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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class Name of each exchange on which registered
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Common Stock, par value $0.01 per share New York Stock Exchange
(including rights to purchase shares of
Common Stock or Participating Preferred Stock)
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Securities registered pursuant to Section 12(g) of the Act: None
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EXHIBIT INDEX ON PAGE 73
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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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
The aggregate market value (based upon the closing price on the New York Stock
Exchange on January 31, 2000) of the 77,951,004 shares of voting stock held by
nonaffiliates as of December 31, 1999 was approximately $3,108,296,285, using
beneficial ownership rules adopted pursuant to Section 13 of the Securities
Exchange Act of 1934 to exclude stock that may be deemed beneficially owned as
of December 31, 1999 by directors, executive officers, or the Company's
charitable foundation, some of whom might not be held to be affiliates upon
judicial determination. At December 31, 1999, 78,248,638 shares of Common Stock
of the registrant were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement relating to the 2000
Annual Meeting of Shareowners (the "2000 Proxy Statement"), to be filed with
the Securities and Exchange Commission, are incorporated by reference in Part
III, Items 10-12 of this Annual Report on Form 10-K as indicated herein.
FORWARD-LOOKING STATEMENTS
Certain statements in this report are "forward-looking" in nature as defined in
the Private Securities Litigation Reform Act of 1995. These statements and
other forward-looking statements made by the Company from time to time relate
to such matters as planned capacity increases and capital spending; expected
tax rates and depreciation; environmental matters; the Year 2000 issue; legal
proceedings; global economic conditions; supply and demand, volume, price,
costs, margin, and sales and earnings and cash flow expectations and strategies
for individual products, businesses, and segments as well as for the whole of
Eastman Chemical Company; cost reduction targets; and development, production,
commercialization, and acceptance of new products and technologies.
These plans and expectations are based upon certain underlying assumptions,
including those mentioned within the text of the specific statements. Such
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. These plans and expectations and the assumptions
underlying them are necessarily subject to risks and uncertainties inherent in
projecting future conditions and results. Actual results could differ
materially from expectations expressed in the forward-looking statements if one
or more of the underlying assumptions and expectations proves to be inaccurate
or is unrealized. Certain important factors that could cause actual results to
differ materially from those in the forward-looking statements are included in
Part II--Item 7--"Management's Discussion and Analysis of Financial Condition
and Results of Operations".
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TABLE OF CONTENTS
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ITEM PAGE
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PART I
1. Business 4-14
Executive Officers of the Company 15-16
2. Properties 16-18
3. Legal Proceedings 18-19
4. Submission of Matters to a Vote of Security Holders 19
PART II
5. Market for the Registrant's Common Stock and Related Shareowner Matters 20
6. Selected Financial Data 21
7. Management's Discussion and Analysis of Financial Condition and Results
of Operations 22-34
7A. Quantitative and Qualitative Disclosures About Market Risk 35
8. Financial Statements and Supplementary Data 36-68
9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure 69
PART III
10. Directors and Executive Officers of the Registrant 69
11. Executive Compensation 69
12. Security Ownership of Certain Beneficial Owners and Management 69
13. Certain Relationships and Related Transactions 69
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 70
SIGNATURES
Signatures 71-72
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PART I
ITEM 1. BUSINESS
GENERAL
Eastman Chemical Company ("Eastman" or the "Company") is a global chemical
company with a broad portfolio of chemical, plastic, and fiber products. The
Company manufactures and sells chemicals and specialty polymers supplied to the
inks, coatings, adhesives, sealants, and textile industries; fine chemicals;
performance chemicals and intermediates; specialty plastics; polyester plastics
such as polyethylene terephthalate ("PET") sold under the trademark EASTAPAK
polymers; and fibers. The Company believes it has a competitive advantage in
several product areas due to its high level of manufacturing integration, the
use of state of the art process technologies, and its operating efficiencies due
to its large-scale plants. In 1999, the Company had sales of $4.59 billion,
operating earnings of $202 million, net earnings of $48 million, and diluted
earnings per share of $0.61.
The Company began business in 1920 for the purpose of producing photographic
chemicals. Today, the Company is a major chemical producer and leader in the
application of several manufacturing technologies, and in 1999 became an
industry leader in the area of e-commerce by being the first chemical company
to offer e-commerce capability to its customers in the United States and
Canada. The Company pioneered the application of coal gasification technology
for the production of chemicals (also referred to as "chemicals from coal
technology") and currently operates one of the largest coal gasification
facilities in the United States. The Company is also a leader in the
manufacture of oxo chemicals that are used in the production of numerous
coatings and resin intermediates, the manufacture of fine chemicals used in
photographic and other custom chemicals, and the application of advanced
environmental waste management practices for chemical manufacturing operations.
The Company is a world leader in production and recycling of a wide variety of
polyester plastics, including PET and other flexible packaging materials.
Recently, the Company reorganized its management structure into two major
business groups--chemicals and polymers--to enhance customer focus,
accountability and efficiency. The businesses, products, management, operations,
and reporting of financial and other matters of the Company are transitioning to
support the new organization. Effective with the first quarter 2000, two
operating segments--the Chemicals segment and the Polymers segment--will be
reported, reflecting the restructured management and internal financial
reporting of the Company. At that time, prior periods will be restated to
conform to the new segment structure. The Chemicals segment will include fine
chemicals; performance chemicals and intermediates; and chemicals and specialty
polymers supplied to the inks, coatings, adhesives, sealants, and textile
industries. The Polymers segment will include container plastics, specialty
plastics and fiber products. Through 1999, the Company managed its operations in
three segments--Specialty and Performance, Core Plastics, and Chemical
Intermediates--as discussed below.
The Specialty and Performance segment includes plastic, chemical, and fiber
products that are primarily sold to customers that base their buying decisions
principally on a product's performance attributes. The Core Plastics segment
includes the Company's major plastic product, EASTAPAK polymers for packaging
applications, as well as TENITE polyethylene for general purpose films. Core
Plastics products are produced in integrated manufacturing facilities and
compete based on price. The Chemical Intermediates segment contains industrial
intermediate chemical products that are sold to customers operating in mature
markets in which multiple sources of supply exist.
The Company has the capability to produce a wide range of products within its
manufacturing plant capacities and to change product mix depending on customer
demand and the Company's strategy. Eastman manages its diverse product portfolio
with a bias towards products that can contribute to stable earnings growth and,
over the chemical industry cycle, return the cost of capital in trough periods
and at least 5% above the cost of capital in peak periods. Executive management
continuously examines the Company's portfolio of products for potential
operational improvement and cost control opportunities. The Company's short-term
emphasis is directed to increasing earnings and growing its coatings, adhesives
and specialty polymers and specialty plastics product lines. In addition,
Eastman plans to remain at the leading edge within the chemical industry in
developing electronic business customer solutions.
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The following table summarizes the Company's recent financial performance and
identifiable assets by operating segment and geographic area:
SEGMENT FINANCIAL SUMMARY
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(Dollars in millions) 1999 1998 1997
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SALES
Specialty and Performance $ 2,850 $ 2,736 $ 2,878
Core Plastics 1,067 1,071 1,067
Chemical Intermediates 673 674 733
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Consolidated Eastman total $ 4,590 $ 4,481 $ 4,678
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OPERATING EARNINGS (LOSS) (1)
Specialty and Performance $ 275 $ 357 $ 452
Core Plastics (118) (40) (92)
Chemical Intermediates 45 117 146
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Consolidated Eastman total $ 202 $ 434 $ 506
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ASSETS
Specialty and Performance $ 4,101 $ 3,395 $ 3,382
Core Plastics 1,614 1,822 1,775
Chemical Intermediates 588 633 621
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Consolidated Eastman total $ 6,303 $ 5,850 $ 5,778
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(1) Operating earnings for 1999 include the effect of a charge for
employee separations; a charge for the write-off of in-process
research and development related to the acquisition of Lawter
International, Inc. ("Lawter"); charges related to certain
discontinued capital projects, underperforming assets, and phase-out
of operations at certain sites; and other items; partially offset by a
gain recognized on the reimbursement of previously expensed pension
costs and a gain on pension settlement. These nonrecurring items are
reflected in segments as follows: Specialty and Performance, $77
million; Core Plastics, $33 million; and Chemical Intermediates, $7
million.
Operating earnings for 1998 include the effect of charges related to a
fine for violation of the Sherman Act; charges related to certain
underperforming assets and discontinued capital projects; the impact
of a power outage at the Kingsport, Tennessee, manufacturing site; and
other items. These nonrecurring items are reflected in segments as
follows: Specialty and Performance, $49 million; Core Plastics, $1
million; and Chemical Intermediates, $1 million.
Operating earnings for 1997 include a charge resulting from the
partial settlement and curtailment of pension and other postemployment
benefit liabilities resulting from a large number of employee
retirements. This charge is reflected in segments as follows:
Specialty and Performance, $38 million; Core Plastics, $14 million;
and Chemical Intermediates, $10 million.
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(Dollars in millions) 1999 1998 1997
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GEOGRAPHIC INFORMATION
REVENUES
United States $ 2,662 $ 2,764 $ 2,875
All foreign countries 1,928 1,717 1,803
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Total $ 4,590 $ 4,481 $ 4,678
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(Dollars in millions) 1999 1998 1997
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LONG-LIVED ASSETS, NET
United States $ 3,036 $ 3,088 $ 3,117
All foreign countries 914 946 764
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Total $ 3,950 $ 4,034 $ 3,881
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Revenues are attributed to countries based on customer location. No individual
foreign country is material with respect to revenues or long-lived assets.
BUSINESS STRATEGY
Eastman is a highly integrated, international supplier of a diversified
portfolio of chemicals, plastics, and fibers whose near-term business strategy
is to improve profitability and increase shareowner value. Specifically, the
Company's corporate strategy involves operational improvement in its current
businesses and assets through aggressive cost control measures and a long-term
strategy to transform the Company's portfolio of products and services to align
with customer requirements. The Company's strategic intent is "To Be The World's
Preferred Chemical Company." The following are the key elements the Company
employs to achieve this strategy:
Proprietary Products and Core Competencies
The Company has developed its broad chemical product line through the
application of three major areas of technical strength referred to by the
Company as technology core competencies: organic chemistry technology, polymer
technology, and cellulose technology. The organic chemistry core competency
includes coal gasification for chemicals, oxo chemistry and complex organic
chemistry technologies, and forms the basis of the Company's fine chemical and
intermediate chemical product lines. The polymer core competency includes
polyester, polyolefin, and other polymer technologies, and forms the technical
basis of the Company's polyester and polyethylene product lines. The cellulose
core competency includes cellulose conversion to acetate fibers and plastic
manufacturing technologies, and forms the basis of the Company's acetate fibers
and cellulose plastic product lines. The Company has developed or acquired
proprietary technologies and know-how with respect to each of these core
competencies. The Company's ongoing product development strategy is to build on
existing technology core competencies and develop new technology core
competencies.
Manufacturing Integration and Scale
The Company's strategy is to continue to use integration of its manufacturing
plants to develop a competitive advantage, while exploring innovative ways to
reduce capital intensity. This integration provides the Company with cost
efficient and flexible manufacturing operations. The Company's major
manufacturing plants are highly integrated. Intermediate chemicals produced at
one plant are frequently distributed between plants to produce other chemicals
and plastics. Starting with a limited number of basic raw materials, primarily
paraxylene, ethylene glycol, purified terephthalic acid ("PTA"), ethane and
propane, cellulose, methanol, coal and other basic chemicals, the Company uses
its integrated manufacturing capabilities to produce more than 400 major
products. Through its development of highly integrated manufacturing, Eastman
has the capability to safely and efficiently operate large-scale chemical
plants, including one of the world's largest integrated chemical plants in
Kingsport, Tennessee. The Company's development efforts include the continual
improvement of these operations to achieve capacity increases and other
earnings enhancement projects with relatively low capital expenditures.
E-business
A major initiative is Eastman's intent to be a leading e-business company in the
chemical industry. The Company believes e-commerce technology is fundamentally
changing the way business is done in the chemical industry
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and has been at the forefront leading the chemical and plastics industry into
the digital age. Aggressively pursuing this technology, the Company is focused
on ensuring the readiness of its internal systems and infrastructure to be able
to meet and exceed customer expectations for products and services in an
e-business environment.
In 1999, the Company added E-business capability to its World Wide Website,
EASTMAN.COM to give customers convenient access to the information they
require, from ordering online to accessing account status and product and
technical data, 24 hours a day, seven days a week. Additionally, the Company
successfully implemented the use of auction technology to sell products through
online auctions, and established relationships with Dell Computer Corporation
and UUNET, an MCI/WorldCom company, to create a Customer Enabling Program that
makes it easier for customers in the United States to engage in electronic
commerce.
Consistent with the Company's intent to be a leader in electronic commerce,
Eastman has invested in various Internet-based businesses such as ChemConnect,
a company that enables online trading of chemicals and plastics, and
webMethods, Inc., a company that provides a platform which enables companies to
pursue direct integration with trading partners.
Quality Management
The Company's goal is to be the leader in quality and value of products and
services, by focusing on customers, process control, continual improvement, and
innovation. The Company's highly integrated manufacturing operations support
the Company's total quality policy by providing internal control of
intermediate raw material processes. The Company has 15 quality system
registrations to the international quality standard, ISO 9000. Ten of these are
in the United States, two are in the United Kingdom, and one each are in Spain,
Mexico, and Argentina. Approximately 75% of 1999 sales were from products
manufactured in ISO 9000 registered quality systems.
Expansion in International Markets
Approximately 48% of the Company's customers representing 42% of the Company's
sales were outside the United States in 1999. On a long-term basis, the
Company's goal is to be positioned with resources and assets in strategic global
markets to respond to customer requirements. To serve the Company's growing
global customer base, operations outside the United States include a polyester
solid stating facility in Toronto, Canada; and manufacturing facilities for
EASTAPAK polymers in Zarate, Argentina, Cosoleacaque, Veracruz, Mexico,
Rotterdam, The Netherlands, San Roque, Spain and Workington, England; and
facilities in the United Kingdom and Hong Kong for the manufacture of fine
chemicals. In addition, the Company has facilities in Hartlepool, England and
Kuantan, Malaysia for the manufacture of specialty plastics products, including
SPECTAR copolymer used in sheet, molded, and extruded applications. The
Workington site also produces acetate tow. In 1999, a new oxo chemicals
manufacturing complex in Singapore was completed.
International growth has also been achieved through acquisitions. In 1999, the
acquisition of Lawter--a worldwide leader in the development, production and
marketing of specialty products for inks and coatings markets--added
manufacturing facilities in Dazhou, Fujian and Tanggu, People's Republic of
China; Singapore; Kallo, Belgium; Rexdale, Canada and Waterford, Ireland.
Included in the 1998 acquisition of Ernst Jager Fabrik Chemischer Rohstoffe and
its affiliates ("Jager")--a German manufacturer of specialty polymers--were
manufacturing facilities in Hamburg and Dusseldorf, Germany.
The Company's current and future business expansions in international markets
are dependent on projected economic conditions. Generally, the Company uses its
international marketing organizations to sell into international markets. After
achieving sufficient sales levels and developing an understanding of the
markets and earnings potential, the Company may invest in manufacturing
capacity appropriate to serve the region, taking into account the projected
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future business conditions in the region. See Part II--Item 7--"Management's
Discussion and Analysis of Financial Condition and Results of Operations-Results
of Operations--Summary by Customer Location" for a discussion of certain risks
to which the Company is subject as a result of its operating in international
markets.
Employee Ownership and Incentives
The Company believes that fostering employee stock ownership and providing
appropriate incentives will significantly influence achievement of its goal of
consistent, profitable growth. One program the Company uses to foster employee
ownership and to provide incentives for achieving Company objectives is its
sponsorship of the Eastman Investment and Employee Stock Ownership Plan
("EIP/ESOP"), a defined contribution employee stock ownership plan qualified
under Section 401(a) of the Internal Revenue Code. For the past five years,
approximately 5% of eligible employees' annual pay has been made to their
individual accounts in the form of a contribution by the Company of Eastman
common stock to the ESOP. The Company anticipates that it will continue to make
contributions for substantially all U. S. employees to either the ESOP or, for
employees who have received five or more ESOP contributions, to the Eastman
Stock Fund within the EIP. Additionally, to align further the interests of the
Company's directors and approximately 570 key managers with its shareowners,
stock ownership expectations have also been established.
The Eastman Performance Plan (the "EPP") places a portion of each employee's
annual compensation at risk and provides an annual lump-sum payment to plan
participants, only if the Company's financial performance meets pre-established
levels. An additional portion of management compensation is placed at risk and
tied to Company performance under the Eastman Annual Performance Plan and,
beginning in 2000, to organizational unit and individual performance under the
Eastman Unit Performance Plan. For further information concerning the Company's
EIP/ESOP and incentive pay plans, see Part II--Item 8--"Financial Statements and
Supplementary Data"--Note 10 to Consolidated Financial Statements and Part
III--Item 11--"Executive Compensation."
OPERATING SEGMENTS
Recently, the Company reorganized its management structure into two major
business groups--chemicals and polymers--to enhance customer focus,
accountability and efficiency. The businesses, products, management,
operations, and reporting of financial and other matters of the Company are
transitioning to support the new organization. Effective with first quarter
2000, two operating segments--the Chemicals segment and the Polymers
segment--will be reported, reflecting the restructured management and internal
financial reporting of the Company. At that time, prior periods will be
restated to conform to the new segment structure. The Chemicals segment will
include fine chemicals; performance chemicals and intermediates; and chemicals
and specialty polymers supplied to the inks, coatings, adhesives, sealants, and
textile industries. The Polymers segment will include container plastics,
specialty plastics and fiber products. Through 1999, the Company managed its
operations in three segments--Specialty and Performance, Core Plastics, and
Chemical Intermediates--as discussed below.
SPECIALTY AND PERFORMANCE SEGMENT
Specialty plastics are produced by the Company for value-added end uses, such
as toothbrushes, eyeglass frames, medical devices, electrical connectors,
tools, appliance housings, food and medical packaging, heavy gauge sheeting,
fabricated boxes, specialty packaging, films, extrusion coating, fibers, tape,
industrial strapping, and injection molding. The plastics supplied for these
end uses include polyesters, copolyesters, cellulosics, polyethylene, and
alloys of two or more plastics combined to provide specific performance
characteristics. The Company's strategy for these products is to identify and
serve selected niche markets that offer the potential for
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attractive returns. The Company's strong core competency in cellulose esters,
polyesters/copolyesters, and polyethylene allows it to offer a wide range of
differentiated high performance polymers in selected markets.
SPECTAR copolyester is the Company's fastest growing specialty plastic. Heavy
gauge sheet made of SPECTAR is used in supermarket bins, greeting card and
jewelry displays, indoor and outdoor signs, and vending machine fronts. Volume
growth has also been strong for the recently introduced EASTMAN HIFOR and MXSTEN
specialty polyethylene products. The Company believes it has a competitive
advantage due to product performance, reliability of supply, product
differentiation, integrated manufacturing capabilities, and customer service.
Specialty plastics accounted for approximately 29% of 1999 Specialty and
Performance segment sales.
The Company is one of the world's largest suppliers of cellulose acetate tow, a
product developed by the Company in the 1950's that is used by customers
primarily in the manufacture of cigarette filters. With approximately 400
million pounds of annual capacity at its plants in Kingsport, Tennessee, and
Workington, England, the Company accounts for approximately 28% of the annual
worldwide production of acetate tow, and sells to all major cigarette producers
throughout the world. The two primary raw materials used to manufacture acetate
tow are cellulose (from wood pulp) and acetic anhydride. The Company has
developed the world's only commercial coal gasification facility to produce
acetic anhydride. This facility reduces the Company's dependency on
petrochemicals otherwise required for the manufacture of acetate tow.
Competition for sales of acetate tow is based on price, product quality, and
reliability of supply. The Company believes that it enjoys a low-cost position
for raw materials as a result of its coal gasification technology, efficient
integrated manufacturing processes, and overall size.
Consumption of acetate tow is directly related to the production of filtered
cigarettes. During the period 1989-1996 worldwide acetate tow demand increased.
However, worldwide demand declined over the period 1997-1999, primarily due to
reduced demand in China and the United States. Industry capacity utilization
has decreased because of this lower demand and completion of new acetate tow
capacity in China. The supply/demand imbalance has led to lower operating
earnings for the acetate tow industry and for the Company. Over the next five
years, growth in worldwide demand for acetate tow is expected to be extremely
limited. Because of declining demand and industry overcapacity, the Company is
exploring alternatives for reducing its exposure to this product line.
Acetate yarn is produced by the Company for the textile industry. Product
price, quality, and service are the primary factors influencing
customer-purchasing decisions. This product line utilizes the Company's basic
cellulose technology core competence along with its large cellulose acetate
manufacturing position to compete effectively. The market for acetate yarn has
experienced essentially no growth during recent years, and declined in 1999 and
1998. The Company has focused its efforts on improving its operating
efficiencies to maintain its product quality and cost position. Fibers,
including acetate tow and acetate yarn, accounted for approximately 21% of 1999
Specialty and Performance segment sales.
The Company supplies a wide variety of raw materials and intermediate products
to the coatings, inks, and resins markets, including solvents, alcohols,
glycols, and resins. Although the majority of the Company's coatings, inks, and
resins products are produced and sold in the United States, new manufacturing
plants recently completed outside North America and the acquisition of Lawter
account for a growing share of this business. Most of the products in this area
are ingredients used in water- and solvent-based polymer coating systems.
Products include mixed cellulose esters, of which the Company is the world's
largest manufacturer, solvents and plasticizers. Competitive suppliers of
products into the coatings, inks, and resins markets compete based on
performance, breadth of product line, price, reliability of supply, and customer
service. The Company believes it has a competitive advantage due to its
technical knowledge, the efficiency of its proprietary oxo chemistry technology
and chemicals-from-coal technology, the breadth of its product line, and its
system of distribution. Coatings, inks and resins accounted for approximately
27% of 1999 Specialty and Performance segment sales.
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Fine chemicals produced by Eastman are used in the manufacture of a wide
variety of products such as photographic products, home care products,
agrocultural chemicals, and ethical pharmaceuticals. Many of these are custom
chemicals manufactured to precise customer specifications. Technical competence
and efficiency are major competitive elements in the fine chemicals industry.
The Company believes it has a competitive advantage because of its competency
in complex multi-step organic chemistry and the breadth of services, such as
regulatory compliance and process design and optimization, offered in custom
manufacturing from a global manufacturing base. The Company's current strategy
for fine chemicals is two-fold: (1) to improve pricing and to right-size
capacity for photographic chemicals and (2) to grow the pharmaceutical and
agrochemicals product lines. Fine chemicals accounted for approximately 12% of
1999 Specialty and Performance segment sales.
Eastman produces a variety of additives for fibers and plastics, raw materials
for adhesives and sealants, food and beverage ingredients, and other
performance products. Fiber and plastic additives are used to impart
specialized processing and performance characteristics to polymers used in the
production of a range of fibers and plastics products. The Company produces raw
materials for adhesives that are used in hot-melt and pressure-sensitive
applications. Eastman is a manufacturer of food-grade antioxidants that are
used to enhance the stability and extend the shelf life of many products
containing oils and fats. The Company also manufactures many other performance
products for use in nutrition, cosmetic, textile, and construction applications.
The Company believes it has a competitive advantage in many of the markets in
which these performance products are sold. Many proprietary products with
highly recognized trade names deliver to customers high quality and unique
performance attributes. Competitors and competitive conditions vary depending
on the market. Performance chemicals accounted for approximately 11% of 1999
Specialty and Performance segment sales.
CORE PLASTICS SEGMENT
The Company is the world's leading supplier of polyester plastics, including
EASTAPAK polymers, for packaging applications, with the majority of its sales
concentrated in North America, Europe, and Latin America. The market for
polyester plastics has grown significantly in recent years due to the
substitution of these plastics for other packaging materials used in soft drink,
food, and water containers. Industry estimates indicate that PET consumption
grew worldwide from 2.3 billion pounds per year in 1989 to approximately 12.4
billion pounds per year in 1999. Overcapacity worldwide continues to pressure
PET selling prices; however, continued high growth rates have improved the
supply/demand balance.
Competition for the large volume PET market is based largely on price and
service. Management believes that the Company's large-scale operations,
vertical integration, and manufacturing expertise provide it with a competitive
advantage by allowing the Company to position itself as a price-competitive,
consistently reliable source of supply across a broad product line. In
addition, the Company has developed proprietary polyester polymers that enable
it to respond to specific customer design and performance requirements. The
Company's current strategy is to maximize cash from this product line while
looking for opportunities to reduce the impact of PET on the Company as a
whole. Container plastics accounted for approximately 82% of 1999 Core Plastics
segment sales.
The Company manufactures low density polyethylene and linear low density
polyethylene polymers for general purpose film applications. The markets for
these polyethylene products are characterized generally as large volume with a
large number of customers and suppliers. The Company competes based on its
integrated manufacturing capabilities. Most of the Company's competitors are
larger. The Company's current strategy is to maximize the value of this product
line to enhance future opportunities. Flexible plastics accounted for
approximately 18% of 1999 Core Plastics segment sales.
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CHEMICAL INTERMEDIATES SEGMENT
Industrial intermediate chemicals are produced based on the Company's oxo
chemistry technology and chemicals-from-coal technology. These products include
oxo chemicals, basic acetyl, and plasticizers, and are marketed to customers
producing esters, polymers, industrial additives, agricultural chemicals,
industrial intermediates, monomers and polymers, medical delivery equipment,
and pharmaceuticals. In 1999, approximately 73% of these products were sold in
the United States. Volume growth rates of these chemicals tend to follow the
growth in the world economy.
Competition in the market for industrial intermediate chemicals is based on
price, customer relationships, and reliability of supply. The Company's
large-scale integrated manufacturing provides the Company with a low-cost
position in several of these products. In addition, the Company is able to
provide its customers with a reliable source of supply through an extensive
distribution network.
RAW MATERIALS
The Company purchases a substantial portion of its key raw materials under
long-term contracts, generally of three to five years initial duration with
renewal provisions. Most of those agreements do not require the Company to buy
materials if its operations are shut down. The cost of raw materials is
generally based on market price, although risk management tools may be utilized,
as appropriate, to mitigate short-term market price fluctuations. Key raw
materials purchased include paraxylene, ethylene glycol, PTA, propane and
ethane, cellulose, methanol, and coal. The Company has multiple suppliers for
most key raw materials and uses quality management principles, such as the
establishment of long-term relationships with suppliers and ongoing performance
assessment and benchmarking, as part of the total supplier selection process.
CAPITAL EXPENDITURES
Several significant projects in the Company's major capital investment program
have been completed, primarily in 1998, resulting in reduced capital
expenditures in 1999. Capital expenditures for 1999 declined to $292 million,
down significantly from the $500 million and $749 million spent in 1998 and
1997, respectively. In 2000, the Company estimates that capital expenditures
will be approximately $250-270 million. Efficiency of capital utilization is a
key initiative of the Company and, where appropriate, the Company uses
alliances and joint ventures to provide additional capital expansion.
ACQUISITIONS AND INVESTMENTS
In February 1999, Eastman purchased for cash a North American textile chemicals
business. This acquisition has not had a material effect on financial position
or results of operations of the Company.
In June 1999, the Company completed its acquisition of Lawter. Lawter develops,
produces and markets specialty products for the inks and coatings market. The
acquisition of Lawter contributed approximately 2% to Company volume and
revenues for 1999.
DISPOSITIONS
The Company sold its HQEE-Hydroquinone Di (Beta-hydroxyethyl) Ether specialty
chemicals assets in 1999. The effect of this divestiture on future results of
operations will not be material.
EMPLOYEES
The Company employs approximately 15,000 men and women worldwide. Approximately
4% of the total worldwide labor force (and a minimal number in the United
States) is represented by labor unions.
11
<PAGE> 12
CUSTOMERS
Eastman has an extensive customer base and, while it is not dependent on any
one customer or group of customers, loss of certain top customers could
adversely affect the Company until such business is replaced. The Company has
approximately 6,300 customers worldwide and the top 100 customers account for
approximately 60% of the Company's business.
The Company has received numerous preferred-supplier awards and is the sole
supplier to several major customers. The Company strives to be the preferred
supplier to customers in the markets it serves.
COMPETITION
The Company's competitive environment varies among markets. Some of the
Company's competitors are larger in size and capital base than the Company.
Major competitors of the Company for its key products are summarized as
follows:
<TABLE>
<CAPTION>
KEY PRODUCTS MAJOR COMPETITORS
- ------------------------------- ---------------------------------------------------------------------------
<S> <C>
Specialty plastics Akzo Nobel, AtoHaas, BASF, Bayer, Chevron, Dow, DuPont, Equistar,
Exxon, GE, Geon, ICI, KoSa, Mobil, Phillips, Shell, Union Carbide
Fibers Acordis, Celanese Acetate LLC, Daicel, Mitsubishi, Rhodia, Teijin
Coatings, inks, and resins BASF, Celanese, Exxon, International Paper Co., S. C. Johnson, Lonza,
Oxychem, Shell, Union Carbide
Fine chemicals Cambrex, DSM, LaPorte, Lonza
Performance chemicals AlliedSignal, ARCO, Bayer, Clariant, Daicel, Dow, Exxon, Hercules,
Huntsman, Nutrinova, Rhodia
Container plastics KoSa, Nan Ya, Shell, Wellman
Flexible plastics Chevron, Dow, Equistar, Exxon, Mobil, Shell, Union Carbide
Industrial intermediates BASF, BP Amoco, Celanese Ltd., Dow, Exxon, Rhodia, Union Carbide
</TABLE>
RESEARCH AND DEVELOPMENT
The Company directs its research and development programs toward four
objectives: 1) continually improving product quality by improvement in
manufacturing technology and processes; 2) lowering manufacturing costs through
process improvement; 3) conducting exploratory research to develop new product
lines and markets; and 4) developing new products and processes that are
compatible with the Company's commitment to RESPONSIBLE CARE(R) (see
"Environmental" section).
Major achievements in research and development during the last several years
include enhancements of the oxo chemistry technology, development of new
copolyesters for specific market applications, and improved intermediates and
polyester manufacturing technology. The Company has developed wastewater
treatment technology and technology to improve PET recycling. Eastman has also
developed technology that provides a faster, lower-cost route to production
12
<PAGE> 13
of EpB oxirane, an intermediate used in other chemical products. In addition,
the Company has commercialized a group of new, higher-value polyolefins with
increased tear strength and impact performance--MXSTEN and EASTMAN HIFOR.
The Company's research and development expenditures during the past five years
have averaged approximately 4% of sales annually, with 1999, 1998, and 1997
expenditures totaling $187 million, $185 million, and $191 million,
respectively. Expenditures for 2000 are expected to be lower than in 1999.
PATENTS AND TRADEMARKS
The Company owns or licenses a large number of U.S. and non-U.S. patents that
relate to a wide variety of products and processes. Company patents expire at
various times during the next several years. The Company also owns or licenses
trademarks in the U.S. and in foreign countries on major products. While these
patents, licenses, and trademarks are considered important, the Company does
not consider its business as a whole to be materially dependent upon any one
particular patent, patent license, or trademark.
SEASONALITY
Seasonality is not a significant factor for the Company, although the Specialty
and Performance segment experiences some seasonal effects during the winter
months because of reduced demand for paint products, and the Core Plastics
segment experiences the effects of reduced demand for soft-drink containers
during the first and third quarters.
MARKETING AND DISTRIBUTION
The Company markets products through a worldwide sales organization with over
60 sales offices in the United States and in 38 other countries. A majority of
sales are direct; however, some sales are made through indirect selling
channels. Products are shipped to customers directly from the Company's plants
as well as from distribution centers, with the method of shipment generally
determined by the customer.
Eastman has seen the opportunities afforded by e-commerce and in 1999 became an
industry leader by being the first chemical company to offer e-commerce
capability to its customers in the United States and Canada. Through its World
Wide Web site, EASTMAN.COM customers have convenient access to the information
they require, from ordering online to accessing account status and product and
technical data, 24 hours a day, seven days a week. The Company also
successfully implemented the use of auction technology to sell products through
online auctions.
Products are shipped to customers directly from the Company's plants as well as
from distribution centers, with the method of shipment generally determined by
the customer. The Company plans to outsource its logistics operations in 2000
to ShipChem.com, a newly formed Internet-based global logistics provider for
the chemical industry, resulting in greater efficiency in the management of
transportation activities and improved customer service.
ENVIRONMENTAL
The Company is actively engaged in the ongoing development and enhancement of
products that are environmentally responsible, such as waterborne products and
recyclable plastics. In addition, the Company is an active participant in
RESPONSIBLE CARE(R), a chemical industry initiative that focuses on improving
performance in areas including community awareness and emergency response,
pollution prevention, process safety, distribution, employee health and safety,
and product stewardship.
13
<PAGE> 14
Health, safety, and environmental considerations are a priority in the
Company's planning for all existing and new products and processes. The Health,
Safety & Environmental and Public Policy Committee of Eastman's Board of
Directors reviews the Company's policies and practices concerning health,
safety, and the environment, and its processes for complying with related laws
and regulations, and monitors significant related matters. The Company's policy
is to operate its plants and facilities in a manner that protects the
environment and the health and safety of its employees and the public. The
Company has made and intends to continue to make expenditures for environmental
protection and improvement in a timely manner consistent with the foregoing
policies and with the technology available. In some cases, applicable
environmental regulations, such as those adopted under the federal Clean Air
Act and the Resource Conservation and Recovery Act, and related actions of
regulatory agencies, determine the timing and amount of environmental costs
incurred by the Company.
The Company's commitment to environmental stewardship has earned favorable
recognition for the corporation as well as individual manufacturing sites.
Eastman has won awards for its energy efficiency efforts each year since the
Chemical Manufacturers Association ("CMA") began its Energy Efficiency Award
Program in 1994. In 1999, the Company's U.S. plants received a total of eight
Energy Efficiency Awards, and in 1998, three of the Company's U.S. plants
received a total of five awards. Awards have also been received in a variety of
other areas, including certification of Arkansas Operations as a Wildlife
Habitat by the National Wildlife Federation, and to Tennessee Operations, the
Nature Conservancy of Tennessee Conservation Leadership Award. In 1998, the
Company was the recipient of the Chemical Education Foundation's Vanguard Award,
which recognizes outstanding chemical product stewardship practices within the
industry. Additionally, Eastman received CSX Transportation's 1998 Chemical
Safety Excellence Award and Norfolk Southern's 1998 Thoroughbred Safety Award.
Certain of the Company's manufacturing sites generate hazardous and
nonhazardous wastes, the treatment, storage, transportation, and disposal of
which are regulated by various governmental agencies. In connection with the
cleanup of various hazardous waste sites, the Company, along with many other
entities, has been designated a potentially responsible party ("PRP") by the
U.S. Environmental Protection Agency under the Comprehensive Environmental
Response, Compensation and Liability Act, which potentially subjects PRPs to
joint and several liability for such cleanup costs. In addition, the Company
will be required to incur closure/postclosure costs relating to environmental
remediation pursuant to the federal Resource Conservation and Recovery Act.
Because of expected sharing of costs, the availability of legal defenses, and
the Company's preliminary assessment of actions that may be required, the
Company does not believe its liability for these environmental matters,
individually or in the aggregate, will be material to Eastman's consolidated
financial position, results of operations, or competitive position. The
Company's policy is to record such liabilities when loss amounts are probable
and can be reasonably estimated.
The Company's environmental protection and improvement cash expenditures were
approximately $220 million, $190 million, and $220 million in 1999, 1998, and
1997, respectively, including investments in construction, operations, and
development. The Company does not expect future environmental capital
expenditures arising from requirements of recently promulgated environmental
laws and regulations to materially increase the Company's planned level of
capital expenditures for environmental control facilities.
BACKLOG
During 1999, the Company's backlog of firm orders averaged between $150 million
and $300 million, representing approximately two to four weeks' sales. The
Company adjusts its inventory policy to control the backlog of products
dependent on customers' needs. In areas where the Company is the single source
of supply, or competitive forces or customers' needs dictate, the Company may
carry additional inventory to reduce backlog. Backlog is also affected by
utilization of a given product manufacturing capacity.
14
<PAGE> 15
EXECUTIVE OFFICERS OF THE COMPANY
Certain information about the Company's executive officers is provided below:
Earnest W. Deavenport, Jr., age 61, is Chairman of the Board and Chief Executive
Officer of the Company. He joined the Company in 1960. Mr. Deavenport was named
President of the Company in 1989 and also served as Group Vice President of
Eastman Kodak Company ("Kodak") from 1989 through 1993, when the Company became
an independent business upon the spin-off by Kodak of its chemical business.
J. Brian Ferguson, age 45, is President, Polymers Group of the Company. Mr.
Ferguson joined the Company in 1977. He was named Vice President, Industry and
Federal Affairs in 1994, became Managing Director, Greater China in 1997, and
was named President, Eastman Chemicals Asia Pacific in 1998. He assumed his
current position in 1999.
Allan R. Rothwell, age 52, is President, Chemicals Group of the Company. Mr.
Rothwell joined the Company in 1969, became Vice President and General Manager,
Container Plastics Business Organization in 1994, and was appointed Vice
President, Corporate Development and Strategy in 1997. He was named Senior Vice
President and Chief Financial Officer in 1998 and assumed his current position
in 1999.
Dr. James L. Chitwood, age 56, is Senior Vice President, Corporate Strategy and
Chief Technology Officer of the Company. Dr. Chitwood joined the Company in
1968, was named Senior Vice President of the Company in 1989, Group Vice
President, Specialty Business Group in 1991, Senior Vice President with
responsibility for Company business organizations in 1994, and from 1996 to 1999
was Senior Vice President with responsibility for operations outside North
America. He also served as Vice President of Kodak from 1984 through 1993.
James P. Rogers, age 48, joined the Company in 1999 as Senior Vice President
and Chief Financial Officer. Mr. Rogers served previously as Executive Vice
President and Chief Financial Officer of GAF Materials Corporation. He also
served as Executive Vice President, Finance, of International Specialty
Products, Inc., which was spun off from GAF in 1997.
Betty W. DeVinney, age 55, is Vice President, Communications and Public Affairs
of the Company. Mrs. DeVinney joined the Company in 1973. She became Manager,
Employment in 1991, Manager, Community Relations in 1995 and Manager, Corporate
Relations in 1997. She assumed her current position in 1998.
Theresa K. Lee, age 47, became Vice President, General Counsel and Secretary of
the Company effective January 1, 2000, upon the assumption by Harold L.
Henderson, formerly Senior Vice President and General Counsel, of responsibility
for coordinating special initiatives under the direction of the Chief Executive
Officer. Ms. Lee joined the Company as a staff attorney in 1987, served as
Assistant General Counsel for the health, safety and environmental legal staff
from 1993 to 1995, and served as Assistant General Counsel for the corporate
legal staff from 1995, until her appointment as Vice President, Associate
General Counsel and Secretary in 1997.
Roger K. Mowen, Jr., age 54, is Vice President, CustomerFirst and Chief
Information Officer of the Company. Mr. Mowen joined the Company in 1971. He
was named Vice President and General Manager, Polymer Modifiers in 1991,
Superintendent of the Polymers Division in 1994, and President, Carolina
Operations in 1996. In 1998 he was named Vice President, Customer Demand
Chain and assumed his current position in 1999.
B. Fielding Rolston, age 58, is Vice President, Human Resources and Quality.
Mr. Rolston joined the Company in 1964, was appointed Vice President, Customer
Service and Materials Management of the Company in 1987, and Vice President,
Human Resources and Health, Safety, Environment, and Security in 1998. He
assumed his current position in 1999.
Garland S. Williamson, age 55, is Vice President, Worldwide Operations, and
Chief Health, Safety and Environmental Officer of the Company. Mr. Williamson
joined the Company in 1967. He was named Vice President, Asia Pacific
Manufacturing in 1992, and was appointed President, Texas Operations in
1996. He assumed his current position in 1998.
15
<PAGE> 16
Mark W. Joslin, age 40, became Vice President and Controller of the Company
effective March 1, 2000, upon the retirement of Patrick R. Kinsey, formerly
Vice President and Controller. Mr. Joslin joined the Company in 1999 as Vice
President, Finance. Mr. Joslin previously served as Chief Financial Officer,
Treasurer and Secretary of Lawter International, Inc. Prior to joining Lawter
in 1996, he was employed by Arthur Andersen LLP, Baxter International, and
ANGUS Chemical.
ITEM 2. PROPERTIES
PROPERTIES
A summary of the Company's principal manufacturing sites and the operating
segment(s) for which products are produced at each site is shown in the table
below. Eastman's plants generally are well maintained, are in good operating
condition, and are suitable and adequate for their use. Utilization of these
facilities may vary with product mix and economic, seasonal, and other business
conditions, but none of the principal plants are substantially idle.
The Company's plants, including approved expansions, generally have sufficient
capacity for existing needs and expected near-term growth.
<TABLE>
<CAPTION>
LOCATION UNIT SEGMENT
- ------------------------------------------------ ------------------------------------------ -----------------------------
<S> <C> <C>
Batesville, Arkansas Arkansas Operations Specialty and Performance
Chemical Intermediates
Columbia, South Carolina Carolina Operations Specialty and Performance
Core Plastics
Cosoleacaque, Mexico Eastman Chemical Industrial de Mexico Specialty and Performance
Core Plastics
Dazhou, Fujian, People's Republic of China Lawter International Fujian Nanping Specialty and Performance
Limited
Dusseldorf, Germany Ernst Jager Fabrik Chemischer Rohstoffe Specialty and Performance
Hamburg, Germany Ernst Jager Fabrik Chemischer Rohstoffe Specialty and Performance
Hartlepool, England Eastman Chemical Ectona, Ltd. Specialty and Performance
Core Plastics
Hong Kong Eastman Chemical Hong Kong Limited Specialty and Performance
Jurong Town, Singapore Lawter International Products Pte. Ltd. Specialty and Performance
Kallo, Belgium Lawter International Belgium, N.V. Specialty and Performance
Kingsport, Tennessee Tennessee Operations Specialty and Performance
Core Plastics
Chemical Intermediates
</TABLE>
16
<PAGE> 17
<TABLE>
<CAPTION>
LOCATION UNIT SEGMENT
- ------------------------------------------------ ------------------------------------------ -----------------------------
<S> <C> <C>
Kuantan, Malaysia Eastman Chemical (Malaysia) Sdn. Bhd. Specialty and Performance
Core Plastics
La Vergne, Tennessee Lawter International, Inc. Specialty and Performance
Llangefni, Wales Eastman Chemical (UK) Limited Specialty and Performance
Longview, Texas Texas Operations Specialty and Performance
Core Plastics
Chemical Intermediates
Moundville, Alabama Lawter International, Inc. Specialty and Performance
Newark, New Jersey Lawter International, Inc. Specialty and Performance
Pleasant Prairie, Wisconsin Lawter International, Inc. Specialty and Performance
Rexdale, Ontario, Canada Lawter International (Canada) Company Specialty and Performance
Rochester, New York Distillation Products Division Specialty and Performance
Chemical Intermediates
Roebuck, South Carolina ABCO Industries, Inc. Specialty and Performance
Rotterdam, Netherlands Eastman Chemical Netherlands B.V. Specialty and Performance
Core Plastics
San Roque, Spain Eastman Chemical Espana, S.A. Specialty and Performance
Core Plastics
Singapore Eastman Chemical Singapore Pte. Ltd. Specialty and Performance
Chemical Intermediates
Tanggu, People's Republic of China Lawter International, Ltd. (Tianjin) PRC Specialty and Performance
Toronto, Ontario, Canada Eastman Chemical Canada, Inc. Specialty and Performance
Core Plastics
Waterford, Ireland Lawter International, B.V. Specialty and Performance
Workington, England Eastman Chemical Ectona, Ltd. Specialty and Performance
Core Plastics
Zarate, Argentina Eastman Chemical Argentina S.R.L. Specialty and Performance
Core Plastics
</TABLE>
The Company has a 50% interest in Primester, a joint venture which manufactures
cellulose ester at its Kingsport, Tennessee plant. The production of cellulose
ester is an intermediate step in the manufacture of acetate tow and other
cellulose-based products.
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<PAGE> 18
The Company also has a 50% interest in Genencor International, a joint venture
which develops, manufactures and markets industrial enzymes and other fine and
specialty chemicals at numerous international locations.
The Company has distribution facilities at all of its plant sites. In addition,
the Company conducts manufacturing operations at three other sites and owns or
leases over 100 stand-alone distribution facilities in the United States and 19
other countries. Corporate headquarters are in Kingsport, Tennessee. The
Company's regional headquarters are in Coral Gables, Florida; The Hague, The
Netherlands; Singapore; and Kingsport, Tennessee. Technical service is provided
to the Company's customers from technical service centers in Kallo, Belgium;
Kingsport, Tennessee; Kirkby, England; Osaka, Japan; Pleasant Prairie,
Wisconsin; and Singapore. Customer service centers are located in Kingsport,
Tennessee; Rotterdam, The Netherlands; Coral Gables, Florida; and Singapore.
ITEM 3. 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, the Company 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, the Company
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. On October 26, 1999, the Company pleaded guilty in a Federal Court of
Canada to a violation of the Competition Act of Canada and was fined $780,000
(Canadian). The plea admitted that the same conduct that was the subject of the
September 30, 1998, plea in the United States had occurred with respect to
sorbates sold in Canada, and prohibited repetition of the conduct and provides
for future monitoring. The fine has been paid and was recognized as a charge
against earnings in the fourth quarter 1999.
In addition, the Company, along with other companies, is currently a defendant
in seventeen 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. Six
of the suits (five of which have been or are in the process of being
consolidated) 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; six of the proceedings (which have
subsequently been consolidated or found to be related cases) were filed in the
United States District Court for the Northern District of California under
federal antitrust laws on behalf of classes of direct 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 has been transferred to the Northern District of California)
under federal antitrust laws on behalf of a class of direct purchasers of
sorbates; 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; and one action was filed in the District Court for
the State of Kansas under Kansas antitrust laws on behalf of a class of
indirect purchasers of sorbates in that state. The plaintiffs in most
18
<PAGE> 19
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.
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 1998 and an additional charge to
earnings in the fourth quarter 1999 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. On September 7, 1999, the Company and EPA entered into a Consent
Agreement and Consent Order whereby the Company agreed to pay a civil penalty
of $2.75 million to EPA for an alleged violation concerning monitoring and
recordkeeping. The Company recognized the fine in 1999 and is paying the fine
in three installments over a period of one year. Various agencies are
continuing to review the information submitted by the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the Company's shareowners during
the fourth quarter of 1999.
- --------------------------------
RESPONSIBLE CARE(R) is a registered service mark of the chemical industry.
EASTAPAK, EASTMAN HIFOR, EpB, MXSTEN, SPECTAR, and TENITE
are trademarks of Eastman Chemical Company.
19
<PAGE> 20
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SHAREOWNER MATTERS
The Company's Common Stock is traded on the New York Stock Exchange (the
"NYSE") under the symbol "EMN." The following table presents the high and low
sales prices of the Common Stock on the NYSE and the cash dividends per share
declared by the Company's Board of Directors for each quarterly period of 1999
and 1998.
<TABLE>
<CAPTION>
CASH DIVIDENDS
HIGH LOW DECLARED
1999
<S> <C> <C> <C>
1st Quarter 48 5/8 40 3/16 $.44
2nd Quarter 60 5/16 40 5/16 .44
3rd Quarter 53 13/16 38 9/16 .44
4th Quarter 49 36 .44
1998
1st Quarter 68 1/8 56 13/16 $.44
2nd Quarter 72 15/16 60 5/8 .44
3rd Quarter 62 7/16 48 15/16 .44
4th Quarter 62 5/8 43 1/2 .44
</TABLE>
- --------------------------------
As of December 31, 1999 there were 78,248,638 shares of the Company's Common
Stock issued and outstanding, which shares were held by 72,576 shareowners of
record. These shares include 158,424 shares held by the Company's charitable
foundation. The Company has declared a cash dividend of $0.44 per share during
the first quarter of 2000, and currently anticipates continuing to pay
quarterly cash dividends. Quarterly dividends on Common Stock, if declared by
the Company's Board of Directors, are usually paid on or about the first
business day of the month following the end of each quarter. The payment of
dividends is a business decision to be made by the Board of Directors from time
to time based on the Company's earnings, financial position and prospects, and
such other considerations as the Board considers relevant. Accordingly, the
Company's dividend policy may change at any time.
The Company did not sell any equity securities during the fourth quarter of
1999 in transactions not registered under the Securities Act of 1933. For
information concerning issuance of shares and option grants in 1999 under
compensation and benefit plans and shares held by the Company's charitable
foundation, see Part II--Item 8--"Financial Statements and Supplementary Data"
- -- Notes 7 and 10 to Consolidated Financial Statements.
20
<PAGE> 21
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(Dollars in millions, except per share amounts) 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATING DATA
Sales $4,590 $4,481 $4,678 $4,782 $5,040
Operating earnings 202 434 506 663 964
Earnings from operations
before income taxes 72 360 446 607 899
Net earnings 48 249 286 380 559
Basic earnings per share .61 3.15 3.66 4.84 6.84
Diluted earnings per share .61 3.13 3.63 4.79 6.78
STATEMENT OF FINANCIAL POSITION DATA
Current assets $1,489 $1,398 $1,490 $1,345 $1,487
Properties at cost 8,820 8,594 8,104 7,530 6,791
Accumulated depreciation 4,870 4,560 4,223 4,010 3,742
Total assets 6,303 5,850 5,778 5,266 4,872
Current liabilities 1,608 959 954 787 873
Long-term borrowings 1,506 1,649 1,714 1,523 1,217
Total liabilities 4,544 3,916 4,025 3,627 3,344
Total shareowners' equity 1,759 1,934 1,753 1,639 1,528
Dividends declared per share 1.76 1.76 1.76 1.72 1.64
</TABLE>
21
<PAGE> 22
ITEM 7. 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 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 per share amounts) 1999 1998 CHANGE 1997
<S> <C> <C> <C> <C>
Operating earnings $ 202 $ 434 (53)% $ 506
Net earnings 48 249 (81) 286
Earnings per share
- --Basic .61 3.15 (81) 3.66
- --Diluted .61 3.13 (81) 3.63
</TABLE>
1999 COMPARED WITH 1998
Earnings declined significantly in 1999 reflecting the impact of challenging
market conditions and a number of nonrecurring items mainly related to the
Company's cost control efforts and changes in the portfolio of products,
partially offset by a reimbursement of previously expensed pension costs.
Although sales volumes were higher in all three segments and were substantially
higher outside the United States, lower selling prices coupled with higher
costs for major raw materials pressured margins for many products.
Sales volumes increased 11% overall mainly due to improvement in worldwide
demand for polyethylene terephthalate ("PET"), the acquisition of Lawter
International, Inc. ("Lawter"), the completion and startup of a new oxo plant
in Singapore, and strong demand for specialty plastics. However, lower selling
prices and sharply rising costs for propane eroded margins for many products.
The Company's 1999 net earnings reflected returns of 3% on equity and 4% on
capital. The Company's cost control efforts and changes in the portfolio of
products resulted in several nonrecurring charges which significantly impacted
results for the fourth quarter and full year 1999. A program to decrease labor
costs resulted in a reduction of 1,200 employees and a pre-tax net charge of
$53 million in the fourth quarter. A pre-tax charge of $25 million was recorded
in the fourth quarter for the write-off of acquired in-process research and
development related to Lawter. In the fourth quarter, a decision was made to
discontinue production at the Company's sorbates facilities in Chocolate Bayou,
Texas and to discontinue a purified terephthalic acid ("PTA") plant project in
Columbia, South Carolina, resulting in pre-tax charges of approximately $33
million. Other nonrecurring charges which negatively affected the fourth
quarter and full year 1999 by approximately $12 million before taxes included
an adjustment to the reserve for civil litigation related to sorbates and
others matters, the write-off of purchased technology which was determined to
have no future value, and a loss recognized on an investment. A reimbursement
of previously expensed pension costs related to Holston Defense Corporation had
a positive impact on pre-tax earnings in the fourth quarter and full year 1999
of approximately $21 million.
Results for full year 1999 were also impacted by nonrecurring items including
approximately $15 million of pre-tax charges related to the phase-out of
operations at Distillation Products Industries in Rochester, New York and the
write-off of construction in progress related to an epoxybutene ("EpB") plant
project, and a pre-tax gain of approximately $8 million recognized on the sale
of assets.
22
<PAGE> 23
Results for the fourth quarter and full year 1999 were also negatively impacted
by pre-tax charges totaling approximately $17 million related to the write-up
of Lawter's inventory required by purchase accounting, a decrement recognized
using the last-in, first-out inventory valuation method, loss on sales of
excess spare parts, and two months of unplanned downtime at the Company's
Malaysia facility. Amendments to the Company's defined benefit pension plan
resulted in a pre-tax decrease in pension expense for the full year 1999 of
approximately $37 million. As a result of the adoption of AICPA Statement of
Position 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use ("SOP 98-1"), the Company capitalized $22 million,
net of $2 million amortization, of certain internal-use software costs which
otherwise would have been expensed.
Net earnings for 1998 were negatively impacted by nonrecurring items including
an $11 million charge for violation of the Sherman Act, pre-tax charges of
approximately $33 million related to certain underperforming assets and
discontinued capital projects, and pre-tax charges of approximately $7 million
related to the impact of a power outage at the Kingsport, Tennessee,
manufacturing site, partially offset by the effect of a lower tax rate
resulting from a tax settlement which favorably affected net earnings by $15
million.
The U.S. dollar produced an unfavorable effect on sales denominated in
currencies other than U.S. dollars, although the impact on earnings was
mitigated somewhat by gains realized on currency hedging transactions.
SUMMARY BY OPERATING SEGMENT
<TABLE>
<CAPTION>
SPECIALTY AND PERFORMANCE SEGMENT
(Dollars in millions) 1999 1998 CHANGE 1997
<S> <C> <C> <C> <C>
Sales $ 2,850 $ 2,736 4% $ 2,878
Operating earnings 275 357 (23) 452
</TABLE>
1999 COMPARED WITH 1998
Sales for the segment increased slightly as higher sales volume, mainly
attributable to specialty plastics and the Lawter acquisition, was partially
offset by lower selling prices and product mix. Operating earnings for
individual product lines and the segment overall declined significantly as a
result of lower selling prices, higher raw materials costs, particularly for
propane, and several nonrecurring items.
In 1999, nonrecurring items totaling $77 million impacted segment results and
include charges related to exiting sorbates production at Chocolate Bayou,
Texas, phase-out of operations at Distillation Products Industries in
Rochester, New York, the write-off of construction in progress related to an
EpB plant project, write-off of acquired in-process research and development
related to Lawter, an adjustment to the reserve for sorbates civil litigation,
write-off of technology which was determined to have no future value, and a net
charge related to employee separations and pension settlement, partially offset
by the reimbursement of previously expensed pension costs related to Holston
Defense Corporation. Operating earnings for the segment were positively
affected by decreased pension expense. As a result of the adoption of SOP 98-1,
certain internal-use software costs were capitalized which otherwise would have
been expensed. For additional information, see Notes to Consolidated Financial
Statements.
Operating earnings for 1998 were impacted by nonrecurring charges totaling $49
million related to a fine for violation of the Sherman Act; charges related to
certain underperforming assets and discontinued capital projects; the impact of
a power outage at the Kingsport, Tennessee, manufacturing site; and other
items.
23
<PAGE> 24
Revenues for specialty plastics were moderately higher as significantly higher
volume for performance products including SPECTAR copolymer, EASTMAN HIFOR and
MXSTEN more than offset the effect of lower selling prices. Performance
chemicals sales volumes were significantly higher but the impact on revenues
was somewhat offset by lower selling prices. Fine chemicals sales volume was
significantly higher, but the effect on revenues was mitigated by a shift in
product mix. Lower selling prices and lower sales volume resulted in a decline
in revenue for fibers. Significantly higher sales volume and revenues for
coatings, inks and resins resulted mainly from the acquisition of Lawter.
<TABLE>
<CAPTION>
CORE PLASTICS SEGMENT
(Dollars in millions) 1999 1998 CHANGE 1997
<S> <C> <C> <C> <C>
Sales $ 1,067 $ 1,071 -% $ 1,067
Operating loss (118) (40) >(100) (92)
</TABLE>
1999 COMPARED WITH 1998
Continued strong worldwide demand for PET resulted in significantly higher
sales volumes for EASTAPAK polymers. Although selling prices for container
plastics for the year overall were lower than 1998, prices increased during the
latter half of 1999. Flexible plastics sales volumes declined as the Company
continued to move the product line to more specialty products, but selling
prices were higher.
Operating earnings were negatively impacted by overall lower selling prices,
higher costs for raw materials, particularly for propane, and nonrecurring
charges totaling $33 million pertaining to write-off of construction in
progress related to a PTA plant project in Columbia, South Carolina, a loss
recognized on an investment, and a net charge related to employee separations
and pension settlement. Operating earnings for the segment were positively
affected by decreased pension expense. As a result of the adoption of SOP 98-1,
certain internal-use software costs were capitalized which otherwise would have
been expensed. For additional information, see Notes to Consolidated Financial
Statements.
<TABLE>
<CAPTION>
CHEMICAL INTERMEDIATES SEGMENT
(Dollars in millions) 1999 1998 CHANGE 1997
<S> <C> <C> <C> <C>
Sales $ 673 $ 674 -% $ 733
Operating earnings 45 117 (62) 146
</TABLE>
1999 COMPARED WITH 1998
Revenues were flat as moderately higher sales volume was offset by lower
selling prices. Operating earnings declined significantly reflecting lower
selling prices, higher costs for raw materials, particularly for propane, and a
net charge of $7 million related to employee separations and pension
settlement. Operating earnings for the segment were positively affected by
decreased pension expense. As a result of the adoption of SOP 98-1, certain
internal-use software costs were capitalized which otherwise would have been
expensed. For additional information, see Notes to Consolidated Financial
Statements.
24
<PAGE> 25
SUMMARY BY CUSTOMER LOCATION
<TABLE>
<CAPTION>
SALES BY REGION
(Dollars in millions) 1999 1998 CHANGE 1997
<S> <C> <C> <C> <C>
United States and Canada $ 2,869 $ 2,933 (2)% $ 3,051
Europe, Middle East, and Africa 849 752 13 780
Asia Pacific 486 429 13 506
Latin America 386 367 5 341
------- ------- -------
Total $ 4,590 $ 4,481 2 $ 4,678
======= ======= =======
</TABLE>
1999 COMPARED WITH 1998
Sales in the United States for 1999 were $2.662 billion, down 4% from 1998
sales of $2.764 billion. Although polyethylene prices improved, selling prices
declined overall and were significantly lower for EASTAPAK polymers, oxo
chemicals products and imaging chemicals. Sales volume overall was relatively
flat as volume gains, mainly attributable to the Lawter acquisition and fine
chemicals, were offset by lower sales volume for EASTAPAK polymers, acetyls and
fibers.
Sales to customers outside the United States for 1999 were $1.928 billion, up
12% from 1998 sales of $1.717 billion due to significantly higher sales volume.
Sales outside the United States were 42% of total sales in 1999 compared with
38% for 1998. The Lawter acquisition contributed to higher sales volumes and
revenues in Asia Pacific and Europe, Middle East and Africa. Asia Pacific sales
volumes for fibers declined, but oxo chemicals products increased following the
startup of a new manufacturing site in Singapore. Latin America and Europe,
Middle East, and Africa had significant sales volume improvement for EASTAPAK
polymers, but selling prices declined.
With a substantial portion of 1999 sales to customers outside the United States
and approximately 20% of its products manufactured outside the United States in
1999 based on sales volume, Eastman is subject to the risks associated with
operating in international markets. To mitigate its exchange rate risks, the
Company frequently seeks to negotiate payment terms in U.S. dollars. In
addition, where it deems such actions advisable, the Company engages in foreign
currency hedging transactions and requires letters of credit and prepayment for
shipments where its assessment of individual customer and country risks
indicates their use is appropriate. A strong U.S. dollar against foreign
currencies resulted in an overall slightly unfavorable currency exchange
effect, primarily in Europe and Latin America. See Note 12 to Consolidated
Financial Statements and Part II--Item 7A--"Quantitative and Qualitative
Disclosures About Market Risk."
SUMMARY OF CONSOLIDATED RESULTS
<TABLE>
<CAPTION>
(Dollars in millions) 1999 1998 CHANGE 1997
<S> <C> <C> <C> <C>
SALES $ 4,590 $ 4,481 2% $ 4,678
</TABLE>
Sales volumes were higher in all regions and in all three segments driven by
improvement in worldwide demand for PET, volume attributable to the Lawter
acquisition, completion and startup of a new oxo plant in Singapore, and strong
demand for specialty plastics. However, a decline in selling prices
substantially offset the effect of the volume gains. Sales were negatively
affected by the strength of the U.S. dollar against foreign currencies,
primarily in Europe and Latin America.
25
<PAGE> 26
<TABLE>
<CAPTION>
(Dollars in millions) 1999 1998 CHANGE 1997
<S> <C> <C> <C> <C>
GROSS PROFIT $ 822 $ 935 (12)% $ 1,096
As a percentage of sales 17.9% 20.9% 23.4%
</TABLE>
Gross profit declined in 1999 primarily as a result of lower selling prices,
higher costs for raw materials, particularly for propane, and the effect of
several nonrecurring items. The nonrecurring items included charges related to
the phase-out of operations at certain sites, the write-off of construction in
progress related to certain plant projects, and other items, partially offset by
a reimbursement of previously expensed pension costs related to Holston Defense
Corporation. Gross profit was positively affected by lower pension expense
resulting from amendments to the Company's defined benefit pension plan. As a
result of the adoption of SOP 98-1, certain internal-use software costs were
capitalized which otherwise would have been expensed. For additional
information, see Notes to Consolidated Financial Statements.
In 1998, gross profit was impacted by lower selling prices and nonrecurring
charges related to impaired assets, a power outage at the Kingsport, Tennessee,
manufacturing site, and charges for violation of the Sherman Act.
<TABLE>
<CAPTION>
(Dollars in millions) 1999 1998 CHANGE 1997
<S> <C> <C> <C> <C>
SELLING AND GENERAL ADMINISTRATIVE EXPENSES $ 355 $ 316 12% $ 337
As a percentage of sales 7.7% 7.1% 7.2%
</TABLE>
Selling and general administrative expenses increased as a result of the Lawter
and Jager acquisitions, E-business development, and timing of expenditures.
<TABLE>
<CAPTION>
(Dollars in millions) 1999 1998 CHANGE 1997
<S> <C> <C> <C> <C>
RESEARCH AND DEVELOPMENT COSTS $ 187 $ 185 1% $ 191
As a percentage of sales 4.1% 4.1% 4.1%
(Dollars in millions) 1999 1998 CHANGE 1997
<S> <C> <C> <C> <C>
INTEREST COSTS $ 139 $ 127 $ 128
LESS CAPITALIZED INTEREST 13 31 41
------- ------- -------
NET INTEREST EXPENSE $ 126 $ 96 31% $ 87
======= ======= =======
</TABLE>
Gross interest costs increased in 1999 reflecting debt assumed and incurred
related to the Lawter acquisition. Capitalized interest declined in 1999 and
1998 reflecting completion of several substantial projects in the Company's
major capital investment program during 1999 and 1998.
<TABLE>
<CAPTION>
(Dollars in millions) 1999 1998 CHANGE 1997
<S> <C> <C> <C> <C>
OTHER (INCOME) CHARGES, NET $ 4 $ (22) >(100)% $ (27)
</TABLE>
Other income and other charges include interest and royalty income, gains and
losses on asset sales, results from equity investments, foreign exchange
transactions, and other items. Included in 1999 is a loss on foreign
26
<PAGE> 27
exchange transactions, offset partially by a gain recognized on the sale of
assets. Included in 1998 is a gain on foreign exchange transactions.
<TABLE>
<CAPTION>
(Dollars in millions) 1999 1998 CHANGE 1997
<S> <C> <C> <C> <C>
PROVISION FOR INCOME TAXES $ 24 $ 111 (78)% $ 160
Effective tax rate 33% 30.8% 35.8%
</TABLE>
The Company recorded an income tax benefit of $15 million in 1998 attributable
to amended returns reflecting redetermined foreign sales corporation results
and the results of the completed Internal Revenue Service examination for the
years 1994 to 1996.
1998 COMPARED WITH 1997
Results for 1998 were significantly impacted by global economic conditions that
produced extreme pressure on selling prices. For the year, downward pressure on
selling prices was particularly evident for fibers, flexible plastics,
industrial intermediates, coatings, inks and resins. Average selling prices for
EASTAPAK polymers for the year were level with 1997 but declined significantly
in fourth quarter due to competitive activity. Sales volumes improved slightly
for the year and were higher in all three segments, partially offsetting the
overall decline in selling prices. The Company recognized volume improvements
in part due to the 1998 startup of new manufacturing facilities.
The Company's 1998 net earnings reflected returns of 14% on equity and 9% on
capital. Net earnings for 1998 were impacted by nonrecurring items including
charges for violation of the Sherman Act, charges related to certain
underperforming assets and discontinued projects, partially offset by the
effect of a lower tax rate. Net earnings for 1997 were impacted by nonrecurring
items, including a gain from damages awarded for patent infringement and a
charge for partial settlement and curtailment of pension and other
postemployment benefit liabilities arising from a large number of employee
retirements.
Costs for most major raw materials, including propane feedstock, paraxylene,
PTA, ethylene glycol and natural gas, were below 1997 levels but the effect of
the decline in selling prices generally offset the effect of lower raw
materials costs. Unit costs were unfavorably impacted by unused available
manufacturing capacity resulting from lower demand and inventory reductions
occurring primarily in the fourth quarter. Higher net interest costs resulted
from lower capitalized interest following the completion of several substantial
capital projects in 1998. Depreciation also increased as a result of capital
projects completed in 1998 and 1997. Selling and general administrative
expenses were positively impacted by a reduction in labor hours and lower
incentive compensation expense. The Company continued to achieve productivity
gains and cost structure improvements as a result of the Advantaged Cost 2000
initiative.
The U.S. dollar produced an unfavorable effect on sales denominated in
currencies other than U.S. dollars, although the earnings impact was generally
offset by gains realized on currency hedging transactions.
Sales volume for the Specialty and Performance segment increased for the year
but revenue declined, reflecting the effect of lower selling prices caused by
global economic conditions, industry overcapacities and competitive market
conditions. Strong volume growth for SPECTAR copolymer and growing market
acceptance of new specialty plastics such as MXSTEN and EASTMAN HIFOR were
partially offset by a decline in sales volumes for cellulosic plastics. Sales
volumes for coatings, inks and resins improved slightly from 1997, but prices
reflected industry oversupply, particularly for neopentyl glycols ("NPG").
Sales volumes for fibers for the year were lower than 1997. Performance
chemicals volumes for the year were negatively affected by competitive market
27
<PAGE> 28
conditions, including the effect of industry oversupply of sorbates. Fine
chemicals sales volumes declined for the year, reflecting decreased sales into
photographic markets and customer delays of custom manufacturing projects.
Specialty and Performance segment operating earnings were significantly
decreased by nonrecurring charges which included recognition of an impairment
loss related to the CHDA plant in Kingsport, Tennessee, costs related to
abandonment of certain capital projects, and charges for violation of the
Sherman Act. Operating earnings were also negatively impacted by operational
and maintenance problems which occurred primarily in the fourth quarter 1998,
including a power outage at the Kingsport, Tennessee, manufacturing site.
Operating earnings for the segment overall were positively impacted by lower
costs for raw materials, energy, selling and general administrative expenses,
and cost structure improvements resulting from the Company's Advantaged Cost
2000 initiative.
Sales revenue for the Core Plastics segment overall was relatively unchanged as
global economic conditions pressured selling prices, effectively offsetting
higher sales volume. The effect of higher selling prices for EASTAPAK polymers
achieved earlier in the year was mitigated by a significant downturn in pricing
late in the year. Sales volumes for commodity grade polyethylenes were higher
but selling prices were lower, reflecting competitive market conditions.
Operating losses for the Core Plastics segment reflected lower selling prices
and operational and maintenance problems which occurred primarily in the fourth
quarter, including a power outage at the Kingsport, Tennessee, manufacturing
site, offset somewhat by lower raw materials costs. Segment results were
positively impacted by lower selling and general administrative expenses and
cost structure improvements resulting from the Company's Advantaged Cost 2000
initiative.
Sales volumes for the Chemical Intermediates segment increased slightly for the
year but excess industry capacity, strong competitive activity, and overall
global economic conditions negatively impacted revenues and earnings. Earnings
were also impacted by operational and maintenance problems which occurred
primarily in fourth quarter, including a power outage at the Kingsport,
Tennessee, manufacturing site, and preproduction costs related to new
manufacturing facilities in Singapore. Lower raw materials costs positively
affected results. Operating earnings for the segment were positively impacted
by lower selling and general administrative expenses and cost structure
improvements resulting from the Company's Advantaged Cost 2000 initiative.
Sales in the United States for 1998 were $2.764 billion, down 4% from 1997
sales of $2.875 billion. Although sales volume was up slightly, selling prices
declined as a result of global economic conditions, particularly for
polyethylenes and oxo products.
Sales to customers outside the United States for 1998 were $1.717 billion, down
5% from 1997 sales of $1.803 billion. Sales outside the United States were 38%
of total sales in 1998 compared with 39% for 1997. Decreased sales volumes and
prices for fibers were experienced in Asia Pacific and Middle Eastern regions,
although sales volumes in Asia Pacific improved during the fourth quarter.
Latin American sales revenue improvement primarily reflected increased
manufacturing capacity in Argentina and growth in customer demand for EASTAPAK
polymers.
A strong U.S. dollar against foreign currencies resulted in unfavorable
currency exchange effects, primarily in Europe and Asia Pacific.
28
<PAGE> 29
LIQUIDITY, CAPITAL RESOURCES, AND OTHER FINANCIAL DATA
<TABLE>
<CAPTION>
1999 1998 1997
FINANCIAL INDICATORS
<S> <C> <C> <C>
Ratio of earnings to fixed charges 1.5x 3.2x 3.7x
Current ratio 0.9x 1.4x 1.6x
Percent of total borrowings to total capital 54% 46% 49%
Percent of floating-rate borrowings to total borrowings 23% 7% 12%
CASH FLOW
(Dollars in millions)
Net cash provided by (used in)
Operating activities $ 744 $ 731 $ 698
Investing activities (715) (545) (745)
Financing activities 128 (186) 52
------- ------- -------
Net change in cash and cash equivalents $ 157 $ -- $ 5
======= ======= =======
Cash and cash equivalents at end of period $ 186 $ 29 $ 29
======= ======= =======
</TABLE>
Cash provided by operating activities includes the effect of lower net earnings
over the periods presented resulting from business conditions and nonrecurring
items previously discussed. Cash provided by operating activities also
increased due to cash provided by a continuous sale of accounts receivable
program. Cash used in investing activities reflects lower capital expenditures
over the periods presented as the Company's major capital expansion projects
were completed. Cash used in investing in 1999 reflects the Lawter acquisition
and the acquisition of a North American textile chemicals business, and in 1998
reflects the acquisition of Jager. Cash provided by financing activities in
1999 reflects an increase in commercial paper borrowings primarily related to
funding the Lawter acquisition and additional borrowings at yearend as a
precautionary measure related to the Year 2000 issue. In 1998, cash provided by
financing activities reflects proceeds received from an issuance of tax-exempt
bonds. In 1999, the bonds were redeemed. Cash provided by financing activities
in 1997 reflects proceeds received from an issuance of 7.60% debentures due
February 1, 2027 which were used to repay commercial paper borrowings
outstanding at that time. Also reflected in cash flows from financing activities
is the payment of dividends in all years presented and common stock repurchases
in 1999 and 1997.
CAPITAL EXPENDITURES AND OTHER COMMITMENTS
For 2000, the Company estimates that depreciation will be about $370 million
and that capital expenditures will be approximately $250-270 million. Long-term
commitments related to planned capital expenditures are not material. The
Company had various purchase commitments at the end of 1999 for materials,
supplies, and energy incident to the ordinary conduct of business. These
commitments, over a period of several years, approximate $1.5 billion. Eastman
has other long-term commitments relating to joint venture agreements as
described in Note 4 to Consolidated Financial Statements.
29
<PAGE> 30
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 annual rate for such fee was
.085% in 1999 and .075% in 1998 and 1997. The Credit Facility contains a number
of covenants and events of default, including the maintenance of certain
financial ratios. Eastman was in compliance with all such covenants for all
periods. Management expects to renegotiate or replace the Credit Facility with a
similar source of funds before the Credit Facility expires in December 2000.
Eastman utilizes commercial paper, generally with maturities of 90 days or less,
to meet its liquidity needs. Because the Credit Facility, which provides
liquidity support for the commercial paper, expires in December 2000, the
commercial paper borrowings at yearend 1999 have been classified as short-term
borrowings. In 1998 and 1997, commercial paper borrowings were classified as
long-term borrowings. As of December 31, 1999, the Company's short-term
borrowings totaled $599 million, at interest rates ranging between 6.2% and
6.91%. The Company borrowed an additional $100 million prior to yearend 1999 as
a precautionary measure related to the Year 2000 issue. These additional
borrowings allowed the Company to meet certain January 2000 cash requirements
without utilizing the commercial paper markets in early January 2000. At
December 31, 1998, a total of $123 million of commercial paper was outstanding,
at interest rates ranging between 5.25% and 5.81%. In 1997, Eastman issued $300
million of 7.60% debentures due February 1, 2027, and used the proceeds to repay
commercial paper borrowings outstanding at that time.
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 and in 1999 redeemed the bonds.
On April 13, 1999, the Company entered into an agreement that allows the
Company to sell certain domestic accounts receivable under a planned continuous
sale program to a third party. The agreement permits the sale of undivided
interests in domestic trade accounts receivable. Receivables totaling $150
million have 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. The Company
purchased all outstanding shares of Lawter common stock for $12.25 per share.
The purchase price included cash consideration of approximately $370 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. In January 2000, the Company retired $125 million of Lawter's
obligations, financed through commercial paper borrowings.
The Company is currently authorized to repurchase up to $400 million of its
common stock. Under this authorization, a total of 1,094,800 shares of common
stock at a cost of approximately $50 million were repurchased during 1999.
Repurchased shares may be used to meet common stock requirements for
compensation and benefit plans and other corporate purposes. Share repurchases
are weighed against alternative uses for available cash.
The Company expects a significant decrease in Company contributions to its
defined benefit pension plan in 2000 as a result of amendments to the plan in
1999 (discussed below) and significant return on plan assets during 1999.
Existing sources of capital, together with cash flows from operations, are
expected to be sufficient to meet foreseeable cash flow requirements.
30
<PAGE> 31
<TABLE>
<CAPTION>
DIVIDENDS 1999 1998 1997
<S> <C> <C> <C>
Cash dividends declared per share $ 1.76 $ 1.76 $ 1.76
</TABLE>
AMENDMENTS TO RETIREMENT PLAN
In June 1999, the Company announced amendments to its defined benefit pension
plan, the Eastman Retirement Assistance Plan, effective January 1, 2000. The
amendments were made to align retirement benefit costs with the Company's
overall business strategies. Employees' accrued pension benefits earned prior
to January 1, 2000 are calculated based on previous plan provisions using the
employee's age, years of service, and final average compensation as defined in
the plans. The amended defined benefit pension plan will use a pension equity
formula based on age, years of service, and final average compensation to
calculate an employee's retirement benefit from January 1, 2000 forward.
Benefits payable will be the combined pre-2000 and post-1999 benefits.
The Company's 1999 pension expense was remeasured as of June 1, 1999 based on
amended plan provisions and changes in certain plan assumptions. The plan
amendments and changes in plan assumptions resulted in a decrease in 1999
pension expense of approximately $37 million. Approximately $24 million related
to plan amendments and $13 million related to changes in plan assumptions.
The plan experienced a significant return on plan assets during 1999
(approximately 23%). This will reduce plan expense in 2000 and later years.
Annual pension expense and funding are expected to be lower under the
provisions of the amended plan.
ENVIRONMENTAL
Certain of the Company's manufacturing sites generate hazardous and
nonhazardous wastes, the treatment, storage, transportation, and disposal of
which are regulated by various governmental agencies. In connection with the
cleanup of various hazardous waste sites, the Company, along with many other
entities, has been designated a potentially responsible party ("PRP") by the
U.S. Environmental Protection Agency under the Comprehensive Environmental
Response, Compensation and Liability Act, which potentially subjects PRPs to
joint and several liability for such cleanup costs. In addition, the Company
will be required to incur closure/postclosure costs relating to environmental
remediation pursuant to the federal Resource Conservation and Recovery Act.
Because of expected sharing of costs, the availability of legal defenses, and
the Company's preliminary assessment of actions that may be required, the
Company does not believe its liability for these environmental matters,
individually or in the aggregate, will be material to Eastman's consolidated
financial position, results of operations, or competitive position. The
Company's policy is to record such liabilities when loss amounts are probable
and can be reasonably estimated.
The Company's environmental protection and improvement cash expenditures were
approximately $220 million, $190 million, and $220 million in 1999, 1998, and
1997, respectively, including investments in construction, operations, and
development. The Company does not expect future environmental capital
expenditures arising from requirements of recently promulgated environmental
laws and regulations to materially increase the Company's planned level of
capital expenditures for environmental control facilities.
INFLATION
In recent years, inflation has not had a material adverse impact on Eastman's
costs, primarily because of price competition among suppliers of raw materials.
The cost of raw materials is generally based on market price, although risk
management tools may be utilized, as appropriate, to mitigate short-term market
price fluctuations. Significant changes in raw materials prices, particularly
petroleum derivatives, had a significant impact on costs in 1999, which the
Company was not able to fully recapture in its pricing structure.
31
<PAGE> 32
YEAR 2000 ISSUE UPDATE
The Company did not experience any significant malfunctions or errors in its
operating or business systems when the date changed from 1999 to 2000. Based on
operation since January 1, 2000, the Company does not expect any significant
impact to its on-going business as a result of the Year 2000 issue. However, it
is possible that the full impact of the date change, which was of concern due
to computer programs that use two digits instead of four digits to define
years, has not been fully recognized. For example, it is possible that Year
2000 or similar issues such as leap-year related problems may occur with
billing, payroll, or financial closings at month, quarter, or yearend. The
Company believes that any such problems are likely to be minor and correctable.
In addition, the Company could still be negatively impacted if its customers or
suppliers are adversely affected by the Year 2000 or similar issues. The
Company is not currently aware of any significant Year 2000 or similar problems
that have arisen for its customers and suppliers.
The Company expended less than $20 million on Year 2000 readiness efforts over
a period of several years. These efforts included replacing some outdated,
non-compliant hardware and non-compliant software, as well as identifying and
remediating Year 2000 problems.
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 recognized liabilities associated with Holston's pension, other
postretirement benefits and other termination costs in accordance with
generally accepted accounting principles. A portion of such costs has been
funded by the Company and subsequently reimbursed by the DOA.
The recording of previously unrecognized liabilities for pension and other
termination costs had no effect on 1998 or 1999 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 have been or will be credited to earnings at the time of receipt
of reimbursement from the DOA. See Note 19 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. SFAS No. 133 is 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 become effective for the Company's 2001 financial reporting
cycle.
OUTLOOK
Sales volume growth is expected to continue, driving higher utilization of
capacity which the Company brought on-line in recent years. Although overall
business conditions are expected to improve, higher costs for raw materials are
expected to continue to negatively impact earnings in the near-term. The supply
and demand balance for many of the Company's products, particularly EASTAPAK
polymers, is expected to continue to improve, but sales volume for fibers is
expected to continue to decline. Through aggressive cost management and actions
taken during the fourth quarter 1999, the Company expects to achieve $100
million savings in labor-related costs during 2000 and to implement strategies
by the end of 2000 which will achieve an additional $100 million savings in
non-labor costs. To develop a portfolio which management believes would achieve
the Company's strategies for growth and value creation, the Company continues to
examine alternatives for diminishing the impact of specific products, such as
fibers and PET, while maximizing value for other products, such as fine
chemicals and polyethylene.
32
<PAGE> 33
FORWARD-LOOKING STATEMENTS
The above-stated expectations and certain statements in this report may be
forward-looking in nature as defined in the Private Securities Litigation
Reform Act of 1995. These statements and other forward-looking statements made
by the Company from time to time relate to such matters as planned capacity
increases and capital spending; expected tax rates and depreciation;
environmental matters; the Year 2000 issue; legal proceedings; global economic
conditions; supply and demand, volume, price, costs, margin, and sales and
earnings and cash flow expectations and strategies for individual products,
businesses, and segments as well as for the whole of Eastman Chemical Company;
cost reduction targets; and development, production, commercialization, and
acceptance of new products and technologies.
These plans and expectations are based upon certain underlying assumptions,
including those mentioned within the text of the specific statements. Such
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. These plans and expectations and the assumptions
underlying them are necessarily subject to risks and uncertainties inherent in
projecting future conditions and results. Actual results could differ
materially from expectations expressed in the forward-looking statements if one
or more of the underlying assumptions and expectations proves to be inaccurate
or is unrealized. In addition to the factors discussed in this report, the
following are some of the important factors that could cause the Company's
actual results to differ materially from those projected in any such
forward-looking statements:
- - The Company has manufacturing and marketing operations throughout the
world, with over 40% of the Company's revenues attributable to sales
outside the United States. Economic factors, including foreign currency
exchange rates, could affect the Company's revenues, expenses and results.
Changes in laws, regulations, or other political factors in any of the
countries in which the Company operates could affect business in that
country or region, as well the Company's results of operations.
- - The Company has made and may continue to make acquisitions, divestitures
and alliances, as part of its growth strategy. There can be no assurance
that these will be completed or that such transactions will be beneficial
to the Company's results of operations.
- - The Company has undertaken and may continue to undertake productivity and
cost reduction initiatives and organizational restructurings to improve
performance and generate cost savings. There can be no assurance that
these will be completed or beneficial or that estimated cost savings from
such activities will be realized.
- - In addition to cost reduction initiatives, the Company is striving to
improve margins on its products through price increases, where warranted
and accepted by the market; however, the Company's earnings could be
negatively impacted should such increases be unrealized or not be
sufficient to cover increased raw materials costs.
- - The Company's competitive position in the markets in which it participates
is, in part, subject to external factors. For example, supply and demand
for certain of the Company's products is driven by end-use markets and
worldwide capacities which, in turn, impact demand for and pricing of the
Company's products.
- - The Company has an extensive customer base; however, loss of certain top
customers could adversely affect the Company's financial condition and
results of operations until such business is replaced.
- - Limitation of the Company's available manufacturing capacity due to
significant disruption in its manufacturing operations could have a
material adverse affect on revenues, expenses and results.
33
<PAGE> 34
- - The Company's facilities are subject to complex environmental laws and
regulations which require and will continue to require significant
expenditures to remain in compliance with such laws and regulations
currently and in the future. The Company's accruals for such costs and
liabilities are believed to be adequate, but are subject to changes in
estimates on which the accruals are based and depend on a number of factors
including the nature of the allegation, the complexity of the site, the
nature of the remedy, the outcome of discussions with regulatory agencies
and other PRPs at multi-party sites, and the number and financial viability
of other PRPs.
- - 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. The
Company believes amounts reserved are adequate for such pending matters;
however, results of operations could be affected by significant litigation
adverse to the Company.
The foregoing list of important factors does not include all such factors nor
necessarily present them in order of importance. This disclosure represents
management's best judgment as of the date of filing. The Company does not
undertake responsibility for updating such information.
- ----------------------------
EASTAPAK, EASTMAN HIFOR, EpB, MXSTEN, NPG, and
SPECTAR are trademarks of Eastman Chemical Company.
34
<PAGE> 35
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to changes in financial market conditions in the normal
course of its business due to its use of certain financial instruments as well
as transacting in various foreign currencies and funding of foreign operations.
To mitigate the Company's exposure to these market risks, Eastman has
established policies, procedures, and internal processes governing its
management of financial market risks and the use of financial instruments to
manage its exposure to such risks.
The Company is exposed to changes in interest rates primarily as a result of
its borrowing activities, which include short-term commercial paper and
long-term borrowings used to maintain liquidity and fund its business
operations. The Company continues to utilize U.S. dollar-denominated commercial
paper to fund capital requirements. The nature and amount of the Company's
long-term and short-term debt may vary as a result of future business
requirements, market conditions, and other factors.
The Company's operating cash flows denominated in foreign currencies are
exposed to changes in foreign exchange rates. The Company continually evaluates
its foreign currency exposure based on current market conditions and the
locations in which the Company conducts business. In order to mitigate the
effect of foreign currency risk, the Company enters into forward exchange
contracts to hedge certain firm commitments denominated in foreign currencies
and currency options to hedge probable anticipated but not yet committed export
sales and purchase transactions expected within no more than five years and
denominated in foreign currencies. The gains and losses on these contracts
offset changes in the value of related exposures. It is the Company's policy to
enter into foreign currency transactions only to the extent considered
necessary to meet its objectives as stated above. The Company does not enter
into foreign currency transactions for speculative purposes.
The Company determines its market risk utilizing sensitivity analysis, which
measures the potential losses in fair value resulting from one or more selected
hypothetical changes in interest rates and/or foreign currency exchange rates.
The market risk associated with the fair value of interest-rate-sensitive
instruments assuming an instantaneous parallel shift in interest rates of 10%
is approximately $90 million and an additional $10 million for each one
percentage point change in interest rates thereafter. This exposure is
primarily related to long-term debt with fixed interest rates. The market risk
associated with foreign currency-sensitive instruments utilizing a modified
Black-Scholes option pricing model and a 10% adverse move in the U.S. dollar
relative to each foreign currency hedged by the Company is approximately $46
million ($39 million options; $7 million forwards) and an additional $4 million
($3 million options; $1 million forwards) for an additional one percentage
point adverse change in foreign currency exchange rates. Further adverse
movements in foreign currencies would create losses in fair value; however,
such losses would not be linear to that disclosed above. This exposure, which
is primarily related to foreign currency options purchased by the Company to
manage fluctuations in foreign currencies, is limited to the dollar value of
option premiums payable by the Company for the related financial instruments.
Furthermore, since the Company utilizes currency-sensitive derivative
instruments for hedging anticipated foreign currency transactions, a loss in
fair value for those instruments is generally offset by increases in the value
of the underlying anticipated transactions.
35
<PAGE> 36
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
ITEM PAGE
<S> <C>
Management's responsibility for financial statements 37
Report of independent accountants 38
Consolidated statements of earnings, comprehensive income, and retained earnings 39
Consolidated statements of financial position 40
Consolidated statements of cash flows 41
Notes to consolidated financial statements 42-68
</TABLE>
36
<PAGE> 37
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
Management is responsible for the preparation and integrity of the accompanying
consolidated financial statements of Eastman Chemical Company and subsidiaries
appearing on pages 39 through 68. Eastman has prepared these consolidated
financial statements in accordance with accounting principles generally
accepted in the United States, and the statements of necessity include some
amounts that are based on management's best estimates and judgments.
Eastman's accounting systems include extensive internal controls designed to
provide reasonable assurance of the reliability of its financial records and
the proper safeguarding and use of its assets. Such controls are based on
established policies and procedures, are implemented by trained, skilled
personnel with an appropriate segregation of duties, and are monitored through
a comprehensive internal audit program. The Company's policies and procedures
prescribe that the Company and all employees are to maintain the highest
ethical standards and that its business practices throughout the world are to
be conducted in a manner that is above reproach.
The consolidated financial statements have been audited by
PricewaterhouseCoopers LLP, independent accountants, who were responsible for
conducting their audits in accordance with auditing standards generally
accepted in the United States. Their report is included herein.
The Board of Directors exercises its responsibility for these financial
statements through its Audit Committee, which consists entirely of
nonmanagement Board members. The independent accountants and internal auditors
have full and free access to the Audit Committee. The Audit Committee meets
periodically with PricewaterhouseCoopers LLP and Eastman's director of internal
auditing, both privately and with management present, to discuss accounting,
auditing, policies and procedures, internal controls, and financial reporting
matters.
/s/ Earnest W. Deavenport, Jr. /s/ James P. Rogers
- -------------------------------- --------------------------------------
Earnest W. Deavenport, Jr. James P. Rogers
Chairman of the Board and Senior Vice President and
Chief Executive Officer Chief Financial Officer
January 28, 2000
37
<PAGE> 38
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareowners of
Eastman Chemical Company
In our opinion, the accompanying consolidated financial statements listed in
the index appearing under Item 14(a)(1) on page 70 present fairly, in all
material respects, the financial position of Eastman Chemical Company and its
subsidiaries at December 31, 1999 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1999 in conformity with accounting principles generally accepted in the
United States. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 1 to the consolidated financial statements, on January 1,
1999, the Company adopted AICPA Statement of Position 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use."
/s/ PricewaterhouseCoopers LLP
- -------------------------------------------
PRICEWATERHOUSECOOPERS LLP
New York, New York
January 28, 2000
38
<PAGE> 39
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS, COMPREHENSIVE
INCOME, AND RETAINED EARNINGS
(Dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Sales $ 4,590 $ 4,481 $ 4,678
Cost of sales 3,768 3,546 3,582
------- ------- -------
Gross profit 822 935 1,096
Selling and general administrative expenses 355 316 337
Research and development costs 187 185 191
Employee separations and pension settlement/curtailment 53 -- 62
Acquired in-process research and development 25 -- --
------- ------- -------
Operating earnings 202 434 506
Interest expense, net 126 96 87
Other (income) charges, net 4 (22) (27)
------- ------- -------
Earnings before income taxes 72 360 446
Provision for income taxes 24 111 160
------- ------- -------
Net earnings $ 48 $ 249 $ 286
======= ======= =======
Basic earnings per share $ .61 $ 3.15 $ 3.66
======= ======= =======
Diluted earnings per share $ .61 $ 3.13 $ 3.63
======= ======= =======
COMPREHENSIVE INCOME
Net earnings $ 48 $ 249 $ 286
Other comprehensive income (loss) (36) 19 (68)
------- ------- -------
Comprehensive income $ 12 $ 268 $ 218
======= ======= =======
RETAINED EARNINGS
Retained earnings at beginning of year $ 2,188 $ 2,078 $ 1,929
Net earnings 48 249 286
Cash dividends declared (138) (139) (137)
------- ------- -------
Retained earnings at end of year $ 2,098 $ 2,188 $ 2,078
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
39
<PAGE> 40
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Dollars in millions)
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
------- -------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 186 $ 29
Trade receivables, net of allowance of $13 and $12 572 624
Miscellaneous receivables 59 135
Inventories 485 493
Other current assets 187 117
------- -------
Total current assets 1,489 1,398
------- -------
Properties
Properties and equipment at cost 8,820 8,594
Less: Accumulated depreciation 4,870 4,560
------- -------
Net properties 3,950 4,034
------- -------
Goodwill, net of accumulated amortization of $14 and $5 271 16
Other intangibles, net of accumulated amortization of $6 and $0 175 3
Other noncurrent assets 418 399
------- -------
Total assets $ 6,303 $ 5,850
======= =======
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities
Payables and other current liabilities $ 1,009 $ 959
Borrowings due within one year 599 --
------- -------
Total current liabilities 1,608 959
Long-term borrowings 1,506 1,649
Deferred income tax credits 485 415
Postemployment obligations 789 712
Other long-term liabilities 156 181
------- -------
Total liabilities 4,544 3,916
------- -------
Commitments and contingencies
Shareowners' equity
Common stock ($0.01 par - 350,000,000 shares
authorized; shares issued -- 84,512,004 and 84,432,114) 1 1
Paid-in capital 95 94
Retained earnings 2,098 2,188
Other comprehensive loss (54) (18)
------- -------
2,140 2,265
Less: Treasury stock at cost (6,421,790 and 5,326,990 shares) 381 331
------- -------
Total shareowners' equity 1,759 1,934
------- -------
Total liabilities and shareowners' equity $ 6,303 $ 5,850
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
40
<PAGE> 41
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Cash flows from operating activities
Net earnings $ 48 $ 249 $ 286
----- ----- -----
Adjustments to reconcile net earnings to net cash provided
by operating activities, net of effect of acquisitions
Depreciation and amortization 383 351 327
Write-off of impaired assets 54 33 --
Write-off of acquired in-process research and
development 25 -- --
Provision (benefit) for deferred income taxes (18) 66 7
(Increase) decrease in receivables 163 19 (53)
(Increase) decrease in inventories 63 19 (65)
Increase (decrease) in incentive pay and employee
benefit liabilities (69) 57 134
Increase (decrease) in liabilities excluding
borrowings, employee benefit liabilities, and
incentive pay 115 (35) 60
Other items, net (20) (28) 2
----- ----- -----
Total adjustments 696 482 412
----- ----- -----
Net cash provided by operating activities 744 731 698
----- ----- -----
Cash flows from investing activities
Additions to properties and equipment (292) (500) (749)
Acquisitions and investments in joint ventures,
net of cash acquired (381) (27) 5
Additions to capitalized software (24) -- --
Capital advances to suppliers (21) (21) (21)
Other items 3 3 20
----- ----- -----
Net cash used in investing activities (715) (545) (745)
----- ----- -----
Cash flows from financing activities
Proceeds from long-term borrowings -- 24 295
Net increase (decrease) in commercial paper borrowings 348 (90) (82)
Repayment of borrowings (34) -- (22)
Dividends paid to shareowners (138) (138) (138)
Treasury stock purchases (51) -- (8)
Other items 3 18 7
----- ----- -----
Net cash provided by (used in) financing activities 128 (186) 52
----- ----- -----
Net change in cash and cash equivalents 157 -- 5
Cash and cash equivalents at beginning of year 29 29 24
----- ----- -----
Cash and cash equivalents at end of year $ 186 $ 29 $ 29
===== ===== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
41
<PAGE> 42
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
FINANCIAL STATEMENT PRESENTATION
The consolidated financial statements of Eastman Chemical Company and
subsidiaries ("Eastman" or the "Company") are prepared in conformity
with generally accepted accounting principles and of necessity include
some amounts that are based upon management estimates and judgments.
Future actual results could differ from such current estimates. The
Consolidated Financial Statements include assets, liabilities,
revenues, and expenses of all wholly-owned subsidiaries. Eastman
accounts for joint ventures and investments in minority-owned companies
where it exercises significant influence on the equity basis.
Intercompany transactions and balances are eliminated in consolidation.
TRANSLATION OF NON-U.S. CURRENCIES
Eastman uses the local currency as the "functional currency" to
translate the accounts of all consolidated entities outside the United
States where cash flows are primarily denominated in local currencies.
The effects of translating those operations that use the local currency
as the functional currency are included as a component of comprehensive
income and shareowners' equity. The effects of remeasuring those
operations where the U.S. dollar is used as the functional currency and
all transaction gains and losses are reflected in current earnings.
REVENUE RECOGNITION
Sales are recognized when products are shipped and the earnings process
is complete. Appropriate accruals for discounts, volume incentives, and
other allowances are recorded as reductions in sales.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash, time deposits, and readily
marketable securities with original maturities of three months or less.
INVENTORIES
Inventories are valued at cost, which is not in excess of market. The
Company determines the cost of most raw materials, work in process, and
finished goods inventories in the United States by the last-in,
first-out ("LIFO") method. The cost of all other inventories, including
inventories outside the United States, is determined by the first-in,
first-out ("FIFO") or average cost method.
PROPERTIES
The Company records properties at cost. Maintenance and repairs are
charged to earnings; replacements and betterments are capitalized. When
Eastman retires or otherwise disposes of assets, it removes the cost of
such assets and related accumulated depreciation from the accounts. The
Company records any profit or loss on retirement or other disposition
in earnings.
DEPRECIATION
Depreciation expense is calculated based on historical cost and the
estimated useful lives of the assets (buildings and building equipment
20 to 50 years; machinery and equipment 3 to 33 years), generally using
42
<PAGE> 43
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the straight-line method. For U.S. assets acquired before January 1,
1992, the Company generally uses accelerated methods to calculate the
provision for depreciation.
AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES
Goodwill and other intangibles are amortized on a straight-line basis
over the expected useful lives of the underlying assets, generally from
5 to 40 years.
IMPAIRED ASSETS
The Company reviews the carrying values of long-lived assets,
identifiable intangibles and goodwill for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. An impairment loss for an asset to be held and
used is recognized when the fair value of the asset, generally based on
discounted estimated future cash flows, is less than the carrying value
of the asset. An impairment loss for assets to be disposed of is
recognized when the fair value of the asset, less costs to dispose, is
less than the carrying value of the asset.
DERIVATIVE FINANCIAL INSTRUMENTS
Derivative financial instruments are used by the Company in the
management of its foreign currency exposures. The purpose of the
Company's foreign currency hedging activities is to protect the Company
from the risk that changes in exchange rates will adversely affect the
eventual dollar cash flows resulting from such transactions. The
Company enters into forward exchange contracts to hedge certain firm
commitments denominated in foreign currencies and currency options to
hedge probable anticipated but not yet committed export sales and
purchase transactions expected within no more than five years and
denominated in foreign currencies (principally the British pound,
French franc, German mark, Japanese yen and the Euro). The Company's
forward and option contracts are accounted for as hedges because the
derivative instruments are designated and effective as hedges and
reduce the Company's exposure to foreign currency risks. Gains and
losses resulting from effective hedges of existing assets, liabilities,
firm commitments, or anticipated transactions are deferred and
recognized when the offsetting gains and losses are recognized on the
related hedged items and are reported as a component of operating
earnings. Deferred premiums are generally included in other noncurrent
assets and are amortized over the life of the contract. The related
obligation for payment is generally included in other liabilities and
is paid in the period in which the options are exercised or expire and
forward exchange contracts mature.
INVESTMENTS
The Company includes in other noncurrent assets its investments in
joint ventures, which are managed as integral parts of the Company's
operations and accounted for on the equity basis. Eastman carries
certain investments at negative values, based on its intention to fund
its share of deficits in such investments, and includes such negative
carrying values in other long-term liabilities. The Company includes
its share of earnings and losses of such joint ventures in other income
and charges.
Marketable securities held by the Company, currently common or
preferred stock, are deemed by management to be available-for-sale and
are reported at fair value, with net unrealized gains or losses
reported as a component of other comprehensive income in shareowners'
equity. Realized gains and losses are included in earnings and are
derived using the specific identification method for determining the
cost of securities. The Company includes these investments in other
noncurrent assets.
43
<PAGE> 44
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Other equity investments, for which fair values are not readily
determinable, are carried at historical cost and are included in other
noncurrent assets.
EARNINGS PER SHARE
Basic earnings per share reflect reported earnings divided by the
weighted average number of common shares outstanding. Diluted earnings
per share include the effect of dilutive stock options outstanding
during the year.
INCOME TAXES
Deferred income taxes, reflecting the impact of temporary differences
between the assets and liabilities recognized for financial reporting
purposes and amounts recognized for tax purposes, are based on tax laws
currently enacted.
STOCK-BASED COMPENSATION
Compensation cost attributable to stock option and similar plans is
recognized based on the difference, if any, between the quoted market
price of the stock on the date of grant over the amount the employee is
required to pay to acquire the stock (intrinsic value method). Such
amount, if any, is accrued over the related vesting period, as
appropriate.
COMPENSATED ABSENCES
The Company accrues compensated absences and related benefits as
current charges to earnings.
COMPUTER SOFTWARE COSTS
On January 1, 1999, the Company adopted AICPA Statement of Position
98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use," which requires the capitalization of
certain costs, including internal payroll costs, incurred in connection
with the development or acquisition of software for internal use.
Capitalized software costs will be amortized on a straight-line basis
over three years, the expected useful life of such assets, beginning
when the software project is substantially complete and placed in
service. The adoption of this standard resulted in capitalization in
1999 of $24 million, of which $2 million was amortized, for certain
internal-use software costs which otherwise would have been expensed.
The impact on 1999 net earnings was approximately $14.7 million or
$0.19 per diluted share. No restatement of prior year results was
required.
ENVIRONMENTAL COSTS
The Company accrues environmental costs when it is probable that the
Company has incurred a liability and the amount can be reasonably
estimated. Estimated costs associated with closure/postclosure are
accrued over the facilities' estimated remaining useful lives. Accruals
for environmental liabilities are included in other long-term
liabilities at undiscounted amounts and exclude claims for recoveries
from insurance companies or other third parties. Environmental costs
are capitalized if they extend the life of the related property,
increase its capacity, and/or mitigate or prevent future contamination.
The cost of operating and maintaining environmental control facilities
is charged to expense.
44
<PAGE> 45
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
COMPREHENSIVE INCOME
Components of other comprehensive income (loss) include cumulative
translation adjustments, additional minimum pension liabilities, and
unrecognized gain or loss on investments. Amounts of other
comprehensive income (loss) are presented net of applicable taxes.
Because cumulative translation adjustments are considered a component
of permanently invested unremitted earnings of subsidiaries outside the
United States, no taxes are provided on such amounts.
RECLASSIFICATIONS
The Company has reclassified certain 1998 and 1997 amounts to conform
to the 1999 presentation.
2. INVENTORIES
<TABLE>
<CAPTION>
DECEMBER 31,
(Dollars in millions) 1999 1998
-------- --------
<S> <C> <C>
At FIFO or average cost (approximates current cost)
Finished goods $ 404 $ 409
Work in process 128 138
Raw materials and supplies 210 203
-------- --------
Total inventories 742 750
Reduction to LIFO value (257) (257)
-------- --------
Total inventories at LIFO value $ 485 $ 493
======== ========
</TABLE>
Inventories valued on the LIFO method were approximately 70% of total
inventories in 1999 and 1998.
3. PROPERTIES AND ACCUMULATED DEPRECIATION
PROPERTIES AT COST
<TABLE>
<CAPTION>
(Dollars in millions) 1999 1998
-------- --------
<S> <C> <C>
Balance at beginning of year $ 8,594 $ 8,104
Additions 393 539
Deductions (167) (49)
-------- --------
Balance at end of year $ 8,820 $ 8,594
======== ========
Properties
Land $ 61 $ 45
Buildings and building equipment 884 766
Machinery and equipment 7,685 7,414
Construction in progress 190 369
-------- --------
Balance at end of year $ 8,820 $ 8,594
======== ========
</TABLE>
45
<PAGE> 46
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
(Dollars in millions) 1999 1998
-------- --------
<S> <C> <C>
ACCUMULATED DEPRECIATION
Balance at beginning of year $ 4,560 $ 4,223
Provision for depreciation 368 351
Deductions (58) (14)
-------- --------
Balance at end of year $ 4,870 $ 4,560
======== ========
</TABLE>
Construction-period interest of $336 million, $325 million, and $295
million, reduced by accumulated depreciation of $157 million, $141
million, and $125 million is included in cost of properties at
December 31, 1999, 1998, and 1997, respectively.
Depreciation expense was $368 million, $351 million, and $327 million
for 1999, 1998, and 1997, respectively.
4. EQUITY INVESTMENTS AND OTHER NONCURRENT ASSETS AND LIABILITIES
Eastman has a 50% interest in Genencor International, a joint venture
engaged in developing, manufacturing, and marketing industrial enzymes
and other fine and specialty chemicals, accounted for under the equity
method and included in other noncurrent assets. At December 31, 1999
and 1998, Eastman's equity in the joint venture was $157 million and
$148 million, respectively. The Company guarantees a portion of the
joint venture's third-party borrowings. Such guarantees are not
considered material to Eastman. Management believes, based on current
facts and circumstances and the joint venture's financial position,
that the likelihood of a payment pursuant to such guarantees is remote.
Eastman has a 50% interest in and serves as the operating partner in
Primester, a joint venture engaged in the manufacture of cellulose
esters at its Kingsport, Tennessee plant, accounted for under the
equity method. The Company guarantees a portion of the principal amount
of the joint venture's third-party borrowings; however, management
believes, based on current facts and circumstances and the structure of
the venture, that the likelihood of a payment pursuant to such
guarantee is remote. At December 31, 1999 and 1998, Eastman had a
negative investment in the joint venture of $41 million for both
periods, representing the recognized portion of the venture's
accumulated deficits and the debt guarantee that it has a commitment to
fund, as necessary. Such amounts are included in other long-term
liabilities. The Company provides certain utilities and general plant
services to the joint venture. In return for Eastman providing those
services, the joint venture paid Eastman a total of $39 million in
three equal installments in 1991, 1992, and 1993. Eastman is amortizing
the deferred credit to earnings over a 10-year period.
Eastman has entered into an agreement with a supplier that guarantees
the Company's right to buy a specified quantity of a certain raw
material annually through 2007 at prices determined by the pricing
formula specified in the agreement. In return, the Company paid a total
of $239 million to the supplier through 1999 and approximately $218
million through December 31, 1998. The Company defers and amortizes
those costs over the 15-year period during which the product is
received. The Company began amortizing those costs in 1993 and has
recorded accumulated amortization of $112 million and $96 million at
December 31, 1999 and 1998, respectively.
46
<PAGE> 47
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. PAYABLES AND OTHER CURRENT LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31,
(Dollars in millions) 1999 1998
-------- --------
<S> <C> <C>
Trade creditors $ 323 $ 265
Accrued payrolls, vacation, and variable-incentive compensation 143 174
Accrued pension liabilities - current -- 182
Accrued taxes 112 58
Other 431 280
-------- --------
Total $ 1,009 $ 959
======== ========
</TABLE>
6. BORROWINGS
<TABLE>
<CAPTION>
DECEMBER 31,
(Dollars in millions) 1999 1998
-------- --------
<S> <C> <C>
SHORT-TERM BORROWINGS
Commercial paper $ 398 $ --
Notes payable 125 --
Other 76 --
-------- --------
Total short-term borrowings $ 599 $ --
-------- --------
LONG-TERM BORROWINGS
6 3/8% notes due 2004 $ 500 $ 500
Variable interest rate tax-exempt bonds due 2022 -- 23
7 1/4% debentures due 2024 496 495
7 5/8% debentures due 2024 200 200
7.60% debentures due 2027 297 296
Commercial paper -- 123
Other 13 12
-------- --------
Total long-term borrowings $ 1,506 $ 1,649
-------- --------
Total borrowings $ 2,105 $ 1,649
======== ========
</TABLE>
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 annual rate for such fee was 0.085% in 1999 and
0.075% in 1998 and 1997. The Credit Facility contains a number of
covenants and events of default, including the maintenance of certain
financial ratios. Eastman was in compliance with all such covenants for
all periods.
Eastman utilizes commercial paper, generally with maturities of 90 days
or less, to meet its liquidity needs. As commercial paper is supported
by the Credit Facility that expires in December 2000, the commercial
paper borrowings at yearend 1999 have been classified as short-term
borrowings. In 1998, commercial paper borrowings were classified as
long-term borrowings. As of December 31, 1999, the Company's short-term
borrowings totaled $599 million, at interest rates ranging between 6.2%
and 6.91%.
47
<PAGE> 48
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company borrowed an additional $100 million prior to yearend 1999
as a precautionary measure related to the Year 2000 issue. These
additional borrowings assured our ability to meet certain January 2000
cash requirements without utilizing the commercial paper markets in
early January 2000. At December 31, 1998, a total of $123 million of
commercial paper was outstanding, at interest rates ranging between
5.25% and 5.81%. In 1997, Eastman issued $300 million of 7.60%
debentures due February 1, 2027, and used the proceeds to repay
commercial paper borrowings outstanding at that time.
During 1998, the Company issued $23 million of tax-exempt bonds at
variable interest rates and in 1999 redeemed the bonds.
In January 2000, the Company retired $125 million of Lawter
International, Inc.'s ("Lawter") notes, with interest rates of 6.33%
and 6.91%, and financed this with commercial paper. Consequently, these
notes are classified in the consolidated financial statements at
December 31, 1999 as short-term borrowings.
7. SHAREOWNERS' EQUITY
<TABLE>
<CAPTION>
(Dollars in millions) 1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Common stock at par value $ 1 $ 1 $ 1
------------ ------------ ------------
Paid-in capital
Balance at beginning of year 94 77 37
Additions 1 17 40
------------ ------------ ------------
Balance at end of year 95 94 77
------------ ------------ ------------
Retained earnings 2,098 2,188 2,078
------------ ------------ ------------
Accumulated other comprehensive income (loss)
Balance at beginning of year $ (18) $ (37) $ 31
Change in cumulative translation adjustment (46) 24 (52)
Change in unfunded minimum pension liability 7 (5) (16)
Change in unrecognized gain or loss on investment 3 -- --
------------ ------------ ------------
Balance at end of year (54) (18) (37)
------------ ------------ ------------
Treasury stock at cost (381) (331) (366)
------------ ------------ ------------
Total $ 1,759 $ 1,934 $ 1,753
============ ============ ============
Shares of common stock issued(1)
Balance at beginning of year 84,432,114 84,144,672 83,386,459
Issued for employee compensation and
benefit plans 79,890 287,442 758,213
------------ ------------ ------------
Balance at end of year 84,512,004 84,432,114 84,144,672
============ ============ ============
</TABLE>
(1) Includes shares held in treasury.
The Company has authority to issue 400 million shares of all classes of
stock, of which 50 million may be preferred stock, par value $0.01 per
share, and 350 million may be common stock, par value $0.01 per share.
The Company declared dividends of $1.76 per share in 1999, 1998, and
1997.
48
<PAGE> 49
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company established a benefit security trust in 1997 to provide a
degree of financial security for unfunded obligations under certain
plans. The Company has contributed to the trust a warrant to purchase
up to one million shares of common stock of the Company for par value.
The warrant is exercisable by the trustee if the Company does not meet
certain funding obligations, which obligations would be triggered by
certain occurrences, including a change in control or potential change
in control, as defined, or failure by the Company to meet its payment
obligations under covered unfunded plans. Such warrant is excluded from
the computation of diluted earnings per share because the conditions
upon which the warrant is exercisable have not been met.
The additions to paid-in capital for the three years are the result of
exercises of stock options by employees and the issuance of shares to
the Employee Stock Ownership Plan to settle Eastman Performance Plan
obligations.
The Company repurchased 1,094,800 shares of Eastman common stock at a
cost of approximately $50 million in 1999, no shares in 1998, and
140,801 shares at a cost of $8 million in 1997. Repurchased common
shares may be used to meet common stock requirements for benefit plans
and other corporate purposes. Treasury stock at a cost of approximately
$33 million (536,188 shares) and $1 million (18,018 shares) were
reissued in 1998 and 1997, respectively. The Company's charitable
foundation held 158,424 shares of Eastman common stock at December 31,
1999 and December 31, 1998 and 184,557 shares at December 31, 1997.
For 1999, 1998, and 1997, respectively, the weighted average number of
common shares outstanding used to compute basic earnings per share was
78.2 million, 78.9 million, and 78.1 million and for diluted earnings
per share was 78.4 million, 79.5 million, and 78.8 million, reflecting
the effect of dilutive options outstanding. Excluded were options to
purchase 2,331,341 shares of common stock at a range of prices from
$48.4375 to $74.25; 994,503 shares of common stock at a range of prices
from $56.875 to $74.25; and 790,324 shares of common stock at a range
of prices from $59.00 to $74.25, outstanding at the end of 1999, 1998,
and 1997, respectively.
In 1999, several key executive officers were awarded performance-based
stock options to further align their compensation with the return to
Eastman's shareowners and to provide additional incentive and
opportunity for reward to individuals in key positions having direct
influence over corporate actions that are expected to impact the market
price of Eastman's stock. A total of 574,000 shares will become
exercisable through October 19, 2001, if both the stock price and time
vesting conditions are met. At December 31, 1999, 45,920 shares
underlying such options were included in diluted earnings per share
calculations as a result of the stock price conditions for vesting
being met.
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 stock price conditions to
exercise had not been met as to any of the shares as of December 31,
1999, 1998, and 1997.
8. IMPAIRMENT OF ASSETS
In 1999, the Company recorded pre-tax charges to earnings of $10
million ($6.7 million after tax) for the write-off of construction in
progress related to an epoxybutene ("EpB") plant project which was
terminated and determined to have no future value. These charges were
recorded in Cost of Sales for the Specialty and Performance segment.
In first quarter 1999, the Company announced a phase-out of operations
at Distillation Products Industries in Rochester, New York. The Company
recorded pre-tax charges to earnings of $9 million ($6 million after
49
<PAGE> 50
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
tax) for costs associated with employee termination benefits and the
write-down of plant and equipment used at the site. These charges were
recorded in Cost of Sales for the Specialty and Performance segment.
During the fourth quarter 1999, the Company decided to discontinue
production at its sorbates facilities in Chocolate Bayou, Texas
effective June 30, 2000. The projected economic performance and cash
flows for this product line were determined to be insufficient for
remaining in this business. The Company recorded a pre-tax charge to
earnings of $17 million ($11.4 million after tax) for the write-down of
plant and equipment used at the site. This charge was recorded in Cost
of Sales for the Specialty and Performance segment.
In the fourth quarter 1999, the Company recorded pre-tax charges to
earnings of $16.3 million ($10.9 million after tax) for the write-off
of construction in progress related to a purified terephthalic acid
("PTA") plant project. This project was terminated due to unfavorable
market conditions and unsuccessful discussions with several potential
buyers of this product. A significant portion of the construction in
progress was determined to have no alternative use and no future value.
This charge was recorded in Cost of Sales for the Core Plastics
segment.
In the fourth quarter 1998, the Company recorded a pre-tax charge to
earnings of $20.3 million ($14.1 million after tax) for the write-down
of property, plant and equipment used in the production of CHDA, a
product sold in the Specialty and Performance segment. Based on
responses from customers surveyed in the fourth quarter 1998, market
outlook and estimated future cash flows for this product declined
significantly. The carrying values of assets related to CHDA production
were written down to fair market value based on estimated discounted
future cash flows. The charge was recorded in Cost of Sales for the
Specialty and Performance segment.
The Company also recorded in the fourth quarter 1998 a pre-tax charge
to earnings of $12.4 million ($8.6 million after tax) for the write-off
of construction in progress related to an EASTOTAC expansion project
and an EpB plant project. Process improvements leading to increased
EASTOTAC manufacturing capacity at the existing Longview, Texas plant
and a planned joint venture in China lead to cancellation of the
EASTOTAC expansion project. A portion of work done to date on an EpB
plant project had no future value. The EASTOTAC expansion project and
EpB plant project costs were written off and recorded in Cost of Sales
for the Specialty and Performance segment.
9. ACQUISITION OF LAWTER INTERNATIONAL, INC.
On June 9, 1999, the Company completed its acquisition of Lawter for
cash consideration of approximately $370 million (net of $41 million
cash acquired) and the assumption of $145 million of Lawter's debt.
Lawter develops, produces and markets specialty products for the inks
and coatings market.
The acquisition of Lawter has been accounted for by the purchase method
of accounting. Assets acquired and liabilities assumed have been
recorded at their fair values. Goodwill and other intangible assets are
approximately $455 million, representing the excess of cost over the
estimated fair value of net tangible assets acquired. Based on an
independent appraisal completed in the fourth quarter 1999, purchased
in-process research and development, for which no alternative uses
exist, was valued at $25 million. A charge for this amount was
recognized in the fourth quarter 1999. Goodwill will be amortized on a
straight-line basis over 40 years. Other intangibles will be amortized
on a straight-line basis over 5-40 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, 1998, and 1997, the
proforma results for the years then ended would not be materially
different from reported results.
50
<PAGE> 51
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. STOCK OPTION AND COMPENSATION PLANS
OMNIBUS PLAN
Eastman's 1997 Omnibus Long-Term Compensation Plan (the "1997 Omnibus
Plan"), which is substantially similar to and intended to replace the
1994 Omnibus Long-Term Compensation Plan (the "1994 Omnibus Plan"),
provides for grants to employees of nonqualified stock options,
incentive stock options, tandem and freestanding stock appreciation
rights, performance shares, and various other stock and stock-based
awards. Certain of these awards may be based on criteria relating to
Eastman performance as established by the Compensation and Management
Development Committee of the Board of Directors. No new awards have
been made under the 1994 Omnibus Plan following the effectiveness of
the 1997 Omnibus Plan. Outstanding grants and awards under the 1994
Omnibus Plan are unaffected by the replacement of the 1994 Omnibus Plan
with the 1997 Omnibus Plan. The 1997 Omnibus Plan provides that options
can be granted through April 30, 2002, for the purchase of Eastman
common stock at an option price not less than 50% of the per share fair
market value on the date of the stock option's grant. Substantially all
grants awarded under the 1994 Omnibus Plan and under the 1997 Omnibus
Plan have been at option prices equal to the fair market value on the
date of grant. Options typically become exercisable 50% one year after
grant and 100% after two years and expire 10 years after grant. There
is a maximum of 7 million shares of common stock available for option
grants and other awards during the term of the 1997 Omnibus Plan. 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 1997 Omnibus Plan to the Chief Executive Officer or to any of
the next four most highly compensated executive officers (each, a
"Covered Employee") is 200,000. The maximum fair market value of any
awards (other than options and SARs) that may be received by a Covered
Employee during any one calendar year under the 1997 Omnibus Plan is
equal to the fair market value of 100,000 shares of common stock as of
December 31 of the preceding year.
DIRECTOR LONG-TERM COMPENSATION PLAN
Eastman's 1999 Director Long-Term Compensation Plan (the "Director
Plan") which is substantially similar to and intended to replace the
1994 Director Long-Term Compensation Plan, provides for grants of
nonqualified stock options and restricted shares to nonemployee members
of the Board of Directors. No new awards have been made under the 1994
Director Long-Term Compensation Plan, following the effectiveness of
the 1999 Director Plan. Outstanding grants and awards under the 1994
Director Long-Term Compensation Plan are unaffected by the replacement
of the 1994 Director Plan with the 1999 Director Plan. Shares of
restricted stock are granted upon the first day of the directors'
initial term of service, and nonqualified stock options are granted
each year following the annual meeting of shareowners. The Director
Plan provides that options can be granted through the later of May 1,
2003 or the date of the annual meeting of shareowners in 2003 for the
purchase of Eastman common stock at an option price not less than the
stock's fair market value on the date of the grant. The options vest in
50% increments on the first two anniversaries of the grant date.
NONEMPLOYEE DIRECTOR STOCK OPTION PLAN
Eastman's 1996 Nonemployee Director Stock Option Plan provides for
grants of nonqualified stock options to nonemployee members of the
Board of Directors in lieu of all or a portion of each member's annual
retainer. The Nonemployee Director Stock Option Plan provides that
options may be granted for the purchase of Eastman common stock at an
option price not less than the stock's fair market value on the date of
grant. The options become exercisable six months after the grant date.
The maximum number of shares of Eastman common stock available for
grant under the Plan is 150,000.
51
<PAGE> 52
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
STOCK OPTION BALANCES AND ACTIVITY
The Company applies intrinsic value accounting for its stock option
plans. If the Company had elected to recognize compensation expense
based upon the fair value at the grant dates for awards under these
plans, the Company's net earnings and earnings per share would be
reduced to the unaudited pro forma amounts indicated below.
<TABLE>
<CAPTION>
(Dollars in millions, except per share amounts) 1999 1998 1997
------ ------ ------
<S> <C> <C> <C> <C>
Net earnings As reported $ 48 $ 249 $ 286
Pro forma $ 45 $ 248 $ 285
Basic earnings per share As reported $ .61 $ 3.15 $ 3.66
Pro forma $ .58 $ 3.14 $ 3.65
Diluted earnings per share As reported $ .61 $ 3.13 $ 3.63
Pro forma $ .57 $ 3.12 $ 3.62
</TABLE>
The fair value of each option is estimated on the grant date using the
Black-Scholes option-pricing model, which requires input of highly
subjective assumptions. Some of these assumptions used for grants in
1999, 1998, and 1997, respectively, include: average expected
volatility of 25.48%, 20.87%, and 21.61%; average expected dividend
yield of 4.05%, 3.07%, and 2.92%; and average risk-free interest rates
of 5.74%, 5.48%, and 6.14%. An expected option term of six years for
all periods was developed based on historical experience information.
The expected term for reloads was considered as part of this
calculation and is equivalent to the remaining term of the original
grant at the time of reload.
Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because
changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of
its employee stock options.
A summary of the status of the Company's stock option plans is
presented below:
<TABLE>
<CAPTION>
1999 1998 1997
---------------------- ------------------------ -----------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
---------------------- ------------------------ -----------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 3,865,101 $ 51 3,716,208 $ 50 3,216,437 $ 47
Granted 1,019,977 47 479,446 57 623,735 60
Exercised 81,504 39 316,360 42 123,964 40
Forfeited or canceled 18,617 57 14,193 64 -- --
-------------------- ----------------------- ----------------------
Outstanding at end of year 4,784,957 $ 50 3,865,101 $ 51 3,716,208 $ 50
========= ========== =========
Options exercisable at yearend 3,400,079 3,267,275 2,842,573
========= ========== =========
Weighted-average fair value of
options granted during the year $ 9.82 $ 12.40 $ 14.65
Available for grant at end of year 7,503,969 8,439,445 8,766,755
========= ========== =========
</TABLE>
52
<PAGE> 53
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------- -------------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
RANGE OF NUMBER REMAINING AVERAGE NUMBER AVERAGE
EXERCISE OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
PRICES AT 12/31/99 LIFE PRICE AT 12/31/99 PRICE
-------- ----------- ---------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$31-$40 287,151 2.8 Years $ 35 246,231 $ 34
42 6,000 9.8 42 0 --
43-44 1,440,034 4.0 43 1,440,034 43
45-46 719,351 9.0 46 551 45
48-63 1,766,777 6.8 57 1,147,619 57
64-74 565,644 5.4 65 565,644 65
--------- ---------
$31-$74 4,784,957 5.9 $ 50 3,400,079 $ 51
========= =========
</TABLE>
EASTMAN INVESTMENT AND EMPLOYEE STOCK OWNERSHIP PLAN
The Company sponsors a defined contribution employee stock ownership
plan (the "ESOP"), a qualified plan under Section 401(a) of the
Internal Revenue Code which is a component of the Eastman Investment
and Employee Stock Ownership Plan ("EIP/ESOP"). Eastman anticipates
that it will make contributions for substantially all U.S. employees
equal to 5% of eligible compensation to either the ESOP, or for
employees who have five or more prior ESOP contributions, to the
Eastman Stock Fund within the Eastman Investment Plan. The Company also
sponsors an employee stock ownership plan, which is substantially
similar to the ESOP, for its international employees. Allocated shares
in the ESOP totaled 3,249,519, 2,626,880, and 2,289,826 as of December
31, 1999, 1998, and 1997, respectively.
Compensation expense is measured based on the fair value of the shares
contributed to or committed to be contributed to the EIP/ESOP. The
shares are allocated to participant accounts and held by the EIP/ESOP
until distributed to the employees at a future date, such as on the
date of termination or retirement, or until moved by the employee to
other investment funds within Eastman Investment Plan. Dividends on
shares held by the EIP/ESOP are charged to retained earnings. All
shares held by the EIP/ESOP are treated as outstanding in computing
earnings per share.
Charges for contributions to the EIP/ESOP were $37 million, $36
million, and $36 million for 1999, 1998, and 1997, respectively.
Charges related to 1998 and 1997 were previously reported as part of
the Eastman Performance Plan.
EASTMAN PERFORMANCE PLAN
The Eastman Performance Plan (the "EPP") places a portion of each
employee's annual compensation at risk and provides a lump-sum payment
to plan participants based on the Company's financial performance. The
EPP previously included a cash component and a stock component, but
effective for performance year 1999, the stock component was separated
from the EPP. Beginning with performance year 1999, the stock
53
<PAGE> 54
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
component is reported as a Company contribution to the EIP/ESOP.
Charges for the stock component of the EPP in 1998 and 1997 have been
reclassified and reported above as part of the EIP/ESOP.
Charges under the EPP were $3 million, $30 million, and $45 million in
1999, 1998, and 1997, respectively.
ANNUAL PERFORMANCE PLAN
Eastman's managers and executive officers participate in an Annual
Performance Plan (the "APP"), which places a portion of annual cash
compensation at risk based upon Company performance as measured by
specified annual goals. Charges under the APP for 1999, 1998, and 1997
were $13 million, $8 million, and $11 million, respectively.
UNIT PERFORMANCE PLAN
Beginning in 2000, Eastman managers and executive officers will also
participate in a new variable compensation plan, the Unit Performance
Plan (the "UPP"), under which a portion of annual cash compensation is
at risk based upon organizational unit performance and the attainment
of individual objectives and expectations. The portion of a
participant's targeted pay that is at risk under the existing APP and
the new UPP will be equal to the portion of the targeted pay that would
have been at risk under the APP.
11. INCOME TAXES
Components of earnings before income taxes and the provision for U.S.
and other income taxes follow:
<TABLE>
<CAPTION>
(Dollars in millions) 1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Earnings (loss) before income taxes
United States $ 185 $ 463 $ 541
Outside the United States (113) (103) (95)
------ ------ ------
Total $ 72 $ 360 $ 446
====== ====== ======
Provision (benefit) for income taxes
United States
Current $ 31 $ 35 $ 134
Deferred (14) 64 14
Non-United States
Current 10 6 6
Deferred (3) (3) (8)
State and other
Current 1 4 13
Deferred (1) 5 1
------ ------ ------
Total $ 24 $ 111 $ 160
====== ====== ======
</TABLE>
54
<PAGE> 55
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Differences between the provision for income taxes and income taxes
computed using the U.S. federal statutory income tax rate follow:
<TABLE>
<CAPTION>
(Dollars in millions) 1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Amount computed using the statutory rate $ 25 $ 126 $ 156
State income taxes -- 6 9
Foreign rate variance 7 (3) (4)
Foreign sales corporation benefit (7) (24) (8)
ESOP dividend payout (1) (1) (1)
Other -- 7 8
------ ------ ------
Provision for income taxes $ 24 $ 111 $ 160
====== ====== ======
</TABLE>
The 1998 foreign sales corporation benefit includes $12 million
attributable to amended returns reflecting redetermined foreign sales
corporation results for the years prior to 1998.
The significant components of deferred tax assets and liabilities
follow:
<TABLE>
<CAPTION>
DECEMBER 31,
(Dollars in millions) 1999 1998
---- ----
<S> <C> <C>
Deferred tax assets
Postemployment obligations $285 $272
Payroll and related items 40 43
Inventories -- 1
Deferred revenue 15 17
Miscellaneous reserves 51 29
Preproduction and start-up costs 10 14
Other 55 53
---- ----
Total $456 $429
==== ====
Deferred tax liabilities
Depreciation $775 $747
Inventories 5 --
Other 96 29
---- ----
Total $876 $776
==== ====
</TABLE>
Unremitted earnings of subsidiaries outside the United States totaling
$145 million at December 31, 1999, are considered to be reinvested
indefinitely. If remitted, they would be substantially free of
additional tax. It is not practicable to determine the deferred tax
liability for temporary differences related to those unremitted
earnings.
Current income taxes payable totaling $81 million and $16 million are
included in current liabilities at December 31, 1999 and 1998,
respectively.
55
<PAGE> 56
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
--------------------- -------------------
RECORDED FAIR RECORDED FAIR
(Dollars in millions) AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Long-term borrowings $ 1,506 $ 1,424 $ 1,649 $ 1,650
Foreign exchange contracts 28 87 46 67
</TABLE>
Eastman uses the following methods and assumptions in estimating its
fair-value disclosures for financial instruments:
LONG-TERM BORROWINGS
The Company has based the fair value for fixed-rate borrowings on
current interest rates for comparable securities. The Company's
floating-rate borrowings approximate fair value.
FOREIGN EXCHANGE CONTRACTS
The Company estimates the fair value of its foreign exchange contracts
based on dealer-quoted market prices of comparable instruments.
OTHER FINANCIAL INSTRUMENTS
Because of the nature of all other financial instruments, recorded
amounts approximate fair value. In the judgment of management, exposure
to third-party guarantees is remote and the potential earnings impact
pursuant to such guarantees is insignificant.
DERIVATIVE FINANCIAL INSTRUMENTS HELD OR ISSUED FOR PURPOSES OTHER THAN
TRADING
Eastman had currency options with maturities of not more than three
years to exchange various foreign currencies for U.S. dollars in the
aggregate notional amount of $639 million and $960 million at December
31, 1999 and 1998, respectively. The net unrealized gain deferred on
such options was $59 million and $21 million as of December 31, 1999
and 1998, respectively. Those amounts, based on dealer-quoted prices,
represent the estimated gain that would have been recognized had those
hedges been liquidated at estimated market value on the last day of
each year presented.
The Company is exposed to credit loss in the event of nonperformance by
counterparties on foreign exchange contracts but anticipates no such
nonperformance. The Company minimizes such risk exposure by limiting
the counterparties to major international banks and financial
institutions. Concentrations of credit risk with respect to trade
accounts receivable are generally diversified because of the large
number of entities constituting the Company's customer base and their
dispersion across many different industries and geographies.
56
<PAGE> 57
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. COMMITMENTS
LEASE COMMITMENTS
Eastman leases facilities, principally property, machinery, and
equipment, under cancelable, noncancelable, and month-to-month
operating leases. Future lease payments, reduced by sublease income,
follow:
<TABLE>
<CAPTION>
(Dollars in millions)
<S> <C>
Year ending December 31,
2000 $ 55
2001 50
2002 36
2003 22
2004 12
2005 and beyond 82
-----
Total minimum payments required $ 257
=====
</TABLE>
If certain operating leases are terminated by the Company, it
guarantees a portion of the residual value loss, if any, incurred by
the lessors in disposing of the related assets. Management believes,
based on current facts and circumstances and current values of such
equipment, that a material payment pursuant to such guarantees is
remote.
Rental expense, net of sublease income, was $83 million, $83 million,
and $80 million in 1999, 1998, and 1997, respectively.
OTHER COMMITMENTS
The Company had various purchase commitments at the end of 1999 for
materials, supplies, and energy incident to the ordinary conduct of
business. These commitments, over a period of several years,
approximate $1.5 billion. Eastman has other long-term commitments
relating to joint venture agreements as described in Note 4 to
Consolidated Financial Statements.
In 1999, the Company entered into an agreement that allows the Company
to sell certain domestic accounts receivable under a planned continuous
sale program to a third party. The agreement permits the sale of
undivided interests in domestic trade accounts receivable. Receivables
totaling $150 million have 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 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.
14. RETIREMENT PLANS
Eastman maintains defined benefit plans that provide eligible employees
with retirement benefits. Prior to 2000, benefits were calculated using
a traditional defined benefit formula based on age, years of service,
and the employees' final average compensation as defined in the plans.
Effective January 1, 2000, the defined benefit pension plan, the
Eastman Retirement Assistance Plan, has been amended. Employees'
accrued pension benefits earned prior to January 1, 2000 are calculated
based on previous plan provisions using the employee's age, years of
service, and final average compensation as defined in the plans. The
57
<PAGE> 58
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
amended defined benefit pension plan will use a pension equity formula
based on age, years of service, and final average compensation to
calculate an employee's retirement benefit from January 1, 2000
forward. Benefits payable will be the combined pre-2000 and post-1999
benefits.
Benefits are paid to employees from trust funds. Contributions to the
plan are made as permitted by laws and regulations.
Pension coverage for employees of Eastman's international operations is
provided, to the extent deemed appropriate, through separate plans. The
Company systematically provides for obligations under such plans by
depositing funds with trustees, under insurance policies, or by book
reserves.
A summary balance sheet of the change in plan assets during 1999 and
1998, the funded status of the plans, amount recognized in the
statement of financial position, and the assumptions used to develop
the projected benefit obligation for the Company's U.S. defined pension
plans are provided in the following tables. Non-U.S. plans are not
material.
<TABLE>
<CAPTION>
SUMMARY BALANCE SHEET
(Dollars in millions)
1999 1998
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation, beginning of year $ 1,511 $ 1,346
Service cost 41 47
Interest cost 87 100
Plan amendments (241) --
Actuarial loss (gain) (54) 133
Curtailments/settlements (429) 20
Benefits paid (38) (135)
-------- --------
Benefit obligation, end of year $ 877 $ 1,511
======== ========
CHANGE IN PLAN ASSETS:
Fair value of plan assets, beginning of year $ 990 $ 857
Actual return on plan assets 232 137
Company contributions 145 128
Benefits paid (456) (132)
-------- --------
Fair value of plan assets, end of year $ 911 $ 990
======== ========
Benefit obligations in excess of (less than) plan assets $ (34) $ 521
Unrecognized actuarial (loss) gain 7 (279)
Unrecognized prior service (decrease) cost 140 (40)
Unrecognized net transition asset 12 27
-------- --------
Net amount recognized, end of year $ 125 $ 229
======== ========
</TABLE>
58
<PAGE> 59
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
AMOUNTS RECOGNIZED IN THE STATEMENT OF FINANCIAL POSITION
CONSIST OF:
Accrued benefit cost $ 125 $ 229
Additional minimum liability 23 33
Accumulated other comprehensive income (23) (33)
------ ------
Net amount recognized, end of year $ 125 $ 229
====== ======
</TABLE>
Eastman's worldwide net pension cost was $58 million, $93 million, and
$59 million in 1999, 1998, and 1997, respectively.
A summary of the components of net periodic benefit cost recognized for
Eastman's U.S. defined benefit pension plans follow:
<TABLE>
<CAPTION>
SUMMARY OF BENEFIT COSTS
(Dollars in millions) 1999 1998 1997
<S> <C> <C> <C>
COMPONENTS OF NET PERIODIC BENEFIT COST:
Service cost $ 42 $ 47 $ 49
Interest cost 86 93 103
Expected return on assets (78) (73) (99)
Amortization of:
Transition asset (6) (4) (7)
Prior service cost (5) 5 5
Actuarial loss 14 19 3
------ ------ ------
Net periodic benefit cost $ 53 $ 87 $ 54
====== ====== ======
WEIGHTED-AVERAGE ASSUMPTIONS AS OF END OF YEAR:
Discount rate 8.15% 6.75% 7.25%
Expected return on plan assets 9.50% 9.50% 9.50%
Rate of compensation increase 4.50% 3.75% 4.00%
</TABLE>
In 1999, the Company recorded a $12 million gain ($8 million after tax)
for the partial settlement of pension benefit liabilities resulting
from a large number of employee retirements related to a voluntary and
involuntary separation program. In 1998, a partial settlement and
curtailment of pension and other postemployment benefit liabilities
resulted from the expiration of the Holston Defense Corporation
contract. This resulted in recognition of approximately $35 million of
previously unrecognized liabilities, but had no effect on earnings
because the Company also recorded a receivable from the Department of
Army for expected reimbursement of such amounts (see Note 19 to
Consolidated Financial Statements). In 1997, the Company recorded a $62
million charge ($40 million after tax) for the partial settlement and
curtailment of pension and other postemployment benefit liabilities
resulting from a large number of employee retirements.
15. POSTRETIREMENT WELFARE PLANS
Eastman provides life insurance and health care benefits for eligible
retirees, and health care benefits for retirees' eligible survivors. In
general, Eastman provides those benefits to retirees eligible under the
Company's U.S. pension plans.
59
<PAGE> 60
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A few of the Company's non-U.S. operations have supplemental health
benefit plans for certain retirees, the cost of which is not
significant to the Company.
The following tables set forth the status of the Company's U.S. plans
at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
SUMMARY BALANCE SHEET
(Dollars in millions) 1999 1998
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation, beginning of year $ 617 $ 584
Service cost 7 8
Interest cost 43 39
Plan amendments 1 --
Actuarial loss (gain) (50) --
Curtailments/settlements -- 4
Benefits paid (31) (18)
------ ------
Benefit obligation, end of year $ 587 $ 617
====== ======
CHANGE IN PLAN ASSETS:
Fair value of plan assets, beginning of year $ 45 $ 34
Actual return on plan assets -- 3
Company contributions 21 27
Plan participants' contributions 1 --
Benefits paid (26) (19)
------ ------
Fair value of plan assets, end of year $ 41 $ 45
====== ======
Benefit obligations in excess of plan assets $ 546 $ 572
Unrecognized actuarial loss (47) (101)
Unrecognized prior service cost 39 42
------ ------
Net amount recognized, end of year $ 538 $ 513
====== ======
AMOUNTS RECOGNIZED IN THE STATEMENT OF FINANCIAL POSITION
CONSIST OF:
Accrued benefit cost $ 538 $ 513
------ ------
Net amount recognized, end of year $ 538 $ 513
====== ======
</TABLE>
A 1% increase in health care cost trend would increase the 1999 service
and interest costs by $2.5 million, and the 1999 benefit obligation by
$35.7 million. A 1% decrease in health care cost trend would decrease
the 1999 service and interest costs by $2.1 million, and the 1999
benefit obligation by $30.4 million.
60
<PAGE> 61
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The net periodic postretirement benefit cost follows:
SUMMARY OF BENEFIT COSTS
<TABLE>
<CAPTION>
(Dollars in millions) 1999 1998 1997
<S> <C> <C> <C>
COMPONENTS OF NET PERIODIC BENEFIT COST:
Service cost $ 7 $ 8 $ 9
Interest cost 42 39 38
Expected return on assets (2) (2) (2)
Amortization of:
Prior service cost (3) (4) (2)
Actuarial loss 2 1 --
------ ------ ------
Net periodic benefit cost $ 46 $ 42 $ 43
====== ====== ======
WEIGHTED-AVERAGE ASSUMPTIONS AS OF END OF YEAR:
Discount rate 8.15% 6.75% 7.25%
Expected return on plan assets 9.00% 9.00% 9.00%
Rate of compensation increase 4.50% 3.75% 4.00%
Health care cost trend
Initial 7.00% 7.00% 7.00%
Decreasing to ultimate trend of 5.25% 4.75% 5.00%
in year 2005 2004 2002
</TABLE>
In 1998, a partial settlement and curtailment of pension and other
postemployment benefit liabilities resulted from the December 31, 1998,
expiration of the Holston Defense Corporation contract. This resulted
in recognition of approximately $35 million of previously unrecognized
liabilities, but had no effect on earnings because the Company also
recorded a receivable from the Department of Army for expected
reimbursement of such amounts (see Note 19 to Consolidated Financial
Statements). In 1997, the Company recorded a $62 million charge ($40
million after tax) for the partial settlement and curtailment of
pension and other postemployment benefit liabilities resulting from a
large number of employee retirements.
16. EMPLOYEE SEPARATIONS AND PENSION SETTLEMENT
In the fourth quarter 1999, the Company recorded a net pre-tax charge
of $53.4 million ($36.1 million after tax) for employee termination
allowance resulting from voluntary and involuntary employee separations
which occurred during the fourth quarter 1999. The voluntary and
involuntary separations resulted in a reduction of about 1,200
employees. About 760 employees who were eligible for full retirement
benefits left the Company under a voluntary separation program and
approximately 400 additional employees were involuntarily separated
from the Company. Employees separated under these programs each
received a separation package equaling two weeks' pay for each year of
employment, up to a maximum of one year's pay and subject to certain
minimum payments. As of December 31, 1999, approximately $6 million had
been paid out under the separation programs and a balance of $65
million, which will be paid substantially during 2000, was accrued and
is included in other current liabilities in the Consolidated Statement
of Financial Position.
61
<PAGE> 62
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During the fourth quarter 1999, the Company recorded the following
amounts in the Consolidated Statement of Earnings in connection with
the employee separations and pension settlement:
<TABLE>
<S> <C>
(Dollars in millions)
Termination allowance $ 70.6
Gain on pension settlement (11.9)
Reduction in vacation accrual (6.5)
Other 1.2
--------
Total $ 53.4
========
</TABLE>
17. SEGMENT INFORMATION
Recently, the Company reorganized its management structure into two
major business groups--chemicals and polymers--to enhance customer
focus, accountability and efficiency. The businesses, products,
management, operations, and reporting of financial and other matters of
the Company are transitioning to support the new organization.
Effective with the first quarter 2000, two operating segments--the
Chemicals segment and the Polymers segment--will be reported,
reflecting the restructured management and internal financial reporting
of the Company. At that time, prior periods will be restated to conform
to the new segment structure. The Chemicals segment will include fine
chemicals; performance chemicals and intermediates; and chemicals and
specialty polymers supplied to the inks, coatings, adhesives, sealants,
and textile industries. The Polymers segment will include container
plastics, specialty plastics, and fiber products. Through 1999, the
Company managed its operations in three segments--Specialty and
Performance, Core Plastics, and Chemical Intermediates--as discussed
below.
The Specialty and Performance segment contains products that are sold
to customers that base their buying decisions principally on product
performance attributes. The major products in this segment include
specialty plastics, chemicals and specialty polymers supplied to the
inks, coatings, adhesives, sealants, and textile industries, fine
chemicals, performance chemicals, and fibers. Targeted markets for this
segment are diverse and include medical, electronics, pharmaceutical,
agricultural, recreation, consumer durables, photographic, additives
for fibers and plastics, adhesives, sealants, food and beverages,
nutrition, cosmetics, textiles, construction, coatings, inks, paints,
filters, and specialty plastics and specialty packaging applications.
Competitive factors for this segment include price, product
performance, reliability of supply, customer service, environmental
responsibility, and technical competence. Specialty plastics are sold
to selected niche markets primarily in North America for value-added
end uses. Coatings and paint raw materials are sold primarily to North
American industrial concerns. The principal markets for Eastman's fine
chemicals are largely U.S. photographic, agricultural, and
pharmaceutical companies. Performance chemicals are sold primarily to
North American industries as additives for fibers and plastics, raw
materials for adhesives and sealants, food and beverage ingredients and
other performance products. Acetate tow is sold worldwide to the
tobacco industry for use in cigarette filters. The operations of
Holston Defense Corporation are included in the Specialty and
Performance segment (see Note 19 to Consolidated Financial Statements).
The Core Plastics segment includes the Company's major plastics
products, EASTAPAK polymers and TENITE polyethylene. These container
and general film products share similar physical characteristics and
compete based on price and integrated manufacturing capabilities.
Polyester plastics are sold to soft-drink and other packaging
manufacturers principally in North America, Europe, and Latin America.
Polyethylene is sold generally to North American industries.
The Chemical Intermediates segment contains industrial intermediate
chemicals that are produced based on the Company's oxo chemistry
technology and chemicals-from-coal technology and are sold to customers
62
<PAGE> 63
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
operating in mature markets in which multiple sources of supply exist.
They are sold generally in large volume mostly to North American
industries, with increasing focus in Southeast Asia. These products are
targeted at markets for industrial additives, agricultural chemicals,
esters, pharmaceuticals, and vinyl compounding. Competitive factors
include price, reliability of supply, and integrated manufacturing
capability. Favorable cost position, proprietary products, and
improving standards of living worldwide are key value drivers for this
segment.
The accounting policies of the segments are the same as those described
in the summary of significant accounting policies. Corporate and
certain other costs are allocated to operating segments using
systematic allocation methods consistently applied. Senior management
believes presenting the operating segments' performance with these
costs allocated is appropriate in the circumstances. Non-operating
income and expense, including interest cost, are not allocated to
operating segments.
<TABLE>
<CAPTION>
(Dollars in millions) 1999 1998 1997
<S> <C> <C> <C>
SALES
Specialty and Performance $ 2,850 $ 2,736 $ 2,878
Core Plastics 1,067 1,071 1,067
Chemical Intermediates 673 674 733
------- ------- -------
Consolidated Eastman total $ 4,590 $ 4,481 $ 4,678
======= ======= =======
OPERATING EARNINGS (LOSS)(1)
Specialty and Performance $ 275 $ 357 $ 452
Core Plastics (118) (40) (92)
Chemical Intermediates 45 117 146
------- ------- -------
Consolidated Eastman total $ 202 $ 434 $ 506
======= ======= =======
ASSETS
Specialty and Performance $ 4,101 $ 3,395 $ 3,382
Core Plastics 1,614 1,822 1,775
Chemical Intermediates 588 633 621
------- ------- -------
Consolidated Eastman total $ 6,303 $ 5,850 $ 5,778
======= ======= =======
</TABLE>
(1)Operating earnings for 1999 include the effect of a charge for
employee separations; a charge for the write-off of acquired in-process
research and development related to Lawter; charges related to certain
discontinued capital projects, underperforming assets, and phase-out of
operations at certain sites; and other items; partially offset by a
gain recognized on the reimbursement of previously expensed pension
costs and a gain on pension settlement. These nonrecurring items are
reflected in segments as follows: Specialty and Performance, $77
million; Core Plastics, $33 million; and Chemical Intermediates, $7
million.
Operating earnings for 1998 include the effect of charges related to a
fine for violation of the Sherman Act; charges related to certain
underperforming assets and discontinued capital projects; the impact of
a power outage at the Kingsport, Tennessee, manufacturing site; and
other items. These nonrecurring items are reflected in segments as
follows: Specialty and Performance, $49 million; Core Plastics, $1
million; and Chemical Intermediates, $1 million.
Operating earnings for 1997 include a charge resulting from the partial
settlement and curtailment of pension and other postemployment benefit
liabilities resulting from a large number of employee retirements. The
charge is reflected in segments as follows: Specialty and Performance,
$38 million; Core Plastics, $14 million; and Chemical Intermediates,
$10 million.
63
<PAGE> 64
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
(Dollars in millions) 1999 1998 1997
<S> <C> <C> <C>
DEPRECIATION EXPENSE
Specialty and Performance $ 210 $ 202 $ 187
Core Plastics 116 110 102
Chemical Intermediates 42 39 38
------ ------ ------
Consolidated Eastman total $ 368 $ 351 $ 327
====== ====== ======
CAPITAL EXPENDITURES
Specialty and Performance $ 218 $ 264 $ 263
Core Plastics 45 109 354
Chemical Intermediates 29 127 132
------ ------ ------
Consolidated Eastman total $ 292 $ 500 $ 749
====== ====== ======
GEOGRAPHIC INFORMATION
REVENUES
United States $2,662 $2,764 $2,875
All foreign countries 1,928 1,717 1,803
------ ------ ------
Total $4,590 $4,481 $4,678
====== ====== ======
LONG-LIVED ASSETS, NET
United States $3,036 $3,088 $3,117
All foreign countries 914 946 764
------ ------ ------
Total $3,950 $4,034 $3,881
====== ====== ======
</TABLE>
Revenues are attributed to countries based on customer location. No
individual foreign country is material with respect to revenues or
long-lived assets.
18. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and income taxes is as follows:
<TABLE>
<CAPTION>
(Dollars in millions) 1999 1998 1997
<S> <C> <C> <C>
Interest (net of amounts capitalized) $ 127 $ 107 $ 88
Income taxes (4) 80 131
</TABLE>
Details of acquisitions are as follows:
<TABLE>
<CAPTION>
(Dollars in millions) 1999 1998 1997
<S> <C> <C> <C>
Fair value of assets acquired $ 662 $ 42 $ --
Liabilities assumed 281 10 --
------ ------- ------
Net cash paid for acquisitions $ 381 $ 32 $ --
Cash acquired in acquisitions 41 7 --
------ ------- ------
Cash paid for acquisitions $ 422 $ 39 $ --
====== ======= ======
</TABLE>
64
<PAGE> 65
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cash flows from operating activities include gains from equity
investments of $10 million, $12 million, and $11 million for 1999,
1998, and 1997, respectively. Derivative financial instruments and
related gains and losses are included in cash flows from operating
activities. The effect on cash of foreign currency transactions and
exchange rate changes for all years presented was insignificant.
In March 1998 and 1997, the Company issued 536,188 and 611,962 shares
of its common stock with a market value of $35 million and $34 million
to its Employee Stock Ownership Plan as partial settlement of the
Company's Eastman Performance Plan payout. These noncash transactions
are not reflected in the Consolidated Statements of Cash Flows.
19. 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.
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. During the fourth quarter 1999, the DOA reimbursed previously
expensed pension costs of approximately $20 million. This reimbursement
was credited to earnings in the fourth quarter. The Company expects the
DOA will also reimburse previously expensed postretirement benefit
costs. Such reimbursement will be credited to earnings at the time of
receipt. 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, of which approximately $47
million had been collected at December 31, 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 Company
advanced approximately $56 million and the DOA reimbursed approximately
$56 million for pension funding through December 31, 1999.
Additionally, through December 31, 1999, the Company advanced
approximately $12 million for other termination costs, of which the DOA
has reimbursed approximately $11 million.
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.
65
<PAGE> 66
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
20. ENVIRONMENTAL MATTERS
Certain Eastman manufacturing sites generate hazardous and nonhazardous
wastes, of which the treatment, storage, transportation, and disposal
are regulated by various governmental agencies. In connection with the
cleanup of various hazardous waste sites, the Company, along with many
other entities, has been designated a PRP by the U.S. Environmental
Protection Agency under the Comprehensive Environmental Response,
Compensation and Liability Act, which potentially subjects PRPs to
joint and several liability for such cleanup costs. In addition, the
Company will be required to incur costs for environmental remediation
and closure/postclosure under the federal Resource Conservation and
Recovery Act. Because of expected sharing of costs, the availability of
legal defenses, and the Company's preliminary assessment of actions
that may be required, the Company does not believe its liability for
these environmental matters, individually or in the aggregate, will be
material to Eastman's consolidated financial position, results of
operations, or competitive position.
The Company's environmental protection and improvement cash
expenditures were approximately $220 million, $190 million, and $220
million in 1999, 1998, and 1997, respectively, including investments in
construction, operations, and development.
21. LEGAL MATTERS
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, the Company 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, the Company 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. On October 26, 1999, the Company pleaded guilty in a
Federal Court of Canada to a violation of the Competition Act of Canada
and was fined $780,000 (Canadian). The plea admitted that the same
conduct that was the subject of the September 30, 1998, plea in the
United States had occurred with respect to sorbates sold in Canada, and
prohibited repetition of the conduct and provides for future
monitoring. The fine has been paid and was recognized as a charge
against earnings in the fourth quarter 1999.
66
<PAGE> 67
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In addition, the Company, along with other companies, is currently a
defendant in seventeen 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. Six of the suits (five of which have
been or are in the process of being consolidated) 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; six of the proceedings (which have subsequently
been consolidated or found to be related cases) were filed in the
United States District Court for the Northern District of California
under federal antitrust laws on behalf of classes of direct 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
has been transferred to the Northern District of California) under
federal antitrust laws on behalf of a class of direct purchasers of
sorbates; 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; and one action was
filed in the District Court for the State of Kansas under Kansas
antitrust laws on behalf of a class of indirect purchasers of sorbates
in that state. 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.
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 and a charge to earnings in the fourth quarter 1999 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 Operations 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. On September 7, 1999, the Company and EPA entered into a
Consent Agreement and Consent Order whereby the Company agreed to pay a
civil penalty of $2.75 million to EPA for an alleged violation
concerning monitoring and recordkeeping. The Company recognized the
fine in 1999 and is paying the fine in three installments over a period
of one year. Various agencies are continuing to review the information
submitted by the Company.
67
<PAGE> 68
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
22. QUARTERLY SALES AND EARNINGS DATA - UNAUDITED
<TABLE>
<CAPTION>
(Dollars in millions, except per share amounts)
1999(1) 1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR.
<S> <C> <C> <C> <C>
Sales $1,023 $1,122 $1,190 $ 1,255
Gross profit 194 225 215 188
Operating earnings (loss) 71 96 75 (40)
Earnings before income taxes 37 64 49 (78)
Provision for income taxes 12 21 17 (26)
Net earnings (loss) 25 43 32 (52)
Basic earnings (loss) per share(3) .32 .55 .42 (.67)
Diluted earnings (loss) per share(3) .31 .54 .42 (.67)
</TABLE>
<TABLE>
<CAPTION>
1998(2) 1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR.
<S> <C> <C> <C> <C>
Sales $1,148 $1,165 $1,131 $ 1,037
Gross profit 254 297 261 123
Operating earnings (loss) 133 164 141 (4)
Earnings before income taxes 114 149 123 (26)
Provision for income taxes 40 52 43 (24)
Net earnings (loss) 74 97 80 (2)
Basic earnings (loss) per share(3) .95 1.22 1.01 (.02)
Diluted earnings (loss) per share(3) .94 1.21 1.00 (.02)
</TABLE>
(1) First quarter 1999 includes charges related to a discontinued
capital project and phase-out of operations at Distillation Products
Industries in Rochester, New York. Third quarter 1999 includes a
nonrecurring gain from the sale of assets. Fourth quarter 1999
includes the effect of a charge for employee separations; a charge
for the write-off of acquired in-process research and development
related to Lawter; charges related to certain discontinued capital
projects, underperforming assets, and phase-out of operations at
certain sites, including the Company's sorbates manufacturing
facilities in Chocolate Bayou, Texas; and other items; partially
offset by a gain recognized on the reimbursement of previously
expensed pension costs and a gain from pension settlement.
(2) Third quarter 1998 includes a charge for a fine related to violation
of the Sherman Act. Fourth quarter 1998 includes charges related to
certain underperforming assets, discontinued projects, a power
outage at the Kingsport, Tennessee, manufacturing site, and other
items, partially offset by the effect of a lower tax rate resulting
from a tax settlement which favorably affected net earnings.
(3) Each quarter is calculated as a discrete period; the sum of the four
quarters may not equal the calculated full-year amount.
68
<PAGE> 69
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The material under the heading "Election of Directors" in the 2000 Proxy
Statement is incorporated by reference herein in response to this Item. Certain
information concerning executive officers of the Company is set forth under the
heading "Executive Officers of the Company" in Part I of this Annual Report on
Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The material under the headings "Election of Directors -- Director Compensation"
in the 2000 Proxy Statement is incorporated by reference herein in response to
this Item. In addition, the material under the heading "Executive Compensation"
in the 2000 Proxy Statement is incorporated by reference herein in response to
this Item, except for the material under the subheadings " -- Compensation and
Management Development Committee Report on Executive Compensation" and
" -- Performance Graph," which are not incorporated by reference herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The material under the headings "Stock Ownership of Directors and Executive
Officers--Common Stock" and "Stock Ownership of Certain Beneficial Owner" in
the 2000 Proxy Statement is incorporated by reference herein in response to this
Item.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There are no transactions or relationships since the beginning of the last
completed fiscal year required to be reported in response to this Item.
69
<PAGE> 70
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
(a) 1. Consolidated financial statements:
Management's responsibility for financial statements 37
Report of independent accountants 38
Consolidated statements of earnings, comprehensive income, and
retained earnings 39
Consolidated statements of financial position 40
Consolidated statements of cash flows 41
Notes to consolidated financial statements 42-68
2. Financial statement schedules
All schedules have been omitted because they are not
applicable or because the required information is shown in
the financial statements or notes thereto.
3. Exhibits filed as part of this report are listed in the
Exhibit Index appearing on page 73.
(b) Reports on Form 8-K
During the quarter ended December 31, 1999, no reports on Form
8-K were filed.
(c) The Exhibit Index and required Exhibits to this report are
included beginning at page 73.
(d) There are no applicable financial statement schedules required
to be filed as part of this report.
</TABLE>
70
<PAGE> 71
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By: /s/ Earnest W. Deavenport, Jr.
-------------------------------------------------
Earnest W. Deavenport, Jr.
Chairman of the Board and Chief Executive Officer
Date: March 3, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------- ------------------------- --------------
<S> <C> <C>
PRINCIPAL EXECUTIVE OFFICER:
/s/ Earnest W. Deavenport, Jr. Chairman of the Board and March 3, 2000
- --------------------------------- Chief Executive Officer
Earnest W. Deavenport, Jr.
PRINCIPAL FINANCIAL OFFICER:
/s/ James P. Rogers Senior Vice President and March 3, 2000
- --------------------------------- Chief Financial Officer
James P. Rogers
PRINCIPAL ACCOUNTING OFFICER:
/s/ Mark W. Joslin Vice President and March 3, 2000
- --------------------------------- Controller
Mark W. Joslin
</TABLE>
71
<PAGE> 72
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------- -------- -------------
<S> <C> <C>
DIRECTORS:
/s/ H. Jesse Arnelle Director March 3, 2000
- ---------------------------------
H. Jesse Arnelle
/s/ Calvin A. Campbell, Jr. Director March 3, 2000
- ---------------------------------
Calvin A. Campbell, Jr.
/s/ Jerry E. Dempsey Director March 3, 2000
- ---------------------------------
Jerry E. Dempsey
/s/ John W. Donehower Director March 3, 2000
- ---------------------------------
John W. Donehower
/s/ Donald W. Griffin Director March 3, 2000
- ---------------------------------
Donald W. Griffin
/s/ Lee Liu Director March 3, 2000
- ---------------------------------
Lee Liu
/s/ Marilyn R. Marks Director March 3, 2000
- ---------------------------------
Marilyn R. Marks
/s/ John A. White Director March 3, 2000
- ---------------------------------
John A. White
</TABLE>
72
<PAGE> 73
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION 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 (the
"S-1"))
3.02 Amended and Restated By-laws of Eastman Chemical Company, as
amended February 4, 1999 (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, 1998 (the "1998
10-K"))
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 (the "1993 10-K"))
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 (the
"Indenture") (incorporated herein by reference to Exhibit
4(a) to Eastman Chemical Company's current report on Form
8-K dated January 10, 1994 (the "8-K"))
4.04 Form of 6 3/8% Notes due January 15, 2004 (incorporated herein by
reference to Exhibit 4(c) to the 8-K)
4.05 Form of 7 1/4% Debentures due January 15, 2024 (incorporated herein by
reference to Exhibit 4(d) to the 8-K)
4.06 Officers' Certificate pursuant to Sections 201 and 301 of
the Indenture (incorporated herein by reference to Exhibit
4(a) to Eastman Chemical Company's Current Report on Form
8-K dated June 8, 1994 (the "June 8-K"))
4.07 Form of 7 5/8% Debentures due June 15, 2024 (incorporated herein by
reference to Exhibit 4(b) to the June 8-K)
4.08 Form of 7.60% Debentures 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)
</TABLE>
73
<PAGE> 74
EXHIBIT INDEX (CONTINUED)
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NUMBER
------- ------------------------------------------------------------- ------------
<S> <C> <C>
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 (the "1995 10-K"))
4.11 $150,000,000 Accounts Receivable Securitization agreement
dated April 13, 1999, between the Company and Bank One, NA,
as agent. Pursuant to Item 601(b)(4)(iii) of Regulation S-K,
in lieu of filing a copy of such agreement, the Company
agrees to furnish a copy of such agreement to the Commission
upon request.
*10.01 Eastman Annual Performance Plan, as amended 77-83
*10.02 Eastman Unit Performance Plan 84-88
*10.03 Eastman Performance Plan, as amended 89-100
*10.04 1994 Director Long-Term Compensation Plan, as amended
(incorporated herein by reference to Exhibit 10.02 to
Eastman Chemical Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1995)
*10.05 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)
*10.06 1994 Omnibus Long-Term Compensation Plan (incorporated
herein by reference to Exhibit 10.03 to Eastman Chemical
Company's Registration Statement on Form 10, originally
filed on November 26, 1993 (the "Form 10"))
*10.07 1997 Omnibus Long-Term Compensation Plan, as amended
(incorporated herein by reference to Exhibit 10.02 to
Eastman Chemical Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1999 (the "June 30, 1999 10-Q"))
*10.08 1996 Non-Employee Director Stock Option Plan, as amended
(incorporated herein by reference to Exhibit 10.02 to
Eastman Chemical Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1996 (the "September 30,
1996 10-Q"))
*10.09 Director Deferred Compensation Plan, as amended (incorporated herein
by reference to Exhibit 10.06 to the 1998 10-K)
*10.10 Eastman Executive Deferred Compensation Plan, as amended 101-112
</TABLE>
74
<PAGE> 75
EXHIBIT INDEX (CONTINUED)
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NUMBER
------- -------------------------------------------------------------------------- ------------
<S> <C> <C>
*10.11 Form of Executive Severance Agreements (incorporated herein by reference
to Exhibit 10.06 to the 1995 10-K)
*10.12 Employment Agreement between Eastman Chemical Company and Harold L.
Henderson (incorporated herein by reference to Exhibit 10.08 to the 1996
10-K)
*10.13 Employment Agreement between Eastman Chemical Company and James P. Rogers
(incorporated herein by reference to Exhibit 10.02 to Eastman Chemical
Company's Quarterly Report on Form 10-Q for the quarter ended September
30, 1999)
*10.14 Eastman Excess Retirement Income Plan (incorporated herein by reference
to Exhibit 10.10 to the Form 10)
*10.15 Eastman Unfunded Retirement Income Plan (incorporated herein by reference
to Exhibit 10.11 to the Form 10)
*10.16 Eastman Employee Stock Ownership Excess Plan, as amended
(incorporated herein by reference to Exhibit 10.01 to
Eastman Chemical Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1999)
*10.17 Eastman 1997-1999 Long-Term Performance Subplan of 1994
Omnibus Long-Term Compensation Plan (incorporated herein by
reference to Exhibit 10.15 to the 1996 10-K)
*10.18 Eastman 1998-2000 Long-Term Performance Subplan of 1997
Omnibus Long-Term Compensation Plan (incorporated herein by
reference to Exhibit 10.04 to Eastman Chemical Company's
Quarterly Report on Form 10-Q for the quarter ended March
31, 1998)
*10.19 Eastman 1999-2001 Long-Term Performance Subplan of 1997
Omnibus Long-Term Compensation Plan (incorporated herein by
reference to Exhibit 10.03 to the June 30, 1999 10-Q)
*10.20 Eastman 2000-2002 Long-Term Performance Subplan of 1997 Omnibus Long-Term
Compensation Plan 113-121
*10.21 Form of Award Notice for Stock Options Granted to Managers under 1997
Omnibus Long-Term Compensation Plan 122-123
*10.22 Award Notice for Price-Vesting Stock Option Granted to CEO
under 1997 Omnibus Long-Term Compensation Plan (incorporated
herein by reference to Exhibit 10.01 to Eastman Chemical
Company's Form 10-Q for the quarter ended September 30,
1997)
</TABLE>
75
<PAGE> 76
EXHIBIT INDEX (CONTINUED)
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NUMBER
------- ------------------------------------------------------------- ------------
<S> <C> <C>
*10.23 Form of Award Notice for Price-Vesting Stock Option Granted to Certain 124-128
Executive Officers under 1997 Omnibus Long-Term Compensation Plan
*10.24 Eastman Chemical Company Benefit Security Trust dated
December 24, 1997 (incorporated herein by reference to
Exhibit 10.18 to Eastman Chemical Company's Annual Report on
Form 10-K for the year ended December 31, 1997)
10.25 Contribution Agreement, dated as of December 9, 1993,
between Eastman Kodak Company and Eastman Chemical Company
(incorporated herein by reference to Exhibit 10.07 to the
S-1)
10.26 General Assignment, Assumption and Agreement Regarding
Litigation, Claims and Other Liabilities, dated as of
December 31, 1993, between Eastman Kodak Company and Eastman
Chemical Company (incorporated herein by reference to
Exhibit 10.08 to the S-1)
10.27 Tax Sharing and Indemnification Agreement, dated as of
December 31, 1993, between Eastman Kodak Company and Eastman
Chemical Company (incorporated herein by reference to
Exhibit 10.09 to the S-1)
10.28 Intellectual Property Agreement Non-Imaging, dated as of December 31,
1993, between Eastman Kodak Company and Eastman Chemical Company
(incorporated herein by reference to Exhibit 10.12 to the S-1)
10.29 Imaging Chemicals License Agreement, dated as of December
31, 1993, between Eastman Kodak Company and Eastman Chemical
Company (incorporated herein by reference to Exhibit 10.13
to the S-1)
12.01 Statement re Computation of Ratios of Earnings to Fixed Charges 129
21.01 Subsidiaries of the Company 130-132
23.01 Consent of Independent Accountants 133
27.01 Financial Data Schedule (for SEC use only)
</TABLE>
- ----------------
*Management contract or compensatory plan or arrangement filed pursuant to Item
601(b)(10)(iii) of Regulation S-K.
76
<PAGE> 1
EXHIBIT 10.01
EASTMAN CHEMICAL COMPANY
EASTMAN ANNUAL PERFORMANCE PLAN
(AMENDED AND RESTATED EFFECTIVE JANUARY 1, 1997)
(AMENDED MARCH 4, 1998)
(AMENDED DECEMBER 1, 1999)
- --------------------------------------------------------------------------------
ARTICLE 1. PURPOSE
The Eastman Annual Performance Plan ("APP", or the "Plan") is a variable
compensation plan for Eastman Chemical Company (the "Company") management level
individuals which is designed to deliver a portion of annual cash compensation
according to business performance. APP is intended to provide an incentive for
superior performance and to motivate participants toward higher achievement and
business results, and to tie the interests of management-level individuals to
the interests of the Company and its shareowners. The Annual Performance Plan is
also intended to secure the full deductibility of Plan compensation payable to
the Company's Chief Executive Officer and the four highest compensated executive
officers (collectively, the "Covered Employees") whose compensation is required
to be reported in the Company's proxy statement, and all compensation payable
hereunder to such persons is intended to qualify as "performance-based
compensation" as described in Section 162(m) of the Internal Revenue Code of
1986, as amended.
ARTICLE 2. SUMMARY OF PLAN DESIGN
The annual cash compensation of each participant in the Plan consists of a base
salary, an annual Eastman Performance Plan award, and an annual performance
award from the Annual Performance Plan. APP is designed so that a target award
will be paid when the expected financial performance level is reached.
Generally, APP awards vary from zero, if financial goals are not met, to two
times the target award for specified above-goal performance. Target awards range
from 5% of Target Total Annual Compensation ("TTAC"), as defined in Exhibit 1,
for lower management positions, to 35% of TTAC for the Chief Executive Officer.
APP awards are in addition to the 5% target award level for the Eastman
Performance Plan. APP awards are paid in a lump sum in March of the year
following the year for which performance was measured ("Performance Year").
ARTICLE 3. ELIGIBILITY AND PARTICIPATION
3.01 GENERAL ELIGIBILITY
The Plan is designed for management-level individuals (salary grade 46 and
above) in key roles which have an impact on the financial performance of the
Company. Prior to or at the time performance objectives are established for a
Performance Year, the Compensation and Management Development Committee (the
"Committee") of the Board of Directors (the "Board") will confirm in writing the
salary grade level of the individuals eligible to participate in the Plan for
such Performance Year.
3.02 NEW PARTICIPANTS DURING THE PERFORMANCE YEAR
Individuals who are appointed to positions eligible for Plan participation
during the Performance Year become eligible for participation on the first day
of the month of the appointment. Individuals who become participants
77
<PAGE> 2
during the Performance Year will receive a pro rata award based upon the number
of months in an eligible position during the Performance Year. (For example, an
individual promoted to an eligible position on May 1 during the Performance Year
would receive an award based upon eight months' participation in the Plan, or
8/12 (eight-twelfths) of an award).
3.03 JOB CHANGES DURING THE PERFORMANCE YEAR
Participants who change jobs during a Performance Year which results in a change
of their target award level will receive a pro rata award for the interval of
time spent in each job. Each pro rata award is calculated using the
participant's base salary just prior to each job change which changes their
target award level; and their base pay at the end of the Performance Year. Each
pro rata award is based on the financial performance of the full Performance
Year. In these instances, each pro rata award will compose the participant's
award for the full Performance Year.
3.04 TERMINATIONS
Participants who (1) retire, or (2) become disabled under the Eastman Long-Term
Disability Plan, or (3) terminate employment under circumstances which qualify
for a Termination Allowance Benefit under the Company's Termination Allowance
Plan, or (4) terminate employment as a result of, pursuant to, or in connection
with layoff, special separation, divestiture, or similar circumstances, where
such termination does not qualify for a Termination Allowance but for which
Company management in its sole discretion authorizes an award, receive a pro
rata award at the normal time of payout based on base salary at the time of
separation and financial performance at the end of the Performance Year.
The estates of participants who die receive a pro rata award at the normal time
of payout based on base salary at the time of death and financial performance at
the end of the Performance Year.
Participants who terminate employment with the Company for reasons other than
those specified under this Section 3.04 will receive an award only if they were
actively employed on the last scheduled workday of the Performance Year.
ARTICLE 4. PERFORMANCE YEAR, GOAL SETTING, AND PERFORMANCE GOALS
4.01 PERFORMANCE YEAR
The Plan's Performance Year shall be the calendar year beginning on January 1
and ending on December 31. The performance period with respect to which payouts
may be payable under the APP shall generally be the Performance Year.
4.02 PERFORMANCE GOAL SETTING
In December of each year, The Chief Executive Officer will recommend performance
goals for the following Performance Year to the Committee. No later than the
first day of the Performance Year (or such later date as may be permitted by
Section 162(m) of the Internal Revenue Code of 1986, as amended), the Committee
shall establish in writing, with respect to the Performance Year, one or more
performance goals, the relative weights to be assigned to such goals, a specific
target objective or objectives with respect to such performance goals, and
objective formulae or methods for computing the amount of the APP award payable
to each participant if the performance goals are attained.
78
<PAGE> 3
4.03 PERFORMANCE GOALS
Performance goals shall be based upon one or more of the following business
criteria, alone or in combination, as the Committee deems appropriate: (i)
economic value created; (ii) productivity; (iii) cost improvements; (iv) cash
flow; (v) sales revenue growth; (vi) earnings from operations; (vii) quality;
(viii) customer satisfaction; provided, however, that such business criteria, as
they apply to performance goals for Covered Employees, shall be based on
performance for the Company as a whole. Performance goals for persons other than
Covered Employees, may be based on the above business criteria for the Company
as a whole or for any functional unit or units, as the Committee deems
appropriate. Performance goals will include a minimum, maximum, and target level
of performance, with the size of the award based upon the level attained for
each of the criteria selected, and the weighting selected for each of the
criteria. Once established, performance goals for a particular Performance Year
cannot be changed.
ARTICLE 5. AWARD DETERMINATION
5.01 CERTIFICATION OF PERFORMANCE
As soon as practicable following the availability of performance results for the
completed Performance Year, the Committee shall determine the Company's
performance in relation to the performance goals for that period and certify in
writing the extent to which performance goals were satisfied. Except as
otherwise provided in the next two sentences, measurement of the Company's
performance against the performance goals established by the Committee shall be
objectively determinable, and to the extent they are expressed in standard
accounting terms, shall be determined according to generally accepted accounting
principles as in existence on the date on which the performance goals are
established and without regard to any changes in such principles after such
date. With respect to participants other than Covered Employees, in determining
whether the performance goals established by the Committee have been met, to the
extent that such goals are expressed in terms of financial performance, the
committee may in its discretion adjust the financial results for a Performance
Year to exclude the effect of unusual charges or income items or other events
(including, without limitation, acquisitions or divestitures), which are
distortive of financial results for the Performance Year. The Committee may in
its discretion reduce (but not increase) the resulting APP award to Covered
Employees if deemed necessary to exclude the effect of unusual charges or income
items or other events (including, without limitation, acquisitions or
divestitures), which are distortive of financial results for the Performance
Year. No adjustment will be made with respect to a Covered Employee if the
Committee determines that such adjustment will cause an award to such Covered
Employee to fail to qualify as performance-based compensation under Section
162(m).
5.02 CALCULATION AND REVIEW/APPROVAL
Based upon the Company's performance against the performance goals, and the
formulae or methods established, the APP award for each participant is
calculated. (The calculation method for the Plan is illustrated in Exhibit 1).
The Committee shall approve the APP award amounts for participants who are
members of the Board of Directors and for participants who are "Covered
Employees" and shall review the APP award amounts for other executive officers
of the Company.
5.03 AWARD ADJUSTMENTS
The Committee shall have no discretion to increase the amount of any
participant's award as so determined, but may reduce the amount of or totally
eliminate such award, if it determines, in its absolute and sole discretion,
that such a reduction or elimination is appropriate in order to reflect the
participant's performance or unanticipated factors.
79
<PAGE> 4
5.04 MAXIMUM AWARD PAYABLE IN PERFORMANCE YEAR
No participant's APP award for any Performance Year shall exceed $1,000,000.
ARTICLE 6. PAYMENT OF AWARDS
APP awards shall be paid by the Company in March for performance in the previous
year, and after the Committee has certified in writing that the relevant
performance goals were achieved. The Committee has the authority, in its
discretion, to defer payment of a participant's award into the Executive
Deferred Compensation Plan until the participant retires or otherwise terminates
employment, if the Committee determines that payment of the award could result
in the participant receiving compensation in excess of the maximum amount
deductible by the Company for Federal income tax purposes.
ARTICLE 7. SALARY ADJUSTMENTS AND BENEFITS
7.01 SALARY ADJUSTMENT UPON ENTRY INTO THE APP
The Plan is a variable compensation, or pay at risk, program whereby
participants have their base salary administered on reduced rate ranges. New
participants to the Plan are immediately administered on the reduced rate range
for their assigned salary grade. This may reduce or eliminate promotional
increases, depending upon the person's pay position in the rate range of the new
salary grade. Subsequent salary treatment will depend upon pay/performance
relationships in the reduced rate range for their assigned grade.
7.02 SALARY CONVERSION UPON WITHDRAWAL FROM THE APP
In unusual circumstances when it is necessary for an individual to be removed
from the Plan, the individual will be placed on a non-APP rate schedule and the
base salary recalculated. The recalculated base salary will be determined by
calculating the ratio of the individual's base salary prior to removal from the
Plan to the midpoint of the APP rate schedule, and applying the same ratio to
the midpoint of the non-APP rate schedule, to determine the new base salary.
Should the removal from the Plan involve a reduction in salary grade, a new rate
in the new salary grade will be selected based upon the individual's applicable
training and experience.
7.03 RELATIONSHIP TO BENEFITS AND OTHER COMPENSATION
The APP award payout is considered in calculating the basis for other
compensation and benefits. Base salary, the actual APP payout and the actual
Eastman Performance Plan payout are included in calculating retirement benefits.
Base salary, the target APP award payout and the target Eastman Performance Plan
payout are included in the basis for calculating the actual APP payout, the
actual Eastman Performance Plan payout, life insurance, long-term disability,
termination allowance, miscellaneous expense allowance, and foreign service
premium. The base salary rate is the basis for calculating short-term
disability, vacation pay, holiday pay, personal absence, and field allowance.
ARTICLE 8. OTHER TERMS AND CONDITIONS
8.01 SHAREOWNER APPROVAL
No APP award payment shall be paid under the Plan to any "Covered Employee" for
any Performance Year after 1996 unless and until the material terms (within the
meaning of Section 162(m) of the Internal Revenue Code of
80
<PAGE> 5
1986) of the APP, including the performance goals on which the APP award payout
would be based, are disclosed to the Company's shareowners and are approved by
the shareowners by a majority of the votes cast.
8.02 CLAIMS
No person shall have any legal claim to be granted an award under the Plan.
Except as may be otherwise required by law, payouts under the Plan shall not be
subject in any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance, charge, garnishment, execution, or levy of any kind, either
voluntary or involuntary. Plan payouts shall be payable from the general assets
of the Company and no participant shall have any claim with respect to any
specific assets of the Company.
8.03 NO EMPLOYMENT RIGHTS
Neither the Annual Performance Plan nor any action taken under the Annual
Performance Plan shall be construed as giving any employee the right to be
retained in the employ of the Company or to maintain any participant's
compensation at any level.
8.04 WITHHOLDING
The Company shall have the power and the right to deduct or withhold, or require
a Participant to remit to the Company, an amount sufficient to satisfy Federal,
state, and local taxes (including the participant's OASDI and MEDI obligation)
required by law to be withheld.
ARTICLE 9. ADMINISTRATION
9.01 POWER AND AUTHORITY OF THE COMMITTEE
All members of the Committee shall be persons who qualify as "outside directors"
as defined under Section 162(m) of the Internal Revenue Code. The Committee
shall have full power and authority to administer and interpret the provisions
of the Plan and to adopt such rules, regulations, agreements, guidelines, and
instruments for the administration of the Plan and for conduct of its business
as the Committee deems appropriate or advisable. The Committee sets and
interprets policy, establishes annual performance goals, evaluates Company
performance against the goals, and confirms and certifies the extent to which
Company performance goals were satisfied under the Plan.
9.02 COMMITTEE'S DELEGATION OF AUTHORITY
Except with respect to matters which under Section 162(m) of the Internal
Revenue Code are required to be determined in the sole and absolute discretion
of the Committee, the Committee shall have full power to delegate to any officer
or employee of the Company the authority to administer and interpret the
procedural aspects of the Plan, subject to the Plan's terms, including adopting
and enforcing rules to decide procedural and administrative issues.
9.03 AMENDING OR TERMINATING THE PLAN
By action of the Committee, the Plan may be amended, modified, suspended, or
terminated, in whole or in part, at any time for any reason. Unless otherwise
prohibited by applicable law, any amendment required to conform the Plan to the
requirements of Section 162(m) of the Internal Revenue Code may be made by the
Committee. No amendment may be made to the class of individuals who are eligible
to participate in the Plan, the performance criteria specified in Article 4, or
the maximum Plan payout payable to any participant without shareowner approval
unless shareowner approval is not required in order for payouts paid to "Covered
Employees" to constitute qualified performance-based compensation under Section
162(m) of the Internal Revenue Code.
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ARTICLE 10. PLAN AUDIT
The Vice President, Human Resources and Communications and Public Affairs, has
responsibility for monitoring and reporting on the administration and
effectiveness of the Plan. The Vice President's role is to provide independent,
objective appraisal and guidance to both the Committee and to the Chief
Executive Officer in the administration of the APP. Each year, the Vice
President will provide a formal review to the Committee and the CEO on the
overall effectiveness of the APP.
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EXHIBIT 1. CALCULATION OF THE ANNUAL PERFORMANCE PLAN PAYOUT
Awards are paid based on goal achievement. In the example below, three
performance goals have been selected for the relevant Performance Year with a
weighting of 50% for goal number 1, 25% for goal number 2, and 25% for goal
number 3. Weighted performance is calculated on a scale ranging from zero (0%,
or no payout at this level of performance) to 200% (or 2 times target
performance), with target performance at 100% (or 1 times target performance
level). In this way, regardless of their target award percentage (5% to 35%),
the performance for all participants can be calculated using the same scale. In
the example, the performance for goal 1 is 125% on the scale of 0 to 200%,
resulting in a weighted performance (50% times 125%) of 62.5%. Goal 2
performance is 94% on the scale, resulting in a weighted performance of 23.5%
(25% times 94%). Goal 3 performance is 116%, resulting in weighted performance
of 29% (25% times 116%). Adding the weighted performance factors together
results in a total weighted performance of 115%.
PERFORMANCE LEVELS
Example:
<TABLE>
<CAPTION>
Performance Level: A B C D E
<S> <C> <C> <C> <C> <C>
Performance Percent: 200% 150% 100% 50% 0%
</TABLE>
<TABLE>
<CAPTION>
GOAL WEIGHTED
GOALS WEIGHTING X PERFORMANCE LEVEL = PERFORMANCE
- ----- --------- - ----------------- -----------
<S> <C> <C> <C> <C> <C>
#1 50% X 125% = 62.5%
#2 25% X 94% = 23.5%
#3 25% X 116% = 29.0%
-----------
Total = 115.0%
</TABLE>
In this example, assume that the participant has a year-end base salary of
$100,000 and a target award level of 10%. To calculate this participant's award,
the Target Total Annual Compensation is calculated as described below. Then the
target award for the performance year is determined. Knowing the target award
and the total weighted performance (115% from above), the APP payout can be
calculated.
Target Total Annual Compensation = Base Salary divided by [1 minus (the target
award percent + Eastman Performance Plan
5%)].
In this example: $100,000 = $117,647 = Target Total Annual
---------- Compensation
1-(.10 +.05)
Target Payout = Target Total Annual Compensation times Target Award %
Target Payout = $117,647 X 10% = $11,765.
APP Payout = Target Payout times Total Weighted Performance
APP Payout = $11,765 X 115% = $13,530
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EXHIBIT 10.02
EASTMAN CHEMICAL COMPANY
EASTMAN UNIT PERFORMANCE PLAN
- --------------------------------------------------------------------------------
ARTICLE 1. PURPOSE
The Eastman Unit Performance Plan ("UPP", or the "Plan") is a variable
compensation plan for Eastman Chemical Company (the "Company") management level
individuals which is designed to deliver a portion of annual cash compensation
according to business unit performance and the attainment of individual
objectives and expectations. The UPP is intended to provide an incentive for
superior business and individual performance, and to tie the interests of
management-level individuals to the performance of the Company's businesses and,
thereby, the interests of the Company and its shareowners.
ARTICLE 2. RELATIONSHIP TO OTHER VARIABLE COMPENSATION PLANS
Total cash compensation for all Company employees, including Plan participants,
is intended to be competitive with pay in the applicable labor market and in the
chemical industry for similar jobs when target levels of performance are
achieved. Accordingly, a portion of each employee's target pay level is placed
"at risk". Base pay is reduced to below competitive levels, and the difference
between the resulting pay level and the competitive level is made variable and
is "at risk". Depending upon performance, employees may lose the "at risk"
amount, receive some or all of the amount "at risk", or receive an amount in
excess of the pay "at risk".
The annual cash compensation of each participant in the Plan consists of a base
salary and, depending on eligibility and participation level, awards under
variable compensation plans -- the Eastman Performance Plan ("EPP"), the Annual
Performance Plan ("APP") and the UPP.
The portion of pay "at risk" under the Plan is determined for each performance
year for which performance is measured (a "Performance Year") by the
Compensation and Management Development Committee (the "Committee") of the Board
of Directors, based on the recommendation of the Chief Executive Officer
("CEO").
Amounts "at risk" under the UPP are in addition to the pay "at risk" under the
EPP and APP. UPP awards, if any, are paid in a lump sum in March of the year
following the Performance Year.
ARTICLE 3. SUMMARY OF PLAN DESIGN
The UPP is designed so that a pool of dollars ("Bonus Pool") is generated for
each major functional organization (a "Unit") within the Company. The amount
generated for a Unit Bonus Pool will equal (1) the aggregate of the UPP pay at
risk for each eligible participant in the Unit, multiplied by (2) a percentage
(the "Unit Performance Factor") determined by performance compared to pre-set
Unit performance goals. Generally, the Unit Performance Factor can range from
0%, if Unit performance goals are not met, to 200% for specified above-goal
performance. For those Units for which quantitative performance goals can be
established ("Business Group Units"), the performance goals and correlative Unit
Performance Factors will be established as soon as practicable, either prior to
the beginning of each Performance Year or as soon as reasonably determinable at
the beginning of the Performance Year. The performance goals and correlative
Unit Performance Factors are established by the
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<PAGE> 2
Committee, based upon the recommendation of the CEO, following consultation
between the CEO and the head of each such Unit. For those Units for which
quantitative performance measures are not feasible (for example, Units
consisting of staff and support services whose role is to support Business Group
Units), the Unit Performance Factor will be an average of the actual Unit
Performance Factors for the Business Group Units.
At the end of each Performance Year, the Committee will certify Unit performance
in relation to the pre-established performance goals, thereby determining the
Unit Performance Factor and Bonus Pool for each Unit. Within each Unit,
management will exercise discretion in allocating the Bonus Pool for individual
payouts. The payouts will be based on the attainment of individual objectives
and expectations established at the beginning of such Performance Year by Unit
management for each individual participant. Maximum potential for an individual
award could exceed two times that person's UPP pay at risk, based on Unit
management's assessment of individual performance. However, the sum of all
individual awards cannot exceed the Bonus Pool for the Unit.
ARTICLE 4. ELIGIBILITY AND PARTICIPATION
4.01 GENERAL ELIGIBILITY
The UPP is designed for management-level individuals who have an impact on the
financial performance of the Company. Prior to or at the time Unit performance
goals are established for a Performance Year, the Committee, upon the
recommendation of the CEO, will confirm in writing the eligibility criteria for
participation in the UPP for such Performance Year and the portion of each
participant's pay at risk under the Plan.
4.02 NEW PARTICIPANTS DURING THE PERFORMANCE YEAR
Individuals who are appointed to positions eligible for UPP participation during
the Performance Year become eligible for participation on the first day of the
month of the appointment. Individuals who become participants during the
Performance Year will be eligible to receive a UPP award based on the discretion
of Unit management. Each participant's UPP pay at risk will be allocated to the
Unit Bonus Pool based upon the number of months in an eligible position during
the Performance Year. For example, if an individual was promoted to an eligible
position within his or her Unit in the ninth month of the Performance Year, the
allocation of the funds to that Unit Bonus Pool with respect to that individual
would be determined by multiplying the Unit Performance Factor times four
twelfths (4/12) of such person's UPP pay at risk as if he or she had been
eligible under the UPP for the entire Performance Year.
4.03 JOB CHANGES DURING THE PERFORMANCE YEAR
Participants who change jobs during a Performance Year, which results in a
change of their Unit affiliation, will be eligible to receive a UPP award from
each such Unit, at the discretion of Unit management. UPP pay at risk amounts
for such participants will be pro-rated among the applicable Unit Bonus Pools to
reflect such job changes during the Performance Year.
4.04 TERMINATIONS
In the event an eligible participant (1) retires, (2) dies, (3) becomes disabled
under the Eastman Long-Term Disability Plan, or (4) terminates employment as a
result of, pursuant to, or in connection with layoff, special separation,
divestiture, or similar circumstances, such person's UPP pay at risk will be
allocated to his or her Unit's Bonus Pool for such Performance Year based on the
number of months served, and he or she will be eligible to receive a UPP award
for such Performance Year at the sole discretion of the Unit management.
Participants who terminate employment with the Company for reasons other than
those specified under this Section 4.04 will be credited to a Bonus Pool and
eligible to receive an award under the UPP only if they were actively employed
on the last scheduled workday of the Performance Year.
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<PAGE> 3
ARTICLE 5. PERFORMANCE YEAR AND PERFORMANCE GOALS
5.01 PERFORMANCE YEAR
The Plan's Performance Year shall be the calendar year beginning on January 1
and ending on December 31.
5.02 PERFORMANCE GOALS
Each year, the CEO will recommend to the Committee, based upon consultation with
the head of each Business Group Unit, performance goals for each Business Group
Unit for a given Performance Year. Either by the first day of the Performance
Year, or such later date as is practicable, the Committee shall establish in
writing, with respect to the Performance Year, a target objective(s) with
respect to such performance goals and formulae or methods for computing the
applicable Unit Performance Factor based on the extent to which such performance
goals are attained. Unit Performance Factors can range from 0%, if Unit
performance goals are not met, to 200% for specified above-goal performance.
Performance goals for Business Group Units may be based upon any quantitative
and objectively determinable business or financial criteria, alone or in
combination, as the CEO and the applicable Unit head shall deem appropriate.
Performance goals need not be established for all Units, since the Unit
Performance Factor for each Unit other than those with established performance
goals will be an average of the actual Unit Performance Factors for the Business
Group Units.
Once established, performance goals for a particular Performance Year cannot
be changed during the Performance Year.
ARTICLE 6. AWARD DETERMINATION
6.01 CERTIFICATION OF PERFORMANCE
As soon as practicable following the availability of performance results for the
completed Performance Year, the Committee shall certify each Business Group
Unit's performance in relation to the pre-established goals, thereby determining
the Unit Performance Factor and Bonus Pool for each Unit. To the extent the
performance goals are expressed in standard accounting terms, they 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.
In determining whether the performance goals have been met, to the extent that
such goals are expressed in terms of financial performance, the Committee may
adjust the financial results for a Performance Year to exclude the effect of
unusual charges or income items or other events which are distortive of
financial results for the Performance Year. Notwithstanding actual Business
Group Unit performance, the Committee may, in its sole discretion, adjust the
amounts of the Unit Bonus Pools to reflect overall Company performance and
business and financial conditions.
6.02 CALCULATION OF BONUS POOL AND INDIVIDUAL AWARDS; REPORT TO COMMITTEE
Based upon each Business Group Unit's performance against the performance goals,
the Unit Performance Factors for each Unit are determined as provided in
Sections 5.02 and 6.01. The amount generated for each Unit Bonus Pool will equal
(1) the aggregate of the UPP pay at risk for each eligible participant in the
Unit, multiplied by (2) the Unit Performance Factor for such Unit. The
management of each Unit shall have the sole discretion to allocate the Unit
Bonus Pool among eligible participants, based on objective or subjective
assessments of the participants' achievement of pre-established goals and
expectations for the Performance Year. To the extent that the sum of individual
awards as allocated by the Unit management within a particular Unit does not
equal the Bonus Pool amount for that Unit, the Unit management shall make
adjustments to individual awards to account for the
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<PAGE> 4
difference. Individual adjustments shall be at the discretion of the Unit
management, but aggregate payouts cannot exceed the total Bonus Pool for the
Unit. Final allocations of the Unit Bonus Pools shall be reported to the CEO,
who shall report the UPP results to the Committee. The Committee shall approve
the UPP award amounts for all executive officers of the Company.
ARTICLE 7. PAYMENT OF AWARDS
UPP awards shall be paid by the Company in March for performance in the previous
Performance Year, based upon the Unit management's allocation of awards from the
Unit Bonus Pools. The Committee has the authority, in its discretion, to defer
payment of a participant's award into the Executive Deferred Compensation Plan
until the participant retires or otherwise terminates employment, if the
Committee determines that payment of the award could result in the participant
receiving compensation in excess of the maximum amount deductible by the Company
for Federal income tax purposes.
ARTICLE 8. SALARY ADJUSTMENTS AND BENEFITS
8.01 SALARY ADJUSTMENT UPON ENTRY INTO THE UPP
The UPP is a variable compensation, or pay at risk, program whereby participants
have their base salary administered on reduced rate ranges. New participants to
the Plan are immediately administered on the reduced rate range for their
assigned salary grade. This may reduce or eliminate promotional increases,
depending upon the person's pay position in the rate range of the new salary
grade. Subsequent salary treatment will depend upon pay/performance
relationships in the reduced rate range for their assigned grade.
8.02 SALARY CONVERSION UPON WITHDRAWAL FROM THE UPP
In unusual circumstances when it is necessary for an individual to be removed
from the Plan, the individual will be placed on a non-UPP rate schedule and the
base salary recalculated. The recalculated base salary will be determined by
calculating the ratio of the individual's base salary prior to removal from the
Plan to the midpoint of the UPP rate schedule, and applying the same ratio to
the midpoint of the non-UPP rate schedule, to determine the new base salary.
Should the removal from the Plan involve a reduction in salary grade, a new rate
in the new salary grade will be selected based upon the individual's applicable
training and experience.
8.03 RELATIONSHIP TO BENEFITS AND OTHER COMPENSATION
The UPP award payout is considered in calculating the basis for other
compensation and benefits. Base salary, the actual UPP payout (if applicable),
the actual APP payout (if applicable), and the actual EPP payout (if
applicable), are included in calculating retirement benefits. Base salary, the
target UPP award payout, the target APP award payout and the target EPP payout
are included in the basis for calculating the actual UPP payout (if applicable),
the actual APP payout (if applicable), the actual EPP payout (if applicable),
life insurance, long-term disability, termination allowance, miscellaneous
expense allowance, and foreign service premium. The base salary rate is the
basis for calculating short-term disability, vacation pay, holiday pay, personal
absence and field allowance.
ARTICLE 9. OTHER TERMS AND CONDITIONS
9.01 CLAIMS
No person shall have any legal claim to be granted an award under the Plan.
Except as may be otherwise required by law, payouts under the Plan shall not be
subject in any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance, charge, garnishment, execution, or levy of any kind, either
voluntary or
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involuntary. Plan payouts shall be payable from the general assets of the
Company and no participant shall have any claim with respect to any specific
assets of the Company.
9.02 NO EMPLOYMENT RIGHTS
Neither the UPP nor any action taken under the UPP shall be construed as giving
any employee the right to be retained in the employ of the Company or to
maintain any participant's compensation at any level.
9.03 WITHHOLDING
The Company shall have the power and the right to deduct or withhold, or require
a Participant to remit to the Company, an amount sufficient to satisfy Federal,
state, and local taxes (including the participant's OASDI and MEDI obligation)
required by law to be withheld.
ARTICLE 10. ADMINISTRATION
10.01 POWER AND AUTHORITY OF THE COMMITTEE
The Committee shall have full power and authority to administer and interpret
the provisions of the Plan and to adopt such rules, regulations, agreements,
guidelines, and instruments for the administration of the Plan and for conduct
of its business as the Committee deems appropriate or advisable. The Committee
sets and interprets policy, confirms the individual participants in the UPP and
the amounts of "pay-at-risk" under the UPP, establishes annual Unit performance
goals, certifies the extent to which Unit performance goals were satisfied under
the Plan, and approves the UPP award amounts to participants who are executive
officers of the Company.
10.02 COMMITTEE'S DELEGATION OF AUTHORITY
The Committee shall have full power to delegate to any officer or employee of
the Company the authority to administer and interpret the procedural aspects of
the Plan, subject to the Plan's terms, including adopting and enforcing rules to
decide procedural and administrative issues.
10.03 AMENDING OR TERMINATING THE PLAN
By action of the Committee, the Plan may be amended, modified, suspended, or
terminated, in whole or in part, at any time for any reason.
ARTICLE 11. PLAN AUDIT
The Vice President, Human Resources, has responsibility for monitoring and
reporting on the administration and effectiveness of the Plan. The Vice
President's role is to provide independent, objective appraisal and guidance to
both the Committee and the CEO in the administration of the UPP. Each year, the
Vice President will provide a formal review to the Committee and the CEO on the
overall effectiveness of the UPP.
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<PAGE> 1
EXHIBIT 10.03
EASTMAN CHEMICAL COMPANY
EASTMAN PERFORMANCE PLAN
(AMENDED AND RESTATED EFFECTIVE DECEMBER 1, 1999)
- --------------------------------------------------------------------------------
ARTICLE 1. INTRODUCTION
The Eastman Performance Plan, as set forth in this document, has been approved
by the Board of Directors of Eastman Chemical Company (the "Company") as a
variable compensation program which provides eligible employees with tangible
recognition for their contributions to the success of the Company. The Eastman
Performance Plan is also intended to secure the full deductibility of Plan
Payouts to Covered Employees, and all cash compensation payable hereunder to
such persons is intended to qualify as "performance based compensation", as
described in Section 162(m) of the Internal Revenue Code of 1986, as amended.
The Company's Board of Directors is responsible for approving the declaration of
Plan Payouts under this Plan each year, except for Plan payouts to Covered
Employees, which shall be approved by the Compensation Committee. No declaration
of Plan Payout by the Board or the Compensation Committee for any given year
shall commit the Board or the Compensation Committee to any given level of Plan
Payout in future years.
ARTICLE 2. DEFINITIONS
2.01 BOARD. The Board of Directors of the Company.
2.02 RESERVED.
2.03 CAPITAL. Capital shall designate the funds invested in the Company
through either debt or equity, including funds loaned to the Company from
financial institutions or through the issuance of bonds, debentures or other
private debt instruments, plus the shareholders' cumulative investment in the
Company through the ownership of all outstanding shares of all classes of stock.
2.04 CODE. The Internal Revenue Code of 1986, as amended.
2.05 COLLEGE COOPERATIVE STUDENT. College Cooperative Student shall refer to
an employee who is a college student pursuing studies of interest to the Company
and who generally works a full-time schedule on an alternate work/school block
basis.
2.06 COMPANY. Eastman Chemical Company or its corporate successors.
Notwithstanding the foregoing, whenever reference is made in this Plan to "the
Company" in the context of financial performance, e.g., "the Company's capital
debt", the "Company" shall mean Eastman Chemical Company and all of its
affiliates that are included on its consolidated financial statements.
2.07 RESERVED.
2.08 COMPENSATION COMMITTEE. The Compensation and Management Development
Committee of the Board, or such other committee designated by the Board,
authorized to administer the Plan as provided herein. The Committee
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<PAGE> 2
shall consist of not less than two members, each of whom shall be an "outside
director" as that term is used in Code Section 162(m) and the regulations
promulgated thereunder.
2.09 COST OF CAPITAL. The Cost of Capital reflects the cost of debt and the
cost of equity, expressed as a percentage reflecting the percentage of interest
charged on debt and the percentage of expected return on equity.
2.10 COVERED EMPLOYEE. An individual defined in Code Section 162(m)(3).
2.11 EARNINGS FROM CONTINUING OPERATIONS. Earnings from Continuing
Operations shall be defined as the total sales of the Company minus the costs of
all operations of any nature used to produce such sales, including taxes, plus
after-tax interest associated with the Company's capital debt.
2.12 RESERVED.
2.13 EASTMAN INVESTMENT AND EMPLOYEE STOCK OWNERSHIP PLAN OR EIP/ESOP. The
Eastman Investment and Employee Stock Ownership Plan, a qualified savings and
employee stock ownership plan under Sections 401(a), 401(k), and 4975 of the
Code, including any amendments which may from time to time be adopted thereto.
2.14 RESERVED.
2.15 ELIGIBLE EMPLOYEE. Eligible Employees shall be all those individuals
who meet the eligibility criteria set forth under Article 3; provided however,
that nonresident aliens working outside of the United States shall not be
defined as Eligible Employees for the purposes of this Plan.
2.16 RESERVED.
2.17 LIMITED SERVICE EMPLOYEE. Limited Service Employee shall refer to any
individual hired by the Company for the specific purpose of meeting needs of
Nine Hundred (900) hours or less in any consecutive twelve (12) month period and
who is designated as a Limited Service Employee when hired.
2.18 PARTICIPATING AFFILIATES. Participating Affiliates shall signify all
those companies or organizations which from time to time accept the provisions
of the Plan as applying to the employees of such company or organization.
2.19 PARTICIPATING EARNINGS. Participating Earnings for a given Performance
Year shall be an Eligible Employee's Participating Earnings set forth in
Appendix A for such Performance Year.
2.20 PAYOUT BASIS. The Payout Basis shall signify the applicable percentage
set forth in accordance with the Payout Table contained in Section 4.04.
2.20A PAYOUT TABLE. The Payout Table shall be that Table set forth under
Section 4.04 providing for the correlation between the Performance Indicator and
the Payout Basis.
2.21 PERFORMANCE INDICATOR. The Performance Indicator shall mean the Return
on Capital minus the Cost of Capital. Such calculation shall be expressed as a
percentage, which shall be calculated to the third place after the decimal point
(i.e., xx.xxx%), and then rounded to the second place after the decimal point
(i.e., xx.xx%).
2.22 PERFORMANCE YEAR. The Performance Year shall be the calendar year,
running from January 1 through December 31, with respect to which the financial
performance of the Company shall be determined.
2.23 PLAN. The Eastman Performance Plan.
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2.24 PLAN PAYOUT. The Plan Payout shall consist of those monies to which the
Eligible Employee shall be entitled in accordance with the provisions of this
Plan.
2.25 REGULAR FULL-TIME EMPLOYEE. Regular Full-Time Employee shall refer to
those individuals who are defined as such on the payrolls of the Company or a
Participating Affiliate and who work a regular schedule of:
(a) 40 or more hours per week (or shorter time periods where required
by law, by Company needs, or by the employee's health); or
(b) Alternative work schedules such as alternating 36 and 48 hour
workweeks comprised of 12-hour days.
2.26 REGULAR PART-TIME EMPLOYEE. Regular Part-Time Employee shall refer to
those individuals who are defined as such on the payroll of the Company or a
Participating Affiliate, who work a regular schedule of less than 40 hours per
week, and who are not defined as Regular Full-Time Employees under Section 2.25.
2.27 RETURN ON CAPITAL. The Return on Capital shall mean the return produced
by funds invested in the Company and shall be determined as Earnings from
Continuing Operations, as defined in Section 2.11, divided by the Average
Capital Employed. Average Capital Employed shall be derived by adding the
Company's capital debt plus equity at the close of the last day of the year
preceding the Performance Year, to the Company's capital debt plus equity at the
close of the last day of the present Performance Year, with the resulting sum
being divided by two. Capital debt is defined as the sum of Borrowing by the
Company Due Within One Year and Long-Term Borrowing, as designated on the
Company's balance sheet. The resulting ratio shall be multiplied by One Hundred
(100) in order to convert such to a percentage. Such percentage shall be
calculated to the third place after the decimal point (i.e., xx.xxx%), and then
rounded to the second place after the decimal point (i.e., xx.xx%).
2.28 SPECIAL PROGRAM EMPLOYEE. Special Program Employee shall refer to a
high school study-work student, a drafting trainee employed to work one quarter
or semester, a clerical assistant trainee hired to work for one quarter or
semester, a summer technical employee, a visiting scientist, or a normal
temporary employee hired for a limited period.
2.29 TERMINATION ALLOWANCE PLAN OR TAP. Termination Allowance Plan or TAP
shall mean the Termination Allowance Plan adopted by the Company effective
January 1, 1994, and as amended thereafter from time to time.
ARTICLE 3. ELIGIBILITY
3.01 BASIC ELIGIBILITY
All Regular Full-Time Employees and Regular Part-Time Employees of Eastman
Chemical Company and any other Participating Affiliates as may from time to time
participate under this Plan, are eligible to receive a Plan Payout as described
herein if they:
(a) Meet all of the following requirements;
(i) Are employed by Eastman Chemical Company or one of the
Participating Affiliates on the last scheduled workday for such
employee during the Performance Year; and
(ii) Receive Participating Earnings with respect to the Performance
Year; and
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(iii) Are living at 11:59 p.m. on the last scheduled workday for
such Employee during the Performance Year (e.g., if an Employee regularly
works a Monday to Friday shift, his last scheduled workday for the 1996
Performance Year would be Tuesday, December 31, 1996);
or
(b) Meet the requirements of Section 3.02.
3.02 SPECIAL ELIGIBILITY
Regular Full-Time Employees and Regular Part-Time Employees who are not actively
employed with the Company or a Participating Affiliate as of December 31 of the
Performance Year are eligible to participate under the provisions of this Plan
provided that they meet one of the following criteria:
(a) Such employee has retired in accordance with the Eastman Retirement
Assistance Plan on or after February 1 of the Performance Year; or
(b) Such employee has exhausted Short-Term Disability benefits during the
Performance Year and:
(i) Is approved for benefits under the Eastman Long-Term
Disability Plan; or
(ii) Is not approved for benefits under the Eastman Long-Term
Disability Plan and is terminated by the Company due to lack of
prescribed work; or
(c) Such employee's employment with the Company was terminated
during the Performance Year and as a result of such termination the
employee becomes entitled to a Termination Allowance Benefit under the
Company's Termination Allowance Plan; or
(d) All of the following conditions are met: (i) an employee's
employment with the Company is terminated during the Performance Year
under a layoff as defined in Section 4.01 of TAP, a special separation
as defined in Section 4.02 of TAP, or a divestiture as defined in
Section 4.03 of TAP; (ii) such employee does not become entitled to a
Termination Allowance Benefit under TAP; and (iii) management of the
Company nevertheless resolves in writing that such employee shall be
entitled to participate in the Performance Plan for such Performance
Year upon meeting such conditions as management shall determine in its
sole discretion. For this purpose, "management of the Company" shall
mean any of the following: the Board of Directors of the Company, a
committee of the Board; a committee of the Company responsible for
benefits plans oversight; or an officer of the Company; or
(e) Such employee is (i) paid on a United States-based salary
structure, and (ii) is temporarily employed with a non-participating
affiliate of the Company and serving outside the borders of the United
States at the direction or request of the Company or any Participating
Affiliate; or
(f) Such employee's employment with the Company was terminated
during the Performance Year in order to accompany or follow their
Eastman employee spouse who is transferred to a company unit or
subsidiary or affiliated company in a different geographic area which is
not a Participating Affiliate.
3.03 TRANSFER INTO PLAN
Employees who transfer to the Company during the course of any Performance Year
from a subsidiary or affiliated company which is not a Participating Affiliate
in the Plan will be eligible for the Plan Payout payable for the
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Performance Year if they satisfy the eligibility requirements of Section 3.01 or
3.02 above. Earnings and allowances received from such subsidiary or affiliated
company are not included in Participating Earnings.
3.04 TRANSFER FROM PLAN
Employees who are transferred during any Performance Year from the Company to
employment with a subsidiary or affiliated company which is not a Participating
Affiliate will qualify for the Plan Payout payable for that Performance Year.
However, earnings and allowances received from such subsidiary or affiliated
company are not included in Participating Earnings.
3.05 EXCLUSIONS
Limited Service Employees, Special Program Employees, College Cooperative
Employees, and all other employees of the Company and Participating Affiliates
not defined as Regular Full-Time Employees or Regular Part-Time Employees are
not eligible to receive a Plan Payout as authorized herein unless reclassified
before December 31 of the Performance Year into a class of employees eligible to
receive a Plan Payout in accordance with Sections 3.01 and 3.02. For such
reclassified employees, except those employees who were classified as Limited
Service Employees prior to such reclassification, earnings before
reclassification are included in Participating Earnings.
3.06 PARTICIPATION OF RECENTLY HIRED EMPLOYEES
Notwithstanding any language to the contrary contained herein, during the
Performance Year in which an Eligible Employee is first hired by the Company or
by a Participating Affiliate, and the next Performance Year, Eligible Employees
shall receive prorated allocations of the Plan Payout, as follows. For the
Performance Year of the Eligible Employee's date of hire, the Eligible Employee
shall receive an allocation equal to Twenty-Five Percent (25%) of the Eligible
Employee's Plan Payout as calculated under Section 4.06(a). For the first full
Performance Year after the Eligible Employee's date of hire, the Eligible
Employee shall receive an allocation equal to Fifty Percent (50%) of that
Eligible Participant's Plan Payout as calculated under Section 4.06(a). Such
allocation made shall be paid entirely in cash pursuant to the provisions of
Section 5.01.
3.07 TERMINATION OF EMPLOYMENT SUBSEQUENT TO PERFORMANCE YEAR
Any Eligible Employee who has met the requirements for participation contained
in this Article 3 for the Performance Year and with whom the employment
relationship with the Company or any Participating Affiliate is subsequently
terminated for any reason prior to the distribution of the Plan Payout for that
Performance Year shall be entitled to the Plan Payout for that Performance Year.
Payment of such Plan Payout shall be made in accordance with the provisions set
forth under Section 5.01.
3.08 ELIGIBILITY IN CASE OF DEATH
Notwithstanding any language contained herein, if an employee dies before
qualifying for the Plan Payout for the Performance Year, the Company may, in its
sole discretion, elect to pay all, part, or none of the Plan Payout to the
estate of the employee or to a designated beneficiary thereof. However, if an
Eligible Employee dies after qualifying for but before receiving a given Plan
Payout, such Plan Payout will be paid to the decedent's estate as a legal right.
ARTICLE 4. DETERMINATION OF PLAN PAYOUT
4.01 IN GENERAL
The Plan Payout, if any, is intended to reflect the financial performance of the
Company over the course of the Performance Year. Financial performance shall be
measured in terms of the Performance Indicator. Such Plan
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Payout, if any, shall be calculated as determined under Section 4.06. The
resulting Plan Payout for each Eligible Employee shall be distributed pursuant
to the provisions of Article 5 below.
4.02 DETERMINATION OF PERFORMANCE INDICATOR
No later than the first day of a Performance Year (or such later date as may be
permitted by Code Section 162(m)), the Compensation Committee shall establish in
writing for that Performance Year, the Performance Indicator (including the Cost
of Capital for the Performance Year), the Payout Basis, the General Payout
Table, and the formula or method for calculating the Plan Payout payable to each
Eligible Employee if certain levels of the Performance Indicator are attained.
The Performance Indicator for any Performance Year shall be the Return on
Capital (as defined in Section 2.27) minus the Cost of Capital (as defined in
Section 2.09), expressed as a percentage, which shall be calculated to the third
place after the decimal point (i.e., xx.xxx%), and then rounded to the second
place after the decimal point (i.e., xx.xx%). Except as otherwise provided in
the next two sentences, measurement of the Company's performance against the
performance goals established by the Committee shall be objectively determinable
and, to the extent they are expressed in standard accounting terms, shall be
determined according to generally accepted accounting principles as in existence
on the date on which the performance goals are established and without regard to
any changes in such principles after such date. With respect to participants
other than Covered Employees, in determining whether the performance goals
established by the Committee have been met, the Committee may in its discretion
adjust the financial results for a Performance Year to exclude the effect of
unusual charges or income items or other events (including, without limitation,
acquisitions or divestitures), which are distortive of financial results for the
Performance Year. The Committee may in its discretion reduce (but not increase)
the resulting award to Covered Employees if deemed necessary to exclude the
effect of unusual charges or income items or other events (including, without
limitation, acquisitions or divestitures), which are distortive of financial
results for the Performance Year. No adjustment will be made with respect to a
Covered Employee if the Committee determines that such adjustment will cause an
award to such Covered Employee to fail to qualify as performance-based
compensation under Section 162(m).
4.03 DETERMINATION OF PAYOUT BASIS
The Payout Basis, expressed as a percentage as follows, shall be determined
according to the Payout Table shown in Section 4.04. If the Return on Capital
minus Cost of Capital is not an even percentage, then the exact Payout Basis
shall be calculated by straight line interpolation, and shall be calculated to
the third place after the decimal point (i.e., xx.xxx%), and then rounded to the
second place after the decimal point (i.e., xx.xx%).
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<PAGE> 7
4.04 PAYOUT TABLE
<TABLE>
<CAPTION>
RETURN ON CAPITAL
MINUS COST OF CAPITAL 1 PAYOUT BASIS*
(PERCENTAGE) CASH %
------------ ------
<S> <C>
10 or More 25
9 22
8 19
7 17
6 15
5 13
4 11
3 9.5
2 8
1 6.5
0 5
-1 4
-2 3
-3 2
-4 1
<-5 0
-
</TABLE>
* Actual Payout percentages may vary based on pay at risk as
determined under Section 4.06.
4.05 BOARD ELECTION REGARDING 0% PAYOUT BASIS
Neither the Board nor the Compensation Committee shall have discretion to
increase or reduce the Plan Payout determined according to this Article 4.
4.06 CALCULATION OF INDIVIDUAL PLAN PAYOUT
Calculations of the individual Plan Payout shall be done as follows:
The Plan Payout for each Eligible Employee shall be calculated by multiplying
the Participating Earnings of the Eligible Employee for the Performance Year by
a fraction, the numerator of which is the Payout Basis derived from the Payout
Table contained in Section 4.04 and the denominator of which is One (1) minus
that percentage of the Eligible Employee's pay at risk as defined under the
regular employment practices of the Company. Such fraction shall be calculated
to the seventh place after the decimal point (i.e., xx.xxxxxxx%), and then
rounded to the sixth place after the decimal point (i.e., xx.xxxxxx%). Thus, the
calculation shall be expressed as follows:
Plan Payout (Total) = Participating Earnings x Payout Basis
------------
1 - % of Pay at Risk
The maximum annual Plan Payout to any individual is $500,000.
4.07 ESTIMATED PLAN PAYOUT
The Vice President and Chief Financial Officer, or his delegate shall, on or
about the close of each quarter of the Company's fiscal year, estimate the
annual Payout Basis for the Plan based upon financial performance for the
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<PAGE> 8
Performance Year to date. The estimates thus generated shall subsequently be
communicated to Eligible Employees in such a manner as determined by the
Company.
4.08 FINAL DETERMINATIONS BY BOARD AND BY COMPENSATION COMMITTEE
As soon as practicable following the availability of performance results for the
completed Performance Year, the Committee shall determine the Company's
performance in relation to the Performance Indicator for that period and certify
in writing the Company's performance. Such certification shall include
confirmation of the Return on Capital (determined as described in Section 2.27),
and final approval and declaration of the Plan Payout to Covered Employees.
Notwithstanding any language contained herein, final approval for any Plan
Payout to Eligible Employees other than Covered Employees determined in
conjunction with this Article 4 must be given by the Board of Directors of the
Company. No declaration of Plan Payout by the Board or the Compensation
Committee for any given year shall commit the Board or the Compensation
Committee to any given level of Plan Payout in future years.
4.09 SHAREOWNER APPROVAL
No Plan Payout payable in cash shall be paid under the Plan to any Covered
Employee for any Performance Year after 1996 unless and until the material terms
(within the meaning of Section 162(m) of the Code) of the Plan, including the
performance goals on which the Plan Payout would be based, are disclosed to the
Company's shareowners and are approved by the shareowners by a majority of the
votes cast.
ARTICLE 5. MECHANISM OF PLAN PAYOUT
5.01 PLAN PAYOUT
Approved Plan Payouts for any Performance Year shall be made in the subsequent
Performance Year and shall, at the discretion of the Company, be paid out in
March of the subsequent Performance Year in cash by check or into an account
designated by the Eligible Employee and held with a commercial bank. The Plan
Payout shall reflect any deductions made by the Company for purposes of Federal
or other taxation or pursuant to request for deferral of benefits made by the
Eligible Employee under the provisions of Article 5.02.
5.02 EASTMAN INVESTMENT AND EMPLOYEE STOCK OWNERSHIP PLAN AND EASTMAN
EXECUTIVE DEFERRED COMPENSATION PLAN PARTICIPATION
Eligible Employees who are also eligible to participate in the Eastman
Investment and Employee Stock Ownership Plan may elect to defer the Plan Payout
for a given Performance Year into the Eastman Investment and Employee Stock
Ownership Plan, to the extent provided under such Plan. Eligible Employees who
are also eligible to participate in the Eastman Executive Deferred Compensation
Plan may elect to defer the Plan Payout for a given Performance Year into the
Eastman Executive Deferred Compensation Plan, to the extent provided under such
Plan. Any funds deferred pursuant to the provisions of this Section 5.02 shall
become subject to the rules and regulations of the EIP/ESOP or the Executive
Deferred Compensation Plan, and shall reflect any deductions made for purposes
of payment of social security taxes due under the Code.
5.03 RESERVED
5.04 DEFERRAL OF AWARD
Notwithstanding anything in this Article 5 to the contrary, if the Compensation
Committee determines that the current payment of any award under this Article 5
could result in the Eligible Employee's receiving compensation in excess
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<PAGE> 9
of the maximum amount deductible by the Company for Federal income tax purposes,
then such Committee in its sole discretion may determine that such award shall
not be paid currently, and instead shall be transferred to the Employee's
account under the Eastman Executive Deferred Compensation Plan (and thereafter
shall be subject to the provisions of the Executive Deferred Compensation Plan).
ARTICLE 6. CLAIM AGAINST PERFORMANCE PAYMENT
The payment of any Plan Payout which may be subject in whole or in part to
execution, lien, assignment, or other claim, notice of which is received by the
Company on or before the Plan Payout payment date, may be delayed for an
appropriate time in order to facilitate proper handling of the claim and in
order to make any necessary adjustments.
ARTICLE 7. INABILITY TO LOCATE PAYEE
If the Company is unable to make payment hereunder to any Eligible Employee to
whom a Plan Payout is due because the Company is unable to ascertain the
whereabouts of such Eligible Employee after reasonable efforts have been made,
such payment otherwise due shall be forfeited one (1) year after the date the
Plan Payout was to be made.
ARTICLE 8. PLAN DOCUMENT CONTROLS
In the event of a conflict between this Plan document and any other information
or enrollment materials provided to the Eligible Employees (whether written or
oral), the provisions of this document shall control.
ARTICLE 9. RIGHT TO AMEND OR TERMINATE
Although the Company intends to continue the Plan indefinitely, the Plan may be
terminated, suspended or modified, in whole or in part, at any time for any
reason by action of the Compensation Committee. No amendment may be made to the
class of individuals who are eligible to participate in the Plan, the
performance criteria specified in Article 4, or the maximum annual Plan Payout
payable to any individual, without shareowner approval unless shareowner
approval is not required in order for Plan Payouts paid to Covered Employees to
constitute qualified performance-based compensation under Section 162(m) of the
Code.
ARTICLE 10. NO EMPLOYMENT RIGHTS
Nothing contained in this Plan shall give any Eligible Employee the right to be
retained in the employment of the Company or affect the right of the Company to
dismiss any employee. The adoption and maintenance of this Plan shall not
constitute a contract between the Company and the Eligible Employee for
consideration for, or inducement or condition of, the employment of the Eligible
Employee.
ARTICLE 11. CONCLUSIVENESS OF RECORDS
The records of the Company with respect to financial data, Participating
Earnings, and all other relevant matters shall be conclusive for purposes of the
administration of the Plan described in this document.
ARTICLE 12. ADMINISTRATION; ACTIONS BY THE COMPANY
All members of the Compensation Committee shall be persons who qualify as
"outside directors" as defined under Section 162(m) of the Code. The Committee
shall have full power and authority to administer and interpret the
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<PAGE> 10
provisions of the Plan and to adopt such rules, regulations, agreements,
guidelines, and instruments for the administration of the Plan and for conduct
of its business as the Committee deems appropriate or advisable. The Committee
sets and interprets policy, establishes annual performance goals, evaluates
Company performance against the goals, and confirms and certifies the extent to
which Company performance goals were satisfied under the Plan.
Except with respect to matters which under Section 162(m) of the Code are
required to be determined in the sole and absolute discretion of the Committee,
the Committee shall have full power to delegate to any officer or employee of
the Company the authority to administer and interpret the procedural aspects of
the Plan, subject to the Plan's terms, including adopting and enforcing rules to
decide procedural and administrative issues.
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APPENDIX A
PARTICIPATING AND NON-PARTICIPATING EARNINGS
PARTICIPATING EARNINGS
Pay for all time worked including:
Wages and salaries
Pay for clothes change
Pay for time spent attending meetings
Paid lunch periods
Pay for time in Eastman Medical Department (scheduled hours only)
Pay for work on community campaigns and special community projects (at
company request)
Pay when serving as pallbearer (at company request)
Overtime pay
Shift premiums
Shift supplements
Compensating time off
Holiday pay, premiums, and allowances (including payment for holiday
during a full week of absence)
Vacation pay (including payment in lieu of vacation and
excluding purchased vacation cashout)
Pay for travel status
Lack of work allowance
Time spent by Apprentices in supervised tests or labs
Medical pay allowance (as recommended and arranged by the Eastman
Medical Department)
Jury duty
Call-in allowance
On-call allowance
Adjustment for amount of time spent on Final Warning(1)
Note 1: Participating Earnings does not include pay during the period of
time while a Employee is on Final Warning Status, as determined under
the Company's regular employment practices. This adjustment is made by
taking an Employee's Participating Earnings for the Performance Year,
and excluding a pro rata portion based on the amount of time that the
Employee was on Final Warning Status during such year.
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<PAGE> 12
NON-PARTICIPATING EARNINGS
Eastman Performance Plan payouts
Annual Performance Plan payouts
Omnibus Plan awards such as:
Stock Option grants
Restricted Stock grants
Long-Term Performance Award Plan awards
Tuition refunds
Educational support payments
Termination allowance and special separation allowance
Moving expenses and allowances as the result of domestic relocation
Additions to allowances on prizes for tax purposes
Taxable awards and prizes such as:
25-year service awards
40-year service awards
Safety awards
Attendance awards
Allowances for excused absences due to:
accident at work
death of a relative
emergency blood donation
emergency relief activities
organized color guard
employee medical or dental appointment
serving in public office
personal absences
temporary military duty
time spent voting
voluntary community services
other allowances not specifically identified under Participating Earnings
Allowances for expatriates:
cost-of-living allowance
housing allowance
tax makeup allowance
travel allowance
education allowance
Foreign service premium payments
Payment in lieu of notice of termination
Short-Term Disability benefits
Taxable portion of insurance premium paid by company
Workers' Compensation payments and allowances:
makeup payments
statutory payments
supplements
All other payments or allowances not specifically identified as Participating
Earnings
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<PAGE> 1
EXHIBIT 10.10
AMENDED AND RESTATED
EASTMAN EXECUTIVE DEFERRED COMPENSATION PLAN
Preamble. The Amended and Restated Eastman Executive Deferred
Compensation Plan is an unfunded, nonqualified deferred compensation
arrangement for eligible employees of Eastman Chemical Company ("the Company")
and certain of its subsidiaries. Under the Plan, each Eligible Employee is
annually given an opportunity to elect to defer payment of part of his or her
cash compensation. This Plan also assumed the liabilities accrued under the
Kodak Executive Deferred Compensation Plan, as of January 1, 1994, in respect
of each Eligible Employee who was actively employed by the Company as of such
date and who chose to transfer his or her deferred compensation account to the
Company. This Plan originally was adopted effective January 1, 1994, was
amended and restated effective as of December 1, 1999.
SECTION 1: DEFINITIONS
SECTION 1.1. "Account" means the Interest Account or the Stock
Account.
SECTION 1.2. "Board" means the Board of Directors of the Company.
SECTION 1.3. "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 August 1, 1993,
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 of the Company, or any employee benefit plan(s) sponsored
by the Company or any subsidiary of the Company, 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 at 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, 1994 (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,
1994 whose election, or nomination for election by the Company's
stockholders, 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 stockholders 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
stockholders 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 of the Company.
Notwithstanding the occurrence of any of the foregoing, the
Compensation Committee may determine, if
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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 it is made
by the Compensation 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 Compensation 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.
SECTION 1.4. "Common Stock" means the $.01 par value common stock of
the Company.
SECTION 1.5. "Company" means Eastman Chemical Company.
SECTION 1.6. "Compensation Committee" shall mean the Compensation
and Management Development Committee of the Board.
SECTION 1.7. "Deferrable Amount" means, for a given fiscal year of
the Company, an amount equal to the sum of the Eligible Employee's (i)
annual base cash compensation; (ii) annual cash payments under the
Eastman Performance Plan and the Annual Performance Plan of the
Company; and (iii) stock and stock-based awards under the Omnibus Plan
which, under the terms of the Omnibus Plan and the award, are payable
in cash and required or allowed to be deferred into this Plan; and
(iv) signing bonus, if any, received in connection with his or her
initial employment with the Company; provided, however, that the
Deferrable Amount shall not include any amount that must be withheld
from the Eligible Employee's wages for income or employment tax
purposes.
In addition, each Eligible Employee as of January 1, 1994, who had
previously participated in the Kodak Executive Deferred Compensation
Plan could elect to transfer the amount then in his or her account in
the Kodak Executive Deferred Compensation Plan.
SECTION 1.8. "Eligible Employee" means a U.S.-based employee of the
Company or any of its U.S. Subsidiaries who at any time (i) has a
salary grade classification of SG 49 or above; or (ii) is not covered
under clause (i), but who was an Eligible Employee under the Kodak
Executive Deferred Compensation Plan, as in effect on January 1, 1994.
Any employee who becomes eligible to participate in this Plan and in a
future year does not qualify as an Eligible Employee because of a
change in position level shall nevertheless be eligible to participate
in such year.
SECTION 1.9. "Enrollment Period" means the period designated by the
Compensation Committee each year, provided however, that such period
shall end on or before the last business day before the last Sunday in
December of each year.
SECTION 1.10. "Exchange Act" means the Securities Exchange Act of
1934, as amended.
SECTION 1.10A. "Initial Enrollment Period" means, for an Eligible
Employee who is newly employed by the Company, the period beginning no
more than 15 days prior to such date of employment and ending 30 days
after the date of employment.
SECTION 1.11. "Interest Account" means the account established by the
Company for each Participant for compensation deferred pursuant to
this Plan and which shall bear interest as described in Section 4.1
below. The maintenance of individual Interest Accounts is for
bookkeeping purposes only.
SECTION 1.12. "Interest Rate" means the monthly average of bank prime
lending rates to most favored customers as published in The Wall
Street Journal, such average to be determined as of the last day of
each month.
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<PAGE> 3
SECTION 1.13. "Market Value" means the closing price of the shares of
Common Stock on the Now York Stock Exchange on the day on which such
value is to be determined or, if no such shares were traded on such
day, said closing price on the next business day on which such shares
are traded, provided, however, that if at any relevant time the shares
of Common Stock are not traded on the New York Stock Exchange, then
"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 Automated Quotation System (NASDAQ) or other
national quotation service.
SECTION 1.14. "Omnibus Plan" means the Eastman Chemical Company 1994
Omnibus Long-Term Compensation Plan or any successor plan to the
Omnibus Plan providing for awards of stock and stock-based
compensation to Company employees.
SECTION 1.15. "Participant" means an Eligible Employee who elects for
one or more years to defer compensation pursuant to this Plan.
SECTION 1.16. "Plan" means this Amended and Restated Eastman
Executive Deferred Compensation Plan.
SECTION 1.17. "Section 16 Insider" means a Participant who is, with
respect to the Company, subject to Section 16 of the Exchange Act.
SECTION 1.18. "Stock Account" means the account established by the
Company for each Participant, the performance of which shall be
measured by reference to the Market Value of Common Stock. The
maintenance of individual Stock Accounts is for bookkeeping purposes
only.
SECTION 1.19. "U.S. Subsidiaries" means the United States
subsidiaries of the Company listed on Schedule A.
SECTION 1.20. "Valuation Date" means each business day.
SECTION 2. DEFERRAL OF COMPENSATION. An Eligible Employee may elect to defer
receipt of all or any portion of his or her Deferrable Amount to his or her
Interest Account and/or Stock Account. A Participant in this Plan need not
participate in the Eastman Investment Plan. If an Eligible Employee terminates
employment with the Company or any of its U.S. Subsidiaries, any previous
deferral election with respect to a Wage Dividend, Success Sharing, Eastman
Performance Plan, Annual Performance Plan or Omnibus Plan payment or award shall
remain in effect with respect to such items of compensation payable after
termination of employment.
SECTION 3. TIME OF ELECTION OF DEFERRAL. An Eligible Employee who wishes to
defer compensation must irrevocably elect to do so during the applicable
Enrollment Period. The Enrollment Period shall end prior to the first day of the
calendar year in which the applicable Deferrable Amount will first be paid,
earned, or awarded. Elections shall be made annually.
Notwithstanding the foregoing, in the first year in which a person becomes an
Eligible Employee by reason of being employed by the Company, the eligible
Employee may elect to defer receipt of all or any portion of his or
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her Deferrable Amount earned for services to be performed subsequent to such
election, provided that such election is made no later than the end of the
Initial Enrollment Period.
SECTION 4. HYPOTHETICAL INVESTMENTS
SECTION 4.1. INTEREST ACCOUNT. Amounts in a Participant's Interest
Account are hypothetically invested in an interest bearing account
which bears interest computed at the Interest Rate, compounded
monthly.
SECTION 4.2. STOCK ACCOUNT. Amounts in a Participant's Stock Account
are hypothetically invested in units of Common Stock. Amounts deferred
into a Stock Account are recorded as units of Common Stock, and
fractions thereof with one unit equating to a single share of Common
Stock. Thus, the value of one unit shall be the Market Value of a
single share of Common Stock. The use of units is merely a bookkeeping
convenience; the units are not actual shares of Common Stock. The
Company will not reserve or otherwise set aside any Common Stock for
or to any Stock Account the maximum number of Common Stock units that
may be hypothetically purchased by deferral of compensation to Stock
Accounts under this Plan is 4,500,000.
SECTION 5. DEFERRALS AND CREDITING AMOUNTS TO ACCOUNTS
SECTION 5.1. MANNER OF ELECTING DEFERRAL. An Eligible Employee may
elect to defer compensation by executing and returning to the
Compensation Committee a deferred compensation form provided by the
Company. The form shall indicate (i) the amount and sources of
Deferrable Amount to be deferred; (ii) whether deferral of annual base
cash compensation is to be at the same rate throughout the year, or at
one rate for part of the year and at a second rate for the remainder
of the year; and (iii) the portion of the deferral to be credited to
the Participant's Interest Account and Stock Account respectively. An
election to defer compensation shall be irrevocable following the end
of the applicable Enrollment Period, but the portion of the deferral
to be credited to the Participant's Interest Account and Stock
Account, respectively, may be reallocated by the Participant in the
manner specified by the Compensation Committee or its authorized
designee through and including the business day immediately preceding
the date on which the deferred amount is credited to the Participant's
Accounts pursuant to Section 5.2.
SECTION 5.2. CREDITING OF AMOUNTS TO ACCOUNTS. Amounts to be
deferred shall be credited to the Participant's Interest Account
and/or Stock Account, as applicable, as of the date such amounts are
otherwise payable.
SECTION 6. DEFERRAL PERIOD. Subject to Sections 9, 10, and 19 hereof, the
compensation which a Participant elects to defer under the Plan will be deferred
until the Participant retires or otherwise terminates employment with the
Company or any of its U.S. Subsidiaries. Any such election shall be made during
the applicable Enrollment Period on the deferred compensation form referenced in
Section 5 above. The payment of a Participant's Account shall be governed by
Sections 8, 9, 10, and 19, as applicable.
Notwithstanding the foregoing, any fixed date election made by an Eligible
Employee under the Kodak Executive Deferred Compensation Plan shall remain in
force under this Plan, provided he or she continues as an employee of the
Company or any of its U.S. Subsidiaries during the period of deferral. Payment
of such amount pursuant to a deferral election made under such Kodak Plan shall
be made in cash in a single lump sum on the fifth business day in March in the
year following the termination of such deferral period, and the amount of the
lump sum due the Participant shall be valued as of the last Valuation Date in
February in the year following the termination of the deferral period. If such
Participant ceases to be an employee of the Company or any of its U.S.
Subsidiaries prior to the end of the fixed period, Section 8 shall govern the
payment of his or her Accounts.
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SECTION 7. INVESTMENT IN THE STOCK ACCOUNT AND TRANSFERS BETWEEN ACCOUNTS.
SECTION 7.1 ELECTION INTO THE STOCK ACCOUNT. If a Participant
elects to defer compensation into his or her Stock Account, his or her
Stock Account shall be credited, as of the date described in Section
5.2, with that number of units of Common Stock, and fractions thereof,
obtained by dividing the dollar amount to be deferred into the Stock
Account by the Market Value of the Common Stock as of such date.
SECTION 7.2. TRANSFERS BETWEEN ACCOUNTS. A Participant may direct
that all or any portion, designated as a whole dollar amount, of the
existing balance of one of his or her Accounts be transferred to his
or her other Account, effective as of (i) the date such election is
made, if and only if such election is made prior to the close of
trading on the New York Stock Exchange on a day on which the Common
Stock is traded on the New York Stock Exchange, or (ii) if such
election is made after the close of trading on the Now York Stock
Exchange on a given day or at any time on a day on which no sales of
Common Stock are made on the New York Stock Exchange, then on the next
business day on which the Common Stock is traded on the New York Stock
Exchange (the date described in (i) or (ii), as applicable, is
referred to hereinafter as the election's "Effective Date"). Such
election shall be made in the manner specified by the Committee or its
authorized designee; provided however, that a Section 16 Insider may
only elect to transfer between his or her Accounts if he or she has
made no election within the previous six months to effect an "opposite
way" fund-switching (i.e., transfer out versus transfer in) transfer
into or out of the Stock Account or the Eastman Stock Funds of the
Eastman Investment Plan or the Savings and Investment Plan Appendix,
or any other "opposite way" intra-plan transfer or plan distribution
involving a Company equity securities fund which constitutes a
"Discretionary Transaction" as defined in Rule 16b-3 under the
Exchange Act.
SECTION 7.3. TRANSFER INTO THE STOCK ACCOUNT. If a Participant
elects pursuant to Section 7.2 to transfer an amount from his or her
Interest Account to his or her Stock Account, effective as of the
election's Effective Date, (his or her Stock Account shall be credited
with that number of units of Common Stock; and fractions thereof,
obtained by dividing the dollar amount elected to be transferred by
the Market Value of the Common Stock on the Valuation Date immediately
preceding the election's Effective Date; and (ii) his or her Interest
Account shall be reduced by the amount elected to be transferred.
SECTION 7.4. TRANSFER OUT OF THE STOCK ACCOUNT. If a Participant
elects pursuant to Section 7.2 to transfer an amount from his or her
Stock Account to his or her Interest Account, effective as of the
election's Effective Date; (i) his or her Interest Account shall be
credited with a dollar amount equal to the amount obtained by
multiplying the number of units to be transferred by the Market Value
of the Common Stock on the Valuation Date immediately preceding the
election's Effective Date; and (ii) his or her Stock Account shall be
reduced by the number of units elected to be transferred.
SECTION 7.5. DIVIDEND EQUIVALENTS. Effective as of the payment date
for each cash dividend on the Common Stock, the Stock Account of each
Participant who had a balance in his or her Stock Account on the
record date for such dividend shall be credited with a number of units
of Common Stock, and fractions thereof, obtained by dividing (i) the
aggregate dollar amount of such cash dividend payable in respect of
such Participant's Stock Account (determined by multiplying the dollar
value of the dividend paid upon a single share of Common Stock by the
number of units of Common Stock held in the Participant's Stock
Account on the record date for such dividend); by (ii) the Market
Value of the Common Stock on the Valuation Date immediately preceding
the payment date for such cash dividend.
SECTION 7.6. STOCK DIVIDENDS. Effective as of the payment date for
each stock dividend on the Common Stock, additional units of Common
Stock shall be credited to the Stock Account of each Participant who
had a balance in his or her Stock Account on the record date for
such dividend. The number of units that
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shall be credited to the Stock Account of such a Participant shall
equal the number of shares of Common Stock and fractions thereof,
which the Participant would have received as stock dividends had he or
she been the owner on the record date for such stock dividend of the
number of shares of Common Stock equal to the number of units credited
to his or her Stock Account on such record date.
SECTION 7.7. RECAPITALIZATION. If, as a result of a recapitalization
of the Company, the outstanding shares of Common Stock shall be
changed into a greater number or smaller number of shares, the number
of units credited to a Participant's Stock Account shall be
appropriately adjusted on the same basis.
SECTION 7.8. DISTRIBUTIONS. Amounts in respect of units of Common
Stock may only be distributed out of the Stock Account by transfer to
the interest Account (pursuant to Sections 7.2 and 7.4 or 7.10) or
withdrawal from the Stock Account (pursuant to Section 8, 9, 10, or
19), and shall be distributed in cash. The number of units to be
distributed from a Participant's Stock Account shall be valued by
multiplying the number of such units by the Market Value of the Common
Stock as of the Valuation Date immediately preceding the date such
distribution is to occur. Pending the complete distribution under
Section 8.2 or liquidation under Section 7.10 of the Stock Account of
a Participant who has terminated his or her employment with the
Company or any of its U.S. Subsidiaries, the Participant shall
continue to be able to make elections pursuant to Sections 7.2, 7.3,
and 7.4 and his or her Stock Account shall continue to be credited
with additional units of Common Stock pursuant to Sections 7.5, 7.6,
and 7.7.
SECTION 7.9. RESPONSIBILITY FOR INVESTMENT CHOICES. Each Participant
is solely responsible for any decision to defer compensation into his
or her Stock Account and to transfer amounts to and from his or her
Stock Account and accepts all investment risks entailed by decision,
including the risk of loss and a decrease in the value of the amounts
he or she elects to transfer into his or her Stock Account.
SECTION 7.10. NO REINVESTMENT IN STOCK ACCOUNT AFTER TERMINATION OF
EMPLOYMENT. Once a Participant has terminated employment with the
Company and all of its U.S. Subsidiaries, a Participant may, until his
Account is fully distributed and pursuant to the rules of this Plan,
elect to liquidate units of the Stock Account and transfer such value
to the Interest Account, but Participant may not transfer any funds
from the Interest Account into the Stock Account. For purposes of
valuing the units of Common Stock subject to such a transfer, the
approach described in Section 7.8 shall be used.
SECTION 8. PAYMENT OF DEFERRED COMPENSATION.
SECTION 8.1. BACKGROUND. No withdrawal may be made from a
Participant's Accounts except as provided in this Section 8 and
Sections 9, 10, and 19.
SECTION 8.2. MANNER OF PAYMENT. Payment of a Participant's Accounts
shall be made in a single lump sum or annual installments, as elected
by the Participant pursuant to this Section 8. The maximum number of
annual installments is ten. The minimum annual installment payment
permitted under such election (determined based on the value of the
Participant's Accounts as of the last Valuation Date of the calendar
year in which the Participant terminates employment, and disregarding
any earnings under this Plan after such date) shall be one thousand
dollars ($1,000); this minimum shall be applied by dividing by $1,000
the value of the Participant's Accounts as of the last Valuation Date
of the calendar year in which the Participant terminates employment,
and the result, rounded down to the next largest whole number, shall
be the maximum number of annual installments permitted. All payments
from the Plan shall be made in cash.
SECTION 8.3. TIMING OF PAYMENTS. Payments shall be made by the fifth
business day in March and shall commence in any year elected by the
Participant pursuant to this Section 8, up through the tenth year
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following the year in which the Participant retires, becomes disabled,
or for any other reason, ceases to be an employee of the Company or
any of its U.S. Subsidiaries, but in no event shall payment commence
later than the year the Participant reaches age 71.
SECTION 8.4. VALUATION. The amount of each payment shall be equal to
the value, as of the preceding Valuation Date, of the Participant's
Accounts, divided by the number of remaining to be paid. If payment of
a Participant's Accounts is to be paid in installments and the
Participant has a balance in his or her Stock Account at the time of
the payment of an installment, the amount that shall be distributed
from his or her Stock Account shall be the amount obtained by
multiplying the total amount of the installment determined in
accordance with the immediately preceding sentence by the percentage
obtained by dividing the balance in the Stock Account as of the
immediately preceding Valuation Date by the total value of the
Participant's Accounts as of such date. Similarly, in such case, the
amount that shall be distributed from the Participant's Interest
Account shall be the amount obtained by multiplying the total amount
of the installment determined in accordance with the first sentence of
this Section 8.4 by the percentage obtained by dividing the balance in
the Interest Account as of the immediately preceding Valuation Date by
the total value of the Participant's Accounts as of such date.
SECTION 8.5. PARTICIPANT PAYMENT ELECTIONS. Except as provided in
Section 8.6, an election by a Participant concerning the method of
payment under Section 8.2 or the commencement of payments under
Section 8.3 must be made at least one (1) year before the
Participant's termination of employment, and must be made on forms
provided by the Company. If a Participant does not have a valid
election in force at the time of termination of employment, then (i)
if the value of his Accounts as of the last Valuation Date of the
calendar year in which he terminates employment is less than ten
thousand dollars ($10,000), then his Accounts shall be paid in a
single lump sum; (ii) if the value of his Accounts as of the last
Valuation Date of the calendar year in which he terminates employment
is ten thousand dollars ($10,000) or more, then his Accounts shall be
paid in ten (10) annual installments; and (iii) regardless of whether
payment is made in a single lump sum or installments, payment shall
commence by the fifth business day in March following the calendar
year in which the Participant terminates employment.
SECTION 8.6. SPECIAL PAYMENT ELECTION RULES. Notwithstanding
Sections 8.2, 8.3, and 8.5, if a Participant terminates employment
less than one (1) year before the date he first becomes eligible to
participate in this Plan, then an election made by the Participant
under this Section 8 no later than thirty (30) days after the date he
first becomes eligible to participate in this Plan shall be valid.
Also notwithstanding Sections 8.2, 8.3, and 8.5, Participants who (i)
retire or otherwise terminate employment no later than January 1,
2000, or (ii) notify the Company in writing no later than December 31,
1999 of their intention to retire during calendar year 2000, shall,
subject to the restrictions of Sections 8.2 and 8.3, have the manner
and commencement of payment of their Account determined by the Vice
President, Human Resources, with respect to Participants who are not
executive officers of the Company, and by the Compensation Committee,
with respect to Participants who are executive officers of the
Company; and in such event (i) the Vice President, Human Resources and
the Compensation Committee, as applicable, may expressly designate any
such decision under Sections 8.2 or 8.3 concerning time of payment of
benefits and/or form of payment as being irrevocable, and if such
designation is made, such decision may be changed only with the
consent of the Participant, or, if the Participant is deceased, the
Participant's beneficiary under this Plan (if any); and (ii) once
payments have commenced to a Participant or beneficiary under this
Plan, the form of payment shall be considered irrevocable within the
meaning of the immediately preceding sentence, regardless of whether
it is designated as such by the Vice President, Human Resources or the
Compensation Committee.
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SECTION 9. PAYMENT OF DEFERRED COMPENSATION AFTER DEATH. If a Participant dies
prior to complete payment of his or her Accounts, the balance of such Accounts,
valued as of the Valuation Date immediately preceding the date payment is made,
shall be paid in a single, lump sum Payment to: (i) the beneficiary or
contingent beneficiary designated by the Participant on forms supplied by the
Compensation Committee; or, in the absence of a valid designation of a
beneficiary or contingent beneficiary, (ii) the Participant's estate within 30
days after appointment of a legal representative of the deceased Participant.
SECTION 10.
SECTION 10.1. ACCELERATION OF PAYMENT FOR HARDSHIP. Upon written
approval from the Company's Vice President, Human Resources, with
respect to Participants other than executive officers of the Company,
and by the Compensation Committee, with respect to Participants who
are executive officers of the Company, and subject to the restrictions
in the next two sentences, a Participant, whether or not he or she is
still employed by the Company or any of its U.S. Subsidiaries, may be
permitted to receive all or part of his or her Accounts if the
Company's Vice President, Human Resources, or the Compensation
Committee, as applicable, determines that an emergency event beyond
the Participant's control exists which would cause such Participant
severe financial hardship if the payment of his or her Accounts were
not approved. Any such distribution for hardship shall be limited to
the amount needed to meet such emergency.
SECTION 10.2. PAYMENT TO INDIVIDUALS. Any participant in the Eastman
Executive Deferred Compensation Plan may at his or her discretion
withdraw at any time all or part of that person's account balance
under the Plan; provided, if this option is exercised the individual
will forfeit to the Corporation 10% of his or her account balance, and
will not be permitted to participate in this plan for a period of 36
months from date any payment to a participant is made under this
section.
SECTION 10.3. ACCELERATED PAYMENT. If under Eastman Executive Deferred
Compensation Plan one-half or more of the Participants or one-fifth or
more of the Participants with one-half or more of the value of all
benefits owed exercise their option for immediate distribution in any
consecutive six-month period this will trigger immediate payment to
all Participants of all benefits owed under the terms of the plan,
immediate payout under this section will not involve reduction of the
amounts paid to Participants as set forth in section 10.2. Any
individual that has been penalized in this six-month period for
electing immediate withdrawal will be paid that penalty, and
continuing participation will be allowed, if payout to all
Participants under this section occurs.
SECTION 10.4. A Section 16 Insider may only receive a withdrawal from
his or her Stock Account pursuant to this Section 10 if he or she has
made no election within the previous six months to effect a
fund-switching transfer into the Stock Account or the Eastman Stock
Fund of the Eastman Investment Plan or the Savings and Investment Plan
Appendix, or any other "opposite way" intra-plan transfer into a
Company equity securities fund which constitutes a "Discretionary
Transaction" as defined in Rule 16b-3 under the Exchange Act. If such
a distribution occurs while the Participant is employed by the Company
or any of its U.S. Subsidiaries, any election to defer compensation
for the year in which the Participant receives a withdrawal shall be
ineffective as to compensation earned for the pay period following the
pay period during which the withdrawal is made and thereafter for the
remainder of such year and shall be ineffective as to any other
compensation elected to be deferred for such year.
SECTION 11. NON-COMPETITION AND NON-DISCLOSURE PROVISION. Participant will not,
without the written consent of the Company, either during his or her employment
by Company or any of its U.S. Subsidiaries or thereafter,disclose to anyone or
make use of any confidential information which he or she has acquired during his
or her
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employment relating to any of the business of the Company or any of its
subsidiaries, except as such disclosure or use may be required in connection
with his or her work as an employee of Company or any of its U.S. Subsidiaries.
During Participant's employment by the Company or any of its U.S. Subsidiaries,
and for a period of two years after the termination of such employment, he or
she will not, without the written consent of the Company, 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 or any of its U.S. Subsidiaries. The agreement in this
Section 11 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. if the Participant does. not comply with the terms
of this Section 11, the Company's Vice President, Human Resources, with respect
to Participants other than executive officers of the Company, or the
Compensation Committee, with respect to executive officers of the Company may,
in his or its sole discretion, direct the Company to pay to the Participant the
balance credited to his or her Interest Account and/or Stock Account.
SECTION 12. PARTICIPANT'S RIGHTS UNSECURED. The benefits payable under this
Plan shall be paid by the Company each year out of its general assets. To the
extent a Participant acquires the right to receive a payment under this Plan,
such right shall be no greater than that of an unsecured general creditor of the
Company. No amount payable under this Plan may be assigned, transferred,
encumbered or subject to any legal process for the payment of any claim against
a Participant. No Participant shall have the right to exercise any of the rights
or privileges of a shareowner with respect to the units credited to his or her
Stock Account.
SECTION 13. NO RIGHT TO CONTINUED EMPLOYMENT. Participation in the Plan shall
not give any employee any right to remain in the employ of the Company or any of
its U.S. Subsidiaries. The Company and each employer U S. Subsidiary reserve the
right to terminate any Participant at any time.
SECTION 14. STATEMENT OF ACCOUNT. Statements will be sent no less frequently
than annually to each Participant or his or her estate showing the value of the
Participant's Accounts.
SECTION 15. DEDUCTIONS. The Company will withhold to the extent required by law
a applicable income and other taxes from amounts deferred or paid under the
Plan.
SECTION 16. ADMINISTRATION.
SECTION 16.1. RESPONSIBILITY. Except as expressly provided otherwise
herein, the Compensation Committee shall have total and exclusive
responsibility to control, operate, manage and administer the Plan in
accordance with its terms.
SECTION 16.2. AUTHORITY OF THE COMPENSATION COMMITTEE. The
Compensation Committee shall have all the authority that may be
necessary or helpful to enable it to discharge its responsibilities
with respect to the Plan. Without limiting the generality of the
preceding sentence, the Compensation Committee shall have the
exclusive right to interpret the Plan, to determine eligibility for
participation in the Plan, to decide all questions concerning
eligibility for and the amount of benefits payable under the Plan, to
construe any ambiguous provision of the Plan, to correct any default,
to supply any omission, to reconcile any inconsistency, and to decide
any and all questions arising in the administration, interpretation,
and application of the Plan.
SECTION 16.3. DISCRETIONARY AUTHORITY. The Compensation Committee
shall have full discretionary authority in all matters related to the
discharge of its responsibilities and the exercise of its authority
under the Plan including, without limitation, its construction of the
terms of the Plan and its determination of eligibility for
participation and benefits under the Plan. It is the intent that the
decisions
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of the Compensation Committee and its action with respect to the Plan
shall be final and binding upon all persons having or claiming to have
any right or interest in or under the Plan and that no such decision
or action shall be modified upon judicial review unless such decision
or action is proven to be arbitrary or capricious.
SECTION 16.4. AUTHORITY OF VICE PRESIDENT HUMAN RESOURCES. Where
expressly provided for under Sections 8, 10 and 11, the authority of
the Compensation Committee is delegated to the Company's Vice
President, Human Resources, and to that extent the provisions of
Section 16.1 through 16.3 above shall be deemed to apply to such Vice
President.
SECTION 16.5. DELEGATION OF AUTHORITY. The Compensation Committee may
provide additional delegation of some or all of its authority under
the Plan to any person or persons provided that any such delegation be
in writing.
SECTION 17. AMENDMENT. The Board may suspend or terminate the Plan at any time.
In addition, the Board may, from time to time, amend the Plan in any manner
without shareowner approval; provided however, that the Board may condition any
amendment on the approval of shareowners if such approval is necessary or
advisable with respect to tax, securities, or other applicable laws. However, no
amendment, modification, or termination shall, without the consent of a
Participant, adversely affect such Participant's accruals in his or her Accounts
as of the date of such amendment, modification, or termination.
SECTION 18. GOVERNING LAW. The Plan shall be construed, governed and enforced
in accordance with the law of Tennessee, except as such laws are preempted by
applicable federal law.
SECTION 19. CHANGE IN CONTROL.
SECTION 19.1. BACKGROUND. The terms of this Section 19 shall
immediately become operative, without further action or consent by any
person or entity, upon a Change in Control, and once operative shall
supersede and control over any other provisions of this Plan.
SECTION 19.2. [RESERVED]
SECTION 19.3. AMENDMENT ON OR AFTER CHANGE IN CONTROL. On or after a
Change in Control, no action, including, but not by way of limitation,
the amendment, suspension or termination of the Plan, shall be taken
which would affect the rights of any Participant or the operation of
this Plan with respect to the balance in the Participant's Accounts
without the written consent of the Participant, or, if the Participant
is deceased, the Participant's beneficiary under this Plan (if any).
SECTION 19.4. ATTORNEY FEES. The Corporation 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 Corporation 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.
SECTION 20. COMPLIANCE WITH SEC REGULATIONS. It is the Company's intent that
the Plan comply in all respects with Rule 16b-3 of the Exchange Act, and any
regulations promulgated thereunder. If any provision of the Plan is found not to
be in compliance with such rule, the provision shall be deemed null and void.
All transactions under the plan, including, but not by way of limitation, a
Participant's election to defer compensation or transfer Account balances under
Section 7 and hardship withdrawals under Section 10, shall be executed in
accordance with the requirements of Section 16 of the Exchange Act, as amended
and any regulations promulgated thereunder. To the
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extent that any of the provisions contained herein do not conform with Rule
16b-3 of the Exchange Act or any amendments thereto or any successor
regulation, then the Committee may make such modifications so as to conform the
Plan to the Rule's requirements.
SECTION 21. SUCCESSORS AND ASSIGNS. This Plan shall be binding upon the
successors and assigns of the parties hereto.
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SCHEDULE A
Holston Defense Corporation
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EXHIBIT 10.20
LONG-TERM PERFORMANCE SUBPLAN
OF THE 1997 OMNIBUS LONG-TERM COMPENSATION PLAN
2000-2002 PERFORMANCE PERIOD
EASTMAN CHEMICAL COMPANY
Effective January 1, 2000
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<PAGE> 2
LONG-TERM PERFORMANCE SUBPLAN
OF THE 1997 OMNIBUS LONG-TERM COMPENSATION PLAN
2000-2002 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>
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EASTMAN CHEMICAL COMPANY
LONG-TERM PERFORMANCE SUBPLAN
OF THE 1997 OMNIBUS LONG-TERM COMPENSATION PLAN
2000-2002 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 2000-2002 Performance
Period specified herein, effective as of January 1, 2000 (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, 2000.
(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, 2000 through December
31, 2002.
(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.
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(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 2000,
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 2000 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 2000 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 2000 as a result of any reevaluation of the Salary Grade
appropriate for such position. The Actual Grant Amount shall be determined by
comparing the Company's TSR during the Performance Period to the TSRs of the
companies in the Peer Group during the Performance Period. Specifically, the
Company and each company in the Peer Group shall be ranked by TSR, in descending
order, with the company having the highest TSR during the Performance Period
being ranked number one. The Company's rank, by TSR, in relation to the Compared
Group, shall determine a multiplier to be applied to the Target Grant Amount.
Multipliers range from 2.0 (i.e. 200%), if the Company's TSR is ranked number
one, to 0.0 (with no shares of Common Stock being delivered to participants
under this Subplan), if the Company's rank is lower than company twelve 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 15 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
116
<PAGE> 5
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.
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.
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<PAGE> 6
(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.
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.
118
<PAGE> 7
EXHIBIT A
EASTMAN CHEMICAL COMPANY
LONG-TERM PERFORMANCE SUBPLAN GRANT TABLE
2000-2002 CYCLE
Original on File in
Management Compensation
119
<PAGE> 8
EXHIBIT B
COMPANIES IN THE PEER GROUP
Air Products and Chemicals, Inc.
CK Witco
Cytec Industries, Inc.
Dow Chemical Company/Union Carbide Corporation
E. I. du Pont de Nemours and Company
H. B. Fuller Company
The Geon Company
Great Lakes Chemical Corporation
Hercules Chemical Corporation
Imperial Chemical Industries PLC
Lyondell Petrochemical Company
Millennium Chemicals, Inc.
Morton International, Inc./Rohm & Haas Company
Solutia
Wellman, Inc.
120
<PAGE> 9
EXHIBIT C
EASTMAN CHEMICAL COMPANY
LONG-TERM PERFORMANCE SUBPLAN
2000-2002 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 1.4 X
7 1.2 X
8 1.0 X
9 0.8 X
10 0.6 X
11 0.4 X
12 0.2 X
13 0.0 X
14 0.0 X
15 0.0 X
16 0.0 X
</TABLE>
121
<PAGE> 1
EXHIBIT 10.21
AWARD NOTICE
NOTICE OF NONQUALIFIED STOCK OPTION
GRANTED PURSUANT TO THE
EASTMAN CHEMICAL COMPANY
1997 OMNIBUS LONG-TERM COMPENSATION PLAN
Grantee:
Number of Shares:
Option Price: $45.8125
Date of Grant: February 16, 1999
1. GRANT OF OPTION. This Award Notice serves to notify you that the
Compensation and Management Development Committee (the "Committee") of the
Board of Directors of Eastman Chemical Company ("Company") has granted to you,
under the Company's 1997 Omnibus Long-Term Compensation Plan (the "Plan"), a
nonqualified stock option ("Option") to purchase, on the terms and conditions
set forth in this Award Notice and the Plan, up to the number of shares of its
$.01 par value Common Stock ("Common Stock") set forth above, at a price equal
to $45.8125 per share. The Plan is incorporated herein by reference and made a
part of this Award Notice. Capitalized terms not defined herein have the
respective meanings set forth in the Plan. The principal terms of the Plan, and
of the offer by the Company of the shares of Common Stock covered by the
option, are described in the Prospectus for the Plan, which Prospectus will be
delivered to you by the Company.
2. PERIOD OF OPTION AND LIMITATIONS ON RIGHT TO EXERCISE. Subject
to earlier cancellation of all or a portion of the Option as described in
Sections 6 and 7 of this Award Notice, the Option will expire at 5:00 p.m.,
Eastern Standard Time, on February 15, 2009 ("Expiration Date").
3. EXERCISE OF OPTION.
(a) Subject to the terms set forth in this Award Notice, the
Option will become exercisable as to one half of the shares covered hereby on
February 16, 2000, and as to the remaining shares on February 16, 2001.
(b) Upon your death, your personal representative may exercise
the Option, subject to the terms set forth in this Award Notice, until the
Expiration Date.
(c) The Option may be exercised in whole or in part by
completing and returning the exercise form delivered with the Option. The
exercise form generally must be accompanied by, or make provision for, full
payment in cash; by check; or by surrendering unrestricted shares of Common
Stock having a value on the date of exercise equal to the exercise price,
together with proof that such shares, if acquired through a previous option
exercise, have been owned by the optionee for at least six months prior to the
date of exercise of the Option; or in any combination of the foregoing;
however, if you wish to pay with shares of Common Stock already held by you,
you may submit a Stock Validation form attesting to the ownership of the shares
instead of sending in actual share certificates.
122
<PAGE> 2
(d) Except under the circumstances described in Section 6 of
this Award Notice, and subject to the final sentence of this Section 3(d), if
you exercise the Option through the use of previously owned Common Stock
(pursuant to Section 3(c)) that you have held for at least six months, you will
be granted a new Option ("Reload Option") to acquire a number of shares of
Common Stock equal to the number of shares so used, at an exercise price equal
to the Fair Market Value of the Common Stock at the time of exercise of the
Option, and having a term equal to the remaining term of the Option. The Reload
Option will become exercisable six months from the date of grant. The Reload
Option may be exercised through the use of previously owned shares of Common
Stock (as described in Section 3(c) of this Award Notice), but you will not be
granted an additional Option in connection with the exercise of the Reload
Options. The Committee shall have the right, in its sole discretion, to
discontinue the grant of Reload Options under the Plan at any time, effective
upon written notice to you.
4. NONTRANSFERABILITY. The Option is not transferable except by
will or by the laws of descent and distribution, and may not be sold, assigned,
pledged or encumbered in any way, whether by operation of law or otherwise. The
Option may be granted only to, and exercised only by you during your lifetime,
except in the case of a permanent disability involving mental incapacity.
5. LIMITATION OF RIGHTS. You will not have any rights as a
shareowner with respect to the shares covered by the Option until you become
the holder of record of such shares by exercising the Option. Neither the Plan,
the granting of the Option nor this Award Notice gives you any right to remain
employed by the Company or a Subsidiary.
6. TERMINATION. Upon termination of your employment with the
Company or a Subsidiary by reason of death, disability or retirement, or for
another approved reason, as determined by the Committee, the Option will remain
exercisable in accordance with its original terms, except that the Reload
Option described in Section 3(d) of this Award Notice will not be granted in
connection with any exercise of the Option occurring more than 60 days after
the date of such termination. Upon termination of your employment with the
Company or a Subsidiary for a reason other than death, disability, retirement
or another approved reason, any portion of the Option not previously exercised
by you will be canceled and forfeited by you, without payment of any
consideration by the Company.
7. NONCOMPETITION; CONFIDENTIALITY. You will forfeit all rights
under the Option if you violate the noncompetition and confidentiality
provisions contained in Section 20 of the Plan.
8. RESTRICTIONS ON ISSUANCE OF SHARES. If at any time the Company
determines that listing, registration or qualification of the shares covered by
the Option upon any securities exchange or under any state or federal law, or
the approval of any governmental agency, is necessary or advisable as a
condition to the exercise of the Option, the Option may not be exercised in
whole or in part unless and until such listing, registration, qualification or
approval shall have been effected or obtained free of any conditions not
acceptable to the Company.
9. CHANGE IN OWNERSHIP; CHANGE IN CONTROL. Sections 24 and 25 of
the Plan contain certain special provisions that will apply to the Option in
the event of a Change in Ownership or Change in Control, respectively.
10. ADJUSTMENT OF SHARES. If the number of outstanding shares of
Common Stock changes through the declaration of stock dividends or stock
splits, the number of shares subject to the Option and the exercise price of
the Option automatically will be adjusted. If there is a change in the number
of outstanding shares of Common Stock or any change in the outstanding stock in
the Company, the Committee will make any adjustments and modifications to the
Option that it deems appropriate. In the event of any other change in the
capital structure or in the Common Stock of the Company, the Committee is
authorized to make appropriate adjustments to the Option.
11. PLAN CONTROLS. In the event of any conflict between the
provisions of the Plan and the provisions of this Award Notice, the provisions
of the Plan will be controlling and determinative.
123
<PAGE> 1
EXHIBIT 10.23
AWARD NOTICE
NOTICE OF NONQUALIFIED STOCK OPTION
GRANTED PURSUANT TO THE
EASTMAN CHEMICAL COMPANY
1997 OMNIBUS LONG-TERM COMPENSATION PLAN
Grantee:
Number of Shares: 40,000
Option Price: $37.9375
Date of Grant: October 19, 1999
1. GRANT OF OPTION. This Award Notice serves to notify you that
the Compensation and Management Development Committee (the "Committee") of the
Board of Directors of Eastman Chemical Company ("Company") has granted to you,
under the Company's 1997 Omnibus Long-Term Compensation Plan (the "Plan"), a
nonqualified stock option ("Option") to purchase, on the terms and conditions
set forth in this Award Notice and the Plan, up to the number of shares of its
$.01 par value Common Stock ("Common Stock") set forth above, at a price equal
to $37.9375 per share. The Plan is incorporated herein by reference and made a
part of this Award Notice. Capitalized terms not defined herein have the
respective meanings set forth in the Plan. The principal terms of the Plan, and
of the offer by the Company of the shares of Common Stock covered by the
Option, are described in the Prospectus for the Plan, which Prospectus will be
delivered to you by the Company.
2. PERIOD OF OPTION AND LIMITATIONS ON RIGHT TO EXERCISE. Subject
to earlier cancellation of all or a portion of the Option as described in
Sections 3, 6 and 7 of this Award Notice, the Option will expire at 5:00 p.m.,
Eastern Standard Time, on October 18, 2009 ("Expiration Date").
3. EXERCISE OF OPTION.
(a) Subject to the terms set forth in this Award Notice and to
the price vesting conditions set forth in section 3(b), the Option will become
exercisable as to one half the shares covered hereby on October 19, 2000, and
as to the remaining shares on October 19, 2001.
124
<PAGE> 2
(b) Subject to the terms set forth in this Award Notice and to
the time vesting terms set forth in section 3(a), the Option will become
exercisable as to the number of underlying shares corresponding to the
applicable stock price condition, as set forth below:
<TABLE>
<CAPTION>
Number of Underlying
Shares (Percentage
of Grant) Stock Price Condition*
-------------------- ----------------------
<S> <C>
400 (1%) $39.00
800 (2%) 40.00
1200 (3%) 41.00
1600 (4%) 42.00
2400 (6%) 43.00
3200 (8%) 44.00
4000 (10%) 45.00
4800 (12%) 46.00
5600 (14%) 47.00
6400 (16%) 48.00
7200 (18%) 49.00
8000 (20%) 50.00
9200 (23%) 51.00
10400 (26%) 52.00
11600 (29%) 53.00
12800 (32%) 54.00
14000 (35%) 55.00
15200 (38%) 56.00
16400 (41%) 57.00
17600 (44%) 58.00
18800 (47%) 59.00
20000 (50%) 60.00
22000 (55%) 61.00
24000 (60%) 62.00
26000 (65%) 63.00
28000 (70%) 64.00
30000 (75%) 65.00
32000 (80%) 66.00
34000 (85%) 67.00
36000 (90%) 68.00
38000 (95%) 69.00
40000 (100%) 70.00
</TABLE>
*A price vesting condition is met if the average of the Fair
Market Value of the Common Stock for twenty (20) consecutive
trading days equals or exceeds the applicable stock price.
Once one of the price conditions has been met, that portion of
the Option subject to that price condition will be vested with regard to the
price vesting condition and will not again be subject to the same price
125
<PAGE> 3
vesting condition. In the event that no price condition is met, the entire
Option will be cancelled and forfeited on the second anniversary of the date of
grant, without payment of any consideration by the Company. In the event that
any price condition is met but any higher price conditions are not met, that
portion of the Option subject to price conditions which have not been met will
be cancelled and forfeited on the second anniversary of the date of grant,
without payment of any consideration by the Company. In the event that
termination for an approved reason, as outlined in section 6, occurs prior to
the end of the price vesting period, the price vesting terms will remain in
effect.
(c) The following table illustrates the combined time vesting
and price vesting terms outlined in sections 3(a) and 3(b):
TIME/PRICE VESTING SCHEDULE MATRIX
<TABLE>
<CAPTION>
Percentage of
Grant Price Number of Number of
Vested if Underlying Shares Underlying Shares
Stock Price Stock Price as of 10/19/00 at As of 10/19/01 at
Condition Met Condition 50% 100%
------------- ----------- ----------------- -----------------
<S> <C> <C> <C>
1% $39.00 400 400
2% 40.00 400 800
3% 41.00 600 1200
4% 42.00 800 1600
6% 43.00 1200 2400
8% 44.00 1600 3200
10% 45.00 2000 4000
12% 46.00 2400 4800
14% 47.00 2800 5600
16% 48.00 3200 6400
18% 49.00 3600 7200
20% 50.00 4000 8000
23% 51.00 4600 9200
26% 52.00 5200 10400
29% 53.00 5800 11600
32% 54.00 6400 12800
35% 55.00 7000 14000
38% 56.00 7600 15200
41% 57.00 8200 16400
44% 58.00 8800 17600
47% 59.00 9400 18800
50% 60.00 10000 20000
55% 61.00 11000 22000
60% 62.00 12000 24000
65% 63.00 13000 26000
70% 64.00 14000 28000
75% 65.00 15000 30000
80% 66.00 16000 32000
85% 67.00 17000 34000
90% 68.00 18000 36000
95% 69.00 19000 38000
100% 70.00 20000 40000
</TABLE>
126
<PAGE> 4
(d) Upon your death, your personal representative may exercise
the retained portion of the Option as described in section 6, subject to the
terms set forth in this Award Notice, until the Expiration Date.
(e) The Option may be exercised in whole or in part by
completing and returning the exercise form delivered with the Option. The
exercise form generally must be accompanied by, or make provision for, full
payment in cash; by check; or by surrendering unrestricted shares of Common
Stock together with proof that such shares, if acquired through a previous
option exercise, have been owned by the optionee for at least six months prior
to the date of exercise of the Option; or in any combination of the foregoing;
however, if you wish to pay with shares of Common Stock already held by you,
you may submit a Stock Validation Form attesting to the ownership of the shares
instead of sending in actual share certificates. The value of any surrendered
shares of Common Stock used in payment of the exercise price under the Option
will be equal to the Fair Market Value thereof as of the date of exercise.
4. NONTRANSFERABILITY. The Option is not transferable except by
will or by the laws of descent and distribution, and may not be sold, assigned,
pledged or encumbered in any way, whether by operation of law or otherwise. The
Option may be exercised only by you during your lifetime, except in the case of
a permanent disability involving mental incapacity.
5. LIMITATION OF RIGHTS. You will not have any rights as a
shareowner with respect to the shares covered by the Option until you become
the holder of record of such shares by exercising the Option. Neither the
granting of the Option, nor the Plan or this Award Notice, gives you any right
to remain employed by the Company or a Subsidiary.
6. TERMINATION. Upon termination of your employment with the
Company or a Subsidiary by reason of death, disability or retirement, or for
another approved reason, as determined by the Committee, the portion of the
Option retained in accordance with the next sentence of this section will
remain available for exercise in accordance with the time vesting and price
vesting terms outlined in section 3, the forfeiture provisions in section 7,
and the other terms of this Award Notice. The portion of the Option that will
be subject to exercise following termination of your employment with the
Company for a reason specified in the preceding sentence will be up to 13,333
shares if termination occurs on or before October 19, 2000; up to 26,667 shares
if termination occurs on or before October 19, 2001; and 40,000 options if
termination occurs after October 19, 2001. Upon termination of your employment
with the Company or a Subsidiary for a reason other than death, disability,
retirement or another approved reason, any portion of the Option not previously
exercised by you will be canceled and forfeited by you, without payment of any
consideration by the Company. The provisions of this section 6 shall be subject
to the provisions of section 9 and shall become null and void and of no force
and effect insofar as they apply to a termination following a Change in Control
under the circumstances described in Section 25(a) of the Plan.
7. NONCOMPETITION; CONFIDENTIALITY; ADVERSE ACTIVITY.
(a) Except as described in Sections 24 and 25 of the Plan, you
will forfeit all rights under any unexercised portion of the Option if you
violate the noncompetition and confidentiality provisions contained in Section
20 of the Plan.
(b) You will forfeit all rights under any unexercised portion
of the Option if following your termination of employment with the Company you
(i) solicit or induce any employee to leave the employ of the Company; (ii)
hire or attempt to hire any employee of the Company; or, (iii) solicit the
trade of or trade with customers and suppliers of the Company for any business
purpose. If you, during your employment or thereafter, engage in activity,
which, in the sole discretion of the Committee, is deemed to be in conflict
with or adverse to the interests of the Company, any unexercised portion of the
Option will be forfeited and cancelled immediately. Such adverse activity by
you shall include, but is not limited to, the following: (i) become associated
with, become employed by or render services to, or own an interest in (other
than as a shareholder with a nonsubstantial interest in such business) any
business or enterprise that is engaged in competition with the Company; or (ii)
recruit, solicit or induce, or attempt to induce, any employee or employees of
the Company or any affiliate of the
127
<PAGE> 5
(c) Company to terminate their employment with, or otherwise
cease their relationship with, the Company or affiliate; or (iii) solicit,
divert or take away, or attempt to take away, the business patronage of any of
the clients, customers, accounts, or prospective clients, customers or
accounts, which were contacted, solicited or served by the Company during your
employment; or (iv) initiate litigation against the Company; or (v) criticize,
denigrate or otherwise speak adversely against the Company; or (vi) violate the
Company's ethics and business conduct guidelines. The provisions of this
section 7(b) shall be subject to the provisions of section 9, and shall become
null and void and of no force and effect insofar as they apply to activity by
you following your termination after a Change in Control under the
circumstances described in Section 25(a) of the Plan.
8. RESTRICTIONS ON ISSUANCE OF SHARES. If at any time the Company
determines that listing, registration or qualification of the shares covered by
the Option upon any securities exchange or under any state or federal law, or
the approval of any governmental agency, is necessary or advisable as a
condition to the exercise of the Option, the Option may not be exercised in
whole or in part unless and until such listing, registration, qualification or
approval shall have been effected or obtained free of any conditions not
acceptable to the Company.
9. CHANGE IN OWNERSHIP; CHANGE IN CONTROL. Sections 24 and 25 of
the Plan contain certain special provisions that will apply to the Option in
the event of a Change in Ownership or Change in Control, respectively.
10. ADJUSTMENT OF SHARES. If the number of outstanding shares of
Common Stock changes through the declaration of stock dividends or stock
splits, the number of shares subject to the Option and the exercise price of
the Option automatically will be adjusted. If there is a change in the number
of outstanding shares of Common Stock or any change in the outstanding stock in
the Company, the Committee will make any adjustments and modifications to the
Option that it deems appropriate. In the event of any other change in the
capital structure or in the Common Stock of the Company, the Committee is
authorized to make appropriate adjustments to the Option (including, without
limitation, adjustments to the price vesting terms set forth in section 3).
11. PLAN CONTROLS. In the event of any conflict between the
provisions of the Plan and the provisions of this Award Notice, the provisions
of the Plan will be controlling and determinative.
128
<PAGE> 1
EXHIBIT 12.01
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
(Dollars in millions)
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Earnings from continuing operations
Before provision for income taxes $ 72 $ 360 $ 446 $ 607 $ 899
Add:
Interest expense 126 96 87 67 79
Rental expense(1) 28 28 27 22 16
Amortization of capitalized interest 16 16 16 14 13
-------- -------- -------- -------- --------
Earnings as adjusted $ 242 $ 500 $ 576 $ 710 $ 1,007
======== ======== ======== ======== ========
Fixed charges:
Interest expense $ 126 $ 96 $ 87 $ 67 $ 79
Rental expense(1) 28 28 27 22 16
Capitalized interest 13 31 41 28 9
-------- -------- -------- -------- --------
Total fixed charges $ 167 $ 155 $ 155 $ 117 $ 104
======== ======== ======== ======== ========
Ratio of earnings to fixed charges 1.5x 3.2x 3.7x 6.1x 9.7x
======== ======== ======== ======== ========
</TABLE>
- ----------------
(1) For all periods presented, the interest component of rental expense is
estimated to equal one-third of such expense.
129
<PAGE> 1
EXHIBIT 21.01
SUBSIDIARIES
<TABLE>
<CAPTION>
JURISDICTION OF
INCORPORATION
NAME OF SUBSIDIARY OR ORGANIZATION
- --------------------------------------------- ---------------
<S> <C>
ABCO Industries, Incorporated South Carolina
Eastman Chemical Argentina S.R.L. Argentina
Eastman Chemical, Asia Pacific Pte. Ltd. Singapore
Eastman Chemical Brasileira Ltd. Brazil
Eastman Chemical B.V. The Netherlands
Eastman Chemical Canada, Inc. Canada
Eastman Chemical Company Foundation, Inc. Delaware
Eastman Chemical Ectona, Ltd. England
Eastman Chemical Espana, Inc. Delaware
Eastman Chemical Espana, S.A. Spain
Eastman Chemical, Europe, Middle East and Africa, Ltd. Delaware
Eastman Chemical Financial Corporation Delaware
Eastman Chemical Foreign Sales Corporation Barbados
Eastman Chemical Holdings, S.A. de C.V. Mexico
Eastman Chemical Hong Kong Limited Hong Kong
Eastman Chemical Industrial de Mexico, S.A. de C.V. Mexico
Eastman Chemical Japan Limited Japan
Eastman Chemical Korea Ltd. Korea
Eastman Chemical Ltd. New York
Eastman Chemical Latin America, Inc. Delaware
Eastman Chemical (Malaysia) Sdn. Bhd. Malaysia
Eastman Chemical Mexicana S.A. de C.V. Mexico
</TABLE>
130
<PAGE> 2
SUBSIDIARIES (CONTINUED)
<TABLE>
<CAPTION>
JURISDICTION OF
INCORPORATION
NAME OF SUBSIDIARY OR ORGANIZATION
- --------------------------------------------- ---------------
<S> <C>
Eastman Chemical Netherlands B.V. The Netherlands
Eastman Chemical Singapore Pte. Ltd. Singapore
Eastman Chemical Sociedad Limitada Spain
Eastman Chemical Technology Corporation Delaware
Eastman Chemical The Hague B.V. The Netherlands
Eastman Chemical (UK) Limited United Kingdom
Eastman International Management Company Tennessee
Enterprise Genetics, Inc. Nevada
Ernst Jager Fabrik Chemischer Rohstoffe GmbH & Co. KG Germany
Hartlepet, Limited United Kingdom
Holston Defense Corporation Virginia
Jager Chemie AG, Lichtenstein Switzerland
Jager Chemie France SARL France
Jager Chemie Nederland B.V. The Netherlands
Jager Verwaltungs - GmbH Germany
Kingsport Hotel, L.L.C. Tennessee
Lawter International, Inc. Delaware
- - Lawter International Holdings, Inc. Delaware
- - Lawter International (Canada) Company Canada
- - Lawter International Cayman Islands Cayman Islands
- - Lawter International, A.p.S Denmark
- - Lawter International Belgium, N.V. Belgium
- - Lawter International, B.V. The Netherlands
- - Lawter International FSC, Limited Jamaica
- - Lawter International Fujian Nanping Limited China
- - Lawter International, GmbH Germany
- - Lawter International (Hong Kong) Limited Hong Kong
- - Lawter International (Italia), S.R.L Italy
- - Lawter International, Limited England
- - Lawter International, Ltd. (Tianjin) PRC China
</TABLE>
131
<PAGE> 3
SUBSIDIARIES (CONTINUED)
<TABLE>
<CAPTION>
JURISDICTION OF
INCORPORATION
NAME OF SUBSIDIARY OR ORGANIZATION
- --------------------------------------------- ---------------
<S> <C>
- - Lawter International Luxembourg S.a.r.l. Luxembourg
- - Lawter International Malta Limited Malta
- - Lawter International (Kallo) N.V. Belgium
- - Lawter International Products, Pte. Ltd. Singapore
- - Lawter International (Proprietary) Ltd. South Africa
- - Lawter International, S.A. Spain
- - Lawter International, S.a.r.l. France
- - Rokramer GmbH Germany
- - VC Liquidation Corporation Delaware
Mustang Pipeline Company Texas
Pinto Pipeline Company of Texas Texas
Union-Chemie Singapore PTE LTD Singapore
Workington Investments Limited United Kingdom
</TABLE>
132
<PAGE> 1
EXHIBIT 23.01
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-3 (No. 333-62597) of Eastman Chemical Company of our report
dated January 28, 2000 appearing on page 38 of this Form 10-K.
We also consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 33-73808, No. 33-73810, No. 33-73812 and No.
33-77844) of Eastman Chemical Company of our report dated January 28, 2000
appearing on page 38 of this Form 10-K.
/s/ PricewaterhouseCoopers LLP
- ------------------------------------------
PRICEWATERHOUSECOOPERS LLP
New York, New York
March 3, 2000
133
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF EASTMAN CHEMICAL COMPANY FOR THE TWELVE MONTHS ENDED
DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 186
<SECURITIES> 0
<RECEIVABLES> 631<F1>
<ALLOWANCES> 0
<INVENTORY> 485
<CURRENT-ASSETS> 1,489
<PP&E> 8,820
<DEPRECIATION> 4,870
<TOTAL-ASSETS> 6,303
<CURRENT-LIABILITIES> 1,608
<BONDS> 1,506
0
0
<COMMON> 1
<OTHER-SE> 1,758
<TOTAL-LIABILITY-AND-EQUITY> 6,303
<SALES> 4,590
<TOTAL-REVENUES> 4,590
<CGS> 3,768
<TOTAL-COSTS> 3,768
<OTHER-EXPENSES> 620
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 126
<INCOME-PRETAX> 72
<INCOME-TAX> 24
<INCOME-CONTINUING> 48
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 48
<EPS-BASIC> .61
<EPS-DILUTED> .61
<FN>
<F1>ASSET VALUES REPRESENT NET AMOUNTS
</FN>
</TABLE>
