable to a particular risk. For derivative instruments that
are designated and qualify as a fair value hedge, the gain or loss on the
derivative as well as the offsetting loss or gain on the hedged item
attributable to the hedged risk are recognized in current
earnings.
As of
March 31, 2009, the Company had no active fair value hedges.
NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
Cash Flow
Hedges
Cash flow
hedges are defined by SFAS No. 133 as derivative instruments designated as and
used to hedge the exposure to variability in expected future cash flows that is
attributable to a particular risk. For derivative instruments that
are designated and qualify as a cash flow hedge, the effective portion of the
gain or loss on the derivative is reported as a component of other comprehensive
income, net of income taxes and reclassified into earnings in the same
period or periods during which the hedged transaction affects
earnings. Gains and losses on the derivatives representing either
hedge ineffectiveness or hedge components excluded from the assessment of
effectiveness are recognized in current earnings.
As of
March 31, 2009, the total notional amount of the Company's foreign exchange
forward and option contracts was $24 million. As of March 31, 2009,
the Company had no hedges for energy or feedstock.
Fair Value of Derivatives
Designated as Hedging Instruments
(Dollars in
millions)
|
|
March
31, 2009
|
Asset
Derivatives
|
|
Balance
Sheet Location
|
|
Fair
Value
|
Foreign
exchange contracts
|
|
Other
current assets
|
|
16
|
Foreign
exchange contracts
|
|
Other
noncurrent assets
|
|
8
|
|
|
|
|
24
|
(Dollars
in millions)
|
|
March
31, 2009
|
Liability
Derivatives
|
|
Balance
Sheet Location
|
|
Fair
Value
|
Commodity contract
|
|
Payables
and other current liabilities
|
|
--
|
Foreign
exchange contracts
|
|
Payables
and other current liabilities
|
|
--
|
|
|
|
|
--
|
Derivatives Cash
Flow Hedging Relationships
(Dollars
in millions)
|
|
|
|
|
|
|
Derivatives Cash
Flow Hedging Relationships
|
|
Amount
after tax of gain/ (loss) recognized in Other Comprehensive Income on
derivatives (effective portion)
|
|
Location
of gain/(loss) reclassified from Accumulated Other Comprehensive Income
into income (effective portion)
|
|
Pre-tax
amount of gain/(loss) reclassified from Accumulated Other Comprehensive
Income into income (effective portion)
|
|
March
31, 2009
|
|
|
March
31, 2009
|
Commodity contract
|
|
3
|
|
Cost
of sales
|
|
(6)
|
Foreign
exchange contracts
|
|
6
|
|
Sales
|
|
8
|
|
|
9
|
|
|
|
2
|
For the
quarter ended March 31, 2009, there was no ineffectiveness with regard to the
Company's cash flow hedges.
Nondesignated /
Nonqualifying Derivative Instruments
The gains
or losses on nonqualifying derivatives or derivatives that are not designated as
hedges are marked to market in other income and charges. The Company
recognized a $2 million net gain on nonqualifying derivatives during the quarter
ended March 31, 2009.
NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
A
reconciliation of the changes in stockholders' equity for first three months
2009 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, 2008
|
1
|
638
|
2,563
|
(335)
|
(1,314)
|
1,553
|
|
|
|
|
|
|
|
Net
Earnings
|
--
|
--
|
2
|
--
|
--
|
2
|
Cash
Dividends Declared (1)
|
--
|
--
|
(32)
|
--
|
--
|
(32)
|
Other
Comprehensive Income
|
--
|
--
|
--
|
(1)
|
--
|
(1)
|
Stock-Based
Compensation Expense (2)
|
--
|
3
|
--
|
--
|
--
|
3
|
Other
(3)
|
--
|
(2)
|
--
|
--
|
--
|
(2)
|
Balance
at March 31, 2009
|
1
|
639
|
2,533
|
(336)
|
(1,314)
|
1,523
|
(1) Cash
dividends declared, but
unpaid.
|
(2) The
fair value of equity share-based awards recognized under SFAS No. 123
Revised December 2004, "Share-Based
Payment".
|
(3) 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.
|
ACCUMULATED
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX
(Dollars
in millions)
|
Cumulative
Translation Adjustment
$
|
Unrecognized
Loss and Prior Service Cost
$
|
Unrealized
Gains (Losses) on Cash Flow Hedges
$
|
Unrealized
Losses on Investments
$
|
Accumulated
Other Comprehensive Income (Loss)
$
|
Balance
at December 31, 2007
|
157
|
(182)
|
(3)
|
--
|
(28)
|
Period
change
|
(97)
|
(232)
|
23
|
(1)
|
(307)
|
Balance
at December 31, 2008
|
60
|
(414)
|
20
|
(1)
|
(335)
|
Period
change
|
(10)
|
--
|
9
|
--
|
(1)
|
Balance
at March 31, 2009
|
50
|
(414)
|
29
|
(1)
|
(336)
|
Amounts
of other comprehensive income (loss) are presented net of applicable
taxes. The Company records deferred income taxes on the cumulative
translation adjustment related to branch operations and other entities included
in the Company's consolidated U.S. tax return. No deferred income
taxes are provided on the cumulative translation adjustment of subsidiaries
outside the United States, as such cumulative translation adjustment is
considered to be a component of permanently invested, unremitted earnings of
these foreign subsidiaries.
NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
|
EARNINGS
AND DIVIDENDS PER SHARE
|
|
First
Quarter
|
|
2009
|
|
2008
|
|
|
|
|
Shares
used for earnings per share calculation (in millions):
|
|
|
|
Basic
|
72.5
|
|
78.2
|
Diluted
|
72.9
|
|
79.2
|
The
Company declared cash dividends of $0.44 per share in first quarter 2009 and
2008.
|
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, restricted stock units, stock options and
performance shares. In first quarter 2009 and 2008, approximately $4
million and $8 million, respectively, of compensation expense before tax were
recognized in selling, general and administrative expense in the earnings
statement for all share-based awards. The impact on first quarter
2009 and 2008 net earnings of $3 million and $5 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, "Share-Based Compensation Plans and Awards", to the consolidated
financial statements in Part II, Item 8 of the Company's 2008 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, see Note 23, "Segment Information", to the consolidated financial
statements in Part II, Item 8 of the Company's 2008 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.
|
|
First
Quarter
|
(Dollars
in millions)
|
|
2009
|
|
2008
|
Sales
by Segment
|
|
|
|
|
CASPI
|
$
|
250
|
$
|
389
|
Fibers
|
|
259
|
|
254
|
PCI
|
|
286
|
|
556
|
Performance
Polymers
|
|
177
|
|
304
|
SP
|
|
157
|
|
224
|
Total
Sales
|
$
|
1,129
|
$
|
1,727
|
NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
|
|
First
Quarter
|
(Dollars
in millions)
|
|
2009
|
|
2008
|
|
|
|
|
|
Operating
Earnings (Loss)
|
|
|
|
|
CASPI
(1)
|
$
|
14
|
$
|
59
|
Fibers
(1)
|
|
69
|
|
68
|
PCI
(1)(2)
|
|
(3)
|
|
44
|
Performance
Polymers (1)(3)
|
|
(25)
|
|
(6)
|
SP
(1)
|
|
(18)
|
|
17
|
Total
Operating Earnings by Segment
|
|
37
|
|
182
|
Other
|
|
(12)
|
|
(14)
|
|
|
|
|
|
Total
Operating Earnings
|
$
|
25
|
$
|
168
|
(1)
|
First
quarter 2009 includes a restructuring charge primarily for
a severance program of $7 million, $4 million, $6 million, $4
million, and $5 million in the CASPI, Fibers, PCI, Performance Polymers,
and SP segments, respectively.
|
(2)
|
Includes
$16 million in first quarter 2008 of asset impairments and restructuring
charges primarily related to severance and pension costs from the decision
to close a previously impaired site in the United Kingdom and $1 million
in first quarter 2008 of accelerated depreciation costs resulting from the
previously reported shutdown of cracking units at the Company's Longview,
Texas facility.
|
(3)
|
Includes
$1 million in first quarter 2008 of asset impairments and restructuring
charges, net related to restructuring at the South Carolina facility using
IntegRexTM
technology and $1 million in first quarter 2008 of accelerated
depreciation costs resulting from restructing actions associated with
certain assets in Columbia, South Carolina.
|
|
|
March
31,
|
|
December
31,
|
(Dollars
in millions)
|
|
2009
|
|
2008
|
|
|
|
|
|
Assets
by Segment (1)
|
|
|
|
|
CASPI
|
$
|
1,141
|
$
|
1,160
|
Fibers
|
|
753
|
|
758
|
PCI
|
|
795
|
|
844
|
Performance
Polymers
|
|
549
|
|
606
|
SP
|
|
878
|
|
828
|
Total
Assets by Segment
|
|
4,116
|
|
4,196
|
Corporate
Assets
|
|
1,081
|
|
1,085
|
|
|
|
|
|
Total
Assets
|
$
|
5,197
|
$
|
5,281
|
(1)
|
Assets
managed by segment are accounts receivable, inventory, fixed assets, and
goodwill.
|
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 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.
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
nonfinancial assets and nonfinancial liabilities addressed in FASB Staff
Position ("FSP") FAS 157-2, "Effective Date of FASB Statement No.
157". The Company adopted the provisions of SFAS No. 157 with regard
to nonfinancial assets and nonfinancial liabilities in the first quarter of 2009
with no impact upon adoption.
In April
2009, the FASB issued FSP FAS 157-4, "Determining Fair Value When the Volume and
Level of Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly" ("FSP FAS 157-4"), to address
challenges in estimating fair value when the volume and level of activity for an
asset or liability have significantly decreased. This FSP emphasizes
that even if there has been a significant decrease in the volume and level of
activity for the asset or liability and regardless of the valuation technique(s)
used, the objective of a fair value measurement remains the
same. Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction (that is, not a forced
liquidation or distressed sale) between market participants at the measurement
date under current market conditions. This FSP is effective for
interim and annual reporting periods ending after June 15, 2009. The
Company has concluded that FSP FAS 157-4 will not have an impact on the
Company's consolidated financial statements upon adoption.
In April
2009, the FASB issued FSP FAS 115-2 and 124-2, "Recognition and Presentation of
Other-Than-Temporary Impairments" ("FSP FAS 115-2 and 124-2"). This
FSP amends the other-than-temporary impairment guidance in U.S. GAAP for debt
securities to make the guidance more operational and to improve the presentation
and disclosure of other-than-temporary impairments on debt and equity securities
in the financial statements. This FSP does not amend existing
recognition and measurement guidance related to other-than-temporary impairments
of equity securities. This FSP is effective for interim and annual
reporting periods ending after June 15, 2009. The Company has
concluded that FSP FAS 115-2 and 124-2 will not have an impact on the Company's
disclosures upon adoption.
In April
2009, the FASB issued FSP FAS 107-1 and ABP 28-1, "Interim Disclosure about Fair
Value of Financial Instruments" ("FSP FAS 107-1 and ABP 28-1"). This
FSP amends FASB Statement No. 107, "Disclosures about Fair Value of Financial
Instruments, " to require disclosures about fair value of financial instruments
for interim reporting periods of publicly traded companies as well as in annual
financial statements. This FSP also amends APB Opinion No. 28,
"Interim Financial Reporting," to require those disclosures in summarized
financial information at interim reporting periods. This FSP is
effective for interim reporting periods ending after June 15,
2009. The Company has concluded that FSP FAS 107-1 and ABP 28-1 will
not have a material impact on the Company’s consolidated financial statements
upon adoption.
In
December 2008, the FASB issued FSP FAS 132(R)-1, "Employers' Disclosures about
Postretirement Benefit Plan Assets" ("FSP FAS 132(R)-1"). This FSP
amends FASB Statement No. 132 (revised 2003), "Employers' Disclosures about
Pensions and Other Postretirement Benefits," to provide guidance on an
employer's disclosures about plan assets of a defined benefit pension or other
postretirement plan. This FSP is effective for fiscal years ending
after December 15, 2009. The Company is currently evaluating the
effect FSP FAS 132(R)-1 will have on its disclosures.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
ITEM
|
Page
|
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20
|
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20
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21
|
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|
|
22
|
|
|
|
25
|
|
|
|
30
|
|
|
|
31
|
|
|
|
34
|
|
|
|
35
|
|
|
|
36
|
|
|
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 2008 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 "Presentation of Non-GAAP Financial Measures", the Company
sold its polyethylene terephthalate ("PET") manufacturing facility in Spain in
the second quarter 2007 and sold its PET polymers and purified terephthalic acid
("PTA") manufacturing facilities in the Netherlands and its PET manufacturing
facility in the United Kingdom and the related businesses in first quarter
2008. Because the Company has exited the PET business in the European
region, results from sales of PET products manufactured at the Spain, the
Netherlands, and the United Kingdom sites, including impairments and
restructuring charges of those operations, and gains and losses from disposal of
those assets and businesses, are presented as discontinued operations for all
periods presented and are therefore not included in results from continuing
operations under generally accepted accounting principles
("GAAP"). For additional information, see Note
2, "Discontinued Operations", to the Company's unaudited consolidated
financial statements in Part I, Item 1 of this Quarterly Report on Form
10-Q.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
In
preparing the consolidated financial statements in conformity with GAAP, 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,
sales revenue and expenses, and related disclosure of contingent assets and
liabilities. On an ongoing basis, the Company evaluates its
estimates, including those related to allowances for doubtful accounts,
impairment of long-lived assets, environmental costs, 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 2008 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.
In first
quarter 2009, the Company announced that it was taking additional actions to
further reduce costs in response to the ongoing global economic
recession. These actions included a reduction in force of
approximately 300 employees that resulted in a restructuring charge of $26
million in the quarter.
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 from which
sales revenue and operating results are included in the Performance Polymers
segment results in 2008.
In fourth
quarter 2006, the Company sold its polyethylene ("PE") and EpoleneTM polymer
businesses and related assets of the Performance Polymers and the 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
results are included in the Performance Chemicals and Intermediates ("PCI")
segment results in 2009 and 2008.
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 $2 million in first
quarter 2008. 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. The non-GAAP financial measures used by the
Company may not be comparable to similarly titled measures used by other
companies and should not be considered in isolation or as a substitute for
measures of performance or liquidity prepared in accordance with
GAAP.
·
|
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;
|
·
|
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.
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
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 or of the Company. 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. 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 $1.1 billion and $1.7 billion for first
quarter 2009 and first quarter 2008, respectively. Excluding the
results of contract ethylene sales and contract polymer intermediates sales,
sales revenue decreased by 30 percent. The sales revenue decrease was
due to lower sales volume primarily attributed to the global recession and
decreased selling prices in response to lower raw material and energy
costs.
Operating
earnings were $25 million in first quarter 2009 compared with $168 million in
first quarter 2008. Operating earnings in first quarter 2009 were
negatively impacted by a $26 million restructuring charge for a reduction in
force. Operating earnings in first quarter 2008 were negatively
impacted by $17 million in asset impairments and restructuring charges and $2
million of accelerated depreciation costs, primarily as a result of strategic
actions in the Performance Polymers and PCI segments. Excluding these
items, operating earnings were $51 million in first quarter 2009 compared with
$187 million in first quarter 2008. Eastman's reduced but positive
earnings reflect unprecedented weakness in demand for the Company’s products
attributed to the global recession. This weakness in demand caused
lower sales volume and continued low capacity utilization which resulted in
higher unit costs. In addition, lower selling prices were offset by
lower raw material and energy costs. Operating earnings benefited from
recently implemented cost reduction actions which will positively impact results
throughout the year.
Earnings
from continuing operations were $2 million for first quarter 2009 compared to
$115 million for first quarter 2008. Excluding accelerated
depreciation costs, asset impairments and restructuring charges, and net
deferred tax benefits, earnings from continuing operations were $18 million and
$117 million for first quarter 2009 and first quarter 2008,
respectively.
The
Company generated $82 million in cash from operating activities during first
quarter 2009 compared to $53 million used in operating activities in first
quarter 2008. The improvement was primarily due to a decrease in
working capital, particularly inventories, more than offsetting significantly
lower net earnings. The Company expects to generate positive free cash
flow (operating cash flow less capital expenditures and dividends) in 2009,
including approximately $100 million in cash from working capital, assuming
continued difficult economic conditions and raw material and energy costs
similar to current levels.
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. 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.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
|
First
Quarter
|
|
|
Volume
Effect
|
|
Price
Effect
|
|
Product
Mix
Effect
|
|
Exchange
Rate
Effect
|
(Dollars
in millions)
|
2009
|
|
2008
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
$
|
1,129
|
$
|
1,727
|
|
(35)
%
|
|
(25)
%
|
|
(9)
%
|
|
(1)
%
|
|
-- %
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
- contract polymer intermediates sales (1)
|
|
--
|
|
56
|
|
|
|
|
|
|
|
|
|
|
Sales
- contract ethylene sales (2)
|
|
17
|
|
92
|
|
|
|
|
|
|
|
|
|
|
Sales
– excluding listed items
|
$
|
1,112
|
$
|
1,579
|
|
(30)
%
|
|
(19)
%
|
|
(9)
%
|
|
(2)
%
|
|
--
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Included
in first quarter 2008 sales revenue are contract polymer intermediates
sales under the transition supply agreement related to the divestiture of
the PET manufacturing facilities and related businesses in Mexico and
Argentina in fourth quarter
2007.
|
(2) |
Included in first
quarter 2009 and 2008 sales revenue are contract ethylene sales under the
transition supply agreement related to the divestiture of the PE
businesses.
|
Sales
revenue in first quarter 2009 compared to first quarter 2008 decreased $598
million. Excluding revenue from the contract ethylene and polymer
intermediates sales, sales revenues decreased $467 million primarily due to
lower sales volume in all segments except Performance Polymers and lower selling
prices principally in the PCI and Performance Polymers segments. The
lower sales volume was primarily attributed to weakened demand due to the global
recession.
|
First
Quarter
|
|
(Dollars
in millions)
|
2009
|
|
2008
|
|
Change
|
|
|
|
|
|
|
Gross
Profit
|
$
|
179
|
$
|
337
|
|
(47)
%
|
As
a percentage of sales
|
|
16
%
|
|
20
%
|
|
|
|
|
|
|
|
|
|
Accelerated
depreciation costs included in cost of goods sold
|
|
--
|
|
2
|
|
|
|
|
|
|
|
|
|
Gross
Profit excluding accelerated depreciation costs
|
|
179
|
$
|
339
|
|
(47)
%
|
As
a percentage of sales
|
|
16
%
|
|
20
%
|
|
|
Gross
profit and gross profit as a percentage of sales for first quarter 2009
decreased compared to first quarter 2008 in all segments except Fibers due to
unprecedented weakness in demand for the Company's products attributed to the
global recession. This weak demand caused lower sales volume and
continued low capacity utilization which resulted in higher unit
costs. During second quarter 2009, the Company expects to complete
maintenance and capital projects for its largest cracking unit as the last step
in the reconfiguration of its Longview, Texas facility. Costs related to
these actions will impact the PCI and CASPI segments. First
quarter 2008 included accelerated depreciation costs of $2 million resulting
from the previously reported shutdown of the cracking units in Longview, Texas
and of higher cost PET polymer assets in Columbia, South Carolina.
The
Company's first quarter 2009 raw material and energy costs decreased
approximately $150 million compared with first quarter 2008.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
|
First
Quarter
|
|
|
(Dollars
in millions)
|
2009
|
|
2008
|
|
Change
|
|
|
|
|
|
|
Selling,
General and Administrative Expenses
|
$
|
94
|
$
|
110
|
|
(15)
%
|
Research
and Development Expenses ("R&D")
|
|
34
|
|
42
|
|
(19)
%
|
|
$
|
128
|
$
|
152
|
|
(16)
%
|
As
a percentage of sales
|
|
11
%
|
|
9
%
|
|
|
Selling,
general and administrative expenses for first quarter 2009 decreased compared to
first quarter 2008 primarily due to lower compensation expense and lower
discretionary spending related to corporate cost reduction efforts.
R&D
expenses decreased $8 million in first quarter 2009 compared to first quarter
2008 primarily due to lower R&D expenses for corporate growth
initiatives.
Asset
Impairments and Restructuring Charges, Net
In first
quarter 2009, a restructuring charge totaled $26 million for the previously
announced reduction in force of approximately 300 employees.
In first
quarter 2008, asset impairments and restructuring charges totaled $17 million,
primarily for severance and pension charges in the PCI segment resulting from
the decision to close a previously impaired site in the United
Kingdom.
Operating
Earnings
|
|
|
|
|
|
|
First
Quarter
|
|
|
(Dollars
in millions)
|
|
2009
|
|
2008
|
|
Change
|
|
|
|
|
|
|
|
Operating
earnings
|
$
|
25
|
$
|
168
|
|
(85)
%
|
Accelerated
depreciation costs included in cost of goods sold
|
|
--
|
|
2
|
|
|
Asset
impairments and restructuring charges, net
|
|
26
|
|
17
|
|
|
Operating
earnings excluding accelerated depreciation costs and asset impairments
and restructuring charges, net
|
$
|
51
|
$
|
187
|
|
(73)
%
|
Interest
Expense, Net
|
First
Quarter
|
|
(Dollars
in millions)
|
2009
|
|
2008
|
|
Change
|
|
|
|
|
|
|
Gross
interest costs
|
$
|
24
|
$
|
26
|
|
|
Less: Capitalized
interest
|
|
3
|
|
1
|
|
|
Interest
expense
|
|
21
|
|
25
|
|
(16)
%
|
Interest
income
|
|
2
|
|
9
|
|
|
Interest
expense, net
|
$
|
19
|
$
|
16
|
|
19
%
|
|
|
|
|
|
|
Net
interest expense increased $3 million. Gross interest costs for first
quarter 2009 were slightly lower compared to first quarter 2008 due to lower
average interest rates and lower average borrowings. Interest income
for first quarter 2009 was lower compared to first quarter 2008 due to lower
average cash balances and lower average interest rates.
For 2009,
the Company expects net interest expense to increase compared with 2008
primarily due to lower interest income, driven by lower average invested cash
balances and lower average interest rates.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
Other
Charges (Income), Net
|
First
Quarter
|
(Dollars
in millions)
|
2009
|
|
2008
|
|
|
|
|
Foreign
exchange transactions losses
|
$
|
--
|
$
|
2
|
Investment
losses, net
|
|
3
|
|
1
|
Other,
net
|
|
1
|
|
(4)
|
Other
charges (income), net
|
$
|
4
|
$
|
(1)
|
Included
in net other charges (income) are gains or losses on foreign exchange
transactions, results from equity investments, gains on the sale of business
venture investments, write-downs to fair value of certain technology business
venture investments due to other than temporary declines in value, other
non-operating income or charges related to Holston Defense
Corporation, gains from the sale of non-operating assets, royalty income,
certain litigation costs, fees on securitized receivables, other non-operating
income, and other miscellaneous items.
Provision
for Income Taxes
|
|
First
Quarter
|
|
|
(Dollars
in millions)
|
|
2009
|
|
2008
|
|
Change
|
|
|
|
|
|
|
|
Provision
for income taxes
|
$
|
--
|
$
|
38
|
|
(100)
%
|
Effective
tax rate
|
|
N/A
|
|
25
%
|
|
|
First
quarter 2009 effective tax rate, excluding discrete items, reflects the
Company's expected full year tax rate on reported operating earnings from
continuing operations before income tax of approximately 32
percent. First quarter 2008 effective tax rate reflects an $8 million
benefit from the reversal of a U.S. capital loss valuation allowance, a $3
million benefit from the settlement of a non-U.S. income tax audit from
previously divested businesses, and a $3 million benefit from the settlement of
a non-U.S. income tax audit.
Earnings
from Continuing Operations
|
|
|
|
|
|
|
First
Quarter
|
|
|
(Dollars
in millions)
|
|
2009
|
|
2008
|
|
Change
|
|
|
|
|
|
|
|
Earnings
from continuing operations
|
$
|
2
|
$
|
115
|
|
(98)
%
|
Accelerated
depreciation costs included in cost of goods sold, net of
tax
|
|
--
|
|
1
|
|
|
Asset
impairments and restructuring charges, net of tax
|
|
16
|
|
12
|
|
|
Net
deferred tax benefits related to the previous divestiture
of businesses
|
|
--
|
|
(11)
|
|
|
Earnings
from continuing operations excluding accelerated depreciation costs, net
of tax, asset impairments and restructuring charges, net of tax, and net
deferred tax benefits related to the previous divestiture of
businesses
|
$
|
18
|
$
|
117
|
|
(85)
%
|
Net
Earnings
|
|
|
|
|
|
|
First
Quarter
|
|
|
(Dollars
in millions)
|
|
2009
|
|
2008
|
|
Change
|
|
|
|
|
|
|
|
Earnings
from continuing operations
|
$
|
2
|
$
|
115
|
|
(98)
%
|
Gain
from disposal of discontinued operations, net of tax
|
|
--
|
|
18
|
|
|
Net
earnings
|
$
|
2
|
$
|
133
|
|
(98)
%
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
The gain
on disposal of discontinued operations, net of tax of $18 million for first
quarter 2008 is from the sale of the Company's PET polymers and PTA production
facilities in the Netherlands and its PET production facility in the United
Kingdom and related businesses for approximately $329 million in first quarter
2008. 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.
R&D
and other expenses not identifiable to an operating segment are not included in
segment operating results for either of the periods presented and are shown in
Note 15, "Segment Information", to the Company's
unaudited consolidated financial statements in Part I, Item 1 of this Quarterly
Report on Form 10-Q, as "other" operating losses.
CASPI
Segment
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
|
|
|
|
|
$
|
|
%
|
(Dollars
in millions)
|
|
2009
|
|
2008
|
|
Change
|
|
Change
|
|
|
|
|
|
|
|
|
|
Sales
|
$
|
250
|
$
|
389
|
$
|
(139)
|
|
(36)
%
|
Volume
effect
|
|
|
|
|
|
(123)
|
|
(32)
%
|
Price
effect
|
|
|
|
|
|
2
|
|
1
%
|
Product
mix effect
|
|
|
|
|
|
(16)
|
|
(4)
%
|
Exchange
rate effect
|
|
|
|
|
|
(2)
|
|
(1)
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
earnings
|
|
14
|
|
59
|
|
(45)
|
|
(76)
%
|
|
|
|
|
|
|
|
|
|
Asset
impairments and restructuring charges, net
|
|
7
|
|
--
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
Operating
earnings excluding asset impairments and restructuring charges,
net
|
|
21
|
|
59
|
|
(38)
|
|
(64)
%
|
Sales
revenue decreased $139 million in first quarter 2009 compared to first quarter
2008 primarily due to lower sales volume and an unfavorable shift in product mix
as customer destocking continued particularly for specialty
products. The lower sales volume was due to the sharp decline in
customer demand in all regions attributed to the global recession, particularly
for products sold into the automotive, building and construction, and packaging
markets.
Excluding
the segment’s portion of the severance charge for a reduction in force in first
quarter 2009, operating earnings decreased $38 million for first quarter 2009
compared to first quarter 2008 due primarily to lower sales volume and
lower capacity utilization causing higher unit costs and an unfavorable shift in
product mix, partially offset by lower raw material and energy
costs.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
Fibers
Segment
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
|
|
|
|
|
$
|
|
%
|
(Dollars
in millions)
|
|
2009
|
|
2008
|
|
Change
|
|
Change
|
|
|
|
|
|
|
|
|
|
Sales
|
$
|
259
|
$
|
254
|
$
|
5
|
|
2
%
|
Volume
effect
|
|
|
|
|
|
(25)
|
|
(10)
%
|
Price
effect
|
|
|
|
|
|
25
|
|
10
%
|
Product
mix effect
|
|
|
|
|
|
5
|
|
2
%
|
Exchange
rate effect
|
|
|
|
|
|
--
|
|
--
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
earnings
|
|
69
|
|
68
|
|
1
|
|
1
%
|
|
|
|
|
|
|
|
|
|
Asset
impairments and restructuring charges, net
|
|
4
|
|
--
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
Operating
earnings excluding asset impairments and restructuring charges,
net
|
|
73
|
|
68
|
|
5
|
|
7
%
|
Sales
revenue increased $5 million in first quarter 2009 compared to first quarter
2008 primarily due to higher selling prices and a favorable shift in product mix
partially offset by lower sales volume. The higher selling prices
were in response to higher raw material and energy costs. The lower sales
volume was attributed to the impact of customer buying patterns for the acetyl
chemicals products and the impact of the global recession on the acetate yarn
products, partially offset by higher sales volume for acetate tow enabled by the
capacity expansion of the Company's acetate tow plant in Workington, England,
which was completed in fourth quarter 2008.
Excluding
the segment's portion of the severance charge for a reduction in force in first
quarter 2009, operating earnings increased $5 million for first quarter 2009
compared to first quarter 2008 primarily due to higher selling prices and a
favorable shift in product mix partially offset by higher raw material and
energy costs and lower sales volume.
In
December 2008, the Company announced an alliance with SK Chemicals Company Ltd.
("SK") to form a company to acquire and operate a cellulose acetate tow
manufacturing facility and related business, with the facility to be constructed
by SK in Korea. Eastman will have majority ownership and will operate
the facility. Construction began in first quarter 2009 and is
expected to be completed during second quarter 2010.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
PCI
Segment
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
|
|
|
|
|
$
|
|
%
|
(Dollars
in millions)
|
|
2009
|
|
2008
|
|
Change
|
|
Change
|
|
|
|
|
|
|
|
|
|
Sales
|
$
|
286
|
$
|
556
|
$
|
(270)
|
|
(49)
%
|
Volume
effect
|
|
|
|
|
|
(174)
|
|
(31)
%
|
Price
effect
|
|
|
|
|
|
(98)
|
|
(18)
%
|
Product
mix effect
|
|
|
|
|
|
2
|
|
--
%
|
Exchange
rate effect
|
|
|
|
|
|
--
|
|
--
%
|
|
|
|
|
|
|
|
|
|
Sales
– contract ethylene sales
|
|
17
|
|
92
|
|
(75)
|
|
|
|
|
|
|
|
|
|
|
|
Sales
– excluding contract ethylene sales
|
|
269
|
|
464
|
|
(195)
|
|
(42)
%
|
Volume
effect
|
|
|
|
|
|
(99)
|
|
(21)
%
|
Price
effect
|
|
|
|
|
|
(91)
|
|
(20)
%
|
Product
mix effect
|
|
|
|
|
|
(4)
|
|
(1)
%
|
Exchange
rate effect
|
|
|
|
|
|
(1)
|
|
--
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
(loss) earnings
|
|
(3)
|
|
44
|
|
(47)
|
|
>(100)
%
|
|
|
|
|
|
|
|
|
|
Accelerated
depreciation costs included in cost of goods sold
|
|
--
|
|
1
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
Asset
impairments and restructuring charges, net
|
|
6
|
|
16
|
|
(10)
|
|
|
|
|
|
|
|
|
|
|
|
Operating
earnings excluding accelerated depreciation costs and asset impairments
and restructuring charges, net
|
|
3
|
|
61
|
|
(58)
|
|
(95)
%
|
Sales
revenue decreased $270 million in first quarter 2009 compared to first quarter
2008. 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 decreased $195 million due to
lower sales volume and lower selling prices. The lower sales volume
was primarily in olefin-based derivatives and is attributed to the global
recession. The lower selling prices were a result of lower raw material
and energy costs.
Excluding
accelerated depreciation costs and asset impairments and restructuring charges
operating earnings decreased $58 million, primarily due to lower sales volume,
higher unit costs from lower capacity utilization, and lower selling prices,
partially offset by lower raw material and energy costs. A
restructuring charge for first quarter 2009 consisted of the segment's portion
of the severance charge for a reduction in force. Asset impairments
and restructuring charges for first quarter 2008 consisted primarily of
severance and pension costs from the decision to close a previously impaired
site in the United Kingdom. The accelerated depreciation costs for
2008 are related to the continuation of the previously reported planned staged
phase-out of older cracking units in 2007 at the Company's Longview, Texas
facility.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
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 in Part I, Item 1 of this Quarterly Report on Form
10-Q.
|
|
First
Quarter
|
|
|
|
(Dollars
in millions)
|
2009
|
|
2008
|
|
$
Change
|
|
%
Change
|
|
|
|
|
|
|
|
|
Sales
|
|
177
|
|
304
|
$
|
(127)
|
|
(42)
%
|
Volume
effect
|
|
|
|
|
|
(55)
|
|
(18)
%
|
Price
effect
|
|
|
|
|
|
(73)
|
|
(24)
%
|
Product
mix effect
|
|
|
|
|
|
1
|
|
--
%
|
Exchange
rate effect
|
|
|
|
|
|
--
|
|
--
%
|
|
|
|
|
|
|
|
|
|
Sales
– contract polymer intermediates sales (1)
|
--
|
|
56
|
|
(56)
|
|
|
|
|
|
|
|
|
|
|
Sales
– excluding contract polymer intermediates sales
|
177
|
|
248
|
|
(71)
|
|
(29)
%
|
Volume
effect
|
|
|
|
|
1
|
|
--
%
|
Price
effect
|
|
|
|
|
(73)
|
|
(29)
%
|
Product
mix effect
|
|
|
|
|
1
|
|
--
%
|
Exchange
rate effect
|
|
|
|
|
--
|
|
--
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
loss (2)
|
(25)
|
|
(6)
|
|
(19)
|
|
>(100)
%
|
|
|
|
|
|
|
|
|
Accelerated
depreciation costs included in cost of goods
sold
|
--
|
|
1
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
Asset
impairments and restructuring charges, net
|
4
|
|
1
|
|
3
|
|
|
|
|
|
|
|
|
|
|
Operating
loss excluding accelerated depreciation costs and asset impairments and
restructuring charges, net
|
(21)
|
|
(4)
|
|
(17)
|
|
>(100)
%
|
|
|
|
|
|
|
|
|
(1) |
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.
|
(2) |
Includes allocated
costs in 2008 not included in discontinued operations, some of which may
remain and could be reallocated to the remainder of the segment and other
segments.
|
Excluding
contract polymer intermediates sales to the buyer of the divested Mexico and
Argentina facilities, sales revenue for first quarter 2009 decreased $71 million
compared to first quarter 2008 due to lower selling prices. The lower
selling prices were primarily due to the steep decline in raw material and
energy costs, particularly for paraxylene. Sales volume
excluding contract polymer intermediates sales was unchanged as increased volume
from the Company’s IntegRex™ technology-based PET facility offset lower volume
from the Company's conventional PET manufacturing assets which were
significantly rationalized in first quarter 2008. In addition, demand
for PET weakened due to the global recession and lightweighting of water and
other bottles.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
Excluding
asset impairments and restructuring charges in both periods, and accelerated
depreciation costs in first quarter 2008, operating results for first quarter
2009 decreased $17 million compared to first quarter 2008. Operating
results declined due to lower selling prices, partially offset by lower raw
material and energy costs and lower polyester stream utilization which led to
higher unit costs. In addition, results were negatively impacted by
the slower than expected start-up of the IntegRexTM-based
PET manufacturing facility following the debottleneck completed in December
2008. A restructuring charge in first quarter 2009 consisted of the
segment's portion of the severance charge for a reduction in
force. Accelerated depreciation costs of $1 million in first quarter
2008 resulted from restructuring actions associated with higher cost PET polymer
assets in Columbia, South Carolina. Asset impairments and
restructuring charges of $1 million in first quarter 2008 related to
restructuring at the South Carolina facility using IntegRexTM
technology.
SP
Segment
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
|
|
|
|
|
$
|
|
%
|
(Dollars
in millions)
|
|
2009
|
|
2008
|
|
Change
|
|
Change
|
|
|
|
|
|
|
|
|
|
Sales
|
$
|
157
|
$
|
224
|
$
|
(67)
|
|
(30)
%
|
Volume
effect
|
|
|
|
|
|
(53)
|
|
(24)
%
|
Price
effect
|
|
|
|
|
|
(8)
|
|
(3)
%
|
Product
mix effect
|
|
|
|
|
|
(6)
|
|
(3)
%
|
Exchange
rate effect
|
|
|
|
|
|
--
|
|
--
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
(loss) earnings
|
|
(18)
|
|
17
|
|
(35)
|
|
>(100)
%
|
|
|
|
|
|
|
|
|
|
Asset
impairments and restructuring charges, net
|
|
5
|
|
--
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
Operating
(loss) earnings excluding asset impairments and restructuring charges,
net
|
|
(13)
|
|
17
|
|
(30)
|
|
>(100)
%
|
Sales
revenue decreased $67 million in first quarter 2009 compared to first quarter
2008 primarily due to lower sales volume. The decline in sales volume
was attributed to the global recession which has weakened demand for plastic
resins, including copolyester products sold into the packaging, consumer and
durable goods markets, and for cellulosic plastics sold into the liquid crystal
displays ("LCD") market.
Excluding
the segment's portion of the severance charge for a reduction in force in first
quarter 2009, operating results declined $30 million for first quarter 2009
compared to first quarter 2008 due to lower sales volume, lower capacity
utilization causing higher unit costs, and an unfavorable shift in product mix
with less cellulosic plastics sold into the LCD market, partially offset by
lower raw material and energy costs.
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 in 2010.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
Sales
Revenue
|
First Quarter
|
|
|
|
|
|
|
|
|
|
|
(Dollars
in millions)
|
|
2009
|
|
2008
|
|
Change
|
|
Volume
Effect
|
|
Price
Effect
|
|
Product
Mix
Effect
|
|
Exchange
Rate
Effect
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States and Canada
|
$
|
671
|
$
|
1,056
|
|
(36)
%
|
|
(25)
%
|
|
(13)
%
|
|
2
%
|
|
--
%
|
Asia
Pacific
|
|
210
|
|
275
|
|
(24)
%
|
|
(20)
%
|
|
(2)
%
|
|
(2)
%
|
|
--
%
|
Europe,
Middle East, and Africa
|
|
178
|
|
254
|
|
(30)
%
|
|
(15)
%
|
|
2
%
|
|
(16)
%
|
|
(1)
%
|
Latin
America
|
|
70
|
|
142
|
|
(51)
%
|
|
(54)
%
|
|
(9)
%
|
|
12
%
|
|
--
%
|
|
$
|
1,129
|
$
|
1,727
|
|
(35)
%
|
|
(25)
%
|
|
(9)
%
|
|
(1)
%
|
|
--
%
|
Sales
revenue in the United States and Canada decreased primarily due to lower sales
volume and lower selling prices particularly in the PCI segment partially due to
contract ethylene sales in the PCI segment. Excluding contract
ethylene sales, sales revenue decreased 32 percent primarily due to lower sales
volumes particularly in the CASPI and PCI segments and lower selling prices in
the PCI and Performance Polymers segments.
Sales
revenue in Asia Pacific decreased for first quarter 2009 compared to first
quarter 2008 primarily due to lower sales volume in the SP, PCI and CASPI
segments. Lower selling prices in the PCI and SP segments were
partially offset by higher selling prices in the Fibers and CASPI
segments.
Sales
revenue in Europe, Middle East, and Africa decreased for first quarter 2009
compared to first quarter 2008 primarily due to an unfavorable shift in product
mix in all segments and lower sales volume particularly for the CASPI and SP
segments.
Sales
revenue in Latin America decreased for first quarter 2009 compared to first
quarter 2008 primarily due to lower sales volume. Excluding contract
polymer intermediates sales, sales revenue decreased 19 percent due to lower
sales volume in all segments and lower selling prices primarily in the
Performance Polymer segment partially offset by a favorable shift in product mix
primarily in the Performance Polymers segment.
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 or euros. 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 on
these practices, see Note 10, "Fair Value of Financial Instruments", to the
consolidated financial statements in Part II, Item 8 and Part II, Item 7A of the
Company's 2008 Annual Report on Form 10-K and Forward-Looking Statements and Risk
Factors of this Quarterly Report on Form 10-Q.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
Cash
Flows
|
|
First
Quarter
|
(Dollars
in millions)
|
|
2009
|
|
2008
|
|
|
|
|
|
Net
cash provided by (used in)
|
|
|
|
|
Operating
activities
|
$
|
82
|
$
|
(53)
|
Investing
activities
|
|
(108)
|
|
182
|
Financing
activities
|
|
(21)
|
|
(225)
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
--
|
|
1
|
Net
change in cash and cash equivalents
|
|
(47)
|
|
(95)
|
|
|
|
|
|
Cash
and cash equivalents at beginning of period
|
|
387
|
|
888
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
$
|
340
|
$
|
793
|
Cash
provided by operating activities was $82 million during first quarter 2009
compared to $53 million used in operating activities in first quarter
2008. The improvement was primarily due to a decrease in working
capital, particularly inventories, more than offsetting lower net
earnings.
Cash used
in investing activities was $108 million in first quarter 2009 compared to $182
million provided by investing activities in first quarter 2008. First
quarter 2009 included the first scheduled payment for an investment in the
Company's alliance with SK. The Company expects to make scheduled
payments of approximately $55 million towards the investment in
2009. Proceeds of $323 million were received in first quarter 2008
primarily related to the sale of the Company's PET polymers and PTA
manufacturing facilities in the Netherlands and the PET manufacturing facility
in the United Kingdom. Capital spending of $110 million decreased due
primarily to reduced capital spending in response to the current global
recession.
Cash used
in financing activities totaled $21 million in first quarter 2009 compared to
$225 million used in financing activities in first quarter
2008. Share repurchases in first quarter 2008 were $245
million.
The
payment of dividends is also reflected in financing activities in all
periods.
The
Company expects to generate positive free cash flow (operating cash flow less
capital expenditures and dividends) in 2009, including approximately $100
million in cash from working capital, assuming continued difficult economic
conditions and raw material and energy costs similar to current
levels. The priorities for uses of available cash are expected to be
payment of the quarterly cash dividend, funding targeted growth initiatives and
defined benefit pension plans, and repurchasing shares.
Liquidity
At March
31, 2009, the Company had credit facilities with various U.S. and foreign banks
totaling approximately $800 million. These credit facilities consist
of the $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 that is based on Eastman's credit rating. In
addition, these credit facilities contain a number of customary covenants and
events of default, including the maintenance of certain financial
ratios. The Company was in compliance with all such covenants for all
periods presented. At March 31, 2009, the Company's credit facility
borrowings totaled $80 million, primarily from the Euro Facility, at an
effective interest rate of 1.90 percent. At December 31, 2008,
borrowings on these credit facilities were $84 million, primarily from the Euro
Facility, at an effective interest rate of 3.74 percent.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
The
Credit Facility provides liquidity support for commercial paper borrowings and
general corporate purposes. Accordingly, any outstanding commercial
paper borrowings reduce borrowings available under the Credit
Facility. Given the expiration dates of the Credit Facility, 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.
Additionally,
the Company maintains a $200 million accounts receivable securitization
program that is available to provide liquidity through the sale of
receivables and was fully drawn at March 31, 2009. For more
information, see "Off Balance Sheet and Other Financing Arrangements" below and
Note 10, "Commitments", to the Company’s unaudited
consolidated financial statements in Part I, Item 1 of this Quarterly Report on
Form 10-Q.
For more
information regarding interest rates, refer to Note 6,
"Borrowings", to the Company's unaudited consolidated financial statements in
Part I, Item 1 of this Quarterly Report on Form 10-Q.
In 2008,
the Company made no contribution to its U.S. defined benefit pension
plan. The Company expects to make contributions to its defined
benefit pension plans in 2009 of between $25 million and $50
million.
Cash
flows from operations and the other sources of liquidity 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 $110 million and $132 million for first quarter 2009 and 2008,
respectively. The decrease of $22 million in 2009 compared with 2008
was primarily due to the Company's reduced capital spending in response to the
current global recession. The Company expects that 2009 capital
spending will be between $300 million and $350 million, which is sufficient
to fund required maintenance and certain strategic growth
initiatives including the increased capacity for Eastman TritanTM
copolyester and the front-end engineering and design for the industrial
gasification project.
Other
Commitments
At March
31, 2009, the Company's obligations related to notes and debentures totaled
approximately $1.4 billion to be paid over a period of approximately 20
years. Other borrowings, related primarily to credit facility
borrowings, totaled $93 million.
The
Company had various purchase obligations at March 31, 2009 totaling
approximately $1.5 billion over a period of approximately 15 years for
materials, supplies and energy incident to the ordinary conduct of
business. For information regarding the Company's lease commitments,
refer to Note 10, "Commitments", to the Company's
unaudited consolidated financial statements in Part I, Item 1 of this
Quarterly Report on Form 10-Q.
In
addition, the Company had other liabilities at March 31, 2009 totaling
approximately $1.5 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
$
|
--
|
$
|
13
|
$
|
69
|
$
|
248
|
$
|
22
|
$
|
155
|
|
507
|
2010
|
|
--
|
|
--
|
|
98
|
|
369
|
|
26
|
|
82
|
|
575
|
2011
|
|
2
|
|
--
|
|
99
|
|
246
|
|
23
|
|
58
|
|
428
|
2012
|
|
153
|
|
80
|
|
93
|
|
243
|
|
14
|
|
53
|
|
636
|
2013
|
|
--
|
|
--
|
|
86
|
|
228
|
|
9
|
|
54
|
|
377
|
2014
and beyond
|
|
1,202
|
|
--
|
|
906
|
|
138
|
|
15
|
|
1,049
|
|
3,310
|
Total
|
$
|
1,357
|
$
|
93
|
$
|
1,351
|
$
|
1,472
|
$
|
109
|
$
|
1,451
|
|
5,833
|
(a)
Amounts represent the current estimated cash payments to be made by the Company
primarily for pension and other post-employment benefits, taxes payable, and
contractual obligations of a subsidiary 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 10, "Commitments", to the
Company's unaudited consolidated financial statements in Part I, Item 1 of
this Quarterly Report on Form 10-Q.
Eastman
entered into an agreement in 1999 that allows it to generate cash by reducing
its working capital through the sale of undivided interests in certain domestic
trade accounts receivable under a planned continuous sale program to a third
party. For information on the Company's accounts receivable
securitization program, refer to Note 10, "Commitments",
to the Company's unaudited consolidated financial statements in Part I,
Item 1 of this Quarterly Report on Form 10-Q. 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 March 31, 2009. This
potential VIE is a joint venture from which the Company has purchased raw
materials and utilities for several years. The Company purchased
approximately $50 million of raw materials and utilities during 2008
and expects to purchase approximately $35 million during
2009. 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
October 2007, the Company's 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 March 31, 2009, a total of 9.4 million shares have
been repurchased under this authorization for a total amount of approximately
$583 million. No share repurchases were made in first quarter
2009.
Dividends
The
Company declared cash dividends of $0.44 per share in first quarter 2009 and
2008.
Effective
first quarter 2008, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 157, "Fair Value Measurements," ("SFAS No. 157"), except
as it applies to nonfinancial assets and nonfinancial
liabilities addressed in FASB Staff Position ("FSP") FAS 157-2,
"Effective Date of FASB Statement No. 157". The Company adopted the
provisions of SFAS No. 157 with regard to nonfinancial assets and nonfinancial
liabilities in the first quarter of 2009 with no impact upon
adoption.
In April
2009, the FASB issued FSP FAS 157-4, "Determining Fair Value When the Volume and
Level of Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly" ("FSP FAS 157-4") to address
challenges in estimating fair value when volume and level of activity for an
asset or liability have significantly decreased. This FSP emphasizes
that even if there has been a significant decrease in the volume level of
activity for the asset or liability and regardless of the valuation technique(s)
used, the objective of a fair value measurement remains the
same. Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction (that is, not a forced
liquidation or distressed sale) between market participants at the measurement
date under current market conditions. This FSP is effective for
interim and annual reporting periods ending after June 15, 2009. The
Company has concluded that FSP FAS 157-4 will not have an impact on the
Company’s consolidated financial statements upon adoption.
In April
2009, the FASB issued FSP FAS 115-2 and 124-2, "Recognition and Presentation of
Other-Than-Temporary Impairments" ("FSP FAS 115-2 and 124-2"). This
FSP amends the other-than-temporary impairment guidance in U.S. GAAP for debt
securities to make the guidance more operational and to improve the presentation
and disclosure of other-than-temporary impairments on debt and equity securities
in the financial statements. This FSP does not amend existing
recognition and measurement guidance related to other-than-temporary impairments
of equity securities. This FSP is effective for interim and annual
reporting periods ending after June 15, 2009. The Company has
concluded that FSP FAS 115-2 and 124-2 will not have an impact on the Company's
consolidated financial statements upon adoption.
In April
2009, the FASB issued FSP FAS 107-1 and ABP 28-1, "Interim Disclosure about Fair
Value of Financial Instruments" ("FSP FAS 107-1 and ABP 28-1"). This
FSP amends FASB Statement No. 107, "Disclosures about Fair Value of Financial
Instruments, " to require disclosures about fair value of financial instruments
for interim reporting periods of publicly traded companies as well as in annual
financial statements. This FSP also amends APB Opinion No. 28,
"Interim Financial Reporting," to require those disclosures in summarized
financial information at interim reporting periods. This FSP is
effective for interim reporting periods ending after June 15,
2009. The Company has concluded that FSP FAS 107-1 and ABP 28-1 will
not have a material impact on the Company's disclosures upon
adoption.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
In
December 2008, the FASB issued FSP FAS 132(R)-1, "Employers' Disclosures about
Postretirement Benefit Plan Assets" ("FSP FAS 132(R)-1"). This FSP
amends FASB Statement No. 132 (revised 2003), "Employers' Disclosures about
Pensions and Other Postretirement Benefits," to provide guidance on an
employer's disclosures about plan assets of a defined benefit pension or other
postretirement plan. This FSP is effective for fiscal years ending
after December 15, 2009. The Company is currently evaluating the
effect FSP FAS 132(R)-1 will have on its disclosures.
For 2009,
the Company expects:
·
|
declines in volume attributed to the global
recession;
|
·
|
the
volatility of market prices for raw material and energy 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;
|
·
|
most
segments will be challenged to meet their typical operating margins with
the current uncertainty of the global
recession;
|
·
|
modest
sales volume growth for acetate tow in the Fibers segment. The
Company will invest in its alliance with SK to form a company to acquire
and operate a cellulose acetate tow manufacturing facility and related
business in Korea. The Company expects to make scheduled
payments of approximately $55 million towards this
investment;
|
·
|
to
complete an additional 30 percent expansion of its CASPI segment's
hydrogenated hydrocarbon resins manufacturing capacity in Middelburg, the
Netherlands;
|
·
|
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
complete maintenance and capital projects for its largest cracking unit as
the last step in the reconfiguration of its Longview, Texas facility
during second quarter. Costs related to these actions will
impact the PCI and CASPI
segments;
|
·
|
the
SP segment 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 in
2010;
|
·
|
to
improve the profitability of its PET product lines in the Performance
Polymers segment as a result of previous restructuring actions and to
continue to pursue options to create additional value from its
IntegRexTM technology,
primarily by actively pursuing licensing
opportunities;
|
·
|
to
complete the front-end engineering and design for the industrial
gasification project by mid-2009 and to pursue non-recourse project
financing utilizing the Department of Energy's Federal Loan Guarantee
Program;
|
·
|
depreciation
and amortization to be at or slightly higher than
2008;
|
·
|
pension
expense to be similar to 2008. The Company anticipates defined
benefit pension plans funding of between $25 million and $50
million;
|
·
|
net
interest expense to increase compared with 2008 primarily due to lower
interest income, driven by lower average invested cash balances and lower
average interest rates;
|
·
|
the
effective tax rate to be between 30 and 33 percent, including the benefit
of the investment tax credit and the research and development tax
credit;
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
·
|
capital
spending to be between $300 million and $350 million as it selectively
funds targeted growth efforts, while prioritizing capital spending,
including the increased capacity for Eastman TritanTM
copolyester and the front-end engineering and design for the industrial
gasification project;
|
·
|
to
generate positive free cash flow, including approximately $100 million in
cash from working capital, assuming continued difficult economic
conditions and raw material and energy costs similar to current levels;
and
|
·
|
priorities
for uses of available cash to be payment of the quarterly cash dividend,
fund targeted growth initiatives and defined benefit pension plans, and
repurchase shares.
|
Based
upon the foregoing, and assuming improvement in demand increases capacity
utilization to be between 75 and 80 percent for the remainder of 2009, the
Company expects full year 2009 earnings per share, excluding charges related to
cost reduction actions, to be between $2.00 and $3.00 per
share.
In
addition to the above, the Company expects to significantly improve earnings
over the long-term through strategic efforts and growth initiatives in existing
businesses, and expects:
·
|
the
SP segment to improve earnings by continued focus on copolyesters growth,
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 additional growth opportunities in Asia for acetate tow in the
Fibers segment; and
|
·
|
to
continue exploring options with industrial
gasification.
|
See
"Forward-Looking Statements and Risk Factors" below.
The
expectations under "Outlook" and certain other statements
in this Quarterly Report on Form 10-Q may be forward-looking in nature as
defined in the Private Securities Litigation Reform Act of 1995. These
statements and other written and oral forward-looking statements made by the
Company from time to time may relate to, among other things, such matters as
planned and expected capacity increases and utilization; anticipated capital
spending; expected depreciation and amortization; environmental matters; legal
proceedings; exposure to, and effects of hedging of, raw material and energy
costs, foreign currencies and interest rates; global and regional economic,
political, and business conditions; competition; growth opportunities; supply
and demand, volume, price, cost, margin, and sales; earnings, cash flow,
dividends and other expected financial results and conditions; expectations,
strategies, and plans for individual assets and products, businesses and
segments as well as for the whole of Eastman Chemical Company; cash requirements
and uses of available cash; financing plans; pension expenses and funding;
credit ratings; anticipated restructuring, divestiture, and consolidation
activities; cost reduction and control efforts and targets; integration of
acquired businesses; strategic initiatives and development, production,
commercialization, and acceptance of new products, services and technologies and
related costs; asset, business and product portfolio changes; and expected tax
rates and net interest costs.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
These
plans and expectations are based upon certain underlying assumptions, including
those mentioned with the specific statements. Such assumptions are in
turn based upon internal estimates and analyses of current market conditions and
trends, management plans and strategies, economic conditions and other
factors. These plans and expectations and the assumptions underlying
them are necessarily subject to risks and uncertainties inherent in projecting
future conditions and results. Actual results could differ materially
from expectations expressed in the forward-looking statements if one or more of
the underlying assumptions and expectations proves to be inaccurate or is
unrealized. In addition to the factors described elsewhere in this
report, the following are some of the important risk factors that could cause
the Company's actual results to differ materially from those in any such
forward-looking statements:
·
|
Conditions
in the global economy and global capital markets may adversely affect the
Company's results of operations, financial condition, and cash
flows. The Company's business and operating results have been
and will continue to be affected by the global recession, including the
credit market crisis, declining consumer and business confidence,
fluctuating commodity prices, volatile exchange rates, and other
challenges currently affecting the global economy. The
Company's customers have experienced and may continue to experience
deterioration of their businesses, cash flow shortages, and difficulty
obtaining financing. As a result, existing or potential
customers may continue to delay or cancel plans to purchase products and
may not be able to fulfill their obligations in a timely
fashion. Further, suppliers may be experiencing similar
conditions, which could impact their ability to fulfill their obligations
to the Company. If the global recession continues for
significant future periods or deteriorates significantly, the Company's
results of operations, financial condition and cash flows could continue
to be materially adversely
affected.
|
·
|
The
Company is reliant on certain strategic raw material 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 material
and energy commodities, or breakdown or degradation of transportation
infrastructure used for delivery of strategic raw material and energy
commodities, could affect availability and costs of raw material and
energy commodities.
|
·
|
While
temporary shortages of raw material 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 material
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 material 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.
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
·
|
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, licensing
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 in 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 material
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 the
inability to obtain such approvals or to reach such agreements on
acceptable terms could negatively affect the returns from these strategic
investments and projects.
|
·
|
The
Company anticipates obtaining non-recourse project 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, capital markets, or government loan guarantee
programs, 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.
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
·
|
The
Company and its operations from time to time are parties to, or targets
of, lawsuits, claims, investigations, and proceedings, including product
liability, personal injury, asbestos, patent and intellectual property,
commercial, contract, environmental, antitrust, health and safety, and
employment matters, which are handled and defended in the ordinary course
of business. The Company believes amounts reserved are adequate
for such pending matters; however, results of operations could be affected
by significant litigation adverse to the
Company.
|
·
|
The
Company has deferred tax assets related to capital and operating
losses. The Company establishes valuation allowances to reduce
these deferred tax assets to an amount that is more likely than not to be
realized. The Company's ability to utilize these deferred tax
assets depends on projected future operating results, the reversal of
existing temporary differences, and the availability of tax planning
strategies. Realization of these assets is expected to occur
over an extended period of time. As a result, changes in tax
laws, assumptions with respect to future taxable income, and tax planning
strategies could result in adjustments to these
assets.
|
·
|
Due
to the Company's global sales, earnings, and asset profile, it is exposed
to volatility in foreign currency exchange rates and interest
rates. The Company may use derivative financial instruments,
including swaps, options and forwards, to mitigate the impact of changes
in exchange rates and interest rates on its financial
results. However, there can be no assurance that these efforts
will be successful and operating results could be affected by significant
adverse changes in currency exchange rates or interest
rates.
|
·
|
The
Company's sources of liquidity have been and are expected to be cash from
operating activities, available cash balances, the revolving $700 million
credit facility, sales of domestic receivables under the $200 million
accounts receivable securitization program, the commercial paper market,
and the capital markets. 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 or 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. Company borrowings are subject
to a number of customary covenants and events of default, including the
maintenance of certain financial ratios. While the Company
expects to remain in compliance with such covenants, there is no certainty
that events and circumstances will not result in covenant violations which
could limit access to credit facilities or cause events of default with
outstanding borrowings. In addition, the
Company's cash flows from operations may be adversely affected by
unfavorable 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.
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The
foregoing list of important factors does not include all such factors nor
necessarily present them in order of importance. This disclosure,
including that under "Outlook" and "Forward-Looking Statements and Risk
Factors," and other forward-looking statements and related disclosures made by
the Company in this Quarterly Report on Form 10-Q and elsewhere from time to
time, represents management's best judgment as of the date the information is
given. The Company does not undertake responsibility for updating any
of such information, whether as a result of new information, future events, or
otherwise, except as required by law. Investors are advised, however,
to consult any further public Company disclosures (such as in filings with the
Securities and Exchange Commission or in Company press releases) on related
subjects.
There are
no material changes to the Company's market risks from those disclosed in Part
II, Item 7A of the Company's 2008 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 March 31, 2009, 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 first quarter of 2009 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 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.
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. In October 2006, EPA referred the matter
to the United States Department of Justice's Environmental Enforcement Section
("DOJ"). Company representatives have met with EPA and DOJ on a
number of occasions since the NOV’s issuance and have determined that it is not
reasonably likely that any civil penalty assessed by the EPA and DOJ will be
less than $100,000. While the Company intends to vigorously defend
against these allegations, this disclosure is made pursuant to SEC Regulation
S-K, Item 103, Instruction 5.C., which requires disclosure of administrative
proceedings commenced under environmental laws that involve governmental
authorities as parties and potential monetary sanctions in excess of
$100,000. The Company believes that the ultimate resolution of this
proceeding will not have a material impact on the Company's financial condition,
results of operations, or cash flows.
For
identification and discussion of the most significant risks applicable to the
Company and its business, see "Part I – Item 2 – Management's Discussion and
Analysis of Financial Condition and Results of Operations – Forward-Looking
Statements and Risk Factors" of this Quarterly Report on Form 10-Q.
(c) Purchases
of Equity Securities by the Issuer
Period
|
Total
Number
of
Shares
Purchased
(1)
|
|
Average
Price Paid Per Share
(2)
|
|
Total
Number of Shares Purchased as Part of Publicly Announced
Plans
or
Programs
(3)
|
|
Approximate
Dollar
Value
(in millions) that May Yet Be Purchased Under the Plans or
Programs
(3)
|
January
1- 31, 2009
|
327
|
$
|
25.95
|
|
0
|
$
|
117
|
February
1-28, 2009
|
0
|
$
|
--
|
|
0
|
$
|
117
|
March
1-31, 2009
|
0
|
$
|
--
|
|
0
|
$
|
117
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Total
|
327
|
$
|
25.95
|
|
0
|
|
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(1)
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Shares
surrendered to the Company by employees to satisfy individual tax
withholding obligations upon vesting of previously issued shares of
restricted common stock. These share surrenders were not part
of any Company repurchase plan.
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(2)
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Average
price paid per share reflects the closing price of Eastman common stock on
the business day the shares were surrendered by the employee stockholder
to satisfy individual tax withholding
obligations.
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(3)
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In
October 2007, the Board of Directors authorized $700 million for
repurchase of the Company's outstanding common shares at such times, in
such amounts, and on such terms, as determined to be in the best interests
of the Company. As of March 31, 2009, 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 12, "Stockholders'
Equity", to the Company's unaudited consolidated financial statements in
Part I, Item 1 of this Quarterly Report on Form
10-Q.
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Exhibits
filed as part of this report are listed in the Exhibit Index appearing on page
44.
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.
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Eastman
Chemical Company
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Date: April
29, 2009
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By:
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/s/Curtis
E. Espeland |
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Curtis
E. Espeland
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Senior
Vice President and Chief Financial
Officer
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|
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Sequential
|
Exhibit
|
|
|
|
Page
|
Number
|
|
Description
|
|
Number
|
|
|
|
|
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3.01
|
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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)
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|
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3.02
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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")
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4.01
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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)
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4.02
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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"))
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4.03
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Form
of 7 1/4% Debentures due January 15, 2024 (incorporated herein by
reference to Exhibit 4(d) to the 8-K)
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4.04
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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"))
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|
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|
|
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4.05
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Form
of 7 5/8% Debentures due June 15, 2024 (incorporated herein by reference
to Exhibit 4(b) to the June 8-K)
|
|
|
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4.06
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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"))
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4.07
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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)
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4.08
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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)
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4.09
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$200,000,000
Accounts Receivable Securitization agreement dated April 13, 1999 (amended
April 11, 2000, July 14, 2005, July 9, 2008, and February 18, 2009),
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
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4.10
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Amended
and Restated Credit Agreement, dated as of April 3, 2006 (the "Credit
Agreement") among Eastman Chemical Company, the Lenders named therein, and
Citigroup Global Markets , Inc. and J. P. Morgan Securities Inc.,
as joint lead arrangers (incorporated herein by reference to
Exhibit 4.11 to Eastman Chemical Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 2006)
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EXHIBIT
INDEX
|
|
Sequential
|
Exhibit
|
|
|
|
Page
|
Number
|
|
Description
|
|
Number
|
|
|
|
|
|
4.11
|
|
Letter
Amendments dated November 16, 2007 and March 10, 2008, to the Credit
Agreement (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)
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|
|
|
|
|
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4.12
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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)
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10.01
|
|
|
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46
|
|
|
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12.01
|
|
|
|
62
|
|
|
|
|
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31.01
|
|
|
|
63
|
|
|
|
|
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31.02
|
|
|
|
64
|
|
|
|
|
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32.01
|
|
|
|
65
|
|
|
|
|
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32.02
|
|
|
|
66
|