<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission file number 1-12626
EASTMAN CHEMICAL COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 62-1539359
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 N. EASTMAN ROAD
KINGSPORT, TENNESSEE 37660
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (423) 229-2000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Number of Shares Outstanding at
Class March 31, 1997
Common Stock, par value $0.01 per share 78,356,078
- --------------------------------------------------------------------------------
PAGE 1 OF 19 TOTAL SEQUENTIALLY NUMBER PAGES
EXHIBIT INDEX ON PAGE 15
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
------------------------------------------------------------------------------------------------
ITEM PAGE
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PART I. FINANCIAL INFORMATION
<S> <C>
1. Financial Statements 3 - 6
2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 7-12
PART II. OTHER INFORMATION
1. Legal Proceedings 13
2. Changes in Securities 13
6. Exhibits and Reports on Form 8-K 13
SIGNATURES
Signatures 14
</TABLE>
2
<PAGE> 3
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FIRST QUARTER
1997 1996
<S> <C> <C>
Sales $ 1,171 $ 1,261
Cost of sales 911 940
-------- ---------
Gross profit 260 321
Selling and general administrative expenses 78 84
Research and development costs 48 46
-------- ---------
Operating earnings 134 191
Interest expense, net 19 15
Other (income) charges, net 1 (2)
-------- --------
Earnings before income taxes 114 178
Provision for income taxes 42 66
-------- ---------
Net earnings $ 72 $ 112
======== =========
Net earnings per share $ .92 $ 1.39
======== =========
Retained earnings at beginning of period $ 1,929 $ 1,684
Net earnings 72 112
Cash dividends declared (35) (33)
--------- ---------
Retained earnings at end of period $ 1,966 $ 1,763
======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 51 $ 24
Receivables 794 744
Inventories 472 465
Other current assets 114 112
--------- ---------
Total current assets 1,431 1,345
--------- ---------
Properties
Properties and equipment at cost 7,656 7,530
Less: Accumulated depreciation 4,069 4,010
--------- ---------
Net properties 3,587 3,520
--------- ---------
Other noncurrent assets 448 401
--------- ---------
Total assets $ 5,466 $ 5,266
========= =========
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities
Payables $ 612 $ 708
Other current liabilities 88 79
--------- ---------
Total current liabilities 700 787
Long-term borrowings 1,727 1,523
Deferred income tax credits 351 348
Postemployment obligations 759 722
Other long-term liabilities 246 247
--------- ---------
Total liabilities 3,783 3,627
--------- ---------
Shareowners' equity
Common stock ($0.01 par-350,000,000 shares authorized;
shares issued - 84,047,156 and 83,386,459) 1 1
Paid-in capital 74 37
Retained earnings 1,966 1,929
Cumulative translation adjustment 8 31
--------- ---------
2,049 1,998
Less: Treasury stock at cost (5,889,311 and 5,766,528 shares) 366 359
--------- ---------
Total shareowners' equity 1,683 1,639
--------- ---------
Total liabilities and shareowners' equity $ 5,466 $ 5,266
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
FIRST QUARTER
1997 1996
<S> <C> <C>
Cash flows from operating activities
Net earnings $ 72 $ 112
--------- ---------
Adjustments to reconcile net earnings to net
cash provided by operating activities
Depreciation 79 76
Provision (benefit) for deferred income taxes 3 (2)
Increase in receivables (53) (71)
(Increase) decrease in inventories (19) 16
Decrease in incentive pay and employee
benefit liabilities (43) (170)
Increase in liabilities excluding borrowings,
incentive pay, and employee benefit liabilities 24 43
Other items, net (10) 2
---------- ---------
Total adjustments (19) (106)
---------- ----------
Net cash provided by operating activities 53 6
--------- ---------
Cash flows from investing activities
Additions to properties and equipment (168) (125)
Proceeds from sales of assets 1 9
Capital advances to suppliers (22) (25)
Other items - 2
--------- ---------
Net cash used in investing activities (189) (139)
---------- ---------
Cash flows from financing activities
Net increase (decrease) in commercial paper borrowings (91) 154
Proceeds from long-term borrowings 295 -
Dividends paid to shareowners (34) (34)
Treasury stock purchases (8) (55)
Other items 1 8
--------- ---------
Net cash provided by financing activities 163 73
--------- ---------
Net change in cash and cash equivalents 27 (60)
Cash and cash equivalents at beginning of period 24 100
--------- ---------
Cash and cash equivalents at end of period $ 51 $ 40
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements have
been prepared by the Company in accordance and consistent with the
accounting policies stated in the Company's 1996 Annual Report on Form 10-K
and should be read in conjunction with the consolidated financial statements
appearing therein. In the opinion of the Company, all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation have been included in the interim consolidated financial
statements. The interim consolidated financial statements are based in part
on approximations and have not been audited by independent accountants.
2. INVENTORIES
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
(Dollars in millions) 1997 1996
<S> <C> <C>
At FIFO or average cost (approximates current cost):
Finished goods $ 425 $ 426
Work in process 134 133
Raw materials and supplies 197 214
--------- ---------
Total inventories at FIFO or average cost 756 773
--------- ---------
Reduction to LIFO value (284) (308)
---------- ---------
Total inventories at LIFO value $ 472 $ 465
========= =========
</TABLE>
Inventories valued on the LIFO method are approximately 80% of total
inventories in each of the periods.
3. DIVIDENDS
<TABLE>
<CAPTION>
FIRST QUARTER
1997 1996
<S> <C> <C>
Cash dividends declared per share $ .44 $ .42
</TABLE>
4. SUPPLEMENTAL CASH FLOW INFORMATION
In March 1997 the Company issued 611,962 shares of its common stock with a
market value of $34 million to its Employee Stock Ownership Plan as partial
settlement of the Company's Eastman Performance Plan payout. This noncash
transaction is not reflected in the consolidated statement of cash flow.
6
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the Company's Consolidated
Financial Statements and Management's Discussion and Analysis contained in the
1996 Annual Report on Form 10-K and the unaudited interim consolidated financial
statements included elsewhere in this report.
RESULTS OF OPERATIONS
First quarter 1997 reflects a reduction in earnings compared to first quarter
1996. However, in comparison with fourth quarter 1996 results, earnings
increased 19%. The Company's net earnings for the first quarter annualized
produced a return on equity of 17 percent. Excluding EASTAPAK PET, the rest of
Eastman's business did well during the first quarter, with overall increases in
both revenue and operating earnings.
EARNINGS
<TABLE>
<CAPTION>
(Dollars in millions, except FIRST QUARTER
per share amounts) 1997 1996 CHANGE
<S> <C> <C> <C>
Operating earnings $ 134 $ 191 (30)%
Net earnings 72 112 (36)
Net earnings per share .92 1.39 (34)
</TABLE>
<TABLE>
<CAPTION>
FIRST QUARTER
1997 1996 CHANGE
CHANGES IN EARNINGS PER SHARE
<S> <C> <C> <C>
Net earnings per share $ .92 $ 1.39 $ (.47)
=======
Operations
Selling price $ (1.03)
Volume and mix .10
Raw materials, supplies, and
energy costs .51
Variable-incentive pay .17
Other (.19)
-------
Change from operations (.44)
Other
Interest expense, net (.03)
Other income/charges (.03)
Fewer shares outstanding .03
-------
Total change $ (.47)
=======
</TABLE>
The principal factor contributing to the first quarter 1997 earnings decline was
significantly lower selling prices industry wide for polyethylene terephthalate
("PET"). Increases in distribution expense also negatively impacted operating
earnings; this increase is primarily due to costs associated with the
interregional movement of PET prior to completion of new manufacturing
facilities in Europe in order to meet market demand. Positive impacts on overall
earnings were lower variable-incentive compensation and lower paraxylene,
purified terephthalic acid ("PTA") and other purchased raw material and energy
costs, partially offset by higher propane feedstock costs. Moderate increases in
overall unit volumes and minor gains in labor productivity also positively
impacted earnings. Preproduction costs incurred during first quarter 1997 were
slightly less than those incurred during first quarter 1996. Currency
fluctuations had a minor negative effect on earnings.
7
<PAGE> 8
SUMMARY BY INDUSTRY SEGMENT
SPECIALTY AND PERFORMANCE SEGMENT
<TABLE>
<CAPTION>
FIRST QUARTER
(Dollars in millions) 1997 1996 CHANGE
<S> <C> <C> <C>
Sales $ 669 $ 663 1%
Operating earnings 128 119 8
</TABLE>
The increase in Specialty and Performance segment sales and earnings was
attributable to an increase in units sold, offset by lower selling prices. In
addition, lower raw material costs had a positive impact on earnings. Good unit
volume gains achieved by the Company's coatings, inks, and resins products
contributed to the substantial increase in sales and earnings. Specialty
plastics unit volume gains were more than offset by lower prices. Operating
earnings for specialty plastics products increased as a result of lower costs
and improved equipment utilization for cellulosic plastics, and stable prices
with lower raw material costs for specialty polyesters. The Company's fibers
products realized increased selling prices; however, lower unit volumes resulted
in slightly lower sales and earnings. Performance chemicals sales declined due
to lower unit volumes resulting from divestiture of several product lines in
1996. Earnings for performance chemicals products were negatively impacted by
production problems in EASTOTAC Resins and lower prices for sorbates following
start-up of new industry capacity.
CORE PLASTICS SEGMENT
<TABLE>
<CAPTION>
FIRST QUARTER
(Dollars in millions) 1997 1996 CHANGE
<S> <C> <C> <C>
Sales $ 318 $ 423 (25)%
Operating earnings (loss) (22) 40 (155)
</TABLE>
The sales change in the Core Plastics segment was attributed to the segment's
two major products: EASTAPAK PET and TENITE polyethylene. Significantly lower
EASTAPAK PET sales resulted from significantly lower selling prices, partially
offset by a 13% gain in units sold. Worldwide increases in industry capacity,
along with near-term additional capacity under construction, created the
conditions for significant price erosion for PET that occurred in 1996 and
continued into early 1997. A significant increase in TENITE polyethylene prices
was partially offset by decreased units sold. The decrease in TENITE
polyethylene units sold was due to limited ethylene availability caused by a
delay in construction of the new ethylene pipeline. Decreased operating earnings
for the segment were attributed primarily to significantly lower EASTAPAK PET
selling prices, higher propane raw material costs, and lower TENITE polyethylene
unit volumes, partially offset by increased EASTAPAK PET unit volumes, lower
paraxylene and PTA raw material costs, and significantly higher TENITE
polyethylene selling prices.
CHEMICAL INTERMEDIATES SEGMENT
<TABLE>
<CAPTION>
FIRST QUARTER
(Dollars in millions) 1997 1996 CHANGE
<S> <C> <C> <C>
Sales $ 184 $ 175 5%
Operating earnings 28 32 (13)
</TABLE>
Increased sales in the Chemical Intermediates segment were attributed to an
increase in units sold, primarily related to oxo chemicals, partially offset by
lower selling prices. Decreased operating earnings were mainly attributed to
lower selling prices for oxo chemicals and plasticizers and higher propane raw
material costs.
(For supplemental analysis of Specialty and Performance, Core Plastics, and
Chemical Intermediates segment results, see Exhibit 99.01 to this Form 10-Q.)
8
<PAGE> 9
Summary by Customer Location
SALES BY REGION
<TABLE>
<CAPTION>
FIRST QUARTER
(Dollars in millions) 1997 1996 CHANGE
<S> <C> <C> <C>
United States and Canada $ 763 $ 839 (9)%
Europe, Middle East, and Africa 192 208 (8)%
Asia Pacific 131 134 (2)%
Latin America 85 80 6%
</TABLE>
Sales in the United States for first quarter 1997 were $720 million, down 8%
from 1996 first quarter sales of $784 million. Decreased sales were attributed
to lower selling prices and a slight decrease in units sold.
Sales outside the United States for first quarter 1997 were down 5% from 1996
and were 39% of total sales for first quarter 1997, compared with 38% for first
quarter 1996. Decreased sales in Europe, Middle East, and Africa were primarily
due to lower EASTAPAK PET selling prices and negative foreign exchange effects,
partially offset by an increase in units sold. Increased sales in Latin America
resulted primarily from higher EASTAPAK PET units sold, partially offset by
lower selling prices.
SUMMARY OF CONSOLIDATED RESULTS
<TABLE>
<CAPTION>
FIRST QUARTER
(Dollars in millions) 1997 1996 CHANGE
<S> <C> <C> <C>
SALES $ 1,171 $ 1,261 (7)%
</TABLE>
Sales decreased due to significantly lower selling prices, partially offset by
moderate overall unit volume gains. Currency fluctuations had a minor negative
effect on sales.
<TABLE>
<CAPTION>
FIRST QUARTER
(Dollars in millions) 1997 1996 CHANGE
<S> <C> <C> <C>
GROSS PROFIT $ 260 $ 321 (19)%
As a percentage of sales 22.2% 25.5%
</TABLE>
Gross profit decline was principally attributed to lower selling prices and
increased distribution costs, partially offset by lower overall purchased raw
material costs, decreased variable-incentive compensation, and an increase in
units sold.
<TABLE>
<CAPTION>
FIRST QUARTER
(Dollars in millions) 1997 1996 CHANGE
<S> <C> <C> <C>
SELLING AND GENERAL
ADMINISTRATIVE EXPENSES $ 78 $ 84 (7)%
As a percentage of sales 6.7% 6.7%
</TABLE>
The decrease in selling and general administrative expenses was primarily
attributed to decreased variable-incentive compensation costs.
9
<PAGE> 10
<TABLE>
<CAPTION>
FIRST QUARTER
(Dollars in millions) 1997 1996 CHANGE
<S> <C> <C> <C>
RESEARCH AND
DEVELOPMENT COSTS $ 48 $ 46 4%
As a percentage of sales 4.1% 3.6%
</TABLE>
Research and development costs increased because of an increase in research and
development activities, partially offset by lower variable-incentive
compensation.
<TABLE>
<CAPTION>
FIRST QUARTER
(Dollars in millions) 1997 1996 CHANGE
<S> <C> <C>
GROSS INTEREST COSTS $ 29 $ 21
LESS CAPITALIZED INTEREST 10 6
--------- ---------
NET INTEREST EXPENSE $ 19 $ 15 27%
========= =========
</TABLE>
Interest costs increased due to an increase in long-term borrowings and
commercial paper and higher overall effective interest rates. The increase in
capitalized interest is associated with the major capital investment program
currently underway within the Company.
<TABLE>
<CAPTION>
FIRST QUARTER
(Dollars in millions) 1997 1996 CHANGE
<S> <C> <C>
OTHER (INCOME) CHARGES, NET $ 1 $ (2) - %
</TABLE>
Other income and other charges include interest income, royalty income, gains
and losses on asset sales, results from equity investments, foreign exchange
transactions, and other items.
LIQUIDITY, CAPITAL RESOURCES AND OTHER FINANCIAL DATA
<TABLE>
<CAPTION>
FINANCIAL INDICATORS 1997 1996
<S> <C> <C>
For the first three months
Ratio of earnings to fixed charges 4.1x 7.8x
At the period ended March 31 and December 31
Current ratio 2.0x 1.7x
Percent of long-term borrowings to total capital 51% 48%
Percent of floating-rate borrowings to total borrowings 13% 21%
CASH FLOW FIRST QUARTER
(Dollars in millions) 1997 1996
Net cash provided by (used in)
Operating activities $ 53 $ 6
Investing activities (189) (139)
Financing activities 163 73
----- -----
Net change in cash and cash equivalents $ 27 $ (60)
===== =====
Cash and cash equivalents at end of period $ 51 $ 40
===== =====
</TABLE>
Cash provided by operations increased primarily as a result of lower
variable-incentive compensation accruals at year-end 1996 compared to year-end
1995. The increase in cash used in investing activities is consistent with the
Company's global expansion activities and primarily reflects capital expenditure
increases. Cash provided by financing activities reflects proceeds received from
a $300 million issuance of 7.60% debentures in early 1997, which were used to
repay commercial paper borrowings outstanding at that time. Commercial paper
borrowings have increased $204 million since the refinancing. An additional
factor affecting cash flows from financing activities was the decrease in
treasury stock purchases in 1997.
10
<PAGE> 11
CAPITAL EXPENDITURES
Eastman anticipates that total capital expenditures in 1997 will be
approximately $850 million, primarily for previously announced expansions in
worldwide manufacturing capacity. As PET expansion projects are completed, the
Company expects capital expenditures to decrease significantly. Depreciation
expense is expected to be approximately $330 million in 1997.
LIQUIDITY
Eastman has access to an $800 million revolving credit facility ("Credit
Facility") expiring in December 2000. Although the Company does not have any
amounts outstanding under the Credit Facility, any such borrowings would be
subject to interest at varying spreads above quoted market rates, principally
LIBOR. The Credit Facility also requires a facility fee on the total commitment
that varies based on Eastman's credit rating. The annual rate for such fee was
0.075% as of March 31, 1997. The Credit Facility contains a number of covenants
and events of default, including the maintenance of certain financial ratios.
Eastman was in compliance with all such covenants for all periods.
Eastman utilizes commercial paper, generally with maturities of 90 days or less,
to meet its liquidity needs. The Company's commercial paper, supported by the
Credit Facility, is classified as long-term borrowings because the Company has
the ability and intent to refinance such borrowings long-term. As of March 31,
1997, the Company's commercial paper outstanding balance was $204 million at an
effective interest rate of 5.59%.
During first quarter 1997 the Company issued $300 million of 7.60% debentures
due February 1, 2027, and used the proceeds to repay previously outstanding
commercial paper borrowings.
In February 1996 the Company announced plans to repurchase up to $400 million of
additional Eastman common shares. In 1996 the Company repurchased $161 million
of Eastman common stock under the announced repurchase program, and during first
quarter 1997 acquired an additional 140,801 shares at a cost of $8 million.
Given the Company's capital expenditure program for 1997, Eastman does not
expect to make any significant share repurchases in 1997. Repurchased shares may
be used to meet common stock requirements for compensation and benefit plans and
other corporate purposes.
Existing sources of capital, together with cash flows from operations, are
expected to be sufficient to meet the Company's foreseeable cash flow
requirements.
<TABLE>
<CAPTION>
DIVIDENDS FIRST QUARTER
1997 1996
<S> <C> <C>
Cash dividends declared per share $ .44 $ .42
</TABLE>
RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997 the Financial Accounting Standards Board issued SFAS 128,
"Earnings per Share," which is effective for financial statements for both
interim and annual periods ending after December 15, 1997. Pro forma disclosures
of earnings per share calculated in accordance with the new standard follows:
<TABLE>
<CAPTION>
FIRST QUARTER
1997 1996
<S> <C> <C>
Pro forma Basic EPS $ .93 $ 1.41
Pro forma Diluted EPS .92 1.39
</TABLE>
11
<PAGE> 12
In January 1997 the SEC issued its Release on Derivative and Market Risk
Disclosures. The Release requires enhanced disclosure of accounting policies for
derivatives as well as quantitative and qualitative disclosures about market
risk inherent in derivatives and other financial instruments outside the
financial statements. The Company plans to comply with the provisions of this
Release which become effective for the Company's year-end 1997 financial
reporting.
OUTLOOK
Looking forward, the Company expects continued good demand for its products in
1997. For Specialty and Performance Segment products, the Company expects
incremental capacity gains for fibers and various chemicals to result in
moderate increases in units sold and revenues compared with 1996. The Company
expects double-digit volume growth for its Core Plastics Segment products
resulting from increased demand and additional available capacity for EASTAPAK
PET. The Company also expects EASTAPAK PET selling prices to remain under
significant pressure in 1997 due to growth in capacity over the next 1-2 years
in the worldwide PET industry, and negative revenue and earnings comparisons for
Core Plastics for 1997 compared with 1996. Polyethylene volumes may continue to
be negatively impacted through the second quarter of 1997 due to the delay in
construction of the new ethylene pipeline. The Company anticipates modest volume
growth to more than offset lower prices for its Chemical Intermediates segment
products. The Company is prepared to take the necessary steps through its
capital spending program and its Advantaged Cost 2000 initiative, to maintain
the financial flexibility necessary to realize its full potential to create
value. The Company's Advantaged Cost 2000 initiative target for 1997 is $100
million in labor and material productivity gains and also $100 million for 1998.
In 1998 the Company expects lower capital spending and slightly higher
depreciation expense.
The above-stated expectations, other forward-looking statements in this report,
and other statements of the Company relating to matters such as cost reduction
targets; planned capacity increases and capital spending; expected depreciation;
and supply and demand, units sold, price, margin, and earnings expectations for
individual products, businesses, and segments, as well as for the whole of the
Company, are based upon certain underlying assumptions. These assumptions are in
turn based upon internal estimates and analyses of current market conditions and
trends, management plans and strategies, economic conditions, and other factors
and are subject to risks and uncertainties inherent in projecting future
conditions and results.
The forward-looking statements in this Management's Discussion and Analysis are
based upon the following assumptions and those mentioned in the context of the
specific statements: relatively stable business conditions in North America,
improving business conditions in Europe, and continued growth in Latin America
and Asia Pacific, supporting continued good overall demand for the Company's
products; continued demand growth worldwide for PET; continued capacity
additions within the PET industry worldwide; availability of scheduled Eastman
capacity increases; and labor and material productivity gains sufficient to meet
targeted cost structure reductions. Actual results could differ materially from
current expectations if one or more of these assumptions prove to be inaccurate
or are unrealized.
- ------------------------------------
EASTAPAK, TENITE, and EASTOTAC are trademarks of Eastman Chemical Company.
12
<PAGE> 13
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
LEGAL PROCEEDINGS
The Company's operations are parties to or targets of lawsuits,
claims, investigations, and proceedings, including product liability,
patent, commercial, environmental, and health and safety matters,
which are being handled and defended in the ordinary course of
business. No such pending matters are expected to have a material
adverse effect on the Company's financial condition or results of
operations.
ITEM 2. CHANGES IN SECURITIES
(c) On January 2, 1997, the Company granted options to purchase an
aggregate of 2,213 shares of its common stock on or after July
2, 1997 at an exercise price of $54.6250 per share. Such options
were granted to non-employee directors who elected under the
1996 Non-Employee Director Stock Option Plan to receive options
in lieu of all or a portion of their semi-annual cash retainer
fee. The Company issued the options in reliance upon the
exemption from registration of Section 4(2) of the Securities
Act of 1933.
The Company did not sell any other equity securities during the
quarterly period ended March 31, 1997 in transactions not
registered under the Securities Act of 1933. For information
concerning issuance of shares of Common Stock in March 1997 to
the Company's ESOP, see Part I. Financial Information -- Item 1.
Financial Statements -- Note 4 to Consolidated Financial
Statements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits filed as part of this report are listed in the Exhibit
Index appearing on page 15.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the
quarter ended March 31, 1997.
13
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Eastman Chemical Company
Date: April 30, 1997 By: /s/ H. Virgil Stephens
----------------------
H. Virgil Stephens
Senior Vice President and
Chief Financial Officer
(On behalf of the Registrant and as
Principal Financial Officer)
14
<PAGE> 15
<TABLE>
<CAPTION>
EXHIBIT INDEX
EXHIBIT DESCRIPTION SEQUENTIAL
NUMBER PAGE
NUMBER
<S> <C> <C>
3.01 Amended and Restated Certificate of Incorporation of
Eastman Chemical Company (incorporated herein by reference
to Exhibit 3.01 to Eastman Chemical Company's Registration
Statement on Form S-1, File No. 33-72364, as amended)
3.02 Amended and Restated By-laws of Eastman Chemical Company, as
amended October 1, 1994 (incorporated by reference to Exhibit
3.02 to Eastman Chemical Company's Annual Report on Form 10-K
for the year ended December 31, 1994)
4.01 Form of Eastman Chemical Company Common Stock certificate
(incorporated herein by reference to Exhibit 3.02 to Eastman
Chemical Company's Annual Report on Form 10-K for the year
ended December 31, 1993)
4.02 Stockholder Protection Rights Agreement dated as of December
13, 1993, between Eastman Chemical Company and First Chicago
Trust Company of New York, as Rights Agent (incorporated
herein by reference to Exhibit 4.4 to Eastman Chemical
Company's Registration Statement on Form S-8 relating to the
Eastman Investment Plan, File No. 33-73810)
4.03 Indenture, dated as of January 10, 1994, between Eastman
Chemical Company and The Bank of New York, as Trustee
(incorporated herein by reference to Exhibit 4(a) to Eastman
Chemical Company's current report on Form 8-K dated January
10, 1994 (the "8-K"))
4.04 Form of 6 3/8% Notes due January 15, 2004 (incorporated
herein by reference to Exhibit 4(c) to the 8-K)
4.05 Form of 7 1/4% Debentures due January 15, 2024
(incorporated herein by reference to Exhibit 4(d) to the
8-K)
4.06 Officers' Certificate pursuant to Sections 201 and 301 of the
Indenture (incorporated herein by reference to Exhibit 4(a) to
Eastman Chemical Company's Current Report on Form 8-K dated
June 8, 1994 (the "June 8-K"))
4.07 Form of 7 5/8% Debentures due June 15, 2024 (incorporated
herein by reference to Exhibit 4(b) to the June 8-K)
4.08 Form of 7.60% Debenture due February 1, 2027 (incorporated
herein by reference to Exhibit 4.08 to Eastman Chemical
Company's Annual Report on Form 10-K for the year ended
December 31, 1996 (the "1996 10-K")
</TABLE>
15
<PAGE> 16
<TABLE>
<CAPTION>
EXHIBIT INDEX
EXHIBIT DESCRIPTION SEQUENTIAL
NUMBER PAGE
NUMBER
<S> <C> <C>
4.09 Officer's Certificate pursant to Sections 201 and 301 of
the Indenture related to 7.60% Debentures due February 1,
2027 (incorporated herein by reference to Exhibit 4.09 to
the 1996 10-K)
4.10 Credit Agreement, dated as of December 19, 1995 (the "Credit
Agreement") among Eastman Chemical Company, the Lenders named
therein, and The Chase Manhattan Bank, as Agent (incorporated
herein by reference to Exhibit 4.08 to Eastman Chemical
Company's Annual Report on Form 10-K for the year ended
December 31, 1995)
11.01 Statement re Computation of Earnings Per Common Share 17
12.01 Statement re Computation of Ratios of Earnings to Fixed 18
Charges
27.01 Financial Data Schedule (for SEC use only)
99.01 Supplemental Business Segment Information 19
</TABLE>
16
<PAGE> 1
EXHIBIT 11.01
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FIRST QUARTER
1997 1996
<S> <C> <C>
Net earnings $ 72 $ 112
======== =========
Average number of common shares outstanding 77.6 79.7
Common share equivalents (1) 0.6 0.9
-------- ---------
Average number of common shares and
share equivalents 78.2 80.6
======== =========
Net earnings per share (2) $ .92 $ 1.39
======== =========
</TABLE>
- -----------------------
(1) Common share equivalents of the Company represent the effect of dilutive
stock options outstanding during the period.
(2) For all periods presented, primary earnings per share equals fully diluted
earnings per share.
17
<PAGE> 1
EXHIBIT 12.01
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
FIRST QUARTER
1997 1996
<S> <C> <C>
Earnings before provision for income taxes $ 114 $ 178
Add:
Interest expense, net 19 15
Rental expense (1) 5 5
Amortization of capitalized interest 3 4
-------- ---------
Earnings as adjusted $ 141 $ 202
======== =========
Fixed charges:
Interest expense, net $ 19 $ 15
Rental expense (1) 5 5
Capitalized interest 10 6
-------- ---------
Total fixed charges $ 34 $ 26
======== =========
Ratio of earnings to fixed charges 4.1x 7.8x
======== =========
</TABLE>
- ----------------------
(1) For all periods presented, interest component of rental expense is
estimated to equal one-third of such expense.
18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF EASTMAN CHEMICAL COMPANY FOR THE THREE MONTHS ENDED
MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 51
<SECURITIES> 0
<RECEIVABLES> 794<F1>
<ALLOWANCES> 0
<INVENTORY> 472
<CURRENT-ASSETS> 1,431
<PP&E> 7,656
<DEPRECIATION> 4,069
<TOTAL-ASSETS> 5,466
<CURRENT-LIABILITIES> 700
<BONDS> 1,727
0
0
<COMMON> 1
<OTHER-SE> 1,682
<TOTAL-LIABILITY-AND-EQUITY> 5,466
<SALES> 1,171
<TOTAL-REVENUES> 1,171
<CGS> 911
<TOTAL-COSTS> 911
<OTHER-EXPENSES> 126
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19
<INCOME-PRETAX> 114
<INCOME-TAX> 42
<INCOME-CONTINUING> 72
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 72
<EPS-PRIMARY> .92
<EPS-DILUTED> .92
<FN>
<F1>ASSET VALUES REPRESENT NET AMOUNTS
</FN>
</TABLE>
<PAGE> 1
EXHIBIT 99.01
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
SUPPLEMENTAL BUSINESS SEGMENT INFORMATION
1997 CHANGE FROM 1996
<TABLE>
<CAPTION>
FIRST QUARTER
% CHANGE
SALES UNIT OPERATING
REVENUE VOLUME EARNINGS(1)
------- ------ -----------
SPECIALTY & PERFORMANCE SEGMENT
<S> <C> <C> <C>
Specialty plastics (1)% 19% ++
Performance chemicals (3)% (3)% --
Fine chemicals 3 % (2)% ++
Fibers (2)% (3)% Sm
Coatings, inks & resins 8% 12% ++
Total Segment 1% 8% 8%
=== === ====
CORE PLASTICS SEGMENT
Container plastics (37)% 13% --
Flexible plastics 5% (13)% ++
Total Segment (25)% 2% (155)%
=== === ====
CHEMICAL INTERMEDIATES SEGMENT
Industrial intermediates 5% 8% --
Total Segment 5% 8% (13)%
=== === ====
Total Eastman (7)% 6% (30)%
=== === ====
</TABLE>
- ------------------------------
(1) 0 = Change of approximately 0 - 2% (+ or -)
+ = Increase of approximately 2 - 10%
++ = Increase of greater than 10%
- = Decrease of approximately (2) - (10)%
-- = Decrease of greater than (10%)
Sm = Negligible change in dollar amount
Nm = Not meaningful
19
