UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
FORM
10-Q
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(Mark
One)
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[X]
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QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the quarterly period ended March 31, 2009
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OR
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[ ]
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the transition period from ______________ to
______________
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Commission
file number 1-12626
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EASTMAN
CHEMICAL COMPANY
|
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(Exact
name of registrant as specified in its
charter)
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Delaware
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62-1539359
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(State
or other jurisdiction of
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(I.R.S.
employer
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incorporation
or organization)
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identification
no.)
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200
South Wilcox Drive
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||
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Kingsport,
Tennessee
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37662
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant's
telephone number, including area code: (423)
229-2000
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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 [ ]
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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)
|
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Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
YES
[ ] NO [X]
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Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date.
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Class
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Number
of Shares Outstanding at March 31, 2009
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Common
Stock, par value $0.01 per share
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72,644,214
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--------------------------------------------------------------------------------------------------------------------------------
PAGE
1 OF 45 TOTAL SEQUENTIALLY NUMBERED PAGES
EXHIBIT
INDEX ON PAGE 44
1
TABLE
OF CONTENTS
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ITEM
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PAGE
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PART
I. FINANCIAL INFORMATION
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1.
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Financial
Statements
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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
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1.
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41
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1A.
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41
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2.
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42
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6.
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42
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SIGNATURES
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43
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2
COMPREHENSIVE
INCOME AND RETAINED EARNINGS
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First
Three Months
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||||
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(Dollars
in millions, except per share amounts)
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2009
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2008
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||
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Sales
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$
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1,129
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$
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1,727
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Cost
of sales
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950
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1,390
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Gross
profit
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179
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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
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34
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42
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||
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Asset
impairments and restructuring charges, net
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26
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17
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||
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Operating
earnings
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25
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168
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||
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Interest
expense, net
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19
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16
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||
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Other
charges (income), net
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4
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(1)
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Earnings
from continuing operations before income taxes
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2
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153
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||
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Provision
for income taxes from continuing operations
|
--
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38
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||
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Earnings
from continuing operations
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2
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115
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||
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Earnings
from disposal of discontinued operations, net of tax
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--
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18
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||
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Net
earnings
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$
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2
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$
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133
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Basic
earnings per share
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||||
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Earnings
from continuing operations
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$
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0.03
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$
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1.47
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Earnings
from discontinued operations
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--
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0.23
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||
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Basic
earnings per share
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$
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0.03
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$
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1.70
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Diluted
earnings per share
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||||
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Earnings
from continuing operations
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$
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0.03
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$
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1.46
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Earnings
from discontinued operations
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--
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0.22
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||
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Diluted
earnings per share
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$
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0.03
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$
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1.68
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Comprehensive
Income
|
||||
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Net
earnings
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$
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2
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$
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133
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Other
comprehensive income (loss)
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||||
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Change
in cumulative translation adjustment, net of tax
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(10)
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(36)
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Change
in pension liability, net of tax
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--
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8
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||
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Change
in unrealized gains (losses) on derivative instruments, net of
tax
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9
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(26)
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Total
other comprehensive income (loss)
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(1)
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(54)
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Comprehensive
income
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$
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1
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$
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79
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Retained
Earnings
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||||
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Retained
earnings at beginning of period
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$
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2,563
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$
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2,349
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Net
earnings
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2
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133
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||
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Cash
dividends declared
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(32)
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(34)
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Retained
earnings at end of period
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$
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2,533
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$
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2,448
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The
accompanying notes are an integral part of these consolidated financial
statements.
3
|
March
31,
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December
31,
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|||
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(Dollars
in millions, except per share amounts)
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2009
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2008
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||
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(Unaudited)
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||||
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Assets
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||||
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Current
assets
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||||
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Cash
and cash equivalents
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$
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340
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$
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387
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Trade
receivables, net
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264
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275
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||
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Miscellaneous
receivables
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89
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79
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||
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Inventories
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561
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637
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||
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Other
current assets
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49
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45
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Total
current assets
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1,303
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1,423
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Properties
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||||
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Properties
and equipment at cost
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8,557
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8,527
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Less: Accumulated
depreciation
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5,329
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5,329
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Net
properties
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3,228
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3,198
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Goodwill
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324
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325
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Other
noncurrent assets
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342
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335
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Total
assets
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$
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5,197
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$
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5,281
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Liabilities
and Stockholders' Equity
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||||
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Current
liabilities
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||||
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Payables
and other current liabilities
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$
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756
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$
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819
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Borrowings
due within one year
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13
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13
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Total
current liabilities
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769
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832
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Long-term
borrowings
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1,437
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1,442
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Deferred
income tax liabilities
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111
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106
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Post-employment
obligations
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1,250
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1,246
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Other
long-term liabilities
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107
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102
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||
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Total
liabilities
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3,674
|
3,728
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Stockholders'
equity
|
||||
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Common
stock ($0.01 par value – 350,000,000 shares authorized; shares issued –
94,593,224 and 94,495,860 for 2009 and 2008, respectively)
|
1
|
1
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||
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Additional
paid-in capital
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639
|
638
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||
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Retained
earnings
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2,533
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2,563
|
||
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Accumulated
other comprehensive loss
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(336)
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(335)
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||
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2,837
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2,867
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|||
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Less:
Treasury stock at cost (22,031,684 shares for 2009 and 22,031,357 shares
for 2008)
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1,314
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1,314
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||
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Total
stockholders' equity
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1,523
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1,553
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||
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Total
liabilities and stockholders' equity
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$
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5,197
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$
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5,281
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The
accompanying notes are an integral part of these consolidated financial
statements.
4
|
First
Three Months
|
||||
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(Dollars
in millions)
|
2009
|
2008
|
||
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Cash
flows from operating activities
|
||||
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Net
earnings
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$
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2
|
$
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133
|
|
Adjustments
to reconcile net earnings to net cash provided by (used in) operating
activities:
|
||||
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Depreciation
and amortization
|
67
|
65
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||
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Asset
impairments charges
|
--
|
1
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||
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Gains
on sale of assets
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--
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(7)
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||
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Provision
(benefit) for deferred income taxes
|
(13)
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(56)
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Changes
in operating assets and liabilities, net of effect of acquisitions and
divestitures:
|
||||
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(Increase)
decrease in trade receivables
|
5
|
(40)
|
||
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(Increase)
decrease in inventories
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70
|
(116)
|
||
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Increase
(decrease) in trade payables
|
(17)
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(47)
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||
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Increase
(decrease) in liabilities for employee benefits and incentive
pay
|
(55)
|
(61)
|
||
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Other
items, net
|
23
|
75
|
||
|
Net
cash provided by (used in) operating activities
|
82
|
(53)
|
||
|
Cash
flows from investing activities
|
||||
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Additions
to properties and equipment
|
(110)
|
(132)
|
||
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Proceeds
from sale of assets
|
24
|
323
|
||
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Additions
to capitalized software
|
(2)
|
(3)
|
||
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Other
items, net
|
(20)
|
(6)
|
||
|
Net
cash provided by (used in) investing activities
|
(108)
|
182
|
||
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Cash
flows from financing activities
|
||||
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Net
increase in commercial paper, credit facility, and other
borrowings
|
6
|
48
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||
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Dividends
paid to stockholders
|
(32)
|
(35)
|
||
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Treasury
stock purchases
|
--
|
(245)
|
||
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Proceeds
from stock option exercises and other items
|
5
|
7
|
||
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Net
cash used in financing activities
|
(21)
|
(
225)
|
||
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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
|
||
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Cash
and cash equivalents at end of period
|
$
|
340
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$
|
793
|
The
accompanying notes are an integral part of these consolidated financial
statements.
5
|
ITEM
|
Page
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|
7
|
|
|
Note
2. Discontinued
Operations
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7
|
|
Note
3. Inventories
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7
|
|
8
|
|
|
Note
5. Provision for Income
Taxes
|
8
|
|
Note
6. Borrowings
|
9
|
|
9
|
|
|
Note
8. Retirement
Plans
|
10
|
|
Note
9. Environmental
Matters
|
11
|
|
Note
10. Commitments
|
12
|
|
Note
11. Fair Value of Financial
Instruments
|
13
|
|
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
|
17
|
|
Note
17. Recently Issued Accounting
Standards
|
18
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6
NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
|
BASIS
OF PRESENTATION
|
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.
|
DISCONTINUED
OPERATIONS
|
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
|
|
INVENTORIES
|
|
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.
7
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.
8
NOTES TO THE UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS
|
BORROWINGS
|
|
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.
9
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.
|
RETIREMENT
PLANS
|
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.
10
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
|
|
ENVIRONMENTAL
MATTERS
|
Certain
Eastman manufacturing sites generate hazardous and nonhazardous wastes, the
treatment, storage, transportation, and disposal of which are regulated by
various governmental agencies. In connection with the cleanup of
various hazardous waste sites, the Company, along with many other entities, has
been designated a potentially responsible party ("PRP") by the U.S.
Environmental Protection Agency under the Comprehensive Environmental Response,
Compensation and Liability Act, which potentially subjects PRPs to joint and
several liability for such cleanup costs. In addition, the Company
will be required to incur costs for environmental remediation and closure and
postclosure under the federal Resource Conservation and Recovery
Act. Reserves for environmental contingencies have been established
in accordance with Eastman's policies described in Note 1, "Significant
Accounting Policies", 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.
11
NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
|
COMMITMENTS
|
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.
12
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.
13
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.
14
NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
|
STOCKHOLDERS'
EQUITY
|
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.
15
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.
|
SEGMENT
INFORMATION
|
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
|
16
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.
|
|
LEGAL
MATTERS
|
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.
17
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.
18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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.
19
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.
|
20
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.
21
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.
22
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.
23
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)
%
|
|
24
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.
25
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.
26
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.
27
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.
28
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.
29
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)
%
|
||||||||