(Mark
One)
|
|
[X]
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the quarterly period ended September 30, 2008
|
|
OR
|
|
[ ]
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the transition period from ______________ to
______________
|
Commission
file number 1-12626
|
EASTMAN
CHEMICAL COMPANY
|
(Exact
name of registrant as specified in its
charter)
|
Delaware
|
62-1539359
|
|
(State
or other jurisdiction of
|
(I.R.S.
employer
|
|
incorporation
or organization)
|
identification
no.)
|
|
200
South Wilcox Drive
|
||
Kingsport,
Tennessee
|
37660
|
|
(Address
of principal executive offices)
|
(Zip
Code)
|
|
Registrant’s
telephone number, including area code: (423)
229-2000
|
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES
[X] NO [ ]
|
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of "large accelerated filer,"
"accelerated filer" and "smaller reporting company" in Rule 12b-2 of the
Exchange Act.
Large
accelerated filer
[X] Accelerated
filer [ ]
Non-accelerated
filer
[ ] Smaller
reporting company [ ]
(Do
not check if a smaller reporting company)
|
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). YES
[ ] NO [X]
|
Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.
|
||
Class
|
Number
of Shares Outstanding at September 30, 2008
|
|
Common
Stock, par value $0.01 per share
|
72,543,848
|
|
ITEM
|
PAGE
|
1.
|
Financial
Statements
|
|
3
|
||
4
|
||
5
|
||
6
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||
2.
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20
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3.
|
48
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4.
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48
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1.
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49
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|
1A.
|
50
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2.
|
50
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6.
|
50
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5111
|
Third
Quarter
|
First
Nine Months
|
|||||||||||||||
(Dollars
in millions, except per share amounts)
|
2008
|
2007
|
2008
|
2007
|
||||||||||||
Sales
|
$ | 1,819 | $ | 1,692 | $ | 5,380 | $ | 5,093 | ||||||||
Cost
of sales
|
1,497 | 1,385 | 4,400 | 4,191 | ||||||||||||
Gross
profit
|
322 | 307 | 980 | 902 | ||||||||||||
Selling,
general and administrative expenses
|
107 | 104 | 324 | 311 | ||||||||||||
Research
and development expenses
|
39 | 43 | 120 | 115 | ||||||||||||
Asset
impairments and restructuring charges, net
|
2 | 114 | 22 | 116 | ||||||||||||
Operating
earnings
|
174 | 46 | 514 | 360 | ||||||||||||
Interest
expense, net
|
19 | 16 | 53 | 47 | ||||||||||||
Other
(income) charges, net
|
7 | (10 | ) | 7 | (18 | ) | ||||||||||
Earnings
from continuing operations before income taxes
|
148 | 40 | 454 | 331 | ||||||||||||
Provision
for income taxes from continuing operations
|
48 | 15 | 124 | 111 | ||||||||||||
Earnings
from continuing operations
|
100 | 25 | 330 | 220 | ||||||||||||
Loss
from discontinued operations, net of tax
|
-- | (5 | ) | -- | (7 | ) | ||||||||||
Gain
(loss) from disposal of discontinued operations, net of
tax
|
-- | -- | 18 | (11 | ) | |||||||||||
Net
earnings
|
$ | 100 | $ | 20 | $ | 348 | $ | 202 | ||||||||
Basic
earnings per share
|
||||||||||||||||
Earnings
from continuing operations
|
$ | 1.35 | $ | 0.30 | $ | 4.34 | $ | 2.63 | ||||||||
Earnings
(loss) from discontinued operations
|
-- | (0.06 | ) | 0.23 | (0.22 | ) | ||||||||||
Basic
earnings per share
|
$ | 1.35 | $ | 0.24 | $ | 4.57 | $ | 2.41 | ||||||||
Diluted
earnings per share
|
||||||||||||||||
Earnings
from continuing operations
|
$ | 1.33 | $ | 0.30 | $ | 4.27 | $ | 2.60 | ||||||||
Earnings
(loss) from discontinued operations
|
-- | (0.06 | ) | 0.23 | (0.22 | ) | ||||||||||
Diluted
earnings per share
|
$ | 1.33 | $ | 0.24 | $ | 4.50 | $ | 2.38 | ||||||||
Comprehensive
Income
|
||||||||||||||||
Net
earnings
|
$ | 100 | $ | 20 | $ | 348 | $ | 202 | ||||||||
Other
comprehensive income (loss)
|
||||||||||||||||
Change
in cumulative translation adjustment, net of tax
|
(27 | ) | 21 | (68 | ) | 31 | ||||||||||
Change
in pension liability, net of tax
|
(1 | ) | 22 | 7 | 18 | |||||||||||
Change
in unrealized losses on derivative instruments, net of tax
|
(6 | ) | (8 | ) | (3 | ) | (5 | ) | ||||||||
Change
in unrealized gains on investments, net of tax
|
-- | -- | -- | 1 | ||||||||||||
Total
other comprehensive income (loss)
|
(34 | ) | 35 | (64 | ) | 45 | ||||||||||
Comprehensive
income
|
$ | 66 | $ | 55 | $ | 284 | $ | 247 | ||||||||
Retained
Earnings
|
||||||||||||||||
Retained
earnings at beginning of period
|
$ | 2,529 | $ | 2,302 | $ | 2,349 | $ | 2,186 | ||||||||
Net
earnings
|
100 | 20 | 348 | 202 | ||||||||||||
Cash
dividends declared
|
(31 | ) | (36 | ) | (99 | ) | (110 | ) | ||||||||
Adoption
of accounting standard
|
-- | -- | -- | 8 | ||||||||||||
Retained
earnings at end of period
|
$ | 2,598 | $ | 2,286 | $ | 2,598 | $ | 2,286 |
September
30,
|
December
31,
|
|||||||
(Dollars
in millions, except per share amounts)
|
2008
|
2007
|
||||||
(Unaudited)
|
||||||||
Assets
|
||||||||
Current
assets
|
||||||||
Cash
and cash equivalents
|
$ | 337 | $ | 888 | ||||
Trade
receivables, net of allowance of $2 and $6
|
548 | 546 | ||||||
Miscellaneous
receivables
|
99 | 112 | ||||||
Inventories
|
715 | 539 | ||||||
Other
current assets
|
66 | 74 | ||||||
Current
assets related to discontinued operations
|
-- | 134 | ||||||
Total
current assets
|
1,765 | 2,293 | ||||||
Properties
and equipment
|
||||||||
Properties
and equipment at cost
|
8,448 | 8,152 | ||||||
Less: Accumulated
depreciation
|
5,355 | 5,306 | ||||||
Net
properties and equipment
|
3,093 | 2,846 | ||||||
Goodwill
|
325 | 316 | ||||||
Other
noncurrent assets
|
346 | 313 | ||||||
Noncurrent
assets related to discontinued operations
|
-- | 241 | ||||||
Total
assets
|
$ | 5,529 | $ | 6,009 | ||||
Liabilities
and Stockholders’ Equity
|
||||||||
Current
liabilities
|
||||||||
Payables
and other current liabilities
|
$ | 1,019 | $ | 1,013 | ||||
Borrowings
due within one year
|
-- | 72 | ||||||
Current
liabilities related to discontinued operations
|
-- | 37 | ||||||
Total
current liabilities
|
1,019 | 1,122 | ||||||
Long-term
borrowings
|
1,436 | 1,535 | ||||||
Deferred
income tax liabilities
|
283 | 300 | ||||||
Post-employment
obligations
|
862 | 852 | ||||||
Other
long-term liabilities
|
109 | 118 | ||||||
Total
liabilities
|
3,709 | 3,927 | ||||||
Stockholders’
equity
|
||||||||
Common
stock ($0.01 par value – 350,000,000 shares authorized; shares issued –
94,492,047 and 93,630,292 for 2008 and 2007, respectively)
|
1 | 1 | ||||||
Additional
paid-in capital
|
627 | 573 | ||||||
Retained
earnings
|
2,598 | 2,349 | ||||||
Accumulated
other comprehensive loss
|
(92 | ) | (28 | ) | ||||
3,134 | 2,895 | |||||||
Less:
Treasury stock at cost (22,030,873 shares for 2008 and 13,959,951 shares
for 2007)
|
1,314 | 813 | ||||||
Total
stockholders’ equity
|
1,820 | 2,082 | ||||||
Total
liabilities and stockholders’ equity
|
$ | 5,529 | $ | 6,009 | ||||
First
Nine Months
|
||||||||
(Dollars
in millions)
|
2008
|
2007
|
||||||
Cash
flows from operating activities
|
||||||||
Net
earnings
|
$ | 348 | $ | 202 | ||||
Adjustments
to reconcile net earnings to net cash provided by (used in) operating
activities:
|
||||||||
Depreciation
and amortization
|
199 | 247 | ||||||
Asset
impairments
|
1 | 138 | ||||||
Gains
on sale of assets
|
(13 | ) | (3 | ) | ||||
Provision
(benefit) for deferred income taxes
|
(56 | ) | (23 | ) | ||||
Changes
in operating assets and liabilities:
|
||||||||
(Increase)
decrease in receivables
|
(16 | ) | 22 | |||||
(Increase)
decrease in inventories
|
(170 | ) | 1 | |||||
Increase
(decrease) in trade payables
|
(49 | ) | (63 | ) | ||||
Increase
(decrease) in liabilities for employee benefits and incentive
pay
|
(6 | ) | (88 | ) | ||||
Other
items, net
|
55 | (22 | ) | |||||
Net
cash provided by operating activities
|
293 | 411 | ||||||
Cash
flows from investing activities
|
||||||||
Additions
to properties and equipment
|
(430 | ) | (346 | ) | ||||
Proceeds
from sale of assets and investments
|
333 | 43 | ||||||
Investments
in and acquisitions of joint ventures
|
(38 | ) | (12 | ) | ||||
Additions
to capitalized software
|
(8 | ) | (8 | ) | ||||
Other
items, net
|
(2 | ) | 24 | |||||
Net
cash provided by (used in) investing activities
|
(145 | ) | (299 | ) | ||||
Cash
flows from financing activities
|
||||||||
Net
increase (decrease) in commercial paper, credit facility and other
borrowings
|
42 | 53 | ||||||
Repayment
of borrowings
|
(175 | ) | (11 | ) | ||||
Dividends
paid to stockholders
|
(103 | ) | (112 | ) | ||||
Treasury
stock purchases
|
(501 | ) | (300 | ) | ||||
Proceeds
from stock option exercises and other items
|
38 | 100 | ||||||
Net
cash provided by (used in) financing activities
|
(699 | ) | (270 | ) | ||||
Effect
of exchange rate changes on cash and cash equivalents
|
-- | -- | ||||||
Net
change in cash and cash equivalents
|
(551 | ) | (158 | ) | ||||
Cash
and cash equivalents at beginning of period
|
888 | 939 | ||||||
Cash
and cash equivalents at end of period
|
$ | 337 | $ | 781 |
Page
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7
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7
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9
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9
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9
|
|
10
|
|
10
|
|
11
|
|
12
|
|
13
|
|
13
|
|
14
|
|
14
|
|
15
|
|
16
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16
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|
18
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19
|
BASIS
OF PRESENTATION
|
(Dollars
in millions)
|
Fair
Value Measurements at September 30, 2008
|
|||||||||||||||
Description
|
September 30, 2008
|
Quoted Prices in Active Markets for Identical
Assets (Level 1)
|
Significant Other Observable Inputs (Level
2)
|
Significant Unobservable Inputs (Level
3)
|
||||||||||||
Derivative
Assets
|
$ | 51 | $ | -- | $ | 51 | $ | -- | ||||||||
Derivative
Liabilities
|
(50 | ) | -- | (50 | ) | -- | ||||||||||
$ | 1 | $ | -- | $ | 1 | $ | -- | |||||||||
DISCONTINUED
OPERATIONS
|
Third
Quarter
|
First
Nine Months
|
|||||||||||||||
(Dollars
in millions)
|
2008
|
2007
|
2008
|
2007
|
||||||||||||
|
||||||||||||||||
Sales
|
$ | -- | $ | 121 | $ | 169 | $ | 410 | ||||||||
Earnings
before income taxes
|
-- | (8 | ) | 2 | (7 | ) | ||||||||||
Earnings
(loss) from discontinued operations, net of tax
|
-- | (5 | ) | -- | (7 | ) | ||||||||||
Gain
(loss) on disposal, net of tax
|
-- | -- | 18 | (11 | ) |
December
31,
|
||
(Dollars
in millions)
|
2007
|
|
Current
assets
|
||
Trade
receivables
|
$
|
85
|
Inventories
|
49
|
|
Total
current assets held for sale
|
134
|
|
Non-current
assets
|
||
Properties
and equipment, net
|
236
|
|
Other
non-current assets
|
5
|
|
Total
non-current assets held for sale
|
241
|
|
Total
assets
|
$
|
375
|
Current
liabilities
|
||
Payables
and other current liabilities, net
|
$
|
37
|
Total
current liabilities held for sale
|
37
|
|
Total
liabilities
|
$
|
37
|
INVENTORIES
|
September
30,
|
December
31,
|
|||
(Dollars
in millions)
|
2008
|
2007
|
||
At
FIFO or average cost (approximates current cost)
|
||||
Finished
goods
|
$
|
737
|
$
|
607
|
Work
in process
|
235
|
195
|
||
Raw
materials and supplies
|
333
|
247
|
||
Total
inventories
|
1,305
|
1,049
|
||
LIFO
Reserve
|
(590)
|
(510)
|
||
Total
inventories
|
$
|
715
|
$
|
539
|
ACQUISITION
AND DIVESTITURE OF INDUSTRIAL GASIFICATION
INTERESTS
|
PAYABLES
AND OTHER CURRENT LIABILITIES
|
September
30,
|
December
31,
|
|||||||
(Dollars
in millions)
|
2008
|
2007
|
||||||
Trade
creditors
|
$ | 551 | $ | 578 | ||||
Accrued
payrolls, vacation, and variable-incentive compensation
|
123 | 138 | ||||||
Accrued
taxes
|
50 | 36 | ||||||
Post-employment
obligations
|
54 | 60 | ||||||
Interest
payable
|
23 | 31 | ||||||
Bank
overdrafts
|
44 | 6 | ||||||
Other
|
174 | 164 | ||||||
Total
payables and other current liabilities
|
$ | 1,019 | $ | 1,013 |
PROVISION
FOR INCOME TAXES
|
Third
Quarter
|
First
Nine Months
|
|||||||||||||||
(Dollars
in millions)
|
2008
|
2007
|
2008
|
2007
|
||||||||||||
Provision
for income taxes
|
$ | 48 | $ | 15 | $ | 124 | $ | 111 | ||||||||
Effective
tax rate
|
33 | % | 38 | % | 27 | % | 34 | % |
BORROWINGS
|
September
30,
|
December
31,
|
|||||||
(Dollars
in millions)
|
2008
|
2007
|
||||||
Borrowings
consisted of:
|
||||||||
3
1/4% notes due 2008
|
$ | -- | $ | 72 | ||||
7%
notes due 2012
|
149 | 148 | ||||||
6.30%
notes due 2018
|
191 | 188 | ||||||
7
1/4% debentures due 2024
|
497 | 497 | ||||||
7
5/8% debentures due 2024
|
200 | 200 | ||||||
7.60%
debentures due 2027
|
298 | 298 | ||||||
Credit
facilities borrowings
|
85 | 188 | ||||||
Other
|
16 | 16 | ||||||
Total
borrowings
|
1,436 | 1,607 | ||||||
Borrowings
due within one year
|
-- | (72 | ) | |||||
Long-term
borrowings
|
$ | 1,436 | $ | 1,535 |
ASSET
IMPAIRMENTS AND RESTRUCTURING CHARGES,
NET
|
(Dollars
in millions)
|
Balance
at
January
1, 2007
|
Provision/
Adjustments
|
Non-cash
Reductions
|
Cash
Reductions
|
Balance
at
December
31, 2007
|
|||||||||||||||
Non-cash
charges
|
$ | -- | $ | 122 | $ | (122 | ) | $ | -- | $ | -- | |||||||||
Severance
costs
|
34 | (9 | ) | -- | (18 | ) | 7 | |||||||||||||
Site
closure and other restructuring costs
|
14 | (1 | ) | -- | (2 | ) | 11 | |||||||||||||
Total
|
$ | 48 | $ | 112 | $ | (122 | ) | $ | (20 | ) | $ | 18 | ||||||||
Balance
at
January
1, 2008
|
Provision/
Adjustments
|
Non-cash
Reductions
|
Cash
Reductions
|
Balance
at
September
30,
2008
|
||||||||||||||||
Non-cash
charges
|
$ | -- | $ | 1 | $ | (1 | ) | $ | -- | $ | -- | |||||||||
Severance
costs
|
7 | 5 | -- | (11 | ) | 1 | ||||||||||||||
Site
closure and other restructuring costs
|
11 | 16 | -- | (20 | ) | 7 | ||||||||||||||
Total
|
$ | 18 | $ | 22 | $ | (1 | ) | $ | (31 | ) | $ | 8 |
RETIREMENT
PLANS
|
Summary
of Components of Net Periodic Benefit Costs
|
||||||||||||||||
Third
Quarter
|
First
Nine Months
|
|||||||||||||||
(Dollars
in millions)
|
2008
|
2007
|
2008
|
2007
|
||||||||||||
Service
cost
|
$ | 11 | $ | 12 | $ | 34 | $ | 36 | ||||||||
Interest
cost
|
22 | 23 | 66 | 68 | ||||||||||||
Expected
return on assets
|
(26 | ) | (26 | ) | (79 | ) | (78 | ) | ||||||||
Curtailment
charge
|
-- | -- | 9 | -- | ||||||||||||
Amortization
of:
|
||||||||||||||||
Prior
service credit
|
(5 | ) | (2 | ) | (12 | ) | (6 | ) | ||||||||
Actuarial
loss
|
7 | 8 | 21 | 25 | ||||||||||||
Other
loss
|
-- | 4 | -- | 4 | ||||||||||||
Net
periodic benefit cost
|
$ | 9 | $ | 19 | $ | 39 | $ | 49 |
Summary
of Components of Net Periodic Benefit Costs
|
||||||||||||||||
Third
Quarter
|
First
Nine Months
|
|||||||||||||||
(Dollars
in millions)
|
2008
|
2007
|
2008
|
2007
|
||||||||||||
Service
cost
|
$ | 2 | $ | 1 | $ | 5 | $ | 5 | ||||||||
Interest
cost
|
11 | 11 | 33 | 32 | ||||||||||||
Expected
return on assets
|
(1 | ) | (1 | ) | (3 | ) | (2 | ) | ||||||||
Amortization
of:
|
||||||||||||||||
Prior
service credit
|
(6 | ) | (6 | ) | (17 | ) | (17 | ) | ||||||||
Actuarial
loss
|
2 | 3 | 7 | 9 | ||||||||||||
Net
periodic benefit cost
|
$ | 8 | $ | 8 | $ | 25 | $ | 27 |
ENVIRONMENTAL
MATTERS
|
COMMITMENTS
|
FAIR
VALUE OF FINANCIAL INSTRUMENTS
|
STOCKHOLDERS'
EQUITY
|
(Dollars
in millions)
|
Common
Stock at Par Value
$
|
Paid-in
Capital
$
|
Retained
Earnings
$
|
Accumulated
Other Comprehensive Income (Loss)
$
|
Treasury
Stock at Cost
$
|
Total
Stockholders' Equity
$
|
||||||||||||||||||
Balance
at December 31, 2007
|
1 | 573 | 2,349 | (28 | ) | (813 | ) | 2,082 | ||||||||||||||||
Net
Earnings
|
-- | -- | 348 | -- | -- | 348 | ||||||||||||||||||
Cash
Dividends Declared (1)
|
-- | -- | (99 | ) | -- | -- | (99 | ) | ||||||||||||||||
Other
Comprehensive Income
|
-- | -- | -- | (64 | ) | -- | (64 | ) | ||||||||||||||||
Stock-Based
Compensation and Other Items
(2)(3)
|
-- | 54 | -- | -- | -- | 54 | ||||||||||||||||||
Share
Repurchases
|
-- | -- | -- | -- | (501 | ) | (501 | ) | ||||||||||||||||
Balance
at September 30, 2008
|
1 | 627 | 2,598 | (92 | ) | (1,314 | ) | 1,820 |
(1)
|
Includes
dividends declared but unpaid.
|
(2)
|
The
tax benefits relating to the difference between the amounts deductible for
federal income taxes over the amounts charged to income for book value
purposes have been credited to paid-in
capital.
|
(3)
|
Includes
the fair value of equity share-based awards recognized under SFAS No. 123
Revised December 2004 , "Share-Based
Payment".
|
(Dollars
in millions)
|
Cumulative
Translation Adjustment
$
|
Unfunded
Additional
Minimum
Pension Liability
$
|
Unrecognized
Loss and Prior Service Cost
$
|
Unrealized
Gains (Losses) on Derivative Instruments and Other
$
|
Accumulated
Other Comprehensive Income (Loss)
$
|
|||||||||||||||
Pre-SFAS
No. 158 (1)
balance at December 31, 2006
|
121 | (207 | ) | -- | (7 | ) | (93 | ) | ||||||||||||
Adjustments
to apply SFAS No. 158
|
-- | 207 | (288 | ) | -- | (81 | ) | |||||||||||||
Balance
at December 31, 2006
|
121 | -- | (288 | ) | (7 | ) | (174 | ) | ||||||||||||
Period
change
|
36 | -- | 106 | 4 | 146 | |||||||||||||||
Balance
at December 31, 2007
|
157 | -- | (182 | ) | (3 | ) | (28 | ) | ||||||||||||
Period
change
|
(68 | ) | -- | 7 | (3 | ) | (64 | ) | ||||||||||||
Balance
at September 30, 2008
|
89 | -- | (175 | ) | (6 | ) | (92 | ) |
(1)
|
SFAS
No. 158, "Employers' Accounting for Defined Benefit Pension and Other
Postretirement Plans" ("SFAS No.
158")
|
EARNINGS
AND DIVIDENDS PER SHARE
|
Third
Quarter
|
First
Nine Months
|
||||||
2008
|
2007
|
2008
|
2007
|
||||
Shares
used for earnings per share calculation (in millions):
|
|||||||
Basic
|
74.2
|
82.6
|
76.1
|
83.6
|
|||
Diluted
|
75.1
|
83.6
|
77.2
|
84.6
|
SHARE-BASED
COMPENSATION AWARDS
|
SEGMENT
INFORMATION
|
Third
Quarter
|
||||||||
(Dollars
in millions)
|
2008
|
2007
|
||||||
Sales
by Segment
|
||||||||
CASPI
|
$ | 410 | $ | 368 | ||||
Fibers
|
269 | 258 | ||||||
PCI
|
594 | 509 | ||||||
Performance
Polymers
|
293 | 340 | ||||||
SP
|
253 | 217 | ||||||
Total
Sales
|
$ | 1,819 | $ | 1,692 |
First
Nine Months
|
||||||||
(Dollars
in millions)
|
2008
|
2007
|
||||||
Sales
by Segment
|
||||||||
CASPI
|
$ | 1,213 | $ | 1,089 | ||||
Fibers
|
783 | 731 | ||||||
PCI
|
1,768 | 1,559 | ||||||
Performance
Polymers
|
886 | 1,070 | ||||||
SP
|
730 | 644 | ||||||
Total
Sales
|
$ | 5,380 | $ | 5,093 |
Third
Quarter
|
||||||||
(Dollars
in millions)
|
2008
|
2007
|
||||||
Operating
Earnings (Loss)
|
||||||||
CASPI
(1)
|
$ | 55 | $ | 59 | ||||
Fibers
|
65 | 66 | ||||||
PCI
(2)
|
62 | 50 | ||||||
Performance
Polymers (3)
|
(1 | ) | (128 | ) | ||||
SP
|
6 | 13 | ||||||
Total
Operating Earnings by Segment
|
187 | 60 | ||||||
Other
(4)
|
(13 | ) | (14 | ) | ||||
Total
Operating Earnings
|
$ | 174 | $ | 46 |
(1)
|
CASPI
includes $1 million in third quarter 2007 gains for an adjustment to
severance charges recorded in fourth quarter
2006.
|
(2)
|
PCI
includes $2 million in both third quarter 2008 and third quarter 2007 in
accelerated depreciation costs related to cracking units at the Company's
Longview, Texas facility and $1 million in third quarter 2008 in asset
impairments and restructuring charges, net, primarily related to severance
and pension costs from the decision to close a previously impaired site in
the United Kingdom and $(1) million in third quarter 2007 related
primarily to an adjustment to severance charges recorded in fourth quarter
2006.
|
(3)
|
Performance
Polymers includes $1 million and $7 million in third quarter 2008 and
third quarter 2007, respectively, in accelerated depreciation costs
related to assets in Columbia, South Carolina and asset impairments and
restructuring charges, net of $1 million in third quarter 2008 related to
previously divested manufacturing facilities in Mexico and Argentina and
restructuring at the South Carolina facility using IntegRexTM
technology, partially offset by a resolution of a contingency from
the sale of the Company’s polyethylene (“PE”) and EpoleneTM
polymer businesses divested in fourth quarter 2006, and $114 million in
third quarter 2007 primarily related to the divested PET manufacturing
facilities in Mexico and Argentina.
|
(4)
|
Other
includes $2 million in third quarter 2007 in intangible asset impairment
charges.
|
First
Nine Months
|
||||||||
(Dollars
in millions)
|
2008
|
2007
|
||||||
Operating
Earnings (Loss)
|
||||||||
CASPI(1)
|
$ | 167 | $ | 190 | ||||
Fibers
|
195 | 176 | ||||||
PCI
(2)
|
160 | 161 | ||||||
Performance
Polymers (3)
|
(5 | ) | (181 | ) | ||||
SP
(4)
|
36 | 49 | ||||||
Total
Operating Earnings by Segment
|
553 | 395 | ||||||
Other
(5)
|
(39 | ) | (35 | ) | ||||
Total
Operating Earnings
|
$ | 514 | $ | 360 |
(1)
|
CASPI
includes $2 million in first nine months 2008 gains for an adjustment to a
reserve for asset impairments and restructuring costs for the first
quarter divestiture of certain product lines and $1 million in first nine
months 2007 gains for an adjustment to severance charges recorded in
fourth quarter 2006.
|
(2)
|
PCI
includes $4 million and $16 million in first nine months 2008 and first
nine months 2007, respectively, in accelerated depreciation costs related
to cracking units at the Company's Longview, Texas facility and $20
million in first nine months 2008 in asset impairments and restructuring
charges, net, primarily related to severance and pension costs from the
decision to close a previously impaired site in the United Kingdom and
$(1) million in first nine months 2007 related primarily to an adjustment
to severance charges recorded in fourth quarter
2006.
|
(3)
|
Performance
Polymers includes $4 million and $20 million in first nine months 2008 and
first nine months 2007, respectively, in accelerated depreciation costs
related to assets in Columbia, South Carolina and asset impairments and
restructuring charges, net of $4 million in first nine months 2008 related
to previously divested manufacturing facilities in Mexico and Argentina
and restructuring at the South Carolina facility using IntegRexTM
technology partially offset by a resolution of a contingency from the sale
of the Company’s PE and EpoleneTM
polymer businesses divested in fourth quarter 2006, and $115 million in
first nine months 2007 primarily related to the divested PET manufacturing
facilities in Mexico and Argentina.
|
(4)
|
SP
includes $1 million in first nine months 2007 in accelerated depreciation
costs related to assets in Columbia, South Carolina and $1 million in
first nine months 2007 in asset impairments and restructuring charges, net
related to the discontinued production of cyclohexane dimethanol (“CHDM”)
at the San Roque, Spain facility.
|
(5)
|
Other
includes $2 million in first nine months 2007 in intangible asset
impairment charges.
|
September
30,
|
December
31,
|
|||||||
(Dollars
in millions)
|
2008
|
2007
|
||||||
Assets
by Segment (1)
|
||||||||
CASPI
|
$ | 1,231 | $ | 1,114 | ||||
Fibers
|
789 | 692 | ||||||
PCI
|
959 | 1,062 | ||||||
Performance
Polymers
|
637 | 727 | ||||||
SP
|
839 | 622 | ||||||
Total
Assets by Segment
|
4,455 | 4,217 | ||||||
Corporate
Assets
|
1,074 | 1,417 | ||||||
Total
Assets Before Assets Related to Discontinued Operations
|
5,529 | 5,634 | ||||||
Assets
Related to Discontinued Operations (2)
|
-- | 375 | ||||||
Total
Assets
|
$ | 5,529 | $ | 6,009 |
(1)
|
Assets
managed by segment are accounts receivable, inventory, fixed assets, and
goodwill.
|
(2)
|
For
more information regarding assets related to discontinued operations, see
Note 2, “Discontinued Operations”.
|
LEGAL
MATTERS
|
RECENTLY
ISSUED ACCOUNTING STANDARDS
|
ITEM
|
Page
|
21
|
|
21
|
|
22
|
|
24
|
|
28
|
|
36
|
|
38
|
|
41
|
|
42
|
|
44
|
|
·
|
Company
sales and segment sales and results from continuing operations excluding
sales revenue and results from continuing operations from sales in Latin
America of PET products manufactured at the divested Mexico and Argentina
PET manufacturing sites;
|
·
|
Company
and segment sales excluding contract ethylene sales under a transition
agreement related to the divestiture of the PE product
lines;
|
·
|
Company
and segment sales excluding contract polymer intermediates sales under a
transition supply agreement related to the divestiture of the PET
manufacturing facilities and related businesses in Mexico and
Argentina;
|
·
|
Company
and segment gross profit, operating earnings and 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.
|
Third
Quarter
|
||||||||||||||||||||||||||||
(Dollars
in millions)
|
2008
|
2007
|
Change
|
Volume
Effect
|
Price
Effect
|
Product
Mix
Effect
|
Exchange
Rate
Effect
|
|||||||||||||||||||||
Sales
|
$ | 1,819 | $ | 1,692 | 8 | % | (8 | ) % | 14 | % | 1 | % | 1 | % | ||||||||||||||
Sales
from Mexico and Argentina PET manufacturing facilities (1)
|
-- | 90 | ||||||||||||||||||||||||||
Sales
- contract polymer intermediates sales (2)
|
35 | -- | ||||||||||||||||||||||||||
Sales
- contract ethylene sales (3)
|
89 | 84 | ||||||||||||||||||||||||||
Sales
– excluding listed items
|
1,695 | 1,518 | 12 | % | (3 | ) % | 14 | % | -- | % | 1 | % | ||||||||||||||||
|
|
First
Nine Months
|
||||||||||||||||||||||||||||
(Dollars
in millions)
|
2008
|
2007
|
Change
|
Volume
Effect
|
Price
Effect
|
Product
Mix
Effect
|
Exchange
Rate
Effect
|
|||||||||||||||||||||
Sales
|
$ | 5,380 | $ | 5,093 | 6 | % | (8 | ) % | 11 | % | 2 | % | 1 | % | ||||||||||||||
Sales
from Mexico and Argentina PET manufacturing facilities (1)
|
-- | 325 | ||||||||||||||||||||||||||
Sales
- contract polymer intermediates sales (2)
|
117 | -- | ||||||||||||||||||||||||||
Sales
- contract ethylene sales (3)
|
283 | 228 | ||||||||||||||||||||||||||
Sales
– excluding listed items
|
4,980 | 4,540 | 10 | % | (4 | ) % | 11 | % | 2 | % | 1 | % | ||||||||||||||||
|
(1)
Sales revenue for 2007 include sales revenue from PET manufacturing
facilities and related businesses in Cosoleacaque, Mexico and Zarate,
Argentina divested in fourth quarter
2007.
|
|
(2)
Included in 2008 sales revenue are contract polymer intermediates
sales under the transition supply agreement related to the divestiture of
the PET manufacturing facilities and related businesses in Mexico and
Argentina in fourth quarter 2007.
|
|
(3)
Included in 2008 and 2007 sales revenue are contract ethylene sales
under the transition supply agreement related to the divestiture of the PE
businesses.
|
Third
Quarter
|
First
Nine Months
|
|||||||||||||||||||||||
(Dollars
in millions)
|
2008
|
2007
|
Change
|
2008
|
2007
|
Change
|
||||||||||||||||||
Gross
Profit
|
$ | 322 | $ | 307 | 5 | % | $ | 980 | $ | 902 | 9 | % | ||||||||||||
As
a percentage of sales
|
18 | % | 18 | % | 18 | % | 18 | % | ||||||||||||||||
Accelerated
depreciation costs included in cost of goods sold
|
3 | 9 | 8 | 37 | ||||||||||||||||||||
Gross
Profit excluding accelerated depreciation costs
|
325 | 316 | 3 | % | 988 | 939 | 5 | % | ||||||||||||||||
As
a percentage of sales
|
18 | % | 19 | % | 18 | % | 18 | % |
Third
Quarter
|
First
Nine Months
|
|||||||||||||||||||||||
(Dollars
in millions)
|
2008
|
2007
|
Change
|
2008
|
2007
|
Change
|
||||||||||||||||||
Selling,
General and Administrative Expenses
|
$ | 107 | $ | 104 | 3 | % | $ | 324 | $ | 311 | 4 | % | ||||||||||||
Research
and Development Expenses
|
39 | 43 | (9 | )% | 120 | 115 | 4 | % | ||||||||||||||||
$ | 146 | $ | 147 | (1 | )% | $ | 444 | $ | 426 | 4 | % | |||||||||||||
As
a percentage of sales
|
8 | % | 9 | % | 8 | % | 8 | % |
Operating
Earnings
|
|||||||||||||||||||||
Third
Quarter
|
First
Nine Months
|
||||||||||||||||||||
(Dollars
in millions)
|
2008
|
2007
|
Change
|
2008
|
2007
|
Change
|
|||||||||||||||
Operating
earnings
|
$ | 174 | $ | 46 |
>100
%
|
$ | 514 | $ | 360 | 43 | % | ||||||||||
Accelerated
depreciation costs included in cost of goods sold
|
3 | 9 | 8 | 37 | |||||||||||||||||
Asset
impairments and restructuring charges, net
|
2 | 114 | 22 | 116 | |||||||||||||||||
Operating
earnings excluding accelerated depreciation costs and asset impairments
and restructuring charges, net
|
$ | 179 | $ | 169 |
6
%
|
$ | 544 | $ | 513 | 6 | % |
Third
Quarter
|
First
Nine Months
|
|||||||||||||||||||||||
(Dollars
in millions)
|
2008
|
2007
|
Change
|
2008
|
2007
|
Change
|
||||||||||||||||||
Gross
interest costs
|
$ | 26 | $ | 30 | $ | 80 | $ | 86 | ||||||||||||||||
Less: Capitalized
interest
|
3 | 3 | 7 | 8 | ||||||||||||||||||||
Interest
expense
|
23 | 27 | (15 | )% | 73 | 78 | (6 | ) % | ||||||||||||||||
Interest
income
|
4 | 11 | 20 | 31 | ||||||||||||||||||||
Interest
expense, net
|
$ | 19 | $ | 16 | 19 | % | $ | 53 | $ | 47 | 13 | % | ||||||||||||
Third
Quarter
|
First
Nine Months
|
|||||||||||||||
(Dollars
in millions)
|
2008
|
2007
|
2008
|
2007
|
||||||||||||
Other
(income)
|
$ | (2 | ) | $ | (12 | ) | $ | (1 | ) | $ | (21 | ) | ||||
Other
charges
|
9 | 2 | 8 | 3 | ||||||||||||
Other
(income) charges, net
|
$ | 7 | $ | (10 | ) | $ | 7 | $ | (18 | ) |
Third
Quarter
|
First
Nine Months
|
|||||||||||||||
(Dollars
in millions)
|
2008
|
2007
|
2008
|
2007
|
||||||||||||
Provision
for income taxes
|
$ | 48 | $ | 15 | $ | 124 | $ | 111 | ||||||||
Effective
tax rate
|
33 | % | 38 | % | 27 | % | 34 | % |
Earnings
from Continuing Operations
|
||||||||||||||||
Third
Quarter
|
First
Nine Months
|
|||||||||||||||
(Dollars
in millions)
|
2008
|
2007
|
2008
|
2007
|
||||||||||||
Earnings
from continuing operations
|
$ | 100 | $ | 25 | $ | 330 | $ | 220 | ||||||||
Accelerated
depreciation costs included in cost of goods sold, net of
tax
|
2 | 6 | 5 | 24 | ||||||||||||
Asset
impairments and restructuring charges, net of tax
|
3 | 76 | 17 | 78 | ||||||||||||
Net
deferred tax benefits related to the previous divestiture
of businesses
|
(3 | ) | -- | (14 | ) | -- | ||||||||||
Earnings
from continuing operations excluding accelerated depreciation costs and
asset impairments and restructuring charges, net of tax
|
$ | 102 | $ | 107 | $ | 338 | $ | 322 |
Net
Earnings
|
||||||||||||||||
Third
Quarter
|
First
Nine Months
|
|||||||||||||||
(Dollars
in millions)
|
2008
|
2007
|
2008
|
2007
|
||||||||||||
Earnings
from continuing operations
|
$ | 100 | $ | 25 | $ | 330 | $ | 220 | ||||||||
Loss
from discontinued operations, net of tax
|
-- | (5 | ) | -- | (7 | ) | ||||||||||
Gain
(loss) from disposal of discontinued operations
|
-- | -- | 18 | (11 | ) | |||||||||||
Net
earnings
|
$ | 100 | $ | 20 | $ | 348 | $ | 202 |
CASPI
Segment
|
|||||||||||||||||
Third
Quarter
|
First
Nine Months
|
||||||||||||||||
Change
|
Change
|
||||||||||||||||
(Dollars
in millions)
|
2008
|
2007
|
$
|
%
|
2008
|
2007
|
$
|
%
|
|||||||||
Sales
|
$
|
410
|
$
|
368
|
$
|
42
|
11
%
|
$
|
1,213
|
$
|
1,089
|
$
|
124
|
11
%
|
|||
Volume
effect
|
(35)
|
(10)
%
|
(43)
|
(4)
%
|
|||||||||||||
Price
effect
|
60
|
16
%
|
119
|
11
%
|
|||||||||||||
Product
mix effect
|
11
|
3
%
|
26
|
2
%
|
|||||||||||||
Exchange
rate effect
|
6
|
2
%
|
22
|
2
%
|
|||||||||||||
Operating
earnings
|
55
|
59
|
(4)
|
(7)
%
|
167
|
190
|
(23)
|
(12)
%
|
|||||||||
Asset
impairments and restructuring gains
|
--
|
(1)
|
1
|
(2)
|
(1)
|
(1)
|
|||||||||||
Operating
earnings excluding asset impairments and restructuring
gains
|
55
|
58
|
(3)
|
(5)
%
|
165
|
189
|
(24)
|
(13)
%
|
Fibers
Segment
|
|||||||||||||||||
Third
Quarter
|
First
Nine Months
|
||||||||||||||||
Change
|
Change
|
||||||||||||||||
(Dollars
in millions)
|
2008
|
2007
|
$
|
%
|
2008
|
2007
|
$
|
%
|
|||||||||
Sales
|
$
|
269
|
$
|
258
|
$
|
11
|
4
%
|
$
|
783
|
$
|
731
|
$
|
52
|
7
%
|
|||
Volume
effect
|
5
|
2
%
|
16
|
2
%
|
|||||||||||||
Price
effect
|
12
|
5
%
|
39
|
5
%
|
|||||||||||||
Product
mix effect
|
(6)
|
(3)
%
|
(5)
|
--
%
|
|||||||||||||
Exchange
rate effect
|
--
|
--
%
|
2
|
--
%
|
|||||||||||||
Operating
earnings
|
65
|
66
|
(1)
|
(2)
%
|
195
|
176
|
19
|
11
%
|
|||||||||
PCI
Segment
|
||||||||||||||||
Third
Quarter
|
First
Nine Months
|
|||||||||||||||
Change
|
Change
|
|||||||||||||||
(Dollars
in millions)
|
2008
|
2007
|
$
|
%
|
2008
|
2007
|
$
|
%
|
||||||||
Sales
|
$
|
594
|
$
|
509
|
$
|
85
|
17
%
|
$
|
1,768
|
$
|
1,559
|
$
|
209
|
13
%
|
||
Volume
effect
|
(42)
|
(8)
%
|
(128)
|
(8)
%
|
||||||||||||
Price
effect
|
120
|
24 %
|
312
|
20
%
|
||||||||||||
Product
mix effect
|
4
|
1
%
|
14
|
1
%
|
||||||||||||
Exchange
rate effect
|
3
|
--
%
|
11
|
--
%
|
||||||||||||
Sales
– contract ethylene sales
|
89
|
84
|
5
|
283
|
228
|
55
|
||||||||||
Sales
– continuing product lines
|
505
|
425
|
80
|
19
%
|
1,485
|
1,331
|
154
|
12
%
|
||||||||
Volume
effect
|
(9)
|
(2)
%
|
(80)
|
(6)
%
|
||||||||||||
Price
effect
|
86
|
20
%
|
222
|
17
%
|
||||||||||||
Product
mix effect
|
--
|
--
%
|
1
|
--
%
|
||||||||||||
Exchange
rate effect
|
3
|
1
%
|
11
|
1
%
|
||||||||||||
Operating
earnings
|
62
|
50
|
12
|
24
%
|
160
|
161
|
(1)
|
(1)
%
|
||||||||
Accelerated
depreciation costs included in cost of goods sold
|
2
|
2
|
--
|
4
|
16
|
(12)
|
||||||||||
Asset
impairments and restructuring charges (gains)
|
1
|
(1)
|
2
|
20
|
(1)
|
21
|
||||||||||
Operating
earnings excluding accelerated depreciation costs and asset impairments
and restructuring charges (gains)
|
65
|
51
|
14
|
27
%
|
184
|
176
|
8
|
5
%
|
||||||||
Third
Quarter
|
First
Nine Months
|
||||||||||||||||
Change
|
Change
|
||||||||||||||||
(Dollars
in millions)
|
2008
|
2007
|
$
|
%
|
2008
|
2007
|
$
|
%
|
|||||||||
Sales
|
$
|
293
|
$
|
340
|
$
|
(47)
|
(14)
%
|
$
|
886
|
$
|
1,070
|
$
|
(184)
|
(17)
%
|
|||
Volume
effect
|
(86)
|
(25)
%
|
(302)
|
(28)
%
|
|||||||||||||
Price
effect
|
42
|
12
%
|
80
|
8
%
|
|||||||||||||
Product
mix effect
|
(3)
|
(1)
%
|
36
|
3
%
|
|||||||||||||
Exchange
rate effect
|
--
|
--
%
|
2
|
--
%
|
|||||||||||||
Sales
from Mexico and Argentina PET manufacturing facilities (1)
|
--
|
90
|
(90)
|
--
|
325
|
(325)
|
|||||||||||
Sales
– contract polymer intermediates sales (2)
|
35
|
--
|
35
|
117
|
--
|
117
|
|||||||||||
Sales – U.S. PET manufacturing
facilities
|
258
|
250
|
8
|
4
%
|
769
|
745
|
24
|
3
%
|
|||||||||
Volume
effect
|
(30)
|
(12)
%
|
(94)
|
(13)
%
|
|||||||||||||
Price
effect
|
41
|
17
%
|
80
|
11
%
|
|||||||||||||
Product
mix effect
|
(3)
|
(1)
%
|
36
|
5
%
|
|||||||||||||
Exchange
rate effect
|
--
|
--
%
|
2
|
--
%
|
|||||||||||||
|
(1)
Sales revenue and operating results for 2007 includes sales revenue
from PET manufacturing facilities and related businesses in Cosoleacaque,
Mexico and Zarate, Argentina divested in fourth quarter
2007.
|
|
(2)
Sales revenue for 2008 includes contract polymer intermediates
sales under the transition supply agreement related to the divestiture of
the PET manufacturing facilities and related businesses in Mexico and
Argentina in fourth quarter 2007.
|
Third
Quarter
|
First
Nine Months
|
|||||||||||||||
Change
|
Change
|
|||||||||||||||
(Dollars
in millions)
|
2008
|
2007
|
$
|
%
|
2008
|
2007
|
$
|
%
|
||||||||
Operating
earnings (loss) (1)
|
$
|
(1)
|
$
|
(128)
|
$
|
127
|
99
%
|
$
|
(5)
|
$
|
(181)
|
$
|
176
|
97
%
|
||
Operating
loss – from sales from Mexico and Argentina PET manufacturing facilities
(1)(2)
|
(3)
|
(121)
|
118
|
98
%
|
(3)
|
(125)
|
122
|
98
%
|
||||||||
Operating
earnings (loss) – U.S. PET manufacturing facilities (1)
|
2
|
(7)
|
9
|
>100
%
|
(2)
|
(56)
|
54
|
96
%
|
||||||||
Operating
earnings (loss) excluding items (1)(3)
|
1
|
(7)
|
8
|
>100
%
|
3
|
(46)
|
49
|
>100
%
|
||||||||
Operating
loss excluding items – from sales from Mexico and Argentina PET
manufacturing facilities
(1)(2)(4)
|
--
|
(4)
|
4
|
100
%
|
--
|
(8)
|
8
|
100
%
|
||||||||
Operating
earnings (loss) excluding items – U.S. PET manufacturing facilities (1)(5)
|
1
|
(3)
|
4
|
>100
%
|
3
|
(38)
|
41
|
>100
%
|
|
(1)
Includes allocated costs consistent with
the Company’s historical practices, some of which may remain and could be
reallocated to the remainder of the segment and other
segments.
|
|
(2) Operating
results for 2007 includes sales revenue from PET manufacturing facilities
and related businesses in Cosoleacaque, Mexico and Zarate, Argentina
divested in fourth quarter 2007.
|
|
(3)
Items are accelerated depreciation costs
and asset impairments and restructuring charges,
net. Accelerated depreciation costs of $1 million and $7
million in third quarter of 2008 and 2007, respectively, and $4 million
and $20 million for first nine months 2008 and 2007, respectively,
resulted from restructuring actions associated with higher cost PET
polymer assets in Columbia, South Carolina. In third quarter
and first nine months, 2008, asset impairments and restructuring charges,
net of $1 million and $4 million, respectively, related to restructuring
at the South Carolina facility using IntegRexTM
technology and to the divested PET manufacturing facilities in Mexico and
Argentina, partially offset by a resolution of a contingency from the sale
of the Company’s PE and EpoleneTM
polymer businesses divested in fourth quarter 2006. Asset
impairments and restructuring charges, net of $114 million for third
quarter 2007 and $115 for first nine months 2007 primarily related to the
divested PET manufacturing facilities in Mexico and
Argentina.
|
|
(4)
Items are asset impairments and
restructuring charges, net, relating to the Mexico and Argentina PET
manufacturing facilities. Asset impairments and restructuring
charges, net were $3 million in third quarter and first nine months 2008,
and $117 million for third quarter and first nine months
2007.
|
|
(5)
Items are accelerated depreciation costs
and asset impairments and restructuring charges (gains) related to U.S.
PET manufacturing sites. Accelerated depreciation costs were $1
million and $7 million in third quarter of 2008 and 2007, respectively,
and $4 million and $20 million for first nine months 2008 and 2007,
respectively. Asset impairments and restructuring charges (gains) were
$(2) million and $1 million in third quarter and first nine months 2008,
respectively, and $(3) million and $(2) million for third quarter and
first nine months, 2007.
|
SP
Segment
|
|||||||||||||||||
Third
Quarter
|
First
Nine Months
|
||||||||||||||||
Change
|
Change
|
||||||||||||||||
(Dollars
in millions)
|
2008
|
2007
|
$
|
%
|
2008
|
2007
|
$
|
%
|
|||||||||
Sales
|
$
|
253
|
$
|
217
|
$
|
36
|
17
%
|
$
|
730
|
$
|
644
|
$
|
86
|
13
%
|
|||
Volume
effect
|
18
|
8
%
|
37
|
6
%
|
|||||||||||||
Price
effect
|
10
|
5
%
|
20
|
3
%
|
|||||||||||||
Product
mix effect
|
4
|
2
%
|
13
|
2
%
|
|||||||||||||
Exchange
rate effect
|
4
|
2
%
|
16
|
2
%
|
|||||||||||||
Operating
earnings
|
6
|
13
|
(7)
|
(54)
%
|
36
|
49
|
(13)
|
(27)
%
|
|||||||||
Accelerated
depreciation costs included in cost of goods sold
|
--
|
--
|
--
|
--
|
1
|
(1)
|
|||||||||||
Asset
impairments and restructuring charges, net
|
--
|
--
|
--
|
--
|
1
|
(1)
|
|||||||||||
Operating
earnings excluding accelerated depreciation costs and asset impairments
and restructuring charges, net
|
6
|
13
|
(7)
|
(54)
%
|
36
|
51
|
(15)
|
(29)
%
|
Third
Quarter
|
||||||||||||||||||||||||||||
(Dollars
in millions)
|
2008
|
2007
|
Change
|
Volume
Effect
|
Price
Effect
|
Product
Mix
Effect
|
Exchange
Rate
Effect
|
|||||||||||||||||||||
United
States and Canada
|
$ | 1,124 | $ | 1,021 | 10 | % | (9 | ) % | 19 | % | -- | % | -- | % | ||||||||||||||
Asia
Pacific
|
309 | 259 | 20 | % | 6 | % | 10 | % | 3 | % | 1 | % | ||||||||||||||||
Europe,
Middle East, and Africa
|
248 | 231 | 7 | % | (2 | ) % | 4 | % | 1 | % | 4 | % | ||||||||||||||||
Latin
America
|
138 | 181 | (24 | ) % | (32 | ) % | 6 | % | 2 | % | -- | % | ||||||||||||||||
$ | 1,819 | $ | 1,692 | 8 | % | (8 | ) % | 14 | % | 1 | % | 1 | % |
First
Nine Months
|
||||||||||||||||||||||||||||
(Dollars
in millions)
|
2008
|
2007
|
Change
|
Volume
Effect
|
Price
Effect
|
Product
Mix
Effect
|
Exchange
Rate
Effect
|
|||||||||||||||||||||
United
States and Canada
|
$ | 3,287 | $ | 3,053 | 8 | % | (8 | ) % | 16 | % | -- | % | -- | % | ||||||||||||||
Asia
Pacific
|
921 | 782 | 18 | % | 5 | % | 8 | % | 4 | % | 1 | % | ||||||||||||||||
Europe,
Middle East, and Africa
|
774 | 694 | 12 | % | 2 | % | -- | % | 4 | % | 6 | % | ||||||||||||||||
Latin
America
|
398 | 564 | (29 | ) % | (35 | ) % | 4 | % | 2 | % | -- | % | ||||||||||||||||
$ | 5,380 | $ | 5,093 | 6 | % | (8 | ) % | 11 | % | 2 | % | 1 | % |
First Nine
Months
|
||||||||
(Dollars
in millions)
|
2008
|
2007
|
||||||
Net
cash provided by (used in)
|
||||||||
Operating
activities
|
$ | 293 | $ | 411 | ||||
Investing
activities
|
(145 | ) | (299 | ) | ||||
Financing
activities
|
(699 | ) | (270 | ) | ||||
Effect
of exchange rate changes on cash and cash equivalents
|
-- | -- | ||||||
Net
change in cash and cash equivalents
|
( 551 | ) | ( 158 | ) | ||||
Cash
and cash equivalents at beginning of period
|
888 | 939 | ||||||
Cash
and cash equivalents at end of period
|
$ | 337 | $ | 781 |
(Dollars
in millions)
|
Payments
Due for
|
|||||||||||||
Period
|
Notes
and Debentures
|
Credit
Facility Borrowings and Other
|
Interest
Payable
|
Purchase
Obligations
|
Operating
Leases
|
Other
Liabilities (a)
|
Total
|
|||||||
2008
|
$
|
--
|
$
|
--
|
$
|
17
|
$
|
118
|
$
|
9
|
$
|
20
|
$
|
164
|
2009
|
--
|
14
|
94
|
489
|
30
|
117
|
744
|
|||||||
2010
|
--
|
--
|
94
|
468
|
26
|
70
|
658
|
|||||||
2011
|
2
|
--
|
94
|
260
|
24
|
59
|
439
|
|||||||
2012
|
149
|
85
|
84
|
254
|
13
|
55
|
640
|
|||||||
2013
and beyond
|
1,186
|
--
|
948
|
394
|
18
|
653
|
3,199
|
|||||||
Total
|
$
|
1,337
|
$
|
99
|
$
|
1,331
|
$
|
1,983
|
$
|
120
|
$
|
974
|
$
|
5,844
|
·
|
minimal
declines in volume due to continued substitution of Eastman products for
other materials, and new applications for existing products despite the
softening U.S. and global
economies;
|
·
|
the
volatility of raw material and energy cost increases to continue and that
the Company will continue to use pricing strategies and ongoing cost
control initiatives in an attempt to offset the effects on gross
profit;
|
·
|
to
improve the profitability of its PET product lines in the Performance
Polymers segment. The Company expects
to debottleneck the new South Carolina PET facility utilizing
IntegRexTM technology
beginning in fourth quarter of 2008 for a total capacity of 525,000 metric
tons of ParaStarTM
PET; and continue to pursue options to create additional value from its
IntegRexTM technology,
primarily by actively pursuing licensing opportunities. In
addition to the above, the Company has already completed the divestiture
of its underperforming PET manufacturing facilities outside the United
States in first quarter 2008; the shut down of another 300,000
metric tons of conventional PET polymers capacity at the South Carolina
manufacturing facility and dimethyl terephthalate assets in first quarter
2008; and the elimination approximately $30 million of annual costs at the
South Carolina site in second quarter
2008;
|
·
|
to
position the SP segment for improved results. The Company will
continue to progress with the introduction of its new copolyester, Eastman
TritanTM
copolyester, including a new 30,000 metric ton TritanTM
manufacturing facility expected to be online by early
2010. In addition to the above, the Company has already
completed the conversion of 50,000 metric tons of PET capacity to
copolyester in second quarter 2008;
|
·
|
that
the staged phase-out of older cracking units in Longview, Texas and a
planned shutdown of higher cost PET assets in Columbia, South Carolina
will result in accelerated depreciation costs of approximately $10
million;
|
·
|
ethylene
volume to decline in the PCI segment due to the staged phase-out of older
cracking units at the Company's Longview, Texas
facility;
|
·
|
to
increase volume in the Performance Polymers segment due to the transition
agreement for polymer
intermediates;
|
·
|
modest
sales volume growth for acetate tow in the Fibers segment. The
Company expects to announce plans for new acetate tow capacity in
Asia. In addition to the above, the Company has already
completed the expansion of its acetate tow plant in Workington, England,
in October 2008;
|
·
|
the
PCI segment to have operating margins at the high end of the 5 to 10
percent range;
|
·
|
the
CASPI segment to maintain solid earnings slightly below the typical range
of 15 to 20 percent operating margin, with continued weakness in the U.S.
housing and automotive sectors offset by strength in Europe and
Asia;
|
·
|
to
rework the front-end engineering and design for the industrial
gasification project due to higher than expected interim capital
estimates, thus delaying completion of this phase of the project to 2009
and to evaluate project financing after completion of the front-end
engineering and design rework;
|
·
|
net
interest expense to increase compared with 2007 primarily due to lower
interest income, driven by lower average invested cash balances and lower
average interest rates;
|
·
|
the
effective tax rate to be approximately 30 percent including the benefit of
the federal gasification investment tax credit and a federal research and
development credit;
|
·
|
capital
spending will be between $625 million and $650 million as it funds
targeted growth efforts, including the debottlenecking of the South
Carolina manufacturing facility utilizing IntegRexTM
technology, the front-end engineering and design for the industrial
gasification project, increased capacity of CTA for LCD screens, increased
capacity for Eastman TritanTM
copolyester, and the completion of the acetate tow expansion in
Workington, England; and
|
·
|
priorities
for uses of available cash to be to pay the quarterly cash dividend, fund
targeted growth initiatives, repay debt (which was completed in second
quarter 2008), and repurchase
shares.
|
·
|
continued
economic weakness in North America and Europe, and slowing demand growth
in Asia;
|
·
|
continued
volatility in our raw material and energy costs;
and
|
·
|
due
to its global geographic profile, diverse product portfolio, and solid
financial position, earnings per share from continuing operations,
excluding items related to strategic actions, to be approximately $0.90
per share.
|
·
|
the
SP segment further to improve earnings by completing the conversion of an
additional 50,000 metric tons of PET capacity to co-polyester capacity in
2011, increasing sales revenue from cellulose esters used in LCD screens
and continued progress with the introduction of its high performance
copolyesters;
|
·
|
to
pursue licensing opportunities for the PCI segment's acetyl and oxo
technologies and for the Performance Polymers segment's IntegRexTM technology;
|
·
|
to
pursue growth opportunities in Asia for acetate tow in the Fibers segment;
and
|
·
|
to
complete an additional 30 percent expansion of its CASPI segment's
hydrogenated hydrocarbon resins manufacturing capacity in Middelburg, the
Netherlands in early 2009.
|
·
|
The
Company is reliant on certain strategic raw materials and energy
commodities for its operations and utilizes risk management tools,
including hedging, as appropriate, to mitigate short-term market
fluctuations in raw material and energy costs. There can be no
assurance, however, that such measures will result in cost savings or that
all market fluctuation exposure will be eliminated. In
addition, natural disasters, changes in laws or regulations, war or other
outbreak of hostilities or terrorism or other political factors in any of
the countries or regions in which the Company operates or does business or
in countries or regions that are key suppliers of strategic raw materials
and energy commodities, or breakdown or degradation of transportation
infrastructure used for delivery of strategic raw materials and energy
commodities, could affect availability and costs of raw materials and
energy commodities.
|
·
|
While
temporary shortages of raw materials and energy may occasionally occur,
these items have historically been sufficiently available to cover current
and projected requirements. However, their continuous
availability and price are impacted by natural disasters, plant
interruptions occurring during periods of high demand, domestic and world
market and political conditions, changes in government regulation, war or
other outbreak of hostilities or terrorism, and breakdown or degradation
of transportation infrastructure. Eastman’s operations or
products may, at times, be adversely affected by these
factors.
|
·
|
The
Company's competitive position in the markets in which it participates is,
in part, subject to external factors in addition to those that the Company
can impact. Natural disasters, pandemic illnesses, changes in
laws or regulations, war or other outbreak of hostilities or terrorism, or
other political factors in any of the countries or regions in which the
Company operates or does business or in countries or regions that are key
suppliers of strategic raw materials, and breakdown or degradation of
transportation infrastructure used for delivery of raw
materials and energy supplies to the Company and for delivery of the
Company's products to customers, could negatively impact the Company’s
competitive position and its ability to maintain market
share. For example, supply and demand for certain of the
Company's products is driven by end-use markets and worldwide capacities
which, in turn, impact demand for and pricing of the Company's
products.
|
·
|
Limitation
of the Company's available manufacturing capacity due to significant
disruption in its manufacturing operations, including natural disasters,
pandemic illnesses, changes in laws or regulations, war or other outbreak
of hostilities or terrorism, or other political factors in any of the
countries or regions in which the Company operates or does business, or
breakdown or degradation of transportation infrastructure used for
delivery of raw materials and energy supplies to the Company
and for delivery of the Company's products to customers, could have a
material adverse affect on sales revenue, costs and results of operations
and financial condition.
|
·
|
The
Company has an extensive customer base; however, loss of, or material
financial weakness of, certain of the largest customers could adversely
affect the Company's financial condition and results of operations until
such business is replaced and no assurances can be made that the Company
would be able to regain or replace any lost
customers.
|
·
|
The
Company has efforts underway to exploit growth opportunities in certain
core businesses by developing new products and technologies, expanding
into new markets, and tailoring product offerings to customer
needs. Current examples include IntegRexTM
technology and new PET polymers products and TritanTM
and other copolyester product innovations. There can be no
assurance that such efforts will result in financially successful
commercialization of such products or acceptance by existing or new
customers or new markets or that large capital projects for such growth
efforts can be completed within the time or at the costs projected due,
among other things, to demand for and availability of construction
materials and labor.
|
·
|
The
Company has made, and intends to continue making, strategic investments,
including industrial gasification, and has entered, and expects to
continue to enter, into strategic alliances in technology, services
businesses, and other ventures in order to build, diversify, and
strengthen certain Eastman capabilities, improve Eastman's raw materials
and energy cost and supply position, and maintain high utilization of
manufacturing assets. There can be no assurance that such
investments and alliances will achieve their underlying strategic business
objectives or that they will be beneficial to the Company's results of
operations or that large capital projects for such growth efforts can be
completed within the time or at the costs projected due, among other
things, to demand for and availability of construction materials and labor
and obtaining regulatory approvals and operating permits and reaching
agreement on terms of key agreements and arrangements with potential
suppliers and customers. Such delays or cost overruns or inability to
obtain such approvals or to reach such agreements on acceptable terms
could negatively affect the returns from these strategic investments and
projects.
|
·
|
The
Company anticipates obtaining non-recourse financing for its industrial
gasification project. There is risk that such financing cannot
be obtained or if, obtained, may be on terms different than those assumed
in the Company's projections for financial performance of the project, due
to any circumstance, change, or condition in the loan syndication,
financial, or capital markets generally that could reasonably be expected
to materially affect availability, terms, and syndication of such
financing. The ability to enter into financially acceptable
project commercial agreements for such elements as engineering,
procurement, and construction, off-take agreements, commodity and/or
interest hedges, utilities, administrative services, and others, as well
as obtaining all necessary regulatory approvals and operating permits, may
impact the available financing for the project or the terms of such
financing, if available, including the nature and terms of any recourse
back to the Company.
|
·
|
In
addition to productivity and cost reduction initiatives, the Company is
striving to improve margins on its products through price increases where
warranted and accepted by the market; however, the Company's earnings
could be negatively impacted should such increases be unrealized, not be
sufficient to cover increased raw material and energy costs, or have a
negative impact on demand and volume. There can be no
assurances that price increases will be realized or will be realized
within the Company's anticipated
timeframe.
|
·
|
The
Company has undertaken and expects to continue to undertake productivity
and cost reduction initiatives and organizational restructurings to
improve performance and generate cost savings. There can be no
assurance that these will be completed as planned or beneficial or that
estimated cost savings from such activities will be
realized.
|
·
|
The
Company's facilities and businesses are subject to complex health, safety
and environmental laws and regulations, which require and will continue to
require significant expenditures to remain in compliance with such laws
and regulations currently and in the future. The Company's
accruals for such costs and associated liabilities are subject to changes
in estimates on which the accruals are based. The amount
accrued reflects the Company’s assumptions about remediation requirements
at the contaminated site, the nature of the remedy, the outcome of
discussions with regulatory agencies and other potentially responsible
parties at multi-party sites, and the number and financial viability of
other potentially responsible parties. Changes in the estimates
on which the accruals are based, unanticipated government enforcement
action, or changes in health, safety, environmental, chemical control
regulations, and testing requirements could result in higher or lower
costs.
|
·
|
The
Company and its operations from time to time are parties to or targets of
lawsuits, claims, investigations, and proceedings, including product
liability, personal injury, asbestos, patent and intellectual property,
commercial, contract, environmental, antitrust, health and safety, and
employment matters, which are handled and defended in the ordinary course
of business. The Company believes amounts reserved are adequate
for such pending matters; however, results of operations could be affected
by significant litigation adverse to the
Company.
|
·
|
The
Company has deferred tax assets related to capital and operating
losses. The Company establishes valuation allowances to reduce
these deferred tax assets to an amount that is more likely than not to be
realized. The Company’s ability to utilize these deferred tax
assets depends on projected future operating results, the reversal of
existing temporary differences, and the availability of tax planning
strategies. Realization of these assets is expected to occur
over an extended period of time. As a result, changes in tax
laws, assumptions with respect to future taxable income, and tax planning
strategies could result in adjustments to these
assets.
|
·
|
Due
to the Company's global sales, earnings, and asset profile, it is exposed
to volatility in foreign currency exchange rates and interest
rates. The Company may use derivative financial instruments,
including swaps, options and forwards, to mitigate the impact of changes
in exchange rates and interest rates on its financial
results. However, there can be no assurance that these efforts
will be successful and operating results could be affected by significant
adverse changes in currency exchange rates or interest
rates.
|
·
|
The
Company’s sources of liquidity have been and are expected to be
cash from operating activities, available cash balances, the commercial
paper market, the revolving $700 million credit facility, and sales of
domestic receivables under the $200 million accounts receivable
securitization program. Additionally, the Company relies upon
third parties to provide it with trade credit for purchases of various
products and services. While the Company maintains business
relationships with a diverse group of financial institutions, their
continued viability is not certain and could lead them not to honor their
contractual credit commitments or to renew their extensions of credit or
provide new sources of credit. Furthermore, trade
creditors may be unable to obtain credit and reduce their
trade credit extension. Recently, the capital and credit
markets have become increasingly volatile as a result of adverse
conditions that have caused the failure and near failure of a number of
large financial services companies. If the capital and credit
markets continue to experience volatility and the availability of funds
remains limited, the Company may incur increased costs associated with
borrowings. In addition, it is possible that the Company’s
ability to access the capital and credit markets may be limited by these
or other factors at a time when it would like, or need, to do so, which
could have an impact on the Company’s ability to finance its business or
react to changing economic and business conditions. While the
Company believes that recent governmental and regulatory actions reduce
the risk of a further deterioration or systemic contraction of capital and
credit markets, there can be no certainty that the
Company’s liquidity will not be
negatively impacted. In addition, the Company’s cash flows
from operations may be adversely affected by adverse consequences to the
Company’s customers and the markets in which the Company competes as a
result of the current financial, economic, and capital and credit market
conditions and uncertainty.
|
Period
|
Total
Number
of
Shares
Purchased
(1)
|
Average
Price Paid Per Share
(2)
|
Total
Number of Shares Purchased as Part of Publicly Announced
Plans
or
Programs
(3)
|
Approximate
Dollar
Value
(in millions) that May Yet Be Purchased Under the Plans or
Programs
(3)
|
|||
July
1-31, 2008
|
149,365
|
$
|
66.12
|
149,200
|
$
|
338
|
|
August
1-31, 2008
|
3,473,054
|
$
|
59.57
|
3,472,453
|
$
|
131
|
|
September
1-30, 2008
|
246,117
|
$
|
60.27
|
246,117
|
$
|
117
|
|
Total
|
3,868,536
|
$
|
59.87
|
3,867,770
|
(1)
|
Shares
repurchased under a Company announced repurchase plan and shares
surrendered to the Company by employees to satisfy individual tax
withholding obligations upon vesting of previously issued shares of
restricted common stock.
|
(2)
|
Average
price paid per share reflects the weighted average purchase price paid for
share repurchases and the closing price of Eastman stock on the business
date the shares were surrendered by the employee stockholder to satisfy
individual tax withholding obligations upon vesting of restricted common
stock.
|
(3)
|
In
October 2007, the Board of Directors authorized the repurchase of up to
$700 million of the Company's outstanding common stock at such times, in
such amounts, and on such terms, as determined to be in the best interests
of the Company. As of September 30, 2008, a total of 9.4
million shares have been repurchased under this authorization for a total
amount of $583 million. For
additional information, see Note 14, "Earnings and Dividends Per Share",
to the Company’s unaudited consolidated financial statements in Part I,
Item 1 of this Quarterly Report on Form 10-Q. Repurchased
shares may be used for compensation and benefit plans and other corporate
purposes.
|
Eastman
Chemical Company
|
|||
Date: October
28, 2008
|
By:
|
/s/ Curtis E. Espeland | |
Curtis
E. Espeland
|
|||
Senior
Vice President and Chief Financial
Officer
|
Sequential
|
||||
Exhibit
|
Page
|
|||
Number
|
Description
|
Number
|
||
3.01
|
Amended
and Restated Certificate of Incorporation of Eastman Chemical Company, as
amended (incorporated herein by reference to Exhibit 3.01 to Eastman
Chemical Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 2001)
|
|||
3.02
|
Amended
and Restated Bylaws of Eastman Chemical Company, as
amended November 9, 2007 (incorporated herein by referenced to
Exhibit 3.02 to Eastman Chemical Company’s Quarterly Report on
Form 10-Q for the quarter ended September 30, 2007 (the September 30, 2007
10-Q)
|
|||
4.01
|
Form
of Eastman Chemical Company common stock certificate as amended February
1, 2001 (incorporated herein by reference to Exhibit 4.01 to Eastman
Chemical Company’s Quarterly Report on Form 10-Q for the quarter ended
March 31, 2001)
|
|||
4.02
|
Indenture,
dated as of January 10, 1994, between Eastman Chemical Company and The
Bank of New York, as Trustee (the "Indenture") (incorporated herein by
reference to Exhibit 4(a) to Eastman Chemical Company's Current Report on
Form 8-K dated January 10, 1994 (the "8-K"))
|
|||
4.03
|
Form
of 7 1/4% Debentures due January 15, 2024 (incorporated herein by
reference to Exhibit 4(d) to the 8-K)
|
|||
4.04
|
Officers’
Certificate pursuant to Sections 201 and 301 of the Indenture
(incorporated herein by reference to Exhibit 4(a) to Eastman Chemical
Company's Current Report on Form 8-K dated June 8, 1994 (the "June
8-K"))
|
|||
4.05
|
Form
of 7 5/8% Debentures due June 15, 2024 (incorporated herein by reference
to Exhibit 4(b) to the June 8-K)
|
|||
4.06
|
Form
of 7.60% Debentures due February 1, 2027 (incorporated herein by reference
to Exhibit 4.08 to Eastman Chemical Company's Annual Report on Form 10-K
for the year ended December 31, 1996 (the "1996 10-K"))
|
|||
4.07
|
Form
of 7% Notes due April 15, 2012 (incorporated herein by reference to
Exhibit 4.09 to Eastman Chemical Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 2002)
|
|||
4.08
|
Officer's
Certificate pursuant to Sections 201 and 301 of the Indenture related to
7.60% Debentures due February 1, 2027 (incorporated herein by reference to
Exhibit 4.09 to the 1996 10-K)
|
|||
4.09
|
$200,000,000
Accounts Receivable Securitization agreement dated April 13,1999 (amended
April 11, 2000, July 14, 2005, and July 9, 2008), between the Company and
The Bank of Tokyo-Mitsubishi UFJ, Ltd., as agent. Pursuant to Item
601(b)(4)(iii) of Regulation S-K, in lieu of filing a copy of such
agreement, the Company agrees to furnish a copy of such agreement to the
Commission upon request
|
|||
4.10
|
Letter
Amendments dated November 16, 2007 and March 10, 2008 (incorporated herein
by reference to Exhibit 4.10 to Eastman Chemical Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 2008) to
the Amended and Restated Credit Agreement, dated as of April 3, 2006 (the
"Credit Agreement") among Eastman Chemical Company, the Lenders named
therein, and Citigroup Global Markets , Inc. and J. P. Morgan Securities
Inc., as joint lead arrangers (incorporated herein by reference
to Exhibit 4.11 to Eastman Chemical Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 2006)
|
EXHIBIT
INDEX
|
Sequential
|
|||
Exhibit
|
Page
|
|||
Number
|
Description
|
Number
|
||
4.11
|
Amended
and Restated Credit Agreement, dated as of April 3, 2006 (the "Credit
Agreement") among Eastman Chemical Company, the Lenders named therein, and
Citigroup Global Markets , Inc. and J. P. Morgan Securities Inc.,
as joint lead arrangers (incorporated herein by reference to
Exhibit 4.11 to Eastman Chemical Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 2006)
|
|||
4.12
|
Form
of 6.30% Notes due 2018 (incorporated herein by reference to Exhibit 4.14
to Eastman Chemical Company’s Quarterly Report on Form 10-Q for the
quarter ended September 30, 2003)
|
|||
10.01
|
54-55
|
|||
10.02
|
56-57
|
|||
10.03
|
58-70
|
|||
10.04
|
71-83
|
|||
10.05
|
84-90
|
|||
12.01
|
91
|
|||
31.01
|
92
|
|||
31.02
|
93
|
|||
32.01
|
94
|
|||
32.02
|
95
|