Eastman Chemical Company (EMN)

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Eastman Chemical (EMN)

Q4 2011 Earnings Call

January 27, 2012 8:00 am ET

Executives

James P. Rogers - Chairman and Chief Executive Officer

Gregory A. Riddle - Director of Investor Relations

Jeffry N. Quinn - Chairman, Chief Executive Officer and President

Mark J. Costa - Chief Marketing officer and Executive Vice President of Specialty Polymers, Coatings & Adhesives

Curtis E. Espeland - Chief Financial Officer and Senior Vice President

Analysts

Gregg A. Goodnight - UBS Investment Bank, Research Division

P.J. Juvekar - Citigroup Inc, Research Division

David L. Begleiter - Deutsche Bank AG, Research Division

Harry Mateer - Barclays Capital, Research Division

Andrew Feinman

Frank J. Mitsch - Wells Fargo Securities, LLC, Research Division

Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division

Kevin W. McCarthy - BofA Merrill Lynch, Research Division

Paul Leming - Ticonderoga Securities LLC, Research Division

Nils-Bertil Wallin - Credit Agricole Securities (USA) Inc., Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Eastman Chemical Company Fourth Quarter and Year End 2011 Earnings Conference Call. Today's call is being recorded. Also this call will be broadcast live on Eastman's website at www.eastman.com. We will now turn the call over to Mr. Greg Riddle of Eastman Chemical Company, Investor Relations. Please go ahead, sir.

Gregory A. Riddle

Thank you, Jake, and good morning, everyone, and thanks for joining us. On the call with me today are Jim Rogers, Chairman and CEO; Curt Espeland, Senior Vice President and Chief Financial Officer; and Mark Costa, Executive Vice President, Specialty Polymers, Coatings and Adhesives.

Before we begin, I'll cover 3 items. First, during this call, you will hear certain forward-looking statements concerning our plans and expectations for first quarter and full year 2012 and the acquisition of Solutia. Actual results could differ materially from our plans and expectations. Certain factors related to future expectations are or will be detailed in the company's fourth quarter and full year 2011 financial results news release and in our news release announcing the agreement to acquire Solutia, both of which are on our website and in our filings with the Securities and Exchange Commission, including the Form 10-Q filed for third quarter 2011 and the Form 10-K to be filed for full year 2011.

Second, certain Eastman financial measures referenced in this presentation are non-GAAP financial measures such as earnings per share, operating earnings and cash flow from operating activities that exclude asset impairments or restructuring charges and early debt extinguishment costs. A reconciliation to the most directly comparable GAAP financial measures and other associated disclosures, including a description of the asset impairments and restructuring charges and early debt extinguishment costs, are available on our fourth quarter and full year financial results news release and the tables accompanying the news release, which are both available at www.investors.eastman.com.

Third, this morning we issued a news release, which is available on our website, announcing a definitive agreement to acquire Solutia. I direct you to review the sections in the release regarding where you can find additional information about the transaction that provide additional details about the participants in the merger solicitation and about information for the nonsolicitation.

With that, I'll turn the call over to Jim.

James P. Rogers

Thanks, Greg. Good morning, everyone, and thanks for joining us. Last night, we announced our fourth quarter and full year 2011 results and then this morning, we announced we've entered into a definitive agreement to acquire Solutia. So I'll start this morning with a few slides about our strong 2011 earnings and then I'll spend most of the time this morning talking about why we're excited to be acquiring this great company, Solutia.

Last night, we announced our fourth quarter and full year 2011 results, yes, then this morning it was Solutia. Our agenda this morning begins with a quick review of our fourth quarter and full year 2011 results. I'm going to do an overview of the transaction and I'll walk through the strategic rationale for our acquisition of Solutia. Then we'll do a quick overview of Solutia, which I'm sure many of you are familiar with. And then Curt will discuss our financial summary and our EPS forecast for 2012 and 2013, and I'll end with a quick summary before we turn it over to questions. So starting with a recap of our fourth quarter results on Slide 4.

Revenue increased by 18%, mainly due to higher selling prices, which increased in response to higher raw material and energy costs. Operating earnings declined year-over-year primarily in the Specialty Plastics and PCI segments. The primary driver for Specialty Plastics was lower sales volume and lower capacity utilization. For PCI, higher selling prices were more than offset by higher raw material and energy costs. EPS of $0.71, slightly above last year. Still, our second best fourth quarter EPS in our history, and this was achieved we think in a challenging, uncertain environment and underscores that our businesses are solid even in the most difficult environments.

Looking at our full year results on Slide 6. Our EPS of $4.56 is an annual record, eclipsing the record from 2010. Sales revenue was up 23%, and the increase was across the company. Operating earnings increased significantly in 2011 compared with 2010 as all of our 4 segments had year-over-year earnings growth. Fiber's operating earnings were a record, and 2011 was the eighth straight year for earnings growth. And even CASPI now has grown their operating earnings 3 years in a row at better than a 10% rate. And we've now grown our EPS by about 140% since 2009. The appendix to this presentation has the remainder of our normal earning slide deck for your information.

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