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Share Name | Share Symbol | Market | Type |
---|---|---|---|
Eastman Chemical Co | NYSE:EMN | NYSE | Common Stock |
Price Change | % Change | Share Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|
-2.90 | -2.98% | 94.44 | 96.81 | 94.29 | 96.66 | 886,357 | 21:59:33 |
(Mark
One)
|
|
[X]
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
|
For the quarterly period ended June 30, 2018
|
|
OR
|
[ ]
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
|
For the transition period from ______________ to ______________
|
Delaware
|
62-1539359
|
(State or other jurisdiction of
|
(I.R.S. employer
|
incorporation or organization)
|
identification no.)
|
|
|
200 South Wilcox Drive
|
|
Kingsport, Tennessee
|
37662
|
(Address of principal executive offices)
|
(Zip Code)
|
Large accelerated filer
|
[X]
|
|
Accelerated filer
|
[ ]
|
Non-accelerated filer
|
[ ]
|
(Do not check if a smaller reporting company)
|
Smaller reporting company
|
[ ]
|
|
|
|
Emerging growth company
|
[ ]
|
Class
|
Number of Shares Outstanding at June 30, 2018
|
Common Stock, par value $0.01 per share
|
141,280,046
|
ITEM
|
|
PAGE
|
|
||
|
|
|
|
||
|
||
|
||
|
||
|
|
|
|
|
|
|
|
|
|
Second Quarter
|
|
First Six Months
|
||||||||||||
(Dollars in millions, except per share amounts)
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Sales
|
$
|
2,621
|
|
|
$
|
2,419
|
|
|
$
|
5,228
|
|
|
$
|
4,722
|
|
Cost of sales
|
1,917
|
|
|
1,789
|
|
|
3,943
|
|
|
3,487
|
|
||||
Gross profit
|
704
|
|
|
630
|
|
|
1,285
|
|
|
1,235
|
|
||||
Selling, general and administrative expenses
|
189
|
|
|
181
|
|
|
379
|
|
|
360
|
|
||||
Research and development expenses
|
60
|
|
|
58
|
|
|
116
|
|
|
115
|
|
||||
Asset impairments and restructuring charges, net
|
4
|
|
|
—
|
|
|
6
|
|
|
—
|
|
||||
Other components of post-employment (benefit) cost, net
|
(30
|
)
|
|
(30
|
)
|
|
(60
|
)
|
|
(58
|
)
|
||||
Other (income) charges, net
|
(10
|
)
|
|
1
|
|
|
(56
|
)
|
|
(3
|
)
|
||||
Earnings before interest and taxes
|
491
|
|
|
420
|
|
|
900
|
|
|
821
|
|
||||
Net interest expense
|
61
|
|
|
61
|
|
|
120
|
|
|
121
|
|
||||
Earnings before income taxes
|
430
|
|
|
359
|
|
|
780
|
|
|
700
|
|
||||
Provision for income taxes
|
84
|
|
|
65
|
|
|
144
|
|
|
127
|
|
||||
Net earnings
|
346
|
|
|
294
|
|
|
636
|
|
|
573
|
|
||||
Less: Net earnings attributable to noncontrolling interest
|
2
|
|
|
2
|
|
|
2
|
|
|
3
|
|
||||
Net earnings attributable to Eastman
|
$
|
344
|
|
|
$
|
292
|
|
|
$
|
634
|
|
|
$
|
570
|
|
|
|
|
|
|
|
|
|
||||||||
Basic earnings per share attributable to Eastman
|
$
|
2.42
|
|
|
$
|
2.01
|
|
|
$
|
4.45
|
|
|
$
|
3.91
|
|
Diluted earnings per share attributable to Eastman
|
$
|
2.39
|
|
|
$
|
2.00
|
|
|
$
|
4.39
|
|
|
$
|
3.89
|
|
Comprehensive Income
|
|
|
|
|
|
|
|
|
|
||||||
Net earnings including noncontrolling interest
|
$
|
346
|
|
|
$
|
294
|
|
|
$
|
636
|
|
|
$
|
573
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
||||
Change in cumulative translation adjustment
|
(34
|
)
|
|
36
|
|
|
(7
|
)
|
|
43
|
|
||||
Defined benefit pension and other postretirement benefit plans:
|
|
|
|
|
|
|
|
|
|
||||||
Amortization of unrecognized prior service credits
|
(8
|
)
|
|
(6
|
)
|
|
(15
|
)
|
|
(13
|
)
|
||||
Derivatives and hedging:
|
|
|
|
|
|
|
|
|
|
||||||
Unrealized gain (loss) during period
|
64
|
|
|
(18
|
)
|
|
41
|
|
|
(39
|
)
|
||||
Reclassification adjustment for (gains) losses included in net income, net
|
(3
|
)
|
|
8
|
|
|
(3
|
)
|
|
4
|
|
||||
Total other comprehensive income (loss), net of tax
|
19
|
|
|
20
|
|
|
16
|
|
|
(5
|
)
|
||||
Comprehensive income including noncontrolling interest
|
365
|
|
|
314
|
|
|
652
|
|
|
568
|
|
||||
Less: Comprehensive income attributable to noncontrolling interest
|
2
|
|
|
2
|
|
|
2
|
|
|
3
|
|
||||
Comprehensive income attributable to Eastman
|
$
|
363
|
|
|
$
|
312
|
|
|
$
|
650
|
|
|
$
|
565
|
|
Retained Earnings
|
|
|
|
|
|
|
|
|
|
|
|
||||
Retained earnings at beginning of period
|
$
|
7,026
|
|
|
$
|
5,925
|
|
|
$
|
6,802
|
|
|
$
|
5,721
|
|
Cumulative effect adjustment resulting from adoption of new accounting standards
|
—
|
|
|
—
|
|
|
16
|
|
|
—
|
|
||||
Net earnings attributable to Eastman
|
344
|
|
|
292
|
|
|
634
|
|
|
570
|
|
||||
Cash dividends declared
|
(78
|
)
|
|
(75
|
)
|
|
(160
|
)
|
|
(149
|
)
|
||||
Retained earnings at end of period
|
$
|
7,292
|
|
|
$
|
6,142
|
|
|
$
|
7,292
|
|
|
$
|
6,142
|
|
|
June 30,
|
|
December 31,
|
||||
(Dollars in millions, except per share amounts)
|
2018
|
|
2017
|
||||
Assets
|
|
|
|
||||
Current assets
|
|
|
|
||||
Cash and cash equivalents
|
$
|
193
|
|
|
$
|
191
|
|
Trade receivables, net of allowance for doubtful accounts
|
1,393
|
|
|
1,026
|
|
||
Miscellaneous receivables
|
314
|
|
|
360
|
|
||
Inventories
|
1,532
|
|
|
1,509
|
|
||
Other current assets
|
66
|
|
|
57
|
|
||
Total current assets
|
3,498
|
|
|
3,143
|
|
||
Properties
|
|
|
|
||||
Properties and equipment at cost
|
12,513
|
|
|
12,370
|
|
||
Less: Accumulated depreciation
|
6,943
|
|
|
6,763
|
|
||
Net properties
|
5,570
|
|
|
5,607
|
|
||
Goodwill
|
4,514
|
|
|
4,527
|
|
||
Intangible assets, net of accumulated amortization
|
2,278
|
|
|
2,373
|
|
||
Other noncurrent assets
|
400
|
|
|
349
|
|
||
Total assets
|
$
|
16,260
|
|
|
$
|
15,999
|
|
|
|
|
|
||||
Liabilities and Stockholders' Equity
|
|
|
|
||||
Current liabilities
|
|
|
|
||||
Payables and other current liabilities
|
$
|
1,406
|
|
|
$
|
1,589
|
|
Borrowings due within one year
|
662
|
|
|
393
|
|
||
Total current liabilities
|
2,068
|
|
|
1,982
|
|
||
Long-term borrowings
|
6,033
|
|
|
6,147
|
|
||
Deferred income tax liabilities
|
933
|
|
|
893
|
|
||
Post-employment obligations
|
924
|
|
|
963
|
|
||
Other long-term liabilities
|
528
|
|
|
534
|
|
||
Total liabilities
|
10,486
|
|
|
10,519
|
|
||
Stockholders' equity
|
|
|
|
||||
Common stock ($0.01 par value – 350,000,000 shares authorized; shares issued – 219,093,133 and 218,369,992 for 2018 and 2017, respectively)
|
2
|
|
|
2
|
|
||
Additional paid-in capital
|
2,021
|
|
|
1,983
|
|
||
Retained earnings
|
7,292
|
|
|
6,802
|
|
||
Accumulated other comprehensive income (loss)
|
(193
|
)
|
|
(209
|
)
|
||
|
9,122
|
|
|
8,578
|
|
||
Less: Treasury stock at cost (77,863,885 shares for 2018 and 75,454,111 shares for 2017)
|
3,425
|
|
|
3,175
|
|
||
Total Eastman stockholders' equity
|
5,697
|
|
|
5,403
|
|
||
Noncontrolling interest
|
77
|
|
|
77
|
|
||
Total equity
|
5,774
|
|
|
5,480
|
|
||
Total liabilities and stockholders' equity
|
$
|
16,260
|
|
|
$
|
15,999
|
|
|
First Six Months
|
||||||
(Dollars in millions)
|
2018
|
|
2017
|
||||
Operating activities
|
|
|
|
||||
Net earnings
|
$
|
636
|
|
|
$
|
573
|
|
Adjustments to reconcile net earnings to net cash provided by operating activities:
|
|
|
|
|
|
||
Depreciation and amortization
|
300
|
|
|
292
|
|
||
Gain from property insurance
|
(65
|
)
|
|
—
|
|
||
Provision for deferred income taxes
|
5
|
|
|
36
|
|
||
Changes in operating assets and liabilities, net of effect of acquisitions and divestitures:
|
|
|
|
||||
(Increase) decrease in trade receivables
|
(213
|
)
|
|
(166
|
)
|
||
(Increase) decrease in inventories
|
(158
|
)
|
|
(108
|
)
|
||
Increase (decrease) in trade payables
|
(10
|
)
|
|
(28
|
)
|
||
Pension and other postretirement contributions (in excess of) less than expenses
|
(78
|
)
|
|
(56
|
)
|
||
Variable compensation (in excess of) less than expenses
|
(24
|
)
|
|
(34
|
)
|
||
Other items, net
|
15
|
|
|
(26
|
)
|
||
Net cash provided by operating activities
|
408
|
|
|
483
|
|
||
Investing activities
|
|
|
|
||||
Additions to properties and equipment
|
(244
|
)
|
|
(279
|
)
|
||
Proceeds from property insurance
|
65
|
|
|
—
|
|
||
Proceeds from sale of assets
|
—
|
|
|
1
|
|
||
Acquisitions, net of cash acquired
|
—
|
|
|
(4
|
)
|
||
Other items, net
|
—
|
|
|
(1
|
)
|
||
Net cash used in investing activities
|
(179
|
)
|
|
(283
|
)
|
||
Financing activities
|
|
|
|
||||
Net increase (decrease) in commercial paper and other borrowings
|
268
|
|
|
(95
|
)
|
||
Proceeds from borrowings
|
350
|
|
|
500
|
|
||
Repayment of borrowings
|
(428
|
)
|
|
(250
|
)
|
||
Dividends paid to stockholders
|
(160
|
)
|
|
(149
|
)
|
||
Treasury stock purchases
|
(250
|
)
|
|
(175
|
)
|
||
Dividends paid to noncontrolling interest
|
(2
|
)
|
|
(1
|
)
|
||
Other items, net
|
(1
|
)
|
|
12
|
|
||
Net cash used in financing activities
|
(223
|
)
|
|
(158
|
)
|
||
Effect of exchange rate changes on cash and cash equivalents
|
(4
|
)
|
|
(1
|
)
|
||
Net change in cash and cash equivalents
|
2
|
|
|
41
|
|
||
Cash and cash equivalents at beginning of period
|
191
|
|
|
181
|
|
||
Cash and cash equivalents at end of period
|
$
|
193
|
|
|
$
|
222
|
|
|
|
Page
|
|
|
|
Derivative
and Non-Derivative Financial Instruments
|
||
Environmental Matters
and Asset Retirement Obligations
|
||
1.
|
SIGNIFICANT ACCOUNTING POLICIES
|
•
|
Eastman's primary measure of operating performance for all periods presented is earnings before interest and taxes ("EBIT") on a consolidated and segment basis. Previously, the Company's primary measure of operating performance was operating earnings.
|
•
|
As discussed below, the new accounting standard for the presentation of net periodic benefit costs requires the Company to present non-service cost components of net periodic benefit costs (interest cost, expected return on plan assets, curtailment gains or losses, amortization of prior service costs or credits, and mark-to-market gains or losses) separately from service cost. These non-service cost components were reclassified from "Cost of sales", "Selling, general and administrative expenses", and "Research and development expenses" line items and are now included in a new line item, "Other components of post-employment (benefit) cost, net" on the Unaudited Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings for all periods presented. This reclassification does not change prior period EBIT and, accordingly, management does not consider this change to have a material impact on the Company's financial statements and related disclosures.
|
2.
|
INVENTORIES
|
|
June 30,
|
|
December 31,
|
||||
(Dollars in millions)
|
2018
|
|
2017
|
||||
Finished goods
|
$
|
1,044
|
|
|
$
|
1,114
|
|
Work in process
|
241
|
|
|
213
|
|
||
Raw materials and supplies
|
549
|
|
|
470
|
|
||
Total inventories at FIFO or average cost
|
1,834
|
|
|
1,797
|
|
||
Less: LIFO reserve
|
302
|
|
|
288
|
|
||
Total inventories
|
$
|
1,532
|
|
|
$
|
1,509
|
|
3.
|
PAYABLES AND OTHER CURRENT LIABILITIES
|
|
June 30,
|
|
December 31,
|
||||
(Dollars in millions)
|
2018
|
|
2017
|
||||
Trade creditors
|
$
|
811
|
|
|
$
|
842
|
|
Accrued payrolls, vacation, and variable-incentive compensation
|
135
|
|
|
199
|
|
||
Accrued taxes
|
79
|
|
|
111
|
|
||
Other
|
381
|
|
|
437
|
|
||
Total payables and other current liabilities
|
$
|
1,406
|
|
|
$
|
1,589
|
|
4.
|
INCOME TAXES
|
|
Second Quarter
|
|
First Six Months
|
||||||||||||||||||||||||
(Dollars in millions)
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||||||||||||||
|
$
|
|
%
|
|
$
|
|
%
|
|
$
|
|
%
|
|
$
|
|
%
|
||||||||||||
Provision for income taxes and tax rate
|
$
|
84
|
|
|
20
|
%
|
|
$
|
65
|
|
|
18
|
%
|
|
$
|
144
|
|
|
19
|
%
|
|
$
|
127
|
|
|
18
|
%
|
5.
|
BORROWINGS
|
|
June 30,
|
|
December 31,
|
||||
(Dollars in millions)
|
2018
|
|
2017
|
||||
Borrowings consisted of:
|
|
|
|
||||
5.5% notes due November 2019
|
$
|
250
|
|
|
$
|
250
|
|
2.7% notes due January 2020
|
798
|
|
|
797
|
|
||
4.5% notes due January 2021
|
185
|
|
|
185
|
|
||
3.6% notes due August 2022
|
738
|
|
|
738
|
|
||
1.50% notes due May 2023
(1)
|
872
|
|
|
895
|
|
||
7 1/4% debentures due January 2024
|
197
|
|
|
197
|
|
||
7 5/8% debentures due June 2024
|
43
|
|
|
43
|
|
||
3.8% notes due March 2025
|
688
|
|
|
690
|
|
||
1.875% notes due November 2026
(1)
|
577
|
|
|
592
|
|
||
7.60% debentures due February 2027
|
195
|
|
|
195
|
|
||
4.8% notes due September 2042
|
493
|
|
|
493
|
|
||
4.65% notes due October 2044
|
871
|
|
|
871
|
|
||
Commercial paper and short-term borrowings
|
661
|
|
|
389
|
|
||
Credit facilities borrowings
|
125
|
|
|
200
|
|
||
Capital leases and other
|
2
|
|
|
5
|
|
||
Total borrowings
|
6,695
|
|
|
6,540
|
|
||
Borrowings due within one year
|
662
|
|
|
393
|
|
||
Long-term borrowings
|
$
|
6,033
|
|
|
$
|
6,147
|
|
(1)
|
The carrying value of the euro-denominated 1.50% notes due May 2023 and 1.875% notes due November 2026 will fluctuate with changes in the euro exchange rate. The carrying value of these euro-denominated borrowings have been designated as non-derivative net investment hedges of a portion of the Company's net investments in euro functional-currency denominated subsidiaries to offset foreign currency fluctuations. During the
six months ended
June 30, 2018
, pre-tax gains of
$39 million
were recognized in other comprehensive income ("OCI") for revaluation of these notes.
|
|
|
|
|
Fair Value Measurements at June 30, 2018
|
||||||||||||
(Dollars in millions)
|
|
Recorded Amount
June 30, 2018 |
|
Total Fair Value
|
|
Quoted Prices in Active Markets for Identical Liabilities (Level 1)
|
|
Significant Other Observable Inputs (Level 2)
|
||||||||
Total borrowings
|
|
$
|
6,695
|
|
|
$
|
6,886
|
|
|
$
|
6,098
|
|
|
$
|
788
|
|
|
|
|
|
Fair Value Measurements at December 31, 2017
|
||||||||||||
(Dollars in millions)
|
|
Recorded Amount December 31, 2017
|
|
Total Fair Value
|
|
Quoted Prices in Active Markets for Identical Liabilities (Level 1)
|
|
Significant Other Observable Inputs (Level 2)
|
||||||||
Total borrowings
|
|
$
|
6,540
|
|
|
$
|
6,980
|
|
|
$
|
6,386
|
|
|
$
|
594
|
|
6.
|
DERIVATIVE AND NON-DERIVATIVE FINANCIAL INSTRUMENTS
|
Notional Outstanding
|
|
June 30, 2018
|
|
December 31, 2017
|
|||
|
|
|
|
|
|
||
Derivatives designated as cash flow hedges:
|
|
|
|
|
|||
Foreign Exchange Forward and Option Contracts (in millions)
|
|
|
|
|
|||
|
EUR/USD (in EUR)
|
|
€419
|
|
€525
|
||
Commodity Forward and Collar Contracts
|
|
|
|
|
|||
|
Feedstock (in million barrels)
|
|
8
|
|
|
7
|
|
|
Energy (in million million british thermal units)
|
|
25
|
|
|
23
|
|
|
|
|
|
|
|||
Derivatives designated as fair value hedges:
|
|
|
|
|
|||
Fixed-for-floating interest rate swaps (in millions)
|
|
$75
|
|
$75
|
|||
|
|
|
|
|
|||
Derivatives designated as net investment hedges:
|
|
|
|
|
|||
Cross-currency interest rate swaps (in millions)
|
|
|
|
|
|||
|
EUR/USD (in EUR)
|
|
€416
|
|
—
|
|
|
|
|
|
|
|
|||
Non-derivatives designated as net investment hedges:
|
|
|
|
|
|||
Foreign Currency Net Investment Hedges (in millions)
|
|
|
|
|
|||
|
EUR/USD (in EUR)
|
|
€1,241
|
|
€1,240
|
The Financial Position and Fair Value Measurements of Hedging Instruments on a Gross Basis
|
||||||||||
(Dollars in millions)
|
|
|
|
|
|
|
||||
Derivative Type
|
|
Statements of Financial
Position Classification
|
|
June 30, 2018
Level 2
|
|
December 31, 2017
Level 2
|
||||
Derivatives designated as cash flow hedges:
|
|
|
|
|
|
|
||||
Commodity contracts
|
|
Other current assets
|
|
$
|
22
|
|
|
$
|
9
|
|
Commodity contracts
|
|
Other noncurrent assets
|
|
9
|
|
|
4
|
|
||
Foreign exchange contracts
|
|
Other current assets
|
|
22
|
|
|
23
|
|
||
Foreign exchange contracts
|
|
Other noncurrent assets
|
|
4
|
|
|
2
|
|
||
|
|
|
|
|
|
|
||||
Derivatives designated as fair value hedges:
|
|
|
|
|
|
|
||||
Fixed-for-floating interest rate swap
|
|
Other current assets
|
|
1
|
|
|
1
|
|
||
|
|
|
|
|
|
|
||||
Derivatives designated as net investment hedges:
|
|
|
|
|
|
|
||||
Cross-currency interest rate swaps
|
|
Other noncurrent assets
|
|
4
|
|
|
—
|
|
||
Total Derivative Assets
|
|
|
|
$
|
62
|
|
|
$
|
39
|
|
|
|
|
|
|
|
|
||||
Derivatives designated as cash flow hedges:
|
|
|
|
|
|
|
||||
Commodity contracts
|
|
Payables and other current liabilities
|
|
$
|
10
|
|
|
$
|
28
|
|
Commodity contracts
|
|
Other long-term liabilities
|
|
4
|
|
|
10
|
|
||
Foreign exchange contracts
|
|
Payables and other current liabilities
|
|
1
|
|
|
6
|
|
||
Foreign exchange contracts
|
|
Other long-term liabilities
|
|
—
|
|
|
4
|
|
||
|
|
|
|
|
|
|
||||
Derivatives designated as fair value hedges:
|
|
|
|
|
|
|
||||
Fixed-for-floating interest rate swap
|
|
Long-term borrowings
|
|
6
|
|
|
4
|
|
||
Total Derivative Liabilities
|
|
|
|
$
|
21
|
|
|
$
|
52
|
|
Total Net Derivative Assets (Liabilities)
|
|
|
|
$
|
41
|
|
|
$
|
(13
|
)
|
(Dollars in millions)
|
|
Carrying amount of the hedged liabilities
|
|
Cumulative amount of fair value hedging loss adjustment included in the carrying amount of the hedged liability
|
||||||||||||
Line item in the Unaudited Consolidated Statements of Financial Position in which the hedged item is included
|
|
June 30, 2018
|
|
December 31, 2017
|
|
June 30, 2018
|
|
December 31, 2017
|
||||||||
Long-term borrowings
(1)
|
|
$
|
757
|
|
|
$
|
760
|
|
|
$
|
(13
|
)
|
|
$
|
(10
|
)
|
(1)
|
At
June 30, 2018
and
December 31, 2017
, the cumulative amount of fair value hedging loss adjustment remaining for hedged liabilities for which hedge accounting has been discontinued was
$7 million
and
$6 million
, respectively.
|
|
|
Change in amount of after tax gain (loss) recognized in OCI on derivatives
|
|
Pre-tax amount of gain (loss) reclassified from OCI into earnings
|
||||||||||||||||||||||||||||
(Dollars in millions)
|
|
Second Quarter
|
|
First Six Months
|
|
Second Quarter
|
|
First Six Months
|
||||||||||||||||||||||||
Hedging Relationships
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||||||||||
Derivatives in cash flow hedging relationships:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Commodity contracts
|
|
$
|
40
|
|
|
$
|
9
|
|
|
$
|
29
|
|
|
$
|
(7
|
)
|
|
$
|
(3
|
)
|
|
$
|
(20
|
)
|
|
$
|
(5
|
)
|
|
$
|
(27
|
)
|
Foreign exchange contracts
|
|
20
|
|
|
(20
|
)
|
|
7
|
|
|
(30
|
)
|
|
8
|
|
|
10
|
|
|
11
|
|
|
22
|
|
||||||||
Forward starting interest rate and treasury lock swap contracts
|
|
1
|
|
|
1
|
|
|
2
|
|
|
2
|
|
|
(1
|
)
|
|
(1
|
)
|
|
(2
|
)
|
|
(2
|
)
|
||||||||
Non-derivatives in net investment hedging relationships (pre-tax):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Net investment hedges
|
|
81
|
|
|
(91
|
)
|
|
39
|
|
|
(109
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||||
Derivatives in net investment hedging relationships (pre-tax):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Cross-currency interest rate swaps
|
|
26
|
|
|
—
|
|
|
15
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||||
Cross-currency interest rate swaps excluded component
|
|
—
|
|
|
—
|
|
|
(11
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Location and Amount of Gain or (Loss) Recognized in Earnings on Fair Value and Cash Flow Hedging Relationships
|
||||||||||||||||||||||||
|
|
Second Quarter
|
||||||||||||||||||||||
|
|
2018
|
|
2017
|
||||||||||||||||||||
(Dollars in millions)
|
|
Sales
|
|
Cost of Sales
|
|
Net Interest Expense
|
|
Sales
|
|
Cost of Sales
|
|
Net Interest Expense
|
||||||||||||
Total amounts of income and expense line items presented in the Unaudited Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings in which the effects of fair value or cash flow hedges are recognized
|
|
$
|
2,621
|
|
|
$
|
1,917
|
|
|
$
|
61
|
|
|
$
|
2,419
|
|
|
$
|
1,789
|
|
|
$
|
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
The effects of fair value and cash flow hedging:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Gain or (loss) on fair value hedging relationships:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Interest contracts (fixed-for-floating interest rate swaps):
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Hedged items
|
|
|
|
|
|
—
|
|
|
|
|
|
|
(1
|
)
|
||||||||||
Derivatives designated as hedging instruments
|
|
|
|
|
|
—
|
|
|
|
|
|
|
1
|
|
||||||||||
Gain or (loss) on cash flow hedging relationships:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Interest contracts (forward starting interest rate and treasury lock swap contracts):
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Amount of loss reclassified from AOCI into earnings
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
(1
|
)
|
||||||||||
Commodity Contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Amount of loss reclassified from AOCI into earnings
|
|
|
|
(3
|
)
|
|
|
|
|
|
(20
|
)
|
|
|
||||||||||
Foreign Exchange Contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Amount of gain reclassified from AOCI into earnings
|
|
8
|
|
|
|
|
|
|
10
|
|
|
|
|
|
Location and Amount of Gain or (Loss) Recognized in Earnings on Fair Value and Cash Flow Hedging Relationships
|
||||||||||||||||||||||||
|
|
First Six Months
|
||||||||||||||||||||||
|
|
2018
|
|
2017
|
||||||||||||||||||||
(Dollars in millions)
|
|
Sales
|
|
Cost of Sales
|
|
Net Interest Expense
|
|
Sales
|
|
Cost of Sales
|
|
Net Interest Expense
|
||||||||||||
Total amounts of income and expense line items presented in the Unaudited Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings in which the effects of fair value or cash flow hedges are recognized
|
|
$
|
5,228
|
|
|
$
|
3,943
|
|
|
$
|
120
|
|
|
$
|
4,722
|
|
|
$
|
3,487
|
|
|
$
|
121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
The effects of fair value and cash flow hedging:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Gain or (loss) on fair value hedging relationships:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Interest contracts (fixed-for-floating interest rate swaps):
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Hedged items
|
|
|
|
|
|
—
|
|
|
|
|
|
|
(2
|
)
|
||||||||||
Derivatives designated as hedging instruments
|
|
|
|
|
|
—
|
|
|
|
|
|
|
2
|
|
||||||||||
Gain or (loss) on cash flow hedging relationships:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Interest contracts (forward starting interest rate and treasury lock swap contracts):
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Amount of loss reclassified from AOCI into earnings
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
(2
|
)
|
||||||||||
Commodity Contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Amount of loss reclassified from AOCI into earnings
|
|
|
|
(5
|
)
|
|
|
|
|
|
(27
|
)
|
|
|
||||||||||
Foreign Exchange Contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Amount of gain reclassified from AOCI into earnings
|
|
11
|
|
|
|
|
|
|
22
|
|
|
|
|
|
7.
|
RETIREMENT PLANS
|
|
Second Quarter
|
||||||||||||||||||||||
|
Pension Plans
|
|
Other Postretirement Benefit Plans
|
||||||||||||||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||||||||||
(Dollars in millions)
|
U.S.
|
|
Non-U.S.
|
|
U.S.
|
|
Non-U.S.
|
|
|
|
|
||||||||||||
Service cost
|
$
|
8
|
|
|
$
|
4
|
|
|
$
|
9
|
|
|
$
|
4
|
|
|
$
|
—
|
|
|
$
|
1
|
|
Interest cost
|
17
|
|
|
5
|
|
|
16
|
|
|
4
|
|
|
5
|
|
|
6
|
|
||||||
Expected return on assets
|
(37
|
)
|
|
(10
|
)
|
|
(35
|
)
|
|
(9
|
)
|
|
—
|
|
|
(1
|
)
|
||||||
Amortization of:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Prior service credit, net
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
(10
|
)
|
|
(10
|
)
|
||||||
Net periodic benefit (credit) cost
|
$
|
(12
|
)
|
|
$
|
(1
|
)
|
|
$
|
(11
|
)
|
|
$
|
(1
|
)
|
|
$
|
(5
|
)
|
|
$
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
First Six Months
|
||||||||||||||||||||||
|
Pension Plans
|
|
Other Postretirement Benefit Plans
|
||||||||||||||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||||||||||
(Dollars in millions)
|
U.S.
|
|
Non-U.S.
|
|
U.S.
|
|
Non-U.S.
|
|
|
|
|
||||||||||||
Service cost
|
$
|
17
|
|
|
$
|
8
|
|
|
$
|
18
|
|
|
$
|
7
|
|
|
$
|
—
|
|
|
$
|
2
|
|
Interest cost
|
34
|
|
|
10
|
|
|
33
|
|
|
9
|
|
|
11
|
|
|
12
|
|
||||||
Expected return on assets
|
(74
|
)
|
|
(19
|
)
|
|
(70
|
)
|
|
(17
|
)
|
|
(2
|
)
|
|
(3
|
)
|
||||||
Amortization of:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Prior service credit, net
|
—
|
|
|
—
|
|
|
(2
|
)
|
|
—
|
|
|
(20
|
)
|
|
(20
|
)
|
||||||
Net periodic benefit (credit) cost
|
$
|
(23
|
)
|
|
$
|
(1
|
)
|
|
$
|
(21
|
)
|
|
$
|
(1
|
)
|
|
$
|
(11
|
)
|
|
$
|
(9
|
)
|
8.
|
COMMITMENTS AND OFF BALANCE SHEET ARRANGEMENTS
|
9.
|
ENVIRONMENTAL MATTERS AND ASSET RETIREMENT OBLIGATIONS
|
(Dollars in millions)
|
June 30, 2018
|
|
December 31, 2017
|
||||
Environmental contingent liabilities, current
|
$
|
25
|
|
|
$
|
25
|
|
Environmental contingent liabilities, long-term
|
276
|
|
|
279
|
|
||
Total
|
$
|
301
|
|
|
$
|
304
|
|
(Dollars in millions)
|
Environmental Remediation Liabilities
|
||
Balance at December 31, 2017
|
$
|
280
|
|
Changes in estimates recognized in earnings and other
|
5
|
|
|
Cash reductions
|
(9
|
)
|
|
Balance at June 30, 2018
|
$
|
276
|
|
10.
|
LEGAL MATTERS
|
11.
|
STOCKHOLDERS' EQUITY
|
(Dollars in millions)
|
Common Stock at Par Value
|
|
Additional Paid-in Capital
|
|
Retained Earnings
|
|
Accumulated Other Comprehensive Income (Loss)
|
|
Treasury Stock at Cost
|
|
Total Eastman Stockholders' Equity
|
|
Noncontrolling Interest
|
|
Total Equity
|
||||||||||||||||
Balance at December 31, 2017
|
$
|
2
|
|
|
$
|
1,983
|
|
|
$
|
6,802
|
|
|
$
|
(209
|
)
|
|
$
|
(3,175
|
)
|
|
$
|
5,403
|
|
|
$
|
77
|
|
|
$
|
5,480
|
|
Cumulative Effect of Adoption of New Accounting Standards
(1)
|
—
|
|
|
—
|
|
|
16
|
|
|
—
|
|
|
—
|
|
|
16
|
|
|
—
|
|
|
16
|
|
||||||||
Net Earnings
|
—
|
|
|
—
|
|
|
634
|
|
|
—
|
|
|
—
|
|
|
634
|
|
|
2
|
|
|
636
|
|
||||||||
Cash Dividends Declared
(2)
($1.12 per share)
|
—
|
|
|
—
|
|
|
(160
|
)
|
|
—
|
|
|
—
|
|
|
(160
|
)
|
|
—
|
|
|
(160
|
)
|
||||||||
Other Comprehensive Income
|
—
|
|
|
—
|
|
|
—
|
|
|
16
|
|
|
—
|
|
|
16
|
|
|
—
|
|
|
16
|
|
||||||||
Share-Based Compensation Expense
(3)
|
—
|
|
|
38
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
38
|
|
|
—
|
|
|
38
|
|
||||||||
Stock Option Exercises
|
—
|
|
|
16
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
16
|
|
|
—
|
|
|
16
|
|
||||||||
Other
(4)
|
—
|
|
|
(16
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(16
|
)
|
|
1
|
|
|
(15
|
)
|
||||||||
Share Repurchases
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(250
|
)
|
|
(250
|
)
|
|
—
|
|
|
(250
|
)
|
||||||||
Distributions to Noncontrolling Interest
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3
|
)
|
|
(3
|
)
|
||||||||
Balance at June 30, 2018
|
$
|
2
|
|
|
$
|
2,021
|
|
|
$
|
7,292
|
|
|
$
|
(193
|
)
|
|
$
|
(3,425
|
)
|
|
$
|
5,697
|
|
|
$
|
77
|
|
|
$
|
5,774
|
|
(1)
|
On January 1, 2018, the Company adopted new accounting standards for revenue recognition, income taxes, and derivatives and hedging, which resulted in adjustments to beginning retained earnings. See
Note 1, "Significant Accounting Policies"
, for specific amounts related to each standard.
|
(2)
|
Cash dividends declared includes cash dividends paid and dividends declared but unpaid.
|
(3)
|
Share-based compensation expense is the fair value of share-based awards.
|
(4)
|
Additional paid-in capital includes value of shares withheld for employees' taxes on vesting of share-based compensation awards.
|
(Dollars in millions)
|
Cumulative Translation Adjustment
|
|
Benefit Plans Unrecognized Prior Service Credits
|
|
Unrealized Gains (Losses) on Derivative Instruments
|
|
Unrealized Losses on Investments
|
|
Accumulated Other Comprehensive Income (Loss)
|
||||||||||
Balance at December 31, 2016
|
$
|
(381
|
)
|
|
$
|
163
|
|
|
$
|
(62
|
)
|
|
$
|
(1
|
)
|
|
$
|
(281
|
)
|
Period change
|
85
|
|
|
(27
|
)
|
|
14
|
|
|
—
|
|
|
72
|
|
|||||
Balance at December 31, 2017
|
(296
|
)
|
|
136
|
|
|
(48
|
)
|
|
(1
|
)
|
|
(209
|
)
|
|||||
Period change
|
(7
|
)
|
|
(15
|
)
|
|
38
|
|
|
—
|
|
|
16
|
|
|||||
Balance at June 30, 2018
|
$
|
(303
|
)
|
|
$
|
121
|
|
|
$
|
(10
|
)
|
|
$
|
(1
|
)
|
|
$
|
(193
|
)
|
|
Second Quarter
|
||||||||||||||
|
2018
|
|
2017
|
||||||||||||
(Dollars in millions)
|
Before Tax
|
|
Net of Tax
|
|
Before Tax
|
|
Net of Tax
|
||||||||
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
||||||||
Change in cumulative translation adjustment
|
$
|
(34
|
)
|
|
$
|
(34
|
)
|
|
$
|
36
|
|
|
$
|
36
|
|
Defined benefit pension and other postretirement benefit plans:
|
|
|
|
|
|
|
|
||||||||
Amortization of unrecognized prior service credits
|
(10
|
)
|
|
(8
|
)
|
|
(11
|
)
|
|
(6
|
)
|
||||
Derivatives and hedging:
|
|
|
|
|
|
|
|
||||||||
Unrealized gain (loss) during period
|
85
|
|
|
64
|
|
|
(28
|
)
|
|
(18
|
)
|
||||
Reclassification adjustment for (gains) losses included in net income, net
|
(4
|
)
|
|
(3
|
)
|
|
13
|
|
|
8
|
|
||||
Total other comprehensive income (loss)
|
$
|
37
|
|
|
$
|
19
|
|
|
$
|
10
|
|
|
$
|
20
|
|
|
First Six Months
|
||||||||||||||
|
2018
|
|
2017
|
||||||||||||
(Dollars in millions)
|
Before Tax
|
|
Net of Tax
|
|
Before Tax
|
|
Net of Tax
|
||||||||
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
||||||||
Change in cumulative translation adjustment
|
$
|
(7
|
)
|
|
$
|
(7
|
)
|
|
$
|
43
|
|
|
$
|
43
|
|
Defined benefit pension and other postretirement benefit plans:
|
|
|
|
|
|
|
|
||||||||
Amortization of unrecognized prior service credits
|
(20
|
)
|
|
(15
|
)
|
|
(22
|
)
|
|
(13
|
)
|
||||
Derivatives and hedging:
|
|
|
|
|
|
|
|
|
|||||||
Unrealized gain (loss) during period
|
55
|
|
|
41
|
|
|
(62
|
)
|
|
(39
|
)
|
||||
Reclassification adjustment for (gains) losses included in net income, net
|
(4
|
)
|
|
(3
|
)
|
|
7
|
|
|
4
|
|
||||
Total other comprehensive income (loss)
|
$
|
24
|
|
|
$
|
16
|
|
|
$
|
(34
|
)
|
|
$
|
(5
|
)
|
12.
|
EARNINGS AND DIVIDENDS PER SHARE
|
|
Second Quarter
|
|
First Six Months
|
||||||||||||
(In millions, except per share amounts)
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Numerator
|
|
|
|
|
|
|
|
||||||||
Earnings attributable to Eastman, net of tax
|
$
|
344
|
|
|
$
|
292
|
|
|
$
|
634
|
|
|
$
|
570
|
|
|
|
|
|
|
|
|
|
||||||||
Denominator
|
|
|
|
|
|
|
|
||||||||
Weighted average shares used for basic EPS
|
141.9
|
|
|
145.3
|
|
|
142.3
|
|
|
145.7
|
|
||||
Dilutive effect of stock options and other awards
|
2.1
|
|
|
1.1
|
|
|
2.1
|
|
|
1.1
|
|
||||
Weighted average shares used for diluted EPS
|
144.0
|
|
|
146.4
|
|
|
144.4
|
|
|
146.8
|
|
||||
|
|
|
|
|
|
|
|
||||||||
(Calculated using whole dollars and shares)
|
|
|
|
|
|
|
|
||||||||
EPS
|
|
|
|
|
|
|
|
||||||||
Basic
|
$
|
2.42
|
|
|
$
|
2.01
|
|
|
$
|
4.45
|
|
|
$
|
3.91
|
|
Diluted
|
$
|
2.39
|
|
|
$
|
2.00
|
|
|
$
|
4.39
|
|
|
$
|
3.89
|
|
13.
|
ASSET IMPAIRMENTS AND RESTRUCTURING CHARGES, NET
|
|
|
|
|
(Dollars in millions)
|
Balance at January 1, 2018
|
|
Provision/ Adjustments
|
|
Non-cash Reductions/
Additions |
|
Cash Reductions
|
|
Balance at June 30, 2018
|
||||||||||
Severance costs
|
$
|
19
|
|
|
$
|
6
|
|
|
$
|
—
|
|
|
$
|
(9
|
)
|
|
$
|
16
|
|
Site closure and restructuring costs
|
10
|
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
9
|
|
|||||
Total
|
$
|
29
|
|
|
$
|
6
|
|
|
$
|
—
|
|
|
$
|
(10
|
)
|
|
$
|
25
|
|
(Dollars in millions)
|
Balance at January 1, 2017
|
|
Provision/ Adjustments
|
|
Non-cash Reductions/
Additions
|
|
Cash Reductions
|
|
Balance at December 31, 2017
|
||||||||||
Non-cash charges
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
(1
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
Severance costs
|
42
|
|
|
6
|
|
|
—
|
|
|
(29
|
)
|
|
19
|
|
|||||
Site closure and restructuring costs
|
13
|
|
|
1
|
|
|
1
|
|
|
(5
|
)
|
|
10
|
|
|||||
Total
|
$
|
55
|
|
|
$
|
8
|
|
|
$
|
—
|
|
|
$
|
(34
|
)
|
|
$
|
29
|
|
14.
|
SHARE-BASED COMPENSATION AWARDS
|
15.
|
OTHER (INCOME) CHARGES, NET
|
|
Second Quarter
|
|
First Six Months
|
||||||||||||
(Dollars in millions)
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Foreign exchange transaction (gains) losses, net
|
$
|
7
|
|
|
$
|
3
|
|
|
$
|
7
|
|
|
$
|
2
|
|
Costs resulting from tax law changes and outside-U.S. entity reorganizations
|
5
|
|
|
—
|
|
|
13
|
|
|
—
|
|
||||
(Income) loss from equity investments and other investment (gains) losses, net
|
(7
|
)
|
|
(3
|
)
|
|
(12
|
)
|
|
(6
|
)
|
||||
Coal gasification incident property insurance proceeds
|
(15
|
)
|
|
—
|
|
|
(65
|
)
|
|
—
|
|
||||
Other, net
|
—
|
|
|
1
|
|
|
1
|
|
|
1
|
|
||||
Other (income) charges, net
|
$
|
(10
|
)
|
|
$
|
1
|
|
|
$
|
(56
|
)
|
|
$
|
(3
|
)
|
16.
|
SUPPLEMENTAL CASH FLOW INFORMATION
|
(Dollars in millions)
|
First Six Months
|
||||||
|
2018
|
|
2017
|
||||
Other current assets
|
$
|
(53
|
)
|
|
$
|
(3
|
)
|
Other noncurrent assets
|
19
|
|
|
7
|
|
||
Payables and other current liabilities
|
31
|
|
|
(30
|
)
|
||
Long-term liabilities and equity
|
18
|
|
|
—
|
|
||
Total
|
$
|
15
|
|
|
$
|
(26
|
)
|
17.
|
SEGMENT INFORMATION
|
•
|
Eastman's primary measure of operating performance for all periods presented is EBIT on a consolidated and segment basis. Previously, the Company's primary measure of operating performance was operating earnings;
|
•
|
As a result of recent changes in the management of products and operations to better align resources for growth initiatives, certain products previously reported in the CI operating segment are reported in the AFP operating segment; and
|
•
|
Sales revenue and innovation costs from the textiles and nonwovens innovation platform products previously reported in "Other" are reported in the Fibers operating segment due to accelerating commercial progress of growth initiatives.
|
(Dollars in millions)
|
Second Quarter
|
|
First Six Months
|
||||||||||||
Sales by Segment
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Additives & Functional Products
|
$
|
942
|
|
|
$
|
830
|
|
|
$
|
1,881
|
|
|
$
|
1,603
|
|
Advanced Materials
|
729
|
|
|
657
|
|
|
1,422
|
|
|
1,291
|
|
||||
Chemical Intermediates
|
709
|
|
|
703
|
|
|
1,439
|
|
|
1,373
|
|
||||
Fibers
|
241
|
|
|
215
|
|
|
486
|
|
|
428
|
|
||||
Total Sales by Operating Segment
|
2,621
|
|
|
2,405
|
|
|
5,228
|
|
|
4,695
|
|
||||
Other
|
—
|
|
|
14
|
|
|
—
|
|
|
27
|
|
||||
Total Sales
|
$
|
2,621
|
|
|
$
|
2,419
|
|
|
$
|
5,228
|
|
|
$
|
4,722
|
|
(Dollars in millions)
|
Second Quarter
|
|
First Six Months
|
||||||||||||
Earnings Before Interest and Taxes by Segment
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Additives & Functional Products
|
$
|
192
|
|
|
$
|
161
|
|
|
$
|
368
|
|
|
$
|
314
|
|
Advanced Materials
|
150
|
|
|
137
|
|
|
285
|
|
|
258
|
|
||||
Chemical Intermediates
|
85
|
|
|
83
|
|
|
155
|
|
|
165
|
|
||||
Fibers
|
83
|
|
|
56
|
|
|
126
|
|
|
108
|
|
||||
Total Earnings Before Interest and Taxes by Operating Segment
|
510
|
|
|
437
|
|
|
934
|
|
|
845
|
|
||||
Other
|
|
|
|
|
|
|
|
|
|
||||||
Growth initiatives and businesses not allocated to operating segments
|
(27
|
)
|
|
(32
|
)
|
|
(53
|
)
|
|
(60
|
)
|
||||
Pension and other postretirement benefits income (expense), net not allocated to operating segments
|
20
|
|
|
18
|
|
|
41
|
|
|
36
|
|
||||
Asset impairments and restructuring charges, net
|
(4
|
)
|
|
—
|
|
|
(6
|
)
|
|
—
|
|
||||
Other income (charges), net not allocated to operating segments
|
(8
|
)
|
|
(3
|
)
|
|
(16
|
)
|
|
—
|
|
||||
Total Earnings Before Interest and Taxes
|
$
|
491
|
|
|
$
|
420
|
|
|
$
|
900
|
|
|
$
|
821
|
|
(Dollars in millions)
|
June 30,
|
|
December 31,
|
||||
Assets by Segment
(1)
|
2018
|
|
2017
|
||||
Additives & Functional Products
|
$
|
6,703
|
|
|
$
|
6,648
|
|
Advanced Materials
|
4,512
|
|
|
4,379
|
|
||
Chemical Intermediates
|
2,993
|
|
|
3,000
|
|
||
Fibers
|
1,004
|
|
|
929
|
|
||
Total Assets by Operating Segment
|
15,212
|
|
|
14,956
|
|
||
Corporate Assets
|
1,048
|
|
|
1,043
|
|
||
Total Assets
|
$
|
16,260
|
|
|
$
|
15,999
|
|
(1)
|
Segment assets include accounts receivable, inventory, fixed assets, goodwill, and intangible assets.
|
(Dollars in millions)
|
Second Quarter
|
|
First Six Months
|
||||||||||||
Sales by Customer Location
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
United States and Canada
|
$
|
1,108
|
|
|
$
|
1,088
|
|
|
$
|
2,208
|
|
|
$
|
2,154
|
|
Asia Pacific
|
639
|
|
|
581
|
|
|
1,281
|
|
|
1,093
|
|
||||
Europe, Middle East, and Africa
|
725
|
|
|
624
|
|
|
1,452
|
|
|
1,224
|
|
||||
Latin America
|
149
|
|
|
126
|
|
|
287
|
|
|
251
|
|
||||
Total Sales
|
$
|
2,621
|
|
|
$
|
2,419
|
|
|
$
|
5,228
|
|
|
$
|
4,722
|
|
18.
|
REVENUE RECOGNITION
|
|
Second Quarter 2018
|
|
First Six Months 2018
|
||||||||||||||||||||
(Dollars in millions, except per share amounts)
|
Current Standard
|
|
Change
|
|
Previous Standard
|
|
Current Standard
|
|
Change
|
|
Previous Standard
|
||||||||||||
Sales
|
$
|
2,621
|
|
|
$
|
(5
|
)
|
|
$
|
2,616
|
|
|
$
|
5,228
|
|
|
$
|
(35
|
)
|
|
$
|
5,193
|
|
Cost of sales
|
1,917
|
|
|
(1
|
)
|
|
1,916
|
|
|
3,943
|
|
|
(14
|
)
|
|
3,929
|
|
||||||
Gross profit
|
704
|
|
|
(4
|
)
|
|
700
|
|
|
1,285
|
|
|
(21
|
)
|
|
1,264
|
|
||||||
Earnings before interest and taxes
|
491
|
|
|
(4
|
)
|
|
487
|
|
|
900
|
|
|
(21
|
)
|
|
879
|
|
||||||
Net earnings attributable to Eastman
|
344
|
|
|
(2
|
)
|
|
342
|
|
|
634
|
|
|
(16
|
)
|
|
618
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Basic earnings per share attributable to Eastman
|
$
|
2.42
|
|
|
$
|
(0.01
|
)
|
|
$
|
2.41
|
|
|
$
|
4.45
|
|
|
$
|
(0.11
|
)
|
|
$
|
4.34
|
|
Diluted earnings per share attributable to Eastman
|
$
|
2.39
|
|
|
$
|
(0.01
|
)
|
|
$
|
2.38
|
|
|
$
|
4.39
|
|
|
$
|
(0.11
|
)
|
|
$
|
4.28
|
|
|
Second Quarter 2018
|
|
First Six Months 2018
|
||||||||||||||||||||
(Dollars in millions)
|
Current Standard
|
|
Change
|
|
Previous Standard
|
|
Current Standard
|
|
Change
|
|
Previous Standard
|
||||||||||||
Additives & Functional Products
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Sales
|
$
|
942
|
|
|
$
|
(9
|
)
|
|
$
|
933
|
|
|
$
|
1,881
|
|
|
$
|
(6
|
)
|
|
$
|
1,875
|
|
Earnings before interest and taxes
|
192
|
|
|
(6
|
)
|
|
186
|
|
|
368
|
|
|
(9
|
)
|
|
359
|
|
||||||
Advanced Materials
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Sales
|
729
|
|
|
1
|
|
|
730
|
|
|
1,422
|
|
|
(19
|
)
|
|
1,403
|
|
||||||
Earnings before interest and taxes
|
150
|
|
|
—
|
|
|
150
|
|
|
285
|
|
|
(10
|
)
|
|
275
|
|
||||||
Chemical Intermediates
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Sales
|
709
|
|
|
3
|
|
|
712
|
|
|
1,439
|
|
|
20
|
|
|
1,459
|
|
||||||
Earnings before interest and taxes
|
85
|
|
|
2
|
|
|
87
|
|
|
155
|
|
|
8
|
|
|
163
|
|
||||||
Fibers
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Sales
|
241
|
|
|
—
|
|
|
241
|
|
|
486
|
|
|
(30
|
)
|
|
456
|
|
||||||
Earnings before interest and taxes
|
83
|
|
|
—
|
|
|
83
|
|
|
126
|
|
|
(10
|
)
|
|
116
|
|
||||||
Other
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Sales
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Earnings before interest and taxes
|
(19
|
)
|
|
—
|
|
|
(19
|
)
|
|
(34
|
)
|
|
—
|
|
|
(34
|
)
|
|
As of June 30, 2018
|
||||||||||
(Dollars in millions)
|
Current Standard
|
|
Change
|
|
Previous Standard
|
||||||
Trade receivables, net of allowance for doubtful accounts
|
$
|
1,393
|
|
|
$
|
(181
|
)
|
|
$
|
1,212
|
|
Miscellaneous receivables
|
314
|
|
|
(41
|
)
|
|
273
|
|
|||
Inventories
|
1,532
|
|
|
140
|
|
|
1,672
|
|
|||
Total current assets
|
3,498
|
|
|
(82
|
)
|
|
3,416
|
|
ITEM 2.
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
•
|
Non-core transactions, costs, and losses or gains relate to, among other things, cost reductions, growth and profitability improvement initiatives, and other events outside of core business operations, and have included asset impairments and restructuring charges and gains, costs of and related to acquisitions, gains and losses from and costs related to dispositions of businesses, financing transaction costs, and mark-to-market losses or gains for pension and other postretirement benefit plans.
|
•
|
In second quarter and first six months 2018, the Company recognized an unusual net gain from insurance proceeds in excess of costs of the disruption, repairs, and reconstruction of the Kingsport site's coal gasification operations area resulting from the previously reported October 4, 2017 explosion (the "coal gasification incident"). Management considers the coal gasification incident unusual because of the Company's operational and safety history and the magnitude of the unplanned disruption.
|
•
|
In second quarter and first six months 2018, the Company recognized unusual costs resulting from fourth quarter 2017 tax law changes and related outside-U.S. entity reorganizations as part of the transition to an international treasury services center. Additionally, in second quarter 2018, the Company recognized an unusual decrease to earnings from an adjustment of the provisional net tax benefit recognized in fourth quarter 2017 resulting from the 2017 "Tax Cuts and Jobs Act" ("Tax Reform Act") and tax impact of the related outside-U.S. entity reorganizations as part of the transition to an international treasury services center. Management considers these actions and associated costs and resulting benefits unusual because of the infrequent nature of such changes in tax law and resulting actions and the significant one-time impact on earnings.
|
•
|
Asset impairments and restructuring charges, net.
|
•
|
Gain from coal gasification incident insurance proceeds in excess of costs,
|
•
|
Costs of currency translation and professional fees resulting from fourth quarter 2017 tax law changes and related outside-U.S. entity reorganizations, and
|
•
|
Decrease to earnings from an adjustment of the provisional net tax benefit recognized in fourth quarter 2017 resulting from the Tax Reform Act and tax impact of related outside-U.S. entity reorganizations.
|
|
Second Quarter
|
|
First Six Months
|
||||||||||||
(Dollars in millions)
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Non-core item impacting earnings before interest and taxes:
|
|
|
|
|
|
|
|
||||||||
Asset impairments and restructuring charges, net
|
$
|
4
|
|
|
$
|
—
|
|
|
$
|
6
|
|
|
$
|
—
|
|
Unusual items impacting earnings before interest and taxes:
|
|
|
|
|
|
|
|
||||||||
Coal gasification incident insurance proceeds in excess of costs
|
(56
|
)
|
|
—
|
|
|
(19
|
)
|
|
—
|
|
||||
Costs resulting from tax law changes and outside-U.S. entity reorganizations
|
8
|
|
|
—
|
|
|
19
|
|
|
—
|
|
||||
Total non-core and unusual items impacting earnings before interest and taxes
|
(44
|
)
|
|
—
|
|
|
6
|
|
|
—
|
|
||||
Less: Items impacting provision for income taxes:
|
|
|
|
|
|
|
|
||||||||
Tax effect of non-core and unusual items
|
(9
|
)
|
|
—
|
|
|
2
|
|
|
—
|
|
||||
Adjustment to estimated net tax benefit from tax law changes
|
(10
|
)
|
|
—
|
|
|
(10
|
)
|
|
—
|
|
||||
Adjustment to tax provision
|
—
|
|
|
3
|
|
|
5
|
|
|
12
|
|
||||
Total items impacting provision for income taxes
|
(19
|
)
|
|
3
|
|
|
(3
|
)
|
|
12
|
|
||||
Total items impacting net earnings attributable to Eastman
|
$
|
(25
|
)
|
|
$
|
(3
|
)
|
|
$
|
9
|
|
|
$
|
(12
|
)
|
•
|
Gross profit,
|
•
|
Selling, general and administrative expenses ("SG&A"),
|
•
|
Asset impairments and restructuring charges, net,
|
•
|
Other (income) charges, net,
|
•
|
EBIT,
|
•
|
Provision for income taxes,
|
•
|
Net earnings attributable to Eastman, and
|
•
|
Diluted EPS.
|
|
Second Quarter
|
||||||||||||||
|
2018
|
|
2017
|
||||||||||||
(Dollars in millions, except EPS)
|
$
|
|
EPS
|
|
$
|
|
EPS
|
||||||||
Net earnings attributable to Eastman
|
$
|
344
|
|
|
$
|
2.39
|
|
|
$
|
292
|
|
|
$
|
2.00
|
|
Total non-core and unusual items, net of tax
(1)(2)
|
(25
|
)
|
|
(0.17
|
)
|
|
—
|
|
|
—
|
|
||||
Adjustment to tax provision
(1)
|
—
|
|
|
—
|
|
|
(3
|
)
|
|
(0.02
|
)
|
||||
Adjusted net earnings
|
$
|
319
|
|
|
$
|
2.22
|
|
|
$
|
289
|
|
|
$
|
1.98
|
|
|
|
|
|
|
|
|
|
||||||||
|
First Six Months
|
||||||||||||||
|
2018
|
|
2017
|
||||||||||||
(Dollars in millions, except diluted EPS)
|
$
|
|
EPS
|
|
$
|
|
EPS
|
||||||||
Net earnings attributable to Eastman
|
$
|
634
|
|
|
$
|
4.39
|
|
|
$
|
570
|
|
|
$
|
3.89
|
|
Total non-core and unusual items, net of tax
(1)(2)
|
14
|
|
|
0.10
|
|
|
—
|
|
|
—
|
|
||||
Adjustment to tax provision
(1)
|
(5
|
)
|
|
(0.04
|
)
|
|
(12
|
)
|
|
(0.09
|
)
|
||||
Adjusted net earnings
|
$
|
643
|
|
|
$
|
4.45
|
|
|
$
|
558
|
|
|
$
|
3.80
|
|
(1)
|
See "Results of Operations - Provision for Income Taxes" for adjusted provision for income taxes for
second quarter
and
first six months
2018
and
2017
.
|
(2)
|
Provision for income taxes for non-core and unusual items are calculated using the tax rate for the jurisdiction where the gains are taxable and the expenses are deductible.
|
|
Second Quarter
|
|
First Six Months
|
||||||||||||||||||||||||||
|
|
|
|
|
Change
|
|
|
|
|
|
Change
|
||||||||||||||||||
(Dollars in millions)
|
2018
|
|
2017
|
|
$
|
|
%
|
|
2018
|
|
2017
|
|
$
|
|
%
|
||||||||||||||
Sales
|
$
|
2,621
|
|
|
$
|
2,419
|
|
|
$
|
202
|
|
|
8
|
%
|
|
$
|
5,228
|
|
|
$
|
4,722
|
|
|
$
|
506
|
|
|
11
|
%
|
Volume / product mix effect
|
|
|
|
|
103
|
|
|
4
|
%
|
|
|
|
|
|
223
|
|
|
5
|
%
|
||||||||||
Price effect
|
|
|
|
|
48
|
|
|
2
|
%
|
|
|
|
|
|
154
|
|
|
3
|
%
|
||||||||||
Exchange rate effect
|
|
|
|
|
51
|
|
|
2
|
%
|
|
|
|
|
|
129
|
|
|
3
|
%
|
|
Second Quarter
|
|
First Six Months
|
||||||||||||||||||
(Dollars in millions)
|
2018
|
|
2017
|
|
Change
|
|
2018
|
|
2017
|
|
Change
|
||||||||||
Gross profit
|
$
|
704
|
|
|
$
|
630
|
|
|
12
|
%
|
|
$
|
1,285
|
|
|
$
|
1,235
|
|
|
4
|
%
|
Net (insurance proceeds) costs of coal gasification incident
|
(41
|
)
|
|
—
|
|
|
|
|
46
|
|
|
—
|
|
|
|||||||
Gross profit excluding unusual item
|
$
|
663
|
|
|
$
|
630
|
|
|
5
|
%
|
|
$
|
1,331
|
|
|
$
|
1,235
|
|
|
8
|
%
|
|
Second Quarter
|
|
First Six Months
|
||||||||||||||||||
(Dollars in millions)
|
2018
|
|
2017
|
|
Change
|
|
2018
|
|
2017
|
|
Change
|
||||||||||
Selling, general and administrative expenses
|
$
|
189
|
|
|
$
|
181
|
|
|
4
|
%
|
|
$
|
379
|
|
|
$
|
360
|
|
|
5
|
%
|
Costs resulting from tax law changes and outside-U.S. entity reorganizations
|
(3
|
)
|
|
—
|
|
|
|
|
|
(6
|
)
|
|
—
|
|
|
|
|
||||
Selling, general and administrative expenses excluding unusual item
|
$
|
186
|
|
|
$
|
181
|
|
|
3
|
%
|
|
$
|
373
|
|
|
$
|
360
|
|
|
4
|
%
|
|
Second Quarter
|
|
First Six Months
|
||||||||||||||||||
(Dollars in millions)
|
2018
|
|
2017
|
|
Change
|
|
2018
|
|
2017
|
|
Change
|
||||||||||
Research and development expenses
|
$
|
60
|
|
|
$
|
58
|
|
|
3
|
%
|
|
$
|
116
|
|
|
$
|
115
|
|
|
1
|
%
|
|
|
|
|
|
Second Quarter
|
|
First Six Months
|
||||||||||||||||||
(Dollars in millions)
|
2018
|
|
2017
|
|
Change
|
|
2018
|
|
2017
|
|
Change
|
||||||||||
Other components of post-employment (benefit) cost, net
|
$
|
(30
|
)
|
|
$
|
(30
|
)
|
|
—
|
%
|
|
$
|
(60
|
)
|
|
$
|
(58
|
)
|
|
3
|
%
|
|
Second Quarter
|
|
First Six Months
|
||||||||||||
(Dollars in millions)
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Foreign exchange transaction (gains) losses, net
|
$
|
7
|
|
|
$
|
3
|
|
|
$
|
7
|
|
|
$
|
2
|
|
Costs resulting from tax law changes and outside-U.S. entity reorganizations
(1)
|
5
|
|
|
—
|
|
|
13
|
|
|
—
|
|
||||
(Income) loss from equity investments and other investment (gains) losses, net
|
(7
|
)
|
|
(3
|
)
|
|
(12
|
)
|
|
(6
|
)
|
||||
Coal gasification incident property insurance proceeds
|
(15
|
)
|
|
—
|
|
|
(65
|
)
|
|
—
|
|
||||
Other, net
|
—
|
|
|
1
|
|
|
1
|
|
|
1
|
|
||||
Other (income) charges, net
|
$
|
(10
|
)
|
|
$
|
1
|
|
|
$
|
(56
|
)
|
|
$
|
(3
|
)
|
Costs resulting from tax law changes and outside-U.S. entity reorganizations
|
(5
|
)
|
|
—
|
|
|
(13
|
)
|
|
—
|
|
||||
Coal gasification incident property insurance proceeds
|
15
|
|
|
—
|
|
|
65
|
|
|
—
|
|
||||
Other (income) charges, net excluding unusual items
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
(4
|
)
|
|
$
|
(3
|
)
|
(1)
|
Currency translation costs.
|
|
Second Quarter
|
|
First Six Months
|
||||||||||||||||||
(Dollars in millions)
|
2018
|
|
2017
|
|
Change
|
|
2018
|
|
2017
|
|
Change
|
||||||||||
Earnings before interest and taxes
|
$
|
491
|
|
|
$
|
420
|
|
|
17
|
%
|
|
$
|
900
|
|
|
$
|
821
|
|
|
10
|
%
|
Costs resulting from tax law changes and outside-U.S. entity reorganizations
|
8
|
|
|
—
|
|
|
|
|
19
|
|
|
—
|
|
|
|
||||||
Asset impairments and restructuring charges, net
|
4
|
|
|
—
|
|
|
|
|
6
|
|
|
—
|
|
|
|
||||||
Coal gasification incident insurance proceeds in excess of costs
|
(56
|
)
|
|
—
|
|
|
|
|
(19
|
)
|
|
—
|
|
|
|
||||||
Earnings before interest and taxes excluding non-core and unusual items
|
$
|
447
|
|
|
$
|
420
|
|
|
6
|
%
|
|
$
|
906
|
|
|
$
|
821
|
|
|
10
|
%
|
|
Second Quarter
|
|
First Six Months
|
||||||||||||||||||
(Dollars in millions)
|
2018
|
|
2017
|
|
Change
|
|
2018
|
|
2017
|
|
Change
|
||||||||||
Gross interest costs
|
$
|
64
|
|
|
$
|
64
|
|
|
|
|
$
|
125
|
|
|
$
|
126
|
|
|
|
||
Less: Capitalized interest
|
1
|
|
|
3
|
|
|
|
|
2
|
|
|
4
|
|
|
|
||||||
Interest expense
|
63
|
|
|
61
|
|
|
|
|
123
|
|
|
122
|
|
|
|
|
|||||
Less: Interest income
|
2
|
|
|
—
|
|
|
|
|
|
3
|
|
|
1
|
|
|
|
|
||||
Net interest expense
|
$
|
61
|
|
|
$
|
61
|
|
|
—
|
%
|
|
$
|
120
|
|
|
$
|
121
|
|
|
(1
|
)%
|
|
Second Quarter
|
|
First Six Months
|
||||||||||||||||||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||||||||||||||
(Dollars in millions)
|
$
|
|
%
|
|
$
|
|
%
|
|
$
|
|
%
|
|
$
|
|
%
|
||||||||||||
Provision for income taxes and effective tax rate
|
$
|
84
|
|
|
20
|
%
|
|
$
|
65
|
|
|
18
|
%
|
|
$
|
144
|
|
|
19
|
%
|
|
$
|
127
|
|
|
18
|
%
|
Tax provision for non-core and unusual items
(1)
|
(9
|
)
|
|
|
|
—
|
|
|
|
|
2
|
|
|
|
|
—
|
|
|
|
||||||||
Adjustment to estimated net tax benefit from tax law changes
|
(10
|
)
|
|
|
|
—
|
|
|
|
|
(10
|
)
|
|
|
|
—
|
|
|
|
||||||||
Adjustment to tax provision
(2)
|
—
|
|
|
|
|
3
|
|
|
|
|
5
|
|
|
|
|
12
|
|
|
|
||||||||
Adjusted provision for income taxes and effective tax rate
|
$
|
65
|
|
|
17
|
%
|
|
$
|
68
|
|
|
19
|
%
|
|
$
|
141
|
|
|
18
|
%
|
|
$
|
139
|
|
|
20
|
%
|
(1)
|
Provision for income taxes for non-core and unusual items is calculated using the tax rate for the jurisdiction where the gains are taxable and the expenses are deductible.
|
(2)
|
Second quarter
and
first six months
2018
provision for income taxes were adjusted to reflect the current forecasted full year effective tax rate.
Second quarter
and
first six months
2017
provision for income taxes were adjusted to reflect the then forecasted full year effective tax rate. The adjusted provision for income taxes for
first six months
2018
and
2017
are calculated applying the forecasted full year effective tax rate as shown below.
|
|
First Six Months
|
||||
|
2018
|
|
2017
|
||
Effective tax rate
|
19
|
%
|
|
18
|
%
|
Discrete tax items
(1)
|
—
|
%
|
|
3
|
%
|
Tax impact of non-core and unusual items
(2)
|
(1
|
)%
|
|
—
|
%
|
Forecasted full year impact of expected tax events
|
—
|
%
|
|
(1
|
)%
|
Forecasted full year effective tax rate
|
18
|
%
|
|
20
|
%
|
(1)
|
"Discrete tax items" are items that are excluded from a company's estimated annual effective tax rate and recognized entirely in the quarter in which the item occurs.
First six months
2017 discrete items consisted of planned amendments to and finalization of prior years' income tax returns.
|
(2)
|
Provision for income taxes for non-core and unusual items is calculated using the tax rate for the jurisdiction where the gains are taxable and the expenses are deductible.
|
|
Second Quarter
|
||||||||||||||
|
2018
|
|
2017
|
||||||||||||
(Dollars in millions, except EPS)
|
$
|
|
EPS
|
|
$
|
|
EPS
|
||||||||
Net earnings and diluted earnings per share attributable to Eastman
|
$
|
344
|
|
|
$
|
2.39
|
|
|
$
|
292
|
|
|
$
|
2.00
|
|
Non-core item, net of tax:
(1)
|
|
|
|
|
|
|
|
||||||||
Asset impairments and restructuring charges, net
|
2
|
|
|
0.02
|
|
|
—
|
|
|
—
|
|
||||
Unusual items, net of tax:
(1)
|
|
|
|
|
|
|
|
||||||||
Coal gasification incident insurance proceeds in excess of costs
|
(43
|
)
|
|
(0.30
|
)
|
|
—
|
|
|
—
|
|
||||
Costs resulting from tax law changes and outside-U.S. entity reorganizations
|
6
|
|
|
0.04
|
|
|
—
|
|
|
—
|
|
||||
Adjustment to estimated net tax benefit from tax law changes
|
10
|
|
|
0.07
|
|
|
—
|
|
|
—
|
|
||||
Adjustment to tax provision
|
—
|
|
|
—
|
|
|
(3
|
)
|
|
(0.02
|
)
|
||||
Adjusted net earnings and diluted earnings per share attributable to Eastman
|
$
|
319
|
|
|
$
|
2.22
|
|
|
$
|
289
|
|
|
$
|
1.98
|
|
|
First Six Months
|
||||||||||||||
|
2018
|
|
2017
|
||||||||||||
(Dollars in millions, except EPS)
|
$
|
|
EPS
|
|
$
|
|
EPS
|
||||||||
Net earnings and diluted earnings per share attributable to Eastman
|
$
|
634
|
|
|
$
|
4.39
|
|
|
$
|
570
|
|
|
$
|
3.89
|
|
Non-core item, net of tax:
(1)
|
|
|
|
|
|
|
|
||||||||
Asset impairments and restructuring charges, net
|
4
|
|
|
0.03
|
|
|
—
|
|
|
—
|
|
||||
Unusual items, net of tax:
(1)
|
|
|
|
|
|
|
|
||||||||
Coal gasification incident insurance proceeds in excess of costs
|
(14
|
)
|
|
(0.10
|
)
|
|
—
|
|
|
—
|
|
||||
Costs resulting from tax law changes and outside-U.S. entity reorganizations
|
14
|
|
|
0.10
|
|
|
—
|
|
|
—
|
|
||||
Adjustment to estimated net tax benefit from tax law changes
|
10
|
|
|
0.07
|
|
|
—
|
|
|
—
|
|
||||
Adjustment to tax provision
|
(5
|
)
|
|
(0.04
|
)
|
|
(12
|
)
|
|
(0.09
|
)
|
||||
Adjusted net earnings and diluted earnings per share attributable to Eastman
|
$
|
643
|
|
|
$
|
4.45
|
|
|
$
|
558
|
|
|
$
|
3.80
|
|
(1)
|
Provision for income taxes for non-core and unusual items is calculated using the tax rate for the jurisdiction where the gains are taxable and the expenses are deductible.
|
|
Second Quarter
|
|
First Six Months
|
||||||||||||||||||||||||||
|
|
|
|
|
Change
|
|
|
|
|
|
Change
|
||||||||||||||||||
|
2018
|
|
2017
|
|
$
|
|
%
|
|
2018
|
|
2017
|
|
$
|
|
%
|
||||||||||||||
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Sales
|
$
|
942
|
|
|
$
|
830
|
|
|
$
|
112
|
|
|
13
|
%
|
|
$
|
1,881
|
|
|
$
|
1,603
|
|
|
$
|
278
|
|
|
17
|
%
|
Volume / product mix effect
|
|
|
|
|
68
|
|
|
8
|
%
|
|
|
|
|
|
|
|
150
|
|
|
9
|
%
|
||||||||
Price effect
|
|
|
|
|
18
|
|
|
2
|
%
|
|
|
|
|
|
|
|
61
|
|
|
4
|
%
|
||||||||
Exchange rate effect
|
|
|
|
|
26
|
|
|
3
|
%
|
|
|
|
|
|
|
|
67
|
|
|
4
|
%
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Earnings before interest and taxes
|
$
|
192
|
|
|
$
|
161
|
|
|
$
|
31
|
|
|
19
|
%
|
|
$
|
368
|
|
|
$
|
314
|
|
|
$
|
54
|
|
|
17
|
%
|
Coal gasification incident insurance proceeds in excess of costs
|
(4
|
)
|
|
—
|
|
|
(4
|
)
|
|
|
|
(2
|
)
|
|
—
|
|
|
(2
|
)
|
|
|
||||||||
Earnings before interest and taxes excluding unusual item
|
188
|
|
|
161
|
|
|
27
|
|
|
17
|
%
|
|
366
|
|
|
314
|
|
|
52
|
|
|
17
|
%
|
|
Second Quarter
|
|
First Six Months
|
||||||||||||||||||||||||||
|
|
|
|
|
Change
|
|
|
|
|
|
Change
|
||||||||||||||||||
|
2018
|
|
2017
|
|
$
|
|
%
|
|
2018
|
|
2017
|
|
$
|
|
%
|
||||||||||||||
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Sales
|
$
|
729
|
|
|
$
|
657
|
|
|
$
|
72
|
|
|
11
|
%
|
|
$
|
1,422
|
|
|
$
|
1,291
|
|
|
$
|
131
|
|
|
10
|
%
|
Volume / product mix effect
|
|
|
|
|
58
|
|
|
9
|
%
|
|
|
|
|
|
|
|
85
|
|
|
7
|
%
|
||||||||
Price effect
|
|
|
|
|
(2
|
)
|
|
—
|
%
|
|
|
|
|
|
|
|
6
|
|
|
—
|
%
|
||||||||
Exchange rate effect
|
|
|
|
|
16
|
|
|
2
|
%
|
|
|
|
|
|
|
|
40
|
|
|
3
|
%
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Earnings before interest and taxes
|
$
|
150
|
|
|
$
|
137
|
|
|
$
|
13
|
|
|
9
|
%
|
|
$
|
285
|
|
|
$
|
258
|
|
|
$
|
27
|
|
|
10
|
%
|
Coal gasification incident insurance proceeds in excess of costs
|
(6
|
)
|
|
—
|
|
|
(6
|
)
|
|
|
|
(3
|
)
|
|
—
|
|
|
(3
|
)
|
|
|
||||||||
Earnings before interest and taxes excluding unusual item
|
144
|
|
|
137
|
|
|
7
|
|
|
5
|
%
|
|
282
|
|
|
258
|
|
|
24
|
|
|
9
|
%
|
|
Second Quarter
|
|
First Six Months
|
||||||||||||||||||||||||||
|
|
|
|
|
Change
|
|
|
|
|
|
Change
|
||||||||||||||||||
|
2018
|
|
2017
|
|
$
|
|
%
|
|
2018
|
|
2017
|
|
$
|
|
%
|
||||||||||||||
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Sales
|
$
|
709
|
|
|
$
|
703
|
|
|
$
|
6
|
|
|
1
|
%
|
|
$
|
1,439
|
|
|
$
|
1,373
|
|
|
$
|
66
|
|
|
5
|
%
|
Volume / product mix effect
|
|
|
|
|
(43
|
)
|
|
(6
|
)%
|
|
|
|
|
|
|
|
(57
|
)
|
|
(4
|
)%
|
||||||||
Price effect
|
|
|
|
|
41
|
|
|
6
|
%
|
|
|
|
|
|
|
|
103
|
|
|
8
|
%
|
||||||||
Exchange rate effect
|
|
|
|
|
8
|
|
|
1
|
%
|
|
|
|
|
|
|
|
20
|
|
|
1
|
%
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Earnings before interest and taxes
|
$
|
85
|
|
|
$
|
83
|
|
|
$
|
2
|
|
|
2
|
%
|
|
$
|
155
|
|
|
$
|
165
|
|
|
$
|
(10
|
)
|
|
(6
|
)%
|
Coal gasification incident insurance proceeds in excess of costs
|
(21
|
)
|
|
—
|
|
|
(21
|
)
|
|
|
|
(2
|
)
|
|
—
|
|
|
(2
|
)
|
|
|
||||||||
Earnings before interest and taxes excluding unusual item
|
64
|
|
|
83
|
|
|
(19
|
)
|
|
(23
|
)%
|
|
153
|
|
|
165
|
|
|
(12
|
)
|
|
(7
|
)%
|
|
Second Quarter
|
|
First Six Months
|
||||||||||||||||||||||||||
|
|
|
|
|
Change
|
|
|
|
|
|
Change
|
||||||||||||||||||
|
2018
|
|
2017
|
|
$
|
|
%
|
|
2018
|
|
2017
|
|
$
|
|
%
|
||||||||||||||
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Sales
|
$
|
241
|
|
|
$
|
215
|
|
|
$
|
26
|
|
|
12
|
%
|
|
$
|
486
|
|
|
$
|
428
|
|
|
$
|
58
|
|
|
14
|
%
|
Volume / product mix effect
|
|
|
|
|
34
|
|
|
16
|
%
|
|
|
|
|
|
|
|
72
|
|
|
17
|
%
|
||||||||
Price effect
|
|
|
|
|
(9
|
)
|
|
(4
|
)%
|
|
|
|
|
|
|
|
(16
|
)
|
|
(4
|
)%
|
||||||||
Exchange rate effect
|
|
|
|
|
1
|
|
|
—
|
%
|
|
|
|
|
|
|
|
2
|
|
|
1
|
%
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Earnings before interest and taxes
|
$
|
83
|
|
|
$
|
56
|
|
|
$
|
27
|
|
|
48
|
%
|
|
$
|
126
|
|
|
$
|
108
|
|
|
$
|
18
|
|
|
17
|
%
|
Coal gasification incident insurance proceeds in excess of costs
|
(25
|
)
|
|
—
|
|
|
(25
|
)
|
|
|
|
(12
|
)
|
|
—
|
|
|
(12
|
)
|
|
|
||||||||
Earnings before interest and taxes excluding unusual item
|
58
|
|
|
56
|
|
|
2
|
|
|
4
|
%
|
|
114
|
|
|
108
|
|
|
6
|
|
|
6
|
%
|
|
Second Quarter
|
|
First Six Months
|
||||||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
(Dollars in millions)
|
|
|
|
|
|
|
|
||||||||
Sales
|
$
|
—
|
|
|
$
|
14
|
|
|
$
|
—
|
|
|
$
|
27
|
|
|
|
|
|
|
|
|
|
||||||||
Loss before interest and taxes
|
|
|
|
|
|
|
|
||||||||
Growth initiatives and businesses not allocated to operating segments
|
$
|
(27
|
)
|
|
$
|
(32
|
)
|
|
$
|
(53
|
)
|
|
$
|
(60
|
)
|
Pension and other postretirement benefits income (expense), net not allocated to operating segments
|
20
|
|
|
18
|
|
|
41
|
|
|
36
|
|
||||
Asset impairments and restructuring charges, net
|
(4
|
)
|
|
—
|
|
|
(6
|
)
|
|
—
|
|
||||
Other income (charges), net not allocated to operating segments
|
(8
|
)
|
|
(3
|
)
|
|
(16
|
)
|
|
—
|
|
||||
Loss before interest and taxes before non-core and unusual items
|
$
|
(19
|
)
|
|
$
|
(17
|
)
|
|
$
|
(34
|
)
|
|
$
|
(24
|
)
|
Costs resulting from tax law changes and outside-U.S. entity reorganizations
|
8
|
|
|
—
|
|
|
19
|
|
|
—
|
|
||||
Asset impairments and restructuring charges, net
|
4
|
|
|
—
|
|
|
6
|
|
|
—
|
|
||||
Loss before interest and taxes excluding non-core and unusual items
|
(7
|
)
|
|
(17
|
)
|
|
(9
|
)
|
|
(24
|
)
|
|
Sales Revenue
|
||||||||||||||||||||||||||
|
Second Quarter
|
|
First Six Months
|
||||||||||||||||||||||||
|
|
|
|
|
Change
|
|
|
|
|
Change
|
|||||||||||||||||
(Dollars in millions)
|
2018
|
|
2017
|
|
$
|
%
|
|
2018
|
|
2017
|
|
$
|
%
|
||||||||||||||
United States and Canada
|
$
|
1,108
|
|
|
$
|
1,088
|
|
|
$
|
20
|
|
2
|
%
|
|
$
|
2,208
|
|
|
$
|
2,154
|
|
|
$
|
54
|
|
3
|
%
|
Asia Pacific
|
639
|
|
|
581
|
|
|
58
|
|
10
|
%
|
|
1,281
|
|
|
1,093
|
|
|
188
|
|
17
|
%
|
||||||
Europe, Middle East, and Africa
|
725
|
|
|
624
|
|
|
101
|
|
16
|
%
|
|
1,452
|
|
|
1,224
|
|
|
228
|
|
19
|
%
|
||||||
Latin America
|
149
|
|
|
126
|
|
|
23
|
|
18
|
%
|
|
287
|
|
|
251
|
|
|
36
|
|
14
|
%
|
||||||
Total Eastman Chemical Company
|
$
|
2,621
|
|
|
$
|
2,419
|
|
|
$
|
202
|
|
8
|
%
|
|
$
|
5,228
|
|
|
$
|
4,722
|
|
|
$
|
506
|
|
11
|
%
|
|
First Six Months
|
||||||
(Dollars in millions)
|
2018
|
|
2017
|
||||
Net cash provided by (used in)
|
|
|
|
||||
Operating activities
|
$
|
408
|
|
|
$
|
483
|
|
Investing activities
|
(179
|
)
|
|
(283
|
)
|
||
Financing activities
|
(223
|
)
|
|
(158
|
)
|
||
Effect of exchange rate changes on cash and cash equivalents
|
(4
|
)
|
|
(1
|
)
|
||
Net change in cash and cash equivalents
|
2
|
|
|
41
|
|
||
Cash and cash equivalents at beginning of period
|
191
|
|
|
181
|
|
||
Cash and cash equivalents at end of period
|
$
|
193
|
|
|
$
|
222
|
|
•
|
earnings to benefit from a robust portfolio of specialty businesses in attractive niche end-markets, strong growth in high margin, innovative products, and a lower tax rate;
|
•
|
earnings to be negatively impacted by higher costs of strategic growth initiatives, higher scheduled maintenance costs, volatile market prices for commodity products and raw materials and energy, particularly for ethylene, and planned and possible tariff and trade actions;
|
•
|
cash generated by operating activities of approximately $1.6 billion;
|
•
|
capital spending of approximately
$550 million
; and
|
•
|
priorities for uses of available cash to include payment of the quarterly dividend, repayment of debt, funding targeted growth initiatives, and repurchasing shares.
|
ITEM 3.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
ITEM 4.
|
CONTROLS AND PROCEDURES
|
PART II.
|
OTHER INFORMATION
|
ITEM 1.
|
LEGAL PROCEEDINGS
|
ITEM 1A.
|
RISK FACTORS
|
Period
|
Total Number
of Shares
Purchased
|
Average Price Paid Per Share
(1)
|
Total Number of Shares Purchased as Part of Publicly Announced Plans
or Programs
|
Approximate Dollar
Value (in millions) that May Yet Be Purchased Under the Plans or Programs
|
||||||
April 1 - 30, 2018
|
456,000
|
|
$
|
105.58
|
|
456,000
|
|
$
|
2,004
|
|
May 1 - 31, 2018
|
483,582
|
|
$
|
105.51
|
|
483,582
|
|
$
|
1,953
|
|
June 1 - 30, 2018
|
475,957
|
|
$
|
106.80
|
|
475,957
|
|
$
|
1,902
|
|
Total
|
1,415,539
|
|
$
|
105.97
|
|
1,415,539
|
|
|
(1)
|
Average price paid per share reflects the weighted average purchase price paid for shares.
|
ITEM 6.
|
EXHIBITS
|
|
|
EXHIBIT INDEX
|
Exhibit Number
|
|
Description
|
|
|
|
3.01
|
|
|
|
|
|
3.02
|
|
|
|
|
|
4.01
|
|
|
|
|
|
4.02
|
|
Indenture, dated as of January 10, 1994, between Eastman Chemical Company and The Bank of New York, as Trustee (incorporated herein by reference to Exhibit 4(a) to the Company's Current Report on Form 8-K dated January 10, 1994)
|
|
|
|
4.03
|
|
|
|
|
|
4.04
|
|
Form of 7 1/4% Debentures due January 15, 2024 (incorporated herein by reference to Exhibit 4(d) to the Company's Current Report on Form 8-K dated January 10, 1994)
|
|
|
|
4.05
|
|
Officers' Certificate pursuant to Sections 201 and 301 of the Indenture related to 7 5/8% Debentures due 2024 (incorporated herein by reference to Exhibit 4(a) to the Company's Current Report on Form 8-K dated June 8, 1994)
|
|
|
|
4.06
|
|
Form of 7 5/8% Debentures due June 15, 2024 (incorporated herein by reference to Exhibit 4(b) to the Company's Current Report on Form 8-K dated June 8, 1994)
|
|
|
|
4.07
|
|
|
|
|
|
4.08
|
|
|
|
|
|
4.09
|
|
|
|
|
|
4.10
|
|
|
|
|
|
4.11
|
|
|
|
|
|
4.12
|
|
|
|
|
|
4.13
|
|
|
|
|
|
|
|
EXHIBIT INDEX
|
Exhibit Number
|
|
Description
|
4.14
|
|
|
|
|
|
4.15
|
|
|
|
|
|
4.16
|
|
|
|
|
|
4.17
|
|
|
|
|
|
12.01 *
|
|
|
|
|
|
31.01 *
|
|
|
|
|
|
31.02 *
|
|
|
|
|
|
32.01 *
|
|
|
|
|
|
32.02 *
|
|
|
|
|
|
101.INS *
|
|
XBRL Instance Document
|
|
|
|
101.SCH *
|
|
XBRL Taxonomy Extension Schema Document
|
|
|
|
101.CAL *
|
|
XBRL Taxonomy Calculation Linkbase Document
|
|
|
|
101.DEF *
|
|
XBRL Definition Linkbase Document
|
|
|
|
101.LAB *
|
|
XBRL Taxonomy Label Linkbase Document
|
|
|
|
101.PRE *
|
|
XBRL Presentation Linkbase Document
|
|
|
|
Eastman Chemical Company
|
|
|
|
|
|
|
|
|
|
|
|
|
Date:
|
August 3, 2018
|
By:
|
/s/ Curtis E. Espeland
|
|
|
|
Curtis E. Espeland
|
|
|
|
Executive Vice President and Chief Financial Officer
|
1 Year Eastman Chemical Chart |
1 Month Eastman Chemical Chart |
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