<PAGE> 1
UNITED STATES
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 June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission file number 1-12626
EASTMAN CHEMICAL COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 62-1539359
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 N. EASTMAN ROAD
KINGSPORT, TENNESSEE 37660
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (423) 229-2000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Number of Shares Outstanding at
Class June 30, 1999
Common Stock, par value $0.01 per share 78,205,777
(including rights to purchase shares of
Common Stock or Participating Preferred Stock)
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PAGE 1 OF 54 TOTAL SEQUENTIALLY NUMBERED PAGES
EXHIBIT INDEX ON PAGE 25
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
ITEM PAGE
- ----------------------------------------------------------------------------------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
1. Financial Statements 3-10
2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 11-19
PART II. OTHER INFORMATION
1. Legal Proceedings 20-21
4. Submission of Matters to a Vote of Security Holders 21-22
5. Other Information 22
6. Exhibits and Reports on Form 8-K 23
SIGNATURES
Signatures 24
</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>
SECOND QUARTER FIRST SIX MONTHS
1999 1998 1999 1998
<S> <C> <C> <C> <C>
EARNINGS
Sales $ 1,122 $ 1,165 $ 2,145 $ 2,313
Cost of sales 897 868 1,726 1,762
------- ------- ------- -------
Gross profit 225 297 419 551
Selling and general administrative expenses 83 85 159 160
Research and development costs 46 48 93 94
------- ------- ------- -------
Operating earnings 96 164 167 297
Interest expense, net 28 21 54 42
Other (income) charges, net 4 (6) 12 (8)
------- ------- ------- -------
Earnings before income taxes 64 149 101 263
Provision for income taxes 21 52 33 92
------- ------- ------- -------
Net earnings $ 43 $ 97 $ 68 $ 171
======= ======= ======= =======
Earnings per share
--Basic $ .55 $ 1.22 $ .86 $ 2.17
======= ======= ======= =======
--Diluted $ .54 $ 1.21 $ .86 $ 2.15
======= ======= ======= =======
COMPREHENSIVE INCOME
Net earnings $ 43 $ 97 $ 68 $ 171
Other comprehensive loss (13) (2) (42) (3)
------- ------- ------- -------
Comprehensive income $ 30 $ 95 $ 26 $ 168
======= ======= ======= =======
RETAINED EARNINGS
Retained earnings at beginning of period $ 2,178 $ 2,117 $ 2,188 $ 2,078
Net earnings 43 97 68 171
Cash dividends declared (35) (35) (70) (70)
------- ------- ------- -------
Retained earnings at end of period $ 2,186 $ 2,179 $ 2,186 $ 2,179
======= ======= ======= =======
</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>
JUNE 30, DECEMBER 31,
1999 1998
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 90 $ 29
Receivables 680 759
Inventories 503 493
Other current assets 135 117
------- -------
Total current assets 1,408 1,398
------- -------
Properties
Properties and equipment at cost 8,644 8,594
Less: Accumulated depreciation 4,711 4,560
------- -------
Net properties 3,933 4,034
------- -------
Other noncurrent assets 820 418
------- -------
Total assets $ 6,161 $ 5,850
======= =======
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities
Payables and other current liabilities $ 860 $ 959
------- -------
Total current liabilities 860 959
Long-term borrowings 2,085 1,649
Deferred income tax credits 435 415
Postemployment obligations 775 712
Other long-term liabilities 166 181
------- -------
Total liabilities 4,321 3,916
------- -------
Shareowners' equity
Common stock ($0.01 par-350,000,000 shares authorized;
shares issued - 84,469,143 and 84,432,114) 1 1
Paid-in capital 94 94
Retained earnings 2,186 2,188
Other comprehensive loss (60) (18)
------- -------
2,221 2,265
Less: Treasury stock at cost (6,421,790 and 5,326,990 shares) 381 331
------- -------
Total shareowners' equity 1,840 1,934
------- -------
Total liabilities and shareowners' equity $ 6,161 $ 5,850
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
FIRST SIX MONTHS
1999 1998
<S> <C> <C>
Cash flows from operating activities
Net earnings $ 68 $ 171
------- -------
Adjustments to reconcile net earnings to net
cash provided by operating activities
Depreciation 177 168
Provision (benefit) for deferred income taxes (6) 25
(Increase) decrease in receivables 78 (89)
Increase in inventories (12) (56)
Decrease in incentive pay and
employee benefit liabilities (74) (32)
Increase (decrease) in liabilities excluding borrowings,
incentive pay, and employee benefit liabilities 19 (6)
Other items, net 26 28
------- -------
Total adjustments 208 38
------- -------
Net cash provided by operating activities 276 209
------- -------
Cash flows from investing activities
Additions to properties and equipment (134) (268)
Acquisitions, net of cash acquired (376) -
Proceeds from sales of assets - 1
Capital advances to suppliers (21) (21)
------- -------
Net cash used in investing activities (531) (288)
------- -------
Cash flows from financing activities
Net increase in commercial paper borrowings 436 139
Dividends paid to shareowners (70) (70)
Treasury stock purchases (51) -
Other items 1 14
------- -------
Net cash provided by financing activities 316 83
------- -------
Net change in cash and cash equivalents 61 4
Cash and cash equivalents at beginning of period 29 29
------- -------
Cash and cash equivalents at end of period $ 90 $ 33
======= =======
</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 1998 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 normally
recurring adjustments necessary for a fair presentation have been included
in the unaudited interim consolidated financial statements. The unaudited
interim consolidated financial statements are based in part on estimates
made by management.
The Company has reclassified certain 1998 amounts to conform to the 1999
presentation.
2. SECURITIZATION OF ACCOUNTS RECEIVABLE
On April 13, 1999, the Company entered into an agreement that will allow
the Company to sell certain domestic accounts receivable under a planned
continuous sale program to a third party. The agreement permits the sale of
undivided interests in domestic trade accounts receivable. As of the date
of this filing, receivables totaling $75 million had been sold to the third
party. Undivided interests in designated receivable pools were sold to the
purchaser with recourse limited to the receivables purchased. Fees to be
paid by the Company under this agreement are based on certain variable
market rate indices and are included in other (income) charges, net, in the
Consolidated Statements of Earnings, Comprehensive Income, and Retained
Earnings.
3. INVENTORIES
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
(Dollars in millions) 1999 1998
<S> <C> <C>
At FIFO or average cost (approximates current cost):
Finished goods $ 409 $ 409
Work in process 142 138
Raw materials and supplies 192 203
------- -------
Total inventories 743 750
Reduction to LIFO value (240) (257)
------- -------
Total inventories at LIFO value $ 503 $ 493
======= =======
</TABLE>
Inventories valued on the LIFO method are approximately 70% of total
inventories in each of the periods.
4. ACQUISITION OF LAWTER INTERNATIONAL, INC.
On June 9, 1999, the Company completed its acquisition of Lawter
International, Inc. ("Lawter"), a company that develops, produces and
markets specialty products for the inks and coatings market. The purchase
price included cash consideration of $364 million (net of $41 million cash
acquired) and the assumption of $145 million of Lawter's debt. The
historical book value of Lawter's net assets, excluding cash acquired and
debt assumed, was $133 million at the acquisition date.
This transaction, which was funded through commercial paper borrowings,
will be accounted for as a purchase. At June 30, 1999, the Company has
included its investment in Lawter in other non-current
6
<PAGE> 7
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
assets in the Consolidated Statement of Financial Position. The purchase
price will be allocated based on fair values of assets acquired and
liabilities assumed, pending the completion of an independent appraisal
currently underway. The excess of purchase price over fair value of
identified tangible and intangible net assets acquired will be allocated to
goodwill and amortized on a straight-line basis over 40 years.
The Company has included in its consolidated financial statements the
results of operations of Lawter from the date of acquisition. Assuming this
acquisition had been made at January 1, 1999 and 1998, the pro forma
results for the three and six months 1999 and 1998 would not be materially
different from reported results.
5. SEGMENT INFORMATION
<TABLE>
<CAPTION>
FIRST SIX MONTHS
(Dollars in millions) 1999 1998
<S> <C> <C>
SALES
Specialty and Performance $ 1,325 $ 1,394
Core Plastics 496 558
Chemical Intermediates 324 361
------- -------
Consolidated Eastman total $ 2,145 $ 2,313
======= =======
OPERATING EARNINGS (LOSS)
Specialty and Performance $ 178 $ 220
Core Plastics (53) 2
Chemical Intermediates 42 75
------- -------
Consolidated Eastman total $ 167 $ 297
======= =======
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
<S> <C> <C>
ASSETS
Specialty and Performance $ 3,770 $ 3,395
Core Plastics 1,781 1,822
Chemical Intermediates 610 633
------- -------
Consolidated Eastman total $ 6,161 $ 5,850
======= =======
</TABLE>
6. HOLSTON DEFENSE CORPORATION
Holston Defense Corporation ("Holston"), a wholly owned subsidiary of the
Company, managed, as its primary business, the government-owned Holston
Army Ammunition Plant in Kingsport, Tennessee (the "Facility") under a
series of contracts with the Department of Army (the "DOA") from 1949 until
expiration of the Contract (the "Contract") on December 31, 1998. The DOA
awarded a contract to manage the Facility to a third party commencing
January 1, 1999.
The Contract provided for payment of a management fee to Holston and
reimbursement by the DOA of allowable costs incurred for the operation of
the Facility. Holston's operating results were historically insignificant
to the Company's consolidated sales and earnings.
7
<PAGE> 8
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pension and other postretirement benefits were provided to Holston's
employees under the terms of Holston's employee benefit plans. In prior
reporting periods, the Company has recognized, in accordance with generally
accepted accounting principles, a charge to earnings of approximately $75
million for pension and other postretirement benefit obligations related to
Holston's management of the Facility under the Contract. The Company
expects that the DOA will reimburse these pension and other postretirement
benefit obligations and such amounts will be credited to earnings at the
time of receipt of reimbursement from the DOA. The reimbursement may or may
not occur in a single payment. In addition to the above, the Company
previously recognized a receivable of $48 million from the DOA for pension
obligations and termination costs related to expiration of the Contract.
Approximately $39 million of this receivable was collected in second
quarter 1999.
Holston terminated its pension plan in a standard termination as of January
1, 1999. In order to terminate the pension plan in a standard termination,
the assets of the plan had to be sufficient to provide all benefit
liabilities with respect to each participant. The ending of Holston's
operation of the Facility also resulted in obligations for severance pay to
eligible Holston employees (the amount based on length of service). The
Company advanced approximately $44 million through June 30, 1999 to fund
these liabilities due to delays in payment by the DOA. The Company will
likely be required to advance additional funds to pay pension benefit
liabilities and termination costs if there are further delays in payment or
reimbursement by the DOA.
As previously reported, the Company is negotiating with the DOA the
settlement of certain postretirement benefit obligations. The Company's
potential obligation for these postretirement benefits, if any, in excess
of the negotiated amount will be recognized as a liability at such time
that it is probable and reasonably estimable that projected benefit
obligations exceed assets provided by the DOA. The Company expects that the
DOA will reimburse the Company for all costs associated with operation of
the Facility and expiration of the Contract.
Although the DOA's position with respect to similar contracts is that it
has no legal liability for unfunded postretirement benefit costs, other
than pension obligations, and the DOA may disagree with the specific amount
of other postretirement obligations, it is the opinion of the Company,
based on the Contract terms, applicable law, and legal and equitable
precedents, that substantially all of the other postretirement benefit
costs will be paid by the DOA or recovered from the government in related
proceedings, and 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 adverse effect on the consolidated financial
position or results of operations of the Company.
7. PAYABLES AND OTHER CURRENT LIABILITIES
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
(Dollars in millions) 1999 1998
<S> <C> <C>
Trade creditors $ 309 $ 316
Accrued payrolls and vacation 95 100
Accrued variable-incentive compensation 24 74
Accrued pension liabilities 103 182
Accrued taxes 107 58
Accrued interest 45 43
Other 177 186
------- -------
Total $ 860 $ 959
======= =======
</TABLE>
8
<PAGE> 9
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. AMENDMENT OF RETIREMENT PLAN
In June 1999, the Company announced amendments to its defined benefit
pension plan, the Eastman Retirement Assistance Plan, and its
postretirement welfare plans effective January 1, 2000. The amended defined
benefit pension plan will use a new pension equity formula based on age and
years of service to calculate an employee's retirement benefit under the
revised plan provisions. The Company's 1999 pension and postretirement
welfare expenses were remeasured as of June 1, 1999 based on amended plan
provisions using the assumptions set forth in the Company's 1998
consolidated financial statements, except for the changes listed in the
following table:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE ASSUMPTIONS AS OF: JUNE 1, 1999 DECEMBER 31, 1998
---------------------------------------------------------------------------------------
<S> <C> <C>
Discount rate 7.50% 6.75%
Rate of compensation increase 4.00% 3.75%
</TABLE>
The plan amendments and changes in plan assumptions will result in a
decrease in 1999 pension and postretirement benefits expense of
approximately $37 million. Approximately $24 million relates to plan
amendments and $13 million relates to changes in plan assumptions.
9. DIVIDENDS
<TABLE>
<CAPTION>
SECOND QUARTER FIRST SIX MONTHS
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Cash dividends declared per share $ .44 $ .44 $ .88 $ .88
</TABLE>
10. EARNINGS PER SHARE
<TABLE>
<CAPTION>
SECOND QUARTER FIRST SIX MONTHS
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Shares used for earnings per share calculation
(in millions):
--Basic 78.0 79.0 78.3 78.7
--Diluted 78.4 79.9 78.6 79.5
</TABLE>
Certain shares underlying options outstanding during the second quarters of
1999 and 1998 were excluded from the computation of diluted earnings per
share because the options' exercise prices were greater than the average
market price of the common shares. Excluded from second quarter 1999 and
1998 calculations were shares underlying options to purchase 1,914,448
shares of common stock at a range of prices from $52.0625 to $74.25 and
19,461 shares of common stock at a range of prices from $68.3875 to $74.25,
respectively. Excluded from the year to date 1999 and 1998 calculations
were shares underlying options to purchase 1,915,720 common shares at a
range of prices from $50.6250 to $74.25 and 77,960 common shares at a range
of prices from $66.125 to $74.25, respectively.
Additionally, 200,000 shares underlying an option issued to the Chief
Executive Officer in third quarter 1997 were excluded from diluted earnings
per share calculations because the conditions to exercise had not been met
as to any of the shares as of June 30, 1999.
9
<PAGE> 10
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. SUPPLEMENTAL CASH FLOW INFORMATION
On June 9, 1999 the Company completed its acquisition of Lawter
International, Inc. which then became a wholly owned subsidiary of Eastman
(see Note 4). On February 1, 1999 the Company acquired the North American
textile chemical business of Rhodia Inc.
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. This noncash transaction is
not reflected in the Consolidated Statement of Cash Flows.
10
<PAGE> 11
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
1998 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 diluted earnings per share
unless otherwise noted.
RESULTS OF OPERATIONS
EARNINGS
<TABLE>
<CAPTION>
(Dollars in millions, except SECOND QUARTER FIRST SIX MONTHS
per share amounts) 1999 1998 CHANGE 1999 1998 CHANGE
<S> <C> <C> <C> <C> <C> <C>
Operating earnings $ 96 $ 164 (41)% $ 167 $ 297 (44)%
Net earnings 43 97 (56)% 68 171 (60)%
Earnings per share
--Basic .55 1.22 (55)% .86 2.17 (60)%
--Diluted .54 1.21 (55)% .86 2.15 (60)%
</TABLE>
Although sales volumes improved overall for the quarter and six months, results
reflect a continuation of global economic conditions which exerted extreme
pressure on selling prices, negatively impacting every segment and region.
Lower selling prices worldwide were particularly evident for EASTAPAK polymers,
a result of excess industry capacity for polyethylene terephthalate ("PET").
Decreased volumes for filter products sold in North America and Asia Pacific
and lower selling prices for oxo products sold in North America also had a
significant negative impact on sales and earnings for the second quarter.
For second quarter and six months, cost structure improvements resulting from
the Company's Advantaged Cost 2000 initiative positively affected results.
Also, positively impacting six months results were lower raw materials and
preproduction costs.
SUMMARY BY OPERATING SEGMENT
(Dollars in millions)
SPECIALTY AND PERFORMANCE SEGMENT
<TABLE>
<CAPTION>
SECOND QUARTER FIRST SIX MONTHS
1999 1998 CHANGE 1999 1998 CHANGE
<S> <C> <C> <C> <C> <C> <C>
Sales $ 693 $ 709 (2)% $ 1,325 $ 1,394 (5)%
Operating earnings 95 115 (17) 178 220 (19)
</TABLE>
Sales volumes improved significantly overall but revenues declined due to
economic conditions and competitive markets, which pressured selling prices for
all product lines. Sales and earnings were also negatively impacted by product
mix. Specialty plastics volumes improved but lower selling prices more than
offset the volume improvements. EASTAPAK polymers and cellulosic plastics
declines were more than offset by higher volume on specialty flexible plastics,
including strong volume growth for SPECTAR. Sales revenues declined for fibers,
mainly due to lower volumes.
11
<PAGE> 12
Improved revenues for performance chemicals products were mainly attributable
to increased volume, which more than offset the negative effects of lower
prices and mix. Recent acquisitions contributed to improved volume for
coatings, inks and resins products, although pricing pressures continue. Sales
volumes for fine chemicals improved but a shift in the mix of products sold had
a negative impact on revenues.
Operating earnings were negatively impacted by the decline in selling prices.
For second quarter and six months, however, the impact of lower selling prices
was partially offset by cost structure improvements resulting from the Company's
Advantage Cost 2000 initiative. Additionally, six months results were also
favorably affected by lower raw materials costs.
CORE PLASTICS SEGMENT
<TABLE>
<CAPTION>
SECOND QUARTER FIRST SIX MONTHS
1999 1998 CHANGE 1999 1998 CHANGE
<S> <C> <C> <C> <C> <C> <C>
Sales $ 267 $ 283 (6)% $ 496 $ 558 (11)%
Operating earnings (loss) (17) 12 >(100) (53) 2 >(100)
</TABLE>
The availability of new EASTAPAK polymers manufacturing capacity in Europe and
Latin America contributed to significantly improved sales volume. The effect of
increased volume, however, was more than offset by the negative impact of lower
selling prices, particularly in North America and Europe.
Although negatively affected by the decline in selling prices, the impact on
operating earnings for the second quarter and six months was partially offset by
higher volumes and cost structure improvements resulting from the Company's
Advantaged Cost 2000 initiative. Also favorably affecting results for six months
were lower raw materials and preproduction costs. Operating earnings for
flexible plastics increased for second quarter due to margin improvements aided
by recent price increases.
CHEMICAL INTERMEDIATES SEGMENT
<TABLE>
<CAPTION>
SECOND QUARTER FIRST SIX MONTHS
1999 1998 CHANGE 1999 1998 CHANGE
<S> <C> <C> <C> <C> <C> <C>
Sales $ 162 $ 173 (6)% $ 324 $ 361 (10)%
Operating earnings 18 37 (51) 42 75 (44)
</TABLE>
Higher volumes were more than offset by price declines resulting in lower
revenues. Sales and earnings were lower due to lower selling prices, primarily
for oxo products. Cost structure improvements resulting from the Company's
Advantaged Cost 2000 initiative partially offset the impact of lower selling
prices for second quarter and for six months. Lower raw materials costs also
positively impacted results for six months.
(For supplemental analysis of Specialty and Performance, Core Plastics, and
Chemical Intermediates segment results, see Exhibit 99.01 to this Form 10-Q.)
12
<PAGE> 13
SUMMARY BY CUSTOMER LOCATION
(Dollars in millions)
SALES BY REGION
<TABLE>
<CAPTION>
SECOND QUARTER FIRST SIX MONTHS
1999 1998 CHANGE 1999 1998 CHANGE
<S> <C> <C> <C> <C> <C> <C>
United States and Canada $ 708 $ 778 (9)% $ 1,370 $ 1,532 (11)%
Asia Pacific 112 106 6 223 204 9
Europe, Middle East, and Africa 213 195 9 387 402 (4)
Latin America 89 86 3 165 175 (6)
</TABLE>
Sales in the United States for second quarter 1999 were $657 million, down 10%
from second quarter 1998 sales of $727 million. Sales volumes improved in North
America but lower selling prices, particularly for EASTAPAK polymers, resulted
in lower revenues. For six months, sales revenues in the United States declined
11% to $1.276 billion in 1999 compared to $1.440 billion in 1998. Significant
sales volume improvements for six months were offset by selling price declines
and a shift in the mix of products sold.
Sales outside the United States for second quarter 1999 were $465 million, up
6% from 1998 second quarter sales of $438 million. Sales outside the United
States were 41% of total sales in second quarter 1999 compared with 38% for
second quarter 1998. Significantly higher sales volumes outside the United
States for the quarter more than offset the negative impact of lower selling
prices and product mix. Increased sales in Asia Pacific resulted from higher
sales volumes for oxo products, although prices were lower. In Europe, improved
sales revenues were attributable to significantly increased sales volumes for
EASTAPAK polymers and coatings, inks and resins products, partially offset by
lower selling prices and the negative impact of foreign exchange losses.
Increased sales volumes in Latin America, particularly for EASTAPAK polymers,
resulted in higher revenues, although selling prices declined.
SUMMARY OF CONSOLIDATED RESULTS
(Dollars in millions)
<TABLE>
<CAPTION>
SECOND QUARTER FIRST SIX MONTHS
1999 1998 CHANGE 1999 1998 CHANGE
<S> <C> <C> <C> <C> <C> <C>
SALES $ 1,122 $ 1,165 (4)% $ 2,145 $ 2,313 (7)%
</TABLE>
Sales volumes overall were significantly higher in second quarter and six
months, but revenues declined as a result of lower selling prices and a shift
in product mix.
<TABLE>
<CAPTION>
SECOND QUARTER FIRST SIX MONTHS
1999 1998 CHANGE 1999 1998 CHANGE
<S> <C> <C> <C> <C> <C> <C>
GROSS PROFIT $ 225 $ 297 (24)% $ 419 $ 551 (24)%
As a percentage of sales 20.1% 25.5% 19.5% 23.8%
</TABLE>
Gross profit declined primarily as a result of significantly lower selling
prices and a shift in the mix of products sold. Cost of sales for second
quarter reflected significantly higher selling volumes, lower preproduction
costs resulting from the 1998 and early 1999 start up of several new
manufacturing sites, and cost structure improvements resulting from the
Company's Advantaged Cost 2000 initiative.
13
<PAGE> 14
<TABLE>
<CAPTION>
SECOND QUARTER FIRST SIX MONTHS
1999 1998 CHANGE 1999 1998 CHANGE
<S> <C> <C> <C> <C> <C> <C>
SELLING AND GENERAL
ADMINISTRATIVE EXPENSES $ 83 $ 85 (2)% $ 159 $ 160 (1)%
As a percentage of sales 7.4% 7.3% 7.4% 6.9%
RESEARCH AND
DEVELOPMENT COSTS $ 46 $ 48 (4)% $ 93 $ 94 (1)%
As a percentage of sales 4.1% 4.1% 4.3% 4.1%
INTEREST COSTS $ 32 $ 33 $ 63 $ 65
LESS CAPITALIZED INTEREST 4 12 9 23
------ ------ ------ ------
NET INTEREST EXPENSE $ 28 $ 21 $ 54 $ 42 29%
====== ====== 33% ====== ======
</TABLE>
Increased interest expense for second quarter and six months reflects decreased
capitalized interest, resulting from the 1998 and early 1999 completion of
several major capital projects, and increased commercial paper borrowings.
<TABLE>
<CAPTION>
SECOND QUARTER FIRST SIX MONTHS
1999 1998 CHANGE 1999 1998 CHANGE
<S> <C> <C> <C> <C> <C> <C>
OTHER INCOME (CHARGES), NET $ (4) $ 6 >(100)% $ (12) $ 8 >(100)%
</TABLE>
Other income and charges include interest income and royalty income, gains and
losses on asset sales, results from equity investments, foreign exchange
transactions, and other items. The change in other income for second quarter
was due primarily to the negative impact of foreign exchange rates on company
operations.
LIQUIDITY, CAPITAL RESOURCES AND OTHER FINANCIAL DATA
<TABLE>
<CAPTION>
FINANCIAL INDICATORS 1999 1998
<S> <C> <C>
For the first six months:
Ratio of earnings to fixed charges 2.4x 4.2x
At the periods ended June 30, 1999 and December 31, 1998:
Current ratio 1.6x 1.5x
Percent of long-term borrowings to total capital* 55% 46%
Percent of floating-rate borrowings to total borrowings* 25% 7%
*Includes Lawter International, Inc. debt assumed.
<CAPTION>
CASH FLOW FIRST SIX MONTHS
(Dollars in millions) 1999 1998
<S> <C> <C>
Net cash provided by (used in)
Operating activities $ 276 $ 209
Investing activities (531) (288)
Financing activities 316 83
------- -------
Net change in cash and cash equivalents $ 61 $ 4
======= =======
Cash and cash equivalents at end of period $ 90 $ 33
======= =======
</TABLE>
14
<PAGE> 15
Cash provided by operations increased due to the sale of receivables to a third
party and reimbursements received from the Department of Army related to
Holston Defense Corporation, partially offset by the funding of Company
obligations to the Employee Stock Ownership Plan (such obligation having been
funded with treasury stock in 1998), and funding of pension plans. Cash used in
investing activities increased as a result of acquisition activity in 1999. The
change in cash provided by financing activities reflects an increase in
commercial paper borrowings to fund acquisitions and treasury stock purchases
in 1999.
CAPITAL EXPENDITURES AND OTHER COMMITMENTS
For 1999, the Company estimates that depreciation will be $360 million and that
capital expenditures will be equal to or less than depreciation. Capital
expenditures through June 30, 1999 were $134 million. Long-term commitments
related to planned capital expenditures are not material. The Company had
various purchase commitments at June 30, 1999 for materials, supplies, and
energy incident to the ordinary conduct of business. These commitments
approximate $2 billion over 15 years.
LIQUIDITY
Eastman has access to an $800 million revolving credit facility (the "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 rate for such fee was 0.085%
as of June 30, 1999. 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
June 30, 1999, the Company's commercial paper outstanding balance was
$560 million at an effective interest rate of 5.17%. At June 30, 1998, the
Company's commercial paper outstanding balance was $352 million at an effective
interest rate of 5.73%.
The Company has an effective registration statement on file with the Securities
and Exchange Commission to issue up to $1 billion of debt or equity securities.
No securities have been sold from this shelf registration.
During 1998, the Company issued $23 million of tax-exempt bonds at variable
interest rates, the proceeds of which are to be used for the construction of
certain solid waste disposal facilities in Kingsport, Tennessee. The proceeds
from this issuance are held in trust and become available to the Company as
expenditures are made for construction of the designated solid waste disposal
facilities. Approximately $5 million of qualifying expenditures related to
these projects had been made as of June 30, 1999.
On April 13, 1999, the Company entered into an agreement that will allow the
Company to sell certain domestic accounts receivable under a planned continuous
sale program to a third party. The agreement permits the sale of undivided
interests in domestic trade accounts receivable. As of the date of this filing,
receivables totaling $75 million had been sold to the third party. Undivided
interests in designated receivable pools were sold to the purchaser with
recourse limited to the receivables purchased. Fees to be paid by the Company
under this agreement are based on certain variable market rate indices and are
included in other (income) charges, net, in the Consolidated Statements of
Earnings, Comprehensive Income, and Retained Earnings.
On June 9, 1999, the Company completed its acquisition of Lawter International,
Inc. The Company purchased all outstanding shares of Lawter International, Inc.
common stock for $12.25 per share. The purchase price included cash
15
<PAGE> 16
consideration of $364 million (net of $41 million cash acquired) and the
assumption of $145 million of Lawter's debt. The transaction was financed with
available cash and commercial paper borrowings.
The Company is currently authorized to repurchase up to $400 million of its
common stock. During first quarter 1999, a total of 1,094,800 shares of common
stock at a cost of approximately $50 million were repurchased. Repurchased
shares may be used to meet common stock requirements for compensation and
benefit plans and other corporate purposes. During the second half of 1999,
additional share repurchases will be weighed against alternative uses for
available cash.
Existing sources of capital, together with cash flows from operations, are
expected to be sufficient to meet foreseeable cash flow requirements.
DIVIDENDS
<TABLE>
<CAPTION>
SECOND QUARTER FIRST SIX MONTHS
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Cash dividends declared per share $ .44 $ .44 $ .88 $ .88
</TABLE>
RETIREMENT PLAN AMENDMENT
In June 1999, the Company announced amendments to its defined benefit pension
plan, the Eastman Retirement Assistance Plan, and its postretirement welfare
plans effective January 1, 2000. The amended defined benefit pension plan will
use a new pension equity formula based on age and years of service to calculate
an employee's retirement benefit under the revised plan provisions. The
Company's 1999 pension and postretirement welfare expenses were remeasured as
of June 1, 1999 based on amended plan provisions using the assumptions set
forth in the Company's 1998 consolidated financial statements, except for the
changes noted in Note 8 to Consolidated Financial Statements.
The plan amendments and changes in plan assumptions will result in a decrease
in 1999 pension and postretirement benefits expense of approximately $37
million. Approximately $24 million relates to plan amendments and $13 million
relates to changes in plan assumptions.
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 date-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. Year 2000
problems could affect many of the Company's processes, including production,
distribution, research and development, financial, administrative and
communications operations. The Company's date-dependent systems can be
summarized in three categories: computerized business systems; computerized
distributed control systems for manufacturing; and other devices using embedded
chips.
Internal identification of all business systems, manufacturing systems and
embedded chip devices for year 2000 compliance is complete. An outside
consultant has evaluated the Company's identification, assessment, and testing
process related to manufacturing and embedded equipment and concluded that the
results of the internal processes are reliable.
16
<PAGE> 17
The Company considers its key enterprise business computer systems capable of
accurately handling year 2000 dates. Final integrated acceptance testing of the
Company's existing key enterprise business computer systems was completed
successfully during 1998. Very few problems were encountered in this area,
primarily because of the Company's aggressive implementation of enterprise
software and standardized desktop/office software earlier this decade. The
Company will continue its year 2000 assessment and testing efforts for new or
modified business computer systems throughout 1999.
By the end of June 1999, the Company had completed assessment, testing, and
most of the remediation or workaround solutions on critical control systems and
embedded chip devices as scheduled. However, because of the need to synchronize
year 2000-ready solutions with scheduled plant shutdowns, some upgrade work
will occur during the second half of 1999. Specific schedules for
implementation of the upgrades have been established to provide adequate time
for successful completion prior to January 1, 2000. A minimal number of devices
were determined to be non-compliant, with most requiring software upgrades at
minimal cost. Additionally, some lower priority embedded chip devices may not
be tested or remediated but will be managed by contingency plans. Although some
risk is inherent with this plan, the Company believes the risk is controllable
with contingency plans being developed and that this plan does not pose
significant problems for the Company's various manufacturing control systems.
As a result of assessments, modifications, upgrades, or replacements planned,
ongoing or already completed, the Company believes the year 2000 issue as it
relates to the Company's own date-dependent systems will not pose significant
problems for the Company's business, processes and operations. The Company
considers itself to be effectively year 2000 ready. 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. Overall costs attributable to the
Company's year 2000 efforts, incurred over a period of several years, are
expected to be less than $20 million.
The Company has identified and is communicating with key suppliers and other
service providers 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. The Company has received year
2000 disclosure statements from 96% of companies surveyed which includes raw
materials suppliers, indirect suppliers and other key service providers. In
addition, the Company has identified key customers with whom it is exchanging
more detailed information. While all customers have not been surveyed directly,
the Company has exchanged information with certain customers as they contact
Eastman about its year 2000 compliance. The Company is proceeding with a more
detailed assessment of selected critical suppliers, service providers and key
customers to further assess the Company's risk. The Company expects to complete
these assessments by September 1, 1999. Assessment of suppliers, service
providers and customers is dependent upon the accuracy and validity of their
year 2000 disclosure statements.
A business contingency planning team composed of key business managers has been
assigned to develop company-wide contingency plans. This team is actively
assessing the internal and external risks posed by the year 2000 issue such as
energy, telecommunications, financial, transportation and material supply
disruptions. Existing business continuity plans adjusted for unique year 2000
issues provide the basis for contingency planning. Major elements of the plan
were completed by June 1999 with refinement and execution continuing up to and
through the year 2000 rollover.
The Company has identified and is communicating with recently-acquired
subsidiaries (ABCO Industries, Incorporated, Jager, and Lawter International,
Inc.) as well as joint venture partners and other companies with which the
Company shares services or infrastructure to determine if these entities
17
<PAGE> 18
with which the Company has financial interests have an effective plan in place
to address the year 2000 issue, and to assess the extent of the Company's
vulnerability to the failure of these parties. These entities have their own
independent year 2000 readiness programs with several programs still underway.
Current assessments indicate that satisfactory progress has been made to resolve
year 2000 issues and that these arrangements do not pose significant risk to the
Company.
Based on current plans and efforts to date, the Company does not anticipate that
the year 2000 issue will have a material effect on results of operations or
financial condition. However, a number of customers have indicated a potential
change in their buying patterns such that they may increase inventories during
the fourth quarter 1999, which could impact purchases during the first quarter
2000. If this were to occur, it could have a material impact upon operating
results for each of these quarters. The Company will continue to assess and work
with customers to determine the likelihood of these changes occurring and their
impact on the Company. The above expectations are subject to uncertainties. For
example, if the Company is unsuccessful in identifying or remediating all year
2000 problems in its critical operations, or if it is affected by the inability
of suppliers or major customers to continue operations due to such a problem,
then the Company's results of operations or financial condition could be
materially impacted.
HOLSTON DEFENSE CORPORATION
Holston Defense Corporation ("Holston"), a wholly owned subsidiary of the
Company, managed the government-owned Holston Army Ammunition Plant in
Kingsport, Tennessee (the "Facility") under contract with the Department of
Army ("DOA") from 1949 until expiration of the contract (the "Contract") on
December 31, 1998. The DOA awarded a contract to manage the Facility to a third
party effective January 1, 1999.
The Contract provided for reimbursement of allowable costs incurred by Holston.
The Company has recognized liabilities associated with Holston's curtailment of
pension, other postretirement benefits and other termination costs in
accordance with generally accepted accounting principles and expects the DOA to
reimburse substantially all such costs and payments. A portion of such costs
have been funded by the Company and subsequently reimbursed by the DOA. The
Company will likely be required to advance additional funds to pay pension
benefit liabilities, as well as other postretirement and termination costs, if
there are further delays in payment or reimbursement by the DOA.
The recording of previously unrecognized liabilities for pension and other
termination costs had no effect on earnings because the Company also recorded a
receivable from the DOA for reimbursement of such amounts. Reimbursement of
certain previously recognized pension and postretirement benefit costs will be
credited to earnings at the time of receipt of reimbursement from the DOA. The
Company expects no significant impact on financial position or results of
operations related to expiration of the Contract. See Note 6 to Consolidated
Financial Statements.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998 the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which standardizes the accounting for
derivative instruments, including certain derivative instruments embedded in
other contracts, by requiring that an entity recognize those items as assets or
liabilities in the statement of financial position and measure them at fair
value. The effective date of SFAS No. 133 has been delayed for one year and is
now effective for all fiscal quarters of all fiscal years beginning after
June 15, 2000. The Company is evaluating the effect of this standard on its
financial statements and will comply with requirements of the new standard which
now become effective for the Company's 2001 financial reporting cycle.
18
<PAGE> 19
OUTLOOK
The Company remains cautiously optimistic that results for the second half of
1999 will improve in comparison to the first half of 1999. Capacity additions
which were brought on line in 1998 and early 1999 and the recent acquisition of
Lawter International, Inc. are contributing to significant volume gains across
the Company. Prices have recently increased for many key products and have
stabilized for others. It is expected that the Company will continue to
experience increased demand for its products throughout the next few months and
increased available capacity levels over 1998.
The Company will continue to pursue alternatives to diminish the impact of the
container plastics business on its portfolio, while focusing on improving cash
flow from this business.
In 1999, the Company has placed an increased priority on cash flow through
increased sales volumes, reduced capital expenditures, working capital
reduction efforts, continued emphasis on cost structure improvements and
productivity gains through its Advantaged Cost 2000 initiative, reinforced by
basing a portion of annual incentive payments for senior management on free
cash flow.
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; additional available manufacturing capacity; capital spending and
depreciation; the year 2000 issue; legal proceedings; global economic
conditions; and supply and demand, volumes, prices, costs, margins, and sales
and earnings and cash flow 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 underlying 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: realization of recently announced price increases;
continued good demand overall for the Company's products; continued demand
growth worldwide for EASTAPAK polymers and coatings, inks, and resins products;
capacity additions within the ethylene industry worldwide; availability of key
purchased raw materials with no additional significant increases in costs;
continued market reception of new polyethylene products and continued shift of
polyethylene product mix to less commodity products; availability of recent
manufacturing capacity increases for container plastics, SPECTAR, coatings,
inks, and oxo products; realization of expected cost savings and revenue
synergies related to the acquisition of Lawter International, Inc.; no
significant disruptions in the Company's business and operations as a result of
the year 2000 issue; and labor and material productivity gains sufficient to
meet targeted cost structure reductions.
- ----------------------------
EASTAPAK and SPECTAR are trademarks of Eastman Chemical Company.
19
<PAGE> 20
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
GENERAL
The Company's operations are parties to or targets of lawsuits,
claims, investigations, and proceedings, including product liability,
personal injury, patent and intellectual property, commercial,
contract, environmental, antitrust, health and safety, and employment
matters, which are being handled and defended in the ordinary course
of business. While the Company is unable to predict the outcome of
these matters, it does not believe, based upon currently available
facts, that the ultimate resolution of any of such pending matters,
including those described in the following paragraphs, will have a
material adverse effect on the Company's overall financial position
or results of operations. However, adverse developments could
negatively impact earnings in a particular period.
SORBATES LITIGATION
As previously reported, on September 30, 1998, Eastman entered into a
voluntary plea agreement with the U. S. Department of Justice and
agreed to pay an $11 million fine to resolve a charge brought against
the Company for violation of Section One of the Sherman Act. Under
the agreement, Eastman entered a plea of guilty to one count of
price-fixing for sorbates, a class of food preservatives, from
January 1995 through June 1997. The plea agreement was approved by
the United States District Court for the Northern District of
California on October 21, 1998. The Company recognized the entire
fine in third quarter 1998 and is paying the fine in installments
over a period of five years.
In addition, the Company, along with other companies, has been named
as a defendant in fourteen antitrust lawsuits brought subsequent to
the Company's plea agreement as putative class actions on behalf of
certain purchasers of sorbates. In each case, the plaintiffs allege
that the defendants engaged in a conspiracy to fix the price of
sorbates and that the class members paid more for sorbates than they
would have paid absent the defendants' conspiracy. Five of the suits
were filed in Superior Courts for the State of California under
various state antitrust and consumer protection laws on behalf of
classes of indirect purchasers of sorbates; five of the proceedings
were filed in the United States District Court for the Northern
District of California, four (which have subsequently been
consolidated into one action) under federal antitrust laws on behalf
of classes of direct purchasers of sorbates and one under
California's antitrust and consumer protection laws on behalf of a
class of all indirect purchasers of sorbates; two cases were filed in
Circuit Courts for the State of Tennessee under the antitrust and
consumer protection laws of various states, including Tennessee, on
behalf of classes of indirect purchasers of sorbates in those states;
one case was filed in the United States District Court for the
Southern District of New York (and will likely be transferred to the
Northern District of California) under federal antitrust laws on
behalf of a class of direct purchasers of sorbates; and one action
was filed in the Circuit Court for the State of Wisconsin under
various state antitrust laws on behalf of a class of indirect
purchasers of sorbates in those states. The plaintiffs in most cases
seek treble damages of unspecified amounts, attorneys' fees and
costs, and other unspecified relief; in addition, certain of the
actions claim restitution, injunction against alleged illegal
conduct, and other equitable relief. Each proceeding is in
preliminary pretrial motion and discovery stage, and none of the
proposed classes has been certified.
20
<PAGE> 21
The Company intends vigorously to defend these actions unless they
can be settled on terms acceptable to the parties. These matters
could result in the Company being subject to monetary damages and
expenses. The Company recognized a charge to earnings in the fourth
quarter of 1998 of $8 million for the estimated costs, including
legal fees, related to the pending sorbates litigation described
above. Because of the early stage of these putative class action
lawsuits, however, the ultimate outcome of these matters cannot
presently be determined, and they may result in greater or lesser
liability than that currently provided for in the Company's financial
statements.
ENVIRONMENTAL MATTER
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. The Company had voluntarily disclosed this matter to
TDEC in December 1996. Over the course of the last two years, the
Company has provided extensive information relating to this matter to
TDEC, the U.S. Environmental Protection Agency ("EPA"), and the U.S.
Department of Justice. EPA has recently indicated that it is
contemplating an enforcement proceeding, the terms of which are
currently the subject of discussions between the Company and EPA.
Monetary sanctions are expected to exceed 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's 1999 Annual Meeting of Shareowners was held on
May 6, 1999. Four items of business were acted upon at the meeting:
(i) election of four directors to serve in the class for which the
term in office expires at the Annual Meeting of Shareowners in 2002
and until their successors are duly elected and qualified; (ii)
approval of the 1999 Director Long-Term Compensation Plan; (iii)
ratification of the appointment of PricewaterhouseCoopers LLP as
independent accountants for the Company until the Annual Meeting of
Shareowners in 2000; and (iv) shareowner proposal to discontinue use
of "bonuses" and "options, rights, SARs, etc." as management
compensation.
The results of the voting for the election of directors were as
follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
VOTES BROKER
NOMINEE VOTES FOR WITHHELD ABSTENTIONS NON-VOTES
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Calvin A. Campbell, Jr. 63,869,586 541,533 0 0
Earnest W. Deavenport, Jr. 63,822,216 588,903 0 0
John W. Donehower 63,859,855 551,264 0 0
Lee Liu 63,855,985 555,134 0 0
</TABLE>
Accordingly, the four nominees received a plurality of the votes cast
in the election of directors at the meeting and were elected.
21
<PAGE> 22
The results of the voting on the approval of the 1999 Director
Long-Term Compensation Plan were as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
VOTES FOR VOTES AGAINST ABSTENTIONS BROKER NON-VOTES
-----------------------------------------------------------------------------------------
<S> <C> <C> <C>
56,422,939 7,552,660 435,520 0
</TABLE>
Accordingly, the number of affirmative votes cast on the proposal
constituted a majority of the votes cast on the proposal at the
meeting, and the 1999 Director Long-Term Compensation Plan was
approved.
The results of the voting on the ratification of the appointment of
PricewaterhouseCoopers LLP as independent accountants were as
follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
VOTES FOR VOTES AGAINST ABSTENTIONS BROKER NON-VOTES
-----------------------------------------------------------------------------------------
<S> <C> <C> <C>
63,946,510 296,504 168,105 0
</TABLE>
Accordingly, the number of affirmative votes cast on the proposal
constituted a majority of the votes cast on the proposal at the
meeting, and the appointment of PricewaterhouseCoopers LLP as
independent accountants was ratified.
The results of the voting on the shareowner proposal to discontinue
use of "bonuses" and "options, rights, SARs, etc." as management
compensation were as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
VOTES FOR VOTES AGAINST ABSTENTIONS BROKER NON-VOTES
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
3,061,688 50,613,548 746,400 9,989,483
</TABLE>
Accordingly, the number of affirmative votes cast on the proposal did
not constitute a majority of the votes cast on the proposal at the
meeting, and the shareowner proposal was not approved.
ITEM 5. OTHER INFORMATION
Effective September 1, 1999, the Company's management structure will
be reorganized into two major business groups--polymers and
chemicals--and their major supporting processes. The two groups will
be managed by Brian Ferguson, president, polymers group, and Allan
Rothwell, president, chemicals group. These two groups and their
supporting processes will report to the newly established Office of
the CEO, led by Earnest Deavenport, Jr.
Replacing Mr. Rothwell as senior vice president and chief financial
officer, effective August 15, 1999, will be James P. Rogers. Mr.
Rogers is currently the executive vice president and chief financial
officer of GAF Materials Corp. and has concurrently served as the
executive vice president of finance for International Specialty
Products.
The Company is evaluating the impact of this reorganization on its
current segment reporting.
22
<PAGE> 23
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 25.
(b) Reports on Form 8-K
The Company filed two reports on Form 8-K, dated
April 27, 1999 and June 1, 1999 during the quarter ended
June 30, 1999. Both reports were filed pursuant to Item 5
of Form 8-K and related to the Company's acquisition of
Lawter International, Inc.
23
<PAGE> 24
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: July 30, 1999 By: /s/ Allan R. Rothwell
---------------------
Allan R. Rothwell
Senior Vice President and
Chief Financial Officer
24
<PAGE> 25
<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>
25
<PAGE> 26
<TABLE>
<CAPTION>
EXHIBIT INDEX
EXHIBIT DESCRIPTION SEQUENTIAL
NUMBER PAGE
NUMBER
<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 1999 Director Long-Term Compensation Plan (incorporated
herein by reference to Appendix A to Eastman Chemical
Company's definitive 1999 Annual Meeting Proxy Statement
filed pursuant to Regulation 14A)
*10.02 1997 Omnibus Long-Term Compensation Plan, as amended 27-42
*10.03 Eastman 1999-2001 Long Term Performance Subplan of 1997
Omnibus Long-Term Compensation Plan 43-52
12.01 Statement re: Computation of Ratios of Earnings to Fixed
Charges 53
27.01 Financial Data Schedule for Second Quarter 1999 (for SEC
use only)
99.01 Supplemental Business Segment Information 54
</TABLE>
- -------------------------------------------------------------------------------
*Management contract or compensatory plan or arrangement filed pursuant to Item
601(b)(10)(iii) of Regulation S-K.
26
<PAGE> 1
EXHIBIT 10.02
1997 OMNIBUS LONG-TERM COMPENSATION PLAN
EASTMAN CHEMICAL COMPANY
Effective May 1, 1997
Amended May 6, 1999
27
<PAGE> 2
EASTMAN CHEMICAL COMPANY
1997 OMNIBUS LONG-TERM COMPENSATION PLAN
May 1, 1997
Amended May 6, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION TITLE PAGE
<S> <C> <C>
1. Purpose
2. Definitions
3. Administration
4. Eligibility
5. Shares Available
6. Effective Date; Term
7. Participation
8. Stock Options
9. Stock Appreciation Rights
10. Stock Awards
11. Performance Shares
12. Performance Goals for Certain Section 162(m) Awards
13. Payment of Awards
14. Dividends and Dividend Equivalents
15. Deferral of Awards
16. Termination of Employment
17. Nonassignability
18. Adjustment of Shares Available
19. Withholding Taxes
20. Noncompetition; Confidentiality
21. Regulatory Approvals and Listings
22. Amendment
23. Governing Law
24. Change In Ownership
25. Change In Control
26. No Right, Title, or Interest in Company Assets
27. Securities Laws
</TABLE>
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<PAGE> 3
EASTMAN CHEMICAL COMPANY
1997 OMNIBUS LONG-TERM COMPENSATION PLAN
1. PURPOSE
The purpose of the Plan is to provide motivation to Employees of the Company
and its Subsidiaries to put forth maximum efforts toward the continued growth,
profitability, and success of the Company and its Subsidiaries by providing
incentives to such Employees through the ownership and performance of Common
Stock of the Company. Toward this objective, the Committee may grant stock
options, stock appreciation rights ("SARs"), Stock Awards, performance shares,
and/or other incentive awards to Employees of the Company and its Subsidiaries
on the terms and subject to the conditions set forth in the Plan. The Committee
may at any time unilaterally amend any unexercised, unearned, or unpaid Award,
including, without limitation, Awards earned but not yet paid, to the extent it
deems appropriate; provided, however, that any such amendment which, in the
opinion of the Committee, is adverse to the Participant shall require the
Participant's consent. Participation in the Plan shall not give any Participant
any right to remain in the employ of the Company or any Subsidiary. The Company
or, in the case of employment with a Subsidiary, the Subsidiary, reserves the
right to terminate the employment of any Participant at any time. Further, the
adoption of the Plan shall not be deemed to give any Employee or any other
individual any right to be selected as a Participant or to be granted an Award.
2. DEFINITIONS
2.1 "Award" means any form of stock option, SAR, Stock Award, performance
shares, or other incentive award granted under the Plan, whether singly, in
combination, or in tandem, to a Participant by the Committee pursuant to such
terms, conditions, restrictions and/or limitations, if any, as the Committee
may establish by the Award Notice or otherwise.
2.2 "Award Notice" means a written notice from the Company to a
Participant that establishes the terms, conditions, restrictions, and/or
limitations applicable to an Award in addition to those established by the Plan
and by the Committee's exercise of its administrative powers.
2.3 "Board" means the Board of Directors of the Company.
2.4 "Change In Control" means a change in control of the Company of a
nature that would be required to be reported (assuming such event has not been
"previously reported") in response to Item 1(a) of a Current Report on Form
8-K, as in effect on December 31, 1996, pursuant to Section 13 or 15(d) of the
Exchange Act; provided that, without limitation, a Change In Control shall be
deemed to have occurred at such time as (i) any "person" within the meaning of
Section 14(d) of the Exchange Act, other than the Company, a Subsidiary, or any
employee benefit plan(s) sponsored by the Company or any Subsidiary, is or has
become the "beneficial owner," as defined in Rule 13d-3 under the Exchange Act,
directly or indirectly, of 25% or more of the combined voting power of the
outstanding securities of the Company ordinarily having the right to vote in
the election of directors; provided, however, that the following will not
constitute a Change In Control: any acquisition by any corporation if,
immediately following such acquisition, more than 75% of the outstanding
securities of the acquiring corporation ordinarily having the right to vote in
the election of directors is beneficially owned by all or substantially all of
those persons who, immediately prior to such acquisition, were the beneficial
owners of the outstanding securities of the Company ordinarily having the right
to vote in the election of directors, or (ii) individuals who constitute the
Board on January 1, 1997 (the "Incumbent Board") have ceased for any reason to
constitute at least a majority thereof, provided that: any person becoming a
director subsequent to January 1, 1997 whose election, or nomination for
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<PAGE> 4
election by the Company's shareowners, was approved by a vote of at least
three-quarters (3/4) of the directors comprising the Incumbent Board (either by
a specific vote or by approval of the proxy statement of the Company in which
such person is named as a nominee for director without objection to such
nomination) shall be, for purposes of the Plan, considered as though such
person were a member of the Incumbent Board, (iii) upon approval by the
Company's shareowners of a reorganization, merger or consolidation, other than
one with respect to which all or substantially all of those persons who were
the beneficial owners, immediately prior to such reorganization, merger or
consolidation, of outstanding securities of the Company ordinarily having the
right to vote in the election of directors own, immediately after such
transaction, more than 75% of the outstanding securities of the resulting
corporation ordinarily having the right to vote in the election of directors;
or (iv) upon approval by the Company's shareowners of a complete liquidation
and dissolution of the Company or the sale or other disposition of all or
substantially all of the assets of the Company other than to a Subsidiary.
Notwithstanding the occurrence of any of the foregoing, the Committee may
determine, if it deems it to be in the best interest of the Company, that an
event or events otherwise constituting a Change In Control shall not be so
considered. Such determination shall be effective only if: (i) it is made by
the Committee prior to the occurrence of an event that otherwise would be or
probably will lead to a Change In Control or after such event if made by the
Committee a majority of which is composed of directors who were members of the
Board immediately prior to the event that otherwise would be or probably will
lead to a Change In Control; and (ii) it would not, in the opinion of the
Company's accountants, preclude the use of "pooling of interest" accounting
treatment for a Change in Control transaction that would otherwise qualify for
such accounting treatment and which is contingent upon qualifying for such
accounting treatment.
2.5 "Change In Control Price" means the highest closing price (or, if the
shares are not traded on an exchange, the highest last sale price or closing
"asked" price) per share paid for the purchase of Common Stock in a national
securities market during the ninety (90) day period ending on the date the
Change In Control occurs.
2.6 "Change In Ownership" means a Change In Control that results directly
or indirectly in the Common Stock (or the stock of any successor to the Company
received in exchange for Common Stock) ceasing to be publicly traded in a
national securities market.
2.7 "Code" means the Internal Revenue Code of 1986, as amended from time
to time.
2.8 "Committee" means the Compensation and Management Development Committee
of the Board or such other committee, designated by the Board, authorized to
administer the Plan under Section 3 hereof. The Committee shall consist of not
less than two members, each of whom shall be both a "non-employee director" as
such term is defined in Rule 16b-3 under the Exchange Act or any successor
rule, and an "outside director" as that term is used in Code Section 162(m) and
the regulations promulgated thereunder.
2.9 "Common Stock" means the $.01 par value common stock of the Company.
2.10 "Company" means Eastman Chemical Company.
2.11 "Covered Employee" means an individual defined in Code Section 162(m)
(3).
2.12 "Employee" means an employee of the Company or a Subsidiary.
2.13 "Exchange Act" means the Securities and Exchange Act of 1934, as
amended.
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<PAGE> 5
2.14 "Fair Market Value" means the closing price of the shares of Common
Stock on the New York Stock Exchange on the day on which such value is to be
determined or, if no shares were traded on such day, on the next preceding day
on which shares were traded; provided, however, that if at any relevant time
the shares of Common Stock are not traded on the New York Stock Exchange, the
"Fair Market Value" shall be determined by reference to the closing price of
the shares of Common Stock on another national securities exchange, if
applicable, or if the shares are not traded on an exchange but are traded in
the over-the-counter market, by reference to the last sale price or the closing
"asked" price of the shares in the over-the-counter market as reported by the
National Association of Securities Dealers Automatic Quotation System (NASDAQ)
or other national quotation service.
2.15 "Participant" means any individual to whom an Award has been granted
by the Committee under the Plan.
2.16 "Plan" means the Eastman Chemical Company 1997 Omnibus Long-Term
Compensation Plan.
2.17 "SAR" is an Award that shall entitle the recipient to receive a
payment equal to the appreciation in value of a stated number of shares of
Common Stock from the price established in the Award to the market value of
such number of shares of Common Stock on the date of exercise.
2.18 "Section 16 Insider" means a Participant who is subject to the
reporting requirements of Section 16 of the Exchange Act with respect to the
Company.
2.19 "Stock Award" means an Award granted pursuant to Section 10 hereof in
the form of shares of Common Stock, restricted shares of Common Stock and/or
Units of Common Stock.
2.20 "Subsidiary" means a corporation or other business entity in which
the Company directly or indirectly has an ownership interest of 80 percent or
more.
2.21 "Unit" means a bookkeeping entry used by the Company to record and
account for the grant of the following Awards until such time as the Award is
paid, canceled, forfeited or terminated, as the case may be: Units of Common
Stock, SARs and performance shares that are expressed in terms of Units of
Common Stock.
3. ADMINISTRATION
The Plan shall be administered by the Committee. The Committee shall have the
authority to: (a) interpret the Plan; (b) establish such rules and regulations
as it deems necessary for the proper operation and administration of the Plan;
(c) select Employees to become Participants and receive Awards under the Plan;
(d) determine the form of an Award, whether a stock option, SAR, Stock Award,
performance share, or other incentive award established by the Committee, the
number of shares or Units subject to the Award, all the terms, conditions,
restrictions and/or limitations, if any, of an Award, including the time and
conditions of exercise or vesting, and the terms of any Award Notice; (e)
determine whether Awards should be granted singly, in combination or in tandem;
(f) grant waivers of Plan terms, conditions, restrictions and limitations; (g)
accelerate the vesting, exercise or payment of an Award or the performance
period of an Award when such action or actions would be in the best interest of
the Company; (h) establish such other types of Awards, besides those
specifically enumerated in Section 2.1 hereof, which the Committee determines
are consistent with the Plan's purpose; and (i) take any and all other action
it deems necessary or advisable for the proper operation or administration of
the Plan. In addition, in order to enable Employees who are foreign nationals
or are employed outside the United States or both to receive Awards under the
Plan, the Committee may adopt such amendments, procedures, regulations,
subplans and the like as are necessary or advisable, in the opinion of the
Committee, to effectuate the purposes of the Plan. The Committee shall also
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<PAGE> 6
have the authority to grant Awards in replacement of Awards previously granted
under the Plan or any other executive compensation plan of the Company or a
Subsidiary. All determinations of the Committee shall be made by a majority of
its members, and its determinations shall be final, binding and conclusive.
The Committee, in its discretion, may delegate its authority and duties under
the Plan to the Chief Executive Officer and/or to other senior officers of the
Company under such conditions and/or limitations as the Committee may
establish; provided, however, that only the Committee may select, grant, and
establish the terms of Awards to Section 16 Insiders or Covered Employees.
4. ELIGIBILITY
Any Employee is eligible to become a Participant in the Plan.
5. SHARES AVAILABLE
The maximum number of shares of Common Stock that shall be available for grant
of Awards under the Plan (including incentive stock options) during its term
shall not exceed 7,000,000, provided that the maximum number of shares of
Common Stock available for grant of Stock Awards under the Plan during its term
shall not exceed 3,500,000. (Such amounts shall be subject to adjustment as
provided in Section 18.) Any shares of Common Stock related to Awards that are
settled in cash in lieu of Common Stock shall be available again for grant
under the Plan. Similarly, any shares of Common Stock related to Awards that
terminate by expiration, forfeiture, cancellation or otherwise without the
issuance of such shares or are exchanged with the Committee's permission for
Awards not involving Common Stock, shall be available again for grant under the
Plan. Further, any shares of Common Stock that are used by a Participant for
the full or partial payment to the Company of the purchase price of Common
Stock upon exercise of a stock option, or for withholding taxes due as a result
of such exercise, shall again be available for Awards under the Plan.
Notwithstanding any provision in the Plan to the contrary, the maximum number
of shares of Common Stock with respect to one or more options and/or SARs that
may be granted during any one calendar year under the Plan to any one Covered
Employee shall be 200,000. The maximum fair market value of any Awards (other
than options and SARs) that may be received by a Covered Employee (less any
consideration paid by the Participant for such Award) during any one calendar
year under the Plan shall be $5,000,000. The shares of Common Stock available
for issuance under the Plan may be authorized and unissued shares of treasury
shares.
6. EFFECTIVE DATE; TERM
The Plan shall become effective as of the date upon which it is approved by the
shareowners of the Company. No Awards shall be exercisable or payable before
the Plan shall have become effective. Awards shall not be granted pursuant to
the Plan after April 30, 2002.
7. PARTICIPATION
The Committee shall select, from time to time, Participants from those
Employees who, in the opinion of the Committee, can further the Plan's
purposes. Once a Participant is so selected, the Committee shall determine the
type or types of Awards to be made to the Participant and shall establish in
the related Award Notices the terms, conditions, restrictions and/or
limitations, if any, applicable to the Awards in addition to those set forth in
the Plan and the administrative rules and regulations issued by the Committee.
8. STOCK OPTIONS
(a) GRANTS. Awards may be granted in the form of stock options.
These stock options may be incentive stock options within the meaning of
Section 422 of the Code, other tax-qualified stock options, or non-qualified
stock options (i.e., stock options that are not incentive or other
tax-qualified stock options), or a combination of any of the above.
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<PAGE> 7
(b) TERMS AND CONDITIONS OF OPTIONS. An option shall be exercisable
in whole or in such installments and at such times as may be determined by the
Committee. The Committee shall also determine the performance or other
conditions, if any, that must be satisfied before all or part of an option may
be exercised. The price at which Common Stock may be purchased upon exercise of
a stock option shall be established by the Committee, but such price shall not
be less than 50 percent of the Fair Market Value of the Common Stock, as
determined by the Committee, on the date of the stock option's grant.
(c) RESTRICTIONS RELATING TO INCENTIVE STOCK OPTIONS. Stock options
issued in the form of incentive stock options shall, in addition to being
subject to all applicable terms, conditions, restrictions and/or limitations
established by the Committee, comply with Section 422 of the Code. Accordingly,
the aggregate market value (determined at the time the option was granted) of
the Common Stock with respect to which incentive stock options are exercisable
for the first time by a Participant during any calendar year (under the Plan or
any other plan of the Company or any of its Subsidiaries) shall not exceed
$100,000 (or such other limit as may be required by the Code). Further, the
per-share option price of an incentive stock option shall not be less than 100
percent of the Fair Market Value of the Common Stock on the date of grant.
Also, each incentive stock option shall expire not later than ten years from
its date of grant.
(d) ADDITIONAL TERMS AND CONDITIONS. The Committee may, by way of
the Award Notice or otherwise, establish such other terms, conditions,
restrictions and/or limitations, if any, of any stock option Award, provided
they are not inconsistent with the Plan. Without limiting the generality of the
foregoing, options may provide for the automatic granting of new options at the
time of exercise.
(e) EXERCISE. Upon exercise, the exercise price of a stock option
may be paid in cash, shares of Common Stock, shares of restricted Common Stock,
a combination of the foregoing, or such other consideration as the Committee
may deem appropriate. The Committee shall establish appropriate methods for
accepting Common Stock, whether restricted or unrestricted, and may impose such
conditions as it deems appropriate on the use of such Common Stock to exercise
a stock option.
9. STOCK APPRECIATION RIGHTS
(a) GRANTS. Awards may be granted in the form of SARs. An SAR may
be granted in tandem with all or a portion of a related stock option under the
Plan ("Tandem SARs"), or may be granted separately ("Freestanding SARs"). A
Tandem SAR may be granted either at the time of the grant of the related stock
option or at any time thereafter during the term of the stock option. In the
case of SARs granted in tandem with stock options granted prior to the grant of
such SARs, the appreciation in value is the difference between the option price
of such related stock option and the Fair Market Value of the Common Stock on
the date of exercise.
(b) TERMS AND CONDITIONS OF TANDEM SARS. A Tandem SAR shall be
exercisable to the extent, and only to the extent, that the related stock
option is exercisable, and the "exercise price" of such an SAR (the base from
which the value of the SAR is measured at its exercise) shall be the option
price under the related stock option. However, at no time shall a Tandem SAR be
issued if the option price of its related stock option is less than 50 percent
of the Fair Market Value of the Common Stock, as determined by the Committee,
on the date of the Tandem SAR grant. If a related stock option is exercised as
to some or all of the shares covered by the Award, the related Tandem SAR, if
any, shall be canceled automatically to the extent of the number of shares
covered by the stock option exercise. Upon exercise of a Tandem SAR as to some
or all of the shares covered by the Award, the related stock option shall be
canceled automatically to the extent of the number of shares covered by such
exercise.
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<PAGE> 8
(c) TERMS AND CONDITIONS OF FREESTANDING SARS. Freestanding SARs
shall be exercisable in whole or in such installments and at such times as may
be determined by the Committee. Freestanding SARs shall have a term specified
by the Committee, in no event to exceed ten years. The exercise price of a
Freestanding SAR shall also be determined by the Committee; provided, however,
that such price shall not be less than 50 percent of the Fair Market Value of
the Common Stock, as determined by the Committee, on the date of the
Freestanding SAR grant. The Committee also shall determine the performance or
other conditions, if any, that must be satisfied before all or part of a
Freestanding SAR may be exercised.
(d) DEEMED EXERCISE. The Committee may provide that an SAR shall be
deemed to be exercised at the close of business on the scheduled expiration
date of such SAR if at such time the SAR by its terms remains exercisable and,
if so exercised, would result in a payment to the holder of such SAR.
(e) ADDITIONAL TERMS AND CONDITIONS. The Committee may, by way of
the Award Notice or otherwise, determine such other terms, conditions,
restrictions and/or limitations, if any, of any SAR Award, provided they are
not inconsistent with the Plan.
10. STOCK AWARDS
(a) GRANTS. Awards may be granted in the form of Stock Awards.
Stock Awards shall be awarded in such numbers and at such times during the term
of the Plan as the Committee shall determine. Stock Awards may be actual shares
of Common Stock or the economic equivalent thereof ("Stock Award Units").
(b) AWARD RESTRICTIONS. Stock Awards shall be subject to such
terms, conditions, restrictions, and/or limitations, if any, as the Committee
deems appropriate including, without limitation, restrictions on
transferability and continued employment of the Participant. The Committee
shall also determine the performance or other conditions, if any, that must be
satisfied before all or part of the applicable restrictions lapse. The
Committee may modify or accelerate the delivery of a Stock Award under such
circumstances as it deems appropriate.
(c) RIGHTS AS SHAREOWNER. During the period in which any restricted
shares of Common Stock are subject to restrictions imposed pursuant to Section
10(b), the Committee may, in its discretion, grant to the Participant to whom
such restricted shares have been awarded all or any of the rights of a
shareowner with respect to such shares, including, without limitation, the
right to vote such shares and to receive dividends.
(d) EVIDENCE OF AWARD. Any Stock Award granted under the Plan may
be evidenced in such manner as the Committee deems appropriate, including,
without limitation, book-entry registration or issuance of a stock certificate
or certificates.
11. PERFORMANCE SHARES
(a) GRANTS. Awards may be granted in the form of performance
shares. Performance shares, as that term is used in the Plan, shall refer to
shares of Common Stock or Units which are expressed in terms of Common Stock.
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<PAGE> 9
(b) PERFORMANCE CRITERIA. Performance shares shall be contingent
upon the attainment during a performance period of certain performance
objectives. The length of the performance period, the performance objectives to
be achieved during the performance period, and the measure of whether and to
what degree such objectives have been attained shall be conclusively determined
by the Committee in the exercise of its absolute discretion. Performance
objectives may be revised by the Committee, at such times as it deems
appropriate during the performance period, in order to take into consideration
any unforeseen events or changes in circumstances.
(c) ADDITIONAL TERMS AND CONDITIONS. The Committee may, by way of
the Award Notice or otherwise, determine such other terms, conditions,
restrictions and/or limitations, if any, of any Award of performance shares,
provided they are not inconsistent with the Plan.
12. PERFORMANCE GOALS FOR CERTAIN SECTION 162(M) AWARDS
The Committee may (but need not) determine that, in order to meet the
"performance-based" award criteria of Code Section 162(m) and the regulations
thereunder, any Award granted pursuant to this Plan to a Participant
(including, but not limited to, Participants who are Covered Employees) shall
be determined solely on the basis of one or more of the following measures of
corporate performance, alone or in combination, for the Company as a whole: (a)
return on capital, equity, or assets (including economic value created), (b)
productivity, (c) cost improvements, (d) cash flow, (e) sales revenue growth,
(f) net income, earnings per share, or earnings from operations, (g) quality,
(h) customer satisfaction, or (i) stock price or total shareowner return.
Measurement of the Company's performance against the goals established by the
Committee shall be objectively determinable, and to the extent such goals are
expressed in standard accounting terms, performance shall be measured 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. The Committee shall have the right for any
reason to reduce (but not increase) any such Award, notwithstanding the
achievement of a specified goal. If an Award is made on such basis, the
Committee shall establish goals prior to the beginning of the period to which
such performance goal relates (or such later date as may be permitted under
Code Section 162(m) or the regulations thereunder). Any payment of an Award
granted with performance goals under this Section 12 shall be conditioned on
the written certification of the Committee in each case that the performance
goals and any other material conditions were satisfied.
13. PAYMENT OF AWARDS
At the discretion of the Committee, payment of Awards may be made in cash,
Common Stock, a combination of cash and Common Stock, or any other form of
property as the Committee shall determine. In addition, payment of Awards may
include such terms, conditions, restrictions and/or limitations, if any, as the
Committee deems appropriate, including, in the case of Awards paid in the form
of Common Stock, restrictions on transfer and forfeiture provisions. Further,
payment of Awards may be made in the form of a lump sum, or in installments, as
determined by the Committee.
14. DIVIDENDS AND DIVIDEND EQUIVALENTS
If an Award is granted in the form of a Stock Award, stock option, or
performance share, or in the form of any other stock-based grant, the Committee
may choose, at the time of the grant of the Award or any time thereafter up to
the time of the Award's payment, to include as part of such Award an
entitlement to receive dividends or dividend equivalents, subject to such
terms, conditions, restrictions and/or limitations, if any, as the Committee
may establish. Dividends and dividend equivalents shall be paid in such form
and manner (i.e., lump sum or installments), and at such time or times as the
(i.e., lump sum or installments), and at such time or times as the
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<PAGE> 10
Committee shall determine. All dividends or dividend equivalents that are not
paid currently may, at the Committee's discretion, accrue interest, be
reinvested in additional shares of Common Stock or, in the case of dividends or
dividend equivalents credited in connection with performance shares, be credited
as additional performance shares and paid to the Participant if and when, and to
the extent that, payment is made pursuant to such Award.
15. DEFERRAL OF AWARDS
At the discretion of the Committee, payment of a Stock Award, performance
share, dividend, dividend equivalent, or any portion thereof may be deferred by
a Participant until such time as the Committee may establish. All such
deferrals shall be accomplished by the delivery of a written, irrevocable
election by the Participant prior to the time such payment would otherwise be
made, on a form provided by the Company. Further, all deferrals shall be made
in accordance with administrative guidelines established by the Committee to
ensure that such deferrals comply with all applicable requirements of the Code
and its regulations. Deferred payments shall be paid in a lump sum or
installments, as determined by the Committee. The Committee may also credit
interest, at such rates to be determined by the Committee, on cash payments
that are deferred and credit dividends or dividend equivalents on deferred
payments denominated in the form of Common Stock. The Committee may also, in
its discretion, require deferral of payment of any Award or portion thereof if
payment of the Award would, or could in the reasonable estimation of the
Committee, result in the Participant receiving compensation in excess of the
maximum amount deductible by the Company under the Code.
16. TERMINATION OF EMPLOYMENT
If a Participant's employment with the Company or a Subsidiary terminates for a
reason other than death, disability entitling the Participant to benefits under
the Company's long-term disability plan, retirement, or any other approved
reason, all unexercised, unearned, and/or unpaid Awards, including without
limitation, Awards earned but not yet paid, all unpaid dividends and dividend
equivalents, and all interest accrued on the foregoing shall be canceled or
forfeited, as the case may be, unless the Participant's Award Notice provides
otherwise. The Committee shall have the authority to promulgate rules and
regulations to (i) determine what events constitute disability, retirement or
termination for an approved reason for purposes of the Plan, and (ii) determine
the treatment of a Participant under the Plan in the event of such
Participant's death, disability, retirement or termination for an approved
reason.
17. NONASSIGNABILITY
No Awards (other than unrestricted Stock Awards) or any other payment under the
Plan shall be subject in any manner to alienation, anticipation, sale, transfer
(except by will or the laws of descent and distribution), assignment, pledge,
or encumbrance; provided, however, that the Committee may (but need not) permit
other transfers where the Committee concludes that such transferability (i)
does not result in accelerated taxation, (ii) does not cause any option
intended to be an incentive stock option to fail to be described in Code
Section 422(b), and (iii) is otherwise appropriate and desirable, taking into
account any state or federal securities laws applicable to transferable Awards.
During the lifetime of the Participant no Award shall be payable to or
exercisable by anyone other than the Participant to whom it was granted, other
than (a) in the case of a permanent disability involving a mental incapacity or
(b) in the case of an Award transferred in accordance with the preceding
sentence.
18. ADJUSTMENT OF SHARES AVAILABLE
If there is a change in the number of outstanding shares of Common Stock
through the declaration of stock dividends or stock splits, the number of
shares available for Awards, the shares subject to any Award and
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<PAGE> 11
the option prices or exercise prices of Awards shall be automatically adjusted.
If there is a change in the number of outstanding shares of Common Stock or any
change in the outstanding stock of the Company (or any successor to the
Company), or any other transaction described in Section 424(a) of the Code, the
Committee shall make appropriate adjustments in the number and kind of shares
of stock that may be issued under the Plan and any adjustments and/or
modifications to outstanding Awards as it deems appropriate. In the event of
any other change in the capital structure or in the Common Stock of the
Company, the Committee shall also be authorized to make such appropriate
adjustments in the shares of stock available for issuance under the Plan and
any adjustments and/or modifications to outstanding Awards as it deems
appropriate.
19. WITHHOLDING TAXES
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 FICA obligation)
required by law to be withheld with respect to any taxable event arising as a
result of this Plan. With respect to withholding required upon any taxable
event hereunder, the Company may elect in its discretion, and Participants may
elect, subject to the approval of the Committee, to satisfy the withholding
requirement, in whole or in part, by withholding or having the Company withhold
shares of Common Stock having a Fair Market Value on the date the tax is to be
determined equal to the minimum statutory total tax which could be imposed on
the transaction. All elections by Participants shall be irrevocable, made in
writing, and signed by the Participant.
20. NONCOMPETITION; CONFIDENTIALITY
A Participant will not, without the written consent of the Company, either
during his or her employment by the Company or thereafter, disclose to anyone
or make use of any confidential information which he or she has acquired during
his or her employment relating to any of the business of the Company, except as
such disclosure or use may be required in connection with his or her work as an
employee of Company. During Participant's employment by Company, and for a
period of two years after the termination of such employment, he or she will
not, either as principal, agent, consultant, employee or otherwise, engage in
any work or other activity in competition with the Company in the field or
fields in which he or she has worked for the Company. The agreement in this
Section applies separately in the United States and in other countries but only
to the extent that its application shall be reasonably necessary for the
protection of the Company. Unless the Award Notice specifies otherwise, a
Participant shall forfeit all rights under this Plan to any unexercised or
unpaid Awards or to the deferral of any Award, dividend, or dividend
equivalent, if, in the determination of the Committee the Participant, has
violated the Agreement set forth in this Section 20, and in that event any
further payment, deferral of payment, or other action with respect to any
Award, dividend, or dividend equivalent shall be made or taken, if at all, in
the sole discretion of the Committee. For purposes of this Section 20,
"Company" shall include any Subsidiary employing the Participant.
21. REGULATORY APPROVALS AND LISTINGS
Notwithstanding anything contained in the Plan to the contrary, the Company
shall have no obligation to issue or deliver certificates of Common Stock
evidencing Stock Awards or any other Award resulting in the payment of Common
Stock prior to (a) the obtaining of any approval from any governmental agency
which the Company shall, in its sole discretion, determine to be necessary or
advisable, (b) the admission of such shares to listing on the stock exchange on
which the Common Stock may be listed, and (c) the completion of any
registration or other qualification of said shares under any State or Federal
law or ruling of any governmental body that the Company shall, in its sole
discretion, determine to be necessary or advisable.
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<PAGE> 12
22. AMENDMENT
The Board of the Committee may, at any time and from time to time, suspend,
amend, modify, or terminate the Plan without shareowner approval; provided,
however, that the Board or Committee may condition any amendment or
modification on the approval of shareowners of the Company if such approval is
necessary or deemed advisable with respect to tax, securities, or other
applicable laws, policies, or regulations.
23. GOVERNING LAW
The Plan shall be governed by and construed in accordance with the laws of the
State of Delaware, except as superseded by applicable Federal law.
24. CHANGE IN OWNERSHIP
(a) BACKGROUND. Upon a Change In Ownership: (i) the terms of this
Section 24 shall immediately become operative, without further action or
consent by any person or entity; (ii) all conditions, restrictions, and
limitations in effect on any unexercised, unearned, unpaid, and/or deferred
Award, or any other outstanding Award, shall immediately lapse as of the date
of such event; (iii) no other terms, conditions, restrictions and/or
limitations shall be imposed upon any Awards on or after such date, and in no
circumstance shall an Award be forfeited on or after such date; and (iv) all
unexercised, unvested, unearned, and/or unpaid Awards or any other outstanding
Awards shall automatically become one hundred percent (100%) vested
immediately.
(b) DIVIDENDS AND DIVIDEND EQUIVALENTS. Upon a Change In Ownership,
all unpaid dividends and dividend equivalents and all interest accrued thereon,
if any, shall be treated and paid under this Section 24 in the identical manner
and time as the Award with respect to which such dividends or dividend
equivalents have been credited. For example, if upon a Change In Ownership, an
Award under this Section 24 is to be paid in a prorated fashion, all unpaid
dividends and dividend equivalents with respect to such Award shall be paid
according to the same formula used to determine the amount of such prorated
Award.
(c) TREATMENT OF PERFORMANCE SHARES. If a Change In Ownership
occurs during the term of one or more performance periods for which the
Committee has granted performance shares (hereinafter a "current performance
period"), the term of each such current performance period shall immediately
terminate upon the occurrence of such event. Upon a Change In Ownership, for
each current performance period and each completed performance period for which
the Committee has not on or before such date made a determination as to whether
and to what degree the performance objectives for such period have been
attained (hereinafter a "completed performance period"), it shall be assumed
that the performance objectives have been attained at a level of one hundred
percent (100%) or the equivalent thereof.
A Participant in one or more current performance periods shall be
considered to have earned and, therefore, be entitled to receive, a prorated
portion of the Awards previously granted for each such performance period. Such
prorated portion shall be determined by multiplying the number of performance
shares granted to the Participant by a fraction, the numerator of which is the
total number of whole and partial years (with each partial year being treated
as a whole year) that have elapsed since the beginning of the performance
period, and the denominator of which is the total number of years in such
performance period.
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<PAGE> 13
A Participant in one or more completed performance periods shall be
considered to have earned and, therefore, be entitled to receive all the
performance shares previously granted during each such performance period.
(d) VALUATION OF AWARDS. Upon a Change In Ownership, all
outstanding Units of Common Stock, Freestanding SARs, stock options (including
incentive stock options), and performance shares (including those earned as a
result of the application of Subsection 24(c) above) and all other outstanding
stock-based Awards, including those granted by the Committee pursuant to its
authority under Subsection 3(h) hereof, shall be valued and cashed out on the
basis of the Change In Control Price.
(e) PAYMENT OF AWARDS. Upon a Change In Ownership, any Participant,
whether or not still employed by the Company or a Subsidiary, shall be paid, in
a single lump sum cash payment, as soon as practicable but in no event later
than 90 days after the Change In Ownership, the value of all of such
Participant's outstanding Units of Common stock, Freestanding SARs, stock
options (including incentive stock options), and performance shares (including
those earned as a result of Subsection 24(c) above), and all other outstanding
Awards, including those granted by the Committee pursuant to its authority
under Subsection 3(h) hereof. For purposes of making any payment, the value of
all Awards that are stock based shall be determined by the Change In Control
Price.
(f) DEFERRED AWARDS. Upon a Change in Ownership, all Awards
deferred by a Participant under Section 15 hereof, but for which such
Participant has not received payment as of such date, shall be paid in a single
lump-sum cash payment as soon as practicable, but in no event later than 90
days after the Change In Ownership. For purposes of making any payment, the
value of all Awards that are stock based shall be determined by the Change In
Control Price.
(g) MISCELLANEOUS. Upon a Change In Ownership, (i) the provisions
of Sections 16 and 20 (solely as such Section relates to noncompetition and not
as such Section relates to confidentiality) and the third sentence of Section 1
hereof shall become null and void and of no further force and effect; and (ii)
no action, including, without limitation, the amendment, suspension, or
termination of the Plan, shall be taken which would affect the rights of any
Participant or the operation of the Plan with respect to any Award to which the
Participant may have become entitled hereunder on or prior to the date of such
action or as a result of such Change In Ownership.
(i) LEGAL FEES. The Company shall pay all reasonable legal fees and
related expenses incurred by a Participant in seeking to obtain or enforce any
payment, benefit or right such Participant may be entitled to under the Plan
after a Change In Ownership; provided, however, the Participant shall be
required to repay any such amounts to the Company to the extent a court of
competent jurisdiction issues a final and non-appealable order setting forth
the determination that the position taken by the Participant was frivolous or
advanced in bad faith.
(j) ADJUSTMENT TO PROVISIONS. Notwithstanding that a Change in
Ownership has occurred, the Committee may elect to deal with Awards in a manner
different from that contained in this Section 24, in which case the provisions
of this Section 24 shall not apply and such alternate terms shall apply. Such
Committee action shall be effective only if it is made by the Committee prior
to the occurrence of an event that otherwise would be or probably will lead to
a Change in Ownership or after such event if made by the Committee a majority
of which is composed of directors who were members of the Board immediately
prior to the event that otherwise would be or probably will lead to a Change in
Ownership.
25. CHANGE IN CONTROL
(a) BACKGROUND. All Participants shall be eligible for the
treatment afforded by this Section 25 if their employment
terminates within two years following a Change In Control,
unless the termination is due to (i) death, (ii) disability
entitling the Participant to benefits under the employer's
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<PAGE> 14
long-term disability plan, (iii) Cause, (iv) resignation other than (A)
resignation from a declined reassignment to a job that is not reasonably
equivalent in responsibility or compensation (as defined in the Company's
termination allowance plan, if any), or that is not in the same geographic area
(as defined in the Company's termination allowance plan, if any), or (B)
resignation within 30 days following a reduction in base pay, or (v) retirement
entitling the Participant to benefits under his or her employer's retirement
plan.
For purposes hereof, "Cause" means (a) the continued failure by an
Employee to substantially perform such Employee's duties of employment after
warnings identifying the lack of substantial performance are communicated to
the Employee by the employer to identify the manner in which the employer
believes that the Employee has not substantially performed such duties, or (b)
the engaging by an Employee in illegal conduct that is materially and
demonstrably injurious to the Company or a Subsidiary.
(b) VESTING AND LAPSE OF RESTRICTIONS. If a Participant is eligible
for treatment under this Section 25, (i) all of the conditions, restrictions,
and limitations in effect on any of such Participant's unexercised, unearned,
unpaid and/or deferred Awards (or any other of such Participant's outstanding
Awards) shall immediately lapse as of the date of termination of employment;
(ii) no other terms, conditions, restrictions and/or limitations shall be
imposed upon any of such Participant's Awards on or after such date, and in no
event shall any of such Participant's Awards be forfeited on or after such
date; and (iii) all of such Participant's unexercised, unvested, unearned
and/or unpaid Awards (or any other of such Participant's outstanding Awards)
shall automatically become one hundred percent (100%) vested immediately upon
termination of employment.
(c) DIVIDENDS AND DIVIDEND EQUIVALENTS. If a Participant is
eligible for treatment under this Section 25, all of such Participant's unpaid
dividends and dividend equivalents and all interest accrued thereon, if any,
shall be paid under this Section 25 in the identical manner and time as the
Award with respect to which such dividend or dividend equivalents have been
credited. For example, if upon a Change In Control, an Award under this Section
25 is to be paid in a prorated fashion, all unpaid dividends and dividend
equivalents with respect to such Award shall be paid according to the same
formula used to determine the amount of such prorated Award.
(d) TREATMENT OF PERFORMANCE SHARES. If a Participant holding
performance shares is terminated under the conditions described in Subsection
(a) above, the provisions of this Subsection (d) shall determine the manner in
which such performance shares shall be paid to such Participant. For purposes
of making such payment, each current performance period, as that term is
defined in Subsection 24(c) hereof, shall be treated as terminating upon the
date of the Participant's termination of employment, and for each such current
performance period and each completed performance period, as that term is
defined in Subsection 24(c) hereof, it shall be assumed that the performance
objectives have been attained at a level of one hundred percent (100%) or the
equivalent thereof. If the Participant is participating in one or more current
performance periods, he or she shall be considered to have earned and,
therefore, be entitled to receive that prorated portion of the Awards
previously granted for each such performance period, as determined in
accordance with the formula established in Subsection 24(c) hereof. A
Participant in one or more completed performance periods shall be considered to
have earned and, therefore, be entitled to receive all the performance shares
previously granted during each performance period.
(e) VALUATION OF AWARDS. If a Participant is eligible for treatment
under this Section 25, such Participant's Awards shall be valued and cashed out
in accordance with the provisions of Subsection 24(d) hereof.
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<PAGE> 15
(f) PAYMENT OF AWARDS. If a Participant is eligible for treatment
under this Section 25, such Participant shall be paid, in a single lump-sum
cash payment, as soon as practicable but in no event later than 90 days after
the date of such Participant's termination of employment, the value of all of
such Participant's outstanding Units of Common Stock, Freestanding SARs, stock
options (including incentive stock options), and performance shares (including
those earned as a result of Subsection 25(d) above), and all of such
Participant's other outstanding Awards, including those granted by the
Committee pursuant to its authority under Subsection 3(h) hereof. For purposes
of making any payment, the value of all Awards that are stock based shall be
determined by the Change In Control Price.
(g) DEFERRED AWARDS. If a Participant is eligible for treatment
under this Section 25, all of the deferred Awards for which such Participant
has not received payment as of the date of such Participant's termination of
employment shall be paid in a single lump-sum cash payment as soon as
practicable, but in no event later than 90 days after the date of such
Participant's termination. For purposes of making any payment, the value of all
Awards that are stock based shall be determined by the Change In Control Price.
(h) MISCELLANEOUS. Upon a Change In Control, (i) the provisions of
Sections 16 and 20 (solely as such Section relates to noncompetition and not as
such Section relates to confidentiality) and the third sentence of Section 1
hereof shall become null and void and of no force and effect insofar as they
apply to a Participant who has been terminated under the conditions described
in Subsection (a) above; and (ii) no action, including, without limitation, the
amendment, suspension or termination of the Plan, shall be taken that would
affect the rights of such Participant or the operation of the Plan with respect
to any Award to which the Participant may have become entitled hereunder on or
prior to the date of the Change In Control or to which such Participant may
become entitled as a result of such Change In Control.
(i) LEGAL FEES. The Company shall pay all reasonable legal fees and
related expenses incurred by a Participant in seeking to obtain or enforce any
payment, benefit or right such Participant may be entitled to under the Plan
after a Change In Control; provided, however, the Participant shall be required
to repay any such amounts to the Company to the extent a court of competent
jurisdiction issues a final and non-appealable order setting forth the
determination that the position taken by the Participant was frivolous or
advanced in bad faith.
(j) ADJUSTMENT TO PROVISIONS. Notwithstanding that a Change in
Control has occurred, the Committee may elect to deal with Awards in a manner
different from that contained in this Section 25, in which case the provisions
of this Section 25 shall not apply and such alternate terms shall apply. Such
Committee action shall be effective only if it is made by the Committee prior
to the occurrence of an event that otherwise would be or probably will lead to
a Change In Control or after such event if made by the Committee a majority of
which is composed of directors who were members of the Board immediately prior
to the event that otherwise would be or probably will lead to a Change In
Control.
26. NO RIGHT, TITLE, OR INTEREST IN COMPANY ASSETS
No Participant shall have any rights as a shareowner as a result of
participation in the Plan until the date of issuance of a stock certificate in
such Participant's name, and, in the case of restricted shares of Common Stock,
such rights are granted to the Participant under Subsection 10(c) hereof. To
the extent any person acquires a right to receive payments from the Company
under the Plan, such rights shall be no greater than the rights of an unsecured
creditor of the Company.
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<PAGE> 16
27. SECURITIES LAWS
With respect to Section 16 Insiders, transactions under this Plan are intended
to comply with all applicable conditions of Rule 16b-3 or its successors under
the Exchange Act. To the extent any provision of the Plan or action by the
Committee fails so to comply, it shall be deemed null and void, to the extent
permitted by law and deemed advisable by the Committee.
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<PAGE> 1
EXHIBIT 10.03
LONG-TERM PERFORMANCE SUBPLAN
OF THE 1997 OMNIBUS LONG-TERM COMPENSATION PLAN
1999-2001 PERFORMANCE PERIOD
EASTMAN CHEMICAL COMPANY
Effective January 1, 1999
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<PAGE> 2
LONG-TERM PERFORMANCE SUBPLAN
OF THE 1997 OMNIBUS LONG-TERM COMPENSATION PLAN
1999-2001 PERFORMANCE PERIOD
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION TITLE PAGE
<S> <C> <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>
44
<PAGE> 3
EASTMAN CHEMICAL COMPANY
LONG-TERM PERFORMANCE SUBPLAN
OF THE 1997 OMNIBUS LONG-TERM COMPENSATION PLAN
1999-2001 PERFORMANCE PERIOD
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 1999-2001 Performance
Period specified herein, effective as of January 1, 1999 (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, 1999.
(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, 1999 through December 31,
2001.
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<PAGE> 4
(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 shareowners'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.
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
1999, 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
1999 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
1999 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 1999 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
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<PAGE> 5
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 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.
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<PAGE> 6
SECTION 9. MANNER AND TIMING OF AWARD PAYMENTS.
(a) TIMING OF AWARD PAYMENT. Except for deferrals under Sections 9(c) and
9(d), 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) TAX WITHHOLDING. The company may withhold or require the grantee to
remit a cash amount sufficient to satisfy federal, state, and local
taxes (including the participant's FICA obligation) required by law
to be withheld. Further, either the Company or the grantee may elect
to satisfy the withholding requirement by having the Company withhold
shares of common stock having a fair market value on the date the tax
is to be determined equal to the minimum statutory total tax which
could be imposed on the transaction.
(c) 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.
(d) 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.
(e) 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(c) or 9(d), 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. 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.
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<PAGE> 7
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.
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<PAGE> 8
EXHIBIT A
EASTMAN CHEMICAL COMPANY
LONG-TERM PERFORMANCE SUBPLAN GRANT TABLE
1999-2001 CYCLE
Original on File in
Management Compensation
50
<PAGE> 9
EXHIBIT B
COMPANIES IN THE PEER GROUP
Air Products and Chemicals, Inc.
Crompton & Knowles Corporation
Cytec Industries, Inc.
Dow Chemical Company
E. I. du Pont de Nemours and Company
H. B. Fuller Company
The Geon Company
Great Lakes Chemical Corporation
M. A. Hanna Company
Hercules Chemical Corporation
Imperial Chemical Industries PLC
Lyondell Petrochemical Company
Millennium Chemicals, Inc.
Morton International, Inc.
Rohm and Haas Company
Solutia
Union Carbide Corporation
Wellman, Inc.
Witco Corporation
51
<PAGE> 10
EXHIBIT C
EASTMAN CHEMICAL COMPANY
LONG-TERM PERFORMANCE SUBPLAN
1999-2001 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>
52
<PAGE> 1
EXHIBIT 12.01
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
(Dollars in millions)
<TABLE>
<CAPTION>
SECOND QUARTER FIRST SIX MONTHS
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Earnings before income taxes $ 64 $ 149 $ 101 $ 263
Add:
Interest expense, net 28 21 54 42
Rental expense (1) 5 6 11 12
Amortization of capitalized interest 4 4 9 8
------ ------ ------ ------
Earnings as adjusted $ 101 $ 180 $ 175 $ 325
====== ====== ====== ======
Fixed charges:
Interest expense, net $ 28 $ 21 $ 54 $ 42
Rental expense (1) 5 6 11 12
Capitalized interest 4 12 9 23
------ ------ ------ ------
Total fixed charges $ 37 $ 39 $ 74 $ 77
====== ====== ====== ======
Ratio of earnings to fixed charges 2.7x 4.6x 2.4x 4.2x
====== ====== ====== ======
</TABLE>
- ----------------------
(1) For all periods presented, interest component of rental expense is
estimated to equal one-third of such expense.
53
<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, 1999 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 90
<SECURITIES> 0
<RECEIVABLES> 680<F1>
<ALLOWANCES> 0
<INVENTORY> 503
<CURRENT-ASSETS> 1,408
<PP&E> 8,644
<DEPRECIATION> 4,711
<TOTAL-ASSETS> 6,161
<CURRENT-LIABILITIES> 860
<BONDS> 2,085
0
0
<COMMON> 1
<OTHER-SE> 1,839
<TOTAL-LIABILITY-AND-EQUITY> 6,161
<SALES> 2,145
<TOTAL-REVENUES> 2,145
<CGS> 1,726
<TOTAL-COSTS> 1,726
<OTHER-EXPENSES> 252
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 54
<INCOME-PRETAX> 101
<INCOME-TAX> 33
<INCOME-CONTINUING> 68
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 68
<EPS-BASIC> .86
<EPS-DILUTED> .86
<FN>
<F1>Asset values represent net amounts.
</FN>
</TABLE>
<PAGE> 1
EXHIBIT 99.01
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
SUPPLEMENTAL BUSINESS SEGMENT INFORMATION
1999 CHANGE FROM 1998
<TABLE>
<CAPTION>
SECOND QUARTER FIRST SIX MONTHS
% CHANGE % CHANGE
SALES OPERATING SALES OPERATING
REVENUE EARNINGS (1) REVENUE EARNINGS (1)
------- ------------ ------- ------------
================================================================================================
<S> <C> <C> <C> <C>
SPECIALTY & PERFORMANCE
SEGMENT (2)% (17)% (5)% (19)%
================================================================================================
Products primarily included:
Specialty plastics (4)% -- (5)% --
Performance chemicals 5% -- (2)% --
Fine chemicals (10)% -- (13)% --
Fibers (18)% -- (13)% --
Coatings, inks & resins 17% - 7% -
================================================================================================
CORE PLASTICS SEGMENT (6)% Nm (11)% Nm
================================================================================================
Products primarily included:
Container plastics (6)% -- (11)% --
Flexible plastics (4)% ++ (10)% --
================================================================================================
CHEMICAL INTERMEDIATES
SEGMENT (6)% (51)% (10)% (44)%
================================================================================================
Products primarily included:
Industrial intermediates (6)% -- (10)% --
================================================================================================
TOTAL EASTMAN (4)% (41)% (7)% (44)%
================================================================================================
</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
54
