EASTMAN CHEMICAL CO - Quarter Report: 2020 March (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
| (Mark One) | ||||||||
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||||
| For the quarterly period ended | March 31, 2020 | |||||||
| OR | ||||||||
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||||
| For the transition period from ______________ to ______________ | ||||||||
Commission file number 1-12626
EASTMAN CHEMICAL COMPANY
(Exact name of registrant as specified in its charter)
| Delaware | 62-1539359 | |||||||
| (State or other jurisdiction of | (I.R.S. Employer | |||||||
| incorporation or organization) | Identification no.) | |||||||
| 200 South Wilcox Drive | ||||||||
| Kingsport | Tennessee | 37662 | ||||||
| (Address of principal executive offices) | (Zip Code) | |||||||
Registrant's telephone number, including area code: (423) 229-2000
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
| Common Stock, par value $0.01 per share | EMN | New York Stock Exchange | ||||||||||||
| 1.50% Notes Due 2023 | EMN23 | New York Stock Exchange | ||||||||||||
| 1.875% Notes Due 2026 | EMN26 | New York Stock Exchange | ||||||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☒ | Accelerated filer | ☐ | |||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||||||||||
| Emerging growth company | ☐ | |||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
| Class | Number of Shares Outstanding at March 31, 2020 | ||||
| Common Stock, par value $0.01 per share | 135,894,258 | ||||
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1
TABLE OF CONTENTS
| ITEM | PAGE | |||||||
PART I. FINANCIAL INFORMATION
PART II. OTHER INFORMATION
SIGNATURES
2
FORWARD-LOOKING STATEMENTS
Certain statements made or incorporated by reference in this Quarterly Report are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act (Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities and Exchange Act of 1934, as amended). Forward-looking statements are all statements, other than statements of historical fact, that may be made by Eastman Chemical Company ("Eastman" or the "Company") from time to time. In some cases, you can identify forward-looking statements by terminology such as "anticipates", "believes", "estimates", "expects", "intends", "may", "plans", "projects", "forecasts", "will", "would", and similar expressions or expressions of the negative of these terms. Forward-looking statements may relate to, among other things, such matters as planned and expected capacity increases and utilization; anticipated capital spending; expected depreciation and amortization; environmental matters and opportunities (including potential risks associated with physical impacts of climate change and related voluntary and regulatory carbon requirements); exposure to, and effects of hedging of, raw material and energy prices and costs; foreign currencies and interest rates; disruption or interruption of operations and of raw material or energy supply; global and regional economic, political, and business conditions; competition; growth opportunities; supply and demand, volume, price, cost, margin and sales; pending and future legal proceedings; earnings, cash flow, dividends, stock repurchases and other expected financial results, events, decisions, and conditions; expectations, strategies, and plans for individual assets and products, businesses, and operating segments, as well as for the whole of Eastman; cash sources and requirements and uses of available cash; financing plans and activities; pension expenses and funding; credit ratings; anticipated and other future restructuring, acquisition, divestiture, and consolidation activities; cost reduction and control efforts and targets; the timing and costs of, benefits from the integration of, and expected business and financial performance of acquired businesses as well as the subsequent impairment assessments of acquired long-lived assets; strategic, technology, and product innovation initiatives and development, production, commercialization and acceptance of new products, services and technologies and related costs; asset, business, and product portfolio changes; and expected tax rates and interest costs.
Forward-looking statements are based upon certain underlying assumptions as of the date such statements were made. Such assumptions are based upon internal estimates and other analyses of current market conditions and trends, management expectations, plans, and strategies, economic conditions, and other factors. Forward-looking statements and the assumptions underlying them are necessarily subject to risks and uncertainties inherent in projecting future conditions and results. Actual results could differ materially from expectations expressed in the forward-looking statements if one or more of the underlying assumptions and expectations proves to be inaccurate or is unrealized. The most significant known factors, risks, and uncertainties that could cause actual results to differ materially from those in the forward-looking statements are identified and discussed under "Management's Discussion and Analysis of Financial Condition and Results of Operations - Risk Factors" in Part I, Item 2 of this Quarterly Report. Other factors, risks or uncertainties of which management is not aware, or presently deems immaterial, could also cause actual results to differ materially from those in the forward-looking statements.
The Company cautions you not to place undue reliance on forward-looking statements, which speak only as of the date such statements are made. Except as may be required by law, the Company undertakes no obligation to update or alter these forward-looking statements, whether as a result of new information, future events, or otherwise. Investors are advised, however, to consult any further public Company disclosures (such as filings with the Securities and Exchange Commission, Company press releases, or pre-noticed public investor presentations) on related subjects.
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS,
COMPREHENSIVE INCOME AND RETAINED EARNINGS
| First Quarter | |||||||||||
| (Dollars in millions, except per share amounts) | 2020 | 2019 | |||||||||
| Sales | $ | 2,241 | $ | 2,380 | |||||||
| Cost of sales | 1,664 | 1,806 | |||||||||
| Gross profit | 577 | 574 | |||||||||
| Selling, general and administrative expenses | 160 | 187 | |||||||||
| Research and development expenses | 61 | 58 | |||||||||
| Asset impairments and restructuring charges, net | 14 | 32 | |||||||||
| Other components of post-employment (benefit) cost, net | (30) | (21) | |||||||||
| Other (income) charges, net | 4 | (2) | |||||||||
| Earnings before interest and taxes | 368 | 320 | |||||||||
| Net interest expense | 52 | 56 | |||||||||
| Earnings before income taxes | 316 | 264 | |||||||||
| Provision for income taxes | 56 | 55 | |||||||||
| Net earnings | 260 | 209 | |||||||||
| Less: Net earnings attributable to noncontrolling interest | 2 | — | |||||||||
| Net earnings attributable to Eastman | $ | 258 | $ | 209 | |||||||
| Basic earnings per share attributable to Eastman | $ | 1.90 | $ | 1.50 | |||||||
| Diluted earnings per share attributable to Eastman | $ | 1.89 | $ | 1.49 | |||||||
| Comprehensive Income | |||||||||||
| Net earnings including noncontrolling interest | $ | 260 | $ | 209 | |||||||
| Other comprehensive income (loss), net of tax: | |||||||||||
| Change in cumulative translation adjustment | 19 | 30 | |||||||||
| Defined benefit pension and other postretirement benefit plans: | |||||||||||
| Amortization of unrecognized prior service credits | (7) | (7) | |||||||||
| Derivatives and hedging: | |||||||||||
| Unrealized gain (loss) during period | 7 | 10 | |||||||||
| Reclassification adjustment for (gains) losses included in net income, net | (2) | (2) | |||||||||
| Total other comprehensive income (loss), net of tax | 17 | 31 | |||||||||
| Comprehensive income including noncontrolling interest | 277 | 240 | |||||||||
| Less: Comprehensive income attributable to noncontrolling interest | 2 | — | |||||||||
| Comprehensive income attributable to Eastman | $ | 275 | $ | 240 | |||||||
| Retained Earnings | |||||||||||
| Retained earnings at beginning of period | $ | 7,965 | $ | 7,573 | |||||||
| Cumulative effect adjustment resulting from adoption of new accounting standards | — | (20) | |||||||||
| Net earnings attributable to Eastman | 258 | 209 | |||||||||
| Cash dividends declared | (90) | (87) | |||||||||
| Retained earnings at end of period | $ | 8,133 | $ | 7,675 | |||||||
The accompanying notes are an integral part of these consolidated financial statements.
4
UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
| March 31, | December 31, | ||||||||||
| (Dollars in millions, except per share amounts) | 2020 | 2019 | |||||||||
| Assets | |||||||||||
| Current assets | |||||||||||
| Cash and cash equivalents | $ | 680 | $ | 204 | |||||||
| Trade receivables, net of allowance for doubtful accounts | 1,045 | 980 | |||||||||
| Miscellaneous receivables | 391 | 395 | |||||||||
| Inventories | 1,659 | 1,662 | |||||||||
| Other current assets | 76 | 80 | |||||||||
| Total current assets | 3,851 | 3,321 | |||||||||
| Properties | |||||||||||
| Properties and equipment at cost | 13,082 | 12,904 | |||||||||
| Less: Accumulated depreciation | 7,584 | 7,333 | |||||||||
| Net properties | 5,498 | 5,571 | |||||||||
| Goodwill | 4,417 | 4,431 | |||||||||
| Intangible assets, net of accumulated amortization | 1,962 | 2,011 | |||||||||
| Other noncurrent assets | 737 | 674 | |||||||||
| Total assets | $ | 16,465 | $ | 16,008 | |||||||
| Liabilities and Stockholders' Equity | |||||||||||
| Current liabilities | |||||||||||
| Payables and other current liabilities | $ | 1,420 | $ | 1,618 | |||||||
| Borrowings due within one year | 895 | 171 | |||||||||
| Total current liabilities | 2,315 | 1,789 | |||||||||
| Long-term borrowings | 5,399 | 5,611 | |||||||||
| Deferred income tax liabilities | 924 | 915 | |||||||||
| Post-employment obligations | 968 | 1,016 | |||||||||
| Other long-term liabilities | 667 | 645 | |||||||||
| Total liabilities | 10,273 | 9,976 | |||||||||
| Stockholders' equity | |||||||||||
| Common stock ($0.01 par value – 350,000,000 shares authorized; shares issued – 220,050,159 and 219,638,646 for 2020 and 2019, respectively) | 2 | 2 | |||||||||
| Additional paid-in capital | 2,109 | 2,105 | |||||||||
| Retained earnings | 8,133 | 7,965 | |||||||||
| Accumulated other comprehensive income (loss) | (197) | (214) | |||||||||
| 10,047 | 9,858 | ||||||||||
| Less: Treasury stock at cost (84,206,699 shares for 2020 and 83,696,398 shares for 2019) | 3,930 | 3,900 | |||||||||
| Total Eastman stockholders' equity | 6,117 | 5,958 | |||||||||
| Noncontrolling interest | 75 | 74 | |||||||||
| Total equity | 6,192 | 6,032 | |||||||||
| Total liabilities and stockholders' equity | $ | 16,465 | $ | 16,008 | |||||||
The accompanying notes are an integral part of these consolidated financial statements.
5
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
| First Three Months | |||||||||||
| (Dollars in millions) | 2020 | 2019 | |||||||||
| Operating activities | |||||||||||
| Net earnings | $ | 260 | $ | 209 | |||||||
| Adjustments to reconcile net earnings to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | 139 | 155 | |||||||||
| Asset impairment charges | 9 | — | |||||||||
| Provision for deferred income taxes | 12 | 4 | |||||||||
| Changes in operating assets and liabilities, net of effect of acquisitions and divestitures: | |||||||||||
| (Increase) decrease in trade receivables | (72) | (149) | |||||||||
| (Increase) decrease in inventories | (18) | (122) | |||||||||
| Increase (decrease) in trade payables | (104) | (42) | |||||||||
| Pension and other postretirement contributions (in excess of) less than expenses | (52) | (36) | |||||||||
| Variable compensation (in excess of) less than expenses | (74) | (77) | |||||||||
| Other items, net | 71 | 53 | |||||||||
| Net cash provided by (used in) operating activities | 171 | (5) | |||||||||
| Investing activities | |||||||||||
| Additions to properties and equipment | (99) | (106) | |||||||||
| Acquisitions, net of cash acquired | — | (19) | |||||||||
| Other items, net | (2) | — | |||||||||
| Net cash used in investing activities | (101) | (125) | |||||||||
| Financing activities | |||||||||||
| Net increase (decrease) in commercial paper and other borrowings | 539 | 370 | |||||||||
| Proceeds from borrowings | — | 125 | |||||||||
| Repayment of borrowings | — | (175) | |||||||||
| Dividends paid to stockholders | (90) | (87) | |||||||||
| Treasury stock purchases | (30) | (125) | |||||||||
| Other items, net | (11) | (6) | |||||||||
| Net cash provided by financing activities | 408 | 102 | |||||||||
| Effect of exchange rate changes on cash and cash equivalents | (2) | (3) | |||||||||
| Net change in cash and cash equivalents | 476 | (31) | |||||||||
| Cash and cash equivalents at beginning of period | 204 | 226 | |||||||||
| Cash and cash equivalents at end of period | $ | 680 | $ | 195 | |||||||
The accompanying notes are an integral part of these consolidated financial statements.
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7
1.SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared by Eastman Chemical Company ("Eastman" or the "Company") in accordance and consistent with the accounting policies stated in the Company's 2019 Annual Report on Form 10-K, and should be read in conjunction with the consolidated financial statements in Part II, Item 8 of that report, with the exception of the items noted below. The December 31, 2019 financial position data included herein was derived from the audited consolidated financial statements included in the 2019 Annual Report on Form 10-K but does not include all disclosures required by accounting principles generally accepted in the United States ("GAAP").
In the opinion of management, the unaudited consolidated financial statements include all normal recurring adjustments necessary for fair statement of the interim financial information in conformity with GAAP. These statements contain some amounts that are based upon management estimates and judgments. Future actual results could differ from such current estimates. The unaudited consolidated financial statements include assets, liabilities, sales revenue, and expenses of all majority-owned subsidiaries and joint ventures in which a controlling interest is maintained. Eastman accounts for other joint ventures and investments where it exercises significant influence on the equity basis. Intercompany transactions and balances are eliminated in consolidation. Certain prior period data has been reclassified in the consolidated financial statements and accompanying footnotes to conform to current period presentation.
Recently Adopted Accounting Standards
Accounting Standards Update ("ASU") 2016-13 Financial Instruments - Credit Losses: On January 1, 2020, Eastman adopted this standard, and related releases, under the various required transition methods. The amendments require a financial asset (including trade receivables) to be presented at the net amount expected to be collected through the use of allowances for credit losses valuation account. The income statement will reflect the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. The adoption of this standard did not result in a material impact on the Company's financial statements and related disclosures.
ASU 2018-13 Fair Value Measurement - Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement: On January 1, 2020, Eastman adopted this standard that is a part of the Financial Accounting Standards Board's ("FASB") disclosure framework project to improve the effectiveness of disclosures in the notes to financial statements. The primary changes applicable to Eastman in this update are the disclosures of fair value levels, assessment thereof, and transfers between those levels. The adoption under the various required transition methods did not impact the Company's related disclosures.
ASU 2018-18 Collaborative Arrangements - Clarifying the Interaction between Topic 808 (Collaborative Arrangements) and Topic 606 (Revenue from Contracts with Customers): On January 1, 2020, Eastman adopted this standard, retrospectively to the date of the initial application of Topic 606 on January 1, 2017, that provides clarification in regards to which contracts are accounted for under Topic 808 and Topic 606 as well as alignment of guidance between the two pronouncements. The adoption of this standard did not impact the Company's financial statements and related disclosures.
ASU 2019-01 Leases - Codification Improvements: On January 1, 2020, Eastman adopted this standard which was applied as of the adoption date and under the same transition methodology of ASU 2016-02 Lease previously adopted on January 1, 2019. The FASB issued this update in response to stakeholder inquiries regarding the new leasing standard. The adoption of this standard did not impact the Company's financial statements and related disclosures.
ASU 2020-04 Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting: Eastman adopted this standard when issued and effective on March 12, 2020. The FASB issued this update to provide optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform (the global financial markets transition in contracts, hedging relationships, and other transactions away from referencing the London Interbank Offered Rate (LIBOR) and other interbank offered rates and toward new reference rates) on financial reporting. As reference reform has not impacted Eastman as of the issuance and effective date, the adoption of this standard did not impact the Company's financial statements and related disclosures.
8
Accounting Standards Issued But Not Adopted as of March 31, 2020
ASU 2018-14 Retirement Benefits - Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans: In August 2018, the FASB issued this update as a part of its disclosure framework project to improve the effectiveness of disclosures in the notes to financial statements. The primary change impacting Eastman is the addition of disclosures related to significant gains and losses related to changes in the benefit obligation for the period and weighted-average interest crediting rates for cash balance plans. This standard is effective for fiscal years ending after December 15, 2020 and early adoption is permitted. Upon adoption, this update is to be applied on a retrospective basis to all periods presented. Management does not expect that changes required by the new standard will materially impact the Company's related disclosures.
ASU 2019-12 Income Taxes - Simplifying the Accounting for Income Taxes: In December 2019, the FASB issued this update as part of its initiative to reduce complexity in accounting standards which removes certain exceptions and provides simplification to specific tax items. This standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted, including adoption in any interim period for which financial statements have not yet been issued. Adoption methods vary based on the specific items impacted. Management is currently evaluating the impact on the Company's financial statements and related disclosures.
ASU 2020-01 Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic 815: In January 2020, the FASB issued a clarification that an entity should consider observable transactions that require the application or discontinuance of the equity method of accounting for the purposes of applying the measurement alternative and clarification that certain forward contracts and purchased options to purchase securities that, upon settlement, would be accounted for under the equity method of accounting. This standard is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted, including adoption in any interim period for which financial statements have not yet been issued. The update is to be applied prospectively. Management does not expect that changes required by the new standard will materially impact the Company's financial statements and related disclosures.
Working Capital Management and Off Balance Sheet Arrangements
In 2019, the Company expanded its off balance sheet, uncommitted accounts receivable factoring program under which entire invoices may be sold, without recourse, to third-party financial institutions. Under these agreements, the Company sells the invoices at face value, less a transaction fee, which substantially equals the carrying value and fair value with no gain or loss recognized and no credit loss exposure is retained. Available capacity under these agreements, which the Company uses as a source of working capital funding, is dependent on the level of accounts receivable eligible to be sold and the financial institutions' willingness to purchase such receivables. In addition, certain agreements also require that the Company continue to service, administer, and collect the sold accounts receivable at market rates. The total amount of receivables sold in first quarter 2020 and 2019 were $457 million and $101 million, respectively.
The Company works with suppliers to optimize payment terms and conditions on accounts payable to enhance timing of working capital and cash flows. As part of these efforts, in 2019, the Company introduced a voluntary supply chain finance program to provide suppliers with the opportunity to sell receivables due from Eastman to a participating financial institution. Eastman's responsibility is limited to making payments on the terms originally negotiated with suppliers, regardless of whether the suppliers sells their receivables to the financial institution. The range of payment terms Eastman negotiates with suppliers are consistent, regardless of whether a supplier participates in the program. All of Eastman's accounts payable and associated payments are reported consistently in the Company's Consolidated Statements of Financial Position and Consolidated Statements of Cash Flows regardless of whether they are associated with a vendor who participates in the program.
9
2.INVENTORIES
| March 31, | December 31, | ||||||||||
| (Dollars in millions) | 2020 | 2019 | |||||||||
| Finished goods | $ | 1,138 | $ | 1,114 | |||||||
| Work in process | 221 | 220 | |||||||||
| Raw materials and supplies | 548 | 576 | |||||||||
| Total inventories at FIFO or average cost | 1,907 | 1,910 | |||||||||
| Less: LIFO reserve | 248 | 248 | |||||||||
| Total inventories | $ | 1,659 | $ | 1,662 | |||||||
Inventories valued on the last-in, first-out ("LIFO") method were approximately 50 percent of total inventories at both March 31, 2020 and December 31, 2019.
3.PAYABLES AND OTHER CURRENT LIABILITIES
| March 31, | December 31, | ||||||||||
| (Dollars in millions) | 2020 | 2019 | |||||||||
| Trade creditors | $ | 770 | $ | 890 | |||||||
| Accrued payroll and variable compensation | 127 | 176 | |||||||||
| Accrued taxes | 79 | 89 | |||||||||
| Post-employment obligations | 84 | 93 | |||||||||
| Dividends payable to shareholders | 90 | 90 | |||||||||
| Other | 270 | 280 | |||||||||
| Total payables and other current liabilities | $ | 1,420 | $ | 1,618 | |||||||
"Other" consists primarily of accruals for interest payable, the current portion of operating lease liabilities, the current portion of derivative hedging liabilities, the current portion of environmental liabilities, and miscellaneous accruals.
4.INCOME TAXES
| First Quarter | |||||||||||||||||||||||
| (Dollars in millions) | 2020 | 2019 | |||||||||||||||||||||
| $ | % | $ | % | ||||||||||||||||||||
| Provision for income taxes and tax rate | $ | 56 | 18 | % | $ | 55 | 21 | % | |||||||||||||||
First quarter 2019 effective tax rate included adjustments to the tax provision to reflect planned amendments to and expected finalization of a prior year's income tax return in a foreign jurisdiction resulting in a higher effective tax rate compared to first quarter 2020.
At March 31, 2020, Eastman had $202 million in unrecognized tax benefits. At the end of the first quarter, it is reasonably possible that, as a result of the resolution of federal, state, and foreign examinations and appeals, and the expiration of various statutes of limitation, the total amounts of unrecognized tax benefits could decrease by $28 million within the next 12 months.
10
5.BORROWINGS
| March 31, | December 31, | ||||||||||
| (Dollars in millions) | 2020 | 2019 | |||||||||
| Borrowings consisted of: | |||||||||||
| 4.5% notes due January 2021 | $ | 185 | $ | 185 | |||||||
| 3.5% notes due December 2021 | 298 | 298 | |||||||||
| 3.6% notes due August 2022 | 741 | 741 | |||||||||
1.50% notes due May 2023 (1) | 821 | 840 | |||||||||
| 7 1/4% debentures due January 2024 | 198 | 198 | |||||||||
| 7 5/8% debentures due June 2024 | 43 | 43 | |||||||||
| 3.8% notes due March 2025 | 700 | 695 | |||||||||
1.875% notes due November 2026 (1) | 543 | 556 | |||||||||
| 7.60% debentures due February 2027 | 195 | 195 | |||||||||
| 4.5% notes due December 2028 | 493 | 493 | |||||||||
| 4.8% notes due September 2042 | 493 | 493 | |||||||||
| 4.65% notes due October 2044 | 874 | 874 | |||||||||
| Commercial paper and short-term borrowings | 310 | 171 | |||||||||
| Credit facilities borrowings | 400 | — | |||||||||
| Total borrowings | 6,294 | 5,782 | |||||||||
| Borrowings due within one year | 895 | 171 | |||||||||
| Long-term borrowings | $ | 5,399 | $ | 5,611 | |||||||
(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.
Revolving Credit Facilities and Commercial Paper Borrowings
The Company has access to a $1.50 billion revolving credit agreement (the "Credit Facility") expiring October 2023. Borrowings under the Credit Facility are subject to interest at varying spreads above quoted market rates and a commitment fee is paid on the total unused commitment. The Credit Facility provides available liquidity for general corporate purposes and supports commercial paper borrowings. Commercial paper borrowings are classified as short-term. At March 31, 2020, the Company's borrowings under the Credit Facility were $400 million with an interest rate of 2.17 percent. At December 31, 2019, the Company had no outstanding borrowings under the Credit Facility. At March 31, 2020, the Company's commercial paper borrowings were $310 million with a weighted average interest rate of 3.13 percent. At December 31, 2019, the Company's commercial paper borrowings were $170 million with a weighted average interest rate of 2.03 percent.
The Company had access to up to $250 million under an accounts receivable securitization agreement (the "A/R Facility") which expired April 2020. Eastman Chemical Financial Corporation ("ECFC"), a subsidiary of the Company, had an agreement to sell interests in trade receivables under the A/R Facility to a third party purchaser. Third party creditors of ECFC had first priority claims on the assets of ECFC before those assets would be available to satisfy the Company's general obligations. Borrowings under the A/R Facility were subject to interest rates based on a spread over the lender's borrowing costs, and ECFC paid a fee to maintain availability of the A/R Facility. In first quarter 2020, the Company borrowed a total of $350 million under the A/R Facility and repaid a total of $350 million using available cash. At March 31, 2020 and December 31, 2019, the Company had no borrowings outstanding under the A/R Facility.
The Credit Facility and A/R Facility contain customary covenants, including requirements to maintain certain financial ratios, that determine the events of default, amounts available, and terms of borrowings. The Company was in compliance with all covenants at both March 31, 2020 and December 31, 2019.
11
Fair Value of Borrowings
Eastman has classified its total borrowings at March 31, 2020 and December 31, 2019 under the fair value hierarchy as defined in the accounting policies in Note 1, "Significant Accounting Policies", to the consolidated financial statements in Part II, Item 8 of the Company's 2019 Annual Report on Form 10-K. The fair value for fixed-rate debt securities is based on quoted market prices for the same or similar debt instruments and is classified as Level 2. The fair value for the Company's other borrowings, primarily under the Credit Facility and commercial paper, equals the carrying value and is classified as Level 2. At March 31, 2020 and December 31, 2019, the fair value of total borrowings was $6.606 billion and $6.275 billion, respectively. The Company had no borrowings classified as Level 3 as of March 31, 2020 and December 31, 2019.
Subsequent Actions
In April 2020, the Company borrowed $250 million under a new 364-Day Term Loan Credit Agreement (the "Term Loan") as a precautionary measure due to increased financial market volatility, particularly in the availability and terms of commercial paper, resulting from the COVID-19 coronavirus global pandemic ("COVID-19"). Borrowings under the Term Loan are subject to interest at varying spreads above quoted market rates depending on the Company's public debt rating and with principal and accrued interest payable April 2021. The Term Loan contains the same customary covenants and events of default, including maintenance of certain financial ratios, as the Credit Facility, with payment of customary fees.
Additionally, the Company amended the Credit Facility and the Term Loan maximum debt covenants to reflect the higher cash balance to enhance liquidity due to, and the expected negative impact on operating results of, COVID-19 and added a new restrictive covenant prohibiting stock repurchases until June 30, 2021 in the event certain financial ratios are exceeded.
6.DERIVATIVE AND NON-DERIVATIVE FINANCIAL INSTRUMENTS
Overview of Hedging Programs
Eastman is exposed to market risks, such as changes in foreign currency exchange rates, commodity prices, and interest rates. To mitigate these market risks and their effects on the cash flows of the underlying transactions and investments in foreign subsidiaries, the Company uses various derivative and non-derivative financial instruments, when appropriate, in accordance with the Company's hedging strategy and policies. Designation is performed on a specific exposure basis to support hedge accounting. The Company does not enter into derivative transactions for speculative purposes.
For further information on hedging programs, see Note 9, "Derivative and Non-Derivative Financial Instruments", to the consolidated financial statements in Part II, Item 8 of the Company's 2019 Annual Report on Form 10-K.
Cash Flow Hedges
Cash flow hedges are derivative instruments designated as and used to hedge the exposure to variability in expected future cash flows that are attributable to a particular risk. The derivative instruments that are designated and qualify as a cash flow hedge are reported on the balance sheet at fair value and the changes in fair value of these hedging instruments are offset in part or in whole by corresponding changes in the anticipated cash flows of the underlying exposures being hedged. The change in the hedge instrument is reported as a component of Accumulated other comprehensive income (loss) ("AOCI") located in the Unaudited Consolidated Statements of Financial Position and reclassified in earnings in the same period or periods during which the hedged transaction affects earnings. Cash flows from cash flow hedges are classified as operating activities in the Unaudited Consolidated Statements of Cash Flows.
In first quarter 2020, Eastman entered into a forward-starting interest rate swap with a total notional amount of $25 million to mitigate the risk of variability in interest rates for an expected long-term debt issuance by August 2022. This swap was designated as a cash flow hedge and will be settled upon debt issuance.
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Fair Value Hedges
Fair value hedges are defined as derivative or non-derivative instruments designated as and used to hedge the exposure to changes in the fair value of an asset or a liability or an identified portion thereof that is attributable to a particular risk. The derivative instruments that are designated and qualify as fair value hedges are recognized on the balance sheet at fair value and the changes in fair value of these hedging instruments are offset in part or in whole by corresponding changes in the anticipated fair value of the underlying exposures being hedged. The net of the change in the hedge instrument and item being hedged for qualifying fair value hedges is recognized in earnings in the same period or periods during which the hedged transaction affects earnings. Cash flows from fair value hedges are classified as operating activities in the Unaudited Consolidated Statements of Cash Flows.
Net Investment Hedges
Net investment hedges are defined as derivative or non-derivative instruments designated as and used to hedge the foreign currency exposure of the net investments in certain foreign operations. The net of the change in the hedge instrument and item being hedged for qualifying net investment hedges is reported as a component of the "Cumulative Translation Adjustment" ("CTA") within AOCI located in the Unaudited Consolidated Statements of Financial Position. Cash flows from the CTA component are classified as operating activities in the Unaudited Consolidated Statements of Cash Flows. Recognition in earnings of amounts previously recognized in CTA is limited to circumstances such as complete or substantially complete liquidation of the net investment in the hedged foreign operation. In the event of a complete or substantially complete liquidation of the net investment, cash flows from net investment hedges are classified as investing activities in the Unaudited Consolidated Statements of Cash Flows.
For derivative cross-currency interest rate swap net investment hedges, gains and losses representing hedge components excluded from the assessment of effectiveness are recognized in CTA within AOCI and recognized in earnings through the periodic swap interest accruals. The cross-currency interest rate swaps designated as net investment hedges are included as part of "Other long-term liabilities" or "Other noncurrent assets" within the Unaudited Consolidated Statements of Financial Position. Cash flows from excluded components are classified as operating activities in the Unaudited Consolidated Statements of Cash Flows.
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Summary of Financial Position and Financial Performance of Hedging Instruments
The following table presents the notional amounts outstanding at March 31, 2020 and December 31, 2019 associated with Eastman's hedging programs.
| Notional Outstanding | March 31, 2020 | December 31, 2019 | |||||||||||||||
| Derivatives designated as cash flow hedges: | |||||||||||||||||
| Foreign Exchange Forward and Option Contracts (in millions) | |||||||||||||||||
| EUR/USD (in EUR) | €585 | €630 | |||||||||||||||
| Commodity Forward and Collar Contracts | |||||||||||||||||
| Feedstock (in million barrels) | 1 | 1 | |||||||||||||||
| Energy (in million british thermal units) | 21 | 27 | |||||||||||||||
| Interest rate swaps for the future issuance of debt (in millions) | $25 | — | |||||||||||||||
| 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) | €851 | €851 | |||||||||||||||
| Non-derivatives designated as net investment hedges: | |||||||||||||||||
| Foreign Currency Net Investment Hedges (in millions) | |||||||||||||||||
| EUR/USD (in EUR) | €1,243 | €1,243 | |||||||||||||||
Fair Value Measurements
All the Company's derivative assets and liabilities are currently classified as Level 2. Level 2 fair value is based on estimates using standard pricing models. These standard pricing models use inputs that are derived from or corroborated by observable market data such as interest rate yield curves and currency spot and forward rates. The fair value of commodity contracts is derived using forward curves supplied by an industry recognized and unrelated third party. In addition, on an ongoing basis, the Company tests a subset of its valuations against valuations received from transaction counterparties to validate the accuracy of its standard pricing models. Counterparties to these derivative contracts are highly rated financial institutions which the Company believes carry minimal risk of nonperformance, and the Company diversifies its positions among such counterparties to reduce its exposure to counterparty risk and credit losses. The Company monitors the creditworthiness of its counterparties on an ongoing basis. The Company did not recognize a credit loss during first quarter 2020 or 2019.
All the Company's derivative contracts are subject to master netting arrangements, or similar agreements, which provide for the option to settle contracts on a net basis when they settle on the same day and in the same currency. In addition, these arrangements provide for a net settlement of all contracts with a given counterparty in the event that the arrangement is terminated due to the occurrence of default or a termination event. The Company does not have any cash collateral due under such agreements.
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The Company has elected to present derivative contracts on a gross basis within the Unaudited Consolidated Statements of Financial Position. The following table presents the financial assets and liabilities valued on a recurring and gross basis and includes where the financial assets and liabilities are located within the Unaudited Consolidated Statements of Financial Position as of March 31, 2020 and December 31, 2019.
| The Financial Position and Fair Value Measurements of Hedging Instruments on a Gross Basis | ||||||||||||||||||||
| (Dollars in millions) | ||||||||||||||||||||
| Derivative Type | Statements of Financial Position Classification | March 31, 2020 Level 2 | December 31, 2019 Level 2 | |||||||||||||||||
| Derivatives designated as cash flow hedges: | ||||||||||||||||||||
| Foreign exchange contracts | Other current assets | $ | 18 | $ | 13 | |||||||||||||||
| Foreign exchange contracts | Other noncurrent assets | 11 | 2 | |||||||||||||||||
| Derivatives designated as fair value hedges: | ||||||||||||||||||||
| Fixed-for-floating interest rate swap | Other noncurrent assets | 4 | 1 | |||||||||||||||||
| Derivatives designated as net investment hedges: | ||||||||||||||||||||
| Cross-currency interest rate swaps | Other current assets | 17 | — | |||||||||||||||||
| Cross-currency interest rate swaps | Other noncurrent assets | 110 | 68 | |||||||||||||||||
| Total Derivative Assets | $ | 160 | $ | 84 | ||||||||||||||||
| Derivatives designated as cash flow hedges: | ||||||||||||||||||||
| Commodity contracts | Payables and other current liabilities | $ | 22 | $ | 26 | |||||||||||||||
| Commodity contracts | Other long-term liabilities | 1 | 2 | |||||||||||||||||
| Foreign exchange contracts | Payables and other current liabilities | — | 1 | |||||||||||||||||
| Foreign exchange contracts | Other long-term liabilities | — | 2 | |||||||||||||||||
| Forward starting interest rate swap contracts | Other long-term liabilities | 1 | — | |||||||||||||||||
| Derivatives designated as fair value hedges: | ||||||||||||||||||||
| Fixed-for-floating interest rate swap | Long-term borrowings | — | 1 | |||||||||||||||||
| Total Derivative Liabilities | $ | 24 | $ | 32 | ||||||||||||||||
| Total Net Derivative Assets (Liabilities) | $ | 136 | $ | 52 | ||||||||||||||||
In addition to the fair value associated with derivative instruments designated as cash flow hedges, fair value hedges, and net investment hedges noted in the table above, the Company had non-derivative instruments designated as foreign currency net investment hedges with a carrying value of $1.4 billion at both March 31, 2020 and December 31, 2019. The designated foreign currency-denominated borrowings are included as part of "Long-term borrowings" within the Unaudited Consolidated Statements of Financial Position.
For additional fair value measurement information, see Note 1, "Significant Accounting Policies", and Note 9, "Derivative and Non-Derivative Financial Instruments", to the consolidated financial statements in Part II, Item 8 of the Company's 2019 Annual Report on Form 10-K.
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As of March 31, 2020 and December 31, 2019, the following amounts were included on the Unaudited Consolidated Statements of Financial Position related to cumulative basis adjustments for fair value hedges.
| (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 | March 31, 2020 | December 31, 2019 | March 31, 2020 | December 31, 2019 | ||||||||||||||||||||||
Long-term borrowings (1) | $ | 770 | $ | 763 | $ | (2) | $ | (7) | ||||||||||||||||||
(1)At March 31, 2020 and December 31, 2019, the cumulative amount of fair value hedging loss adjustment remaining for hedged liabilities for which hedge accounting has been discontinued was $6 million and $7 million, respectively.
The following table presents the effect of the Company's hedging instruments on "Other comprehensive income (loss), net of tax" ("OCI") and financial performance for first quarter 2020 and 2019.
| 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) | First Quarter | First Quarter | ||||||||||||||||||||||||
| Hedging Relationships | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||||
| Derivatives in cash flow hedging relationships: | ||||||||||||||||||||||||||
| Commodity contracts | $ | (9) | $ | 7 | $ | (1) | $ | (3) | ||||||||||||||||||
| Foreign exchange contracts | 13 | 1 | 6 | 6 | ||||||||||||||||||||||
| Forward starting interest rate and treasury lock swap contracts | 1 | 1 | (2) | (1) | ||||||||||||||||||||||
| Non-derivatives in net investment hedging relationships (pre-tax): | ||||||||||||||||||||||||||
| Net investment hedges | 33 | 26 | — | — | ||||||||||||||||||||||
| Derivatives in net investment hedging relationships (pre-tax): | ||||||||||||||||||||||||||
| Cross-currency interest rate swaps | 18 | 19 | — | — | ||||||||||||||||||||||
| Cross-currency interest rate swaps excluded component | 41 | 6 | — | — | ||||||||||||||||||||||
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The following table presents the effect of fair value and cash flow hedge accounting on the Unaudited Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings for first quarter 2020 and 2019.
| Location and Amount of Gain or (Loss) Recognized in Earnings on Fair Value and Cash Flow Hedging Relationships | ||||||||||||||||||||||||||||||||||||||
| First Quarter | ||||||||||||||||||||||||||||||||||||||
| 2020 | 2019 | |||||||||||||||||||||||||||||||||||||
| (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 | $ | 2,241 | $ | 1,664 | $ | 52 | $ | 2,380 | $ | 1,806 | $ | 56 | ||||||||||||||||||||||||||
| The effects of fair value and cash flow hedging: | ||||||||||||||||||||||||||||||||||||||
| Gain or (loss) on cash flow hedging relationships: | ||||||||||||||||||||||||||||||||||||||
| Interest contracts (forward starting interest rate and treasury lock swap contracts): | ||||||||||||||||||||||||||||||||||||||
| Amount reclassified from AOCI into earnings | (2) | (1) | ||||||||||||||||||||||||||||||||||||
| Commodity Contracts: | ||||||||||||||||||||||||||||||||||||||
| Amount reclassified from AOCI into earnings | (1) | (3) | ||||||||||||||||||||||||||||||||||||
| Foreign Exchange Contracts: | ||||||||||||||||||||||||||||||||||||||
| Amount reclassified from AOCI into earnings | 6 | 6 | ||||||||||||||||||||||||||||||||||||
The Company enters into foreign exchange derivatives denominated in multiple currencies which are transacted and settled in the same quarter. These derivatives are not designated as hedges due to the short-term nature and the gains or losses on these derivatives are marked-to-market in line item "Other (income) charges, net" of the Unaudited Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings. The Company recognized a net gain on these derivatives of $7 million and a net loss on these derivatives of $3 million during first quarter 2020 and 2019, respectively.
Pre-tax monetized positions and mark-to-market gains and losses from raw materials and energy, currency, and certain interest rate hedges that were included in AOCI included net gains of $32 million and net losses of $50 million at March 31, 2020 and December 31, 2019, respectively. Gains recognized between March 31, 2020 and December 31, 2019 primarily resulted from a decrease in foreign currency exchange rates associated with the euro, partially offset by commodity price decreases. If recognized, approximately $29 million in pre-tax losses, as of March 31, 2020, would be reclassified into earnings during the next 12 months.
7.RETIREMENT PLANS
Defined Benefit Pension Plans and Other Postretirement Benefit Plans
Eastman maintains defined benefit pension plans that provide eligible employees with retirement benefits. In addition, Eastman provides life insurance for eligible retirees hired prior to January 1, 2007. The Company provides a subsidy for pre-Medicare health care and dental benefits to eligible retirees hired prior to January 1, 2007 that will end on December 31, 2021. Company funding is also provided for eligible Medicare retirees hired prior to January 1, 2007 with a health reimbursement arrangement. Costs recognized for these benefits are estimated amounts, which may change as actual costs for the year are determined.
For additional information regarding retirement plans, see Note 10, "Retirement Plans", to the consolidated financial statements in Part II, Item 8 of the Company's 2019 Annual Report on Form 10-K.
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Components of net periodic benefit (credit) cost were as follows:
| First Quarter | |||||||||||||||||||||||||||||||||||
| Pension Plans | Other Postretirement Benefit Plans | ||||||||||||||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||||||||||||||
| (Dollars in millions) | U.S. | Non-U.S. | U.S. | Non-U.S. | |||||||||||||||||||||||||||||||
| Service cost | $ | 7 | $ | 4 | $ | 7 | $ | 3 | $ | — | $ | — | |||||||||||||||||||||||
| Interest cost | 14 | 4 | 19 | 5 | 5 | 6 | |||||||||||||||||||||||||||||
| Expected return on assets | (34) | (8) | (32) | (8) | (1) | (1) | |||||||||||||||||||||||||||||
| Amortization of: | |||||||||||||||||||||||||||||||||||
| Prior service credit, net | — | — | — | — | (10) | (10) | |||||||||||||||||||||||||||||
| Net periodic benefit (credit) cost | $ | (13) | $ | — | $ | (6) | $ | — | $ | (6) | $ | (5) | |||||||||||||||||||||||
8.LEASES AND OTHER COMMITMENTS
Leases
There are two types of leases: finance and operating. Both types of leases have associated right-to-use assets and lease liabilities that are valued at the present value of the lease payments and recognized on the Unaudited Consolidated Statements of Financial Position. The discount rate used in the measurement of a right-to-use asset and lease liability is the rate implicit in the lease whenever that rate is readily determinable. If the rate implicit in the lease is not readily determinable, the collateralized incremental borrowing rate is used. The Company elected the accounting policy not to apply the recognition and measurement requirements to short-term leases with a term of 12 months or less and do not include a bargain purchase option.
The Company has operating leases, as a lessee, with customary terms that do not include: significant variable lease payments; significant reasonably certain extensions or options required to be included in the lease term; restrictions; or other covenants for real property, rolling stock, and machinery and equipment. Real property leases primarily consist of office space and rolling stock leases primarily for railcars and fleet vehicles. At March 31, 2020 and December 31, 2019, operating right-to-use assets of $187 million and $197 million, respectively, are included as a part of "Other noncurrent assets" in the Unaudited Consolidated Statements of Financial Position and includes $8 million at both periods of assets previously classified as lease intangibles. Operating lease liabilities are included as a part of "Payables and other current liabilities" and "Other long-term liabilities" in the Unaudited Consolidated Statements of Financial Position. As of March 31, 2020, reconciliation of lease payments and operating lease liabilities is provided below:
| (Dollars in millions) | Operating lease liabilities | |||||||
| Remainder of 2020 | $ | 47 | ||||||
| 2021 | 51 | |||||||
| 2022 | 40 | |||||||
| 2023 | 27 | |||||||
| 2024 | 16 | |||||||
| 2025 and beyond | 33 | |||||||
| Total lease payments | 214 | |||||||
| Less: amounts of lease payments representing interest | 28 | |||||||
| Present value of future lease payments | 186 | |||||||
| Less: current obligations under leases | 41 | |||||||
| Long-term lease obligations | $ | 145 | ||||||
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The Company has operating leases, primarily leases for railcars, with terms that require the Company to guarantee a portion of the residual value of the leased assets upon termination of the lease that will expire beginning in first quarter 2021. Residual guarantee payments that become probable and estimable are recognized as rent expense over the remaining life of the applicable lease. Management's current expectation is that the likelihood of material residual guarantee payments is remote.
Lease costs during the period and other information is provided below:
| First Quarter | ||||||||||||||
| (Dollars in millions) | 2020 | 2019 | ||||||||||||
| Lease costs: | ||||||||||||||
| Operating lease costs | $ | 19 | $ | 15 | ||||||||||
| Short-term lease costs | 9 | 11 | ||||||||||||
| Sublease income | (1) | — | ||||||||||||
| Total | $ | 27 | $ | 26 | ||||||||||
| Other operating lease information: | ||||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities | $ | 18 | $ | 17 | ||||||||||
| Right-to-use assets obtained in exchange for new lease liabilities | $ | 16 | $ | 11 | ||||||||||
| Weighted-average remaining lease term, in years | 5 | 5 | ||||||||||||
| Weighted-average discount rate | 3.9 | % | 4.2 | % | ||||||||||
Debt and Other Commitments
Eastman's obligations are summarized in the following table.
| (Dollars in millions) | Payments Due for | |||||||||||||||||||||||||||||||||||||||||||
| Period | Debt Securities | Credit Facilities and Other | Interest Payable | Purchase Obligations | Operating Leases | Other Liabilities | Total | |||||||||||||||||||||||||||||||||||||
| 2020 | $ | — | $ | 710 | $ | 154 | $ | 131 | $ | 47 | $ | 144 | $ | 1,186 | ||||||||||||||||||||||||||||||
| 2021 | 483 | — | 185 | 151 | 51 | 74 | 944 | |||||||||||||||||||||||||||||||||||||
| 2022 | 741 | — | 173 | 100 | 40 | 83 | 1,137 | |||||||||||||||||||||||||||||||||||||
| 2023 | 821 | — | 153 | 89 | 27 | 88 | 1,178 | |||||||||||||||||||||||||||||||||||||
| 2024 | 241 | — | 136 | 98 | 16 | 89 | 580 | |||||||||||||||||||||||||||||||||||||
| 2025 and beyond | 3,298 | — | 1,413 | 1,958 | 33 | 1,111 | 7,813 | |||||||||||||||||||||||||||||||||||||
| Total | $ | 5,584 | $ | 710 | $ | 2,214 | $ | 2,527 | $ | 214 | $ | 1,589 | $ | 12,838 | ||||||||||||||||||||||||||||||
Estimated future payments of debt securities assumes the repayment of principal upon stated maturity, and actual amounts and the timing of such payments may differ materially due to repayment or other changes in the terms of such debt prior to maturity.
The Company had various purchase obligations at March 31, 2020, totaling approximately $2.5 billion over a period of approximately 30 years for materials, supplies, and energy incident to the ordinary conduct of business.
Amounts in other liabilities represent the current estimated cash payments required to be made by the Company primarily for pension and other postretirement benefits, environmental loss contingency reserves, uncertain tax liabilities, accrued compensation benefits, commodity and foreign exchange hedging in the periods indicated. Due to uncertainties in the timing of the effective settlement of tax positions with respect to taxing authorities, management is unable to determine the timing of payments related to uncertain tax liabilities and these amounts are included in the "2025 and beyond" line item.
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The amount and timing of pension and other postretirement benefit payments included in other liabilities is dependent upon interest rates, health care cost trends, actual returns on plan assets, retirement and attrition rates of employees, continuation or modification of the benefit plans, and other factors. Such factors can significantly impact the amount and timing of any future contributions by the Company. Excess contributions are periodically made by management in order to keep the plans' funded status above 80 percent under the funding provisions of the Pension Protection Act to avoid partial benefit restrictions on accelerated forms of payment. The Company's U.S. defined benefit pension plans are not currently under any benefit restrictions. See Note 7, "Retirement Plans".
The resolution of uncertainties related to environmental matters included in other liabilities may have a material adverse effect on the Company's consolidated results of operations in the period recognized, however, because of the availability of legal defenses, the Company's preliminary assessment of actions that may be required, and, if applicable, the expected sharing of costs, management does not believe that the Company's liability for these environmental matters, individually or in the aggregate, will be material to the Company's consolidated financial position, results or operations, or cash flows. See Note 1, "Significant Accounting Policies", to the consolidated financial statements in Part II, Item 8 of the Company's 2019 Annual Report on Form 10-K for the Company's accounting policy for environmental costs and see Note 9, "Environmental Matters and Asset Retirement Obligations".
Guarantees and claims also arise during the ordinary course of business from relationships with customers, suppliers, joint venture partners, and other parties when the Company undertakes an obligation to guarantee the performance of others if specified triggering events occur. Non-performance under a contract could trigger an obligation of the Company. The Company's current other guarantees include guarantees relating to intellectual property, environmental matters, and other indemnifications and have arisen through the normal course of business. The ultimate effect on future financial results is not subject to reasonable estimation because considerable uncertainty exists as to the final outcome of these claims, if they were to occur. These other guarantees have terms up to 30 years with maximum potential future payments of approximately $35 million in the aggregate, with none of these guarantees being individually significant to the Company's operating results, financial position, or liquidity. Management's current expectation is that future payment or performance related to non-performance under other guarantees is remote.
9.ENVIRONMENTAL MATTERS AND ASSET RETIREMENT OBLIGATIONS
Certain Eastman manufacturing facilities generate hazardous and nonhazardous wastes, the treatment, storage, transportation, and disposal of which are regulated by various governmental agencies. In connection with the cleanup of various hazardous waste sites, the Company, along with many other entities, has been designated a potentially responsible party ("PRP") by the U.S. Environmental Protection Agency under the Comprehensive Environmental Response, Compensation and Liability Act, which potentially subjects PRPs to joint and several liability for certain cleanup costs. In addition, the Company will incur costs for environmental remediation and closure and post-closure under the federal Resource Conservation and Recovery Act. Reserves for environmental contingencies have been established in accordance with Eastman's policies described in Note 1, "Significant Accounting Policies", to the consolidated financial statements in Part II, Item 8 of the Company's 2019 Annual Report on Form 10-K. The resolution of uncertainties related to environmental matters included in other liabilities may have a material adverse effect on the Company's consolidated results of operations in the period recognized, however, because of the availability of legal defenses, the Company's preliminary assessment of actions that may be required, and, if applicable, the expected sharing of costs, management does not believe that the Company's liability for these environmental matters, individually or in the aggregate, will be material to the Company's consolidated financial position, results or operations, or cash flows. The Company's total reserve for environmental loss contingencies was $285 million and $287 million at March 31, 2020 and December 31, 2019, respectively.
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Environmental Remediation and Environmental Asset Retirement Obligations
The Company's total environmental reserve that management believes to be probable and reasonably estimable for environmental contingencies, including remediation costs and asset retirement obligations, is included as part of "Payables and other current liabilities" and "Other long-term liabilities" in the Unaudited Consolidated Statements of Financial Position as follows:
| (Dollars in millions) | March 31, 2020 | December 31, 2019 | |||||||||
| Environmental contingent liabilities, current | $ | 20 | $ | 20 | |||||||
| Environmental contingent liabilities, long-term | 265 | 267 | |||||||||
| Total | $ | 285 | $ | 287 | |||||||
Environmental Remediation
Estimated future environmental expenditures for undiscounted remediation costs ranged from the best estimate or minimum of $258 million to the maximum of $484 million at March 31, 2020 and from the best estimate or minimum of $260 million to the maximum of $487 million at December 31, 2019. The best estimate or minimum estimated future environmental expenditures are considered to be probable and reasonably estimable and include the amounts recognized at both March 31, 2020 and December 31, 2019.
Reserves for environmental remediation include liabilities expected to be paid within approximately 30 years. The amounts charged to pre-tax earnings for environmental remediation and related charges are included within "Cost of sales" in the Unaudited Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings. Changes in the reserves for environmental remediation liabilities during first three months 2020 and full year 2019 are summarized below:
| (Dollars in millions) | Environmental Remediation Liabilities | ||||
| Balance at December 31, 2018 | $ | 271 | |||
| Changes in estimates recognized in earnings and other | 4 | ||||
| Cash reductions | (15) | ||||
| Balance at December 31, 2019 | 260 | ||||
| Changes in estimates recognized in earnings and other | 2 | ||||
| Cash reductions | (4) | ||||
| Balance at March 31, 2020 | $ | 258 | |||
Environmental Asset Retirement Obligations
An asset retirement obligation is an obligation for the retirement of a tangible long-lived asset that is incurred upon the acquisition, construction, development, or normal operation of that long-lived asset. The Company recognizes asset retirement obligations in the period in which they are incurred if a reasonable estimate of fair value can be made. The asset retirement obligations are discounted to expected present value and subsequently adjusted for changes in fair value. The associated estimated asset retirement costs are capitalized as part of the carrying value of the long-lived assets and depreciated over their useful life. Environmental asset retirement obligations consist primarily of closure and post-closure costs. For sites that have environmental asset retirement obligations, the best estimate recognized to date for these environmental asset retirement obligation costs was $27 million at both March 31, 2020 and December 31, 2019.
Non-Environmental Asset Retirement Obligations
The Company has contractual asset retirement obligations not associated with environmental liabilities. Eastman's non-environmental asset retirement obligations are primarily associated with the future closure of leased manufacturing assets at Pace, Florida and Oulu, Finland. These recognized non-environmental asset retirement obligations were $48 million at both March 31, 2020 and December 31, 2019, and is included as part of "Other long-term liabilities" in the Unaudited Consolidated Statements of Financial Position.
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10.LEGAL MATTERS
From time to time, Eastman and its operations are parties to, or targets of, lawsuits, claims, investigations and proceedings, including product liability, personal injury, asbestos, patent and intellectual property, commercial, contract, environmental, antitrust, health and safety, and employment matters, which are handled and defended in the ordinary course of business. While the Company is unable to predict the outcome of these matters, it does not believe, based upon currently available facts, that the ultimate resolution of any such pending matters will have a material adverse effect on its overall financial condition, results of operations, or cash flows.
11.STOCKHOLDERS' EQUITY
Reconciliations of the changes in stockholders' equity for first quarter 2020 and 2019 are provided below:
| (Dollars in millions, except per share amount) | 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, 2019 | $ | 2 | $ | 2,105 | $ | 7,965 | $ | (214) | $ | (3,900) | $ | 5,958 | $ | 74 | $ | 6,032 | |||||||||||||||||||||||||||||||
| Net Earnings | — | — | 258 | — | — | 258 | 2 | 260 | |||||||||||||||||||||||||||||||||||||||
Cash Dividends Declared (1) ($0.66 per share) | — | — | (90) | — | — | (90) | — | (90) | |||||||||||||||||||||||||||||||||||||||
| Other Comprehensive Income (Loss) | — | — | — | 17 | — | 17 | — | 17 | |||||||||||||||||||||||||||||||||||||||
Share Based Compensation Expense (2) | — | 15 | — | — | — | 15 | — | 15 | |||||||||||||||||||||||||||||||||||||||
Other (3) | — | (11) | — | — | — | (11) | (1) | (12) | |||||||||||||||||||||||||||||||||||||||
| Share Repurchase | — | — | — | — | (30) | (30) | — | (30) | |||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2020 | $ | 2 | $ | 2,109 | $ | 8,133 | $ | (197) | $ | (3,930) | $ | 6,117 | $ | 75 | $ | 6,192 | |||||||||||||||||||||||||||||||
| (Dollars in millions, except per share amount) | 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, 2018 | $ | 2 | $ | 2,048 | $ | 7,573 | $ | (245) | $ | (3,575) | $ | 5,803 | $ | 75 | $ | 5,878 | |||||||||||||||||||||||||||||||
Cumulative Effect of Adoption of New Accounting Standards (4) | — | — | (20) | 20 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Net Earnings | — | — | 209 | — | — | 209 | — | 209 | |||||||||||||||||||||||||||||||||||||||
Cash Dividends Declared (1) ($0.62 per share) | — | — | (87) | — | — | (87) | — | (87) | |||||||||||||||||||||||||||||||||||||||
| Other Comprehensive Income (Loss) | — | — | — | 31 | — | 31 | — | 31 | |||||||||||||||||||||||||||||||||||||||
Share Based Compensation Expense (2) | — | 18 | — | — | — | 18 | — | 18 | |||||||||||||||||||||||||||||||||||||||
| Stock Option Exercises | — | 4 | — | — | — | 4 | — | 4 | |||||||||||||||||||||||||||||||||||||||
Other (3) | — | (10) | — | — | — | (10) | 1 | (9) | |||||||||||||||||||||||||||||||||||||||
| Share Repurchase | — | — | — | — | (125) | (125) | — | (125) | |||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2019 | $ | 2 | $ | 2,060 | $ | 7,675 | $ | (194) | $ | (3,700) | $ | 5,843 | $ | 76 | $ | 5,919 | |||||||||||||||||||||||||||||||
(1)Cash dividends declared consists of cash dividends paid and dividends declared but unpaid.
(2)Share-based compensation expense is the fair value of share-based awards.
(3)Additional paid-in capital consists of value of shares withheld for employees' taxes on vesting of share-based compensation awards.
(4)On January 1, 2019, Eastman adopted ASU 2018-02 Income Statement - Reporting Comprehensive Income resulting in the reclassification of $20 million of stranded tax expense from AOCI to retained earnings.
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Accumulated Other Comprehensive Income (Loss), Net of Tax
| (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, 2018 | $ | (309) | $ | 106 | $ | (41) | $ | (1) | $ | (245) | |||||||||||||||||||
Period change (1) | 45 | — | (14) | — | 31 | ||||||||||||||||||||||||
| Balance at December 31, 2019 | (264) | 106 | (55) | (1) | (214) | ||||||||||||||||||||||||
| Period change | 19 | (7) | 5 | — | 17 | ||||||||||||||||||||||||
| Balance at March 31, 2020 | $ | (245) | $ | 99 | $ | (50) | $ | (1) | $ | (197) | |||||||||||||||||||
(1)Benefit plans unrecognized prior service credits includes $29 million reclassification of stranded tax expense from AOCI to retained earnings and unrealized gains (losses) on derivative instruments includes $9 million reclassification of stranded tax benefit from AOCI to retained earnings.
Amounts of other comprehensive income (loss) are presented net of applicable taxes. Eastman recognizes deferred income taxes on the CTA related to branch operations and income from other entities included in the Company's consolidated U.S. tax return. No deferred income taxes are recognized on the CTA of other subsidiaries outside the United States, because the CTA is considered to be a component of indefinitely invested, unremitted earnings of these foreign subsidiaries.
Components of other comprehensive income recognized in the Unaudited Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings are presented below, before tax and net of tax effects:
| First Quarter | |||||||||||||||||||||||
| 2020 | 2019 | ||||||||||||||||||||||
| (Dollars in millions) | Before Tax | Net of Tax | Before Tax | Net of Tax | |||||||||||||||||||
| Other comprehensive income (loss) | |||||||||||||||||||||||
| Change in cumulative translation adjustment | $ | 19 | $ | 19 | $ | 30 | $ | 30 | |||||||||||||||
| Defined benefit pension and other postretirement benefit plans: | |||||||||||||||||||||||
| Amortization of unrecognized prior service credits | (10) | (7) | (10) | (7) | |||||||||||||||||||
| Derivatives and hedging: | |||||||||||||||||||||||
| Unrealized gain (loss) during period | 10 | 7 | 13 | 10 | |||||||||||||||||||
| Reclassification adjustment for (gains) losses included in net income, net | (3) | (2) | (3) | (2) | |||||||||||||||||||
| Total other comprehensive income (loss) | $ | 16 | $ | 17 | $ | 30 | $ | 31 | |||||||||||||||
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12.EARNINGS AND DIVIDENDS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share ("EPS") which are calculated using the treasury stock method:
| First Quarter | |||||||||||
| (In millions, except per share amounts) | 2020 | 2019 | |||||||||
| Numerator | |||||||||||
| Earnings attributable to Eastman, net of tax | $ | 258 | $ | 209 | |||||||
| Denominator | |||||||||||
| Weighted average shares used for basic EPS | 136.0 | 139.0 | |||||||||
| Dilutive effect of stock options and other awards | 0.5 | 1.1 | |||||||||
| Weighted average shares used for diluted EPS | 136.5 | 140.1 | |||||||||
| (Calculated using whole dollars and shares) | |||||||||||
| EPS | |||||||||||
| Basic | $ | 1.90 | $ | 1.50 | |||||||
| Diluted | $ | 1.89 | $ | 1.49 | |||||||
Shares underlying stock options excluded from first quarter 2020 and 2019 calculations of diluted EPS were 3,921,686 and 2,261,873, respectively, because the grant price of these options was greater than the average market price of the Company's common stock and the effect of including them in the calculation of diluted EPS would have been antidilutive. First quarter 2020 and 2019 reflects share repurchases of 510,301 and 1,582,076, respectively.
The Company declared cash dividends of $0.66 and $0.62 per share in first quarter 2020 and 2019, respectively.
13.ASSET IMPAIRMENTS AND RESTRUCTURING CHARGES, NET
| First Quarter | |||||||||||
| (Dollars in millions) | 2020 | 2019 | |||||||||
| Fixed asset impairments | $ | 7 | $ | — | |||||||
| Intangible asset impairments | 2 | — | |||||||||
| Severance charges | 5 | 28 | |||||||||
| Other restructuring costs | — | 4 | |||||||||
| Total | $ | 14 | $ | 32 | |||||||
First quarter 2020 asset impairments and restructuring charges consisted of fixed asset impairment charges of $4 million and severance charges of $3 million in the Advanced Materials segment resulting from the closure of a manufacturing facility in North America and fixed asset impairment charges of $3 million and severance charges of $1 million in the Additives and Functional Products ("AFP") segment for a manufacturing facility in Asia Pacific, each part of ongoing site optimization actions. The Company also recognized an intangible asset impairment charge of $2 million in the AFP segment for customer relationships. In the Chemical Intermediates segment, the Company recognized severance charges of $1 million related to the previously disclosed plan to discontinue production of certain products at the Singapore manufacturing site by the end of 2020.
First quarter 2019 restructuring charges included $28 million for severance and related costs as part of business improvement and cost reduction initiatives and an additional $4 million restructuring charge related to a capital project in the AFP segment that was discontinued in 2016.
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Changes in Reserves
The following table summarizes the changes in asset impairments and restructuring charges, the non-cash reductions attributable to asset impairments, and the cash reductions in restructuring reserves for severance costs and site closure costs paid in first three months 2020 and full year 2019:
| (Dollars in millions) | Balance at January 1, 2020 | Provision/ Adjustments | Non-cash Reductions/ Additions | Cash Reductions | Balance at March 31, 2020 | ||||||||||||||||||||||||
| Non-cash charges | $ | — | $ | 9 | $ | (9) | $ | — | $ | — | |||||||||||||||||||
| Severance costs | 17 | 5 | — | (5) | 17 | ||||||||||||||||||||||||
| Other restructuring costs | 11 | — | — | (1) | 10 | ||||||||||||||||||||||||
| Total | $ | 28 | $ | 14 | $ | (9) | $ | (6) | $ | 27 | |||||||||||||||||||
(Dollars in millions) | Balance at January 1, 2019 | Provision/ Adjustments | Non-cash Reductions/ Additions | Cash Reductions | Balance at December 31, 2019 | ||||||||||||||||||||||||
| Non-cash charges | $ | — | $ | 72 | $ | (72) | $ | — | $ | — | |||||||||||||||||||
| Severance costs | 6 | 45 | — | (34) | 17 | ||||||||||||||||||||||||
| Other restructuring costs | 8 | 9 | 1 | (7) | 11 | ||||||||||||||||||||||||
| Total | $ | 14 | $ | 126 | $ | (71) | $ | (41) | $ | 28 | |||||||||||||||||||
Substantially all severance costs remaining are expected to be applied to the reserves within one year.
14.SHARE-BASED COMPENSATION AWARDS
The Company utilizes share-based awards under employee and non-employee director compensation programs. These share-based awards have included restricted and unrestricted stock, restricted stock units, stock options, and performance shares. In first quarter 2020 and 2019, $15 million and $18 million, respectively, of compensation expense before tax were recognized in "Selling, general and administrative expenses" in the Unaudited Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings for all share-based awards of which $3 million and $5 million, respectively, was for stock options. The compensation expense is recognized over the substantive vesting period, which may be shorter time period than the stated vesting period for qualifying termination eligible employees as defined in the award notices. For first quarter 2020 and 2019, $1 million and $3 million, respectively, of stock option compensation expense was recognized due to qualifying termination eligibility preceding the requisite service period. The impact on first quarter 2020 and 2019 net earnings of $11 million and $14 million, respectively, is net of deferred tax expense related to share-based award compensation for each period.
Stock Option Grants
In first quarter 2020 and 2019, the number of stock options granted under the 2017 Omnibus Stock Compensation Plan was approximately 622 thousand and 691 thousand, respectively. Options have an exercise price equal to the closing price of the Company's stock on the date of grant. The term of options is ten years with vesting periods that vary up to three years. Vesting usually occurs ratably over the vesting period or at the end of the vesting period. The Company utilizes the Black Scholes Merton option valuation model which relies on certain assumptions to estimate an option's fair value.
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The assumptions used in the determination of fair value for stock options granted in first quarter 2020 and 2019 are provided in the table below:
| First Quarter | ||||||||||||||
| Assumptions | 2020 | 2019 | ||||||||||||
| Expected volatility rate | 21.56% | 19.61% | ||||||||||||
| Expected dividend yield | 3.30% | 2.41% | ||||||||||||
| Average risk-free interest rate | 0.94% | 2.56% | ||||||||||||
| Expected term years | 5.9 | 5.7 | ||||||||||||
The grant date exercise price and fair value of options granted during first quarter 2020 were $61.51 and $7.92, respectively, and first quarter 2019 were $82.69 and $13.60, respectively.
For options unvested at March 31, 2020, $6 million in compensation expense will be recognized over the next three years.
Other Share-Based Compensation Awards
In addition to stock option grants, the Company has awarded long-term performance shares, restricted stock and restricted stock units, and stock appreciation rights. The long-term performance share awards are based upon actual return on capital compared to a target return on capital and total stockholder return compared to a peer group ranking by total stockholder return over a three year performance period and pay out in unrestricted shares of common stock at the end of the performance period. The awards are valued using a Monte Carlo Simulation based model and vest pro-ratably over the three year performance period. The number of long-term performance share target awards during first quarter 2020 and 2019 for the 2020-2022 and 2019-2021 periods were approximately 423 thousand and 412 thousand, respectively. The target shares awarded are assumed to be 100 percent. At the end of the three-year performance period, the actual number of shares awarded can range from zero to 250 percent of the target shares based on the award notice. The number of restricted stock unit awards, which pay out in unrestricted shares of common stock at the end of the vesting and performance (if any) period, during first quarter 2020 and 2019 were approximately 123 thousand and 116 thousand, respectively. The fair value of a restricted stock unit award is equal to the closing stock price of the Company's stock on the award date and normally vests over a period of three years. In first quarter 2020 and 2019, $12 million and $13 million, respectively, was recognized as compensation expense before tax for these other share-based awards and was included in the total compensation expense noted above for all share-based awards. The unrecognized compensation expense before tax for these same type awards at March 31, 2020 was approximately $90 million and will be recognized primarily over a period of three years.
For additional information regarding share-based compensation plans and awards, see Note 17, "Share-Based Compensation Plans and Awards", to the consolidated financial statements in Part II, Item 8 of the Company's 2019 Annual Report on Form 10-K.
15.SUPPLEMENTAL CASH FLOW INFORMATION
Included in the line item "Other items, net" of the "Operating activities" section of the Unaudited Consolidated Statements of Cash Flows are the following changes to Unaudited Consolidated Statements of Financial Position:
| (Dollars in millions) | First Three Months | ||||||||||
| 2020 | 2019 | ||||||||||
| Other current assets | $ | 7 | $ | 2 | |||||||
| Other noncurrent assets | 9 | 6 | |||||||||
| Payables and other current liabilities | 58 | 59 | |||||||||
| Long-term liabilities and equity | (3) | (14) | |||||||||
| Total | $ | 71 | $ | 53 | |||||||
The above changes resulted primarily from accrued taxes, deferred taxes, environmental liabilities, monetized positions from raw material and energy, currency, and certain interest rate hedges, prepaid insurance, miscellaneous deferrals, value-added taxes, and other miscellaneous receivables and accruals.
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16.SEGMENT AND REGIONAL SALES INFORMATION
Eastman's products and operations are managed and reported in four operating segments: Additives & Functional Products ("AFP"), Advanced Materials ("AM"), Chemical Intermediates ("CI"), and Fibers. The economic factors that impact the nature, amount, timing, and uncertainty of revenue and cash flows vary between the Company's business operating segments and the geographical regions in which they serve. For disaggregation of revenue by major product lines and regions for each business operating segment, see Note 19, "Segment and Regional Sales Information", to the consolidated financial statements in Part II, Item 8 of the Company's 2019 Annual Report on Form 10-K. For additional financial information for each segment, see Part I, Item 1, "Business - Business Segments", in the Company's 2019 Annual Report on Form 10-K.
| (Dollars in millions) | First Quarter | ||||||||||
| Sales by Segment | 2020 | 2019 | |||||||||
| Additives & Functional Products | $ | 822 | $ | 855 | |||||||
| Advanced Materials | 615 | 657 | |||||||||
| Chemical Intermediates | 592 | 655 | |||||||||
| Fibers | 212 | 213 | |||||||||
| Total Sales | $ | 2,241 | $ | 2,380 | |||||||
| (Dollars in millions) | First Quarter | ||||||||||
| Earnings Before Interest and Taxes by Segment | 2020 | 2019 | |||||||||
| Additives & Functional Products | $ | 143 | $ | 146 | |||||||
| Advanced Materials | 100 | 102 | |||||||||
| Chemical Intermediates | 80 | 73 | |||||||||
| Fibers | 53 | 42 | |||||||||
| Total Earnings Before Interest and Taxes by Operating Segment | 376 | 363 | |||||||||
| Other | |||||||||||
| Growth initiatives and businesses not allocated to operating segments | (23) | (27) | |||||||||
| Pension and other postretirement benefits income (expense), net not allocated to operating segments | 21 | 12 | |||||||||
| Asset impairments and restructuring charges, net | — | (28) | |||||||||
| Other income (charges), net not allocated to operating segments | (6) | — | |||||||||
| Total Earnings Before Interest and Taxes | $ | 368 | $ | 320 | |||||||
| (Dollars in millions) | March 31, | December 31, | |||||||||
Assets by Segment (1) | 2020 | 2019 | |||||||||
| Additives & Functional Products | $ | 6,375 | $ | 6,387 | |||||||
| Advanced Materials | 4,429 | 4,415 | |||||||||
| Chemical Intermediates | 2,703 | 2,775 | |||||||||
| Fibers | 1,020 | 1,014 | |||||||||
| Total Assets by Operating Segment | 14,527 | 14,591 | |||||||||
| Corporate Assets | 1,938 | 1,417 | |||||||||
| Total Assets | $ | 16,465 | $ | 16,008 | |||||||
(1)Segment assets include accounts receivable, inventory, fixed assets, goodwill, and intangible assets.
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| (Dollars in millions) | First Quarter | ||||||||||
| Sales by Customer Location | 2020 | 2019 | |||||||||
| United States and Canada | $ | 980 | $ | 1,000 | |||||||
| Asia Pacific | 495 | 553 | |||||||||
| Europe, Middle East, and Africa | 631 | 689 | |||||||||
| Latin America | 135 | 138 | |||||||||
| Total Sales | $ | 2,241 | $ | 2,380 | |||||||
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ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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This Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is based upon the consolidated financial statements of Eastman Chemical Company ("Eastman" or the "Company"), which have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP"), and should be read in conjunction with the Company's audited consolidated financial statements, including related notes, and MD&A contained in the Company's 2019 Annual Report on Form 10-K, and the Company's unaudited consolidated financial statements, including related notes, included elsewhere in this Quarterly Report on Form 10-Q. All references to earnings per share ("EPS") contained in this report are diluted EPS unless otherwise noted.