(Mark
One)
|
|
[X]
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the quarterly period ended March 31, 2008
|
|
OR
|
|
[ ]
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the transition period from ______________ to
______________
|
Commission
file number 1-12626
|
EASTMAN
CHEMICAL COMPANY
|
(Exact
name of registrant as specified in its
charter)
|
Delaware
|
62-1539359
|
|
(State
or other jurisdiction of
|
(I.R.S.
employer
|
|
incorporation
or organization)
|
identification
no.)
|
|
200
South Wilcox Drive
|
||
Kingsport,
Tennessee
|
37660
|
|
(Address
of principal executive offices)
|
(Zip
Code)
|
|
Registrant’s
telephone number, including area code: (423)
229-2000
|
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES
[X] NO [ ]
|
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definition of "large accelerated filer,"
"accelerated filer" and "smaller reporting company" in Rule 12b-2 of the
Exchange Act.
Large
accelerated filer
[X] Accelerated
filer [ ]
Non-accelerated
filer
[ ] Smaller
reporting company [ ]
(Do
not check if a smaller reporting company)
|
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act) YES
[ ] NO [X]
|
Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.
|
||
Class
|
Number
of Shares Outstanding at March 31, 2008
|
|
Common
Stock, par value $0.01 per share
|
76,234,567
|
|
ITEM
|
PAGE
|
1.
|
Financial
Statements
|
|
3
|
||
4
|
||
5
|
||
6
|
||
2.
|
20
|
|
3.
|
40
|
|
4.
|
40
|
1.
|
42
|
|
1A.
|
43
|
|
2.
|
43
|
|
6.
|
43
|
4431
|
First
Three Months
|
||||
(Dollars
in millions, except per share amounts)
|
2008
|
2007
|
||
Sales
|
$
|
1,727
|
$
|
1,637
|
Cost
of sales
|
1,390
|
1,351
|
||
Gross
profit
|
337
|
286
|
||
Selling,
general and administrative expenses
|
110
|
98
|
||
Research
and development expenses
|
42
|
34
|
||
Asset
impairments and restructuring charges, net
|
17
|
--
|
||
Operating
earnings
|
168
|
154
|
||
Interest
expense, net
|
16
|
17
|
||
Other
(income) charges, net
|
(1)
|
(3)
|
||
Earnings
from continuing operations before income taxes
|
153
|
140
|
||
Provision
for income taxes from continuing operations
|
38
|
47
|
||
Earnings
from continuing operations
|
115
|
93
|
||
Loss
from discontinued operations, net of tax
|
--
|
(3)
|
||
Gain
(loss) from disposal of discontinued operations, net of
tax
|
18
|
(13)
|
||
Net
earnings
|
$
|
133
|
$
|
77
|
Basic
earnings per share
|
||||
Earnings
from continuing operations
|
$
|
1.47
|
$
|
1.11
|
Earnings
(loss) from discontinued operations
|
0.23
|
(0.19)
|
||
Basic
earnings per share
|
$
|
1.70
|
$
|
0.92
|
Diluted
earnings per share
|
||||
Earnings
from continuing operations
|
$
|
1.46
|
$
|
1.10
|
Earnings
(loss) from discontinued operations
|
0.22
|
(0.19)
|
||
Diluted
earnings per share
|
$
|
1.68
|
$
|
0.91
|
Comprehensive
Income
|
||||
Net
earnings
|
$
|
133
|
$
|
77
|
Other
comprehensive income (loss)
|
||||
Change
in cumulative translation adjustment, net of tax
|
(36)
|
(3)
|
||
Change
in pension liability, net of tax
|
8
|
2
|
||
Change
in unrealized gains (losses) on derivative instruments, net of
tax
|
(26)
|
7
|
||
Change
in unrealized gains (losses) on investments, net of tax
|
--
|
(1)
|
||
Total
other comprehensive income (loss)
|
(54)
|
5
|
||
Comprehensive
income
|
$
|
79
|
$
|
82
|
Retained
Earnings
|
||||
Retained
earnings at beginning of period
|
$
|
2,349
|
$
|
2,186
|
Net
earnings
|
133
|
77
|
||
Cash
dividends declared
|
(34)
|
(37)
|
||
Adoption
of accounting standard
|
--
|
8
|
||
Retained
earnings at end of period
|
$
|
2,448
|
$
|
2,234
|
March
31,
|
December
31,
|
|||
(Dollars
in millions, except per share amounts)
|
2008
|
2007
|
||
(Unaudited)
|
||||
Assets
|
||||
Current
assets
|
||||
Cash
and cash equivalents
|
$
|
793
|
$
|
888
|
Trade
receivables, net of allowance of $7 and $6
|
599
|
546
|
||
Miscellaneous
receivables
|
105
|
112
|
||
Inventories
|
670
|
539
|
||
Other
current assets
|
64
|
74
|
||
Current
assets related to discontinued operations
|
--
|
134
|
||
Total
current assets
|
2,231
|
2,293
|
||
Properties
|
||||
Properties
and equipment at cost
|
8,263
|
8,152
|
||
Less: Accumulated
depreciation
|
5,356
|
5,306
|
||
Net
properties
|
2,907
|
2,846
|
||
Goodwill
|
318
|
316
|
||
Other
noncurrent assets
|
350
|
313
|
||
Noncurrent
assets related to discontinued operations
|
--
|
241
|
||
Total
assets
|
$
|
5,806
|
$
|
6,009
|
Liabilities
and Stockholders’ Equity
|
||||
Current
liabilities
|
||||
Payables
and other current liabilities
|
$
|
1,036
|
$
|
1,013
|
Borrowings
due within one year
|
72
|
72
|
||
Current
liabilities related to discontinued operations
|
--
|
37
|
||
Total
current liabilities
|
1,108
|
1,122
|
||
Long-term
borrowings
|
1,557
|
1,535
|
||
Deferred
income tax liabilities
|
273
|
300
|
||
Post-employment
obligations
|
851
|
852
|
||
Other
long-term liabilities
|
121
|
118
|
||
Total
liabilities
|
3,910
|
3,927
|
||
Stockholders’
equity
|
||||
Common
stock ($0.01 par value – 350,000,000 shares authorized; shares issued –
93,927,780 and 93,630,292 for 2008 and 2007, respectively)
|
1
|
1
|
||
Additional
paid-in capital
|
587
|
573
|
||
Retained
earnings
|
2,448
|
2,349
|
||
Accumulated
other comprehensive loss
|
(82)
|
(28)
|
||
2,954
|
2,895
|
|||
Less:
Treasury stock at cost (17,775,887 shares for 2008 and 13,959,951 shares
for 2007)
|
1,058
|
813
|
||
Total
stockholders’ equity
|
1,896
|
2,082
|
||
Total
liabilities and stockholders’ equity
|
$
|
5,806
|
$
|
6,009
|
First
Three Months
|
||||
(Dollars
in millions)
|
2008
|
2007
|
||
Cash
flows from operating activities
|
||||
Net
earnings
|
$
|
133
|
$
|
77
|
Adjustments
to reconcile net earnings to net cash provided by (used in) operating
activities:
|
||||
Depreciation
and amortization
|
65
|
84
|
||
Asset
impairments
|
1
|
22
|
||
Gains
on sale of assets
|
(7)
|
--
|
||
Provision
(benefit) for deferred income taxes
|
(56)
|
(15)
|
||
Changes
in operating assets and liabilities:
|
||||
(Increase)
decrease in receivables
|
(40)
|
(29)
|
||
(Increase)
decrease in inventories
|
(116)
|
15
|
||
Increase
(decrease) in trade payables
|
(47)
|
(80)
|
||
Increase
(decrease) in liabilities for employee benefits and incentive
pay
|
(61)
|
(165)
|
||
Other
items, net
|
75
|
25
|
||
Net
cash provided by (used in) operating activities
|
(53)
|
(66)
|
||
Cash
flows from investing activities
|
||||
Additions
to properties and equipment
|
(132)
|
(86)
|
||
Proceeds
from sale of assets and investments
|
323
|
(2)
|
||
Additions
to capitalized software
|
(3)
|
(3)
|
||
Other
items, net
|
(6)
|
--
|
||
Net
cash provided by (used in) investing activities
|
182
|
(91)
|
||
Cash
flows from financing activities
|
||||
Net
increase (decrease) in commercial paper, credit facility and other
borrowings
|
48
|
73
|
||
Dividends
paid to stockholders
|
(35)
|
(38)
|
||
Treasury
stock purchases
|
(245)
|
(33)
|
||
Proceeds
from stock option exercises and other items
|
7
|
49
|
||
Net
cash provided by (used in) financing activities
|
(225)
|
51
|
||
Effect
of exchange rate changes on cash and cash equivalents
|
1
|
--
|
||
Net
change in cash and cash equivalents
|
(95)
|
(106)
|
||
Cash
and cash equivalents at beginning of period
|
888
|
939
|
||
Cash
and cash equivalents at end of period
|
$
|
793
|
$
|
833
|
Page
|
|
Note
1. Basis of
Presentation
|
7
|
Note
2. Discontinued
Operations
|
7
|
Note
3. Inventories
|
9
|
9
|
|
Note
5. Provision for Income
Taxes
|
9
|
Note
6. Borrowings
|
10
|
10
|
|
Note
8. Retirement
Plans
|
11
|
Note
9. Environmental
Matters
|
13
|
Note
10. Commitments
|
13
|
Note
11. Fair Value of Financial
Instruments
|
14
|
Note
12. Stockholders' Equity
|
15
|
Note
13. Earnings and Dividends per
Share
|
16
|
Note
14. Share-Based Compensation
Awards
|
16
|
Note
15. Segment Information
|
16
|
Note
16. Legal Matters
|
18
|
Note
17. Recently Issued Accounting
Standards
|
19
|
(Dollars
in millions)
|
Fair
Value Measurements at March 31, 2008
|
|||||||
Description
|
March 31, 2008
|
Quoted Prices in
Active Markets for Identical Assets (Level 1)
|
Significant Other
Observable Inputs (Level 2)
|
Significant
Unobservable Inputs (Level 3)
|
||||
Derivative
Assets
|
$
|
34
|
$
|
--
|
$
|
34
|
$
|
--
|
Derivative
Liabilities
|
(61)
|
--
|
(61)
|
--
|
||||
$
|
(27)
|
$
|
--
|
$
|
(27)
|
$
|
--
|
|
First
Three Months
|
||||
(Dollars
in millions)
|
2008
|
2007
|
||
Sales
|
$
|
169
|
$
|
158
|
Earnings
(loss) before income taxes
|
2
|
(2)
|
||
Loss
from discontinued operations, net of tax
|
--
|
(3)
|
||
Gain
(loss) on disposal, net of tax
|
18
|
(13)
|
December
31,
|
||
(Dollars
in millions)
|
2007
|
|
Current
assets
|
||
Trade
receivables
|
$
|
85
|
Inventories
|
49
|
|
Total
current assets held for sale
|
134
|
|
Non-current
assets
|
||
Properties
and equipment, net
|
236
|
|
Other
non-current assets
|
5
|
|
Total
non-current assets held for sale
|
241
|
|
Total
assets
|
$
|
375
|
Current
liabilities
|
||
Payables
and other current liabilities, net
|
$
|
37
|
Total
current liabilities held for sale
|
37
|
|
Total
liabilities
|
$
|
37
|
3.
|
March
31,
|
December
31,
|
|||
(Dollars
in millions)
|
2008
|
2007
|
||
At
FIFO or average cost (approximates current cost)
|
||||
Finished
goods
|
$
|
688
|
$
|
607
|
Work
in process
|
219
|
195
|
||
Raw
materials and supplies
|
279
|
247
|
||
Total
inventories
|
1,186
|
1,049
|
||
LIFO
Reserve
|
(516)
|
(510)
|
||
Total
inventories
|
$
|
670
|
$
|
539
|
March
31,
|
December
31,
|
|||
(Dollars
in millions)
|
2008
|
2007
|
||
Trade
creditors
|
$
|
549
|
$
|
578
|
Accrued
payrolls, vacation, and variable-incentive compensation
|
82
|
138
|
||
Accrued
taxes
|
76
|
36
|
||
Post-employment
obligations
|
51
|
60
|
||
Interest
payable
|
23
|
31
|
||
Bank
overdrafts
|
58
|
6
|
||
Other
|
197
|
164
|
||
Total
payables and other current liabilities
|
$
|
1,036
|
$
|
1,013
|
First
Quarter
|
||||||
(Dollars
in millions)
|
2008
|
2007
|
Change
|
|||
Provision
for income taxes
|
$
|
38
|
$
|
47
|
(19)
%
|
|
Effective
tax rate
|
25
%
|
34
%
|
6.
|
March
31,
|
December
31,
|
|||
(Dollars
in millions)
|
2008
|
2007
|
||
Borrowings
consisted of:
|
||||
3
1/4% notes due 2008
|
$
|
72
|
$
|
72
|
7%
notes due 2012
|
153
|
148
|
||
6.30%
notes due 2018
|
195
|
188
|
||
7
1/4% debentures due 2024
|
497
|
497
|
||
7
5/8% debentures due 2024
|
200
|
200
|
||
7.60%
debentures due 2027
|
298
|
298
|
||
Credit
facility borrowings
|
198
|
188
|
||
Other
|
16
|
16
|
||
Total
borrowings
|
1,629
|
1,607
|
||
Borrowings
due within one year
|
(72)
|
(72)
|
||
Long-term
borrowings
|
$
|
1,557
|
$
|
1,535
|
(Dollars
in millions)
|
Balance
at
January
1, 2007
|
Provision/
Adjustments
|
Non-cash
Reductions
|
Cash
Reductions
|
Balance
at
December
31, 2007
|
|||||
Non-cash
charges
|
$
|
--
|
$
|
122
|
$
|
(122)
|
$
|
--
|
$
|
--
|
Severance
costs
|
34
|
(9)
|
--
|
(18)
|
7
|
|||||
Site
closure and other restructuring costs
|
14
|
(1)
|
--
|
(2)
|
11
|
|||||
Total
|
$
|
48
|
$
|
112
|
$
|
(122)
|
$
|
(20)
|
$
|
18
|
Balance
at
January
1, 2008
|
Provision/
Adjustments
|
Non-cash
Reductions
|
Cash
Reductions
|
Balance
at
March
31, 2008
|
||||||
Non-cash
charges
|
$
|
--
|
$
|
11
|
$
|
(11)
|
$
|
--
|
$
|
--
|
Severance
costs
|
7
|
5
|
--
|
(3)
|
9
|
|||||
Site
closure and other restructuring costs
|
11
|
1
|
--
|
(4)
|
8
|
|||||
Total
|
$
|
18
|
$
|
17
|
$
|
(11)
|
$
|
(7)
|
$
|
17
|
Summary
of Components of Net Periodic Benefit Costs
|
||||
First
Quarter
|
||||
(Dollars
in millions)
|
2008
|
2007
|
||
Service
cost
|
$
|
12
|
$
|
11
|
Interest
cost
|
21
|
21
|
||
Expected
return on assets
|
(26)
|
(25)
|
||
Curtailment
charge
|
9
|
--
|
||
Amortization
of:
|
||||
Prior
service credit
|
(3)
|
(2)
|
||
Actuarial
loss
|
6
|
9
|
||
Net
periodic benefit cost
|
$
|
19
|
$
|
14
|
Summary
of Components of Net Periodic Benefit Costs
|
||||
First
Quarter
|
||||
(Dollars in
millions)
|
2008
|
2007
|
||
Service
cost
|
$
|
2
|
$
|
2
|
Interest
cost
|
11
|
11
|
||
Expected
return on assets
|
(1)
|
(1)
|
||
Amortization
of:
|
||||
Prior
service credit
|
(6)
|
(6)
|
||
Actuarial
loss
|
2
|
3
|
||
Net
periodic benefit cost
|
$
|
8
|
$
|
9
|
10.
|
11.
|
(Dollars
in millions)
|
Common
Stock at Par Value
$
|
Paid-in
Capital
$
|
Retained
Earnings
$
|
Accumulated
Other Comprehensive Income (Loss)
$
|
Treasury
Stock
at
Cost
$
|
Total
Stockholders' Equity
$
|
Balance
at December 31, 2007
|
1
|
573
|
2,349
|
(28)
|
(813)
|
2,082
|
Net
Earnings
|
--
|
--
|
133
|
--
|
--
|
133
|
Cash
Dividends Declared (1)
|
--
|
--
|
(34)
|
--
|
--
|
(34)
|
Other
Comprehensive Income
|
--
|
--
|
--
|
(54)
|
--
|
(54)
|
Stock
Based Compensation and Other Items (2)(3)
|
--
|
14
|
--
|
--
|
--
|
14
|
Stock
Repurchases
|
--
|
--
|
--
|
--
|
(245)
|
(245)
|
Balance
at March 31, 2008
|
1
|
587
|
2,448
|
(82)
|
(1,058)
|
1,896
|
(1)
|
Includes
dividends declared but unpaid.
|
(2) | The tax benefits relating to the difference between the amounts deductible for federal income taxes over the amounts charged to income for book value purposes have been credited to paid-in capital. |
(3)
|
Includes
the fair value of equity share-based awards recognized under SFAS No. 123
Revised December 2004 ("SFAS No. 123(R)"), "Share-Based
Payment".
|
(Dollars
in millions)
|
Cumulative
Translation Adjustment
$
|
Unfunded
Additional
Minimum
Pension Liability
$
|
Unrecognized
Loss and Prior Service
Cost
$
|
Unrealized
Gains (Losses) on Derivative Instruments
$
|
Unrealized
Gains/(Losses) on Investments
$
|
Accumulated
Other Comprehensive Income (Loss)
$
|
Pre-SFAS
No. 158 (1)
balance at December 31, 2006
|
121
|
(207)
|
--
|
(6)
|
(1)
|
(93)
|
Adjustments
to apply SFAS No. 158
|
--
|
207
|
(288)
|
--
|
--
|
(81)
|
Balance
at December 31, 2006
|
121
|
--
|
(288)
|
(6)
|
(1)
|
(174)
|
Period
change
|
36
|
--
|
106
|
3
|
1
|
146
|
Balance
at December 31, 2007
|
157
|
--
|
(182)
|
(3)
|
--
|
(28)
|
Period
change
|
(36)
|
--
|
8
|
(26)
|
--
|
(54)
|
Balance
at March 31, 2008
|
121
|
--
|
(174)
|
(29)
|
--
|
(82)
|
(1)
|
SFAS
No. 158, "Employers' Accounting for Defined Benefit Pension and
Other Postretirement Plans" ("SFAS No.
158")
|
First
Quarter
|
|||
2008
|
2007
|
||
Shares
used for earnings per share calculation (in millions):
|
|||
Basic
|
78.2
|
83.9
|
|
Diluted
|
79.2
|
85.0
|
First
Quarter
|
||||
(Dollars
in millions)
|
2008
|
2007
|
||
Sales
by Segment
|
||||
CASPI
|
$
|
389
|
$
|
345
|
Fibers
|
254
|
234
|
||
PCI
|
556
|
498
|
||
Performance
Polymers
|
304
|
348
|
||
SP
|
224
|
212
|
||
Total
Sales
|
$
|
1,727
|
$
|
1,637
|
First
Quarter
|
||||
(Dollars
in millions)
|
2008
|
2007
|
||
Operating
Earnings (Loss)
|
||||
CASPI
|
$
|
59
|
$
|
65
|
Fibers
|
68
|
59
|
||
PCI
(1)
|
44
|
54
|
||
Performance
Polymers (2)
|
(6)
|
(32)
|
||
SP
|
17
|
18
|
||
Total
Operating Earnings by Segment
|
182
|
164
|
||
Other
|
(14)
|
(10)
|
||
Total
Operating Earnings
|
$
|
168
|
$
|
154
|
(1)
|
PCI
includes $16 million in first quarter 2008 in asset impairments and
restructuring charges primarily related to severance and pension costs
from the decision to close a previously impaired site in the United
Kingdom and $1 million and $7 million in first quarter 2008 and first
quarter 2007, respectively, in accelerated depreciation costs related to
cracking units at the Company's Longview, Texas
facility.
|
(2)
|
Performance Polymers includes $1
million and $7 million in first quarter 2008 and first quarter 2007,
respectively, in accelerated depreciation costs related to assets in
Columbia, South Carolina and $1 million in first quarter 2008 in asset
impairments and restructuring charges, net related to restructuring at the
South Carolina facility using IntegRexTM
technology.
|
March
31,
|
December
31,
|
|||
(Dollars
in millions)
|
2008
|
2007
|
||
Assets
by Segment (1)
|
||||
CASPI
|
$
|
1,184
|
$
|
1,114
|
Fibers
|
714
|
692
|
||
PCI
|
1,017
|
1,062
|
||
Performance
Polymers
|
741
|
727
|
||
SP
|
697
|
622
|
||
Total
Assets by Segment
|
4,353
|
4,217
|
||
Corporate
Assets
|
1,453
|
1,417
|
||
Total
Assets Before Assets Related to Discontinued Operations
|
5,806
|
5,634
|
||
Assets
Related to Discontinued Operations (2)
|
--
|
375
|
||
Total
Assets
|
$
|
5,806
|
$
|
6,009
|
(1)
|
Assets
managed by the Chief Operating Decision Maker include accounts receivable,
inventory, fixed assets, and
goodwill.
|
(2)
|
For
more information regarding assets related to discontinued operations, see
Note 2 to the Company's unaudited consolidated
financial statements.
|
16.
|
ITEM
|
Page
|
21
|
|
21
|
|
22
|
|
23
|
|
26
|
|
31
|
|
32
|
|
35
|
|
36
|
|
37
|
|
·
|
Company
sales and segment sales and results from continuing operations excluding
sales revenue and results from continuing operations from sales in Latin
America of PET products manufactured at the divested Mexico and Argentina
PET manufacturing sites;
|
·
|
Company
and segment sales excluding contract ethylene sales under a transition
agreement related to the divestiture of the PE product
lines;
|
·
|
Company
and segment sales excluding contract polymer intermediates sales under a
transition supply agreement related to the divestiture of the PET
manufacturing facilities and related businesses in Mexico and
Argentina;
|
·
|
Company
and segment gross profit, operating earnings and net earnings excluding
accelerated depreciation costs and asset impairments and restructuring
charges; and
|
·
|
Company earnings
from continuing operations excluding net deferred tax benefits
related to the previous divestiture of
businesses.
|
First
Quarter
|
Volume
Effect
|
Price
Effect
|
Product
Mix
Effect
|
Exchange
Rate
Effect
|
||||||||||
(Dollars
in millions)
|
2008
|
2007
|
Change
|
|||||||||||
Sales
|
$
|
1,727
|
$
|
1,637
|
6
%
|
(6)
%
|
10
%
|
1
%
|
1
%
|
|||||
Sales
from Mexico and Argentina PET manufacturing facilities (1)
|
--
|
125
|
||||||||||||
Sales
- contract polymer intermediates sales (2)
|
56
|
--
|
||||||||||||
Sales
- contract ethylene sales (3)
|
92
|
70
|
||||||||||||
Sales
– excluding listed items
|
1,579
|
1,442
|
9
%
|
(2)
%
|
9
%
|
1
%
|
1
%
|
|||||||
(1)
|
Sales
revenue and operating results for 2007 include sales revenue from PET
manufacturing facilities and related businesses in Cosoleacaque, Mexico
and Zarate, Argentina divested in fourth quarter
2007.
|
(2)
|
Included
in first quarter 2008 sales revenue are contract polymer intermediates
sales under the transition supply agreement related to the divestiture of
the PET manufacturing facilities and related businesses in Mexico and
Argentina in fourth quarter 2007.
|
(3)
|
Included
in first quarter 2008 and 2007 sales revenue are contract ethylene sales
under the transition supply agreement related to the divestiture of the PE
businesses.
|
First
Quarter
|
||||||
(Dollars
in millions)
|
2008
|
2007
|
Change
|
|||
Gross
Profit
|
$
|
337
|
$
|
286
|
18
%
|
|
As
a percentage of sales
|
19.5
%
|
17.5
%
|
||||
Accelerated
depreciation costs included in cost of goods sold
|
2
|
14
|
||||
Gross
Profit excluding accelerated depreciation costs
|
339
|
300
|
13
%
|
|||
As
a percentage of sales
|
19.6
%
|
18.3
%
|
First
Quarter
|
||||||
(Dollars
in millions)
|
2008
|
2007
|
Change
|
|||
Selling,
General and Administrative Expenses
|
$
|
110
|
$
|
98
|
12
%
|
|
Research
and Development Expenses
|
42
|
34
|
24
%
|
|||
$
|
152
|
$
|
132
|
15
%
|
||
As
a percentage of sales
|
8.8
%
|
8.1
%
|
Operating
Earnings
|
||||||
First
Quarter
|
||||||
(Dollars
in millions)
|
2008
|
2007
|
Change
|
|||
Operating
earnings
|
$
|
168
|
$
|
154
|
9
%
|
|
Accelerated
depreciation costs included in cost of goods sold
|
2
|
14
|
||||
Asset
impairments and restructuring charges, net
|
17
|
--
|
||||
Operating
earnings excluding accelerated depreciation costs and asset impairments
and restructuring charges, net
|
$
|
187
|
$
|
168
|
11
%
|
First
Quarter
|
||||||
(Dollars
in millions)
|
2008
|
2007
|
Change
|
|||
Gross
interest costs
|
$
|
26
|
$
|
28
|
||
Less: Capitalized
interest
|
1
|
1
|
||||
Interest
expense
|
25
|
27
|
(7)
%
|
|||
Interest
income
|
9
|
10
|
||||
Interest
expense, net
|
$
|
16
|
$
|
17
|
(6)
%
|
|
First
Quarter
|
||||
(Dollars
in millions)
|
2008
|
2007
|
||
Other
income
|
$
|
(9)
|
$
|
(6)
|
Other
charges
|
8
|
3
|
||
Other
(income) charges, net
|
$
|
(1)
|
$
|
(3)
|
First
Quarter
|
||||||
(Dollars
in millions)
|
2008
|
2007
|
Change
|
|||
Provision
for income taxes
|
$
|
38
|
$
|
47
|
(19)
%
|
|
Effective
tax rate
|
25
%
|
34
%
|
Earnings
from Continuing Operations
|
||||||
First
Quarter
|
||||||
(Dollars
in millions)
|
2008
|
2007
|
Change
|
|||
Earnings
from continuing operations
|
$
|
115
|
$
|
93
|
24
%
|
|
Accelerated
depreciation costs included in cost of goods sold, net of
tax
|
1
|
9
|
||||
Asset
impairments and restructuring charges, net of tax
|
12
|
--
|
||||
Net
deferred tax benefits related to the previous divestiture
of businesses
|
(11)
|
--
|
||||
Earnings
from continuing operations excluding accelerated depreciation costs and
asset impairments and restructuring charges, net of tax
|
$
|
117
|
$
|
102
|
16
%
|
Net
Earnings
|
||||||
First
Quarter
|
||||||
(Dollars
in millions)
|
2008
|
2007
|
Change
|
|||
Earnings
from continuing operations
|
$
|
115
|
$
|
93
|
24
%
|
|
Loss
from discontinued operations, net of tax
|
--
|
(3)
|
||||
Gain
(loss) from disposal of discontinued operations
|
18
|
(13)
|
||||
Net
earnings
|
$
|
133
|
$
|
77
|
73
%
|
CASPI
Segment
|
||||||||
First
Quarter
|
||||||||
$
|
%
|
|||||||
(Dollars
in millions)
|
2008
|
2007
|
Change
|
Change
|
||||
Sales
|
$
|
389
|
$
|
345
|
$
|
44
|
13
%
|
|
Volume
effect
|
6
|
2
%
|
||||||
Price
effect
|
25
|
7
%
|
||||||
Product
mix effect
|
5
|
2
%
|
||||||
Exchange
rate effect
|
8
|
2
%
|
||||||
Operating
earnings
|
59
|
65
|
(6)
|
(9)
%
|
||||
Fibers
Segment
|
||||||||
First
Quarter
|
||||||||
$
|
%
|
|||||||
(Dollars
in millions)
|
2008
|
2007
|
Change
|
Change
|
||||
Sales
|
$
|
254
|
$
|
234
|
$
|
20
|
8
%
|
|
Volume
effect
|
11
|
5
%
|
||||||
Price
effect
|
12
|
5
%
|
||||||
Product
mix effect
|
(4)
|
(2)
%
|
||||||
Exchange
rate effect
|
1
|
--
%
|
||||||
Operating
earnings
|
68
|
59
|
9
|
15
%
|
||||
PCI
Segment
|
||||||||
First
Quarter
|
||||||||
$
|
%
|
|||||||
(Dollars
in millions)
|
2008
|
2007
|
Change
|
Change
|
||||
Sales
|
$
|
556
|
$
|
498
|
$
|
58
|
12
%
|
|
Volume
effect
|
(44)
|
(9)
%
|
||||||
Price
effect
|
88
|
18
%
|
||||||
Product
mix effect
|
10
|
2
%
|
||||||
Exchange
rate effect
|
4
|
1
%
|
||||||
Sales
– contract ethylene sales
|
92
|
70
|
22
|
|||||
Sales
– continuing product lines
|
464
|
428
|
36
|
9
%
|
||||
Volume
effect
|
(33)
|
(8)
%
|
||||||
Price
effect
|
59
|
14
%
|
||||||
Product
mix effect
|
6
|
2
%
|
||||||
Exchange
rate effect
|
4
|
1
%
|
||||||
Operating
earnings
|
44
|
54
|
(10)
|
(19)
%
|
||||
Accelerated
depreciation costs included in cost of goods sold
|
1
|
7
|
(6)
|
|||||
Asset
impairments and restructuring charges, net
|
16
|
--
|
16
|
|||||
Operating
earnings excluding accelerated depreciation costs and asset impairments
and restructuring charges, net
|
61
|
61
|
--
|
--
%
|
First
Quarter
|
||||||||
(Dollars
in millions)
|
2008
|
2007
|
$
Change
|
%
Change
|
||||
Sales
|
$
|
304
|
$
|
348
|
$
|
(44)
|
(13)
%
|
|
Volume
effect
|
(76)
|
(22)
%
|
||||||
Price
effect
|
33
|
9
%
|
||||||
Product
mix effect
|
(1)
|
--
%
|
||||||
Exchange
rate effect
|
--
|
--
%
|
||||||
Sales
from Mexico and Argentina PET manufacturing facilities (1)
|
--
|
125
|
(125)
|
|||||
Sales
– contract polymer intermediates sales (2)
|
56
|
--
|
56
|
|||||
Sales
– U.S. PET manufacturing facilities
|
248
|
223
|
25
|
11
%
|
||||
Volume
effect
|
(7)
|
(3)
%
|
||||||
Price
effect
|
33
|
14
%
|
||||||
Product
mix effect
|
(1)
|
--
%
|
||||||
Exchange
rate effect
|
--
|
--
%
|
||||||
Operating
loss (3)
|
(6)
|
(32)
|
26
|
81
%
|
||||
Operating
loss – from sales from Mexico and Argentina PET manufacturing
facilities
(1)(4)
|
--
|
--
|
--
|
--
%
|
||||
Operating
loss – U.S. PET manufacturing facilities (3)(4)
|
(6)
|
(32)
|
26
|
81
%
|
||||
Operating
loss excluding items (3)(5)
|
(4)
|
(25)
|
21
|
84
%
|
||||
Operating
loss excluding items – from sales from Mexico and Argentina PET
manufacturing facilities
(1)(4)
|
--
|
--
|
--
|
--
%
|
||||
Operating
loss excluding items – U.S. PET manufacturing facilities (3)(4)(5)
|
(4)
|
(25)
|
21
|
84
%
|
||||
(1)
|
Sales
revenue and operating results for 2007 includes sales revenue from PET
manufacturing facilities and related businesses in Cosoleacaque, Mexico
and Zarate, Argentina divested in fourth quarter
2007.
|
(2)
|
Sales
revenue for 2008 includes contract polymer intermediates sales under the
transition supply agreement related to the divestiture of the PET
manufacturing facilities and related businesses in Mexico and Argentina in
fourth quarter 2007.
|
(3)
|
Includes
allocated costs not included in discontinued operations, some of which may
remain and could be reallocated to the remainder of the segment and other
segments.
|
(4)
|
Includes
allocated costs consistent with the Company’s historical practices, some
of which may remain and could be reallocated to the remainder of the
segment and other segments.
|
(5)
|
Items
are accelerated depreciation costs and asset impairments and restructuring
charges, net. Accelerated depreciation costs of $1 million in
first quarter 2008 and $7 million in first quarter 2007 resulted from
restructuring actions associated with higher cost PET polymer assets in
Columbia, South Carolina. Asset impairments and restructuring
charges of $1 million in first quarter 2008 related to restructuring at
the South Carolina facility using IntegRexTM
technology.
|
SP
Segment
|
||||||||
First Quarter
|
||||||||
$
|
%
|
|||||||
(Dollars
in millions)
|
2008
|
2007
|
Change
|
Change
|
||||
Sales
|
$
|
224
|
$
|
212
|
$
|
12
|
6
%
|
|
Volume
effect
|
2
|
1
%
|
||||||
Price
effect
|
2
|
1
%
|
||||||
Product
mix effect
|
3
|
1
%
|
||||||
Exchange
rate effect
|
5
|
3
%
|
||||||
Operating
earnings
|
17
|
18
|
(1)
|
(6)
%
|
||||
First
Quarter
|
||||||||||||||
(Dollars
in millions)
|
2008
|
2007
|
Change
|
Volume
Effect
|
Price
Effect
|
Product
Mix
Effect
|
Exchange
Rate
Effect
|
|||||||
United
States and Canada
|
$
|
1,056
|
$
|
967
|
9
%
|
(5)
%
|
14
%
|
--
%
|
--
%
|
|||||
Europe,
Middle East, and Africa
|
254
|
218
|
17
%
|
8
%
|
1
%
|
1
%
|
7
%
|
|||||||
Asia
Pacific
|
275
|
253
|
9
%
|
--
%
|
5
%
|
2
%
|
2
%
|
|||||||
Latin
America
|
142
|
199
|
(29)
%
|
(34)
%
|
3
%
|
2
%
|
--
%
|
|||||||
$
|
1,727
|
$
|
1,637
|
6
%
|
(6)
%
|
10
%
|
1
%
|
1
%
|
First
Quarter
|
||||
(Dollars
in millions)
|
2008
|
2007
|
||
Net
cash provided by (used in)
|
||||
Operating
activities
|
$
|
(53)
|
$
|
(66)
|
Investing
activities
|
182
|
(91)
|
||
Financing
activities
|
(225)
|
51
|
||
Effect
of exchange rate changes on cash and cash equivalents
|
1
|
--
|
||
Net
change in cash and cash equivalents
|
(95)
|
(
106)
|
||
Cash
and cash equivalents at beginning of period
|
888
|
939
|
||
Cash
and cash equivalents at end of period
|
$
|
793
|
$
|
833
|
·
|
to
maintain strong volumes due to continued substitution of Eastman products
for other materials, and new applications for existing
products despite uncertain prospects for the U.S. and global
economies;
|
·
|
the
volatility of raw material and energy costs to continue and that
the Company will continue to use pricing strategies and ongoing cost
control initiatives to offset the effects on gross
profit;
|
·
|
to
improve the profitability of its PET product lines in the Performance
Polymers segment, including completing the divestiture of its
underperforming PET manufacturing facilities outside the United States
(which was completed in first quarter 2008); debottlenecking the new South
Carolina PET facility utilizing IntegRexTM technology
beginning in the second half of 2008 for a total capacity of 525,000
metric tons of ParaStarTM
PET; shutting down another 300,000 metric tons of conventional PET
polymers capacity at the South Carolina manufacturing facility and
dimethyl terephthalate ("DMT") assets (which were completed in first
quarter 2008); eliminating approximately $30 million of annual costs at
the South Carolina site by the middle of 2008; and continuing to pursue
options to create additional value from its IntegRexTM technology,
primarily by actively pursing licensing
opportunities;
|
·
|
to
improve SP segment results by completing the conversion of 50,000 metric
tons of PET capacity to copolyester by the middle of 2008 and continue
progress with the commercialization of its new copolyester, Eastman
TritanTM
copolyester including a new 30,000 metric ton TritanTM manufacturing
facility expected to be online in late 2009 or early
2010;
|
·
|
that
the staged phase-out of older cracking units in Longview, Texas and a
planned shut down of higher cost PET assets in Columbia, South Carolina
will result in accelerated depreciation costs of approximately $10
million;
|
·
|
ethylene
volumes to decline in the PCI segment due to the staged phase-out of older
cracking units at the Company's Longview, Texas
facility;
|
·
|
to
increase volumes in the Performance Polymers segment due to the transition
agreement pertaining to the PET manufacturing facilities and related
businesses in Cosoleacaque, Mexico and Zarate, Argentina divested in
fourth quarter 2007; the Company will supply polymer
intermediates to the buyer on a short-term
basis;
|
·
|
modest
sales volume growth for acetate tow in the Fibers segment, to complete the
expansion of its acetate tow plant in Workington, England, in the second
half of 2008, and to announce plans for new acetate tow capacity in
Asia;
|
·
|
the
PCI segment to have operating margins at the high end of the 5 to 10
percent range;
|
·
|
the
CASPI segment to maintain solid earnings at the low end of the 15 to
20 percent operating margin range, with continued weakness in the U.S.
housing and automotive sectors offset by strength in Europe
and Asia;
|
·
|
front-end
engineering and design for the industrial gasification
projects to be completed in the second half of 2008, and project
financing to be obtained by the end of the
year;
|
·
|
net
interest expense to increase compared with 2007 primarily due to lower
interest income, driven by declining interest rates and lower average
invested cash balances;
|
·
|
the
effective tax rate to be approximately 34
percent;
|
·
|
capital
spending will be above $600 million as it funds targeted growth efforts,
including the debottlenecking of the South Carolina manufacturing
facility utilizing IntegRexTM
technology, the completion of front-end engineering and design for the two
industrial gasification projects, increased capacity of CTA for LCD
screens, increased capacity for Eastman TritanTM
copolyester, and the completion of the acetate tow expansion in
Workington, England; and
|
·
|
priorities
for uses of available cash to be to pay the quarterly cash dividend, fund
targeted growth initiatives, fund debt service commitments, and repurchase
shares.
|
·
|
the
industrial gasification projects in Texas and Louisiana to break
ground in early 2009, with the facilities online by 2011, and expects
these projects to contribute significantly to earnings in
2012;
|
·
|
the
SP segment further to improve earnings by completing the conversion of an
additional 50,000 metric tons of PET to be converted by 2010, increasing
sales revenue from cellulose esters used in LCD screens and continued
progress with the commercialization of its high performance
copolyesters;
|
·
|
to
pursue licensing opportunities for the PCI segment's acetyl and oxo
technologies and for the Performance Polymers segment's IntegRexTM technology;
|
·
|
to
pursue growth opportunities in Asia for acetate tow in the Fibers segment;
and
|
·
|
to
complete an additional 30 percent expansion of its CASPI segment's
hydrogenated hydrocarbon resins manufacturing capacity in Middelburg, the
Netherlands in early 2009.
|
·
|
The
Company is reliant on certain strategic raw materials and energy
commodities for its operations and utilizes risk management tools,
including hedging, as appropriate, to mitigate short-term market
fluctuations in raw material and energy costs. There can be no
assurance, however, that such measures will result in cost savings or that
all market fluctuation exposure will be eliminated. In
addition, natural disasters, changes in laws or regulations, war or other
outbreak of hostilities or terrorism or other political factors in any of
the countries or regions in which the Company operates or does business or
in countries or regions that are key suppliers of strategic raw materials
and energy commodities, or breakdown or degradation of transportation
infrastructure used for delivery of strategic raw materials and energy
commodities, could affect availability and costs of raw materials and
energy commodities.
|
·
|
While
temporary shortages of raw materials and energy may occasionally occur,
these items have historically been sufficiently available to cover current
and projected requirements. However, their continuous
availability and price are impacted by natural disasters, plant
interruptions occurring during periods of high demand, domestic and world
market and political conditions, changes in government regulation, war or
other outbreak of hostilities or terrorism, and breakdown or degradation
of transportation infrastructure. Eastman’s operations or
products may, at times, be adversely affected by these
factors.
|
·
|
The
Company's competitive position in the markets in which it participates is,
in part, subject to external factors in addition to those that the Company
can impact. Natural disasters, pandemic illnesses, changes in
laws or regulations, war or other outbreak of hostilities or terrorism, or
other political factors in any of the countries or regions in which the
Company operates or does business or in countries or regions that are key
suppliers of strategic raw materials, and breakdown or degradation of
transportation infrastructure used for delivery of raw
materials and energy supplies to the Company and for delivery of the
Company's products to customers, could negatively impact the Company’s
competitive position and its ability to maintain market
share. For example, supply and demand for certain of the
Company's products is driven by end-use markets and worldwide capacities
which, in turn, impact demand for and pricing of the Company's
products.
|
·
|
Limitation
of the Company's available manufacturing capacity due to significant
disruption in its manufacturing operations, including natural disasters,
pandemic illnesses, changes in laws or regulations, war or other outbreak
of hostilities or terrorism, or other political factors in any of the
countries or regions in which the Company operates or does business, or
breakdown or degradation of transportation infrastructure used for
delivery of raw materials and energy supplies to the Company
and for delivery of the Company's products to customers, could have a
material adverse affect on sales revenue, costs and results of operations
and financial condition.
|
·
|
The
Company has an extensive customer base; however, loss of, or material
financial weakness of, certain of the largest customers could adversely
affect the Company's financial condition and results of operations until
such business is replaced and no assurances can be made that the Company
would be able to regain or replace any lost
customers.
|
·
|
The
Company has efforts underway to exploit growth opportunities in certain
core businesses by developing new products and technologies, expanding
into new markets, and tailoring product offerings to customer
needs. Current examples include IntegRexTM
technology and new PET polymers products and copolyester product
innovations. There can be no assurance that such efforts will result in
financially successful commercialization of such products or acceptance by
existing or new customers or new markets or that large capital projects
for such growth efforts can be completed within the time or at the costs
projected due, among other things, to demand for and availability of
construction materials and labor.
|
·
|
The
Company has made, and intends to continue making, strategic investments,
including industrial gasification, and has entered, and expects to
continue to enter, into strategic alliances in technology, services
businesses, and other ventures in order to build, diversify, and
strengthen certain Eastman capabilities, improve Eastman's raw materials
and energy cost and supply position, and maintain high utilization of
manufacturing assets. There can be no assurance that such
investments and alliances will achieve their underlying strategic business
objectives or that they will be beneficial to the Company's results of
operations or that large capital projects for such growth efforts can be
completed within the time or at the costs projected due, among other
things, to demand for and availability of construction materials and labor
and obtaining regulatory approvals and operating permits and reaching
agreement on terms of key agreements and arrangements with potential
suppliers and customers. Such delays or cost overruns or inability to
obtain such approvals or to reach such agreements on acceptable terms
could negatively affect the returns from these strategic investments and
projects.
|
·
|
The
Company anticipates obtaining non-recourse financing for the two
industrial gasification projects. There is risk that such financing cannot
be obtained or if, obtained, may be on terms different than those assumed
in the Company's projections for financial performance of the projects,
due to any circumstance, change, or condition in the loan syndication,
financial, or capital markets generally that could reasonably be expected
to materially affect availability, terms, and syndication of such
financing. The ability to enter into financially acceptable
project commercial agreements for such elements as engineering,
procurement, and construction, off-take agreements, commodity and/or
interest hedges, utilities, administrative services, and others, as well
as obtaining all necessary regulatory approvals and operating permits, may
impact the available financing for the projects or the terms of such
financing, if available, including the nature and terms of any recourse
back to the Company or other project equity
owners.
|
·
|
In
addition to productivity and cost reduction initiatives, the Company is
striving to improve margins on its products through price increases where
warranted and accepted by the market; however, the Company's earnings
could be negatively impacted should such increases be unrealized, not be
sufficient to cover increased raw material and energy costs, or have a
negative impact on demand and volume. There can be no
assurances that price increases will be realized or will be realized
within the Company's anticipated
timeframe.
|
·
|
The
Company has undertaken and expects to continue to undertake productivity
and cost reduction initiatives and organizational restructurings to
improve performance and generate cost savings. There can be no
assurance that these will be completed as planned or beneficial or that
estimated cost savings from such activities will be
realized.
|
·
|
The
Company's facilities and businesses are subject to complex health, safety
and environmental laws and regulations, which require and will continue to
require significant expenditures to remain in compliance with such laws
and regulations currently and in the future. The Company's
accruals for such costs and associated liabilities are subject to changes
in estimates on which the accruals are based. The amount
accrued reflects the Company’s assumptions about remediation requirements
at the contaminated site, the nature of the remedy, the outcome of
discussions with regulatory agencies and other potentially responsible
parties at multi-party sites, and the number and financial viability of
other potentially responsible parties. Changes in the estimates
on which the accruals are based, unanticipated government enforcement
action, or changes in health, safety, environmental, chemical control
regulations, and testing requirements could result in higher or lower
costs.
|
·
|
The
Company and its operations from time to time are parties to or targets of
lawsuits, claims, investigations, and proceedings, including product
liability, personal injury, asbestos, patent and intellectual property,
commercial, contract, environmental, antitrust, health and safety, and
employment matters, which are handled and defended in the ordinary course
of business. The Company believes amounts reserved are adequate
for such pending matters; however, results of operations could be affected
by significant litigation adverse to the
Company.
|
·
|
The
Company has deferred tax assets related to capital and operating
losses. The Company establishes valuation allowances to reduce
these deferred tax assets to an amount that is more likely than not to be
realized. The Company’s ability to utilize these deferred tax
assets depends on projected future operating results, the reversal of
existing temporary differences, and the availability of tax planning
strategies. Realization of these assets is expected to occur
over an extended period of time. As a result, changes in tax laws,
assumptions with respect to future taxable income, and tax planning
strategies could result in adjustments to these
assets.
|
·
|
Due
to the Company's global sales, earnings, and asset profile, it is exposed
to volatility in foreign currency exchange rates and interest
rates. The Company may use derivative financial instruments,
including swaps, options and forwards, to mitigate the impact of changes
in exchange rates and interest rates on its financial
results. However, there can be no assurance that these efforts
will be successful and operating results could be affected by significant
adverse changes in currency exchange rates or interest
rates.
|
Period
|
Total
Number
of
Shares
Purchased
(1)
|
Average
Price Paid Per Share
(2)
|
Total
Number of Shares Purchased as Part of Publicly Announced
Plans
or
Programs
(3)
|
Approximate
Dollar
Value
(in millions) that May Yet Be Purchased Under the Plans or
Programs
(3)
|
|||
January
1- 31, 2008
|
645,790
|
$
|
60.23
|
645,300
|