Eastman Announces Fourth-Quarter and Full-Year 2009 Results

KINGSPORT, Tenn., Jan. 28, 2010 – Eastman Chemical Company (NYSE:EMN) today announced a loss of $0.44 per diluted share for fourth quarter 2009 versus a loss of $0.03 per diluted share for fourth quarter 2008.  Excluding the items described below for both periods, fourth-quarter 2009 earnings were $1.14 per diluted share, while fourth-quarter 2008 earnings were $0.05 per diluted share.  For reconciliations to reported company and segment earnings, see Tables 3 and 5 in the accompanying financial tables.   

Included in results for fourth quarter 2009 were non-cash asset impairments and restructuring charges, net, of $177 million, primarily for the discontinued Beaumont, Texas, industrial gasification project.  Fourth-quarter 2008 results included asset impairments and restructuring charges, net, of $24 million, accelerated depreciation costs of $1 million, and other operating income of $16 million. 

“The strategic portfolio actions that have strengthened our core businesses and the decisive actions to reduce costs in response to the global recession led to solid performance in 2009 that was significantly better than the last recession,” said Jim Rogers, president and CEO. “We are well positioned for earnings to improve going forward as the global economy rebounds, and we remain focused on strong cash generation.”

Sales revenue for fourth quarter 2009 was $1.3 billion, a 1 percent decline compared to fourth quarter 2008.  Fourth-quarter 2009 and 2008 sales revenue included contract ethylene sales, and fourth quarter 2008 sales revenue also included contract polymer intermediates sales.  Excluding these sales, revenue increased 2 percent as sales volume increased 12 percent and selling prices declined 10 percent.  The increase in sales volume was due to improved demand compared to the depressed level in fourth quarter 2008 while selling prices declined due to the global recession.  For reconciliations to reported company and segment sales revenue, see Tables 2 and 4 in the accompanying financial tables.

Operating results in fourth quarter 2009 were a loss of $30 million compared to operating earnings of $5 million in fourth quarter 2008.  Excluding asset impairments and restructuring charges, net, fourth-quarter 2009 operating earnings were $147 million.  Fourth-quarter 2008 operating earnings, excluding asset impairments and restructuring charges, net, accelerated depreciation costs, and other operating income, were $14 million.  The increase in operating earnings was primarily due to lower raw material and energy costs, increased sales volume and the favorable impact of higher capacity utilization, and cost reduction actions, partially offset by lower selling prices. 

Segment Results 4Q 2009 versus 4Q 2008

Coatings, Adhesives, Specialty Polymers and Inks – Sales revenue increased by 5 percent as higher sales volume more than offset lower selling prices.  The increase in sales volume was due to improved demand compared to the depressed level in fourth quarter 2008 while selling prices declined due to the global recession.  Operating earnings in fourth quarter 2009, excluding a gain from the reversal of a previous restructuring charge, were $77 million, while fourth-quarter 2008 operating earnings, excluding asset impairments and restructuring charges, net, and other operating income, were $32 million.  Operating earnings increased, with year-over-year improvement across most product lines, due to lower raw material and energy costs, higher sales volume, and cost reduction actions, partially offset by lower selling prices.  

Fibers – Sales revenue declined by 4 percent as an unfavorable shift in product mix and lower sales volume were partially offset by higher selling prices.  The lower sales volume and unfavorable shift in product mix were attributed to customer buying patterns for acetate tow product lines in the Asia Pacific region partially offset by higher acetyl chemical product lines sales volume.  The higher selling prices were in response to higher raw material costs, particularly for wood pulp.  Fourth-quarter 2009 operating earnings were $74 million compared to $43 million in fourth quarter 2008.  The increase in operating earnings was due to higher selling prices and cost reduction actions partially offset by the unfavorable shift in product mix and lower sales volume.

Performance Chemicals and Intermediates – Sales revenue declined by 1 percent, and excluding contract ethylene sales increased by 5 percent, due primarily to higher sales volume partially offset by lower selling prices.  The increase in sales volume was due to improved demand compared to the depressed level in fourth quarter 2008 while selling prices declined due to the global recession.  Operating earnings in fourth quarter 2009 were $28 million compared with a loss of $13 million in fourth quarter 2008, excluding accelerated depreciation costs, asset impairments and restructuring charges, net, and other operating income. Operating results increased year over year primarily due to lower raw material and energy costs, higher sales volume and the favorable impact of higher capacity utilization, partially offset by lower selling prices. 

Performance Polymers – Sales revenue declined by 17 percent, and excluding contract polymer intermediates sales to divested manufacturing facilities in fourth quarter 2008 declined by 7 percent, due to lower selling prices.  The lower selling prices were due to lower raw material and energy costs, particularly for paraxylene.  Operating results in fourth quarter 2009 were a loss of $34 million compared to a loss of $32 million in fourth quarter 2008, excluding asset impairments and restructuring charges, net, in fourth quarter 2008.  Fourth quarter 2009 operating results included the unfavorable impact on sales revenue and manufacturing costs of continued operational challenges with the South Carolina PET manufacturing facility, a shutdown of the South Carolina facility to address the operational challenges, and the impact of depressed demand due to continued difficult market conditions.  Fourth-quarter 2008 operating results were negatively impacted by depressed demand due to the global recession and the impact of the shutdown for the debottleneck of the PET facility based on IntegRex™ technology.

Specialty Plastics - Sales revenue increased by 6 percent as higher sales volume more than offset lower selling prices.  The increase in sales volume was due to improved demand compared to the depressed level in fourth quarter 2008 while selling prices declined due to the global recession.  Operating earnings in fourth quarter 2009 were $11 million compared to a loss of $3 million in fourth quarter 2008, excluding other operating income in fourth quarter 2008.  Operating results improved due to lower raw material and energy costs, higher sales volume and the favorable impact of higher capacity utilization, and cost reduction actions, which more than offset lower selling prices.

Corporate FY 2009 versus FY 2008

For full-year 2009, Eastman announced earnings from continuing operations of $1.85 per diluted share compared to $4.31 per diluted share for full-year 2008.  Excluding the items described below for both periods, full-year 2009 earnings were $3.63 per diluted share, while full-year 2008 earnings from continuing operations were $4.50 per diluted share.  For reconciliations to reported company and segment earnings, see Tables 3 and 5 in the accompanying financial tables.  

Full-year 2009 earnings included non-cash asset impairments and restructuring charges, net, of $200 million for the discontinued Beaumont, Texas, industrial gasification project and severance charges resulting from a reduction in force.  Full-year 2008 earnings from continuing operations included asset impairments and restructuring charges, net, of $46 million, accelerated depreciation costs of $9 million, and other operating income of $16 million.

Eastman's full-year 2009 sales revenue was $5 billion, a decline of 25 percent year-over-year.  Both full-year 2009 and full-year 2008 sales revenue included contract ethylene sales, and full-year 2008 sales revenue also included contract polymer intermediates sales.  Excluding these sales, revenue declined 20 percent as selling prices declined 12 percent and sales volume declined 7 percent.  Selling prices declined due to lower raw material and energy costs while the decline in sales volume was attributed to weakened demand due to the global recession.  For reconciliations to reported company and segment sales revenue, see Tables 2 and 4 in the accompanying financial tables.

Operating earnings for full-year 2009 were $317 million compared to operating earnings of $519 million for full-year 2008.  Excluding asset impairments and restructuring charges, net, full-year 2009 operating earnings were $517 million.  Excluding asset impairments and restructuring charges, net, accelerated depreciation costs, and other operating income, full-year 2008 operating earnings were $558 million.  The lower full-year operating earnings excluding these items were primarily due to lower sales volume and the unfavorable impact of lower capacity utilization.  This was partially offset by lower raw material and energy costs more than offsetting lower selling prices, and cost reduction actions.

Segment Results FY 2009 versus FY 2008

Coatings, Adhesives, Specialty Polymers and Inks – Sales revenue declined by 20 percent due primarily to lower sales volume and lower selling prices.  The lower sales volume was due to reduced customer demand in all regions except Asia Pacific attributed to the global recession, while the lower selling prices were mainly due to lower raw material and energy costs.  Operating earnings, excluding asset impairments and restructuring charges, net, were $230 million in 2009, and operating earnings in 2008 were $197 million, excluding other operating income.  Operating earnings increased primarily due to lower raw material and energy costs and cost reduction actions partially offset by lower sales volume. 

Fibers – Sales revenue declined by 1 percent as lower sales volume was mostly offset by higher selling prices.  The lower sales volume was primarily for acetyl chemical products.  The higher selling prices were in response to higher wood pulp costs.  Operating earnings, excluding asset impairments and restructuring charges, net, increased to $300 million in 2009, which were the highest annual earnings for the Fibers segment compared to the previous high of $238 million in 2008.  The increased operating earnings were due to higher selling prices and cost reduction actions partially offset by lower sales volume.   

Performance Chemicals and Intermediates – Sales revenue declined by 38 percent, and excluding contract ethylene sales declined by 29 percent, due primarily to lower selling prices.  The lower selling prices were mostly due to lower raw material and energy costs.  Operating earnings, excluding asset impairments and restructuring charges, net, in both periods and accelerated depreciation costs and other operating income in 2008, were $69 million in 2009 compared to $171 million in 2008.  The decline was due to lower selling prices and costs related to the reconfiguration of the Longview, Texas, facility partially offset by lower raw material and energy costs and cost reduction actions.

Performance Polymers – Sales revenue declined by 33 percent, and excluding contract polymer intermediates sales declined by 23 percent, due to lower selling prices.  The lower selling prices were primarily due to lower raw material and energy costs.  Excluding asset impairments and restructuring charges, net, in both periods, and accelerated depreciation costs in 2008, operating results were a loss of $62 million in 2009 compared to a loss of $29 million in 2008.  Operating results declined due to lower selling prices and the unfavorable impact on sales revenue and manufacturing costs of operational challenges with the South Carolina PET manufacturing facility partially offset by lower raw material and energy costs.

Specialty Plastics – Sales revenue declined by 19 percent due to lower sales volume and lower selling prices.  The decline in sales volume was due to the global recession which weakened demand for plastic resins, including copolyester products sold into the consumer and durable goods markets, and for cellulosic plastics sold into various markets.  The lower selling prices were due to lower raw material and energy costs, particularly for paraxylene.  Excluding asset impairments and restructuring charges, net, in 2009 and other operating income in 2008, operating earnings were $18 million in 2009 compared to $33 million in 2008.  The decline in operating earnings was due to lower sales volume and lower capacity utilization resulting in higher unit costs, and lower selling prices, partially offset by lower raw material and energy costs and cost reduction actions.

Cash Flow

Eastman generated $758 million in cash from operating activities in 2009 compared to $653 million in 2008.  Cash from operating activities in 2009 included $118 million of cash generated from reduced working capital and an approximately $125 million positive cash flow impact from a change in the company’s tax accounting method to accelerate the timing of deductions for manufacturing repairs expense.  Cash used in operating activities included $181 million for contributions to the U.S. defined benefit pension plan.  As a result of the solid cash from operations and lower capital expenditures, the company generated $320 million of free cash flow, defined as cash from operations less capital expenditures and dividends.  During fourth quarter 2009, share repurchases totaled $21 million.

Outlook
           
Commenting on the outlook for first quarter and full year 2010, Rogers said:  “We move forward into 2010 with positive momentum given the solid earnings we delivered in the second half of 2009.  We are in the early stages of a recovery in our sales volume, which we expect will continue through the year as the global economy improves.  We also will continue to benefit in 2010 from the cost reduction actions we took in 2009.  However, we expect raw material and energy costs to increase in 2010 compared with 2009.  As a result, we expect first quarter 2010 earnings per share to be slightly higher than fourth quarter 2009 earnings per share of $1.14.  In addition, we remain confident in our ability to deliver 20 percent higher earnings per share in 2010 compared with 2009.”  Charges related to restructuring and cost reduction actions are excluded from earnings per share.

Eastman will host a conference call with industry analysts on January 29 at 8:00 a.m. Eastern Time.  To listen to the live webcast of the conference call and view the accompanying slides, go to www.investors.eastman.com, Presentations.  To listen via telephone, the dial-in number is (913) 981-5578, passcode number 4566386. A web replay and the accompanying slides will be available at www.investors.eastman.com, Presentations.  A telephone replay will be available continuously from 11:00 a.m. Eastern Time, January 29, to 12:00 a.m. Eastern Time, February 8, 2010, at 719-457-0820, passcode number 4566386.

Forward-Looking Statements: This news release includes forward-looking statements concerning current expectations for future economic and business conditions, the financial impact of past strategic portfolio and restructuring and cost reduction actions, demand and sales volumes for the company’s products, raw material and energy costs, and earnings per share for first quarter and full year 2010. 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 third quarter 2009 available, and the Form 10-K to be filed for 2009 and to be available, on the Eastman web site at www.eastman.com in the Investors, SEC filings section.

Eastman’s chemicals, fibers and plastics are used as key ingredients in products that people use every day.  Approximately 10,000 Eastman employees around the world blend technical expertise and innovation to deliver practical solutions.  The company is committed to finding sustainable business opportunities within the diverse markets it serves.  A global company headquartered in Kingsport, Tennessee, USA, Eastman had 2009 sales of $5.0 billion.  For more information, visit www.eastman.com.