Delaware | 1-12626 | 62-1539359 | ||
(State or Other Jurisdiction of Incorporation) | (Commission File Number) | (IRS Employer Identification No.) | ||
200 South Wilcox Drive, Kingsport, TN | 37662 | |
(Address of Principal Executive Offices) | (Zip Code) |
o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | ||
o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | ||
o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | ||
o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
EASTMAN CHEMICAL COMPANY - EMN |
EASTMAN CHEMICAL COMPANY - EMN |
EASTMAN CHEMICAL COMPANY - EMN |
Eastman Chemical Company | ||
By: | /s/ Scott V. King | |
Scott V. King | ||
Vice President, Corporate Controller and Chief Accounting Officer | ||
Date: July 27, 2017 |
(In millions, except per share amounts) | 2Q2017 | 2Q2016 |
Sales revenue | $2,419 | $2,297 |
Operating earnings | $420 | $376 |
Earnings per diluted share | $2.00 | $1.71 |
Adjusted earnings per diluted share* | $1.98 | $1.68 |
Net cash provided by operating activities | $431 | $494 |
Item | Page | |
Table 1 – Statements of Earnings | |||||||||||||||
Second Quarter | First Six Months | ||||||||||||||
(Dollars in millions, except per share amounts; unaudited) | 2017 | 2016 | 2017 | 2016 | |||||||||||
Sales | $ | 2,419 | $ | 2,297 | $ | 4,722 | $ | 4,533 | |||||||
Cost of sales | 1,768 | 1,692 | 3,446 | 3,294 | |||||||||||
Gross profit | 651 | 605 | 1,276 | 1,239 | |||||||||||
Selling, general and administrative expenses | 176 | 174 | 350 | 357 | |||||||||||
Research and development expenses | 55 | 55 | 109 | 109 | |||||||||||
Asset impairments and restructuring gains, net | — | — | — | (2 | ) | ||||||||||
Operating earnings | 420 | 376 | 817 | 775 | |||||||||||
Net interest expense | 61 | 63 | 121 | 127 | |||||||||||
Early debt extinguishment and other related costs | — | 9 | — | 9 | |||||||||||
Other (income) charges, net (1) | — | (20 | ) | (4 | ) | (8 | ) | ||||||||
Earnings before income taxes | 359 | 324 | 700 | 647 | |||||||||||
Provision for income taxes | 65 | 67 | 127 | 139 | |||||||||||
Net earnings | 294 | 257 | 573 | 508 | |||||||||||
Less: net earnings attributable to noncontrolling interest | 2 | 2 | 3 | 2 | |||||||||||
Net earnings attributable to Eastman | $ | 292 | $ | 255 | $ | 570 | $ | 506 | |||||||
Basic earnings per share attributable to Eastman | $ | 2.01 | $ | 1.73 | $ | 3.91 | $ | 3.43 | |||||||
Diluted earnings per share attributable to Eastman | $ | 2.00 | $ | 1.71 | $ | 3.89 | $ | 3.40 | |||||||
Shares (in millions) outstanding at end of period | 144.9 | 147.7 | 144.9 | 147.7 | |||||||||||
Shares (in millions) used for earnings per share calculation | |||||||||||||||
Basic | 145.3 | 147.8 | 145.7 | 147.8 | |||||||||||
Diluted | 146.4 | 148.9 | 146.8 | 148.9 |
(1) | Second quarter and first six months 2016 other (income) charges, net included a gain of $17 million from the sale of the Company's interest in the Primester joint venture equity investment. First six months 2016 other (income) charges, net also included $5 million cost of disposition of claims against operations that were discontinued by Solutia prior to the Company's acquisition of Solutia in 2012. |
Table 2A – Segment Sales Information | ||||||||||||||||
Second Quarter | First Six Months | |||||||||||||||
(Dollars in millions, unaudited) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Sales by Segment | ||||||||||||||||
Additives & Functional Products | $ | 830 | $ | 770 | $ | 1,603 | $ | 1,507 | ||||||||
Advanced Materials | 657 | 646 | 1,291 | 1,235 | ||||||||||||
Chemical Intermediates | 703 | 633 | 1,373 | 1,253 | ||||||||||||
Fibers | 215 | 234 | 428 | 514 | ||||||||||||
Total Sales by Segment | 2,405 | 2,283 | 4,695 | 4,509 | ||||||||||||
Other | 14 | 14 | 27 | 24 | ||||||||||||
Total Eastman Chemical Company | $ | 2,419 | $ | 2,297 | $ | 4,722 | $ | 4,533 |
Table 2B – Sales Revenue Change | ||||||||
Second Quarter 2017 Compared to Second Quarter 2016 | ||||||||
Change in Sales Revenue Due To | ||||||||
(Unaudited) | Revenue % Change | Volume / Product Mix Effect | Price Effect | Exchange Rate Effect | ||||
Additives & Functional Products | 8 | % | 7 | % | 2 | % | (1) | % |
Advanced Materials | 2 | % | 3 | % | — | % | (1) | % |
Chemical Intermediates | 11 | % | (1) | % | 13 | % | (1) | % |
Fibers | (8) | % | 2 | % | (10) | % | — | % |
Total Eastman Chemical Company | 5 | % | 3 | % | 3 | % | (1) | % |
First Six Months 2017 Compared to First Six Months 2016 | ||||||||
Change in Sales Revenue Due To | ||||||||
(Unaudited) | Revenue % Change | Volume / Product Mix Effect | Price Effect | Exchange Rate Effect | ||||
Additives & Functional Products | 6 | % | 7 | % | — | % | (1) | % |
Advanced Materials | 5 | % | 6 | % | — | % | (1) | % |
Chemical Intermediates | 10 | % | (1) | % | 11 | % | — | % |
Fibers | (17) | % | (7) | % | (10) | % | — | % |
Total Eastman Chemical Company | 4 | % | 3 | % | 2 | % | (1) | % |
Table 2C – Sales by Customer Location | ||||||||||||||||
Second Quarter | First Six Months | |||||||||||||||
(Dollars in millions, unaudited) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Sales by Customer Location | ||||||||||||||||
United States and Canada | $ | 1,088 | $ | 1,030 | $ | 2,154 | $ | 2,036 | ||||||||
Asia Pacific | 581 | 530 | 1,093 | 1,025 | ||||||||||||
Europe, Middle East, and Africa | 624 | 603 | 1,224 | 1,215 | ||||||||||||
Latin America | 126 | 134 | 251 | 257 | ||||||||||||
Total Eastman Chemical Company | $ | 2,419 | $ | 2,297 | $ | 4,722 | $ | 4,533 |
Table 3A - Segment, Other, and Company Non-GAAP Operating Earnings (Loss) Reconciliations(1) | ||||||||||||||||
Second Quarter | First Six Months | |||||||||||||||
(Dollars in millions, unaudited) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Additives & Functional Products | ||||||||||||||||
Operating earnings | $ | 159 | $ | 168 | $ | 311 | $ | 321 | ||||||||
Asset impairments and restructuring gains, net | — | — | — | (2 | ) | |||||||||||
Excluding non-core item | 159 | 168 | 311 | 319 | ||||||||||||
Advanced Materials | ||||||||||||||||
Operating earnings | 137 | 132 | 258 | 240 | ||||||||||||
Chemical Intermediates | ||||||||||||||||
Operating earnings | 83 | 15 | 165 | 82 | ||||||||||||
Fibers | ||||||||||||||||
Operating earnings | 55 | 72 | 107 | 158 | ||||||||||||
Other | ||||||||||||||||
Operating loss | (14 | ) | (11 | ) | (24 | ) | (26 | ) | ||||||||
Acquisition integration and transaction costs | — | — | — | 9 | ||||||||||||
Excluding non-core items | (14 | ) | (11 | ) | (24 | ) | (17 | ) | ||||||||
Total Eastman Chemical Company | ||||||||||||||||
Operating earnings | 420 | 376 | 817 | 775 | ||||||||||||
Acquisition integration and transaction costs | — | — | — | 9 | ||||||||||||
Asset impairments and restructuring gains, net | — | — | — | (2 | ) | |||||||||||
Total operating earnings excluding non-core items | $ | 420 | $ | 376 | $ | 817 | $ | 782 | ||||||||
Company Non-GAAP Operating Earnings Reconciliations by Line Items | ||||||||||||||||
Operating earnings | $ | 420 | $ | 376 | $ | 817 | $ | 775 | ||||||||
Selling, general and administrative expenses | — | — | — | 9 | ||||||||||||
Asset impairment and restructuring gains, net | — | — | — | (2 | ) | |||||||||||
Total operating earnings excluding non-core items | $ | 420 | $ | 376 | $ | 817 | $ | 782 |
(1) | See "Management's Discussion and Analysis of Financial Condition and Results of Operations" of the Company's Quarterly Report on Form 10-Q for first quarter 2016 for descriptions of first quarter 2016 non-core items. |
Table 3B - Segment, Other, and Company Non-GAAP Operating Earnings (Loss) (1) | ||||||||||||||||
Second Quarter | First Six Months | |||||||||||||||
(Dollars in millions, unaudited) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Additives & Functional Products | $ | 159 | $ | 168 | $ | 311 | $ | 319 | ||||||||
Advanced Materials | 137 | 132 | 258 | 240 | ||||||||||||
Chemical Intermediates | 83 | 15 | 165 | 82 | ||||||||||||
Fibers | 55 | 72 | 107 | 158 | ||||||||||||
Total segment operating earnings excluding non-core items | $ | 434 | $ | 387 | $ | 841 | $ | 799 | ||||||||
Total Other | (14 | ) | (11 | ) | (24 | ) | (17 | ) | ||||||||
Total operating earnings excluding non-core items | $ | 420 | $ | 376 | $ | 817 | $ | 782 |
(1) | For identification of excluded non-core items and reconciliations to GAAP operating earnings, see Table 3A. |
Second Quarter 2017 | |||||||||||||
(Dollars in millions, except per share amounts, unaudited) | As Reported (GAAP) | Non-core Items | Adjustment to Effective Tax Rate and Provision for Income Taxes (1) | Non-GAAP (with Adjusted Provision for Income Taxes) | |||||||||
Earnings before income taxes | $ | 359 | — | — | $ | 359 | |||||||
Provision for income taxes | $ | 65 | — | 3 | $ | 68 | |||||||
Effective tax rate | 18 | % | — | 1 | % | 19 | % | ||||||
Net earnings attributable to Eastman | $ | 292 | — | — | $ | 289 | |||||||
Net earnings attributable to Eastman, per diluted share | $ | 2.00 | — | — | $ | 1.98 |
Second Quarter 2016 | |||||||||||||
(Dollars in millions, except per share amounts, unaudited) | As Reported (GAAP) | Non-core Items (2) | Effective Tax Rate and Provision for Income Taxes for Non-core Items (3) | Non-GAAP (Excluding Non-Core Items) | |||||||||
Early debt extinguishment and other related costs | $ | 9 | (9 | ) | — | $ | — | ||||||
Other (income) charges, net | $ | (20 | ) | 17 | — | $ | (3 | ) | |||||
Earnings before income taxes | $ | 324 | (8 | ) | — | $ | 316 | ||||||
Provision for income taxes | $ | 67 | — | (3 | ) | $ | 64 | ||||||
Effective tax rate | 21 | % | — | (1 | )% | 20 | % | ||||||
Net earnings attributable to Eastman | $ | 255 | — | — | $ | 250 | |||||||
Net earnings attributable to Eastman, per diluted share | $ | 1.71 | — | — | $ | 1.68 |
(1) | Second quarter 2017 provision for income taxes was adjusted to reflect the current forecasted full year effective tax rate. |
(2) | See "Management's Discussion and Analysis of Financial Condition and Results of Operations" of the Company's Quarterly Report on Form 10-Q for second quarter 2016 for descriptions of second quarter 2016 non-core items. |
(3) | Provision for income taxes for non-core items is calculated using the tax rate for the jurisdiction where the gains are taxable and the expenses are deductible. |
First Six Months 2017 | |||||||||||||||||||
(Dollars in millions, except per share amounts, unaudited) | As Reported (GAAP) | Asset Impairment and Restructuring Charges (Gains), Net | Acquisition Integration and Transaction Costs | Other Non-core Items | Adjustment to Effective Tax Rate and Provision for Income Taxes (1) | Non-GAAP (with Adjusted Provision for Income Taxes) | |||||||||||||
Earnings before income taxes | $ | 700 | — | — | — | — | $ | 700 | |||||||||||
Provision for income taxes | $ | 127 | — | — | — | 12 | $ | 139 | |||||||||||
Effective tax rate | 18 | % | — | — | — | 2 | % | 20 | % | ||||||||||
Net earnings attributable to Eastman | $ | 570 | — | — | — | — | $ | 558 | |||||||||||
Net earnings attributable to Eastman, per diluted share | $ | 3.89 | — | — | — | — | $ | 3.80 |
First Six Months 2016 | |||||||||||||||||||
(Dollars in millions, except per share amounts, unaudited) | As Reported (GAAP) | Asset Impairment and Restructuring Charges (Gains), Net (2) | Acquisition Integration and Transaction Costs (2) | Other Non-core Items (2) | Effective Tax Rate and Provision for Income Taxes for Non-core Items (3) | Non-GAAP (Excluding Non-Core Items) | |||||||||||||
Operating earnings | $ | 775 | (2 | ) | 9 | — | — | $ | 782 | ||||||||||
Early debt extinguishment and other related costs | $ | 9 | — | — | (9 | ) | — | $ | — | ||||||||||
Other (income) charges, net | $ | (8 | ) | — | — | 12 | — | $ | 4 | ||||||||||
Earnings before income taxes | $ | 647 | (2 | ) | 9 | (3 | ) | — | $ | 651 | |||||||||
Provision for income taxes | $ | 139 | — | — | — | 5 | $ | 144 | |||||||||||
Effective tax rate | 22 | % | — | — | — | — | % | 22 | % | ||||||||||
Net earnings attributable to Eastman | $ | 506 | — | — | — | — | $ | 505 | |||||||||||
Net earnings attributable to Eastman, per diluted share | $ | 3.40 | — | — | — | — | $ | 3.39 |
(1) | The adjusted provision for income taxes for first six months 2017 is calculated applying the current forecasted full year effective tax rate as shown in Table 4B. |
(2) | See "Management's Discussion and Analysis of Financial Condition and Results of Operations" of the Company's Quarterly Report on Form 10-Q for second quarter 2016 for descriptions of first six months quarter 2016 non-core items. |
(3) | Provision for income taxes for non-core items is calculated using the tax rate for the jurisdiction where the gains are taxable and the expenses are deductible. |
Table 4B - Adjusted Effective Tax Rate Calculation | ||
First Six Months | ||
2017 | ||
Effective tax rate | 18 | % |
Discrete tax items (1) | 3 | % |
Forecasted full year impact of expected tax events | (1 | )% |
Forecasted full year effective tax rate | 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 tax items consist of planned amendments to and finalization of prior years' income tax returns. |
Table 5A – Statements of Cash Flows | |||||||||||||||
Second Quarter | First Six Months | ||||||||||||||
(Dollars in millions) | 2017 | 2016 | 2017 | 2016 | |||||||||||
Operating activities | |||||||||||||||
Net earnings | $ | 294 | $ | 257 | $ | 573 | $ | 508 | |||||||
Adjustments to reconcile net earnings to net cash provided by operating activities: | |||||||||||||||
Depreciation and amortization | 147 | 144 | 292 | 291 | |||||||||||
Early debt extinguishment costs | — | 9 | — | 9 | |||||||||||
Gain on sale of equity investment | — | (17 | ) | — | (17 | ) | |||||||||
Provision for deferred income taxes | 5 | 38 | 36 | 47 | |||||||||||
Changes in operating assets and liabilities, net of effect of acquisitions and divestitures: | |||||||||||||||
(Increase) decrease in trade receivables | (17 | ) | (7 | ) | (166 | ) | (151 | ) | |||||||
(Increase) decrease in inventories | (26 | ) | 43 | (108 | ) | 41 | |||||||||
Increase (decrease) in trade payables | (2 | ) | (14 | ) | (28 | ) | (76 | ) | |||||||
Pension and other postretirement contributions (in excess of) less than expenses (1) | (20 | ) | (28 | ) | (56 | ) | (51 | ) | |||||||
Variable compensation (in excess of) less than expenses | 50 | 42 | (34 | ) | (67 | ) | |||||||||
Other items, net | — | 27 | (26 | ) | 11 | ||||||||||
Net cash provided by operating activities | 431 | 494 | 483 | 545 | |||||||||||
Investing activities | |||||||||||||||
Additions to properties and equipment | (146 | ) | (124 | ) | (279 | ) | (234 | ) | |||||||
Proceeds from sale of assets | — | 35 | 1 | 41 | |||||||||||
Acquisitions, net of cash acquired | — | (1 | ) | (4 | ) | (22 | ) | ||||||||
Other items, net | (1 | ) | 4 | (1 | ) | 3 | |||||||||
Net cash used in investing activities | (147 | ) | (86 | ) | (283 | ) | (212 | ) | |||||||
Financing activities | |||||||||||||||
Net increase (decrease) in commercial paper and other borrowings | (95 | ) | (290 | ) | (95 | ) | (208 | ) | |||||||
Proceeds from borrowings | 250 | 807 | 500 | 807 | |||||||||||
Repayment of borrowings | (250 | ) | (797 | ) | (250 | ) | (807 | ) | |||||||
Dividends paid to stockholders | (74 | ) | (68 | ) | (149 | ) | (136 | ) | |||||||
Treasury stock purchases | (100 | ) | (25 | ) | (175 | ) | (45 | ) | |||||||
Dividends paid to noncontrolling interest | (1 | ) | (4 | ) | (1 | ) | (4 | ) | |||||||
Proceeds from stock option exercises and other items, net | 10 | 8 | 12 | 8 | |||||||||||
Net cash used in financing activities | (260 | ) | (369 | ) | (158 | ) | (385 | ) | |||||||
Effect of exchange rate changes on cash and cash equivalents | 1 | (1 | ) | (1 | ) | (1 | ) | ||||||||
Net change in cash and cash equivalents | 25 | 38 | 41 | (53 | ) | ||||||||||
Cash and cash equivalents at beginning of period | 197 | 202 | 181 | 293 | |||||||||||
Cash and cash equivalents at end of period | $ | 222 | $ | 240 | $ | 222 | $ | 240 |
(1) | Changes in pension and other postretirement benefit plans assets, liabilities, and accumulated other comprehensive income resulting primarily from net periodic benefit credits and costs, contributions, and currency remeasurement. |
Table 5B – Net Cash Provided By Operating Activities to Free Cash Flow Reconciliations | ||||||||||||||||
Second Quarter | First Six Months | |||||||||||||||
(Dollars in millions, unaudited) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Net cash provided by operating activities | $ | 431 | $ | 494 | $ | 483 | $ | 545 | ||||||||
Less: Additions to properties and equipment | 146 | 124 | 279 | 234 | ||||||||||||
Free cash flow | $ | 285 | $ | 370 | $ | 204 | $ | 311 |
Table 6A – Selected Balance Sheet Items | ||||||||||||
June 30, | March 31, | December 31, | ||||||||||
(Dollars in millions, unaudited) | 2017 | 2017 | 2016 | |||||||||
Cash and cash equivalents | $ | 222 | $ | 197 | $ | 181 | ||||||
Total borrowings | 6,881 | 6,883 | 6,594 | |||||||||
Total Eastman stockholders' equity | 4,812 | 4,651 | 4,532 |
Table 6B – Total Borrowings to Net Debt Reconciliations | ||||||||||||
June 30, | March 31, | December 31, | ||||||||||
(Dollars in millions, unaudited) | 2017 | 2017 | 2016 | |||||||||
Total borrowings | $ | 6,881 | $ | 6,883 | $ | 6,594 | ||||||
Less: Cash and cash equivalents | 222 | 197 | 181 | |||||||||
Net debt | $ | 6,659 | $ | 6,686 | $ | 6,413 |