NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

ITEM	Page
Note 1.     Basis of Presentation	7
Note 2.     Assets Held for Sale	8
Note 3.     Inventories	9
Note 4.     Payables and Other Current Liabilities	9
Note 5.     Provision for Income Taxes	10
Note 6.     Borrowings	11
Note 7.     Asset Impairments and Restructuring Charges, Net	11
Note 8.     Pension and Other Post-Employment Benefits	13
Note 9.     Environmental Matters	14
Note 10.   Commitments	15
Note 11.   Derivative Financial Instruments Held or Issued for Purposes Other Than Trading	16
Note 12.   Stockholders' Equity	16
Note 13.   Earnings and Dividends per Share	17
Note 14.   Share-Based Compensation Awards	18
Note 15.   Segment Information	18
Note 16.   Legal Matters	21
Note 17.   Recently Issued Accounting Standards	21
Note 18.   Divestiture	22

  NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS       

1.	BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared by Eastman Chemical Company (the "Company" or "Eastman") in accordance and consistent with the accounting policies stated in the Company's 2006 Annual Report on Form 10-K, except as described below.   The Company adopted the provisions of Financial Accounting Standards Board ("FASB") Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48") , on January 1, 2007.  In the opinion of the Company, all normal recurring adjustments necessary for a fair presentation have been included in the unaudited consolidated financial statements.  The unaudited consolidated financial statements are prepared in conformity with generally accepted accounting principles ("GAAP") in the United States and, of necessity, include 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, revenues and expenses of all majority-owned subsidiaries and joint ventures.  Eastman accounts for other joint ventures and investments in minority-owned companies where it exercises significant influence on the equity basis.  Intercompany transactions and balances are eliminated in consolidation.

The Company has reclassified certain 2006 amounts to conform to the 2007 presentation including the reclassification of segment sales and operating earnings. For additional information, see Note 15 to the Company's unaudited consolidated financial statements.

During the third quarter 2007, Eastman entered into definitive agreements to sell its polyethylene terephthalate ("PET") polymers production facilities in Mexico and Argentina and the related businesses.  The sale, which is subject to customary approvals, includes Eastman's PET manufacturing facilities in Cosoleacaque, Mexico, and Zarate, Argentina. Their production capacity is 150,000 and 185,000 metric tons per year, respectively.  The Company also recorded an impairment charge of $117 million to adjust the asset values to the expected sales price less cost to sell, resulting from the expected fourth quarter 2007 sale.  See Note 7 for additional information.

The Company has concluded that the assets, businesses and product lines being sold should not be reported as discontinued operations per Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," due to continuing involvement in the PET businesses in the region .

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS       

3.	INVENTORIES

 

		September 30,		December 31,
(Dollars in millions)		2007		2006
At FIFO or average cost (approximates current cost)
Finished goods	$	632	$	660
Work in process		191		206
Raw materials and supplies		304		280
Total inventories		1,127		1,146
LIFO Reserve		(481)		(464)
Inventories before assets held for sale		646		682
Inventories related to assets held for sale (1)		41		--
Total inventories	$	687	$	682

(1)	For more information regarding assets held for sale, see Note 2 to the Company's unaudited consolidated financial statements .

Inventories valued on the LIFO method were approximately 70% as of September 30, 2007 and 65% as of December 31, 2006 of total inventories.

(1)      For more information regarding assets held for sale, see Note 2 to the Company's unaudited consolidated financial statements .

The third quarter and first nine months 2007 effective tax rates reflect the Company's normal tax rate on reported operating earnings before income tax, excluding discrete items, of approximately 34 percent.  The third quarter 2007 effective tax rate was negatively impacted by tax law changes in Europe due to German tax law changes resulting in a reduction in the value of deferred tax assets.  The third quarter 2006 effective tax rate was positively impacted by the reversal of foreign loss valuation allowances.

The Company adopted the provisions of FIN 48 on January 1, 2007.  As a result of the implementation of FIN 48 and reliance on the FASB Staff Position No. FIN 48-a, " Definition of Settlement in FASB Interpretation No. 48 ," the Company recognized a decrease of approximately $3 million in the liability for unrecognized tax benefits, which was accounted for as a $8 million increase to the January 1, 2007 balance of retained earnings and a $5 million decrease in long-term deferred tax liabilities. After the above decrease, the liability for unrecognized tax benefits was approximately $31 million, of which $26 million would, if recognized, impact the Company's effective tax rate.

Interest and penalties, net, related to unrecognized tax benefits are recorded as a component of income tax expense.  As of January 1, 2007 the Company had accrued approximately $3 million for interest, net of tax benefit and had no accrual for tax penalties.  During the third quarter and first nine months 2007, the Company recognized an immaterial amount of interest associated with unrecognized tax benefits.

The Company or one of its subsidiaries files tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2001. It is reasonably possible that within the next 12 months the Company will recognize approximately $2 million of unrecognized tax benefits as a result of the expiration of relevant statutes of limitations.

 

At September 30, 2007, the Company has credit facilities with various U.S. and non-U.S. banks totaling approximately $890 million. These credit facilities consist of a $700 million revolving credit facility (the "Credit Facility"), expiring in April 2012, and a 132 million euro credit facility which expires in December 2011.  Both of these credit facilities have options for a one year extension. Borrowings under these credit facilities are subject to interest at varying spreads above quoted market rates.  These credit facilities require facility fees on the total commitment that are based on Eastman's credit rating.  In addition, these credit facilities contain a number of covenants and events of default, including the maintenance of certain financial ratios.  The Company's combined credit facility borrowings at September 30, 2007 and December 31, 2006 were $187 million and $185 million at weighted average interest rates of 4.76 percent and 4.00 percent, respectively.

The Credit Facility provides liquidity support for commercial paper borrowings and general corporate purposes.  Accordingly, any outstanding commercial paper borrowings reduce borrowings available under the Credit Facility.  Since the Credit Facility expires in April 2012, any commercial paper borrowings supported by the Credit Facility are classified as long-term borrowings because the Company has the ability to refinance such borrowings on a long-term basis.

At September 30, 2007 and December 31, 2006, the Company had outstanding interest rate swaps associated with the entire outstanding principal of the 7% notes due in 2012 and $150 million of the outstanding principal of the 6.30% notes due in 2018.  The average variable interest rate on the 7% notes was 7.66 percent and 7.89 percent for September 30, 2007 and December 31, 2006, respectively.  The average variable interest rate on the 6.30% notes was 6.06 percent and 6.30 percent for September 30, 2007 and December 31, 2006, respectively.

7.	ASSET IMPAIRMENTS AND RESTRUCTURING CHARGES, NET

In the third quarter 2007 and first nine months 2007, asset impairments and restructuring charges totaled $120 million and $143 million, respectively, related primarily to the impairment of assets of Eastman's PET manufacturing facilities in Cosoleacaque, Mexico, and Zarate, Argentina which were classified as held for sale in the third quarter 2007.  The Company impaired the assets of these facilities in third quarter 2007 to adjust the asset values to the expected sales price less cost to sell. These charges were reflected in the Performance Polymers segment.  Also in third quarter 2007, the Company adjusted the severance accrual recorded in fourth quarter 2006 which resulted in a reversal which was reflected in all segments.

  NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

In the third quarter and first nine months 2006, asset impairments and restructuring charges totaled $13 million and $23 million, respectively, relating primarily to previously closed manufacturing facilities.

A majority of the remaining severance is expected to be applied to the reserves within one year.

 

 

In July 2006, the Company announced plans to change the U.S. defined benefit plans such that employees hired on or after January 1, 2007 will not be eligible for those plans.  This change did not impact net periodic benefit cost in 2006 and had minimal impact on the financial statements in the first nine months 2007.

The Company contributed $100 million and $75 million to its U.S. defined benefit plans during first nine months 2007 and 2006, respectively.

POSTRETIREMENT WELFARE PLANS

Eastman provides life insurance and health care benefits for eligible retirees, and health care benefits for retirees' eligible survivors.  In general, Eastman provides those benefits to retirees eligible under the Company's U.S. defined benefit pension plans.  A few of the Company's non-U.S. operations have supplemental health benefit plans for certain retirees, the cost of which is not significant to the Company.  Costs recognized for these benefits are recorded using estimated amounts, which may change as actual costs derived for the year are determined.  Below is a summary of the components of net periodic benefit cost recognized for the Company’s U.S. postretirement welfare plans:

 

Similar benefits are also provided to retirees of Holston Defense Corporation (“HDC”), a wholly-owned subsidiary of the Company that, prior to January 1, 1999, operated a government-owned ammunitions plant.  HDC’s contract with the Department of Army (“DOA”) provided for reimbursement of allowable costs incurred by HDC including certain postretirement welfare costs, for as long as HDC operated the plant.  After the contract was terminated at the end of 1998, the DOA did not contribute further to these costs.  The Company pursued extraordinary relief from the DOA and was granted an award in the amount of $95 million effective in the fourth quarter 2006.  This award was for reimbursement of the described costs and other previously expensed post-retirement benefit costs.  The Company began recognizing the impact of the reimbursement in fourth quarter 2006 by recording an unrecognized gain and amortizing the gain into earnings over a period of time.

In July 2006, the Company announced plans to change its U.S. life insurance and health care benefit plans such that employees hired on or after January 1, 2007 will have access to post-retirement health care benefits only, while Eastman will not provide a company contribution toward the premium cost of post-retirement benefits for those employees.  This change had minimal impact on the financial statements in the first nine months 2007.

9.	ENVIRONMENTAL MATTERS

Certain Eastman manufacturing sites 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 such cleanup costs.  In addition, the Company will be responsible for costs for environmental remediation and closure and postclosure 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" in the Company's 2006 Annual Report on Form 10-K.  Because of expected sharing of costs, the availability of legal defenses, and the Company’s preliminary assessment of actions that may be required, 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 of operations or cash flows.  The Company’s reserve for environmental contingencies was $43 million and $47 million at September 30, 2007 and December 31, 2006, respectively, representing the minimum or best estimate for remediation costs and the best estimate accrued to date over the facilities' estimated useful lives for asset retirement obligation costs.  Estimated future environmental expenditures for remediation costs range from the minimum or best estimate of $14 million to the maximum of $20 million at September 30, 2007 and the minimum or best estimate of $18 million to the maximum of $32 million at December 31, 2006.

 

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

10.	COMMITMENTS

Purchase Obligations and Lease Commitments

At September 30, 2007, the Company had various purchase obligations totaling approximately $2.2 billion over a period of approximately 15 years for materials, supplies, and energy incident to the ordinary conduct of business.  The Company also had various lease commitments for property and equipment under cancelable, non-cancelable, and month-to-month operating leases totaling approximately $200 million over a period of several years.  Of the total lease commitments, approximately 10 percent relate to machinery and equipment, including computer and communications equipment and production equipment; approximately 55 percent relate to real property, including office space, storage facilities and land; and approximately 35 percent relate to vehicles, primarily railcars.

Accounts Receivable Securitization Program

In 1999, the Company entered into an agreement that allows the Company to sell certain domestic accounts receivable under a planned continuous sale program to a third party.  The agreement permits the sale of undivided interests in domestic trade accounts receivable.  Receivables sold to the third party totaled $200 million at September 30, 2007 and December 31, 2006.  Undivided interests in designated receivable pools were sold to the purchaser with recourse limited to the purchased interest in the receivable pools.  Average monthly proceeds from collections reinvested in the continuous sale program were approximately $320 million and $334 million in the third quarter 2007 and 2006, respectively, and $308 million and $323 million for the first nine months of 2007 and 2006, respectively.

 

Guarantees

FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN 45"), clarifies the requirements of Statement of Financial Accounting Standards No. 5, “Accounting for Contingencies,” relating to the guarantor’s accounting for, and disclosure of, the issuance of certain types of guarantees.  If certain operating leases are terminated by the Company, it guarantees a portion of the residual value loss, if any, incurred by the lessors in disposing of the related assets.  Under these operating leases, the residual value guarantees at September 30, 2007   totaled $153 million and consisted primarily of leases for railcars, aircraft, and other equipment.  Leases with guarantee amounts totaling $2 million, $27 million, $9 million and $115 million will expire in 2007, 2008, 2011 and 2012, respectively.  The Company believes, based on current facts and circumstances, that the likelihood of a material payment pursuant to such guarantees is remote.

Variable Interest Entities

The Company has evaluated material relationships including the guarantees related to the third-party borrowings of joint ventures and has concluded that the entities are not Variable Interest Entities (“VIEs”) or, in the case of Primester, a joint venture that manufactures cellulose acetate at the Company's Kingsport, Tennessee plant, the Company is not the primary beneficiary of the VIE.  As such, in accordance with FASB Interpretation No. 46R "Consolidation of Variable Interest Entities" ("FIN 46R"), the Company is not required to consolidate these entities.  In addition, the Company has evaluated long-term purchase obligations with two entities that may be VIEs at September 30, 2007.  These potential VIEs are joint ventures from which the Company has purchased raw materials and utilities for several years and purchases approximately $70 million of raw materials and utilities on an annual basis.  The Company has no equity interest in these entities and has confirmed that one party to each of these joint ventures does consolidate the potential VIE.  However, due to competitive and other reasons, the Company has not been able to obtain the necessary financial information to determine whether the entities are VIEs, and if one or both are VIEs, whether or not the Company is the primary beneficiary.

 

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

11.	DERIVATIVE FINANCIAL INSTRUMENTS HELD OR ISSUED FOR PURPOSES OTHER THAN TRADING

Hedging Programs

Financial instruments held as part of the hedging programs described below are recorded at fair value based upon comparable market transactions as quoted by brokers.

The Company is exposed to market risk, such as changes in currency exchange rates, raw material and energy costs and interest rates.  The Company uses various derivative financial instruments pursuant to the Company's hedging policies to mitigate these market risk factors and their effect on the cash flows of the underlying transactions. Designation is performed on a specific exposure basis to support hedge accounting.  The changes in fair value of these hedging instruments are offset in part or in whole by corresponding changes in the cash flows of the underlying exposures being hedged.  The Company does not hold or issue derivative financial instruments for trading purposes. For further information, see Note 9 to the consolidated financial statements in Part II, Item 8 of the Company's 2006 Annual Report on Form 10-K.

At September 30, 2007, mark-to-market gains from raw material and energy, currency and certain interest rate hedges that were included in accumulated other comprehensive loss totaled approximately $11 million, and if realized, the majority will be reclassified into earnings during the next 12 months.  The mark-to-market gains or losses on non-qualifying, excluded and ineffective portions of hedges are immediately recognized in cost of sales or other income and charges.  Such amounts did not have a material impact on earnings during the third quarter of 2007.

(1)   Includes cash dividends paid and dividends declared but unpaid.

(2)    The tax benefits relating to the difference between the amounts deductible for federal income taxes over the amounts charged to income for financial reporting purposes have been credited to paid-in capital.

(3) Includes the fair value of equity share-based awards recognized under SFAS No. 123 Revised December 2004 ("SFAS No. 123(R)"), "Share-Based Payment".

 

(1)    SFAS No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans" ("SFAS No. 158").

Except for cumulative translation adjustment, amounts of other comprehensive loss are presented net of applicable taxes.  Because cumulative translation adjustment is considered a component of permanently invested unremitted earnings of subsidiaries outside the United States, no taxes are provided on such amounts.

In the third quarter and first nine months 2007, common shares underlying options to purchase 20,000 shares of common stock and 591,233 shares of common stock, respectively, were excluded from the computation of diluted earnings per share, because the total market value of option exercises for these awards was less than the total proceeds that would be received for these awards.  Additionally, the basic and diluted shares were reduced in third quarter and first nine months 2007 as a result of the share repurchase program completed in third quarter 2007.  For third quarter and first nine months 2007, a total of 3,231,348 shares and 4,601,448 shares, respectively, were repurchased.  

 

In the third quarter and first nine months 2006, common shares underlying options to purchase 2,193,779 shares of common stock for both periods were excluded from the computation of diluted earnings per share because, the total market value of option exercises for these awards was less than the total proceeds that would be received for these awards.

 

The Company declared cash dividends of $0.44 per share in the third quarters 2007 and 2006 and $1.32 per share in the first nine months 2007 and 2006.

 

 

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

14.	SHARE-BASED COMPENSATION AWARDS

In the third quarter and first nine months 2007, approximately $5 million and $18 million, respectively, of compensation expense before tax was recognized in selling, general and administrative expense in the earnings statement for all share-based awards. The impact on third quarter 2007 net earnings of $3 million is net of a $2 million credit to deferred tax expense for recognition of deferred tax assets.  The impact on the first nine months 2007 net earnings of $11 million is net of a $7 million credit to deferred tax expense for recognition of deferred tax assets.

In the third quarter and first nine months 2006, approximately $4 million and $15 million, respectively, of compensation expense before tax was recognized in selling, general and administrative expense in the earnings statement for all share-based awards of which approximately $2 million and $6 million related to stock options in the third quarter and the first nine months 2006, respectively.  The impact on third quarter 2006 net earnings of $2 million is net of a $2 million credit to deferred tax expense for recognition of deferred tax assets.  The impact on the first nine months 2006 net earnings of $9 million is net of a $6 million credit to deferred tax expense for recognition of deferred tax assets.

Additional information regarding share-based compensation may be found in Note 15 to the consolidated financial statements in Part II, Item 8 of the Company's 2006 Annual Report on Form 10-K.

Stockholders approved the 2007 Omnibus Long-Term Compensation Plan at the annual stockholders' meeting held on May 3, 2007.  This new plan, effective with the date of approval, replaces the 2002 Omnibus Long-Term Compensation Plan.

15.	SEGMENT INFORMATION

The Company's products and operations are managed and reported in five reportable operating segments, consisting of the Coatings, Adhesives, Specialty Polymers and Inks ("CASPI") segment, the Fibers segment, the Performance Chemicals and Intermediates ("PCI") segment, the Performance Polymers segment and the SP segment.  For additional information concerning the Company's segments' businesses and products, refer to Note 21 to the consolidated financial statements in Part II, Item 8 of the Company's 2006 Annual Report on Form 10-K.

Revenues, research and development, other expenses and assets not identifiable to an operating segment are not included in segment operating results for either of the periods presented and are shown in the tables below as "other" revenues, operating losses and assets.

In fourth quarter 2006, certain product lines were transferred from the PCI segment to the Performance Polymers segment.  Accordingly, the 2006 amounts for sales and operating earnings have been adjusted to retrospectively apply these changes to all periods presented.

 

(1) Operating earnings (loss) for the following segments include asset impairments and restructuring charges:  CASPI includes $(1) million in the third quarter 2007 related primarily to an adjustment to severance charges recorded in fourth quarter 2006; PCI includes $(1) million in the third quarter 2007 related primarily to an adjustment to severance charges recorded in fourth quarter 2006 and $11 million in the third quarter 2006 for the expected divestiture of the Arkansas facility; Performance Polymers includes $120 million in the third quarter of 2007 relating primarily to the divestiture of PET assets in Latin America; and Other includes $2 million in the third quarter 2007 related to an intangible asset impairment  and $2 million in third quarter 2006 for Cendian's shutdown of its business activities.  Operating earnings (loss) for the third quarter 2007 in the PCI and Performance Polymers segments also include $2 million and $7 million, respectively, in accelerated depreciation costs related to cracking units at the Company's Longview, Texas facility and polymer assets in Columbia, South Carolina.

 

(1)

Operating earnings (loss) for the following segments include asset impairments and restructuring charges:  CASPI includes $(1) million in the first nine months 2007 related primarily to an adjustment to severance charges recorded in fourth quarter 2006 and $8 million in first nine months 2006 relating primarily to the divestiture of previously closed manufacturing facilities; PCI includes $(1) million in the first nine months 2007 related primarily to an adjustment to severance charges recorded in fourth quarter 2006 and $11 million in the first nine months 2006 for the expected divestiture of the Arkansas facility; Performance Polymers includes $142 million in the first nine months 2007 related to the divestiture of PET assets in Latin America and Europe; SP includes $1 million in the first nine months 2007 relating primarily to the San Roque, Spain CHDM facility; and Other includes $2 million in first nine months 2007 related to an intangible asset impairment and $4 million in the first nine months 2006 for Cendian's shutdown of its business activities. Operating earnings (loss) for the first nine months 2007 in the PCI, Performance Polymers and SP segments also include $16 million, $20 million and $1 million, respectively, in accelerated depreciation costs related to cracking units at the Company's Longview, Texas facility and polymer assets in Columbia, South Carolina.

(1)	Assets managed by segments include accounts receivable, inventory, fixed assets and goodwill.

(2)	The Performance Polymers assets have decreased as a result of asset impairments, divestitures in Europe and assets held for sale in Latin America.

(3)	For more information regarding assets held for sale, see Note 2 to the Company's unaudited consolidated financial statements .

 

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

General

From time to time, the Company 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 being 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, including the sorbates litigation and the asbestos litigation (described below), will have a material adverse effect on its overall financial condition, results of operations or cash flows.  However, adverse developments could negatively impact

earnings or cash flows in a particular future period.

Sorbates Litigation

Over time, the Company has been named in several putative class action lawsuits filed on behalf of purchasers of sorbates and products containing sorbates, claiming those purchasers paid more for sorbates and for products containing sorbates than they would have paid in the absence of the defendants’ price-fixing. Two civil cases relating to sorbates remain.  In each case, the Company prevailed at the trial court, and in each case, the plaintiff appealed the trial court's decision.  In one case, the appellate court affirmed the trial court's dismissal of all claims, except the plaintiff's claim for civil penalties.  In the other case, the court of appeals overturned the trial court's decision and ruled that the plaintiff could amend and re-file its complaint with the trial court.  The Company appealed this decision to the state supreme court, which declined to review the decision.  Accordingly, the plaintiff filed its Second Amended Complaint on July 9, 2007.  In each case the Company intends to continue to vigorously defend its position.

Asbestos Litigation

Over the years, Eastman has been named as a defendant, along with numerous other defendants, in lawsuits in various state courts in which plaintiffs have alleged injury due to exposure to asbestos at Eastman’s manufacturing sites.  More recently, certain plaintiffs have claimed exposure to an asbestos-containing plastic, which Eastman manufactured in limited amounts between the mid-1960’s and the early 1970’s.

To date, the Company has obtained dismissals or settlements of its asbestos-related lawsuits with no material effect on its financial condition, results of operations or cash flows, and over the past several years, has substantially reduced its number of pending asbestos-related claims.  The Company has also confirmed insurance coverage that applies to a portion of certain of the Company’s defense costs and payments of settlements or judgments in connection with asbestos-related lawsuits.

Based on an ongoing evaluation, the Company believes that the resolution of its pending asbestos claims will not have a material impact on the Company’s financial condition, results of operations, or cash flows, although these matters could result in the Company being subject to monetary damages, costs or expenses, and charges against earnings in particular periods.

17.	RECENTLY ISSUED ACCOUNTING STANDARDS

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements," ("SFAS No. 157") which addresses the measurement of fair value by companies when they are required to use a fair value measure for recognition or disclosure purposes under GAAP.  SFAS No. 157 provides a common definition of fair value to be used throughout GAAP which is intended to make the measurement of fair value more consistent and comparable and improve disclosures about those measures.  SFAS No. 157 will be effective for an entity's financial statements issued for fiscal years beginning after November 15, 2007.  The Company is currently evaluating the effect SFAS No. 157 will have on its consolidated financial position, liquidity, or results of operations.

 

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

In February, 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 115" ("SFAS No. 159").  SFAS No. 159 permits companies to choose to measure many financial instruments and certain other items at fair value at specified election dates.  Upon adoption, an entity shall report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date.  Most of the provisions apply only to entities that elect the fair value option.  However, the amendment to SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," applies to all entities with available for sale and trading securities.  SFAS No. 159 will be effective as of the beginning of an entity's first fiscal year that begins after November 15, 2007.  The Company is currently evaluating the effect SFAS No. 159 will have on its consolidated financial position, liquidity, or results of operations.

 

18.	DIVESTITURE

Certain Businesses and Product Lines and Related Assets in Performance Polymers Segments

 

On April 30, 2007, the Company sold its San Roque, Spain PET manufacturing facility in the Performance Polymer's segment for net proceeds of approximately $43 million.  The Company also retained approximately $12 million of accounts receivable related to this manufacturing site.  The Company will continue to produce certain intermediate products for the buyer under ongoing supply agreements with indefinite terms.  In addition, the Company indemnified the buyer against certain liabilities primarily related to taxes, legal matters, environmental matters, and other representations and warranties.  During the first nine months 2007, the Company has recorded an impairment charge and site closure costs of $21 million related to the San Roque PET site.