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Eastman Announces Fourth-Quarter and Full-Year 2007 Results

Published on 2008-02-04. Author : SpecialChem

KINGSPORT, Tenn. -- Eastman Chemical Company (NYSE:EMN) announced earnings of $1.21 per diluted share for fourth quarter 2007 versus earnings of $1.12 per diluted share for fourth quarter 2006. Earnings per diluted share from continuing operations were $1.25 for fourth quarter 2007 compared with $1.26 for fourth quarter 2006. Results from discontinued operations were a loss of $0.04 per diluted share for fourth quarter 2007 compared with a loss of $0.14 per diluted share for fourth quarter 2006. For additional information about discontinued operations, see the "Discontinued Operations" section of this news release. Excluding the items described below for both periods, fourth-quarter 2007 earnings from continuing operations were $1.27 per diluted share, while fourth-quarter 2006 earnings from continuing operations were $1.14 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 2007 financial tables.

Included in the earnings from continuing operations before taxes for fourth quarter 2007 were accelerated depreciation costs of $12 million and reductions to previously recognized asset impairments and restructuring charges resulting in a gain of $4 million. Fourth-quarter 2006 earnings from continuing operations before taxes included accelerated depreciation costs of $10 million, asset impairments and restructuring charges of $78 million, and other operating income of $68 million.

"Performance in the fourth quarter was solid, completing another strong year for the company," said Brian Ferguson, chairman and CEO. "Our last three years of earnings per share combined, excluding restructuring related items, is the best three year period of earnings in our history. This is due to the impact of the strategic actions we have taken to improve results combined with the hard work of Eastman employees around the world to innovate, to serve our customers, and to safely and reliably operate our facilities."

Sales revenue for fourth quarter 2007 was $1.7 billion, a 9 percent increase over fourth quarter 2006. Fourth-quarter 2007 and fourth-quarter 2006 sales revenue included contract ethylene sales resulting from the fourth-quarter 2006 divestiture of the polyethylene business and sales from PET manufacturing facilities and related businesses in Mexico and Argentina divested in the fourth quarter 2007. Fourth-quarter 2006 sales revenue also included sales from divested product lines. Excluding these items for both periods, sales revenue increased 19 percent due to increased sales volume, higher selling prices in response to higher raw material and energy costs, and revenue from the licensing of acetyl technology. For reconciliations to reported company and segment sales revenue, see Tables 4 and 5 in the accompanying fourth-quarter and year-end 2007 financial tables.

Operating earnings in fourth quarter 2007 were $144 million compared with operating earnings in fourth quarter 2006 of $120 million. Excluding accelerated depreciation costs and reductions to previously recognized asset impairments and restructuring charges, fourth quarter operating earnings were $152 million. Fourth-quarter 2006 operating earnings, excluding accelerated depreciation costs, asset impairments and restructuring charges, and other operating income were $140 million. The increase in operating earnings was due to higher selling prices offsetting higher raw material and energy costs, earnings from licensing of acetyl technology, and lower general administrative costs. The company's fourth-quarter 2007 raw material and energy costs increased by greater than $100 million compared with fourth quarter 2006.

Segment Results 4Q 2007 versus 4Q 2006

    Coatings, Adhesives, Specialty Polymers and Inks - Sales revenue increased by 6 percent due to higher selling prices in response to higher raw material and energy costs, a favorable shift in product mix, and favorable foreign currency exchange rates. Operating earnings declined due to higher raw material and energy costs which were partially offset by higher selling prices, a favorable shift in product mix, and favorable foreign currency exchange rates.

    Fibers - Sales revenue increased by 25 percent due to higher sales volume and higher selling prices. The higher sales volume was attributed to customer buying patterns for acetate tow product lines in the Asia Pacific region and the impact of favorable market conditions attributed to competitor outages. The higher selling prices were mainly the result of efforts to offset higher raw material and energy costs, particularly for wood pulp. Fourth-quarter 2007 operating earnings increased due to higher sales volume and higher selling prices.

    Performance Chemicals and Intermediates - Sales revenue increased by 34 percent due primarily to higher sales volume, which was significantly impacted by contract ethylene sales resulting from the divestiture of the polyethylene business in fourth quarter 2006. Excluding contract ethylene sales and divested product lines, PCI's sales revenue increased by 26 percent due to higher selling prices in response to higher raw material and energy costs, acetyl technology licensing revenue, and higher sales volume. Operating earnings, excluding asset impairments and restructuring charges and other operating charges in fourth quarter 2006 and accelerated depreciation costs in both periods, increased to $62 million in fourth quarter 2007 compared with $42 million in fourth quarter 2006. Fourth-quarter 2007 operating earnings included $22 million of earnings from the licensing of acetyl technology for the production of acetic acid to the Chang Chun Petrochemical Company in Taiwan. In addition, higher raw material and energy costs were offset by higher selling prices.

    Performance Polymers - Sales revenue declined by 17 percent due primarily to the divestiture of both the polyethylene business in fourth quarter 2006 and the PET polymers manufacturing facilities and related businesses in Mexico and Argentina in fourth quarter 2007. Sales revenue from U.S. PET manufacturing sites increased by 39 percent due to higher sales volume in North America. The higher sales volume was the result of increased operating rates of the company's South Carolina PET facility based on IntegRex technology. Operating results for U.S. PET manufacturing sites in fourth quarter 2007 included accelerated depreciation costs of $9 million. Operating results in fourth quarter 2006 included accelerated depreciation costs of $7 million and asset impairments and restructuring charges of $46 million. Excluding those items, operating results for U.S. PET manufacturing sites were a loss of $15 million in fourth-quarter 2007 compared with a loss of $9 million in fourth quarter 2006. Operating results declined as higher sales volume from the company's South Carolina PET facility based on IntegRex technology was more than offset by continued high raw material and energy costs and costs associated with the transformation of the PET business. For more information, see tables 4 and 5 in the accompanying fourth-quarter and full-year 2007 financial tables which include results from divested PET manufacturing facilities in Latin America.

    Specialty Plastics - Sales revenue increased by 2 percent primarily due to a favorable shift in product mix, favorable foreign currency exchange rates, and higher selling prices, which were partially offset by lower sales volume. Sales volume declined as higher volumes in copolyester products were more than offset by a decline in demand for polyester products used in photographic and optical films. Fourth-quarter 2006 operating results included asset impairments and restructuring charges of $16 million and accelerated depreciation costs of $1 million. Excluding those items, operating earnings increased in fourth quarter 2007 compared with the year ago period as higher selling prices, favorable foreign currency exchange rates, and a favorable shift in product mix more than offset higher raw material and energy costs.

Corporate FY 2007 versus FY 2006

For full-year 2007, Eastman reported earnings of $3.58 per diluted share compared with full-year 2006 earnings of $4.91 per diluted share. Earnings per diluted share from continuing operations were $3.84 for full-year 2007 compared with $5.12 for full-year 2006. Results from discontinued operations were a loss of $0.26 per diluted share for full-year 2007 compared with a loss of $0.21 per diluted share for full-year 2006. For additional information about discontinued operations, see the "Discontinued Operations" section of this news release. Excluding the items described below for both periods, full-year 2007 earnings from continuing operations were $5.06 per diluted share, while full-year 2006 earnings from continuing operations were $5.21 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 2007 financial tables.

Included in the earnings from continuing operations before taxes for full-year 2007 were accelerated depreciation costs of $49 million and asset impairments and restructuring charges of $112 million. Full-year 2006 earnings from continuing operations before taxes included accelerated depreciation costs of $10 million, asset impairments and restructuring charges of $101 million, and other operating income of $68 million.

Eastman's full-year 2007 sales revenue was $6.8 billion, a 1 percent year-over-year increase. Full-year 2007 and full-year 2006 sales revenue included contract ethylene sales resulting from the fourth quarter 2006 divestiture of the polyethylene business and sales from PET manufacturing facilities and related businesses in Mexico and Argentina divested in fourth quarter 2007. Full-year 2006 sales revenue also included sales from divested product lines. Excluding these items from both periods, sales revenue increased 11 percent. The increase in sales revenue was due to increased sales volume and higher selling prices in response to higher raw material and energy costs. For reconciliations to reported company and segment sales revenue, see Tables 4 and 5 in the accompanying fourth-quarter and year-end 2007 financial tables.

Operating earnings for full-year 2007 were $504 million compared with operating earnings for full-year 2006 of $654 million. Excluding accelerated depreciation costs and asset impairments and restructuring charges, full-year 2007 operating earnings were $665 million. Full-year 2006 operating earnings, excluding accelerated depreciation costs, asset impairments and restructuring charges, and other operating income, were $697 million. The decline in operating earnings was primarily due to operating losses in the Performance Polymers segment. In 2007, raw material and energy costs increased by approximately $250 million compared to the prior year.

Segment Results FY 2007 versus FY 2006

    Coatings, Adhesives, Specialty Polymers and Inks - Sales revenue increased by 2 percent due to higher selling prices in response to higher raw material and energy costs, a favorable shift in product mix, and favorable foreign currency exchange rates, which were partially offset by lower sales volume. The lower sales volume was primarily attributed to the divestiture of the company's Epolene product lines in fourth quarter 2006 and slightly lower sales volume for coatings product lines in North America. Operating earnings, excluding asset impairments and restructuring charges in fourth quarter 2006, declined slightly, particularly for coatings product lines, as increased raw material and energy costs were partially offset by higher selling prices, a favorable shift in product mix, and favorable foreign currency exchange rates.

    Fibers - Sales revenue increased by 10 percent due to higher selling prices and higher sales volume. The higher selling prices were mainly the result of efforts to offset higher raw material and energy costs, particularly for wood pulp. The increased sales volume was attributed to continued industry market growth in acetate tow product lines and competitor outages. Full-year 2007 operating earnings increased to $238 million, which were the highest ever for the Fibers segment. This compares with $226 million for full- year 2006. The increased operating earnings were due to higher selling prices and increased sales volume.

    Performance Chemicals and Intermediates - Sales revenue increased 26 percent due primarily to higher sales volume, which was significantly impacted by contract ethylene sales resulting from the divestiture of the polyethylene business in fourth quarter 2006. Excluding contract ethylene sales and divested product lines, PCI's sales revenue increased by 17 percent due to higher sales volume and higher selling prices. Operating earnings, excluding accelerated depreciation costs and reductions to previously recognized asset impairments and restructuring charges, increased to $238 million, which were PCI's best earnings, excluding restructuring related items, in 10 years. This compares with $161 million in 2006, excluding accelerated depreciation, asset impairments and restructuring charges, and other operating charges. The higher sales revenue and operating earnings were attributed to strong demand, particularly for olefin-based products and acetyl chemicals in Asia Pacific and the United States, and earnings from the licensing of acetyl technology for the production of acetic acid to the Chang Chun Petrochemical Company in Taiwan.

    Performance Polymers - Sales revenue declined by 28 percent primarily due to the divestiture of both the polyethylene business in 2006 and the PET polymers manufacturing facilities and related businesses in Mexico and Argentina in fourth quarter 2007. Sales revenue from U.S. PET manufacturing sites increased by 12 percent due to higher sales volume in North America. The higher sales volume was the result of increased operating rates of the company's South Carolina PET facility based on IntegRex technology. For 2007, operating results for U.S. PET manufacturing sites included accelerated depreciation costs of $29 million and reductions to previously recognized asset impairments and restructuring charges resulting in a gain of $2 million. Full-year 2006 operating earnings included accelerated depreciation costs of $7 million and asset impairments and restructuring charges of $46 million. Excluding those items, operating results for U.S. PET manufacturing sites were a loss of $53 million in 2007 compared with a loss of $3 million in 2006. Operating results declined as higher sales volume from the company's low-cost South Carolina PET facility based on IntegRex  technology was more than offset by continued high raw material and energy costs and costs associated with the transformation of the PET business. For more information see tables 4 and 5 in the accompanying fourth-quarter and full-year 2007 financial tables which include results from divested PET manufacturing facilities in Latin America.

    Specialty Plastics - Sales revenue increased by 6 percent due to higher selling prices in response to higher raw material and energy costs. Sales volume increased slightly as higher volumes in copolyester products more than offset a decline in demand for polyester products used in photographic and optical films. 2007 operating earnings included asset impairments and restructuring charges of $1 million and accelerated depreciation costs of $1 million, and 2006 operating earnings included asset impairments and restructuring charges of $16 million and accelerated depreciation costs of $1 million. Excluding those items, operating earnings increased in 2007 compared with 2006 as higher selling prices and favorable foreign currency exchange rates more than offset increased raw material and energy costs.

Discontinued Operations

In fourth quarter 2007, the company entered into definitive agreements to sell its PET polymers and PTA manufacturing facilities in the Netherlands and the PET polymers manufacturing facility in the United Kingdom and related businesses. During second quarter 2007, the company sold its PET polymers manufacturing facility in Spain. Because the company is exiting the PET business in the European region, results from sales of PET products manufactured at the Spain, the Netherlands, and United Kingdom sites are presented as discontinued operations and are therefore not included in results from continuing operations under generally accepted accounting principles.

Cash Flow

Eastman generated $732 million in cash from operations in 2007 due primarily to strong net earnings and a reduction in working capital of $89 million. During the year, the company repurchased shares in the amount of $382 million at an average price of $64 per share and contributed $100 million to the U.S. defined benefit pension plan. Net debt for the company, defined as total borrowings less cash and cash equivalents, increased by $66 million during the year and totaled $719 million at year end.

Outlook

Commenting on the outlook for first quarter and full-year 2008, Ferguson said: "The two most significant headwinds we will face during the year are the uncertain prospects for the U.S. and global economies and the volatility of raw materials and energy costs. However, we will continue to benefit from the actions we have taken over the last several years to improve our profitability. As a result, we expect first-quarter 2008 earnings per share to be above first-quarter 2007 earnings per share of $1.19, excluding gains and charges in both periods related to strategic decisions. In addition, we expect full-year 2008 earnings per share to be similar to 2007 earnings per share of $5.06, excluding gains and charges in both periods related to strategic decisions."

About Eastman

Eastman manufactures and markets chemicals, fibers and plastics worldwide. It provides key differentiated coatings, adhesives and specialty plastics products; is a major supplier of cellulose acetate fibers; and produces PET polymers for packaging. As a Responsible Care® company, Eastman is committed to achieving the highest standards of health, safety, environmental and security performance. Founded in 1920 and headquartered in Kingsport, Tenn., Eastman is a FORTUNE 500 company with 2007 sales of $6.8 billion and approximately 11,000 employees.

Forward Looking Statements:

This news release includes forward-looking statements concerning current expectations for future economic and business conditions; raw material and energy costs; costs of and improved financial performance from strategic decisions and actions; and earnings for first quarter and full-year 2008. Such expectations are based upon certain preliminary information, internal estimates, and management assumptions, expectations, and plans, and are subject to a number of risks and uncertainties inherent in projecting future conditions, events, and results. Actual results could differ materially from expectations expressed in the forward-looking statements if one or more of the underlying assumptions or expectations prove to be inaccurate or are unrealized. Important factors that could cause actual results to differ materially from such expectations are and will be detailed in the company's filings with the Securities and Exchange Commission, including the Form 10-Q filed for the third quarter 2007 and the Form 10-K to be filed for 2007, available on the Eastman web site.

Source: Eastman Chemical Company


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