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: April 26, 2018 |
(In millions, except per share amounts) | 1Q2018 | 1Q2017 |
Sales revenue | $2,607 | $2,303 |
Earnings before interest and taxes ("EBIT") | $409 | $401 |
Adjusted EBIT* | $459 | $401 |
Earnings per diluted share | $2.00 | $1.89 |
Adjusted earnings per diluted share* | $2.23 | $1.83 |
Net cash (used in) provided by operating activities | $(35) | $52 |
Free cash flow* | $(113) | $(81) |
Item | Page | |
Table 1 – Statements of Earnings | |||||||
First Quarter | |||||||
(Dollars in millions, except per share amounts; unaudited) | 2018 | 2017 | |||||
Sales | $ | 2,607 | $ | 2,303 | |||
Cost of sales (1) | 2,026 | 1,698 | |||||
Gross profit | 581 | 605 | |||||
Selling, general and administrative expenses | 190 | 179 | |||||
Research and development expenses | 56 | 57 | |||||
Asset impairments and restructuring charges, net | 2 | — | |||||
Other components of post-employment (benefit) cost, net | (30 | ) | (28 | ) | |||
Other (income) charges, net (2) | (46 | ) | (4 | ) | |||
Earnings before interest and taxes (3) | 409 | 401 | |||||
Net interest expense | 59 | 60 | |||||
Earnings before income taxes | 350 | 341 | |||||
Provision for income taxes | 60 | 62 | |||||
Net earnings | 290 | 279 | |||||
Less: Net earnings attributable to noncontrolling interest | — | 1 | |||||
Net earnings attributable to Eastman | $ | 290 | $ | 278 | |||
Basic earnings per share attributable to Eastman | $ | 2.03 | $ | 1.90 | |||
Diluted earnings per share attributable to Eastman | $ | 2.00 | $ | 1.89 | |||
Shares (in millions) outstanding at end of period | 142.6 | 145.8 | |||||
Shares (in millions) used for earnings per share calculation | |||||||
Basic | 142.8 | 146.2 | |||||
Diluted | 144.8 | 147.2 |
(1) | First quarter 2018 includes $87 million of net costs from the previously reported disruption, repairs, and reconstruction of the coal gasification facility and restart of operations resulting from the October 4, 2017 incident (the "coal gasification incident"). |
(2) | First quarter 2018 includes a $50 million gain from insurance for property damage from the coal gasification incident. |
(3) | Beginning January 1, 2018, the Company's primary measure of operating performance is earnings before interest and taxes ("EBIT") with all periods presented on this basis. Previously, the Company's primary measure of operating performance was operating earnings. |
Table 2A – Segment Sales Information | ||||||||
First Quarter | ||||||||
(Dollars in millions, unaudited) | 2018 | 2017 | ||||||
Sales by Segment | ||||||||
Additives & Functional Products | $ | 939 | $ | 773 | ||||
Advanced Materials | 693 | 634 | ||||||
Chemical Intermediates | 730 | 670 | ||||||
Fibers | 245 | 213 | ||||||
Total Sales by Segment | 2,607 | 2,290 | ||||||
Other | — | 13 | ||||||
Total Eastman Chemical Company | $ | 2,607 | $ | 2,303 |
Table 2B – Sales Revenue Change | ||||||||
First Quarter 2018 Compared to First Quarter 2017 | ||||||||
Change in Sales Revenue Due To | ||||||||
(Unaudited) | Revenue % Change | Volume / Product Mix Effect | Price Effect | Exchange Rate Effect | ||||
Additives & Functional Products | 21 | % | 10 | % | 6 | % | 5 | % |
Advanced Materials | 9 | % | 4 | % | 1 | % | 4 | % |
Chemical Intermediates | 9 | % | (2) | % | 9 | % | 2 | % |
Fibers | 15 | % | 18 | % | (3) | % | — | % |
Total Eastman Chemical Company | 13 | % | 6 | % | 4 | % | 3 | % |
Table 2C – Sales by Customer Location | ||||||||
First Quarter | ||||||||
(Dollars in millions, unaudited) | 2018 | 2017 | ||||||
Sales by Customer Location | ||||||||
United States and Canada | $ | 1,100 | $ | 1,066 | ||||
Asia Pacific | 642 | 512 | ||||||
Europe, Middle East, and Africa | 727 | 600 | ||||||
Latin America | 138 | 125 | ||||||
Total Eastman Chemical Company | $ | 2,607 | $ | 2,303 |
Table 3A - Segment, Other, and Company Non-GAAP Earnings (Loss) Before Interest and Taxes Reconciliations | ||||||||
First Quarter | ||||||||
(Dollars in millions, unaudited) | 2018 | 2017 | ||||||
Additives & Functional Products | ||||||||
Earnings before interest and taxes | $ | 176 | $ | 153 | ||||
Net costs resulting from coal gasification incident (1) | 2 | — | ||||||
Excluding unusual item | 178 | 153 | ||||||
Advanced Materials | ||||||||
Earnings before interest and taxes | 135 | 121 | ||||||
Net costs resulting from coal gasification incident (1) | 3 | — | ||||||
Excluding unusual item | 138 | 121 | ||||||
Chemical Intermediates | ||||||||
Earnings before interest and taxes | 70 | 82 | ||||||
Net costs resulting from coal gasification incident (1) | 19 | — | ||||||
Excluding unusual item | 89 | 82 | ||||||
Fibers | ||||||||
Earnings before interest and taxes | 43 | 52 | ||||||
Net costs resulting from coal gasification incident (1) | 13 | — | ||||||
Excluding unusual item | 56 | 52 | ||||||
Other | ||||||||
Loss before interest and taxes | (15 | ) | (7 | ) | ||||
Costs resulting from tax law changes and outside-U.S. entity reorganizations (2) | 11 | — | ||||||
Asset impairments and restructuring charges, net (3) | 2 | — | ||||||
Excluding non-core item | (2 | ) | (7 | ) | ||||
Total Eastman Chemical Company | ||||||||
Earnings before interest and taxes | 409 | 401 | ||||||
Costs resulting from tax law changes and outside-U.S. entity reorganizations | 11 | — | ||||||
Asset impairments and restructuring charges, net | 2 | — | ||||||
Net costs resulting from coal gasification incident | 37 | — | ||||||
Total earnings before interest and taxes excluding non-core and unusual items | $ | 459 | $ | 401 | ||||
Company Non-GAAP Earnings Before Interest and Taxes Reconciliations by Line Items | ||||||||
Earnings before interest and taxes | $ | 409 | $ | 401 | ||||
Costs of sales | 87 | — | ||||||
Selling, general and administrative expenses | 3 | — | ||||||
Asset impairments and restructuring charges, net | 2 | — | ||||||
Other (income) charges, net | (42 | ) | — | |||||
Total earnings before interest and taxes excluding non-core and unusual items | $ | 459 | $ | 401 |
(1) | Costs from the coal gasification incident partially offset by proceeds from insurance. |
(2) | 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. |
(3) | Corporate severance costs. |
Table 3B - Segment, Other, and Company Non-GAAP Earnings (Loss) Before Interest and Taxes (1) | ||||||||
First Quarter | ||||||||
(Dollars in millions, unaudited) | 2018 | 2017 | ||||||
Additives & Functional Products | $ | 178 | $ | 153 | ||||
Advanced Materials | 138 | 121 | ||||||
Chemical Intermediates | 89 | 82 | ||||||
Fibers | 56 | 52 | ||||||
Total segment earnings before interest and taxes excluding non-core and unusual items | 461 | 408 | ||||||
Other | (2 | ) | (7 | ) | ||||
Total earnings before interest and taxes excluding non-core and unusual items | $ | 459 | $ | 401 |
(1) | For identification of excluded non-core and unusual items and reconciliations to GAAP earnings before interest and taxes, see Table 3A. |
First Quarter 2018 | |||||||||||||||||||
(Dollars in millions, except per share amounts, unaudited) | As Reported (GAAP) | Asset Impairments and Restructuring Charges, Net (2) | Costs Resulting from Tax Law Changes and Outside-U.S. Entity Reorganizations (3) | Net Costs Resulting from Coal Gasification Incident (4) | Adjustment to Effective Tax Rate and Provision for Income Taxes (5) | Non-GAAP (Excluding Non-core and Unusual Items and with Adjusted Provision for Income Taxes) | |||||||||||||
Earnings before interest and taxes | $ | 409 | 2 | 11 | 37 | — | $ | 459 | |||||||||||
Earnings before income taxes | $ | 350 | 2 | 11 | 37 | — | $ | 400 | |||||||||||
Provision for income taxes (1) | $ | 60 | — | 3 | 8 | 5 | $ | 76 | |||||||||||
Effective tax rate | 17 | % | — | — | — | — | 19 | % | |||||||||||
Net earnings attributable to Eastman | $ | 290 | 2 | 8 | 29 | (5 | ) | $ | 324 | ||||||||||
Net earnings attributable to Eastman, per diluted share | $ | 2.00 | 0.01 | 0.06 | 0.20 | (0.04 | ) | $ | 2.23 |
First Quarter 2017 | |||||||||||||||||||
(Dollars in millions, except per share amounts, unaudited) | As Reported (GAAP) | Asset Impairments and Restructuring Charges, Net | Costs Resulting from Tax Law Changes and Outside-U.S. Entity Reorganizations | Net Costs Resulting from Coal Gasification Incident | Adjustment to Effective Tax Rate and Provision for Income Taxes (5) | Non-GAAP (with Adjusted Provision for Income Taxes) | |||||||||||||
Earnings before interest and taxes | $ | 401 | — | — | — | — | $ | 401 | |||||||||||
Earnings before income taxes | $ | 341 | — | — | — | — | $ | 341 | |||||||||||
Provision for income taxes | $ | 62 | — | — | — | 9 | $ | 71 | |||||||||||
Effective tax rate | 18 | % | — | — | — | — | 21 | % | |||||||||||
Net earnings attributable to Eastman | $ | 278 | — | — | — | (9 | ) | $ | 269 | ||||||||||
Net earnings attributable to Eastman, per diluted share | $ | 1.89 | — | — | — | (0.06 | ) | $ | 1.83 |
(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) | Corporate severance costs. |
(3) | 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. |
(4) | See Notes (1) and (2) to Table 1. |
(5) | The adjusted provision for income taxes for first quarter 2018 and 2017 is calculated applying the forecasted full year effective tax rate as shown in Table 4B. |
Table 4B - Adjusted Effective Tax Rate Calculation | |||||
First Quarter | |||||
2018 | 2017 | ||||
Effective tax rate | 17 | % | 18 | % | |
Discrete tax items (1) | 1 | % | 5 | % | |
Tax impact of current year non-core and unusual items (2) | 2 | % | — | % | |
Changes in tax contingencies and valuation allowances | — | % | (1 | )% | |
Forecasted full year impact of expected tax events | (1 | )% | (1 | )% | |
Adjusted full year effective tax rate | 19 | % | 21 | % |
(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 three months 2018 discrete items consist of excess tax benefits related to share-based compensation. First three 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. |
Table 5A – Statements of Cash Flows | |||||||
First Quarter | |||||||
(Dollars in millions, unaudited) | 2018 | 2017 | |||||
Operating activities | |||||||
Net earnings | $ | 290 | $ | 279 | |||
Adjustments to reconcile net earnings to net cash provided by operating activities: | |||||||
Depreciation and amortization | 152 | 145 | |||||
Gain from property insurance | (50 | ) | — | ||||
Provision for deferred income taxes | 11 | 31 | |||||
Changes in operating assets and liabilities, net of effect of acquisitions and divestitures: | |||||||
(Increase) decrease in trade receivables | (223 | ) | (149 | ) | |||
(Increase) decrease in inventories | (80 | ) | (82 | ) | |||
Increase (decrease) in trade payables | 8 | (26 | ) | ||||
Pension and other postretirement contributions (in excess of) less than expenses | (36 | ) | (36 | ) | |||
Variable compensation (in excess of) less than expenses | (77 | ) | (84 | ) | |||
Other items, net | (30 | ) | (26 | ) | |||
Net cash (used in) provided by operating activities | (35 | ) | 52 | ||||
Investing activities | |||||||
Additions to properties and equipment | (128 | ) | (133 | ) | |||
Proceeds from property insurance (2) | 50 | — | |||||
Proceeds from sale of assets | — | 1 | |||||
Acquisitions, net of cash acquired | — | (4 | ) | ||||
Net cash used in investing activities | (78 | ) | (136 | ) | |||
Financing activities | |||||||
Net increase (decrease) in commercial paper and other borrowings | 199 | — | |||||
Proceeds from borrowings | 275 | 250 | |||||
Repayment of borrowings | (175 | ) | — | ||||
Dividends paid to stockholders | (80 | ) | (75 | ) | |||
Treasury stock purchases | (100 | ) | (75 | ) | |||
Proceeds from stock option exercises and other items, net | (3 | ) | 2 | ||||
Net cash provided by financing activities | 116 | 102 | |||||
Effect of exchange rate changes on cash and cash equivalents | — | (2 | ) | ||||
Net change in cash and cash equivalents | 3 | 16 | |||||
Cash and cash equivalents at beginning of period | 191 | 181 | |||||
Cash and cash equivalents at end of period | $ | 194 | $ | 197 |
(1) | Cash proceeds from insurance for property damage from the coal gasification incident. |
Table 5B – Net Cash (Used In) Provided By Operating Activities to Free Cash Flow Reconciliations | ||||||||
First Quarter | ||||||||
(Dollars in millions, unaudited) | 2018 | 2017 | ||||||
Net cash (used in) provided by operating activities | $ | (35 | ) | $ | 52 | |||
Capital expenditures | ||||||||
Additions to properties and equipment | (128 | ) | (133 | ) | ||||
Proceeds from property insurance (1) | 50 | — | ||||||
Net capital expenditures | (78 | ) | (133 | ) | ||||
Free cash flow | $ | (113 | ) | $ | (81 | ) |
(1) | Cash proceeds from insurance for property damage from the coal gasification incident. |
Table 6A – Selected Balance Sheet Items | ||||||||
March 31, | December 31, | |||||||
(Dollars in millions, unaudited) | 2018 | 2017 | ||||||
Cash and cash equivalents | $ | 194 | $ | 191 | ||||
Total borrowings | 6,900 | 6,540 | ||||||
Total Eastman stockholders' equity | 5,545 | 5,403 |
Table 6B – Total Borrowings to Net Debt Reconciliations | ||||||||
March 31, | December 31, | |||||||
(Dollars in millions, unaudited) | 2018 | 2017 | ||||||
Total borrowings | $ | 6,900 | $ | 6,540 | ||||
Less: Cash and cash equivalents | 194 | 191 | ||||||
Net debt | $ | 6,706 | $ | 6,349 |