<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, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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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.
<TABLE>
<CAPTION>
Number of Shares Outstanding at
Class March 31, 1998
<S> <C>
Common Stock, par value $0.01 per share 79,119,423
</TABLE>
(including rights to purchase shares of
Common Stock or Participating Preferred Stock)
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PAGE 1 OF 57 TOTAL SEQUENTIALLY NUMBER PAGES
EXHIBIT INDEX ON PAGE 18
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
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ITEM PAGE
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PART I. FINANCIAL INFORMATION
<S> <C> <C>
1. Financial Statements 3 - 7
2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 8-15
PART II. OTHER INFORMATION
1. Legal Proceedings 16
2. Changes in Securities 16
6. Exhibits and Reports on Form 8-K 16
SIGNATURES
Signatures 17
</TABLE>
2
<PAGE> 3
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS, COMPREHENSIVE INCOME,
AND RETAINED EARNINGS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FIRST QUARTER
1998 1997
<S> <C> <C>
EARNINGS
Sales $ 1,148 $ 1,171
Cost of sales 894 911
-------- ---------
Gross profit 254 260
Selling and general administrative expenses 75 78
Research and development costs 46 48
-------- ---------
Operating earnings 133 134
Interest expense, net 21 19
Other (income) charges, net (2) 1
--------- --------
Earnings before income taxes 114 114
Provision for income taxes 40 42
-------- ---------
Net earnings $ 74 $ 72
======== =========
Net earnings per share
--Basic earnings per share $ .95 $ .93
======== =========
--Diluted earnings per share $ .94 $ .92
======== =========
COMPREHENSIVE INCOME
Net earnings $ 74 $ 72
Other comprehensive income (1) (23)
-------- ----------
Comprehensive income $ 73 $ 49
======== =========
RETAINED EARNINGS
Retained earnings at beginning of period $ 2,078 $ 1,929
Net earnings 74 72
Cash dividends declared (35) (35)
-------- ---------
Retained earnings at end of period $ 2,117 $ 1,966
======== =========
</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,
1998 1997
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 43 $ 29
Receivables 843 793
Inventories 519 511
Other current assets 154 157
--------- ---------
Total current assets 1,559 1,490
--------- ---------
Properties
Properties and equipment at cost 8,210 8,104
Less: Accumulated depreciation 4,282 4,223
--------- ---------
Net properties 3,928 3,881
--------- ---------
Other noncurrent assets 423 407
---------- ---------
Total assets $ 5,910 $ 5,778
========= =========
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities
Payables and other current liabilities $ 825 $ 954
---------- ---------
Total current liabilities 825 954
Long-term borrowings 1,860 1,714
Deferred income tax credits 383 397
Postemployment obligations 775 724
Other long-term liabilities 234 236
--------- ---------
Total liabilities 4,077 4,025
--------- ---------
Shareowners' equity
Common stock ($0.01 par - 350,000,000 shares authorized;
shares issued -- 84,287,989 and 84,144,672) 1 1
Paid-in capital 85 77
Retained earnings 2,117 2,078
Other comprehensive income (38) (37)
----------- ----------
2,165 2,119
Less: Treasury stock at cost (5,353,123 and 5,889,311 shares) 332 366
--------- ---------
Total shareowners' equity 1,833 1,753
--------- ---------
Total liabilities and shareowners' equity $ 5,910 $ 5,778
========= =========
</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
1998 1997
<S> <C> <C>
Cash flows from operating activities
Net earnings $ 74 $ 72
--------- ---------
Adjustments to reconcile net earnings to net
cash provided by operating activities
Depreciation 82 79
Provision (benefit) for deferred income taxes (6) 3
Increase in receivables (52) (53)
Increase in inventories (7) (19)
Decrease in incentive pay and employee
benefit liabilities (56) (43)
Increase in liabilities excluding borrowings,
incentive pay, and employee benefit liabilities 10 24
Other items, net 5 (10)
--------- ---------
Total adjustments (24) (19)
--------- ---------
Net cash provided by operating activities 50 53
--------- ---------
Cash flows from investing activities
Additions to properties and equipment (135) (168)
Proceeds from sales of assets 1 1
Capital advances to suppliers (21) (22)
--------- ---------
Net cash used in investing activities (155) (189)
---------- ----------
Cash flows from financing activities
Net increase (decrease) in commercial paper borrowings 147 (91)
Proceeds from long-term borrowings - 295
Dividends paid to shareowners (34) (34)
Treasury stock purchases - (8)
Other items 6 1
--------- ---------
Net cash provided by financing activities 119 163
--------- ---------
Net change in cash and cash equivalents 14 27
Cash and cash equivalents at beginning of period 29 24
--------- ---------
Cash and cash equivalents at end of period $ 43 $ 51
========= =========
</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 1997 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) 1998 1997
<S> <C> <C>
At FIFO or average cost (approximates
current cost):
Finished goods $ 449 $ 436
Work in process 144 140
Raw materials and supplies 199 211
--------- ---------
Total inventories at FIFO or average cost 792 787
--------- ---------
Reduction to LIFO value (273) (276)
--------- ---------
Total inventories at LIFO value $ 519 $ 511
========= =========
</TABLE>
Inventories valued on the LIFO method are approximately 75% of total
inventories in each of the periods.
3. EARNINGS PER SHARE
The weighted average number of common shares outstanding used to compute
basic earnings per share was 78.4 million and 77.6 million, and for diluted
earnings per share was 79.2 million and 78.2 million, reflecting the effect
of dilutive options outstanding, at March 31, 1998 and 1997, respectively.
Certain options outstanding at March 31, 1998 and 1997, respectively, were
excluded from the computation of diluted earnings per share because the
options' exercise prices were greater than average market price of the
common shares. Excluded were options to purchase 767,350 shares of common
stock at a range of prices from $62.88 to $74.25 and 579,753 shares of
common stock at a range of prices from $55.25 to $74.25 outstanding at March
31, 1998 and 1997, respectively.
4. DIVIDENDS
<TABLE>
<CAPTION>
FIRST QUARTER
1998 1997
<S> <C> <C>
Cash dividends declared per share $ .44 $ .44
</TABLE>
6
<PAGE> 7
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. SUPPLEMENTAL CASH FLOW INFORMATION
In March 1998 the Company issued 536,188 treasury shares to its Employee
Stock Ownership Plan as partial settlement of the Company's Eastman
Performance Plan payout. The shares issued had a market value of $35 million
and a carrying value of $33 million. In March 1997 the Company issued
611,962 shares of previously unissued common stock with a market value of
$34 million to the Employee Stock Ownership Plan as partial settlement of
the Eastman Performance Plan payout. These noncash transactions are not
reflected in the Consolidated Statements of Cash Flow.
6. COMPREHENSIVE INCOME
The Company adopted SFAS No. 130, "Reporting Comprehensive Income" in 1998.
Components of other comprehensive income are cumulative translation
adjustments and minimum pension liabilities. Amounts of other comprehensive
income are presented net of applicable taxes. Because cumulative translation
adjustments are considered a component of permanently invested unremitted
earnings of subsidiaries outside the United States, no taxes are provided on
such amounts.
7
<PAGE> 8
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
1997 Annual Report on Form 10-K and the unaudited interim consolidated financial
statements included elsewhere in this report. All references to earnings per
share contained in this report are basic earnings per share unless otherwise
noted.
MAJOR FACTORS AFFECTING EARNINGS
FIRST QUARTER 1998 COMPARED WITH FIRST QUARTER 1997
Overall higher sales volumes, except for fibers and fine chemicals
Significantly higher selling prices and volume for container plastics
Lower purchased raw materials and energy costs
Higher preproduction costs related to new manufacturing facilities
RESULTS OF OPERATIONS
EARNINGS
<TABLE>
<CAPTION>
(Dollars in millions, except FIRST QUARTER
per share amounts) 1998 1997 CHANGE
<S> <C> <C> <C>
Operating earnings $ 133 $ 134 (1)%
Net earnings 74 72 3
Net earnings per share
--Basic Earnings Per Share .95 .93 2%
--Diluted Earnings Per Share .94 .92 2
</TABLE>
Although operating results were overall relatively unchanged from first quarter
1997, significant changes occurred in several product lines, notably container
plastics, fibers and fine chemicals. Significantly higher volumes, selling
prices and margins for container plastics were the result of increased food,
beverage and non-food applications and additional capacity following the
mid-1997 startup of manufacturing facilities in Spain. However, decreased sales
and earnings for fibers and fine chemicals reflected decreased customer demand,
which in the case of fibers resulted from industry overcapacity and customer
inventory reductions, mainly in China. Major factors affecting unit costs were
significantly lower costs for most major raw materials including propane
feedstock, paraxylene, purified terephthalic acid ("PTA"), ethylene glycol and
natural gas; productivity gains achieved as a result of the Company's Advantaged
Cost 2000 initiative; and higher preproduction costs resulting from three new
manufacturing sites nearing completion. Other factors affecting results were
increased income from equity investments and a lower effective tax rate. A
stronger U.S. dollar produced an unfavorable effect on sales denominated in
currencies other than U.S. dollars, although the earnings impact was partially
offset by gains realized on currency hedging transactions. The negative effect
on net earnings from foreign currency fluctuations was not significant.
8
<PAGE> 9
SUMMARY BY INDUSTRY SEGMENT
SPECIALTY AND PERFORMANCE SEGMENT
<TABLE>
<CAPTION>
FIRST QUARTER
(Dollars in millions) 1998 1997 CHANGE
<S> <C> <C> <C>
Sales $ 620 $ 669 (7)%
Operating earnings 96 128 (25)
</TABLE>
Significantly lower sales volume and prices for acetate tow reflecting industry
overcapacity and customer inventory reductions, mainly in China, substantially
decreased sales and earnings for the segment overall. However, strong volume
gains and moderate price increases for specialty plastics, particularly in
Europe, were experienced during first quarter reflecting growth in the SPECTAR
market and new customer applications. Sales and earnings were negatively
impacted by a decline in customer demand and decreased volume for fine
chemicals. Sales of coatings, inks and resins were essentially level with first
quarter 1997, but earnings improved significantly due to lower raw materials
costs, primarily propane feedstock. Performance chemicals sales declined,
reflecting the effect of businesses discontinued in 1997 and decreased volume
and selling prices for sorbates. Operating earnings for the segment overall were
positively impacted by lower costs for raw materials and energy and cost
structure improvements.
CORE PLASTICS SEGMENT
<TABLE>
<CAPTION>
FIRST QUARTER
(Dollars in millions) 1998 1997 CHANGE
<S> <C> <C> <C>
Sales $ 340 $ 318 7%
Operating loss (1) (22) 95
</TABLE>
Higher sales volumes and selling prices for EASTAPAK polymers reflect increased
customer demand for container plastics as applications move away from glass and
aluminum, and the effect of new available capacity following the mid-1997
startup of manufacturing facilities in Spain. Flexible plastics volumes were
moderately higher overall, but sales and earnings reflected price and margin
pressure on commodity polyethylene products resulting from excess ethylene
industry capacities, partially offset by increased sales of recently introduced
HIFOR and MXSTEN polyethylene performance polymers. Operating results were
positively impacted by improved margins for container plastics, lower costs for
major raw materials and energy, and cost structure improvements, offset
partially by higher preproduction expenses related to new container plastics
manufacturing facilities.
CHEMICAL INTERMEDIATES SEGMENT
<TABLE>
<CAPTION>
FIRST QUARTER
(Dollars in millions) 1998 1997 CHANGE
<S> <C> <C> <C>
Sales $ 188 $ 184 2%
Operating earnings 38 28 36
</TABLE>
Sales reflect overall higher volume and favorable product mix, partially offset
by lower selling prices for commodity oxo products, and unfavorable currency
effects. Cost structure improvements and favorable raw materials and energy
costs, including a significant reduction in the cost of propane feedstock,
positively impacted earnings.
(For supplemental analysis of Specialty and Performance, Core Plastics, and
Chemical Intermediates segment results, see Exhibit 99.01 to this Form 10-Q.)
9
<PAGE> 10
SUMMARY BY CUSTOMER LOCATION
SALES BY REGION
<TABLE>
<CAPTION>
FIRST QUARTER
(Dollars in millions) 1998 1997 CHANGE
<S> <C> <C> <C>
United States and Canada $ 754 $ 763 (1)%
Europe, Middle East, and Africa 207 192 8%
Asia Pacific 98 131 (25)%
Latin America 89 85 5%
</TABLE>
Sales in the United States for first quarter 1998 were $713 million, down 1%
from 1997 first quarter sales of $720 million. Higher overall sales volume was
offset by overall lower selling prices and the effect of a shift in the mix of
products sold.
Sales outside the United States for first quarter 1998 were $435 million, down
4% from 1997 first quarter sales of $451 million. Sales outside the United
States were 38% of total sales in first quarter 1998 compared with 39% for first
quarter 1997. Decreased sales in Asia Pacific reflect significantly lower sales
of acetate tow resulting from excess worldwide capacity and customer inventory
reductions, mainly in China. Higher sales in Europe, Middle East and Africa
reflect higher EASTAPAK polymer volume due to increased customer demand and new
manufacturing capacity in Spain. A strong U.S. dollar against foreign currencies
resulted in unfavorable currency exchange effects, primarily in Europe.
SUMMARY OF CONSOLIDATED RESULTS
<TABLE>
<CAPTION>
FIRST QUARTER
(Dollars in millions) 1998 1997 CHANGE
<S> <C> <C> <C>
SALES $ 1,148 $ 1,171 (2)%
</TABLE>
Sales reflect significantly higher volume and prices for the Company's container
plastics and lower volume and prices for fibers and fine chemicals. Sales were
negatively impacted by the strength of the U.S. dollar against foreign
currencies, primarily in Europe.
<TABLE>
<CAPTION>
FIRST QUARTER
(Dollars in millions) 1998 1997 CHANGE
<S> <C> <C> <C>
GROSS PROFIT $ 254 $ 260 (2)%
As a percentage of sales 22.1% 22.2%
</TABLE>
Gross profit declined slightly as the effects of overall higher sales volume,
favorable raw materials and energy prices and productivity gains were offset by
unfavorable foreign currency effects, higher preproduction expenses related to
new manufacturing capacities, and a shift in the mix of products sold.
<TABLE>
<CAPTION>
FIRST QUARTER
(Dollars in millions) 1998 1997 CHANGE
<S> <C> <C> <C>
SELLING AND GENERAL
ADMINISTRATIVE EXPENSES $ 75 $ 78 (4)%
As a percentage of sales 6.5% 6.7%
</TABLE>
10
<PAGE> 11
<TABLE>
<CAPTION>
FIRST QUARTER
(Dollars in millions) 1998 1997 CHANGE
<S> <C> <C> <C>
RESEARCH AND
DEVELOPMENT COSTS $ 46 $ 48 (4)%
As a percentage of sales 4.0% 4.1%
FIRST QUARTER
(Dollars in millions) 1998 1997 CHANGE
GROSS INTEREST COSTS $ 32 $ 29
LESS CAPITALIZED INTEREST 11 10
--------- ---------
NET INTEREST EXPENSE $ 21 $ 19 11%
========= =========
</TABLE>
Interest costs increased due to an increase in long-term borrowings and
commercial paper and higher overall effective interest rates.
<TABLE>
<CAPTION>
FIRST QUARTER
(Dollars in millions) 1998 1997 CHANGE
<S> <C> <C> <C>
OTHER (INCOME) CHARGES, NET $ (2) $ 1 -%
</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 1998 1997
<S> <C> <C>
For the first three months
Ratio of earnings to fixed charges 3.8x 4.1x
At the period ended March 31 and December 31
Current ratio 1.9x 1.6x
Percent of long-term borrowings to total capital 50% 49%
Percent of floating-rate borrowings to total borrowings 19% 12%
</TABLE>
<TABLE>
<CAPTION>
CASH FLOW FIRST QUARTER
(Dollars in millions) 1998 1997
<S> <C> <C>
Net cash provided by (used in)
Operating activities $ 50 $ 53
Investing activities (155) (189)
Financing activities 119 163
------- -------
Net change in cash and cash equivalents $ 14 $ 27
======= =======
Cash and cash equivalents at end of period $ 43 $ 51
======= =======
</TABLE>
Cash provided by operating activities was essentially level with first quarter
1997. As of April 30 funding related to the 1997 partial settlement/curtailment
of the pension plan has been made. Cash used in investing activities declined as
a result of reduced capital expansion activity in 1998. Cash provided by
financing activities reflects an increase in commercial paper borrowings in
1998, proceeds received in 1997 from a $300 million issuance of 7.60% debentures
due February 1, 2027 which were used to repay commercial paper borrowings
outstanding at that time, treasury stock purchases in 1997, and the payment of
dividends in both years.
11
<PAGE> 12
CAPITAL EXPENDITURES AND OTHER COMMITMENTS
Eastman anticipates that total capital expenditures in 1998 will be between $550
million and $600 million and depreciation expense is expected to be
approximately $350 million. Long-term commitments related to planned capital
expenditures are not material. The Company had various purchase commitments at
March 31, 1998 for materials, supplies, and energy incident to the ordinary
conduct of business totaling approximately $800 million.
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, 1998. 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,
1998 the Company's commercial paper outstanding balance was $360 million at an
effective interest rate of 5.72%. At March 31, 1997 the Company's commercial
paper outstanding balance was $204 million at an effective interest rate of
5.59%.
The Company repurchased a total of 5,935,301 shares of common stock during 1995,
1996 and 1997 at a cost of $369 million, and is currently authorized to purchase
up to an additional $231 million of its common stock. Repurchased shares may be
used to meet common stock requirements for compensation and benefit plans and
other corporate purposes. In March 1998 the Company issued 536,188 treasury
shares to the Eastman Employee Stock Ownership Plan in partial settlement of the
1997 Eastman Performance Plan obligation.
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
1998 1997
<S> <C> <C>
Cash dividends declared per share $ .44 $ .44
</TABLE>
YEAR 2000 ISSUE
The year 2000 issue is the result of computer programs written using two digits
rather than four to define the applicable year. Without corrective action,
programs with time-sensitive software could potentially recognize a date ending
in "00" as the year 1900 rather than the year 2000, causing many computer
applications to fail or create erroneous results. This is a significant issue
for most, if not all, companies, with far reaching implications, some of which
cannot be anticipated or predicted with any degree of certainty.
12
<PAGE> 13
Assessment and remediation of the Company's business computer systems,
manufacturing control systems, and other embedded-chip devices for compliance
with the year 2000 is underway or in some cases completed. As a result of
assessments, modifications, upgrades, or replacements planned, ongoing, or
already completed, the Company believes that the year 2000 issue will not pose
significant problems for the Company's business, operations, or operating
systems. The Company believes that the costs of modifications, upgrades, or
replacements of software, hardware, or capital equipment which would not be
incurred but for year 2000 compatibility requirements have not and will not have
a material impact on the Company's financial position or results of operations.
The Company has identified and is contacting customers, suppliers, and other
critical business partners to determine if entities with which the Company
transacts business have an effective plan in place to address the year 2000
issue, and to determine the extent of the Company's vulnerability to the failure
of third parties to remediate their own year 2000 issue. Contingency plans are
being developed as needed.
HOLSTON DEFENSE CORPORATION
Holston Defense Corporation, a wholly owned subsidiary of the Company, has
managed the government-owned Holston Army Ammunition Plant in Kingsport,
Tennessee since 1942 under contract with the Department of Army. The current
contract expires December 31, 1998. Holston Defense Corporation has been
notified that it is not a participant in the bidding process for the contract
period beginning after December 31, 1998. The bidding process is still in
progress, and its outcome and impact on Holston's continued management of the
facility is currently uncertain. In the event that Holston Defense Corporation's
management of the ammunition plant is terminated, payments to Holston Defense
Corporation's employees, additional funding of pension and other postretirement
benefits, and other termination costs could result. The Company expects that
substantially all of these costs and payments would be ultimately reimbursed by
the Department of Army, although delays in reimbursement may require the Company
to advance funds to pay such costs. The management of the Company believes that
the amounts, if any, not paid or recovered, or the advancement of funds by the
Company pending such reimbursement or recovery, should not have a material
effect on the consolidated financial position of the Company. The Company
estimates the range of additional liabilities which it would accrue if Holston's
management of the Facility were to terminate on December 31, 1998, without
giving effect to any payment or reimbursement by the Department of Army, to be
approximately $50 million to $75 million. Any unreimbursable amounts charged to
future earnings are not expected to have a material adverse effect on the
Company, although earnings in a particular quarter could be negatively impacted.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997 the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" which requires enterprises to report
selected information about operating segments and related disclosures about
products and services, geographic areas, and major customers. The Company
believes that no significant changes to current segment reporting will be
required by the new standard. In February 1998 the FASB issued SFAS No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits", which
standardizes and improves disclosures related to pensions and other
postretirement benefits. The Company will comply with requirements of these new
standards which become effective for the Company's year-end 1998 financial
reporting.
13
<PAGE> 14
OUTLOOK
The Company expects higher sales and earnings for 1998 compared to 1997, driven
by good demand and strong volume growth for products in all three segments as a
result of new applications and new production capacity. However, ethylene and
propylene derivatives such as oxo chemicals and polyethylene may face price and
margin pressure as a result of additional industry capacity. Significant SPECTAR
copolymer volume growth is expected due to strong demand and added production
capacity in Malaysia. Volume growth is expected for the coatings line, driven by
good demand for auto coatings and architectural coatings. Acetate tow volume is
expected to stabilize as new industry capacity is absorbed and customer
inventory reductions are completed, but prices will not improve from first
quarter, 1998 levels and margin pressure is expected to continue. Modest growth
in sales revenue is expected for fine chemicals based on increased volumes of
pharmaceutical and agrochemical intermediates and the impact of new
Epoxybutene-based derivatives. Moderate revenue growth is expected for
performance chemicals. Within the Core Plastics segment, demand for EASTAPAK
polymers is expected to continue to grow as new applications are developed and
as applications move away from alternative packaging materials. Increased
revenues and operating earnings are expected for container plastics products,
driven by additional available capacity, reduced costs, and stable pricing.
Recently introduced polyethylene performance polymers, MXSTEN and TENITE HIFOR,
are expected to provide more profitable and less cyclical niche markets as they
gain market acceptance. Within the Chemical Intermediates segment, a recently
completed U.S. oxo plant expansion is expected to produce continued volume
gains. Preproduction expenses related to new manufacturing facilities are
expected to decline by the end of 1998 as these facilities begin production. Due
to our limited exposure in Asia Pacific, the Company has not experienced any
significant impact from the Asian financial crisis. However, if demand continues
to weaken in Asia Pacific, it may have an indirect impact on our business in
other regions.
The Company is focused on improving management of working capital by
accelerating cash receipts, reducing inventories, and improving credit payment
policies with suppliers.
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 1998
target for the Company's Advantaged Cost 2000 initiative is $100 million in
labor and material productivity gains. In 1998 the Company expects a 20%
reduction in capital spending, and depreciation expense is expected to be
approximately $350 million.
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; the year 2000 issue;
the Asian financial crisis; expected tax rates and depreciation; and supply and
demand, unit volume, price, margin, and sales and earnings expectations and
strategies 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 economic business conditions in North
America, improving business conditions in Europe, and continued growth in Latin
America, supporting continued good overall demand for the Company's products; no
significant impact on results of operations due to the Asian financial crisis;
no significant decline in overall selling prices, except for fibers and
commodity polyethylene products; continued demand growth worldwide for EASTAPAK
polymers; continued capacity additions within the PET industry worldwide;
capacity additions within the ethylene industry worldwide; declines in
14
<PAGE> 15
preproduction expenses related to new manufacturing facilities; realization of
recent EASTAPAK polymers price increases; stabilization of acetate tow demand
and volume; relatively stable prices for and availability of key purchased raw
materials; good market reception of new polyethylene products and continued
shift of polyethylene product mix to less commodity products; availability of
announced manufacturing capacity increases for container plastics, SPECTAR,
coatings, and oxo products; 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, SPECTAR, MXSTEN, TENITE and TENITE HIFOR are trademarks of Eastman
Chemical Company.
15
<PAGE> 16
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
LEGAL PROCEEDINGS
As previously reported, in May 1997 the Company received notice from
the Tennessee Department of Environment and Conservation ("TDEC")
alleging that the manner in which hazardous waste was fed into certain
boilers at the Tennessee Eastman facility in Kingsport, Tennessee
violated provisions of the Tennessee Hazardous Waste Management Act.
Based upon subsequent communications with the TDEC and the U.S.
Environmental Protection Agency, the Company believes that these
agencies may be contemplating enforcement proceedings which, if
commenced, could result in monetary sanctions in excess of the $100,000
threshold of Regulation S-K, Item 103, Instruction 5.C. under the
Securities Exchange Act of 1934 for reporting such contemplated
proceedings in this Report.
The Company's operations are parties to or targets of lawsuits, claims,
investigations, and proceedings, including product liability, personal
injury, patent, 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 of such pending matters, including the TDEC allegations described
in the preceding paragraph, will have a material adverse effect on the
Company's financial position or results of operations.
ITEM 2. CHANGES IN SECURITIES
(c) On January 1, 1998, the Company granted options to purchase an
aggregate of 840 shares of its common stock on or after July
1, 1998 at an exercise price of $59.5625 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, 1998 in transactions not
registered under the Securities Act of 1933. For information
concerning issuance of shares of Common Stock in March 1998 to
the Company's ESOP, see Part I. Financial Information -- Item
1. Financial Statements -- Note 5 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 18.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the
quarter ended March 31, 1998.
16
<PAGE> 17
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, 1998 By: /s/ Allan R. Rothwell
---------------------
Allan R. Rothwell
Senior Vice President and
Chief Financial Officer
(On behalf of the Registrant and as
Principal Financial Officer)
17
<PAGE> 18
<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)
</TABLE>
18
<PAGE> 19
<TABLE>
<CAPTION>
EXHIBIT INDEX
EXHIBIT DESCRIPTION SEQUENTIAL
NUMBER PAGE
<S> <C> <C>
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")
4.09 Officer's Certificate pursuant 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)
*10.01 Eastman Annual Performance Plan (amended and restated
effective March 4, 1998) 20-25
*10.02 Eastman Performance Plan (amended and restated effective
March 4, 1998) 26-38
*10.03 Eastman 1996-1998 Long-Term Performance Subplan (as
amended) of 1994 Omnibus Long-Term Compensation Plan 39-46
*10.04 Eastman 1998-2000 Long-Term Performance Subplan (as
amended) of 1997 Omnibus Long-Term Compensation Plan 47-55
12.01 Statement re Computation of Ratios of Earnings to Fixed
Charges 56
27.01 Financial Data Schedule (for SEC use only)
27.02-27.08 Restated Financial Data Schedules for 1996 and 1997 (for SEC
use only)
99.01 Supplemental Business Segment Information 57
- ---------------------------------------------------------------------------------------------------
</TABLE>
*Management contract or compensatory plan or arrangement filed pursuant to Item
601(b)(10)(iii) of Regulation S-K.
19
<PAGE> 1
EASTMAN CHEMICAL COMPANY
EASTMAN ANNUAL PERFORMANCE PLAN
(AMENDED AND RESTATED EFFECTIVE MARCH 4, 1998)
ARTICLE 1. PURPOSE
The Eastman Annual Performance Plan ("APP", or the "Plan") is a variable
compensation plan for Eastman Chemical Company (the "Company") management level
individuals which is designed to deliver a portion of annual cash compensation
according to business performance. APP is intended to provide an incentive for
superior performance and to motivate participants toward higher achievement and
business results, and to tie the interests of management-level individuals to
the interests of the Company and its shareowners. The Annual Performance Plan is
also intended to secure the full deductibility of Plan compensation payable to
the Company's Chief Executive Officer and the four highest compensated executive
officers (collectively, the "Covered Employees") whose compensation is required
to be reported in the Company's proxy statement, and all compensation payable
hereunder to such persons is intended to qualify as "performance-based
compensation" as described in Section 162(m) of the Internal Revenue Code of
1986, as amended.
ARTICLE 2. SUMMARY OF PLAN DESIGN
The annual cash compensation of each participant in the Plan consists of a base
salary, an annual Eastman Performance Plan award, and an annual performance
award from the Annual Performance Plan. APP is designed so that a target award
will be paid when the expected financial performance level is reached.
Generally, APP awards vary from zero, if financial goals are not met, to two
times the target award for specified above-goal performance. Target awards range
from 5% of Target Total Annual Compensation ("TTAC"), as defined in Exhibit 1,
for lower management positions, to 35% of TTAC for the Chief Executive Officer.
APP awards are in addition to the 5% target award level for the Eastman
Performance Plan. APP awards are paid in a lump sum in March of the year
following the year for which performance was measured ("Performance Year").
ARTICLE 3. ELIGIBILITY AND PARTICIPATION
3.01 GENERAL ELIGIBILITY
The Plan is designed for management-level individuals (salary grade 46 and
above) in key roles which have an impact on the financial performance of the
Company. Prior to or at the time performance objectives are established for a
Performance Year, the Compensation and Management Development Committee (the
"Committee") of the Board of Directors (the "Board") will confirm in writing the
salary grade level of the individuals eligible to participate in the Plan for
such Performance Year.
3.02 NEW PARTICIPANTS DURING THE PERFORMANCE YEAR
Individuals who are appointed to positions eligible for Plan participation
during the Performance Year become eligible for participation on the first day
of the month of the appointment. Individuals who become participants during the
Performance Year will receive a pro rata award based upon the number of months
in an eligible position during the Performance Year. (For example, an individual
promoted to an eligible position on May 1 during the Performance Year would
receive an award based upon eight months' participation in the Plan, or 8/12
(eight-twelfths) of an award).
20
<PAGE> 2
3.03 JOB CHANGES DURING THE PERFORMANCE YEAR
Participants who change jobs during a Performance Year which results in a change
of their target award level will receive a pro rata award for the interval of
time spent in each job. Each pro rata award is calculated using the
participant's base salary just prior to each job change which changes their
target award level; and their base pay at the end of the Performance Year. Each
pro rata award is based on the financial performance of the full Performance
Year. In these instances, each pro rata award will compose the participant's
award for the full Performance Year.
3.04 TERMINATIONS
Participants who (1) retire, or (2) become disabled under the Eastman Long-Term
Disability Plan, or (3) terminate employment under circumstances which qualify
for a Termination Allowance Benefit under the Company's Termination Allowance
Plan, or (4) terminate employment as a result of, pursuant to, or in connection
with layoff, special separation, divestiture, or similar circumstances, where
such termination does not qualify for a Termination Allowance but for which
Company management in its sole discretion authorizes an award, receive a pro
rata award at the normal time of payout based on base salary at the time of
separation and financial performance at the end of the Performance Year.
The estates of participants who die receive a pro rata award at the normal time
of payout based on base salary at the time of death and financial performance at
the end of the Performance Year.
Participants who terminate employment with the Company for reasons other than
those specified under this Section 3.04 will receive an award only if they were
actively employed on the last scheduled workday of the Performance Year.
ARTICLE 4. PERFORMANCE YEAR, GOAL SETTING, AND PERFORMANCE GOALS
4.01 PERFORMANCE YEAR
The Plan's Performance Year shall be the calendar year beginning on January 1
and ending on December 31. The performance period with respect to which payouts
may be payable under the APP shall generally be the Performance Year.
4.02 PERFORMANCE GOAL SETTING
In December of each year, The Chief Executive Officer will recommend performance
goals for the following Performance Year to the Committee. No later than the
first day of the Performance Year (or such later date as may be permitted by
Section 162(m) of the Internal Revenue Code of 1986, as amended), the Committee
shall establish in writing, with respect to the Performance Year, one or more
performance goals, the relative weights to be assigned to such goals, a specific
target objective or objectives with respect to such performance goals, and
objective formulae or methods for computing the amount of the APP award payable
to each participant if the performance goals are attained.
4.03 PERFORMANCE GOALS
Performance goals shall be based upon one or more of the following business
criteria, alone or in combination, for the Company as a whole, as the Committee
deems appropriate: (i) economic value created; (ii) productivity; (iii) cost
improvements; (iv) cash flow; (v) sales revenue growth; (vi) earnings from
operations; (vii) quality; (viii) customer satisfaction. Performance goals will
include a minimum, maximum, and target level of performance, with the size of
the award based upon the level attained for each of the criteria selected, and
the weighting selected for each of the criteria. Once established, performance
goals for a particular Performance Year cannot be changed.
21
<PAGE> 3
ARTICLE 5. AWARD DETERMINATION
5.01 CERTIFICATION OF PERFORMANCE
As soon as practicable following the availability of performance results for the
completed Performance Year, the Committee shall determine the Company's
performance in relation to the performance goals for that period and certify in
writing the extent to which performance goals were satisfied. Except as
otherwise provided in the next two sentences, measurement of the Company's
performance against the performance goals established by the Committee shall be
objectively determinable and, to the extent they are expressed in standard
accounting terms, shall be determined according to generally accepted accounting
principles as in existence on the date on which the performance goals are
established and without regard to any changes in such principles after such
date. With respect to participants other than Covered Employees, in determining
whether the performance goals established by the Committee have been met, to the
extent that such goals are expressed in terms of financial performance, the
Committee may in its discretion adjust the financial results for a Performance
Year to exclude the effect of unusual charges or income items or other events
(including, without limitation, acquisitions or divestitures), which are
distortive of financial results for the Performance Year. The Committee may in
its discretion reduce (but not increase) the resulting APP award to Covered
Employees if deemed necessary to exclude the effect of unusual charges or income
items or other events (including, without limitation, acquisitions or
divestitures), which are distortive of financial results for the Performance
Year. No adjustment will be made with respect to a Covered Employee if the
Committee determines that such adjustment will cause an award to such Covered
Employee to fail to qualify as performance-based compensation under Section
162(m).
5.02 CALCULATION AND REVIEW/APPROVAL
Based upon the Company's performance against the performance goals, and the
formulae or methods established, the APP award for each participant is
calculated. (The calculation method for the Plan is illustrated in Exhibit 1).
The Committee shall approve the APP award amounts for participants who are
members of the Board of Directors and for participants who are "Covered
Employees," and shall review the APP award amounts for other executive officers
of the Company.
5.03 AWARD ADJUSTMENTS
The Committee shall have no discretion to increase the amount of any
participant's award as so determined, but may reduce the amount of or totally
eliminate such award, if it determines, in its absolute and sole discretion,
that such a reduction or elimination is appropriate in order to reflect the
participant's performance or unanticipated factors.
5.04 MAXIMUM AWARD PAYABLE IN PERFORMANCE YEAR
No participant's APP award for any Performance Year shall exceed $1,000,000.
ARTICLE 6. PAYMENT OF AWARDS
APP awards shall be paid by the Company in March for performance in the previous
year, and after the Committee has certified in writing that the relevant
performance goals were achieved. The Committee has the authority, in its
discretion, to defer payment of a participant's award into the Executive
Deferred Compensation Plan until the participant retires or otherwise terminates
employment, if the Committee determines that payment of the award could result
in the participant receiving compensation in excess of the maximum amount
deductible by the Company for Federal income tax purposes.
22
<PAGE> 4
ARTICLE 7. SALARY ADJUSTMENTS AND BENEFITS
7.01 SALARY ADJUSTMENT UPON ENTRY INTO THE APP
The Plan is a variable compensation, or pay at risk, program whereby
participants have their base salary administered on reduced rate ranges. New
participants to the Plan are immediately administered on the reduced rate range
for their assigned salary grade. This may reduce or eliminate promotional
increases, depending upon the person's pay position in the rate range of the new
salary grade. Subsequent salary treatment will depend upon pay/performance
relationships in the reduced rate range for their assigned grade.
7.02 SALARY CONVERSION UPON WITHDRAWAL FROM THE APP
In unusual circumstances when it is necessary for an individual to be removed
from the Plan, the individual will be placed on a non-APP rate schedule and the
base salary recalculated. The recalculated base salary will be determined by
calculating the ratio of the individual's base salary prior to removal from the
Plan to the midpoint of the APP rate schedule, and applying the same ratio to
the midpoint of the non-APP rate schedule, to determine the new base salary.
Should the removal from the Plan involve a reduction in salary grade, a new rate
in the new salary grade will be selected based upon the individual's applicable
training and experience.
7.03 RELATIONSHIP TO BENEFITS AND OTHER COMPENSATION
The APP award payout is considered in calculating the basis for other
compensation and benefits. Base salary, the actual APP payout and the actual
Eastman Performance Plan payout are included in calculating retirement benefits.
Base salary, the target APP award payout and the target Eastman Performance Plan
payout are included in the basis for calculating the actual APP payout, the
actual Eastman Performance Plan payout, life insurance, long-term disability,
termination allowance, miscellaneous expense allowance, and foreign service
premium. The base salary rate is the basis for calculating short-term
disability, vacation pay, holiday pay, personal absence, and field allowance.
ARTICLE 8. OTHER TERMS AND CONDITIONS
8.01 SHAREOWNER APPROVAL
No APP award payment shall be paid under the Plan to any "Covered Employee" for
any Performance Year after 1996 unless and until the material terms (within the
meaning of Section 162(m) of the Internal Revenue Code of 1986) of the APP,
including the performance goals on which the APP award payout would be based,
are disclosed to the Company's shareowners and are approved by the shareowners
by a majority of the votes cast.
8.02 CLAIMS
No person shall have any legal claim to be granted an award under the Plan.
Except as may be otherwise required by law, payouts under the Plan shall not be
subject in any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance, charge, garnishment, execution, or levy of any kind, either
voluntary or involuntary. Plan payouts shall be payable from the general assets
of the Company and no participant shall have any claim with respect to any
specific assets of the Company.
8.03 NO EMPLOYMENT RIGHTS
Neither the Annual Performance Plan nor any action taken under the Annual
Performance Plan shall be construed as giving any employee the right to be
retained in the employ of the Company or to maintain any participant's
compensation at any level.
23
<PAGE> 5
8.04 WITHHOLDING
The Company shall have the power and the right to deduct or withhold, or require
a Participant to remit to the Company, an amount sufficient to satisfy Federal,
state, and local taxes (including the participant's OASDI and MEDI obligation)
required by law to be withheld.
ARTICLE 9. ADMINISTRATION
9.01 POWER AND AUTHORITY OF THE COMMITTEE
All members of the Committee shall be persons who qualify as "outside directors"
as defined under Section 162(m) of the Internal Revenue Code. The Committee
shall have full power and authority to administer and interpret the provisions
of the Plan and to adopt such rules, regulations, agreements, guidelines, and
instruments for the administration of the Plan and for conduct of its business
as the Committee deems appropriate or advisable. The Committee sets and
interprets policy, establishes annual performance goals, evaluates Company
performance against the goals, and confirms and certifies the extent to which
Company performance goals were satisfied under the Plan.
9.02 COMMITTEE'S DELEGATION OF AUTHORITY
Except with respect to matters which under Section 162(m) of the Internal
Revenue Code are required to be determined in the sole and absolute discretion
of the Committee, the Committee shall have full power to delegate to any officer
or employee of the Company the authority to administer and interpret the
procedural aspects of the Plan, subject to the Plan's terms, including adopting
and enforcing rules to decide procedural and administrative issues.
9.03 AMENDING OR TERMINATING THE PLAN
By action of the Committee, the Plan may be amended, modified, suspended, or
terminated, in whole or in part, at any time for any reason. Unless otherwise
prohibited by applicable law, any amendment required to conform the Plan to the
requirements of Section 162(m) of the Internal Revenue Code may be made by the
Committee. No amendment may be made to the class of individuals who are eligible
to participate in the Plan, the performance criteria specified in Article 4, or
the maximum Plan payout payable to any participant without shareowner approval
unless shareowner approval is not required in order for payouts paid to "Covered
Employees" to constitute qualified performance-based compensation under Section
162(m) of the Internal Revenue Code.
ARTICLE 10. PLAN AUDIT
The Vice President, Human Resources and Communications and Public Affairs, has
responsibility for monitoring and reporting on the administration and
effectiveness of the Plan. The Vice President's role is to provide independent,
objective appraisal and guidance to both the Committee and to the Chief
Executive Officer in the administration of the APP. Each year, the Vice
President will provide a formal review to the Committee and the CEO on the
overall effectiveness of the APP.
24
<PAGE> 6
EXHIBIT 1. CALCULATION OF THE ANNUAL PERFORMANCE PLAN PAYOUT
Awards are paid based on goal achievement. In the example below, three
performance goals have been selected for the relevant Performance Year with a
weighting of 50% for goal number 1, 25% for goal number 2, and 25% for goal
number 3. Weighted performance is calculated on a scale ranging from zero (0%,
or no payout at this level of performance) to 200% (or 2 times target
performance), with target performance at 100% (or 1 times target performance
level). In this way, regardless of their target award percentage (5% to 35%),
the performance for all participants can be calculated using the same scale. In
the example, the performance for goal 1 is 125% on the scale of 0 to 200%,
resulting in a weighted performance (50% times 125%) of 62.5%. Goal 2
performance is 94% on the scale, resulting in a weighted performance of 23.5%
(25% times 94%). Goal 3 performance is 116%, resulting in weighted performance
of 29% (25% times 116%). Adding the weighted performance factors together
results in a total weighted performance of 115%.
PERFORMANCE LEVELS
<TABLE>
<CAPTION>
Example:
- -------
<S> <C> <C> <C> <C> <C>
Performance Level: A B C D E
Performance Percent: 200% 150% 100% 50% 0%
</TABLE>
<TABLE>
<CAPTION>
GOAL WEIGHTED
GOALS WEIGHTING X PERFORMANCE LEVEL = PERFORMANCE
- ----- --------- - ----------------- -----------
<S> <C> <C> <C> <C>
#1 50% X 125% = 62.5%
#2 25% X 94% = 23.5%
#3 25% X 116% = 29.0%
--------
Total = 115.0%
</TABLE>
In this example, assume that the participant has a year-end base salary of
$100,000 and a target award level of 10%. To calculate this participant's award,
the Target Total Annual Compensation is calculated as described below. Then the
target award for the performance year is determined. Knowing the target award
and the total weighted performance (115% from above), the APP payout can be
calculated.
Target Total Annual Compensation = Base Salary divided by [1 minus
(the target award percent + Eastman
Performance Plan 5%)].
In this example: $ 100,000 = $117,647 = Target Total Annual
--------- Compensation
1-(.10+.05)
Target Payout = Target Total Annual Compensation times Target Award %
Target Payout = $117,647 X 10% = $11,765.
APP Payout = Target Payout times Total Weighted Performance
APP Payout = $11,765 X 115% = $13,530
25
<PAGE> 1
EASTMAN CHEMICAL COMPANY
EASTMAN PERFORMANCE PLAN
(AMENDED AND RESTATED EFFECTIVE MARCH 4, 1998)
ARTICLE 1. INTRODUCTION
The Eastman Performance Plan, as set forth in this document, has been approved
by the Board of Directors of Eastman Chemical Company (the "Company") as a
variable compensation program which provides eligible employees with tangible
recognition for their contributions to the success of the Company. The Eastman
Performance Plan is also intended to secure the full deductibility of Plan
Payouts to Covered Employees, and all cash compensation payable hereunder to
such persons is intended to qualify as "performance based compensation", as
described in Section 162(m) of the Internal Revenue Code of 1986, as amended.
The Company's Board of Directors is responsible for approving the declaration of
Plan Payouts under this Plan each year, except for Plan payouts to Covered
Employees, which shall be approved by the Compensation Committee. No declaration
of Plan Payout by the Board or the Compensation Committee for any given year
shall commit the Board or the Compensation Committee to any given level of Plan
Payout in future years.
ARTICLE 2. DEFINITIONS
2.01 Board. The Board of Directors of the Company.
2.02 Buffer Employees. Buffer Employee shall refer to those individuals
hired by the Company on a trial basis for a maximum of twelve (12) months, to
work on either a full-time or part-time schedule.
2.03 Capital. Capital shall designate the funds invested in the Company
through either debt or equity, including funds loaned to the Company from
financial institutions or through the issuance of bonds, debentures or other
private debt instruments, plus the shareholders' cumulative investment in the
Company through the ownership of all outstanding shares of all classes of stock.
2.04 Code. The Internal Revenue Code of 1986, as amended.
2.05 College Cooperative Student. College Cooperative Student shall refer to
an employee who is a college student pursuing studies of interest to the Company
and who generally works a full-time schedule on an alternate work/school block
basis.
2.06 Company. Eastman Chemical Company or its corporate successors.
Notwithstanding the foregoing, whenever reference is made in this Plan to "the
Company" in the context of financial performance, e.g., "the Company's capital
debt", the "Company" shall mean Eastman Chemical Company and all of its
affiliates that are included on its consolidated financial statements.
2.07 Compensation. For purposes of this Eastman Performance Plan,
Compensation shall have that meaning ascribed thereto under Section 2.11 of the
ESOP.
2.08 Compensation Committee. The Compensation and Management Development
Committee of the Board, or such other committee designated by the Board,
authorized to administer the Plan as provided herein. The Committee shall
consist of not less than two members, each of whom shall be an "outside
director" as that term is used in Code Section 162(m) and the regulations
promulgated thereunder.
26
<PAGE> 2
2.09 Cost of Capital. The Cost of Capital reflects the cost of debt and the
cost of equity, expressed as a percentage reflecting the percentage of interest
charged on debt and the percentage of expected return on equity.
2.10 Covered Employee. An individual defined in Code Section 162(m) (3).
2.11 Earnings from Continuing Operations. Earnings from Continuing
Operations shall be defined as the total sales of the Company minus the costs of
all operations of any nature used to produce such sales, including taxes, plus
after-tax interest associated with the Company's capital debt.
2.12 Eastman ESOP Excess Plan. The Eastman ESOP Excess Plan, a non-qualified
deferred compensation plan, including any amendments which may from time to time
be adopted thereto.
2.13 Eastman Investment Plan or EIP. The Eastman Investment Plan, a
qualified savings plan under Sections 401(a) and 401(k) of the Code, including
any amendments which may from time to time be adopted thereto.
2.14 Eastman Stock Ownership Plan or ESOP. The Eastman Stock Ownership Plan,
a qualified employee stock ownership plan under Sections 401(a) and 4975 of the
Code, including any amendments which may from time to time be adopted thereto.
2.15 Eligible Employee. Eligible Employees shall be all those individuals
who meet the eligibility criteria set forth under Article 3; provided however,
that nonresident aliens working outside of the United States shall not be
defined as Eligible Employees for the purposes of this Plan.
2.16 General Payout Table. The General Payout Table shall be that Table set
forth under Section 4.04 providing for the correlation between the Performance
Indicator and the Payout Basis.
2.17 Limited Service Employee. Limited Service Employee shall refer to any
individual hired by the Company for the specific purpose of meeting needs of
Nine Hundred (900) hours or less in any consecutive twelve (12) month period and
who is designated as a Limited Service Employee when hired.
2.18 Participating Affiliates. Participating Affiliates shall signify all
those companies or organizations which from time to time accept the provisions
of the Plan as applying to the employees of such company or organization.
2.19 Participating Earnings. Participating Earnings for a given Performance
Year shall be an Eligible Employee's Participating Earnings set forth in
Appendix A for such Performance Year.
2.20 Payout Basis. The Payout Basis shall signify the applicable percentage
set forth in accordance with the General Payout Table contained in Section 4.04.
2.21 Performance Indicator. The Performance Indicator shall mean the Return
on Capital minus the Cost of Capital. Such calculation shall be expressed as a
percentage, which shall be calculated to the third place after the decimal point
(i.e., xx.xxx%), and then rounded to the second place after the decimal point
(i.e., xx.xx%).
2.22 Performance Year. The Performance Year shall be the calendar year,
running from January 1 through December 31, with respect to which the financial
performance of the Company shall be determined.
2.23 Plan. The Eastman Performance Plan.
2.24 Plan Payout. The Plan Payout shall consist of those monies to which the
Eligible Employee shall be entitled in accordance with the provisions of this
Plan.
27
<PAGE> 3
2.25 Regular Full-Time Employee. Regular Full-Time Employee shall refer to
those individuals who are defined as such on the payrolls of the Company or a
Participating Affiliate and who work a regular schedule of:
(a) 40 or more hours per week (or shorter time periods where
required by law, by Company needs, or by the employee's
health); or
(b) Alternative work schedules such as alternating 36 and 48 hour
workweeks comprised of 12-hour days.
2.26 Regular Part-Time Employee. Regular Part-Time Employee shall refer to
those individuals who are defined as such on the payroll of the Company or a
Participating Affiliate, who work a regular schedule of less than 40 hours per
week, and who are not defined as Regular Full-Time Employees under Section 2.25.
2.27 Return on Capital. The Return on Capital shall mean the return produced
by funds invested in the Company and shall be defined as Earnings from
Continuing Operations, as defined in Section 2.11, divided by the Average
Capital Employed. Average Capital Employed shall be derived by adding the
Company's capital debt plus equity at the close of the last day of the year
preceding the Performance Year, to the Company's capital debt plus equity at the
close of the last day of the present Performance Year, with the resulting sum
being divided by two. Capital debt is defined as the sum of Borrowing by the
Company Due Within One Year and Long-Term Borrowing, as designated on the
Company's balance sheet. The resulting ratio shall be multiplied by One Hundred
(100) in order to convert such to a percentage. Such percentage shall be
calculated to the third place after the decimal point (i.e., xx.xxx%), and then
rounded to the second place after the decimal point (i.e., xx.xx%).
2.28 Special Program Employee. Special Program Employee shall refer to a
high school study-work student, a drafting trainee employed to work one quarter
or semester, a clerical assistant trainee hired to work for one quarter or
semester, a summer technical employee, a visiting scientist, or a normal
temporary employee hired for a limited period.
2.29 Termination Allowance Plan or TAP. Termination Allowance Plan or TAP
shall mean the Termination Allowance Plan adopted by the Company effective
January 1, 1994, and as amended thereafter from time to time.
ARTICLE 3. ELIGIBILITY
3.01 BASIC ELIGIBILITY
All Regular Full-Time Employees and Regular Part-Time Employees of Eastman
Chemical Company and any other Participating Affiliates as may from time to time
participate under this Plan, are eligible to receive a Plan Payout as described
herein if they:
(a) Meet all of the following requirements;
(i) Are employed by Eastman Chemical Company or one of
the Participating Affiliates on December 31 of the
Performance Year; and
(ii) Receive Participating Earnings with respect to the
Performance Year; and
(iii) Are living at 11:59 p.m. on the last scheduled
workday for such Employee during the Performance Year
(e.g., if an Employee regularly works a Monday to
Friday shift, his last scheduled workday for the 1996
Performance Year would be Tuesday, December 31,
1996);
28
<PAGE> 4
or
(b) Meet the requirements of Section 3.02.
3.02 SPECIAL ELIGIBILITY
Regular Full-Time Employees and Regular Part-Time Employees who are not actively
employed with the Company or a Participating Affiliate as of December 31 of the
Performance Year are eligible to participate under the provisions of this Plan
provided that they meet one of the following criteria:
(a) Such employee has retired in accordance with the Eastman
Retirement Assistance Plan on or after February 1 of the
Performance Year; or
(b) Such employee has exhausted Short-Term Disability benefits
during the Performance Year and:
(i) Is approved for benefits under the Eastman Long-Term
Disability Plan; or
(ii) Is not approved for benefits under the Eastman
Long-Term Disability Plan and is terminated by the
Company due to lack of prescribed work; or
(c) Such employee's employment with the Company was terminated
during the Performance Year and as a result of such
termination the employee becomes entitled to a Termination
Allowance Benefit under the Company's Termination Allowance
Plan; or
(d) All of the following conditions are met: (i) an employee's
employment with the Company is terminated during the
Performance Year under a layoff as defined in Section 4.01 of
TAP, a special separation as defined in Section 4.02 of TAP,
or a divestiture as defined in Section 4.03 of TAP; (ii) such
employee does not become entitled to a Termination Allowance
Benefit under TAP; and (iii) management of the Company
nevertheless resolves in writing that such employee shall be
entitled to participate in the Performance Plan for such
Performance Year upon meeting such conditions as management
shall determine in its sole discretion. For this purpose,
"management of the Company" shall mean any of the following:
the Board of Directors of the Company, a committee of the
Board; a committee of the Company responsible for benefits
plans oversight; or an officer of the Company; or
(e) Such employee is (i) paid on a United States-based salary
structure, and (ii) is temporarily employed with a
non-participating affiliate of the Company and serving outside
the borders of the United States at the direction or request
of the Company or any Participating Affiliate; or
(f) Such employee's employment with the Company was terminated
during the Performance Year in order to accompany or follow
their Eastman employee spouse who is transferred to a company
unit or subsidiary or affiliated company in a different
geographic area which is not a Participating Affiliate.
If an employee meets the requirements of this Section 3.02 for a given
Performance Year but is not eligible for an allocation under the ESOP for such
Performance Year (as determined under the ESOP), then such employee shall
receive the entire amount of his individual Plan Payout, as calculated under
Section 4.06(a), in cash, and no contribution shall be made to the ESOP or
Eastman ESOP Excess Plan for the benefit of such individual.
29
<PAGE> 5
3.03 TRANSFER INTO PLAN
Employees who transfer to the Company during the course of any Performance Year
from a subsidiary or affiliated company which is not a Participating Affiliate
in the Plan will be eligible for the Plan Payout payable for the Performance
Year if they satisfy the eligibility requirements of Section 3.01 or 3.02 above.
Earnings and allowances received from such subsidiary or affiliated company are
not included in Compensation or Participating Earnings.
3.04 TRANSFER FROM PLAN
Employees who are transferred during any Performance Year from the Company to
employment with a subsidiary or affiliated company which is not a Participating
Affiliate will qualify for the Plan Payout payable for that Performance Year.
However, earnings and allowances received from such subsidiary or affiliated
company are not included in Compensation or Participating Earnings.
3.05 EXCLUSIONS
Limited Service Employees, Special Program Employees, College Cooperative
Employees, Buffer Employees and all other employees of the Company and
Participating Affiliates not defined as Regular Full-Time Employees or Regular
Part-Time Employees are not eligible to receive a Plan Payout as authorized
herein unless reclassified before December 31 of the Performance Year into a
class of employees eligible to receive a Plan Payout in accordance with Sections
3.01 and 3.02. For such reclassified employees, except those employees who were
classified as Limited Service Employees prior to such reclassification, earnings
before reclassification are included in Compensation or Participating Earnings.
3.06 PARTICIPATION OF RECENTLY HIRED EMPLOYEES
Notwithstanding any language to the contrary contained herein, during the
Performance Year in which an Eligible Employee is first hired by the Company or
by a Participating Affiliate, and the next Performance Year, Eligible Employees
shall receive allocations of the Plan Payout, as follows. For the Performance
Year of the Eligible Employee's date of hire, the Eligible Employee shall
receive an allocation equal to Twenty-Five Percent (25%) of the Eligible
Employee's total Plan Payout as calculated under Section 4.06(a). For the first
full Performance Year after the Eligible Employee's date of hire, the Eligible
Employee shall receive an allocation equal to Fifty Percent (50%) of that
Eligible Participant's total Plan Payout as calculated under Section 4.06(a).
Such allocation made shall be paid entirely in cash pursuant to the provisions
of Section 5.01(b). During the Performance Year in which the Eligible Employee
is first hired and the next succeeding Performance Year, the Eligible Employee
shall not be eligible to receive an ESOP Payout. However, this Section 3.06
shall not apply to an Eligible Employee for a given Performance Year if such
Employee is entitled to an ESOP allocation (under the terms of the ESOP) for
such Performance Year.
3.07 TERMINATION OF EMPLOYMENT SUBSEQUENT TO PERFORMANCE YEAR
Any Eligible Employee who has met the requirements for participation contained
in this Article 3 for the Performance Year and with whom the employment
relationship with the Company or any Participating Affiliate is subsequently
terminated for any reason prior to the distribution of the Plan Payout for that
Performance Year shall be entitled to the Plan Payout for that Performance Year.
Payment of such Plan Payout shall be made in accordance with the provisions set
forth under Section 5.01.
30
<PAGE> 6
3.08 ELIGIBILITY IN CASE OF DEATH
Notwithstanding any language contained herein, if an employee dies before
qualifying for the Plan Payout for the Performance Year, the Company may, in its
sole discretion, elect to pay all, part, or none of the Plan Payout to the
estate of the employee or to a designated beneficiary thereof. However, if an
Eligible Employee dies after qualifying for but before receiving a given Plan
Payout, such Plan Payout will be paid to the decedent's estate as a legal right.
ARTICLE 4. DETERMINATION OF PLAN PAYOUT
4.01 IN GENERAL
The Plan Payout, if any, is intended to reflect the financial performance of the
Company over the course of the Performance Year. Financial performance shall be
measured in terms of the Performance Indicator. Such Plan Payout, if any, shall
be calculated as determined under Section 4.06. The resulting Plan Payout for
each Eligible Employee shall be distributed pursuant to the provisions of
Article 5 below.
4.02 DETERMINATION OF PERFORMANCE INDICATOR
No later than the first day of a Performance Year (or such later date as may be
permitted by Code Section 162(m)), the Compensation Committee shall establish in
writing for that Performance Year, the Performance Indicator (including the Cost
of Capital for the Performance Year), the Payout Basis, the General Payout
Table, and the formula or method for calculating the Plan Payout payable to each
Eligible Employee if certain levels of the Performance Indicator are attained.
The Performance Indicator for any Performance Year shall be the Return on
Capital (as defined in Section 2.27) minus the Cost of Capital (as defined in
Section 2.09), expressed as a percentage, which shall be calculated to the third
place after the decimal point (i.e., xx.xxx%), and then rounded to the second
place after the decimal point (i.e., xx.xx%). Except as otherwise provided in
the next two sentences, measurement of the Company's performance against the
performance goals established by the Committee shall be objectively determinable
and, to the extent they are expressed in standard accounting terms, shall be
determined according to generally accepted accounting principles as in existence
on the date on which the performance goals are established and without regard to
any changes in such principles after such date. With respect to participants
other than Covered Employees, in determining whether the performance goals
established by the Committee have been met, the Committee may in its discretion
adjust the financial results for a Performance Year to exclude the effect of
unusual charges or income items or other events (including, without limitation,
acquisitions or divestitures), which are distortive of financial results for the
Performance Year. The Committee may in its discretion reduce (but not increase)
the resulting award to Covered Employees if deemed necessary to exclude the
effect of unusual charges or income items or other events (including, without
limitation, acquisitions or divestitures), which are distortive of financial
results for the Performance Year. No adjustment will be made with respect to a
Covered Employee if the Committee determines that such adjustment will cause an
award to such Covered Employee to fail to qualify as performance-based
compensation under Section 162(m).
4.03 DETERMINATION OF PAYOUT BASIS
The Payout Basis, expressed as a percentage as follows, shall be determined
according to the General Payout Table shown in Section 4.04. If the Return on
Capital minus Cost of Capital is not an even percentage, then the exact Payout
Basis shall be calculated by straight line interpolation, and shall be
calculated to the third place after the decimal point (i.e., xx.xxx%), and then
rounded to the second place after the decimal point (i.e., xx.xx%).
31
<PAGE> 7
4.04 GENERAL PAYOUT TABLE
<TABLE>
<CAPTION>
RETURN ON CAPITAL
MINUS COST OF CAPITAL PAYOUT BASIS*
(PERCENTAGE) TOTAL % ESOP % CASH %
------------ ------- ------ ------
<S> <C> <C> <C>
10 or More 30 5 25
9 27 5 22
8 24 5 19
7 22 5 17
6 20 5 15
5 18 5 13
4 16 5 11
3 14.5 5 9.5
2 13 5 8
1 11.5 5 6.5
0 10 5 5
-1 9 5 4
-2 8 5 3
-3 7 5 2
-4 6 5 1
-5 5 5 0
Less than -5 0 ** 0
</TABLE>
*Actual Payout percentages may vary based on pay at
risk as determined under Section 4.06.
**The ESOP Payout Basis will be determined pursuant
to Section 4.05 below.
4.05 BOARD ELECTION REGARDING 0% PAYOUT BASIS
Neither the Board nor the Compensation Committee shall have discretion to
increase or reduce the Plan Payout payable in cash determined according to this
Article 4.
In the event of a Performance Year in which the total Payout Basis pursuant to
the General Payout Table contained in Section 4.04 is to be 0%, the Board of
Directors of the Company will determine whether to make any contribution to the
ESOP for such Performance Year and if so, how much. Nothing in this Section 4.05
shall be deemed to provide an implied or express promise or commitment to
provide an ESOP contribution arising from this Eastman Performance Plan in a
Performance Year in which the total Payout Basis under the Payout Table is 0%.
4.06 CALCULATION OF INDIVIDUAL PLAN PAYOUT
Calculations of the individual Plan Payout shall be done on a three part basis
as follows:
(a) The total Plan Payout for each Eligible Employee shall be
calculated by multiplying the Participating Earnings of the
Eligible Employee for the Performance Year by a fraction, the
numerator of which is the Total Payout Basis derived from the
General Payout Table contained in Section 4.04 and the
denominator of which is One (1) minus that percentage of the
Eligible Employee's pay at risk as defined under the regular
32
<PAGE> 8
employment practices of the Company. Such fraction shall be
calculated to the seventh place after the decimal point (i.e.,
xx.xxxxxxx%), and then rounded to the sixth place after the
decimal point (i.e., xx.xxxxxx%). Thus, the calculation shall
be expressed as follows:
Plan Payout (Total) = Participating Earnings x Total Payout
Basis / 1 - % of Pay at Risk
(b) That portion of the Plan Payout to be contributed to the ESOP
account of Eligible Employees shall be calculated by
multiplying the Compensation of the Eligible Employee for the
Performance Year by a fraction, the numerator of which is the
ESOP Payout Basis derived from the General Payout Table
contained in Section 4.04 and the denominator of which is 95%.
Such fraction shall be calculated to the seventh place after
the decimal point (i.e., xx.xxxxxxx%), and then rounded to the
sixth place after the decimal point (i.e., xx.xxxxxx%). Thus,
the calculation shall be expressed as follows:
Plan Payout (ESOP) = Compensation x (ESOP Payout Basis / 95%)
In the event that the Eligible Employee's Compensation as
determined under Section 2.11 of the ESOP is less than his
Participating Earnings for a given Performance Year, that
portion of the Plan Payout that would have been contributed to
the ESOP under this subsection (b) for such Employee but for
the limitations of Section 401(a)(17) of the Code, shall be
credited to the Eastman ESOP Excess Plan in accordance with
the provisions thereof.
(c) That portion of the Plan Payout designated for distribution in
cash shall be calculated by subtracting the ESOP portion of
the total Plan Payout calculated pursuant to subsection (b) of
this Section 4.06 (including that portion to be credited to
the Eastman ESOP Excess Plan, if applicable) from the total
Plan Payout derived under subsection (a) of this Section 4.06.
Thus, the calculation shall be expressed as follows:
Plan Payout (Total) - Plan Payout (ESOP) = Plan Payout (Cash)
The maximum annual Plan Payout to any individual is $500,000.
4.07 ESTIMATED PLAN PAYOUT
The Vice President and Chief Financial Officer, or his delegate, shall, on or
about the close of each quarter of the Company's fiscal year, estimate the
annual Payout Basis for the Plan based upon financial performance for the
Performance Year to date. The estimates thus generated shall subsequently be
communicated to Eligible Employees in such a manner as determined by the
Company.
4.08 FINAL DETERMINATIONS BY BOARD AND BY COMPENSATION COMMITTEE
As soon as practicable following the availability of performance results for the
completed Performance Year, the Committee shall determine the Company's
performance in relation to the Performance Indicator for that period and certify
in writing the Company's performance. Such certification shall include
confirmation of the Return on Capital (determined as described in Section 2.27),
and final approval and declaration of the Plan Payout to Covered Employees.
33
<PAGE> 9
Notwithstanding any language contained herein, final approval for any Plan
Payout to Eligible Employees other than Covered Employees determined in
conjunction with this Article 4 must be given by the Board of Directors of the
Company. No declaration of Plan Payout by the Board or the Compensation
Committee for any given year shall commit the Board or the Compensation
Committee to any given level of Plan Payout in future years.
4.09 SHAREOWNER APPROVAL
No Plan Payout payable in cash shall be paid under the Plan to any Covered
Employee for any Performance Year after 1996 unless and until the material terms
(within the meaning of Section 162(m) of the Code) of the Plan, including the
performance goals on which the Plan Payout would be based, are disclosed to the
Company's shareowners and are approved by the shareowners by a majority of the
votes cast.
ARTICLE 5. MECHANISM OF PLAN PAYOUT
5.01 PLAN PAYOUT
Approved Plan Payouts for any Performance Year shall be made in the subsequent
Performance Year as follows:
(a) That portion of the Plan Payout determined pursuant to the
provisions of Section 4.06 which is designated for
contribution to the ESOP account of the Eligible Employee
shall be contributed by the Company to the ESOP account of the
Eligible Employee no later than the date of the Company's due
date for filing its corporate tax return (with extensions) for
such Performance Year.
(b) That portion of the Plan Payout determined pursuant to the
provisions of Section 4.06 which is designated for
distribution in cash shall, at the discretion of the Company,
be paid out in March of the subsequent Performance Year in
cash by check or into an account designated by the Eligible
Employee and held with a commercial bank. The portion of the
Plan Payout dispersed pursuant to the provisions of this
Subsection (b) shall reflect any deductions made by the
Company for purposes of Federal or other taxation or pursuant
to request for deferral of benefits made by the Eligible
Employee under the provisions of Article 5.02.
5.02 EASTMAN INVESTMENT PLAN AND EASTMAN EXECUTIVE DEFERRED COMPENSATION
PLAN PARTICIPATION
Eligible Employees who are also eligible to participate in the Eastman
Investment Plan may elect to defer the cash portion of the Plan Payout for a
given Performance Year into the Eastman Investment Plan, to the extent provided
under such Plan. Eligible Employees who are also eligible to participate in the
Eastman Executive Deferred Compensation Plan may elect to defer the cash portion
of the Plan Payout for a given Performance Year into the Eastman Executive
Deferred Compensation Plan, to the extent provided under such Plan. Any funds
deferred pursuant to the provisions of this Section 5.02 shall become subject to
the rules and regulations of the EIP or the Executive Deferred Compensation
Plan, and shall reflect any deductions made for purposes of payment of social
security taxes due under the Code.
5.03 EASTMAN STOCK OWNERSHIP PLAN/EASTMAN ESOP EXCESS PLAN
All portions of the Plan Payout which are to be contributed to the ESOP or
credited to the Eastman ESOP Excess Plan pursuant to the terms of this Plan
shall, after such contribution or crediting of such amounts
34
<PAGE> 10
(as applicable), be governed in accordance with the provisions of the ESOP or
Eastman ESOP Excess Plan (as applicable). The Eastman Performance Plan solely
purports to determine the amount of contributions to the ESOP or the level of
credits to the Eastman ESOP Excess Plan. All decisions as to eligibility,
benefits or any matter other than the level of ESOP contributions or the level
of ESOP Excess crediting amounts shall be governed by the ESOP or the Eastman
ESOP Excess Plan (as applicable).
5.04 DEFERRAL OF AWARD
Notwithstanding anything in this Article 5 to the contrary, if the Compensation
Committee determines that the current payment of any award under this Article 5
could result in the Eligible Employee's receiving compensation in excess of the
maximum amount deductible by the Company for Federal income tax purposes, then
such Committee in its sole discretion may determine that such award shall not be
paid currently, and instead shall be transferred to the Employee's account under
the Eastman Executive Deferred Compensation Plan (and thereafter shall be
subject to the provisions of the Executive Deferred Compensation Plan).
ARTICLE 6. CLAIM AGAINST PERFORMANCE PAYMENT
The payment of any Plan Payout which may be subject in whole or in part to
execution, lien, assignment, or other claim, notice of which is received by the
Company on or before the Plan Payout payment date, may be delayed for an
appropriate time in order to facilitate proper handling of the claim and in
order to make any necessary adjustments.
ARTICLE 7. INABILITY TO LOCATE PAYEE
If the Company is unable to make payment hereunder to any Eligible Employee to
whom a Plan Payout is due because the Company is unable to ascertain the
whereabouts of such Eligible Employee after reasonable efforts have been made,
such payment otherwise due shall be forfeited one (1) year after the date the
Plan Payout was to be made.
ARTICLE 8. PLAN DOCUMENT CONTROLS
In the event of a conflict between this Plan document and any other information
or enrollment materials provided to the Eligible Employees (whether written or
oral), the provisions of this document shall control.
ARTICLE 9. RIGHT TO AMEND OR TERMINATE
Although the Company intends to continue the Plan indefinitely, the Plan may be
terminated, suspended or modified, in whole or in part, at any time for any
reason by action of the Compensation Committee. No amendment may be made to the
class of individuals who are eligible to participate in the Plan, the
performance criteria specified in Article 4, or the maximum annual Plan Payout
payable to any individual, without shareowner approval unless shareowner
approval is not required in order for Plan Payouts paid to Covered Employees to
constitute qualified performance-based compensation under Section 162(m) of the
Code.
35
<PAGE> 11
ARTICLE 10. NO EMPLOYMENT RIGHTS
Nothing contained in this Plan shall give any Eligible Employee the right to be
retained in the employment of the Company or affect the right of the Company to
dismiss any employee. The adoption and maintenance of this Plan shall not
constitute a contract between the Company and the Eligible Employee for
consideration for, or inducement or condition of, the employment of the Eligible
Employee.
ARTICLE 11. CONCLUSIVENESS OF RECORDS
The records of the Company with respect to financial data, Participating
Earnings, and all other relevant matters shall be conclusive for purposes of the
administration of the Plan described in this document.
ARTICLE 12. ADMINISTRATION; ACTIONS BY THE COMPANY
All members of the Compensation Committee shall be persons who qualify as
"outside directors" as defined under Section 162(m) of the Code. The Committee
shall have full power and authority to administer and interpret the provisions
of the Plan and to adopt such rules, regulations, agreements, guidelines, and
instruments for the administration of the Plan and for conduct of its business
as the Committee deems appropriate or advisable. The Committee sets and
interprets policy, establishes annual performance goals, evaluates Company
performance against the goals, and confirms and certifies the extent to which
Company performance goals were satisfied under the Plan.
Except with respect to matters which under Section 162(m) of the Code are
required to be determined in the sole and absolute discretion of the Committee,
the Committee shall have full power to delegate to any officer or employee of
the Company the authority to administer and interpret the procedural aspects of
the Plan, subject to the Plan's terms, including adopting and enforcing rules to
decide procedural and administrative issues.
36
<PAGE> 12
APPENDIX A
PARTICIPATING AND NON-PARTICIPATING EARNINGS
PARTICIPATING EARNINGS
Pay for all time worked including:
Wages and salaries
Pay for clothes change
Pay for time spent attending meetings
Paid lunch periods
Pay for time in Eastman Medical Department (scheduled hours only)
Pay for work on community campaigns and special community projects (at
company request)
Pay when serving as pallbearer (at company request)
Overtime pay
Shift premiums
Shift supplements
Compensating time off
Holiday pay, premiums, and allowances (including payment for holiday during a
full week of absence)
Vacation pay (including payment in lieu of vacation and excluding purchased
vacation cashout)
Pay for travel status
Lack of work allowance
Time spent by Apprentices in supervised tests or labs
Medical pay allowance (as recommended and arranged by the Eastman Medical
Department)
Jury duty
Call-in allowance
On-call allowance
Adjustment for amount of time spent on Final Warning1
Note 1: Participating Earnings does not include pay during the period of
time while a Employee is on Final Warning Status, as determined
under the Company's regular employment practices. This adjustment
is made by taking an Employee's Participating Earnings for the
Performance Year, and excluding a pro rata portion based on the
amount of time that the Employee was on Final Warning Status during
such year.
37
<PAGE> 13
NON-PARTICIPATING EARNINGS
Eastman Performance Plan payouts
Annual Performance Plan payouts
Omnibus Plan awards such as:
Stock Option grants
Restricted Stock grants
Long-Term Performance Award Plan awards
Tuition refunds
Educational support payments
Termination allowance and special separation allowance
Moving expenses and allowances as the result of domestic relocation
Additions to allowances on prizes for tax purposes
Taxable awards and prizes such as:
25-year service awards
40-year service awards
Safety awards
Attendance awards
Allowances for excused absences due to:
accident at work
death of a relative
emergency blood donation
emergency relief activities
organized color guard
employee medical or dental appointment
serving in public office
personal absences
temporary military duty
time spent voting
voluntary community services
other allowances not specifically identified under Participating Earnings
Allowances for expatriates:
cost-of-living allowance
housing allowance
tax makeup allowance
travel allowance
education allowance
Foreign service premium payments
Payment in lieu of notice of termination
Short-Term Disability benefits
Taxable portion of insurance premium paid by Company
Workers' Compensation payments and allowances:
makeup payments
statutory payments
supplements
All other payments or allowances not specifically identified as Participating
Earnings
38
<PAGE> 1
1996-1998 LONG-TERM PERFORMANCE SUBPLAN
OF THE 1994 OMNIBUS LONG-TERM COMPENSATION PLAN (AS AMENDED)
EASTMAN CHEMICAL COMPANY
Effective January 1, 1996
39
<PAGE> 2
1996-1998 LONG-TERM PERFORMANCE SUBPLAN
OF THE 1994 OMNIBUS LONG-TERM COMPENSATION PLAN (AS AMENDED)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Title
- ------- -----
<S> <C>
Section 1. Background
Section 2. Definitions
Section 3. Administration
Section 4. Eligibility
Section 5. Form of Awards
Section 6. Size of Awards
Section 7. Composition of Peer Group
Section 8. Preconditions to Receipt of an Award
Section 9. Manner and Timing of Award Payments
Section 10. No Rights as Shareowner
Section 11. Application of Plan
Section 12. Amendments
</TABLE>
40
<PAGE> 3
EASTMAN CHEMICAL COMPANY
1996-1998 LONG-TERM PERFORMANCE SUBPLAN
OF THE 1994 OMNIBUS LONG-TERM COMPENSATION PLAN (AS AMENDED)
Section 1. Background. Under Section 11 of the Eastman Chemical Company 1994
Omnibus Long-Term Compensation Plan (the "Plan"), the "Committee" (as defined in
the Plan), may, among other things, award shares of the $.01 par value common
stock ("Common Stock") of Eastman Chemical Company (the "Company") to
"Employees" (as defined in the Plan), and such awards may take the form of
performance shares, which are contingent upon the attainment of certain
performance objectives during a specified period, and subject to such other
terms, conditions, and restrictions as the Committee deems appropriate. The
purpose of this 1996-1998 Long-Term Performance Subplan (this "Subplan") is to
set forth the terms of the grant of performance shares specified herein,
effective as of January 1, 1996 (the "Effective Date").
Section 2. Definitions.
(a) The following definitions shall apply to this Subplan:
(i) "Actual Grant Amount" means the number of shares of Common
Stock to which a participant is entitled under this Subplan,
calculated in accordance with Section 6 of this Subplan.
(ii) "Award Payment Date" means the date the shares of Common Stock
covered by an award under this Subplan are delivered to a
participant.
(iii) "Compared Group" means the Company and the companies in the
Peer Group.
(iv) "Maximum Deductible Amount" means the maximum amount
deductible by the Company under Section 162(a), taking into
consideration the limitations under Section 162(m), of the
Internal Revenue Code of 1986, as amended, or any similar or
successor provisions thereto.
(v) "Normal Grant Amount" means, with respect to any eligible
Employee, the number of shares of Common Stock specified on
Exhibit A hereto for the Salary Grade applicable to such
Employee.
(vi) "Participation Date" means June 30, 1996.
(vii) "Peer Group" means the group of companies identified in
Exhibit B hereto, with any changes made by the Committee
pursuant to Section 7 of this Subplan.
(viii) "Performance Period" means January 1, 1996 through December
31, 1998.
(ix) "TSR" means total return to shareowners, as reflected by the
sum of (A) change in stock price (measured as the difference
between (I) the average of the closing prices of a company's
common stock on the New York Stock Exchange, or of the last
sale prices of such stock on the Nasdaq Stock Market, as
applicable, over the first 20 trading days of the period for
which such change is being measured and (II) the average of
such closing or last sale prices for such stock over the final
20 trading days of the period for which such change is being
measured) plus (B) dividends declared, assuming reinvestment
of dividends, and expressed as a percentage return on a
shareowner's hypothetical investment.
(b) Any capitalized terms used but not otherwise defined in this Subplan
shall have the respective meanings set forth in the Plan.
41
<PAGE> 4
Section 3. Administration. This Subplan shall be administered by the Committee.
The Committee shall have authority to interpret this Subplan, to prescribe rules
and regulations relating to this Subplan, and to take any other actions it deems
necessary or advisable for the administration of this Subplan, and shall retain
all general authority granted to it under Section 3 of the Plan.
Section 4. Eligibility. The Employees who are eligible to participate in this
Subplan are those Employees who, as of the Effective Date, have been designated
as "officers" of the Company for purposes of Section 16 of the Exchange Act and
those Employees designated by the Company's Chief Executive Officer during 1996,
which shall generally include Employees who, as of the Effective Date or the
Participation Date, held positions with the Company considered by the Chief
Executive Officer to carry responsibilities and functions generally associated
with a vice-president-level position. Employees who are promoted during the
Performance Period to a position that would meet the above criteria, but who do
not hold such position as of the Participation Date, are not eligible to
participate in this Subplan; however, the ability of the Chief Executive Officer
under this Section 4 to designate eligible Employees at any time during 1996 is
intended to allow the participation of Employees who, as of the Participation
Date, held positions with the Company that may not have been considered to carry
responsibilities and functions generally associated with a vice-president-level
position but which positions are or were evaluated during 1996 and determined by
the Chief Executive Officer to carry such responsibilities and functions.
Section 5. Form of Awards. Subject to the terms and conditions of the Plan and
this Subplan, Awards under this Subplan shall be paid in the form of
unrestricted shares of Common Stock, except for conversions to cash and
deferrals under Section 9 of this Subplan, and except that if a participant is
entitled to any fraction of a share of Common Stock, as a result of Section 10
of this Subplan or otherwise, then in lieu of receiving such fraction of a
share, the participant shall be paid a cash amount representing the market
value, as determined by the Committee, of such fraction of a share at the time
of payment.
Section 6. Size of Awards. Exhibit A hereto shows by Salary Grade the Normal
Grant Amount. The Salary Grade to be used in calculating the size of any Award
to a participant under this Subplan shall be the higher of (a) the Salary Grade
applicable to the position held by the participant on the Participation Date
(or, in the case of participants whose employment is terminated prior to the
Participation Date, the Effective Date) and (b) the Salary Grade assigned to
such position during 1996 as a result of any reevaluation of the Salary Grade
appropriate for such position. The Actual Grant Amount shall be determined by
comparing the Company's TSR during the Performance Period to the TSRs of the
companies in the Peer Group during the Performance Period. Specifically, the
Company and each company in the Peer Group shall be ranked by TSR, in descending
order, with the company having the highest TSR during the Performance Period
being ranked number one. If the Company ranks in the highest quartile of the
Compared Group on that basis, then the Normal Grant Amount shall be multiplied
by 2.0 (i.e., 200%) to determine the Actual Grant Amount; if in the second
highest quartile, then the Actual Grant Amount shall be equal to the Normal
Grant Amount; if in the third highest quartile, then the Normal Grant Amount
shall be multiplied by 0.5 (i.e., 50%) to determine the Actual Grant Amount; and
if in the lowest quartile, then the Actual Grant Amount shall be 0 and no shares
of Common Stock shall be delivered to participants under this Subplan.
Notwithstanding the foregoing, if the Peer Group produces fewer than 19 distinct
TSRs (as a result of the removal of a company from the Peer Group without
substitution of a replacement company therefor, as described in Section 7 of
this Subplan), then the Committee shall, in its sole discretion, determine the
appropriate means of calculating the Actual Grant Amount.
Section 7. Composition of Peer Group. The members of the Peer Group identified
in Exhibit B hereto have been identified as companies currently relevant for
purposes of TSR comparisons under this Subplan. However, the Committee shall
have the authority, at any time and from time to time, to determine that any
member of the Peer Group is no longer appropriate for inclusion. Circumstances
that might require such a determination include, without limitation, the
following events: a company's common stock ceasing to be publicly traded on an
exchange or on the Nasdaq Stock Market; a company's being a party to a
significant merger, acquisition, or other reorganization; or a company's ceasing
to operate in the chemical industry. In any case where the Committee determines
that a particular company is no longer appropriate for inclusion in the Peer
Group, the Committee may designate a replacement company, which shall then be
substituted in the Peer Group for the former member. In any such case, the
Committee shall have authority to determine the appropriate method of
calculating the TSR of such former and/or replacement company or companies,
whether by complete substitution of the replacement company (and disregard of
the former company) over the entire Performance Period or by pro rata
42
<PAGE> 5
calculations for each company or otherwise. Alternatively, in any case where the
Committee determines that a particular company is no longer appropriate for
inclusion in the Peer Group, the Committee may remove such company from the Peer
Group without substituting a replacement company therefor.
Section 8. Preconditions to Receipt of an Award.
(a) Continuous Employment. Except as specified in paragraph (b) below, to
remain eligible for an Award under this Subplan, an eligible Employee
must remain continuously employed with the Company or a Subsidiary at
all times from the Participation Date (or the Effective Date) through
the Award Payment Date.
(b) Death, Disability, Retirement, or Termination for an Approved Reason
Before the Award Payment Date. If a participant's employment with the
Company or a Subsidiary is terminated due to death, disability,
retirement, or any approved reason prior to the Award Payment Date, the
participant shall receive, subject to the terms and conditions of the
Plan and this Subplan, an Award representing a prorated portion of the
Actual Grant Amount to which such participant otherwise would be
entitled, with the precise amount of such Award to be determined by
multiplying the Actual Grant Amount by a fraction, the numerator of
which is the number of full calendar months in the Performance Period
from the Effective Date through and including the effective date of
such termination, and the denominator of which is 36 (the total number
of months in the Performance Period). If the effective date of a
participant's termination of employment occurs on or after the last
business day of a particular calendar month, then such month shall be
considered a full calendar month and shall be counted in determining
the numerator of the fraction described in the preceding sentence; if
the effective date of such termination occurs prior to the last
business day of a particular calendar month, then such month shall not
be so counted.
Section 9. Manner and Timing of Award Payments.
(a) Timing of Award Payment. Except for deferrals under Sections 9(b) and
9(c), if any Awards are payable under this Subplan, the payment of such
Awards to eligible Employees shall be made as soon as is
administratively practicable after the end of the Performance Period.
(b) Deferral of Award in Excess of the Maximum Deductible Amount. If
payment of the Award would, or could in the reasonable estimation of
the Committee, result in the participant's receiving compensation in
excess of the Maximum Deductible Amount in a given year, then such
portion (or all, as applicable) of the Award as would, or could in the
reasonable estimation of the Committee, cause such participant to
receive compensation from the Company in excess of the Maximum
Deductible Amount shall be converted into the right to receive a cash
payment, which shall be deferred until after the participant retires or
otherwise terminates employment with the Company and its Subsidiaries.
(c) Election to Defer the Award. Any participant in this Subplan may elect
to defer the Award until after the participant retires or otherwise
terminates employment with the Company and its Subsidiaries under the
terms and subject to the conditions of the Eastman Executive Deferred
Compensation Plan, as the same now exists or may be amended hereafter
(the "EDCP"). If the participant chooses to defer the Award, the Award
shall be converted into the right to receive a cash payment.
(d) Award Deferral to the EDCP. In the event that all or any portion of an
Award is converted into a right to receive a cash payment pursuant to
Sections 9(b) or 9(c), an amount representing the Fair Market Value, as
of the date the Common Stock covered by the Award otherwise would be
delivered to the participant, of the Actual Grant Amount (or the
deferred portion thereof) will be credited to the Stock Account of the
EDCP, and hypothetically invested in units of Common Stock. Thereafter,
such amount shall be treated in the same manner as other investments in
the EDCP and shall be subject to the terms and conditions thereof.
Section 10. No Rights as Shareowner. No certificates for shares of Common Stock
shall be issued under this Subplan nor shall any participant have any rights as
a shareowner as a result of participation in this Subplan, until the Actual
Grant Amount has been determined and such participant has otherwise become
entitled to an Award under the terms of the Plan and this Subplan.
43
<PAGE> 6
In particular, no participant shall have any right to vote or to receive
dividends on any shares of Common Stock under this Subplan, until certificates
for such shares have been issued as described above; provided, however, that if
payment of all or any portion of an Award under this Subplan has been deferred
pursuant to Section 9 of this Subplan or otherwise, but such award otherwise has
become payable hereunder, then during the period during which payment is
deferred, the deferred Award shall be credited with additional units of Common
Stock, and (if applicable) fractions thereof, based on any dividends declared on
the Common Stock, in accordance with the terms of the EDCP.
Section 11. Application of Plan. The provisions of the Plan shall apply to this
Subplan, except to the extent that any such provisions are inconsistent with
specific provisions of this Subplan. In particular, and without limitation,
Section 11 (relating to performance shares), Section 16 (relating to
nonassignability), Section 17 (relating to adjustment of shares available),
Section 18 (relating to withholding taxes), Section 19 (relating to
noncompetition and confidentiality), Section 20 (relating to regulatory
approvals and listings), Section 22 (relating to the governing law), Section 23
(relating to changes in ownership), Section 24 (relating to changes in control),
Section 25 (relating to no rights, title, or interest in Company assets), and
Section 26 (relating to securities laws) shall apply to this Subplan.
Section 12. Amendments. The Committee may, from time to time, amend this Subplan
in any manner.
44
<PAGE> 7
EXHIBIT A
EASTMAN CHEMICAL COMPANY LTPP GRANT TABLE
1996-1998 CYCLE
NORMAL GRANT AMOUNT
Original on File in
Personnel Resources
45
<PAGE> 8
EXHIBIT B
COMPANIES IN THE PEER GROUP
Air Products and Chemicals, Inc.
ARCO Chemical Company
Crompton & Knowles Corporation
Dow Chemical Company
E. I. du Pont de Nemours and Company
H. B. Fuller Company
The Geon Company
Georgia Gulf Corporation
Great Lakes Chemical Corporation
M. A. Hanna Company
Lyondell Petrochemical Company
Monsanto Replacement Index*
Morton International, Inc.
Rohm and Haas Company
A. Schulman, Inc.
Sterling Replacement Index*
Union Carbide Corporation
Wellman, Inc.
Witco Corporation
*By action of the Compensation and Management Development Committee, Monsanto
Company and Sterling Chemicals Inc. were removed from the Peer Group because
they no longer met Peer Group criteria. As a result, they were replaced by an
index which is calculated as the arithmetic average of the total shareowner
return of the remaining companies in the Peer Group.
46
<PAGE> 1
LONG-TERM PERFORMANCE SUBPLAN
OF THE 1997 OMNIBUS LONG-TERM COMPENSATION PLAN
1998-2000 PERFORMANCE PERIOD
(AS AMENDED)
EASTMAN CHEMICAL COMPANY
Effective January 1, 1998
47
<PAGE> 2
LONG-TERM PERFORMANCE SUBPLAN
OF THE 1997 OMNIBUS LONG-TERM COMPENSATION PLAN
1998-2000 PERFORMANCE PERIOD
(AS AMENDED)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Title
- ------- -----
<S> <C>
Section 1. Background
Section 2. Definitions
Section 3. Administration
Section 4. Eligibility
Section 5. Form of Awards
Section 6. Size of Awards
Section 7. Composition of Peer Group
Section 8. Preconditions to Receipt of an Award
Section 9. Manner and Timing of Award Payments
Section 10. No Rights as Shareowner
Section 11. Application of Plan
Section 12. Amendments
</TABLE>
48
<PAGE> 3
EASTMAN CHEMICAL COMPANY
LONG-TERM PERFORMANCE SUBPLAN
OF THE 1997 OMNIBUS LONG-TERM COMPENSATION PLAN
1998-2000 PERFORMANCE PERIOD
(AS AMENDED)
Section 1. Background. Under Section 11 of the Eastman Chemical Company 1997
Omnibus Long-Term Compensation Plan (the "Plan"), the "Committee" (as defined in
the Plan), may, among other things, award shares of the $.01 par value common
stock ("Common Stock") of Eastman Chemical Company (the "Company") to
"Employees" (as defined in the Plan), and such awards may take the form of
performance shares, which are contingent upon the attainment of certain
performance objectives during a specified period, and subject to such other
terms, conditions, and restrictions as the Committee deems appropriate. The
purpose of this Long-Term Performance Subplan (this "Subplan") is to set forth
the terms of the grant of performance shares for the 1998-2000 Performance
Period specified herein, effective as of January 1, 1998 (the "Effective Date").
Section 2. Definitions.
(a) The following definitions shall apply to this Subplan:
(i) "Actual Grant Amount" means the number of shares of Common
Stock to which a participant is entitled under this Subplan,
calculated in accordance with Section 6 of this Subplan.
(ii) "Award Payment Date" means the date the shares of Common Stock
covered by an award under this Subplan are delivered to a
participant.
(iii) "Compared Group" means the Company and the companies in the
Peer Group.
(iv) "Maximum Deductible Amount" means the maximum amount
deductible by the Company under Section 162(a), taking into
consideration the limitations under Section 162(m), of the
Internal Revenue Code of 1986, as amended, or any similar or
successor provisions thereto.
(v) "Target Grant Amount" means, with respect to any eligible
Employee, the number of shares of Common Stock specified on
Exhibit A hereto for the Salary Grade applicable to such
Employee.
(vi) "Participation Date" means June 30, 1998.
(vii) "Peer Group" means the group of companies identified in
Exhibit B hereto, with any changes made by the Committee
pursuant to Section 7 of this Subplan.
(viii) "Performance Period" means January 1, 1998 through December
31, 2000.
(ix) "TSR" means total return to shareowners, as reflected by the
sum of (A) change in stock price (measured as the difference
between (I) the average of the closing prices of a company's
common stock on the New York Stock Exchange, or of the last
sale prices of such stock on the Nasdaq Stock Market, as
applicable, in the period beginning on the tenth trading day
preceding the beginning of the Performance Period and ending
on the tenth trading day of the Performance Period and (II)
the average of such closing or last sale prices for such stock
in the period beginning on the tenth trading day preceding the
end of the Performance Period and ending on the tenth trading
day following the end of the Performance Period) plus (B)
dividends declared, assuming reinvestment of dividends, and
expressed as a percentage return on a shareowner's
hypothetical investment.
(b) Any capitalized terms used but not otherwise defined in this Subplan
shall have the respective meanings set forth in the Plan.
49
<PAGE> 4
Section 3. Administration. This Subplan shall be administered by the Committee.
The Committee shall have authority to interpret this Subplan, to prescribe rules
and regulations relating to this Subplan, and to take any other actions it deems
necessary or advisable for the administration of this Subplan, and shall retain
all general authority granted to it under Section 3 of the Plan.
Section 4. Eligibility. The Employees who are eligible to participate in this
Subplan are those Employees who, as of the Effective Date, have been designated
as "officers" of the Company for purposes of Section 16 of the Exchange Act and
those Employees designated by the Company's Chief Executive Officer during 1998,
which shall generally include Employees who, as of the Effective Date or the
Participation Date, held positions with the Company considered by the Chief
Executive Officer to carry responsibilities and functions generally associated
with a vice-president-level position. Employees who are promoted during the
Performance Period to a position that would meet the above criteria, but who do
not hold such position as of the Participation Date, are not eligible to
participate in this Subplan; however, the ability of the Chief Executive Officer
under this Section 4 to designate eligible Employees at any time during 1998 is
intended to allow the participation of Employees who, as of the Participation
Date, held positions with the Company that may not have been considered to carry
responsibilities and functions generally associated with a vice-president-level
position but which positions are or were evaluated during 1998 and determined by
the Chief Executive Officer to carry such responsibilities and functions.
Section 5. Form of Awards. Subject to the terms and conditions of the Plan and
this Subplan, Awards under this Subplan shall be paid in the form of
unrestricted shares of Common Stock, except for conversions to cash and
deferrals under Section 9 of this Subplan, and except that if a participant is
entitled to any fraction of a share of Common Stock, as a result of Section 10
of this Subplan or otherwise, then in lieu of receiving such fraction of a
share, the participant shall be paid a cash amount representing the market
value, as determined by the Committee, of such fraction of a share at the time
of payment.
Section 6. Size of Awards. Exhibit A hereto shows by Salary Grade the Target
Grant Amount. The Salary Grade to be used in calculating the size of any Award
to a participant under this Subplan shall be the higher of (a) the Salary Grade
applicable to the position held by the participant on the Participation Date
(or, in the case of participants whose employment is terminated prior to the
Participation Date, the Effective Date) and (b) the Salary Grade assigned to
such position during 1998 as a result of any reevaluation of the Salary Grade
appropriate for such position. The Actual Grant Amount shall be determined by
comparing the Company's TSR during the Performance Period to the TSRs of the
companies in the Peer Group during the Performance Period. Specifically, the
Company and each company in the Peer Group shall be ranked by TSR, in descending
order, with the company having the highest TSR during the Performance Period
being ranked number one. The Company's rank, by TSR, in relation to the Compared
Group, shall determine a multiplier to be applied to the Target Grant Amount.
Multipliers range from 2.0 (i.e. 200%), if the Company's TSR is ranked number
one, to 0.0 (with no shares of Common Stock being delivered to participants
under this Subplan), if the Company's rank is lower than company fifteen in the
Compared Group. The payout table with multipliers for each TSR rank is shown in
Exhibit C. The Actual Grant Amount is determined by applying the multiplier
corresponding to the Company's TSR rank (Exhibit C) to the Target Grant Amount.
Notwithstanding the foregoing, if the Peer Group produces fewer than 19 distinct
TSRs (as a result of the removal of a company from the Peer Group without
substitution of a replacement company therefor, as described in Section 7 of
this Subplan), then the Committee shall, in its sole discretion, determine the
appropriate means of calculating the Actual Grant Amount.
Section 7. Composition of Peer Group. The members of the Peer Group identified
in Exhibit B hereto have been identified as companies currently relevant for
purposes of TSR comparisons under this Subplan. However, the Committee shall
have the authority, at any time and from time to time, to determine that any
member of the Peer Group is no longer appropriate for inclusion. Circumstances
that might require such a determination include, without limitation, the
following events: a company's common stock ceasing to be publicly traded on an
exchange or on the Nasdaq Stock Market; a company's being a party to a
significant merger, acquisition, or other reorganization; or a company's ceasing
to operate in the chemical industry. In any case where the Committee determines
that a particular company is no longer appropriate for inclusion in the Peer
Group, the Committee may designate a replacement company, which shall then be
50
<PAGE> 5
substituted in the Peer Group for the former member. In any such case, the
Committee shall have authority to determine the appropriate method of
calculating the TSR of such former and/or replacement company or companies,
whether by complete substitution of the replacement company (and disregard of
the former company) over the entire Performance Period or by pro rata
calculations for each company or otherwise. Alternatively, in any case where the
Committee determines that a particular company is no longer appropriate for
inclusion in the Peer Group, the Committee may remove such company from the Peer
Group without substituting a replacement company therefor.
Section 8. Preconditions to Receipt of an Award.
(a) Continuous Employment. Except as specified in paragraph (b) below, to
remain eligible for an Award under this Subplan, an eligible Employee
must remain continuously employed with the Company or a Subsidiary at
all times from the Participation Date (or the Effective Date) through
the Award Payment Date.
(b) Death, Disability, Retirement, or Termination for an Approved Reason
Before the Award Payment Date. If a participant's employment with the
Company or a Subsidiary is terminated due to death, disability,
retirement, or any approved reason prior to the Award Payment Date, the
participant shall receive, subject to the terms and conditions of the
Plan and this Subplan, an Award representing a prorated portion of the
Actual Grant Amount to which such participant otherwise would be
entitled, with the precise amount of such Award to be determined by
multiplying the Actual Grant Amount by a fraction, the numerator of
which is the number of full calendar months in the Performance Period
from the Effective Date through and including the effective date of
such termination, and the denominator of which is 36 (the total number
of months in the Performance Period). If the effective date of a
participant's termination of employment occurs on or after the last
business day of a particular calendar month, then such month shall be
considered a full calendar month and shall be counted in determining
the numerator of the fraction described in the preceding sentence; if
the effective date of such termination occurs prior to the last
business day of a particular calendar month, then such month shall not
be so counted.
Section 9. Manner and Timing of Award Payments.
(a) Timing of Award Payment. Except for deferrals under Sections 9(b) and
9(c), if any Awards are payable under this Subplan, the payment of such
Awards to eligible Employees shall be made as soon as is
administratively practicable after the end of the Performance Period.
(b) Deferral of Award in Excess of the Maximum Deductible Amount. If
payment of the Award would, or could in the reasonable estimation of
the Committee, result in the participant's receiving compensation in
excess of the Maximum Deductible Amount in a given year, then such
portion (or all, as applicable) of the Award as would, or could in the
reasonable estimation of the Committee, cause such participant to
receive compensation from the Company in excess of the Maximum
Deductible Amount shall be converted into the right to receive a cash
payment, which shall be deferred until after the participant retires or
otherwise terminates employment with the Company and its Subsidiaries.
(c) Election to Defer the Award. Any participant in this Subplan may elect
to defer the Award until after the participant retires or otherwise
terminates employment with the Company and its Subsidiaries under the
terms and subject to the conditions of the Eastman Executive Deferred
Compensation Plan, as the same now exists or may be amended hereafter
(the "EDCP"). If the participant chooses to defer the Award, the Award
shall be converted into the right to receive a cash payment.
(d) Award Deferral to the EDCP. In the event that all or any portion of an
Award is converted into a right to receive a cash payment pursuant to
Sections 9(b) or 9(c), an amount representing the Fair Market Value, as
of the date the Common Stock covered by the Award otherwise would be
delivered to the participant, of the Actual Grant Amount (or the
deferred portion thereof) will be credited to the Stock Account of the
EDCP, and hypothetically invested in units of Common Stock. Thereafter,
such amount shall be treated in the same manner as other investments in
the EDCP and shall be subject to the terms and conditions thereof.
51
<PAGE> 6
Section 10. No Rights as Shareowner. No certificates for shares of Common Stock
shall be issued under this Subplan nor shall any participant have any rights as
a shareowner as a result of participation in this Subplan, until the Actual
Grant Amount has been determined and such participant has otherwise become
entitled to an Award under the terms of the Plan and this Subplan. In
particular, no participant shall have any right to vote or to receive dividends
on any shares of Common Stock under this Subplan, until certificates for such
shares have been issued as described above; provided, however, that if payment
of all or any portion of an Award under this Subplan has been deferred pursuant
to Section 9 of this Subplan or otherwise, but such Award otherwise has become
payable hereunder, then during the period during which payment is deferred, the
deferred Award shall be credited with additional units of Common Stock, and (if
applicable) fractions thereof, based on any dividends declared on the Common
Stock, in accordance with the terms of the EDCP.
Section 11. Application of Plan. The provisions of the Plan shall apply to this
Subplan, except to the extent that any such provisions are inconsistent with
specific provisions of this Subplan. In particular, and without limitation,
Section 11 (relating to performance shares), Section 12 (relating to
qualification of Awards as "performance-based" under Code Section 162(m)),
Section 17 (relating to nonassignability), Section 18 (relating to adjustment of
shares available), Section 19 (relating to withholding taxes), Section 20
(relating to noncompetition and confidentiality), Section 21 (relating to
regulatory approvals and listings), Section 23 (relating to the governing law),
Section 24 (relating to changes in ownership), Section 25 (relating to changes
in control), Section 26 (relating to no rights, title, or interest in Company
assets), and Section 27 (relating to securities laws) shall apply to this
Subplan.
Section 12. Amendments. The Committee may, from time to time, amend this Subplan
in any manner.
52
<PAGE> 7
EXHIBIT A
EASTMAN CHEMICAL COMPANY
LONG-TERM PERFORMANCE SUBPLAN GRANT TABLE
1998-2000 CYCLE
Original on File in
Management Compensation
53
<PAGE> 8
EXHIBIT B
COMPANIES IN THE PEER GROUP
Air Products and Chemicals, Inc.
ARCO Chemical Company
Crompton & Knowles Corporation
Dow Chemical Company
E. I. du Pont de Nemours and Company
H. B. Fuller Company
The Geon Company
Georgia Gulf Corporation
Great Lakes Chemical Corporation
M. A. Hanna Company
Hercules Chemical Corporation
Lyondell Petrochemical Company
Millenium
Morton International, Inc.
Rohm and Haas Company
Solutia
Union Carbide Corporation
Wellman, Inc.
Witco Corporation
54
<PAGE> 9
EXHIBIT C
EASTMAN CHEMICAL COMPANY
LONG-TERM PERFORMANCE SUBPLAN
1998-2000 PERFORMANCE PERIOD
PAYOUT TABLE
<TABLE>
<CAPTION>
Eastman's TSR Payout Multiplier
Ranking (Times Target Grant Amount)
------------- ---------------------------
<S> <C>
1 2.0 X
2 1.9 X
3 1.8 X
4 1.7 X
5 1.6 X
6 1.5 X
7 1.4 X
8 1.3 X
9 1.2 X
10 1.1 X
11 0.9 X
12 0.7 X
13 0.5 X
14 0.3 X
15 0.1 X
16 0.0 X
17 0.0 X
18 0.0 X
19 0.0 X
20 0.0 X
</TABLE>
55
<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
1998 1997
<S> <C> <C>
Earnings before provision for income taxes $ 114 $ 114
Add:
Interest expense, net 21 19
Rental expense (1) 6 5
Amortization of capitalized interest 4 3
-------- ---------
Earnings as adjusted $ 145 $ 141
======== =========
Fixed charges:
Interest expense, net $ 21 $ 19
Rental expense (1) 6 5
Capitalized interest 11 10
-------- ---------
Total fixed charges $ 38 $ 34
======== =========
Ratio of earnings to fixed charges 3.8x 4.1x
======== =========
</TABLE>
- ----------------------
(1) For all periods presented, interest component of rental expense is
estimated to equal one-third of such expense.
56
<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, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 43
<SECURITIES> 0
<RECEIVABLES> 843 <F1>
<ALLOWANCES> 0
<INVENTORY> 519
<CURRENT-ASSETS> 1,559
<PP&E> 8,210
<DEPRECIATION> 4,282
<TOTAL-ASSETS> 5,910
<CURRENT-LIABILITIES> 825
<BONDS> 1,860
0
0
<COMMON> 1
<OTHER-SE> 1,832
<TOTAL-LIABILITY-AND-EQUITY> 5,910
<SALES> 1,148
<TOTAL-REVENUES> 1,148
<CGS> 894
<TOTAL-COSTS> 894
<OTHER-EXPENSES> 121
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21
<INCOME-PRETAX> 114
<INCOME-TAX> 40
<INCOME-CONTINUING> 74
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 74
<EPS-PRIMARY> .95 <F2>
<EPS-DILUTED> .94
<FN>
<F1> Asset values represent net amounts
<F2> (EPS-PRIMARY) DENOTES BASIC EPS
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF EASTMAN CHEMICAL COMPANY FOR THE SIX MONTHS ENDED JUNE
30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 59
<SECURITIES> 0
<RECEIVABLES> 852 <F1>
<ALLOWANCES> 0
<INVENTORY> 454
<CURRENT-ASSETS> 1,490
<PP&E> 7,069
<DEPRECIATION> 3,873
<TOTAL-ASSETS> 5,015
<CURRENT-LIABILITIES> 724
<BONDS> 1,425
0
0
<COMMON> 1
<OTHER-SE> 1,566
<TOTAL-LIABILITY-AND-EQUITY> 5,015
<SALES> 2,502
<TOTAL-REVENUES> 2,502
<CGS> 1,862
<TOTAL-COSTS> 1,862
<OTHER-EXPENSES> 259
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 35
<INCOME-PRETAX> 355
<INCOME-TAX> 131
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 224
<EPS-PRIMARY> 2.83 <F2>
<EPS-DILUTED> 2.80
<FN>
<F1>ASSET VALUES REPRESENT NET AMOUNTS.
<F2>(EPS-PRIMARY) DENOTES BASIC EPS
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF EASTMAN CHEMICAL COMPANY FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 61
<SECURITIES> 0
<RECEIVABLES> 759 <F1>
<ALLOWANCES> 0
<INVENTORY> 459
<CURRENT-ASSETS> 1,401
<PP&E> 7,267
<DEPRECIATION> 3,945
<TOTAL-ASSETS> 5,105
<CURRENT-LIABILITIES> 717
<BONDS> 1,474
0
0
<COMMON> 1
<OTHER-SE> 1,597
<TOTAL-LIABILITY-AND-EQUITY> 5,105
<SALES> 3,669
<TOTAL-REVENUES> 3,669
<CGS> 2,735
<TOTAL-COSTS> 2,735
<OTHER-EXPENSES> 384
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 51
<INCOME-PRETAX> 511
<INCOME-TAX> 191
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 320
<EPS-PRIMARY> 4.06 <F2>
<EPS-DILUTED> 4.02
<FN>
<F1>ASSET VALUES REPRESENT NET AMOUNTS
<F2>(EPS-PRIMARY) DENOTES BASIC EPS
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF EASTMAN CHEMICAL COMPANY FOR THE TWELVE MONTHS ENDED
DECEMBER 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 24
<SECURITIES> 0
<RECEIVABLES> 744<F1>
<ALLOWANCES> 0
<INVENTORY> 465
<CURRENT-ASSETS> 1,345
<PP&E> 7,530
<DEPRECIATION> 4,010
<TOTAL-ASSETS> 5,266
<CURRENT-LIABILITIES> 787
<BONDS> 1,523
0
0
<COMMON> 1
<OTHER-SE> 1,638
<TOTAL-LIABILITY-AND-EQUITY> 5,266
<SALES> 4,782
<TOTAL-REVENUES> 4,782
<CGS> 3,603
<TOTAL-COSTS> 3,603
<OTHER-EXPENSES> 516
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 67
<INCOME-PRETAX> 607
<INCOME-TAX> 227
<INCOME-CONTINUING> 380
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 380
<EPS-PRIMARY> 4.84<F2>
<EPS-DILUTED> 4.79
<FN>
<F1>ASSET VALUES REPRESENT NET AMOUNTS
<F2>(EPS-PRIMARY) DENOTES BASIC EPS
</FN>
</TABLE>
<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>
<RESTATED>
<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> .93<F2>
<EPS-DILUTED> .92
<FN>
<F1>ASSET VALUES REPRESENT NET AMOUNTS
<F2>(EPS-PRIMARY) DENOTES BASIC EPS
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF EASTMAN CHEMICAL COMPANY FOR THE SIX MONTHS ENDED JUNE
30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 40
<SECURITIES> 0
<RECEIVABLES> 832<F1>
<ALLOWANCES> 0
<INVENTORY> 474
<CURRENT-ASSETS> 1,458
<PP&E> 7,829
<DEPRECIATION> 4,105
<TOTAL-ASSETS> 5,633
<CURRENT-LIABILITIES> 777
<BONDS> 1,766
0
0
<COMMON> 1
<OTHER-SE> 1,734
<TOTAL-LIABILITY-AND-EQUITY> 5,633
<SALES> 2,379
<TOTAL-REVENUES> 2,379
<CGS> 1,836
<TOTAL-COSTS> 1,836
<OTHER-EXPENSES> 252
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 41
<INCOME-PRETAX> 255
<INCOME-TAX> 93
<INCOME-CONTINUING> 162
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 162
<EPS-PRIMARY> 2.08<F2>
<EPS-DILUTED> 2.06
<FN>
<F1>ASSET VALUES REPRESENT NET AMOUNTS.
<F2>(EPS-PRIMARY) DENOTES BASIC EPS
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF EASTMAN CHEMICAL COMPANY FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 36
<SECURITIES> 0
<RECEIVABLES> 795<F1>
<ALLOWANCES> 0
<INVENTORY> 519
<CURRENT-ASSETS> 1,464
<PP&E> 7,944
<DEPRECIATION> 4,151
<TOTAL-ASSETS> 5,698
<CURRENT-LIABILITIES> 835
<BONDS> 1,705
0
0
<COMMON> 1
<OTHER-SE> 1,778
<TOTAL-LIABILITY-AND-EQUITY> 5,698
<SALES> 3,524
<TOTAL-REVENUES> 3,524
<CGS> 2,693
<TOTAL-COSTS> 2,693
<OTHER-EXPENSES> 392
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 67
<INCOME-PRETAX> 403
<INCOME-TAX> 145
<INCOME-CONTINUING> 258
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 258
<EPS-PRIMARY> 3.31<F2>
<EPS-DILUTED> 3.28
<FN>
<F1>ASSET VALUES REPRESENT NET AMOUNTS
<F2>(EPS-PRIMARY) DENOTES BASIC EPS
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF EASTMAN CHEMICAL COMPANY FOR THE YEAR ENDED DECEMBER
31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 29
<SECURITIES> 0
<RECEIVABLES> 793<F1>
<ALLOWANCES> 0
<INVENTORY> 511
<CURRENT-ASSETS> 1,490
<PP&E> 8,104
<DEPRECIATION> 4,223
<TOTAL-ASSETS> 5,778
<CURRENT-LIABILITIES> 954
<BONDS> 1,714
0
0
<COMMON> 1
<OTHER-SE> 1,752
<TOTAL-LIABILITY-AND-EQUITY> 5,778
<SALES> 4,678
<TOTAL-REVENUES> 4,678
<CGS> 3,582
<TOTAL-COSTS> 3,582
<OTHER-EXPENSES> 590
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 87
<INCOME-PRETAX> 446
<INCOME-TAX> 160
<INCOME-CONTINUING> 286
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 286
<EPS-PRIMARY> 3.66<F2>
<EPS-DILUTED> 3.63
<FN>
<F1>ASSET VALUES REPRESENT NET AMOUNTS
<F2>(EPS-PRIMARY) DENOTES BASIC EPS
</FN>
</TABLE>
<PAGE> 1
EXHIBIT 99.01
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
SUPPLEMENTAL BUSINESS SEGMENT INFORMATION
1998 CHANGE FROM 1997
<TABLE>
<CAPTION>
FIRST QUARTER
% CHANGE
SALES OPERATING
REVENUE EARNINGS(1)
------- -----------
<S> <C> <C>
SPECIALTY & PERFORMANCE SEGMENT
Specialty plastics 11% +
Performance chemicals (10)% 0
Fine chemicals (16)% --
Fibers (18)% --
Coatings, inks & resins -% ++
Total Segment (7)% (25)%
====== ======
CORE PLASTICS SEGMENT
Container plastics 18% ++
Flexible plastics (10)% --
Total Segment 7% 95%
====== ======
CHEMICAL INTERMEDIATES SEGMENT
Industrial intermediates 2% ++
Total Segment 2% 36%
====== ======
Total Eastman (2)% (1)%
====== ======
</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
57
