Business News

Eastman Announces Fourth-Quarter and Full-Year 2008 Results

Friday 30. January 2009 - Eastman Chemical Company (NYSE:EMN) today announced a loss of $0.03 per diluted share for fourth quarter 2008 versus earnings from continuing operations of $1.25 per diluted share for fourth quarter 2007.

Excluding the items described below for both periods, fourth-quarter 2008 earnings were $0.05 per diluted share, while fourth-quarter 2007 earnings from continuing operations were $1.27 per diluted share. For reconciliations to reported company and segment earnings, see Tables 3, 5, and 6 in the accompanying fourth-quarter and full-year 2008 financial tables.

Included in the earnings for fourth quarter 2008 were asset impairments and restructuring charges of $24 million from completion of the restructuring at the South Carolina facility and charges related to a corporate severance program, other operating income of $16 million from the sale of certain mineral rights at an operating manufacturing site, and accelerated depreciation costs of $1 million. Fourth-quarter 2007 earnings from continuing operations included accelerated depreciation costs of $12 million and reductions to previously recognized asset impairments and restructuring charges resulting in a gain of $4 million.

“The current global recession has resulted in an unprecedented decline in demand and negatively impacted our fourth-quarter results,” said Brian Ferguson, chairman and CEO. “The strategic actions we have taken over the last five years, as well as the cost reduction measures we recently announced, position us to weather the current storm and rebound decisively when demand recovers.”

(In millions, except per share amounts) 4Q2008
4Q2007
FY2008 FY2007

Sales revenue $1,346 $1,737 $6,726 $6,830
Earnings (loss) per diluted share from continuing operations ($0.03) $1.25 $4.31 $3.84
Earnings per diluted share from continuing operations
excluding asset impairments and restructuring charges,

other operating income, and accelerated depreciation costs*

$0.05 $1.27 $4.50 $5.06




Net cash provided by operating activities $360 $321 $653 $732
*For reconciliations to reported company and segment earnings see Tables 3, 5 and 6 in the accompanying fourth-quarter and full-year 2008 financial tables.

Sales revenue for fourth quarter 2008 was $1.3 billion, a 23 percent decline compared with fourth quarter 2007. Sales revenue for both fourth-quarter 2008 and fourth-quarter 2007 included contract ethylene sales resulting from the fourth-quarter 2006 divestiture of the polyethylene business and contract polymer intermediates sales resulting from the fourth-quarter 2007 divestiture of PET polymers manufacturing facilities and related businesses in Mexico and Argentina. Fourth-quarter 2007 sales revenue also included sales from the divested Mexico and Argentina PET manufacturing facilities. Excluding these sales for both periods, sales revenue declined 16 percent as sales volume declined 18 percent. The decline in sales volume was attributed to the global recession which resulted in an unprecedented drop in demand. For reconciliations to reported company and segment sales revenue, see Tables 4 and 5 in the accompanying fourth-quarter and year-end 2008 financial tables.

Operating earnings in fourth quarter 2008 were $5 million compared with operating earnings of $144 million in fourth quarter 2007. Excluding accelerated depreciation costs, asset impairments and restructuring charges, and other operating income, fourth-quarter 2008 operating earnings were $14 million. Fourth-quarter 2007 operating earnings, excluding accelerated depreciation costs and a gain from reductions to previously recognized asset impairments and restructuring charges, were $152 million. The decline in operating earnings was due primarily to the sharp decline in demand which resulted in lower sales volume and historically low capacity utilization which resulted in higher unit costs. The company’s fourth-quarter 2008 raw material and energy costs increased by $25 million compared with fourth quarter 2007.

Segment Results 4Q 2008 versus 4Q 2007

Coatings, Adhesives, Specialty Polymers and Inks – Sales revenue declined by 14 percent as lower sales volume was partially offset by higher selling prices. The lower sales volume was due to the sharp decline in customer demand in all regions attributed to the global recession. Operating earnings, excluding asset impairments and restructuring charges and other operating income in fourth quarter 2008, were $32 million in fourth quarter 2008 compared with $45 million in fourth quarter 2007 with the decline primarily due to lower sales volume, higher unit costs from lower capacity utilization, and higher raw material and energy costs including losses from the settlement of commodity hedges, partially offset by higher selling prices.

Fibers – Sales revenue declined by 2 percent as lower sales volume was partially offset by higher selling prices. The lower sales volume was due to lower demand for acetate yarn and acetyl chemicals attributed to the global recession. Fourth-quarter 2008 operating earnings were $43 million compared with $62 million in fourth quarter 2007. The decline in operating earnings was due to lower sales volume and higher raw material and energy costs, partially offset by higher selling prices.

Performance Chemicals and Intermediates – Sales revenue declined by 27 percent, and excluding contract ethylene sales declined by 20 percent, due primarily to lower sales volume. The decline in sales volume was primarily in olefin-based derivatives and is attributed to the global recession. Operating results, excluding accelerated depreciation costs in both periods and asset impairments and restructuring charges and other operating income in fourth quarter 2008, declined to a loss of $13 million in fourth quarter 2008 compared with operating earnings of $62 million in fourth quarter 2007. The decline was primarily attributed to the global recession, which resulted in lower sales volume and higher unit costs from lower capacity utilization, and lower selling prices. In addition, results were negatively impacted by higher raw material and energy costs, which included losses from the settlement of commodity hedges. Also, fourth-quarter 2007 revenue and operating earnings included $22 million of earnings from the licensing of acetyl technology.

Performance Polymers – Sales revenue declined by 45 percent. Fourth quarter 2007 sales revenue included revenue from the divested PET polymers manufacturing facilities and related businesses in Mexico and Argentina. Sales revenue from U.S. PET manufacturing sites, excluding contract polymer intermediates sales in both periods, declined by 30 percent in fourth quarter 2008 due to lower sales volume and lower selling prices. The lower sales volume was attributed to weaker demand for bottled carbonated soft drinks as well as lighter-weight water bottles, and the lower selling prices were attributed to the steep decline in raw material prices, particularly for paraxylene. Excluding asset impairments and restructuring charges in both periods, and accelerated depreciation costs in fourth quarter 2007, operating results for U.S. PET manufacturing sites were a loss of $32 million in fourth quarter 2008 compared with a loss of $15 million in fourth quarter 2007. Operating results declined due to lower selling prices which were partially offset by lower raw material and energy costs, lower sales volume resulting in lower capacity utilization and higher unit costs, and shutdown costs related to the debottleneck of the PET facility based on IntegRex technology.

Specialty Plastics – Sales revenue declined by 15 percent as lower sales volume was partially offset by higher selling prices. The decline in sales volume was due to the sharp decline in demand attributed to the global recession. As a result, fourth-quarter 2008 operating results excluding other income declined to a loss of $3 million compared with operating earnings of $16 million in fourth quarter 2007.

Corporate FY 2008 versus FY 2007
For full-year 2008, Eastman reported earnings from continuing operations of $4.31 per diluted share compared with full-year 2007 earnings from continuing operations of $3.84 per diluted share. Excluding the items described below for both periods, full-year 2008 earnings from continuing operations were $4.50 per diluted share, while full-year 2007 earnings from continuing operations were $5.06 per diluted share. For reconciliations to reported company and segment earnings, see Tables 3, 5, and 6 in the accompanying fourth-quarter and full-year 2008 financial tables.

Included in the earnings from continuing operations for full-year 2008 were asset impairments and restructuring charges of $46 million, other operating income of $16 million, and accelerated depreciation costs of $9 million. Full-year 2007 earnings from continuing operations included accelerated depreciation costs of $49 million and asset impairments and restructuring charges of $112 million.

Eastman’s full-year 2008 sales revenue was $6.7 billion, a decline of 1 percent year-over-year. Full-year 2008 and full-year 2007 sales revenue included contract ethylene sales and contract polymer intermediates sales; full-year 2007 sales revenue included sales from PET manufacturing facilities and related businesses in Mexico and Argentina divested in fourth quarter 2007. Excluding these sales from both periods, sales revenue increased 3 percent. The increase in sales revenue was due to higher selling prices in response to higher raw material and energy costs partially offset by lower sales volume. For reconciliations to reported company and segment sales revenue, see Tables 4 and 5 in the accompanying fourth-quarter and year-end 2008 financial tables.

Operating earnings for full-year 2008 were $519 million compared with operating earnings for full-year 2007 of $504 million. Excluding accelerated depreciation costs, asset impairments and restructuring charges and other operating income, full-year 2008 operating earnings were $558 million. Full-year 2007 operating earnings excluding accelerated depreciation costs and asset impairments and restructuring charges were $665 million. The lower full-year operating earnings excluding these items were driven by the sharp year-over-year decline in fourth-quarter results. The company’s full-year 2008 raw material and energy costs increased by $600 million compared with full-year 2007.

Segment Results FY 2008 versus FY 2007

Coatings, Adhesives, Specialty Polymers and Inks – Sales revenue increased by 5 percent due to higher selling prices partially offset by lower sales volume. The higher selling prices were mainly the result of efforts to offset higher raw material and energy costs while the lower sales volume was primarily attributed to the recession in North America and the divestiture of certain adhesives product lines. Operating earnings, excluding other operating income in 2008 and a gain from reductions to previously recognized asset impairments and restructuring charges in 2007, were $197 million in 2008 compared with $234 million in 2007. The decline in operating earnings was due primarily to lower sales volume throughout the year and lower capacity utilization, particularly in the fourth quarter 2008, causing higher unit costs.

Fibers – Sales revenue increased by 5 percent due to higher selling prices. The higher selling prices were mainly the result of efforts to offset higher raw material and energy costs. Operating earnings were $238 million both for full-year 2008 and full-year 2007 as higher selling prices were offset by higher raw material and energy costs.

Performance Chemicals and Intermediates – Sales revenue increased 3 percent, or 4 percent excluding contract ethylene sales, as higher selling prices in response to higher raw material and energy costs more than offset lower sales volume. The lower sales volume was primarily in olefin-based derivative products, particularly in Asia, and bulk olefins related to the previously reported shutdown of a cracking unit. Operating earnings, excluding accelerated depreciation costs and asset impairments and restructuring charges in both periods and other operating income in 2008, were $171 million in 2008 compared with $238 million in 2007. The decline was primarily in the Asia Pacific region due to lower sales volume, particularly for olefin-based derivative product lines, and higher raw material and energy costs partially offset by higher selling prices. In addition, 2007 operating earnings were favorably impacted by market conditions, primarily for olefin-based derivative products and acetyl chemicals in Asia Pacific and the United States, and by competitor outages. Full-year 2007 sales revenue and operating earnings included $22 million of earnings in fourth quarter from the licensing of acetyl technology.

Performance Polymers – Sales revenue declined by 24 percent primarily due to the divestiture of the PET polymers manufacturing facilities and related businesses in Mexico and Argentina in fourth quarter 2007. Sales revenue from U.S. PET manufacturing sites, excluding contract polymer intermediates sales in both periods, declined by 5 percent due to lower sales volume resulting from the shutdown of higher cost PET assets in the first half of 2008 and weaker demand for bottled carbonated soft drinks as well as lighter-weight water bottles. For 2008, operating results for U.S. PET manufacturing sites included accelerated depreciation costs of $4 million and asset impairments and restructuring charges of $24 million. Full-year 2007 operating results included accelerated depreciation costs of $29 million and asset impairments and restructuring charges of $113 million. Excluding these items, operating results for U.S. PET manufacturing sites were a loss of $29 million in 2008 compared with a loss of $53 million in 2007. The 2008 operating loss was driven by fourth-quarter results. Full-year operating results improved due to actions to improve results at the company’s South Carolina PET facility and higher selling prices, partially offset by higher and more volatile raw material and energy costs and lower sales volume resulting in lower capacity utilization and higher unit costs, particularly in fourth quarter 2008.

Specialty Plastics – Sales revenue increased by 6 percent due to higher selling prices and favorable foreign currency exchange rates and favorable shift in product mix. Operating earnings for 2008 included other operating income of $2 million and 2007 operating earnings included asset impairments and restructuring charges of $1 million and accelerated depreciation costs of $1 million. Excluding these items, operating earnings were $33 million in 2008 compared with $67 million in 2007 due to higher and more volatile raw material and energy costs and lower capacity utilization resulting in higher unit costs, particularly in fourth quarter 2008.

Cash Flow
Eastman generated $653 million in cash from operating activities in 2008 compared to $732 million in 2007. The decrease reflects a decline in net earnings excluding accelerated depreciation and asset impairments and restructuring charges. During 2008, the company repurchased shares for a total amount of $501 million. Net debt for the company, defined as total borrowings less cash and cash equivalents, totaled $1.1 billion at year end.

Outlook
Commenting on the outlook for first quarter and full-year 2009, Ferguson said, “While we expect the weak demand in fourth quarter 2008 to continue in first quarter 2009, our capacity utilization likely reached its lowest point in December. We anticipate that our capacity utilization will improve through the first quarter due to a modest increase in demand, and on average be slightly higher in first quarter 2009 compared with fourth quarter 2008. As a result, we expect our first quarter earnings per share to be slightly higher than fourth quarter earnings per share excluding gains and charges related to strategic and cost cutting actions and other income in fourth quarter 2008.”