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 [NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996]
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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)
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Registrant's telephone number, including area code: (423) 229-2000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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
PAGE 1 OF 124 TOTAL SEQUENTIALLY NUMBERED PAGES
EXHIBIT INDEX ON PAGE 59
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) of the voting stock held by nonaffiliates was approximately $4,235,260,008 as of January 31, 1997, using beneficial ownership rules adopted pursuant to Section 13 of the Securities Exchange Act of 1934 to exclude stock that may be beneficially owned by directors, executive officers, or 10% shareowners, some of whom might not be held to be affiliates upon judicial determination. At January 31, 1997, 77,862,162 shares of Common Stock of the registrant were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement relating to the 1997 Annual Meeting of Shareowners (the "1997 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
Forward-looking statements appear throughout this report. These statements relate to planned capacity increases and capital spending; supply and demand, volume, price, margin, and earnings expectations 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 this report. 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 are unrealized.
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
2. Properties 16
3. Legal Proceedings 17
4. Submission of Matters to a Vote of Security Holders 17
PART II
5. Market for the Registrant's Common Stock and Related Shareowner Matters 18
6. Selected Financial Data 19
7. Management's Discussion and Analysis of Financial Condition and Results
of Operations 20 - 27
8. Financial Statements and Supplementary Data 28 - 53
9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure 54
PART III
10. Directors and Executive Officers of the Registrant 55
11. Executive Compensation 55
12. Security Ownership of Certain Beneficial Owners and Management 55
13. Certain Relationships and Related Transactions 55
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 56
SIGNATURES
Signatures 57 - 58
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PART I
ITEM 1. BUSINESS
GENERAL
Eastman Chemical Company ("Eastman" or the "Company") is a leading international chemical company with a broad portfolio of plastic, chemical, and fiber products. The Company manufactures and sells polyester plastics such as polyethylene terephthalate ("PET"), a plastic widely used in soft drink containers; coatings and paint raw materials; industrial and fine chemicals; and acetate tow. 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 1996 the Company had sales of $4.78 billion, operating earnings of $663 million, and net earnings of $380 million, or $4.80 per share.
Eastman owns and operates substantially all of the worldwide chemical business previously operated by Eastman Kodak Company ("Kodak") through its Eastman Chemical Company division. Effective midnight December 31, 1993, Kodak contributed such worldwide chemical business to the Company, which was incorporated for that purpose on July 29, 1993. All of the outstanding shares of Eastman common stock were distributed to Kodak shareowners (the "spin-off"), resulting in Eastman becoming an independent, publicly held company. References herein to "Eastman" or the "Company" include, where appropriate, the historical operations of substantially all of Kodak's worldwide chemical business before the spin-off. The Company's consolidated financial statements also include, where appropriate, pro forma financial disclosures reflecting the spin-off.
The Company began business in 1920 for the purpose of producing chemicals for Kodak's photographic business. Today, the Company is one of the largest chemical producers in the United States and a leader in the application of several manufacturing technologies. 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, thereby reducing the Company's dependence on petrochemicals in the manufacture of acetate tow, certain plastics, and other chemicals. 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 developing end-use applications for and recycling of a wide variety of polyester plastics, including PET and other flexible packaging materials.
The Company categorizes its business into three segments, Specialty and Performance, Core Plastics, and Chemical Intermediates. See Part II--Item 8--Financial Statements and Supplementary Data--Note 14 to the consolidated financial statements. The Specialty and Performance segment includes plastic, chemical, and fiber products primarily sold in diverse markets to customers that base their buying decisions principally on a product's performance attributes. The Core Plastics segment includes the Company's two major plastics products, EASTAPAK PET polyester packaging plastic and TENITE polyethylene, as well as cellulose acetate and polyesters. These container and packaging products share similar physical characteristics and compete based on price and integrated manufacturing capabilities. 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. Propriety products and low-cost manufacturing positions are the foundation of the Chemical Intermediates segment. Eastman's strategy is to manage the mix between Specialty and Performance, Core Plastics, and Chemical Intermediates products to fully utilize its plants and obtain optimum profitability. The Company has the capability to produce a wide range of products within its manufacturing plant capacities and change product mix depending on customer demand and the Company's strategy.
The Company's industry segment presentation for 1996 was revised. The Performance segment was renamed Specialty and Performance, the Industrial segment was renamed Chemical Intermediates, and the new Core Plastics segment, which includes container plastics and flexible plastics products, was established. Previously, container plastics were in the Performance segment, and flexible plastics were in
the Industrial segment. Prior periods have been restated to conform to the 1996 presentation. The following table summarizes the Company's recent financial performance and identifiable assets by industry segment.
SEGMENT FINANCIAL SUMMARY
(Dollars in millions)
1996 1995 1994
SALES
Specialty and Performance $ 2,657 $ 2,647 $ 2,364
Core Plastics 1,409 1,685 1,390
Chemical Intermediates 716 708 575
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Total $ 4,782 $ 5,040 $ 4,329
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OPERATING EARNINGS
Specialty and Performance $ 519 $ 433 $ 350
Core Plastics (1) 347 199
Chemical Intermediates 145 184 87
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Total $ 663 $ 964 $ 636
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ASSETS
Specialty and Performance $ 2,887 $ 2,776 $ 2,508
Core Plastics 1,854 1,598 1,449
Chemical Intermediates 525 498 438
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Total $ 5,266 $ 4,872 $ 4,395
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BUSINESS STRATEGY
Eastman's business strategy is to achieve consistent, profitable growth as a highly integrated, international supplier of a diversified portfolio of plastics, chemicals, and fibers. Specifically, the Company's strategic intent is "To Be The World's Preferred Chemical Company." The following are the key elements the Company is employing 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: polymer technology, organic chemistry technology, and cellulose technology. The polymer core competence includes polyester, polyolefin, and other polymer technologies, and forms the technical basis of the Company's polyester and polyethylene product lines. The organic chemistry core competence 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 cellulose core competence 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. During the last five years, the Company has successfully added significant new products and product enhancements, which now represent approximately 23% of current sales.
Manufacturing Integration and Scale
The Company's strategy is to continue to use integration of its manufacturing plants to develop a competitive advantage. 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 plastics and chemicals. Starting with a limited number of basic raw materials, primarily coal, ethane and propane,
cellulose, ethylene glycol, paraxylene 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.
Quality Management
Quality Management is a fundamental set of operating and management principles that are an extension of the philosophy of the Company's founder, George Eastman. During the last thirteen years, the Company has further developed these principles into its current Quality Policy. This policy states the Company's goal 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 Company-wide internal control of intermediate raw material processes. The Company's success in fostering this total quality policy is evidenced by the U.S. Commerce Department's selection of the Company as the recipient of the 1993 Malcolm Baldrige National Quality Award in the large manufacturing category.
The Company has eleven quality system registrations to the international quality standard, ISO 9000. Nine of these are in the United States and two are in the United Kingdom. Approximately three-fourths of 1996 sales were from products manufactured in ISO 9000 registered quality systems.
Expansion in International Markets
Customers outside the United States accounted for 37% of the Company's sales in 1996, while 9% of its products, measured by sales revenue, were manufactured outside the United States. The Company has enjoyed growth in worldwide sales over the past five years and achieved satisfactory returns primarily due to its efficient large-scale plants in the United States. The Company also has facilities in Hartlepool and Workington, England, for the manufacture of polyester, used to produce film, bottles, and other packaging. The Workington site also produces acetate tow. In addition, the Company's operations include a polyester manufacturing facility in Toronto, Canada; polyethylene terephthalate ("PET") plants in Cosoleacaque, Veracruz, Mexico; and facilities in the United Kingdom and Hong Kong for the manufacture of fine chemicals.
The Company is increasing its international manufacturing presence by targeting a higher percentage of its annual capital expenditures for markets outside the United States. The Company will complete a PET plant in San Roque, Spain in early 1997 and has announced plans to build PET plants in the Netherlands and Argentina, with operational dates of 1998. The Company also plans to build an additional plant in the Netherlands to produce purified terephthalic acid ("PTA"), a key raw material for the production of PET, with an operational date of 1998. By late 1997, the Company plans to double production capacity for general-purpose fine chemicals at the Peboc Division of Eastman Chemical (UK) Ltd. in Llangefni, Wales. Eastman is building a wholly owned manufacturing facility in the Asia Pacific region--a 30,000-metric-ton copolyesters plant to be located in Kuantan, Malaysia, expected to be in operation in early 1998. In mid 1997, the Company plans to begin construction of a new oxo chemicals manufacturing complex in Singapore, with production expected in early 1999. The Company is studying the feasibility of forming a joint venture in the People's Republic of China; consideration is being given to building two plants in Nanjing, China, one to produce hydrocarbon tackifying resins and the other to manufacture sorbates.
The Company has increased its international sales and distribution infrastructure during the past seven years to position it for worldwide sales growth. In particular, from 1990 through 1996, the Company increased personnel outside the United States from approximately 500 to 1,500 employees. During the same time period, the number of Company sales offices outside the United States increased from 25 to 36 in a total of 32 countries. For financial information about foreign and domestic operations and export sales, see Part II--Item 8--Financial Statements and Supplementary Data--Note 14 to the consolidated financial statements.
The Company's current and future business expansions in international markets are dependent on projected regional 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 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.
Strategic Market Orientation
The Company's organization is aligned to focus on strategic markets. The Company believes that its market focus helps sustain earnings during economic downturns and allows it to focus on growth.
Employee Ownership and Incentives
The Company believes that employee stock ownership will be a significant factor in achieving its goal of consistent, profitable growth. The Eastman Employee Stock Ownership Plan ("ESOP") is intended to foster employee ownership throughout the Company, and stock ownership guidelines have been established for the Company's directors and approximately 550 key Company managers. All Eastman employees have placed at risk approximately 5% of their overall pay under the Eastman Performance Plan, an annual incentive plan that rewards employees based on the Company's achieved return on capital in relation to its cost of capital. A certain portion of the incentive pay (approximately 5% of eligible employees' annual pay in 1996, 5% in 1995, and 4% in 1994) has been committed to the purchase of Eastman common stock under the ESOP. An additional portion of management compensation is tied to Company performance under the Eastman Annual Performance Plan. For further information concerning the Company's ESOP and incentive pay plans, see Part II--Item 8--Financial Statements and Supplementary Data--Note 8 to the consolidated financial statements and Part III--Item 11-- Executive Compensation.
INDUSTRY SEGMENTS
SPECIALTY AND PERFORMANCE SEGMENT
The key product groupings and primary markets in the Specialty and Performance segment are summarized as follows:
Product Groupings Primary Markets
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Fibers Filters
Fabrics
Coatings, inks, and resins Coatings, inks and paints
Fine chemicals Photographic chemicals and custom chemicals
Performance chemicals Additives for fibers and plastics, semi-conductors
Adhesives and sealants
Food and beverages
Nutrition, cosmetics, construction
Textiles
Specialty plastics Medical, electronics, recreation, consumer durables
Plastic packaging
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Fibers
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 our 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 one-third of the annual worldwide production of acetate tow, and sells to all major markets throughout the world. The two primary raw materials used in the manufacture of acetate tow are cellulose (from wood pulp) and acetic anhydride, and the Company has developed the world's only commercial coal gasification facility to produce the latter. 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.
Growth in the acetate tow market is directly related to the level of filtered cigarette consumption, which continues to increase worldwide despite declining levels of cigarette consumption in North America. Historically, worldwide industry sales volume growth has averaged between 2% - 3% per year. From 1985 through 1991, however, worldwide industry sales volume grew an average of 4% - 5%, primarily as a result of increased demand and purchases for inventory in the Peoples Republic of China. During the years 1991 through 1993, a drawdown of inventory stockpiles in China plus reduced demand in Eastern Europe contributed to a decline in industry sales which, combined with the addition of approximately 100 million pounds per year of new industry capacity, led to industry overcapacity. This in turn contributed to declines in worldwide Company sales of acetate tow and related operating earnings. In 1994, 1995, and 1996, worldwide growth in the market for acetate tow, led primarily by sales to the Asia Pacific region, resulted in higher levels of capacity utilization for both the Company and the industry. The Company expects worldwide demand for acetate tow to grow at approximately 2% - 3% per year over the long term, led primarily by growth in Asia Pacific and Eastern European regions.
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 little growth during the last eight years. The Company has focused its efforts on improving its operating efficiencies to maintain its product quality and cost position.
Fibers products accounted for approximately 32% of 1996 Specialty and Performance segment sales.
Coatings, inks, and resins
The Company supplies a wide variety of coatings, inks, and resins, including solvents, alcohols, glycols, and resins. All of the Company's coatings, inks, and resins are currently produced in the United States with approximately 63% of 1996 sales being in the United States and the remainder worldwide. Most of the products in this area are olefin or cellulose derivatives and utilize the Company's proprietary oxo chemistry technology or chemicals from coal technology. Coatings, inks, and resins include mixed cellulose esters, of which the Company is the world's only manufacturer. Suppliers of coatings, inks, and resins compete based on price, breadth of product line, reliability of supply, and customer service. The Company believes it has a competitive advantage due to 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 23% of 1996 Specialty and Performance segment sales.
Management anticipates limited future sales growth of traditional organic solvent products due to environmental factors. The Company is developing replacement products that are responsive to the environmental factors; these products include raw materials for waterborne, powder, and high solid coatings.
Fine chemicals
Fine chemicals produced by Eastman are used in the manufacture of a wide variety of products such as photographic products, home care products, and custom chemicals. The Company is a leading producer of custom chemicals used in the manufacture of pharmaceuticals and agricultural chemicals, and of other products synthesized to 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 offered in custom manufacturing (i.e., regulatory compliance and process design and optimization). Kodak is the largest customer for the Company's fine chemicals. During 1996, fine chemicals accounted for approximately 15% of Specialty and Performance segment sales.
Performance chemicals
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 natural and synthetic food grade antioxidants that are used to enhance the stability and extend the shelf life of many products containing oils and fats. Eastman is the only U.S. producer of sorbates that are used as food and cosmetic preservatives because of their antimicrobial action. 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. For instance, 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 segment. During 1996, performance chemicals accounted for approximately 13% of Specialty and Performance segment sales.
Specialty plastics
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, and fabricated boxes. The plastics supplied for these end uses include polyethylene, polyester/copolyesters, cellulosics, 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 attractive returns. Suppliers of specialty plastics products compete based on price, product performance, reliability of supply, product differentiation, and customer service. The Company believes it has a competitive advantage due to its product performance, its systems of marketing and distribution, and efficiency of its specialized copolyester chemistry and cellulose technology. Specialty plastics accounted for approximately 17% of 1996 Specialty and Performance segment sales.
CORE PLASTICS SEGMENT
The key product groupings and the primary markets in the Core Plastics segment are summarized as follows:
Product Groupings Primary Markets
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Container plastics Soft drink containers
Flexible plastics Packaging
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Container plastics
The Company is the world's leading supplier of polyester plastics, including PET, for packaging applications, with the majority of its sales concentrated in North America, Europe, and Latin America. The market for polyester plastics has experienced significant growth in recent years due to the substitution of these plastics for other packaging materials used in soft drink, food, and water containers. Container plastics products accounted for approximately 65% of 1996 Core Plastics segment sales.
PET for containers, such as soft drink bottles, is the largest end use for polyester plastics. Use of PET has grown because it is cost effective and compares favorably with glass, aluminum, and other packaging materials based on its light weight, durability, and clarity. In addition, PET is currently the most widely recycled plastic packaging material. Industry estimates indicate that PET consumption grew worldwide from 2.3 billion pounds per year in 1989 to approximately 6.3 billion pounds per year in 1995, an average annual increase of approximately 16% for the years 1989 through 1993 and 20% in 1994 and 1995. From 1989 to 1995, the Company's volume of PET sales also rose at approximately the same rates. The container plastics industry operated at essentially full capacity, and demand grew substantially in 1995, and to a lesser extent in 1996, primarily due to weak sales in a soft European economy. To meet expected growth in the PET market, Eastman intends to significantly increase its annual worldwide PET manufacturing capacity by the year 2000 to 3.5 billion pounds by constructing new plants and through process improvements in existing plants. Capacity additions within the PET industry worldwide over the next 1-2 years are expected to result in continued pressure on PET selling prices.
Competition for the large volume PET market is based largely on price. 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, and is a leader in the manufacture of recycled-content PET. Environmental concerns have led to increased demand for the use of recycled plastic materials, and the Company was one of the first producers to obtain Food and Drug Administration clearance to use recycled-content PET in polyesters sold to food and beverage container manufacturers.
Flexible plastics
The Company manufactures a variety of plastics including polyethylene, cellulose acetate, and polyesters for applications such as film, extrusion coating, fibers, industrial strapping, and injection molding. The polyethylene product line includes low density, linear low density, and medium/high density polymers. The markets for these products are characterized generally as large volume with a large number of customers and suppliers. The Company competes based on its integrated manufacturing capabilities and, in some of these market areas, on the basis of unique product characteristics. Several of the Company's competitors are larger, with some having a higher degree of vertical integration. As a result of the Company's position in this overall market, the strategy is to focus on selected markets based on the Company's ability to produce high quality performance polymers. Flexible plastics accounted for approximately 35% of 1996 Core Plastics segment sales.
CHEMICAL INTERMEDIATES SEGMENT
The key product grouping and the primary markets in the Chemical Intermediates segment are summarized as follows:
Product Groupings Primary Markets
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Industrial intermediates Industrial additives
Agricultural chemicals
Pharmaceuticals
Vinyl compounding
Wood and metal coatings
Artificial sweeteners
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Industrial Intermediates
Industrial intermediate chemicals are produced based on the Company's oxo chemistry technology and chemicals from coal technology. These products include basic acetyl, oxo chemicals, 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 1996 approximately 77% of these products were sold in the United States with the remainder sold internationally. 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 substantially all of its key raw materials under long-term contracts, generally of three to five years of initial duration with renewal provisions. Most of those agreements do not require the Company to buy materials if its operations are shut down or if the Company's demand is otherwise reduced. Key raw materials purchased include cellulose, ethylene glycol, paraxylene, coal, ethane, and propane. 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
Total capital expenditures were $789 million in 1996, $446 million in 1995, and $281 million in 1994. Eastman anticipates that total capital expenditures in 1997 will be approximately $850 million. Historically, approximately 50% of the capital expenditures have been used to improve existing plant operations and 50% have been used to provide new capacity. Efficiency of capital utilization is a key initiative of the Company. The Company uses alliances and joint ventures, where appropriate, to provide additional capital expansion.
During 1996, 1995, and 1994, the Company made capital expenditures of $51 million, $39 million, and $32 million, respectively, related to environmental improvements. The Company estimates that such capital expenditures will be approximately $50 million and $90 million for 1997 and 1998, respectively. Future expenditures will be dependent in part upon implementation of government environmental regulations.
DISPOSITIONS
As previously reported, in November 1994 Eastman sold its polypropylene business, realizing net cash, after taxes, in excess of $100 million. The purchaser acquired the physical assets of Eastman's polypropylene plants--two Unipol process plants located at Texas Eastman Division in Longview, Texas. In February 1995 Eastman sold its Kingsport, Tennessee compounded polypropylene product line. In addition, the Company ceased production of natural source vitamin E in 1995 and of pigmented inks in 1996, and sold the food-grade distilled monoglycerides, powder coatings, and adhesives businesses in 1996. The effect of these divestitures and product discontinuances on financial position or results of operations has not been, and is not expected to be, material.
EMPLOYEE RELATIONS
The Company employs approximately 17,500 men and women worldwide. None of the employees in the United States and approximately 2% of the total worldwide labor force are represented by labor unions. The Company believes that its employee relations are excellent.
CUSTOMER RELATIONS
Eastman has an extensive customer base and is not dependent on any one customer or group of customers. The Company has approximately 8,000 customers worldwide and the top 100 customers account for less than 60% of the Company's business. Eastman's largest customer is Kodak, which accounted for approximately 6% of total sales in 1996.
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 in its key markets are summarized as follows:
Key Market Major Competitors
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Fibers Courtaulds, Daicel, Hoechst Celanese, Mitsubishi, Novaceta,
Rhone-Poulenc, Teijin
Coatings, inks, and resins BASF, Exxon, Hoechst Celanese, S. C. Johnson, Lonza,
Oxychem, Shell, Union Carbide
Fine chemicals DSM, LaPorte, Lonza
Performance chemicals AlliedSignal, Arco, Daicel, Dow, Exxon, Hercules, Hoechst
Celanese, Hoechst Fine Chemicals, Rexene, Rhone-Poulenc,
UOP
Specialty plastics BASF, Bayer, Dow, DuPont, GE, Hoechst Celanese, Phillips,
Akzo Nobel, AtoHaas, ICI, Geon, Shell
Container plastics Hoechst, ICI, Shell, Wellman, Nan Ya
Flexible plastics Chevron, Dow, Exxon, Hoechst Celanese, ICI, Mobil,
Quantum, Shell, Union Carbide
Industrial intermediates BASF, BP, Dow, Exxon, Hoechst Celanese, Rhone-Poulenc,
Union Carbide
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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 (see "Environmental" below).
Major achievements in research and development during the last several years include the chemicals from coal technology, enhancements of the oxo chemistry technology, and polyester application development and manufacturing technology. The Company has developed wastewater treatment technology and technology to improve PET recycling. In addition, Eastman has developed technology that provides a faster, lower-cost route to production of EpB oxirane, a building block chemical used in many other chemicals.
The Company's research and development expenditures during the past five years have averaged approximately 4% of sales annually. The Company's research and development expenditures for 1996, 1995, and 1994 were $184 million, $176 million, and $167 million, respectively. Expenditures for 1997 are anticipated to be comparable to those for 1996. The Company has its major research center in Kingsport, Tennessee, and currently employs approximately 375 scientists with doctoral degrees throughout its research and development program.
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. The Company's patents expire at various times during the next several years. The Company expects to be granted about 100 new patents per year as a result of research and development projects. The Company also maintains trademarks on major product segments. 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 seasonal effects during the winter months because of reduced demand for paint products, and the Core Plastics segment experiences reduced demand for soft-drink containers during the first and fourth quarters.
MARKETING AND DISTRIBUTION
The Company markets products through a worldwide sales organization with 36 sales offices outside the United States in 32 countries. In 1996, approximately 80% of sales were direct and 20% were through other 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.
ENVIRONMENTAL
Eastman is committed to improving the environment, a commitment evidenced in both the Company's products and manufacturing operations. The Company is actively engaged in the ongoing development and enhancement of products that are environmentally responsible, such as waterborne products and recyclable plastics, and is an active participant in RESPONSIBLE CARE, 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.
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. In 1996 Eastman received Energy Efficiency Awards from the Chemical Manufacturers Association. Also in 1996, Tennessee Eastman Division's wastewater treatment facility received the Operational Excellence Award from the Kentucky-Tennessee Water Environment Association and the national George F. Burke, Jr. Award from the Water Environment Association for operation safety. During 1995 Eastman received environmental awards from the Chemical Manufacturers Association, the Kentucky-Tennessee Water Environment Association, the League of Women Voters of the Texas Education Fund, and the Tennessee Association of Business. In 1992 Texas Eastman Division was awarded an Administrator's Award by the U.S. Environmental Protection Agency. The U.S. Department of Labor commended the Company in 1992 for being the first company in the nation to develop and implement a registered Environmental Operations Specialist Apprenticeship Program to train operating personnel in monitoring fugitive emissions. Industry Week magazine named the Kingsport, Tennessee plant one of the 10 best plants in the nation in 1991 based on criteria that included energy conservation and pollution prevention.
Certain of the Company's 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 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 costs relating to environmental remediation and closure/postclosure 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 reasonably estimable.
The Company's environmental protection and improvement cash expenditures were $173 million in 1996, $151 million in 1995, and $145 million in 1994, 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 1996, the Company's backlog of firm orders averaged between $200 million and $400 million, representing 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.
EXECUTIVE OFFICERS OF THE COMPANY
Certain information about the Company's executive officers is provided below.
Earnest W. Deavenport, Jr., age 58, 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. He also served as Group Vice President of Kodak from 1989 through 1993.
R. Wiley Bourne, Jr., age 59, is Vice Chairman of the Board and Executive Vice President of the Company, responsible for all business organizations. He joined the Company in 1959 and was named Executive Vice President in 1989. Mr. Bourne also served as a Vice President of Kodak from 1986 through 1993.
Dr. James L. Chitwood, age 54, is Senior Vice President of the Company, responsible for operations outside North America. Dr. Chitwood joined the Company in 1968. He was named Senior Vice President of the Company in 1989 and Group Vice President, Specialty Business Group in 1991. Dr. Chitwood was appointed Senior Vice President with responsibility for Company business organizations in October 1994 and changed to his current area of responsibility in 1996. He also served as a Vice President of Kodak from 1984 through 1993.
Harold L. Henderson, age 61, joined the Company in 1997 as Senior Vice President, Secretary, and General Counsel. Mr. Henderson served previously as chief legal officer of The Firestone Tire & Rubber Company from 1980 to 1985 and of RJR Nabisco, Inc. from 1985 to 1989. He was a consultant, commercial real estate developer, and private investor from 1989 through 1996.
Tom O. Nethery, age 58, is Senior Vice President of the Company, responsible for functional organizations. Mr. Nethery joined the Company in 1960. In 1989, Mr. Nethery was named Senior Vice President, Manufacturing of the Company. He was named Group Vice President, Industrial Business Group in 1991 and was appointed to his current position in October 1994. Mr. Nethery also served as a Vice President of Kodak from 1989 through 1993.
H. Virgil Stephens, age 60, is Senior Vice President and Chief Financial Officer of the Company. Mr. Stephens joined the Company in 1979. In 1988, Mr. Stephens was named Vice President, Financial and Information Services, became Vice President and Chief Financial Officer in 1993, and was appointed to his current position in 1996.
Darryl K. Williams, age 54, is Senior Vice President of the Company, responsible for technology. Mr. Williams joined the company in 1965. He was appointed president of Eastman Chemical Japan Ltd. in 1992, was named vice president, Asia Pacific regional support services in 1993, was appointed vice president, Asia Pacific Sales in 1994, and was named to his current position in 1996.
William G. Adams, age 62, is Vice President, Human Resources and Communications and Public Affairs of the Company. Mr. Adams joined the Company in 1958. He was named to his current position in 1986.
Lynda W. Popwell, age 52, is Vice President, Health, Safety, and Environment and Quality of the Company. Ms. Popwell joined the Company in 1969. In 1990, she was appointed Superintendent, Polymer Chemicals Division, Carolina Eastman Division. Ms. Popwell was named Superintendent, Acid Division, Tennessee Eastman Division, in 1993, was appointed Vice President, Tennessee Eastman Division in 1994, and was appointed to her current position in 1995.
B. Fielding Rolston, age 55, is Vice President, Customer Service and Materials Management of the Company. Mr. Rolston joined the Company in 1964. In 1987, Mr. Rolston was appointed to his current position.
Jimmy E. Tackett, age 59, is Vice President, Corporate Development and Strategy of the Company. Mr. Tackett joined the Company in 1963. In 1989, Mr. Tackett was appointed to his current position.
Thomas W. Wilson, age 55, is Vice President and Comptroller of the Company. Mr. Wilson joined the Company in 1964. In 1986, Mr. Wilson was named Comptroller of Texas Eastman Division and was appointed Comptroller and Treasurer, Eastman Chemical Company, in 1993. He assumed his current position in 1997.
ITEM 2. PROPERTIES
PROPERTIES
A summary of the Company's principal manufacturing sites and the key products 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.
Location Unit Key Products
- --------------------- -------------------------------- ---------------------------------
Batesville, AR Arkansas Eastman Fine Chemicals
Columbia, SC Carolina Eastman Polyester Polymers
Cosoleacaque, Mexico Eastman Chemical Industrial Polyester Polymers
De Mexico
Hartlepool, England Eastman Chemical Ectona, Ltd. Polyester Polymers
Kingsport, TN Tennessee Eastman Acetate Tow
Coatings and Paint Raw Materials
Polyester Polymers
Fine Chemicals
Llangefni, Wales Eastman Chemical (UK) Limited Fine Chemicals
Longview, TX Texas Eastman Oxo Chemicals
Plastics
Rochester, NY Distillation Products Division Monoglycerides and Antioxidants
Roebuck, SC ABCO Industries, Inc. Waterborne Polymers
San Roque, Spain Eastman Chemical Espana, S.A. Polyester Polymers
Toronto, Ontario, Canada Eastman Chemical Canada, Inc. Polyester Polymers
Workington, England Eastman Chemical Ectona, Ltd. Acetate Tow
Polyester Polymers
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The Company has entered into a joint venture with Rhone-Poulenc, called Primester, 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.
The Company has distribution facilities at all of its plant sites. In addition, the Company conducts manufacturing operations at 3 other sites and operates 89 stand-alone distribution facilities in 18 countries. Corporate headquarters is in Kingsport, Tennessee. The Company's regional headquarters are in Miami, Florida; The Hague, Netherlands; and Singapore. Technical service is provided to the Company's customers from technical service centers in Kingsport, Tennessee; Kirkby, England; Osaka, Japan; and Singapore. Customer service centers are located in Kingsport, Tennessee; Rotterdam, Netherlands; and Singapore.
ITEM 3. LEGAL PROCEEDINGS
LEGAL PROCEEDINGS
The Company's operations are parties to or targets of lawsuits, claims, investigations, and proceedings, including product liability, patent, commercial, environmental, and health and safety matters, which are being handled and defended in the ordinary course of business. No such pending matters are expected to have a material adverse effect on the Company's financial condition or results of operations.
ITEM 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 1996.
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 1995 and 1996.
CASH DIVIDENDS
HIGH LOW DECLARED
1995
1st Quarter 56 1/8 48 1/2 $ .40
2nd Quarter 61 52 1/2 .40
3rd Quarter 69 1/2 59 1/8 .42
4th Quarter 68 3/8 58 3/4 .42
1996
1st Quarter 76 1/4 60 1/8 $ .42
2nd Quarter 69 1/4 59 3/4 .42
3rd Quarter 62 3/8 50 3/4 .44
4th Quarter 58 1/2 52 .44
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As of January 31, 1997 there were 77,862,162 shares of the Company's Common Stock issued and outstanding, which shares were held by approximately 94,266 shareowners of record. These shares include 202,575 shares held by the Company's charitable foundation. The Company has declared a cash dividend of $.44 per share during the first quarter of 1997, 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 1996 in transactions not registered under the Securities Act of 1933. For information concerning issuance of shares and option grants in 1996 under compensation and benefit plans and to the Company's charitable foundation, see Part II--Item 8--Financial Statements and Supplementary Data -- Notes 7 and 8 to consolidated financial statements.
ITEM 6. SELECTED FINANCIAL DATA
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) 1996 1995 1994 1993 1992 SUMMARY OF OPERATING DATA (1) Sales $ 4,782 $ 5,040 $ 4,329 $ 3,903 $ 3,811 Operating earnings 663 964 636 451 505 Earnings from continuing operations before income taxes and cumulative effect of changes in accounting principle 607 899 550 439 483 Earnings from continuing operations 380 559 336 267 301 Discontinued operations, net of taxes - - - (20) (9) Cumulative effect of changes in accounting principle, net of taxes - - - (456) 79 Net earnings (loss) 380 559 336 (209) 371 Earnings per share from continuing operations (2) 4.80 6.78 4.05 2.46 2.85 Net earnings per share 4.80 6.78 4.05 - - STATEMENT OF FINANCIAL POSITION DATA (1) Current assets $ 1,345 $ 1,487 $ 1,248 $ 1,057 $ 1,007 Properties at cost 7,530 6,791 6,389 6,390 6,170 Accumulated depreciation 4,010 3,742 3,483 3,331 3,127 Total assets 5,266 4,872 4,395 4,341 4,200 Current liabilities 787 873 793 462 443 Long-term borrowings 1,523 1,217 1,195 1,801 1 Total liabilities 3,627 3,344 3,100 3,280 1,267 Total shareowners' equity 1,639 1,528 1,295 1,061 2,933 Dividends declared per common share 1.72 1.64 1.60 - - |
(1) The summary of operating data for the years 1992 and 1993 and the statement of financial position data for 1992 present the historical combined results of the Company as the wholly owned worldwide chemical business of Kodak before the spin-off at midnight December 31, 1993 as if it had operated as an independent stand-alone entity.
(2) Earnings per share from continuing operations for the years 1992 and 1993 are presented on a pro forma basis. Historical earnings per share data for periods before the spin-off is not presented because the Company was not a publicly held company before the spin-off and such data is not meaningful because of the significant change in capitalization as a result of the spin-off. Pro forma earnings from continuing operations were $204 million and $236 million for the years 1993 and 1992, respectively.
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.
MAJOR FACTORS AFFECTING EARNINGS
1996 COMPARED WITH 1995
Significantly lower selling prices for the Company's core plastics
Overall increased sales volumes
Preproduction and start-up costs for new production facilities
Lower raw material costs
Lower variable-incentive compensation
RESULTS OF OPERATIONS
EARNINGS
(Dollars in millions, except per share amounts) 1996 1995 CHANGE 1994
Operating earnings $ 663 $ 964 (31)% $ 636
Net earnings 380 559 (32) 336
Net earnings per share 4.80 6.78 (29) 4.05
CHANGES IN EARNINGS PER SHARE 1996 1995 CHANGE
Net earnings per share $ 4.80 $ 6.78 $ (1.98)
Operations
Selling price $ (2.57)
Volume and mix .24
Raw materials, supplies, and energy costs .48
Variable-incentive pay .67
Preproduction and start-up costs (.42)
Other (.66)
-------
Change from operations (2.26)
Other
Interest expense, net .09
Other income/charges (.02)
Effective tax rate change .02
Fewer shares outstanding .19
-------
Total change $ (1.98)
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1996 COMPARED WITH 1995
While Eastman's results for 1996 reflect overall decreases compared with 1995, a year in which the Company reported record sales and earnings, the Company's 1996 net earnings still reflect a solid return on equity of 24% and strong earnings from the Specialty and Performance segment. The factors contributing to the 1996 earnings decline were lower selling prices for the Company's core plastics, polyethylene terephthalate ("PET") and polyethylene, preproduction and start-up costs at new PET plants, and higher labor rates. Currency fluctuations had a minor negative effect on earnings in 1996. Positive impacts on overall earnings include higher overall sales volumes, lower variable-incentive compensation, and lower costs for paraxylene, certain other raw materials, and energy, partially offset by higher propane costs. In addition, fewer shares outstanding favorably affected earnings per share.
SUMMARY BY INDUSTRY SEGMENT
The Company's industry segment presentation for 1996 was revised. The Performance segment was renamed Specialty and Performance, the Industrial segment was renamed Chemical Intermediates, and the new Core Plastics segment, which includes container plastics and flexible plastics products, was established. Previously, container plastics were in the Performance segment, and flexible plastics were in the Industrial segment. The new Core Plastics segment includes the Company's two major plastics products, EASTAPAK PET polyester packaging plastic and TENITE polyethylene. Prior periods have been restated to conform to the 1996 presentation.
(For supplemental analysis of Specialty and Performance, Core Plastics, and Chemical Intermediates segment results and for restated business segment quarterly sales and earnings information, see Exhibits 99.01 and 99.02, respectively, to this Form 10-K).
SPECIALTY AND PERFORMANCE SEGMENT
(Dollars in millions) 1996 1995 CHANGE 1994 Sales $ 2,657 $ 2,647 -% $ 2,364 Operating earnings 519 433 20 350 |
1996 COMPARED WITH 1995
Despite overall level sales, the Specialty and Performance segment operating earnings increased primarily as a result of lower operating costs reflecting overall lower raw material costs, divestiture and discontinuance of certain businesses and product lines, favorable product mix changes, and lower variable-incentive compensation. Improved pricing, particularly for acetate tow and acetate yarn, also contributed to the increase in earnings. Sales of coatings, inks, and resins products increased because of higher volumes, partially offset by decreased prices. Fibers sales increased primarily because of price increases at the beginning of 1996 and slight volume gains. Fine chemicals products sales were down primarily because of lower volumes. Specialty plastics products sales were essentially level with 1995, with volume increases offset by price decreases. Sales of performance chemicals products decreased because of lower volumes, partially offset by higher prices, and as a result of the divestiture and discontinuance of certain businesses and product lines in late 1995 and early 1996.
CORE PLASTICS SEGMENT
(Dollars in millions) 1996 1995 CHANGE 1994 Sales $ 1,409 $ 1,685 (16)% $ 1,390 Operating earnings (loss) (1) 347 - 199 |
1996 COMPARED WITH 1995
The sales decrease in the Core Plastics segment was attributed primarily to lower EASTAPAK PET selling prices, partially offset by increased volumes. Decreased operating earnings were attributed primarily to lower EASTAPAK PET and polyethylene selling prices. Other factors contributing to the overall decrease in segment operating earnings were increased preproduction and start-up costs for new PET manufacturing facilities and increased propane costs, which impacted primarily polyethylene and to a lesser extent PET.
CHEMICAL INTERMEDIATES SEGMENT
(Dollars in millions) 1996 1995 CHANGE 1994 Sales $ 716 $ 708 1% $ 575 Operating earnings 145 184 (21) 87 |
1996 COMPARED WITH 1995
Increased sales in the Chemical Intermediates segment were attributed primarily to higher volumes, partially offset by lower selling prices for industrial intermediates. Decreased operating earnings were attributed primarily to lower selling prices for certain industrial intermediates products, particularly n-butyraldehyde products and their derivatives, and higher propane feedstock costs.
SUMMARY BY CUSTOMER LOCATION
SALES BY REGION
(Dollars in millions) 1996 1995 CHANGE 1994
United States and Canada $3,183 $3,390 (6)% $3,049
Europe, Middle East, and Africa 745 825 (10) 640
Asia Pacific 548 557 (2) 437
Latin America 306 268 14 203
------ ------ ------
Total $4,782 $5,040 $4,329
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1996 COMPARED WITH 1995
Sales in the United States for 1996 were $2.99 billion, down 6% from 1995 sales of $3.168 billion. Decreased sales were attributed to lower selling prices, partially offset by modest volume gains.
Sales outside the United States in 1996 were down 4% from 1995 and were 37% of total sales, same as 1995. Decreased sales in Europe, Middle East, and Africa were primarily attributed to lower EASTAPAK PET selling prices, partially offset by higher volumes. Increased sales in Latin America resulted primarily from higher EASTAPAK PET volumes, partially offset by lower selling prices.
With a substantial portion of 1996 sales to customers outside the United States and 9% of its products (as measured by sales revenue) manufactured outside the United States, 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. As a result, 85% of total 1996 sales were U.S. dollar-based. 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. Consequently, credit and currency losses experienced on international transactions have not been significant. See Item 8--Financial Statements and Supplementary Data--Note 10 to the consolidated financial statements.
SUMMARY OF CONSOLIDATED RESULTS
(Dollars in millions) 1996 1995 CHANGE 1994 SALES $ 4,782 $ 5,040 (5)% $ 4,329 |
Sales in 1996 decreased 7% because of lower selling prices, offset 2% because of volume gains.
(Dollars in millions) 1996 1995 CHANGE 1994
GROSS PROFIT $ 1,179 $ 1,504 (22)% $ 1,113
As a percentage of sales 24.7% 29.8% 25.7%
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Gross profit decline was principally attributable to lower selling prices, higher labor rates, and increased preproduction and start-up costs, partially offset by lower variable-incentive compensation, lower purchased raw material costs, and increased volumes.
(Dollars in millions) 1996 1995 CHANGE 1994
SELLING AND GENERAL ADMINISTRATIVE EXPENSES $ 332 $ 364 (9)% $ 310
As a percentage of sales 6.9% 7.2% 7.2%
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The decrease in selling and general administrative expenses was attributable to developmental costs incurred in 1995 for the installation of a global integrated business information system that were not incurred in 1996. The Company invested significant resources in this new information system to better position itself for continued worldwide growth. Another factor affecting the decreased selling and general administrative expenses was decreased variable-incentive compensation costs.
(Dollars in millions) 1996 1995 CHANGE 1994
RESEARCH AND DEVELOPMENT COSTS $ 184 $ 176 5% $ 167
As a percentage of sales 3.8% 3.5% 3.9%
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Research and development costs increased because of an increase in research and development activities and overall labor rates, partially offset by lower variable-incentive costs.
(Dollars in millions) 1996 1995 CHANGE 1994
GROSS INTEREST EXPENSE $ 95 $ 88 $ 98
LESS CAPITALIZED INTEREST 28 9 11
------- ------- -------
NET INTEREST EXPENSE $ 67 $ 79 (15)% $ 87
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Interest expense increased because of higher commercial paper borrowings, offset by capitalized interest related to increased capital projects under construction.
(Dollars in millions) 1996 1995 CHANGE 1994 OTHER INCOME, NET $ 11 $ 14 (21)% $ 1 |
Other income and charges include interest income, royalty income, gains and losses on asset sales, results from equity investments, foreign exchange transactions, and other items.
(Dollars in millions) 1996 1995 CHANGE 1994
PROVISION FOR INCOME TAXES $ 227 $ 340 (33)% $ 214
Effective tax rate 37.4% 37.8% 38.9%
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1995 COMPARED WITH 1994
Eastman posted sales in 1995 of $5.04 billion, up 16% compared with 1994. Sales increased 11% because of higher selling prices, 3% because of volume gains, and 2% because of the favorable effect of fluctuations in currency exchange rates. The Company had net earnings of $559 million in 1995, compared with $336 million for 1994 -- a 66% increase. The increased earnings were attributable to higher selling prices and slightly higher volumes, partially offset by higher purchased raw material costs. Currency fluctuations had a minor favorable effect on earnings in 1995 and 1994. In November 1994 Eastman sold its polypropylene business, realizing net cash, after taxes, in excess of $100 million. Eastman's revenues from the polypropylene business, included primarily with flexible plastics products, were approximately $160 million in 1994.
The Specialty and Performance segment reported sales of $2.647 billion for 1995, up 12% from 1994. The increase was attributed to higher sales prices and higher sales volumes. Sales of coatings, inks, and resins products increased because of solid price increases. Fibers products experienced significant volume increases and improved prices. Fine chemicals products reported substantial volume gains, partially offset by slight decreases in selling prices. Excluding the effects of the polypropylene business exit in 1994, specialty plastics products reported higher volumes and increased prices in 1995. Specialty and Performance segment operating earnings for 1995 were $433 million, compared with $350 million in 1994. The 24% increase was attributable to higher selling prices and volume gains, partially offset by higher raw material and labor costs.
The Core Plastics segment reported sales of $1.685 billion for 1995, up 21% from 1994. PET contributed significantly to the increased segment sales, with substantially higher selling prices and good volume increases. Excluding the effects of the polypropylene business exit, volumes for flexible plastics products, primarily polyethylene, were moderately higher in 1995. Core Plastics segment operating earnings for 1995 were $347 million, compared with $199 million in 1994. The 74% increase was primarily attributable to PET and polyethylene higher selling prices, partially offset by higher raw material and labor costs.
The Chemical Intermediates segment reported sales of $708 million for 1995, up 23% from 1994. The substantial increase in sales was attributable to higher selling prices and modest volume gains of industrial intermediates. Selling prices were higher because of strong demand. Chemical Intermediates segment operating earnings for 1995 were $184 million, up 111% from 1994. Sharp increases in operating earnings were attributable primarily to higher selling prices, partially offset by higher raw material and labor costs. Strengthened demand for chemicals that resulted in high capacity utilization was a significant factor in the 1995 gain.
Eastman reported increased 1995 sales to customers in each reported region. Sales in the United States in 1995 were $3.168 billion, up 10% compared with 1994 sales of $2.867 billion. Increased sales were primarily attributable to higher selling prices. Sales to customers outside the United States in 1995 were up 28% compared with 1994 and were 37% of total sales, compared with 34% in 1994.
LIQUIDITY, CAPITAL RESOURCES, AND OTHER FINANCIAL DATA
FINANCIAL INDICATORS 1996 1995 1994 Ratio of earnings to fixed charges 6.1x 9.7x 6.3x Current ratio (1) 1.7x 1.7x 1.5x Percent of long-term borrowings to total capital (1) 48% 44% 48% Percent of floating-rate borrowings to total borrowings (1) 21% 2% - |
KEY CASH FLOW ELEMENTS
(Dollars in millions) 1996 1995 1994 Cash provided by operations $ 746 $ 838 $ 824 Capital expenditures 789 446 281 Dividends paid 134 133 99 Net increase in commercial paper borrowings 273 22 - Debt reduction excluding commercial paper - 2 605 Treasury stock purchases 161 200 - |
Cash provided by operations for 1996 decreased primarily as a result of lower earnings, partially offset by reductions in inventory and receivables. Cash provided by operations for 1995 increased primarily as a result of higher earnings, partially offset by changes in certain liabilities.
The increase in cash used in investing activities in 1996 is consistent with the Company's global expansion activities and primarily reflects capital expenditure increases. Cash used in investing activities in 1995 increased because of higher capital expenditures, acquisitions, and investments in joint ventures.
The cash used in financing activities in 1996 reflects dividends and share repurchases, offset by commercial paper borrowings. The cash used in financing activities in 1995 was primarily attributed to share repurchases and dividends. In 1994 the Company had a $605 million reduction in long-term borrowings.
CAPITAL EXPENDITURES
Eastman's commitment for capital expenditures at December 31, 1996, was approximately $740 million, consisting primarily of planned expenditures for previously announced expansions of production capacity. Approximately 80% of the $740 million is expected to be disbursed in 1997. Eastman anticipates that total capital expenditures in 1997 will be approximately $850 million. Depreciation expense is expected to be approximately $330 million in 1997.
Construction is currently under way for a copolyester plastics plant in Kuantan, Malaysia, with production expected by early 1998. The Company has begun construction of an isophthalic acid ("IPA") plant in Tennessee, with production expected in 1998. A letter of intent was signed by the Company to study the feasibility of forming a joint venture in the People's Republic of China; consideration is being given to building two plants in Nanjing, China, one to produce hydrocarbon tackifying resins and the other to manufacture sorbates. Eastman has announced a planned increase in polyethylene naphthalate ("PEN") capacity in Kingsport, Tennessee, expected on-line in early 1997. By late 1997 Eastman plans to double production capacity for general-purpose fine chemicals at the Peboc Division of Eastman Chemical (UK) Ltd. in Llangefni, Wales. Eastman purchased the assets of ABCO Industries, Ltd., a waterborne polymers manufacturer in South Carolina, in December 1996. This acquisition did not have a material effect on financial position or results of operations.
To meet expected growth in the PET market, Eastman intends to significantly increase its annual worldwide PET manufacturing capacity by the year 2000 to 3.5 billion pounds by constructing new plants and improving processes in existing plants. Eastman's capacity in place by the end of 1997 is expected to be 2.5 billion pounds, with an additional 0.5 billion pounds by the end of 1998. Capacity additions within the PET industry worldwide over the next 1-2 years are expected to result in continued pressure on PET selling prices.
Eastman completed construction of an epoxybutene (EpB oxirane) derivatives plant at its Longview, Texas, location in December 1996. In order to enhance production of oxo chemicals, the Company plans to expand its Longview, Texas, oxo aldehydes and derivatives plants and construct a new oxo chemicals manufacturing complex in Singapore, with production expected to begin in early 1999.
LIQUIDITY
In December 1995 the Company replaced a previously existing variable rate credit agreement with a new 5-year $800 million revolving credit facility (the "Credit Facility"). Although the Company does not have any amounts outstanding under the Credit Facility, any such borrowings would be subject to interest at varying spreads above quoted market rates, principally LIBOR. The Credit Facility also requires a facility fee on the total commitment that varies based on Eastman's credit rating. The annual rate for such fee was 0.075% as of December 31, 1996. 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.
In 1994 Eastman issued $1.2 billion of long-term debt securities and repaid existing borrowings under the preexisting credit agreement. The issuances included $500 million of 6 3/8% notes due 2004, $500 million of 7 1/4% debentures due 2024, and $200 million of 7 5/8% debentures due 2024. The 7 5/8% debentures may be redeemed June 15, 2006, at the option of their registered holders, at 100% of the principal amount plus accrued interest to that date.
Eastman utilizes commercial paper, generally with maturities of 90 days or less, to meet its liquidity needs. The Company's commercial paper, supported by the Credit Facility, is classified as long-term borrowings because the Company has the ability and intent to refinance such borrowings long-term. As of December 31, 1996, the Company's commercial paper outstanding balance was $295 million, at an effective interest rate of 5.59%. At December 31, 1995, a total of $22 million of commercial paper was outstanding, at a 6% effective interest rate.
In early 1997 the Company issued $300 million of 7.60% debentures due February 1, 2027, and used the proceeds to repay outstanding commercial paper borrowings.
In 1995 the Company repurchased $200 million of Eastman common stock. In February 1996 the Company announced plans to repurchase up to $400 million of additional common stock, and at December 31, 1996, had acquired an additional 2,486,300 shares at a cost of $161 million under the repurchase program announced in 1996. Given the Company's capital expenditure program for 1997, Eastman does not expect to make any significant share repurchases in 1997. Repurchased shares may be used to meet common stock requirements for compensation and benefit plans and other corporate purposes.
Existing sources of capital, together with cash flows from operations, are expected to be sufficient to meet foreseeable cash flow requirements.
DIVIDENDS 1996 1995 1994 Cash dividends declared per share $ 1.72 $ 1.64 $ 1.60 |
ENVIRONMENTAL
Eastman is committed to improving the environment, a commitment evidenced in both the Company's products and manufacturing operations. The Company is actively engaged in the ongoing development and enhancement of products that are environmentally responsible, such as waterborne products and recyclable plastics, and is an active participant in RESPONSIBLE CARE, 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.
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 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 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.
Eastman's environmental protection and improvement cash expenditures were $173 million in 1996, $151 million in 1995, and $145 million in 1994, 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. However, changes in raw material prices, particularly petroleum derivatives, could have a significant impact on costs, which the Company may or may not be able to reflect fully in its pricing structure.
RECENTLY ISSUED ACCOUNTING STANDARDS
In 1996 the AICPA issued SoP 96-1, "Accounting for Environmental Remediation Costs," which provides guidance in the determination of environmental remediation liabilities. It is effective for fiscal years beginning after December 15, 1996. Eastman does not expect compliance with SoP 96-1 to have a material effect on its financial position or results of operations.
OUTLOOK
Looking forward to 1997, the Company expects continued good demand for its products. In comparison with 1996, the Company also expects to realize modest volume growth driven by significant volume growth for EASTAPAK PET due to increasing demand and additional available capacity. In addition, the Company expects incremental capacity gains for fibers and various chemicals to contribute to volume growth. The Company expects EASTAPAK PET selling prices to remain under pressure in 1997 due to growth in capacity over the next 1-2 years in the worldwide PET industry, but improvement in PET margins above fourth quarter 1996 levels. For the rest of its businesses, the Company expects overall stable margins when compared with 1996 as a result of stable to slightly lower selling prices and stable to slightly lower costs for key purchased raw materials. The Company is also targeting $100 million in labor and material productivity gains in 1997 as a result of its Advantaged Cost 2000 initiative to eliminate $500 million from Eastman's cost structure by the year 2000.
The above-stated expectations, other forward-looking statements in this report, and other statements of the Company relating to matters such as cost reduction targets; planned capacity increases and capital spending; expected depreciation; and supply and demand, volume, price, margin, and earnings expectations for individual products, businesses, and segments, as well as for the whole of the Company, are based upon certain underlying assumptions. These assumptions are in turn based upon internal estimates and analyses of current market conditions and trends, management plans and strategies, economic conditions, and other factors and are subject to risks and uncertainties inherent in projecting future conditions and results.
The forward-looking statements in this Management's Discussion and Analysis are based upon the following assumptions: relatively stable business conditions in North America, improving business conditions in Europe, and continued growth in Latin America and Asia Pacific, supporting continued good overall demand for the Company's products; continued demand growth worldwide for PET; continued capacity additions within the PET industry worldwide; availability of scheduled Eastman capacity increases; stable to slightly lower pricing for Eastman products; overall stable to slightly lower purchase costs for key Eastman raw materials; and labor and material productivity gains sufficient to meet targeted cost structure reductions. Actual results could differ materially from current expectations if one or more of these assumptions prove to be inaccurate or are unrealized.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM PAGE Management's responsibility for financial statements 29 Report of independent accountants 30 Consolidated statements of earnings and retained earnings 31 Consolidated statements of financial position 32 Consolidated statements of cash flows 33 Notes to consolidated financial statements 34 - 53 |
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 31 through 53. Eastman has prepared these consolidated financial statements in accordance with generally accepted accounting principles, 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 Price Waterhouse LLP, independent accountants, who were responsible for conducting their audits in accordance with generally accepted auditing standards. 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 Price Waterhouse 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/ H. Virgil Stephens ------------------------------ --------------------------- Earnest W. Deavenport, Jr. H. Virgil Stephens Chairman of the Board and Senior Vice President and Chief Executive Officer Chief Financial Officer |
January 21, 1997
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 56 present fairly, in all material respects, the financial position of Eastman Chemical Company and subsidiaries at December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. 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 generally accepted auditing standards 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.
/s/ Price Waterhouse LLP ------------------------ PRICE WATERHOUSE LLP New York, New York January 21, 1997 |
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
1996 1995 1994
Sales $ 4,782 $ 5,040 $ 4,329
Cost of sales 3,603 3,536 3,216
--------- --------- ---------
Gross profit 1,179 1,504 1,113
Selling and general administrative expenses 332 364 310
Research and development costs 184 176 167
--------- --------- ---------
Operating earnings 663 964 636
Interest expense, net 67 79 87
Other income, net 11 14 1
--------- --------- ---------
Earnings before income taxes 607 899 550
Provision for income taxes 227 340 214
--------- --------- ---------
Net earnings $ 380 $ 559 $ 336
========= ========= =========
Net earnings per share $ 4.80 $ 6.78 $ 4.05
========= ========= =========
Retained earnings at beginning of year $ 1,684 $ 1,258 $ 1,055
Net earnings 380 559 336
Cash dividends declared (135) (133) (133)
---------- --------- ---------
Retained earnings at end of year $ 1,929 $ 1,684 $ 1,258
========= ========= =========
|
The accompanying notes are an integral part of these financial statements.
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(DOLLARS IN MILLIONS)
DECEMBER 31,
1996 1995
ASSETS
Current assets
Cash and cash equivalents $ 24 $ 100
Receivables 744 802
Inventories 465 467
Other current assets 112 118
--------- ---------
Total current assets 1,345 1,487
--------- ---------
Properties
Properties and equipment at cost 7,530 6,791
Less: Accumulated depreciation 4,010 3,742
--------- ---------
Net properties 3,520 3,049
--------- ---------
Other noncurrent assets 401 336
--------- ---------
Total assets $ 5,266 $ 4,872
========= =========
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities
Payables $ 708 $ 771
Other current liabilities 79 102
--------- ---------
Total current liabilities 787 873
Long-term borrowings 1,523 1,217
Deferred income tax credits 348 348
Postemployment obligations 722 690
Other long-term liabilities 247 216
--------- ---------
Total liabilities 3,627 3,344
--------- ---------
Shareowners' equity
Common stock ($0.01 par - 350,000,000 shares authorized;
shares issued - 83,386,459 and 83,250,683) 1 1
Paid-in capital 37 30
Retained earnings 1,929 1,684
Cumulative translation adjustment 31 13
--------- ---------
1,998 1,728
Less: Treasury stock at cost (5,766,528 and 3,308,200 shares) 359 200
--------- ---------
Total shareowners' equity 1,639 1,528
--------- ---------
Total liabilities and shareowners' equity $ 5,266 $ 4,872
========= =========
|
The accompanying notes are an integral part of these financial statements.
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
1996 1995 1994
Cash flows from operating activities
Net earnings $ 380 $ 559 $ 336
--------- --------- ---------
Adjustments to reconcile net earnings to
net cash provided by operating activities
Depreciation 314 308 329
Provision (benefit) for deferred income taxes 8 (11) (8)
(Increase) decrease in receivables 66 (90) (159)
(Increase) decrease in inventories 10 (108) (60)
Increase (decrease) in incentive pay and
employee benefit liabilities (69) 179 153
Increase in liabilities excluding borrowings,
incentive pay, and employee benefit liabilities 31 18 203
Other items, net 6 (17) 30
--------- --------- ---------
Total adjustments 366 279 488
--------- --------- ---------
Net cash provided by operating activities 746 838 824
--------- --------- ---------
Cash flows from investing activities
Additions to properties and equipment (789) (446) (281)
Acquisitions and investments in joint ventures (26) (56) -
Proceeds from sales of assets 43 9 132
Capital advances to suppliers (37) (39) (35)
Other items - 8 -
--------- --------- ---------
Net cash used in investing activities (809) (524) (184)
--------- --------- ---------
Cash flows from financing activities
Proceeds from borrowings - - 1,202
Net increase in commercial paper borrowings 273 22 -
Repayment of borrowings - (2) (1,807)
Dividends paid to shareowners (134) (133) (99)
Treasury stock purchases (161) (200) -
Other items 9 9 13
--------- --------- ---------
Net cash used in financing activities (13) (304) (691)
--------- --------- ---------
Net change in cash and cash equivalents (76) 10 (51)
Cash and cash equivalents at beginning of year 100 90 141
--------- --------- ---------
Cash and cash equivalents at end of year $ 24 $ 100 $ 90
========= ========= =========
|
The accompanying notes are an integral part of these financial statements.
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 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 U.S. dollar is used to report operations in highly inflationary economies and certain other locations. The effects of translating those operations that use the local currency as the functional currency are included as a separate component of 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 rebates 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 3 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 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 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.
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
IMPAIRED ASSETS
The Company reviews the carrying values of long-lived assets and intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Measurement of any impairment would include a comparison of discounted estimated future operating cash flows to the net carrying value of the related assets.
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 5 years and denominated in foreign currencies (principally the German mark, French franc, and Japanese yen). 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 and the related obligation for payment are generally included in other noncurrent assets and liabilities, respectively, and are 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.
EARNINGS PER SHARE
Eastman calculates earnings per share based on the weighted average number of common shares outstanding and common share equivalents that represent the dilutive effect of 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.
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
COMPENSATED ABSENCES
The Company accrues compensated absences and related benefits as current charges to earnings.
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.
RECLASSIFICATIONS
The Company has reclassified certain 1995 and 1994 amounts to conform to the 1996 presentation.
2. INVENTORIES
DECEMBER 31,
(Dollars in millions) 1996 1995
At FIFO or average cost (approximates current cost)
Finished goods $ 426 $ 461
Work in process 133 127
Raw materials and supplies 214 199
--------- ---------
Total inventories at FIFO or average cost 773 787
Reduction to LIFO value (308) (320)
---------- ---------
Total inventories at LIFO value $ 465 $ 467
========= =========
|
Inventories valued on the LIFO method are approximately 80% of total inventories in 1996 and 1995.
3. PROPERTIES AND ACCUMULATED DEPRECIATION
PROPERTIES AT COST
(Dollars in millions) 1996 1995 1994
Balance at beginning of year $ 6,791 $ 6,389 $ 6,390
Additions 796 464 281
Deductions (57) (62) (282)
---------- --------- ---------
Balance at end of year $ 7,530 $ 6,791 $ 6,389
========= ========= =========
Properties at end of year
Land $ 41 $ 36 $ 32
Buildings and building equipment 640 600 588
Machinery and equipment 6,315 5,819 5,647
Construction in progress 534 336 122
--------- --------- ---------
Total $ 7,530 $ 6,791 $ 6,389
========= ========= =========
|
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ACCUMULATED DEPRECIATION
(Dollars in millions) 1996 1995 1994
Balance at beginning of year $ 3,742 $ 3,483 $ 3,331
Provision for depreciation 314 308 329
Deductions (46) (49) (177)
---------- --------- ---------
Balance at end of year $ 4,010 $ 3,742 $ 3,483
========= ========= =========
|
Construction-period interest of $257 million, $229 million, and $220 million, reduced by accumulated depreciation of $111 million, $97 million, and $84 million, is included in cost of properties at December 31, 1996, 1995, and 1994, 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, 1996 and 1995, Eastman's equity in the joint venture was $138 million and $119 million, respectively. The Company guarantees a portion of the joint venture's third-party borrowings that is 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 guarantee is remote.
Eastman has a 50% interest in and serves as the operating partner in Primester, a joint venture formed in 1991 to construct and operate a production facility, 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, 1996 and 1995, Eastman had a negative investment in the joint venture of $44 million and $41 million, respectively, 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 will pay a total of $239 million to the supplier through 1999 ($175 million of which has been paid through December 31, 1996). 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 $64 million and $48 million at December 31, 1996 and 1995, respectively.
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. PAYABLES
DECEMBER 31,
(Dollars in millions) 1996 1995
Trade creditors $ 312 $ 291
Accrued payrolls and vacation 101 93
Accrued variable-incentive compensation 137 239
Other 158 148
--------- ---------
Total $ 708 $ 771
========= =========
|
6. LONG-TERM BORROWINGS
DECEMBER 31,
(Dollars in millions) 1996 1995
6 3/8% notes due 2004 $ 499 $ 499
7 1/4% debentures due 2024 495 495
7 5/8% debentures due 2024 200 200
Commercial paper and other 329 23
--------- ---------
Total $ 1,523 $ 1,217
========= =========
|
In December 1995 the Company replaced a previously existing variable rate credit agreement with a new 5-year $800 million revolving credit facility (the "Credit Facility"). Although the Company does not have any amounts outstanding under the Credit Facility, any such borrowings would be subject to interest at varying spreads above quoted market rates, principally LIBOR. The Credit Facility also requires a facility fee on the total commitment that varies based on Eastman's credit rating. The annual rate for such fee was 0.075% as of December 31, 1996. 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.
In 1994 Eastman issued $1.2 billion of long-term debt securities and repaid existing borrowings under the preexisting credit agreement. The issuances included $500 million of 6 3/8% notes due 2004, $500 million of 7 1/4% debentures due 2024, and $200 million of 7 5/8% debentures due 2024. The 7 5/8% debentures may be redeemed June 15, 2006, at the option of their registered holders, at 100% of the principal amount plus accrued interest to that date.
Eastman utilizes commercial paper, generally with maturities of 90 days or less, to meet its liquidity needs. The Company's commercial paper, supported by the Credit Facility, is classified as long-term borrowings because the Company has the ability and intent to refinance such borrowings long-term. As of December 31, 1996, the Company's commercial paper outstanding balance was $295 million, at an effective interest rate of 5.59%. At December 31, 1995, a total of $22 million of commercial paper was outstanding, at a 6% effective interest rate.
In early 1997 the Company issued $300 million of 7.60% debentures due February 1, 2027, and used the proceeds to repay outstanding commercial paper borrowings.
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. SHAREOWNERS' EQUITY
(Dollars in millions) 1996 1995 1994
Common stock at par value $ 1 $ 1 $ 1
------------- ------------- --------------
Paid-in capital
Balance at beginning of year 30 22 -
Additions 7 8 22
------------- ------------- --------------
Balance at end of year 37 30 22
------------- ------------- --------------
Retained earnings 1,929 1,684 1,258
------------- ------------- --------------
Cumulative translation adjustment
Balance at beginning of year 13 14 5
Currency translation adjustments 18 (1) 9
------------- ------------- --------------
Balance at end of year 31 13 14
------------- ------------- --------------
Treasury stock at cost (359) (200) -
------------- ------------- --------------
Total $ 1,639 $ 1,528 $ 1,295
============= ============= ==============
Shares of common stock issued
Balance at beginning of year 83,250,683 83,067,368 82,626,942
Issued for employee compensation
and benefit plans 135,776 183,315 440,426
------------- ------------- --------------
Balance at end of year 83,386,459 83,250,683 83,067,368
============= ============= ==============
|
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. Eastman has issued no shares of preferred stock. The Company declared dividends of $1.72 per share in 1996, $1.64 per share in 1995, and $1.60 per share in 1994.
The increase in paid-in capital in 1994 was primarily due to an issue of Eastman shares in connection with transfers of amounts from a preexisting Kodak employee stock ownership plan (see Note 8). The additions to paid-in capital in 1995 and 1996 are the result of exercises of stock options by employees.
In 1995 the Company repurchased 3,308,200 shares of Eastman common stock at a cost of $200 million. In February 1996 the Company announced plans to repurchase up to $400 million of additional common stock. At December 31, 1996, the Company had acquired an additional 2,486,300 shares at a cost of $161 million under the program announced in 1996. Given the Company's capital expenditure program for 1997, Eastman does not expect to make any significant share repurchases in 1997. Repurchased common shares may be used to meet common stock requirements for benefit plans and other corporate purposes. In 1996 approximately $2 million of treasury stock (27,972 shares) was reissued. The Company's charitable foundation holds 202,575 shares of Eastman common stock.
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. STOCK OPTION AND COMPENSATION PLANS
OMNIBUS PLAN
Eastman's 1994 Omnibus Long-Term Compensation Plan (the "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. The Omnibus Plan provides that options can be granted through December 31, 1998, 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 have been at option prices equal to the fair market value on the date of grant. Options generally become exercisable 50% one year after grant and 100% after two years and expire up to ten years after grant. There is a maximum of 6 million shares of common stock available for grant during the term of the Omnibus Plan, of which 2 million are reserved for issuance to Eastman employees who had received awards prior to January 1, 1994, under Kodak plans.
DIRECTOR LONG-TERM COMPENSATION PLAN
Eastman's 1994 Director Long-Term Compensation Plan (the "Director Plan") provides for grants of nonqualified stock options and restricted shares to nonemployee members of the Board of Directors upon the first day of the directors' initial term of service. The Director Plan provides that options can be granted through December 31, 1998, 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 6 months after the grant date. The maximum number of shares of Eastman common stock available for grant under the plan is 150,000.
STOCK OPTION BALANCES AND ACTIVITY
The Company has adopted SFAS 123, "Accounting for Stock-Based Compensation," and in accordance with the provisions thereof, the Company continues to apply intrinsic value accounting for its plans. If the Company had elected to recognize compensation expense based upon the fair value at the grant dates for awards under these plans consistent with the methodology prescribed by SFAS 123, the Company's net earnings and net earnings per share would be reduced to the unaudited pro forma amounts indicated below.
(Dollars in millions, except for per share amounts) 1996 1995
Net earnings As reported $ 380 $ 559
Pro forma $ 375 $ 558
Net earnings per share As reported $ 4.80 $ 6.78
Pro forma $ 4.74 $ 6.77
|
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 1996 and 1995, respectively, include: average expected volatility of 25.23% and 26.07%; average expected dividend yield of 2.56% and 2.83%; and average risk-free interest rates of 5.76% and 6.37%. An expected option term of 6 years for both periods was developed based on historical grant 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 Eastman stock has been traded for a period less than the baseline expected term assumption, monthly volatility factors for five peer companies were calculated. For valuation purposes, an average volatility factor based on the calendar-year quarter in which the options were granted was utilized.
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:
1996 1995 1994
------------------------ ----------------------- -----------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
--------- -------------- ------- -------------- ------- --------------
Outstanding at beginning
of year 2,850,532 $ 45 2,492,745 $ 41 709,508 $ 36
Granted 542,591 55 566,679 62 1,842,659 43
Exercised 176,686 40 208,892 40 28,522 34
Forfeited or canceled - - - - 30,900 43
--------- ----- ---------- ------ ---------- -------
Outstanding at end
of year 3,216,437 $ 47 2,850,532 $ 45 2,492,745 $ 41
========= ========= =========
Options exercisable at
year-end 2,461,995 1,406,400 577,041
========= ========= =======
Weighted-average fair
value of options granted
during the year $14.66 $17.60 Not applicable
Available for grant at end
of year 2,384,543 2,915,741 3,482,412
========= ========= =========
|
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes information about stock options outstanding at December 31, 1996:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------------- --------------------------------
NUMBER WEIGHTED-AVERAGE NUMBER
RANGE OF OUTSTANDING REMAINING WEIGHTED-AVERAGE EXERCISABLE WEIGHTED-AVERAGE
EXERCISE PRICES AT 12/31/96 CONTRACTUAL LIFE EXERCISE PRICE AT 12/31/96 EXERCISE PRICE
--------------- ----------- ----------------- ---------------- ----------- ----------------
$31-$40 409,086 4.2 years $34 409,086 $34
43-44 1,762,446 7.1 43 1,762,446 43
48-63 482,129 9.4 53 16,987 57
64-74 562,776 8.4 65 273,476 65
--------- ---------
$31-$74 3,216,437 7.3 $47 2,461,995 $44
========= =========
|
EMPLOYEE STOCK OWNERSHIP PLAN
The Company sponsors a defined contribution employee stock ownership plan (the "ESOP"), which is a qualified plan under Section 401(a) of the Internal Revenue Code. Eastman anticipates that it will direct a portion of the compensation of all U.S. employees to the ESOP. The Company also sponsors an employee stock ownership plan, which is substantially similar to the ESOP, for its international employees. In October 1994 Kodak transferred to the ESOP certain amounts held for Eastman employees in a preexisting Kodak employee stock ownership plan. The Company used the proceeds from the transfer to buy outstanding Eastman shares and 394,800 previously unissued Eastman shares. Allocated shares in the ESOP totaled 1,887,003, 1,488,436, and 998,853 as of December 31, 1996, 1995, and 1994, respectively.
Compensation expense is measured based on the fair value of the shares contributed to or committed to be contributed to the ESOP. The shares are allocated to participant accounts and held by the ESOP until distributed to the employees at a future date, such as on the date of termination or retirement. Dividends on shares held by the ESOP are charged to retained earnings. All shares held by the ESOP are treated as outstanding in computing earnings per share.
EASTMAN PERFORMANCE PLAN
The Eastman Performance Plan (the "EPP") provides a lump-sum payment to plan participants based on the Company's financial performance. Certain portions of such payments, which are approved annually by Eastman's Board of Directors, are directed to the Company's ESOP. Charges under the EPP were $131 million, $229 million, and $118 million for 1996, 1995, and 1994, respectively. Of these amounts, $36 million, $35 million, and $27 million were directed to the Company's ESOP.
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 1996, 1995, and 1994 were $6 million, $10 million, and $12 million, respectively.
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. INCOME TAXES
Components of earnings before income taxes and the provision for U.S. and other income taxes follow:
(Dollars in millions) 1996 1995 1994
Earnings (loss) before income taxes
United States $ 679 $ 825 $ 526
Outside the United States (72) 74 24
--------- --------- ---------
Total $ 607 $ 899 $ 550
========= ========= =========
Provision (benefit) for income taxes
United States
Current $ 190 $ 291 $ 183
Deferred 19 (12) (13)
Non-United States
Current 4 30 13
Deferred (12) 2 6
State and other
Current 25 30 26
Deferred 1 (1) (1)
--------- --------- ---------
Total $ 227 $ 340 $ 214
========= ========= =========
|
Differences between the provision for income taxes and income taxes computed using the U.S. federal statutory income tax rate follow:
(Dollars in millions) 1996 1995 1994
Amount computed using the statutory rate $ 212 $ 315 $ 193
State income taxes 17 19 15
Foreign rate variance 13 3 5
Foreign sales corporation benefit (14) (14) (6)
Other (1) 17 7
--------- --------- ---------
Provision for income taxes $ 227 $ 340 $ 214
========= ========= =========
|
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The significant components of deferred tax assets and liabilities follow:
DECEMBER 31,
(Dollars in millions) 1996 1995
Deferred tax assets
Postemployment obligations $ 263 $ 255
Payroll and related items 49 46
Inventories 13 20
Deferred revenue 21 23
Miscellaneous reserves 33 30
Preproduction and start-up costs 18 -
Other 17 12
--------- ---------
Total $ 414 $ 386
========= =========
Deferred tax liabilities
Depreciation $ 677 $ 642
Other 25 24
--------- ---------
Total $ 702 $ 666
========= =========
|
Unremitted earnings of subsidiaries outside the United States totaling $18 million at December 31, 1996, 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 taxes payable totaling $34 million and $51 million are included in other current liabilities at December 31, 1996 and 1995, respectively.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
DECEMBER 31, 1996 DECEMBER 31, 1995
RECORDED FAIR RECORDED FAIR
(Dollars in millions) AMOUNT VALUE AMOUNT VALUE
Long-term borrowings $ 1,523 $ 1,515 $ 1,217 $ 1,297
Foreign exchange contracts 74 63 55 32
|
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 the 6 3/8% notes and 7 1/4% and 7 5/8% debentures on current interest rates for comparable securities. The Company's floating-rate borrowings approximate fair value.
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 purchased currency options with maturities of not more than 5 years and short-term forward exchange contracts to exchange various foreign currencies for U.S. dollars in the aggregate notional amount of $1.536 billion and $1.085 billion at December 31, 1996 and 1995, respectively. The net unrealized loss deferred on such options and forwards as of December 31, 1996 and 1995, was not significant. Those amounts, based on dealer-quoted prices, represent the estimated loss 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.
11. COMMITMENTS
LEASE COMMITMENTS
Eastman leases facilities, principally property and machinery and equipment, under cancelable, noncancelable, and month-to-month operating leases. Future lease payments, reduced by sublease income, follow:
(Dollars in millions)
Year ending December 31,
1997 $ 58
1998 40
1999 24
2000 13
2001 12
2002 and beyond 76
-------
Total minimum payments required $ 223
=======
|
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.
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
RENTAL EXPENSE
(Dollars in millions) 1996 1995 1994
Gross rentals $ 54 $ 47 $ 37
Deduct: Sublease income 2 12 18
--------- --------- ---------
Total $ 52 $ 35 $ 19
========= ========= =========
|
CAPITAL EXPENDITURES AND OTHER COMMITMENTS
As of December 31, 1996, the Company had entered into commitments for capital expenditures of approximately $740 million, of which approximately 80% is expected to be disbursed in 1997. Eastman has other long-term commitments relating to purchases of product and joint venture agreements as described in Note 4.
12. RETIREMENT PLANS
Eastman maintains defined benefit plans that provide eligible employees with retirement benefits calculated based on years of service and generally on the employees' final average compensation as defined in the plans. Benefits are paid to employees by insurance companies or from trust funds. Plan contributions 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. Total pension funds and accruals for non-U.S. plans less pension prepayments and deferred charges exceed the actuarially computed value of vested benefits under such plans as of the beginning of 1996 and 1995.
Eastman participated in Kodak's U.S. defined benefit pension plans covering substantially all U.S. employees prior to the spin-off. In connection with the spin-off, Eastman assumed the share of Kodak's U.S. defined benefit pension plan obligations relating primarily to active employees as of the date of the spin-off, while Kodak retained responsibility for pension obligations of substantially all retired U.S. employees.
The components of net periodic pension cost for Eastman's U.S. defined benefit pension plans follow:
(Dollars in millions) 1996 1995 1994
Service cost $ 49 $ 35 $ 40
Interest cost 92 76 67
Loss (return) on plan assets (175) (116) 15
Net amortization 87 39 (90)
--------- --------- ---------
Total U.S. pension cost $ 53 $ 34 $ 32
========= ========= =========
|
Eastman's worldwide net pension cost was $57 million in 1996 and $38 million in both 1995 and 1994.
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The status of the Company's U.S. defined benefit pension plans follows:
DECEMBER 31,
(Dollars in millions) 1996 1995
Vested benefit obligation $ 1,029 $ 841
========= =========
Accumulated benefit obligation $ 1,119 $ 895
========= =========
Projected benefit obligation $ 1,410 $ 1,206
Market value of assets 1,210 931
--------- ---------
Projected benefits in excess of plan assets 200 275
Unrecognized net loss (70) (153)
Unrecognized net transition asset 57 66
Unrecognized prior service cost (30) (33)
---------- ---------
Accrued pension cost $ 157 $ 155
========= =========
|
The plans' assets are principally listed stocks. Kodak's defined benefit pension plan trust currently holds a significant portion of all such assets, which will be distributed to Eastman's pension plan trusts when certain calculations are completed, likely in 1997.
The assumptions used to develop the projected benefit obligation for the Company's U.S. pension plans follow:
DECEMBER 31,
1996 1995
Discount rate 7.75% 7.25%
Salary increase rate 4.00% 4.00%
Long-term rate of return on plan assets 9.50% 9.50%
|
13. OTHER POSTEMPLOYMENT COSTS
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.
Eastman and Kodak agreed that Kodak would retain the postretirement health and life insurance benefit obligations of substantially all U.S. retirees at the date of the spin-off. As a result, Eastman has no liability recorded for expected postretirement health and life insurance benefit costs for substantially all of its employees who retired through year-end 1993 while Eastman was a wholly owned business of Kodak.
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables set forth the status of the Company's U.S. plans at December 31, 1996 and 1995:
DECEMBER 31, 1996
HEALTH LIFE
(Dollars in millions) CARE INSURANCE TOTAL
Accumulated postretirement benefit obligation
Retirees $ 87 $ 15 $ 102
Fully eligible active plan participants 93 - 93
Other active plan participants 198 113 311
--------- -------- --------
Total accumulated postretirement benefit
obligation 378 128 506
Plan assets at fair value 20 5 25
--------- -------- --------
Accumulated postretirement benefit obligation
in excess of plan assets $ 358 $ 123 481
========= ========
Unrecognized net loss 6
--------
Accrued postretirement benefit cost $ 475
========
|
DECEMBER 31, 1995
HEALTH LIFE
(Dollars in millions) CARE INSURANCE TOTAL
Accumulated postretirement benefit obligation
Retirees $ 58 $ 17 $ 75
Fully eligible active plan participants 80 - 80
Other active plan participants 202 99 301
--------- -------- --------
Total accumulated postretirement benefit
obligation 340 116 456
Plan assets at fair value 14 3 17
--------- -------- --------
Accumulated postretirement benefit obligation
in excess of plan assets $ 326 $ 113 439
========= ========
Unrecognized net gain 8
--------
Accrued postretirement benefit cost $ 447
========
|
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The net periodic postretirement benefit cost follows:
HEALTH LIFE
(Dollars in millions) CARE INSURANCE TOTAL
1996
Service cost $ 7 $ 5 $ 12
Interest cost 25 9 34
Return on plan assets (1) - (1)
---------- -------- ---------
Net periodic postretirement benefit cost $ 31 $ 14 $ 45
========= ======== ========
1995
Service cost $ 8 $ 3 $ 11
Interest cost 27 8 35
Return on plan assets (1) - (1)
--------- -------- --------
Net periodic postretirement benefit cost $ 34 $ 11 $ 45
========= ======== ========
1994
Service cost $ 10 $ 4 $ 14
Interest cost 26 8 34
Net amortization 1 1 2
--------- -------- --------
Net periodic postretirement benefit cost $ 37 $ 13 $ 50
========= ======== ========
|
To estimate the Company's postretirement benefit cost, health care costs were assumed to increase 8.25% for 1997, with the rate of increase declining to 5.25% by 2002 and thereafter. The discount rate and salary increase rate were assumed to be 7.75% and 4.00% at December 31, 1996, 7.25% and 4.00% at December 31, 1995, and 8.75% and 5.00% at December 31, 1994. If the health care cost trend rates were increased by 1 percentage point, the Company's accumulated postretirement health care benefit obligation as of December 31, 1996, would increase by $80 million, while the net periodic postretirement health care benefit cost would increase by $9 million.
A few of Eastman's non-U.S. operations have supplemental health benefit plans for certain retirees, the cost of which is not significant to the Company.
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. SEGMENT INFORMATION
INDUSTRY SEGMENTS
Eastman is an international chemical company that manufactures and sells a broad range of products. The Company categorizes its business into three segments: Specialty and Performance, Core Plastics, and Chemical Intermediates.
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, coatings and paint raw materials, fine chemicals, performance chemicals, and fibers. Targeted markets for this segment are diverse and include medical, electronics, recreation, consumer durables, photographic chemicals, additives for fibers and plastics, adhesives, sealants, food and beverages, nutrition, cosmetics, textiles, construction, coatings, inks, paints, filters, and specialty plastic applications. Competitive factors for this segment include price, reliability of supply, customer service, and technical competence. 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. Acetate tow is sold worldwide to the tobacco industry for use in cigarette filters.
The Core Plastics segment includes the Company's two major plastics products, EASTAPAK PET polyester packaging plastic and TENITE polyethylene, as well as cellulose acetate and polyesters. These container and packaging 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 operating in mature markets in which multiple sources of supply exist. They are sold generally in large volume mostly to North American industries. 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 Company's business segment presentation was revised in 1996 from its previous two-segment approach. The Company believes that the new segmentation will provide more useful information for decision-making and for understanding the Company's financial results. The products within each segment have generally similar characteristics, the markets share similar economic characteristics, and customers have similar buying criteria. Prior periods have been restated to conform to the 1996 presentation.
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions) 1996 1995 1994
SALES
Specialty and Performance $ 2,657 $ 2,647 $ 2,364
Core Plastics 1,409 1,685 1,390
Chemical Intermediates 716 708 575
--------- --------- ---------
Total sales $ 4,782 $ 5,040 $ 4,329
========= ========= =========
OPERATING EARNINGS (LOSS)
Specialty and Performance $ 519 $ 433 $ 350
Core Plastics (1) 347 199
Chemical Intermediates 145 184 87
--------- --------- ---------
Total operating earnings $ 663 $ 964 $ 636
========= ========= =========
ASSETS
Specialty and Performance $ 2,887 $ 2,776 $ 2,508
Core Plastics 1,854 1,598 1,449
Chemical Intermediates 525 498 438
--------- --------- ---------
Total assets $ 5,266 $ 4,872 $ 4,395
========= ========= =========
DEPRECIATION EXPENSE
Specialty and Performance $ 174 $ 178 $ 189
Core Plastics 109 96 108
Chemical Intermediates 31 34 32
--------- --------- ---------
Total depreciation expense $ 314 $ 308 $ 329
========= ========= =========
CAPITAL EXPENDITURES
Specialty and Performance $ 302 $ 176 $ 174
Core Plastics 388 215 82
Chemical Intermediates 99 55 25
--------- --------- ---------
Total capital expenditures $ 789 $ 446 $ 281
========= ========= =========
|
GEOGRAPHIC SEGMENTS
Sales are reported in the geographic area where they originate. Transfers among geographic areas are made on a basis intended to reflect the market value of the products, recognizing prevailing market prices and distributor discounts. Export sales to unaffiliated customers from the United States were $687 million in 1996, $698 million in 1995, and $526 million in 1994.
(Dollars in millions) United States Europe Other Areas Eliminations Consolidated
1996
Sales $ 3,674 $ 735 $ 373 $ 4,782
Transfers among geographic areas 785 27 55 $ (867) -
--------- -------- --------- ---------- ---------
Total sales $ 4,459 $ 762 $ 428 $ (867) $ 4,782
========= ======== ========= ========== =========
Operating earnings (losses) $ 717 $ (36) $ (31) $ 13 $ 663
========= ========= ========== ========= =========
Assets at end of year $ 5,076 $ 582 $ 424 $ (816) $ 5,266
========= ======== ========= ========== =========
|
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions) United States Europe Other Areas Eliminations Consolidated
1995
Sales $ 3,864 $ 806 $ 370 $ 5,040
Transfers among geographic areas 806 50 17 $ (873) -
--------- -------- --------- --------- ---------
Total sales $ 4,670 $ 856 $ 387 $ (873) $ 5,040
========= ======== ========= ========= =========
Operating earnings $ 881 $ 47 $ 25 $ 11 $ 964
========= ======== ========= ========= =========
Assets at end of year $ 4,569 $ 508 $ 324 $ (529) $ 4,872
========= ======== ========= ========= =========
1994
Sales $ 3,393 $ 629 $ 307 $ 4,329
Transfers among geographic areas 572 23 7 $ (602) -
--------- -------- --------- --------- ---------
Total sales $ 3,965 $ 652 $ 314 $ (602) $ 4,329
========= ======== ========= ========= =========
Operating earnings $ 594 $ 20 $ 14 $ 8 $ 636
========= ======== ========= ========= =========
Assets at end of year $ 4,216 $ 456 $ 169 $ (446) $ 4,395
========= ======== ========= ========= =========
|
15. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and income taxes is as follows:
(Dollars in millions) 1996 1995 1994 Interest (net of amounts capitalized) $ 79 $ 91 $ 55 Income taxes 236 364 165 |
Cash flows from operating activities include losses from equity investments of $3 million, $6 million, and $11 million for 1996, 1995, and 1994, respectively. Derivative financial instruments and related gains and losses are included in cash flows from operating activities. The effect of foreign currency transactions and exchange rate changes for all years presented was insignificant. The $100 million net cash received from the divestiture of the Company's polypropylene business in 1994 is included in cash flows from sales of properties. The consolidated statements of cash flows do not separately reflect certain Eastman assets acquired and liabilities assumed through noncash transactions.
16. 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 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 costs for environmental remediation and closure/postclosure under the federal Resource Conservation and Recovery Act. Because of expected sharing of costs, the
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 $173 million in 1996, $151 million in 1995, and $145 million in 1994, including investments in construction, operations, and development.
17. LEGAL MATTERS
The Company's operations are parties to or targets of lawsuits, claims, investigations, and proceedings, including product liability, patent, commercial, environmental, and health and safety matters, which are being handled and defended in the ordinary course of business. No such pending matters are expected to have a material adverse effect on the Company's financial condition or results of operations.
18. QUARTERLY SALES AND EARNINGS DATA - UNAUDITED
(Dollars in millions, except per share amounts)
1996 1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR. Sales $ 1,261 $ 1,241 $ 1,167 $ 1,113 Operating earnings 191 190 169 113 Earnings before income taxes 178 177 156 96 Provision for income taxes 66 65 60 36 Net earnings 112 112 96 60 Net earnings per share (1) 1.39 1.41 1.22 .77 |
1995 1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR. Sales $ 1,232 $ 1,321 $ 1,266 $ 1,221 Operating earnings 228 265 260 211 Earnings before income taxes 213 255 239 192 Provision for income taxes 81 97 91 71 Net earnings 132 158 148 121 Net earnings per share (1) 1.58 1.90 1.81 1.50 |
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 -- General" in the 1997 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 -- Compensation of Directors" in the 1997 Proxy Statement is incorporated by reference herein in response to this Item. In addition, the material under the heading "Executive Compensation and Benefits" in the 1997 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 Owners" in the 1997 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.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Consolidated financial statements:
Page
Management's responsibility for financial statements 29
Report of independent accountants 30
Consolidated statements of earnings and retained earnings 31
Consolidated statements of financial position 32
Consolidated statements of cash flows 33
Notes to consolidated financial statements 34 - 53
|
2. Financial statement schedules
EX-27 Financial Data Schedule (for SEC use only).
3. Exhibits filed as part of this report are listed in the Exhibit Index appearing on page 59.
(b) Reports on Form 8-K
During the quarter ended December 31, 1996, no reports on Form 8-K were filed.
(c) The Exhibit Index and required Exhibits to this report are included beginning at page 59.
(d) There are no applicable financial statement schedules required to be filed as part of this report.
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 12, 1997
|
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.
SIGNATURE TITLE DATE
--------- ----- ----
PRINCIPAL EXECUTIVE OFFICER:
/s/ Earnest W. Deavenport, Jr. Chairman of the March 12, 1997
- ------------------------------ Board and Chief
Earnest W. Deavenport, Jr. Executive Officer
PRINCIPAL FINANCIAL OFFICER:
/s/ H. Virgil Stephens Senior Vice President and March 12, 1997
- ---------------------- Chief Financial Officer
H. Virgil Stephens
PRINCIPAL ACCOUNTING OFFICER:
/s/ Thomas W. Wilson Vice President and March 12, 1997
- -------------------- Comptroller
Thomas W. Wilson
|
SIGNATURE TITLE DATE
--------- ----- ----
DIRECTORS:
/s/ R. Wiley Bourne, Jr. Vice Chairman March 12, 1997
- --------------------------- of the Board
R. Wiley Bourne, Jr. and Executive
Vice President
/s/ H. Jesse Arnelle Director March 12, 1997
- ---------------------------
H. Jesse Arnelle
/s/ Dexter F. Baker Director March 12, 1997
- ---------------------------
Dexter F. Baker
/s/ Calvin A. Campbell, Jr. Director March 12 , 1997
- ---------------------------
Calvin A. Campbell, Jr.
- --------------------------- Director
Michael von Clemm
/s/ Lee Liu Director March 12, 1997
- ---------------------------
Lee Liu
/s/ Marilyn R. Marks Director March 12, 1997
- ---------------------------
Marilyn R. Marks
/s/ Gerald B. Mitchell Director March 12, 1997
- ---------------------------
Gerald B. Mitchell
/s/ John A. White Director March 12, 1997
- ---------------------------
John A. White
|
EXHIBIT INDEX
EXHIBIT DESCRIPTION SEQUENTIAL
NUMBER PAGE
NUMBER
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 October 1, 1994 (incorporated by reference to Exhibit
3.02 to Eastman Chemical Company's Annual Report on Form 10-K
for the year ended December 31, 1994 (the "1994 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% Debenture due February 1, 2027 63
|
EXHIBIT INDEX
EXHIBIT DESCRIPTION SEQUENTIAL
NUMBER PAGE
NUMBER
4.09 Officer's Certificate pursuant to Sections 201 and 301 of 68
the Indenture related to 7.60% Debentures due February 1,
2027
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"))
*10.01 Eastman Annual Performance Plan, as amended 70
*10.02 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)
*10.03 1994 Omnibus Long-Term Compensation Plan (incorporated herein
by reference to Exhibit 10.03 to Eastman Chemical Company's Registration
Statment on Form 10, orginally filed on November 26, 1993 (the "Form 10")
*10.04 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"))
*10.05 Director Deferred Compensation Plan, as amended 76
*10.06 Executive Deferred Compensation Plan, as amended 84
*10.07 Form of Executive Severance Agreements (incorporated herein
by reference to Exhibit 10.06 to the 1995 10-K)
*10.08 Employment Agreement between Eastman Chemical Company and 94
Harold L. Henderson
*10.09 Eastman Excess Retirement Income Plan (incorporated herein by
reference to Exhibit 10.10 to the Form 10)
*10.10 Eastman Unfunded Retirement Income Plan (incorporated herein
by reference to Exhibit 10.11 to the Form 10)
*10.11 Eastman Employee Stock Ownership Plan Excess Plan 104
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EXHIBIT INDEX
EXHIBIT DESCRIPTION SEQUENTIAL
NUMBER PAGE
NUMBER
*10.12 Eastman 1994-1996 Long-Term Performance Subplan (as amended)
of 1994 Omnibus Long-Term Compensation Plan (incorporated
herein by reference to Exhibit 10.04 to the September 30, 1996
10-Q)
*10.13 Eastman 1995-1997 Long-Term Performance Subplan (as amended)
of 1994 Omnibus Long-Term Compensation Plan (incorporated by
reference to Exhibit 10.05 to the September 30, 1996 10-Q)
*10.14 Eastman 1996-1998 Long-Term Performance Subplan (as amended)
of 1994 Omnibus Long-Term Compensation Plan (incorporated by
reference to Exhibit 10.06 to the September 30, 1996 10-Q)
*10.15 Eastman 1997-1999 Long-Term Performance Subplan of 111
1994 Omnibus Long-Term Compensation Plan
10.16 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)
10.17 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)
10.18 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)
10.19 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)
10.20 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)
11.01 Statement re Computation of Earnings Per Common Share 118
12.01 Statement re Computation of Ratios of Earnings to Fixed 119
charges
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EXHIBIT INDEX
EXHIBIT DESCRIPTION SEQUENTIAL
NUMBER PAGE
NUMBER
21.01 Subsidiaries of the Company 120
23.01 Consent of Independent Accountants 122
27.01 Financial Data Schedule (for SEC use only)
99.01 Supplemental Business Segment Information 123
99.02 Restated Business Segment Information 124
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* Management contract or compensatory plan or arrangement filed pursuant to Item 601(b)(10)(iii) of Regulation S-K.
EXHIBIT 4.08
EASTMAN CHEMICAL COMPANY
FORM OF 7.60% DEBENTURE DUE FEBRUARY 1, 2027
[FACE OF SECURITY]
CUSIP No. 277 432 AD2
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE THEREOF. THIS SECURITY MAY NOT BE EXCHANGED IN WHOLE OR IN PART FOR A SECURITY REGISTERED, AND NO TRANSFER OF THIS SECURITY IN WHOLE OR IN PART MAY BE REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN SUCH DEPOSITARY OR A NOMINEE THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.
Unless this certificate is presented by an authorized representative of The Depository Trust Company, a New York corporation ("DTC"), to Eastman Chemical Company or its agent for registration of transfer, exchange, or payment, and any certificate issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein.
EASTMAN CHEMICAL COMPANY
7.60% Debentures due February 1, 2027
No. D-1 $300,000,000
EASTMAN CHEMICAL COMPANY, a corporation duly organized and existing under the laws of the State of Delaware (herein called the "Company", which term includes any successor Person under the Indenture hereinafter referred to), for value received, hereby promises to pay to CEDE & CO., or registered assigns, the principal sum of Three Hundred Million Dollars on February 1, 2027, and to pay interest thereon from February 3, 1997 or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually on February 1 and August 1 in each year, commencing August 1, 1997, at the rate of 7.60% per annum, until the principal hereof is paid or made available for payment. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the January 15 or July 15 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities of this series not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities of this series may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture. Interest on the Securities of each series shall be computed on the basis of a 360-day year of twelve 30-day months.
Payment of the principal of (and premium, if any) and any such interest on this Security will be made at the office or agency of the Company maintained for that purpose in The City of New York, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that at the option of the Company payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register.
Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose.
In Witness Whereof, the Company has caused this instrument to be duly executed under its corporate seal.
EASTMAN CHEMICAL COMPANY
CERTIFICATE OF AUTHENTICATION
This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture.
Dated: February 3, 1997 THE BANK OF NEW YORK,
As Trustee
By
------------------------
Authorized Signatory
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[REVERSE OF SECURITY]
This Security is one of a duly authorized issue of securities of the Company (herein called the "Securities"), issued and to be issued in one or more series under an Indenture, dated as of January 10, 1994 (herein called the "Indenture", which term shall have the meaning assigned to it in such instrument), between the Company and The Bank of New York, as Trustee (herein called the "Trustee", which term includes any successor trustee under the Indenture), and reference is hereby made to the Indenture for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. This Security is one of the series designated on the face hereof, limited in aggregate principal amount to $300,000,000.
The Indenture contains provisions for defeasance at any time of the entire indebtedness of this Security or certain restrictive covenants and Events of Default with respect to this Security, in each case upon compliance with certain conditions set forth in the Indenture.
If an Event of Default with respect to Securities of this series shall occur and be continuing, the principal of the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture.
The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities of each series to be affected under the Indenture at any time by the Company and the Trustee with the consent of the Holders of a majority in principal amount of the Securities at the time Outstanding of each series to be affected. The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security.
As provided in and subject to the provisions of the Indenture, the Holder of this Security shall not have the right to institute any proceeding with respect to the Indenture or for the appointment of a receiver or trustee or for any other remedy thereunder, unless such Holder shall have previously given the Trustee written notice of a continuing Event of Default with respect to the Securities of this series, the Holders of not less than 25% in principal amount of the Securities of this series at the time Outstanding shall have made written request to the Trustee to institute proceedings in respect of such Event of Default as Trustee and offered the Trustee reasonable indemnity, and the Trustee shall not have received from the Holders of a majority in principal amount of Securities of this series at the time Outstanding a direction inconsistent with such request, and shall have failed to institute any such proceeding, for 60 days after receipt of such notice, request and offer of indemnity. The foregoing shall not apply to any suit instituted by the Holder of this Security for the enforcement of any payment of principal hereof or any premium or interest hereon on or after the respective due dates expressed herein.
No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and any premium and interest on this Security at the times, place and rate, and in the coin or currency, herein prescribed.
As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Security Register, upon surrender of this Security for registration of transfer at the office or agency of the Company in any place where the principal of and any premium and interest on this Security are payable, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney
duly authorized in writing, and thereupon one or more new Securities of this series and of like tenor, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees.
The Securities of this series are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities of this series are exchangeable for a like aggregate principal amount of Securities of this series and of like tenor of a different authorized denomination, as requested by the Holder surrendering the same.
No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary.
All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture.
THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK.
EXHIBIT 4.09
EASTMAN CHEMICAL COMPANY
Officers' Certificate Pursuant to
Sections 201 and 301 of the Indenture
Pursuant to resolutions of the Board of Directors adopted by
unanimous consents, dated November 12, 1993 and December 4, 1993 (the
"Resolutions"), of Eastman Chemical Company (the "Company"), and the
determination, dated January 29, 1997 (the "Determination"), of a Designated
Officer (as defined in the Resolutions) of the Company pursuant to the
Resolutions and Sections 201 and 301 of the Indenture, dated as of January 10,
1994 (the "Indenture"), between the Company and The Bank of New York, as Trustee
(the "Trustee"), the undersigned certify that the terms of the series of
Debentures established pursuant to the Resolutions, the Determination and
Section 301 of the Indenture shall be as follows. Capitalized terms not defined
herein shall have the meanings assigned to them in the Indenture or the
Prospectus, dated January 30, 1997, and the Prospectus Supplement, dated January
30, 1997.
(a) The title of the series of Debt Securities is "7.60% Debentures due February 1, 2027" (the Debentures").
(b) The aggregate principal amount of the Debentures that may be authenticated and delivered under the Indenture shall be $300,000,000 (except for Debentures authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Debentures pursuant to Section 304, 305, 306, 906 or 1107 of the Indenture and except for any Debentures that, pursuant to Section 303, are deemed never to have been delivered thereunder).
(c) Each Debenture shall mature, and the principal amount thereof shall be payable, on February 1, 2027.
(d) The rate at which each Debenture shall bear interest shall be 7.60% per annum. Each Debenture shall bear interest from February 3, 1997 or from the last date to which payment of interest has been made or duly provided for. Interest on the Debentures shall be payable semi-annually on February 1 and August 1 of each year (each an "Interest Payment Date"), commencing August 1, 1997. Interest shall be payable to the person in whose name a Debenture is registered at the close of business on the January 15 or July 15, as the case may be, next preceding each Interest Payment Date.
(e) The Debentures may not be redeemed by the Company prior to Maturity.
(f) The Debentures will not have the benefit of any sinking fund and the provisions of Article 13 of the Indenture relating to defeasance and covenant defeasance will apply to the Debentures.
(g) The Debentures shall be issued initially in the form of one or more Global Securities (collectively, the "Global Note") and the Depository for such Global Note shall initially be The Depository Trust Company ("DTC"). Initially, the Global Note shall be issued to DTC, registered in the name of Cede & Co., as the nominee of DTC.
Except as otherwise set forth herein, in the Indenture or in the Global Note, owners of beneficial interests in the Debentures evidenced by the Global Note will not be entitled to any rights under the Indenture with respect to the Global Note, and the Depository may be treated by the Company, the Trustee, and any agent of the Company or the Trustee as the owner of the Global Note for all purposes whatsoever.
(h) The Debentures shall be unsecured and unsubordinated obligations of the Company, and shall rank pari passu with the Company's other unsecured and unsubordinated indebtedness.
(i) The Debentures shall be substantially in the form of Annex A attached hereto, with such modifications thereto as may be approved by a Designated Officer.
IN WITNESS WHEREOF, the undersigned, hereunto duly authorized, has duly signed and delivered, or caused to be delivered, to the Trustee under the Indenture, this Officer's Certificate.
Dated: February 3, 1997
/s/ Larry A. Munsey
---------------------------
Larry A. Munsey
Treasurer of the Company
/s/ H. Virgil Stephens
---------------------------
H. Virgil Stephens
Senior Vice President and
Chief Financial Officer
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CERTIFICATION
I, Gary R. Whitaker, Assistant Secretary of the Company, do hereby certify that H. Virgil Stephens is on the date hereof the duly elected or appointed Chief Financial Officer of the Company and is a Senior Vice President of the Company and the signature set forth above is his own true signature, and further certify that Larry A. Munsey is on the date hereof the duly elected or appointed Treasurer of the Company and the signature set forth above is his own true signature.
/s/ Gary R. Whitaker --------------------------- Gary R. Whitaker Assistant Secretary |
EXHIBIT 10.01
EASTMAN ANNUAL PERFORMANCE PLAN, AS AMENDED
ARTICLE 1. PURPOSE
The Eastman Annual Performance Plan ("APP", or the "Plan") is a variable compensation plan for Eastman Chemical Company (the "Company") management level individuals which is designed to deliver a portion of annual cash compensation according to business performance. APP is intended to provide an incentive for superior performance and to motivate participants toward higher achievement and business results, and to tie the interests of management-level individuals to the interests of the Company and its shareowners. The Annual Performance Plan is also intended to secure the full deductibility of Plan compensation payable to the Company's Chief Executive Officer and the four highest compensated executive officers (collectively, the "Covered Employees") whose compensation is required to be reported in the Company's proxy statement, and all compensation payable hereunder to such persons is intended to qualify as "performance-based compensation" as described in Section 162(m) of the Internal Revenue Code of 1986, as amended.
ARTICLE 2. SUMMARY OF PLAN DESIGN
The annual cash compensation of each participant in the Plan consists of a base salary, an annual Eastman Performance Plan award, and an annual performance award from the Annual Performance Plan. APP is designed so that a target award will be paid when the expected financial performance level is reached. Generally, APP awards vary from zero, if financial goals are not met, to two times the target award for specified above-goal performance. Target awards range from 5% of Target Total Annual Compensation ("TTAC"), as defined in Exhibit 1, for lower management positions, to 35% of TTAC for the Chief Executive Officer. APP awards are in addition to the 5% target award level for the Eastman Performance Plan. APP awards are paid in a lump sum in March of the year following the year for which performance was measured ("Performance Year").
ARTICLE 3. ELIGIBILITY AND PARTICIPATION
3.01 GENERAL ELIGIBILITY
The Plan is designed for management-level individuals (salary grade 46 and above) in key roles which have an impact on the financial performance of the Company. Prior to or at the time performance objectives are established for a Performance Year, the Compensation and Management Development Committee (the "Committee") of the Board of Directors (the "Board") will confirm in writing the salary grade level of the individuals eligible to participate in the Plan for such Performance Year.
3.02 NEW PARTICIPANTS DURING THE PERFORMANCE YEAR
Individuals who are appointed to positions eligible for Plan participation during the Performance Year become eligible for participation on the first day of the month of the appointment. Individuals who become participants during the Performance Year will receive a pro rata award based upon the number of months in an eligible position during the Performance Year. (For example, an individual promoted to an eligible position on May 1 during the Performance Year would receive an award based upon eight months' participation in the Plan, or 8/12 (eight-twelfths) of an award).
3.03 JOB CHANGES DURING THE PERFORMANCE YEAR
Participants who change jobs during a Performance Year which results in a change of their target award level will receive a pro rata award for the interval of time spent in each job. Each pro rata award is calculated using the participant's base salary just prior to each job change which changes their target award level; and their base pay at the end of the Performance Year. Each pro rata award is based on the financial performance of the full Performance Year. In these instances, each pro rata award will compose the participant's award for the full Performance Year.
3.04 TERMINATIONS
Participants who (1) retire, or (2) become disabled under the Eastman Long-Term Disability Plan, or (3) terminate employment under circumstances which qualify for a Termination Allowance Benefit under the Company's Termination Allowance Plan, or (4) terminate employment as a result of, pursuant to, or in connection with layoff, special separation, divestiture, or similar circumstances, where such termination does not qualify for a Termination Allowance but for which Company management in its sole discretion authorizes an award, receive a pro rata award at the normal time of payout based on base salary at the time of separation and financial performance at the end of the Performance Year.
The estates of participants who die receive a pro rata award at the normal time of payout based on base salary at the time of death and financial performance at the end of the Performance Year.
Participants who terminate employment with the Company for reasons other than those specified under this Section 3.04 will receive an award only if they were actively employed on the last scheduled workday of the Performance Year.
ARTICLE 4. PERFORMANCE YEAR, GOAL SETTING, AND PERFORMANCE GOALS
4.01 PERFORMANCE YEAR
The Plan's Performance Year shall be the calendar year beginning on January 1 and ending on December 31. The performance period with respect to which payouts may be payable under the APP shall generally be the Performance Year.
4.02 PERFORMANCE GOAL SETTING
In December of each year, The Chief Executive Officer will recommend performance
goals for the following Performance Year to the Committee. No later than the
first day of the Performance Year (or such later date as may be permitted by
Section 162(m) of the Internal Revenue Code of 1986, as amended), the Committee
shall establish in writing, with respect to the Performance Year, one or more
performance goals, the relative weights to be assigned to such goals, a specific
target objective or objectives with respect to such performance goals, and
objective formulae or methods for computing the amount of the APP award payable
to each participant if the performance goals are attained.
4.03 PERFORMANCE GOALS
Performance goals shall be based upon one or more of the following business criteria, alone or in combination, for the Company as a whole, as the Committee deems appropriate: (i) economic value created; (ii) productivity; (iii) cost improvements; (iv) cash flow; (v) sales revenue growth; (vi) earnings from operations; (vii) quality; (viii) customer satisfaction. Performance goals will include a minimum, maximum, and target level of performance, with the size of the award based upon the level attained for each of the criteria selected, and the weighting selected for each of the criteria. Once established, performance goals for a particular Performance Year cannot be changed.
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. 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, they 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.
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" as defined in Section 162(m)(3) of the Internal Revenue Code of 1986; and review the APP award amounts for other executive officers of the Company.
5.03 AWARD ADJUSTMENTS
The Committee shall have no discretion to increase the amount of any participant's award as so determined, but may reduce the amount of or totally eliminate such award, if it determines, in its absolute and sole discretion, that such a reduction or elimination is appropriate in order to reflect the participant's performance or unanticipated factors.
5.04 MAXIMUM AWARD PAYABLE IN PERFORMANCE YEAR
No participant's APP award for any Performance Year shall exceed $1,000,000.
ARTICLE 6. PAYMENT OF AWARDS
APP awards shall be paid by the Company in March for performance in the previous year, and after the Committee has certified in writing that the relevant performance goals were achieved. The Committee has the authority, in its discretion, to defer payment of a participant's award into the Executive Deferred Compensation Plan until the participant retires or otherwise terminates employment, if the Committee determines that payment of the award could result in the participant receiving compensation in excess of the maximum amount deductible by the Company for Federal income tax purposes.
ARTICLE 7. SALARY ADJUSTMENTS AND BENEFITS
7.01 SALARY ADJUSTMENT UPON ENTRY INTO THE APP
The Plan is a variable compensation, or pay at risk, program whereby participants have their base salary administered on reduced rate ranges. New participants to the Plan are immediately administered on the reduced rate range for their assigned salary grade. This may reduce or eliminate promotional increases, depending upon the person's pay position in the rate range of the new salary grade. Subsequent salary treatment will depend upon pay/performance relationships in the reduced rate range for their assigned grade.
7.02 SALARY CONVERSION UPON WITHDRAWAL FROM THE APP
In unusual circumstances when it is necessary for an individual to be removed from the Plan, the individual will be placed on a non-APP rate schedule and the base salary recalculated. The recalculated base salary will be determined by calculating the ratio of the individual's base salary prior to removal from the Plan to the midpoint of the APP rate schedule, and applying the same ratio to the midpoint of the non-APP rate schedule, to determine the new base salary. Should the removal from the Plan involve a reduction in salary grade, a new rate in the new salary grade will be selected based upon the individual's applicable training and experience.
7.03 RELATIONSHIP TO BENEFITS AND OTHER COMPENSATION
The APP award payout is considered in calculating the basis for other compensation and benefits. Base salary, the actual APP payout and the actual Eastman Performance Plan payout are included in calculating retirement benefits. Base salary, the target APP award payout and the target Eastman Performance Plan payout are
included in the basis for calculating the actual APP payout, the actual Eastman Performance Plan payout, life insurance, long-term disability, termination allowance, miscellaneous expense allowance, and foreign service premium. The base salary rate is the basis for calculating short-term disability, vacation pay, holiday pay, personal absence, and field allowance.
ARTICLE 8. OTHER TERMS AND CONDITIONS
8.01 SHAREOWNER APPROVAL
No APP award payment shall be paid under the Plan to any "Covered Employee" for any Performance Year after 1996 unless and until the material terms (within the meaning of Section 162(m) of the Internal Revenue Code of 1986) of the APP, including the performance goals on which the APP award payout would be based, are disclosed to the Company's shareowners and are approved by the shareowners by a majority of the votes cast.
8.02 CLAIMS
No person shall have any legal claim to be granted an award under the Plan. Except as may be otherwise required by law, payouts under the Plan shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution, or levy of any kind, either voluntary or involuntary. Plan payouts shall be payable from the general assets of the Company and no participant shall have any claim with respect to any specific assets of the Company.
8.03 NO EMPLOYMENT RIGHTS
Neither the Annual Performance Plan nor any action taken under the Annual Performance Plan shall be construed as giving any employee the right to be retained in the employ of the Company or to maintain any participant's compensation at any level.
8.04 WITHHOLDING
The Company shall have the power and the right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy Federal, state, and local taxes (including the participant's OASDI and MEDI obligation) required by law to be withheld.
ARTICLE 9. ADMINISTRATION
9.01 POWER AND AUTHORITY OF THE COMMITTEE
All members of the Committee shall be persons who qualify as "outside directors" as defined under Section 162(m) of the Internal Revenue Code. The Committee shall have full power and authority to administer and interpret the provisions of the Plan and to adopt such rules, regulations, agreements, guidelines, and instruments for the administration of the Plan and for conduct of its business as the Committee deems appropriate or advisable. The Committee sets and interprets policy, establishes annual performance goals, evaluates Company performance against the goals, and confirms and certifies the extent to which Company performance goals were satisfied under the Plan.
9.02 COMMITTEE'S DELEGATION OF AUTHORITY
Except with respect to matters which under Section 162(m) of the Internal Revenue Code are required to be determined in the sole and absolute discretion of the Committee, the Committee shall have full power to delegate to any officer or employee of the Company the authority to administer and interpret the procedural aspects of the Plan, subject to the Plan's terms, including adopting and enforcing rules to decide procedural and administrative issues.
9.03 AMENDING OR TERMINATING THE PLAN
By action of the Committee, the Plan may be amended, modified, suspended, or terminated, in whole or in part, at any time for any reason. Unless otherwise prohibited by applicable law, any amendment required to conform the Plan to the requirements of Section 162(m) of the Internal Revenue Code may be made by the Committee. No amendment may be made to the class of individuals who are eligible to participate in the Plan, the performance criteria specified in Article 4, or the maximum Plan payout payable to any participant without shareowner approval unless shareowner approval is not required in order for payouts paid to "Covered Employees" to constitute qualified performance-based compensation under Section 162(m) of the Internal Revenue Code.
ARTICLE 10. PLAN AUDIT
The Vice President, Human Resources and Communications and Public Affairs, has responsibility for monitoring and reporting on the administration and effectiveness of the Plan. The Vice President's role is to provide independent, objective appraisal and guidance to both the Committee and to the Chief Executive Officer in the administration of the APP. Each year, the Vice President will provide a formal review to the Committee and the CEO on the overall effectiveness of the APP.
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: Performance Level: A B C D E Performance Percent: 200% 150% 100% 50% 0% |
Goal Weighted
Goals Weighting X Performance Level = Performance
- ----- --------- --- ----------------- -----------
#1 50% X 125% = 62.5%
#2 25% X 94% = 23.5%
#3 35% X 116% = 29.0%
---------------
Total 115.0%
|
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%)].
$100,000
In this example: ------------ = $117,647 = Target Total Annual
1-(.10+.05) Compensation
|
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
EXHIBIT 10.05
THIRD AMENDED AND RESTATED
EASTMAN DIRECTORS' DEFERRED COMPENSATION PLAN
Preamble. The Third Amended and Restated Eastman Directors' Deferred Compensation Plan is an unfunded, non-qualified deferred compensation arrangement for non-employee members of the Board of Directors of Eastman Chemical Company (the "Company"). Under the Plan, each Eligible Director is annually given an opportunity to elect to defer payment of part of his or her compensation for serving as a Director. This Plan originally was adopted effective January 1, 1994, was amended and restated effective as of December 1, 1994 and as of May 2, 1996, and is further amended and restated effective as of October 10, 1996.
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 shareowners, was approved by a vote of at least three-quarters (3/4) of the directors comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director without objection to such nomination) shall be, for purposes of the Plan, considered as though such person were a member of the Incumbent Board; or (iii) upon approval by the Company's shareowners of a reorganization, merger or consolidation, other than one with respect to which all or substantially all of those persons who were the beneficial owners, immediately prior to such reorganization, merger or consolidation, of outstanding securities of the Company ordinarily having the right to vote in the election of directors own, immediately after such transaction, more than 75% of the outstanding securities of the resulting corporation ordinarily having the right to vote in the election of directors; or (iv) upon approval by the Company's 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 Board of Directors may determine, if it deems it to be in the best interest of the Company, that an event or events otherwise constituting a Change in Control shall not be so considered. Such determination shall be effective only if it is made by the Board of Directors 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 Board of Directors 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. "Committee on Directors" means the Committee on Directors of the Board.
Section 1.5. "Common Stock" means the $.01 par value common stock of the Company.
Section 1.6. "Company" means Eastman Chemical Company.
Section 1.7. "Deferrable Amount" means an amount equal to the sum of the Eligible Director's cash compensation, including retainer, meeting fees, and any other compensation otherwise payable in cash.
Section 1.8. "Eligible Director" means a member of the Board of Directors of the Company who is not an employee of the Company or any subsidiary of the Company.
Section 1.9. "Enrollment Period" means the period designated by the Committee on Directors each year; provided however, that such period shall end on or before December 31 of each year.
Section 1.10. "Exchange Act" means the Securities Exchange Act of 1934, as amended.
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.
Section 1.13. "Market Value" means the closing price of the shares of Common Stock on the New York Stock Exchange on the day on which such value is to be determined or, if no 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. "Plan" means this Third Amended and Restated Eastman Directors' Deferred Compensation Plan.
Section 1.15. "Participant" means an Eligible Director who elects for one or more years to defer compensation pursuant to this Plan.
Section 1.16. "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 1.17. "Valuation Date" means each business day.
Section 2. Deferral of Compensation. An Eligible Director 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. No deferral shall be made of any compensation payable after termination of the Eligible Director's service on the Board.
Section 3. Time of Election of Deferral. An Eligible Director who wishes to defer compensation must irrevocably elect to do so during the applicable Enrollment Period. The Enrollment Period shall end on or before December 31 of the calendar year immediately preceding the year in which the Eligible Director's applicable Deferrable Amount will be earned. Elections shall be made annually.
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 80,000.
Section 5. Deferrals and Crediting Amounts to Accounts.
Section 5.1. Manner of Electing Deferral. An Eligible Director may elect to defer compensation by executing and returning to the Committee on Directors a deferred compensation form provided by the Company. The form shall indicate: (i) the amount of Deferrable Amount to be deferred; and (ii) 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 Committee on Directors 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 17 hereof, the compensation which a Participant elects to defer under this Plan shall be deferred until the Participant ceases to serve as a member of the Board. 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 17, as applicable.
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 New 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 on Directors or its authorized designee during the period that begins on the third business day following the public release of the Company's quarterly earnings report and that ends on the last business day of the second calendar month following the release of the Company's quarterly earnings report; provided, however, that a Participant 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 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, (i) 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 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 17), 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.
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 such decision, including the risk of loss and a decrease in the value of the amounts he or she elects to defer into his or her Stock Account.
Section 7.10. Liquidation of Stock Account. Upon the date that a Participant ceases to serve on the Board, the entire balance, if any, of the Participant's Stock Account shall automatically be transferred to his or her Interest 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 Account except as provided in this Section 8 and Sections 9, 10 and 17.
Section 8.2. Manner of Payment. Payment of a Participant's Account shall be made in a single lump sum or annual installments, in the sole discretion of the Committee on Directors. The maximum number of annual installments is ten. 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 designated in the sole discretion of the Committee on Directors, up through the tenth year following the year in which the Participant ceases to be a member of the Board for any reason, 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 Account, divided by the number of installments remaining to be paid.
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 Committee on Directors; 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. Withdrawals.
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 or $50,000, whichever is less, 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. Section 16. 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. 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 units credited to his or her Stock Account.
Section 12. No Right to Continued Service. Participation in the Plan shall not give any Participant any right to remain a member of the Board.
Section 13. 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 14. Deductions. The Company will withhold to the extent required by law all applicable income and other taxes from amounts deferred or paid under the Plan.
Section 15. Administration.
Section 15.1. Responsibility. Except as expressly provided otherwise herein, the Committee on Directors shall have total and exclusive responsibility to control, operate, manage and administer the Plan in accordance with its terms.
Section 15.2. Authority of the Committee on Directors. The Committee on Directors 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 Committee on Directors 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 15.3. Discretionary Authority. The Committee on Directors 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 of the Committee on Directors 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 15.4. Delegation of Authority. The Committee on Directors may delegate some or all of its authority under the Plan to any person or persons provided that any such delegation be in writing.
Section 15.5. Restriction on Authority of the Committee on Directors. Under any circumstances where the Committee on Directors is authorized to make a discretionary decision concerning a payment of any type under this Plan to a member of such Committee, the member of the Committee who is to receive such payment shall take no part in the deliberations or have any voting or other power with respect to such decision.
Section 16. 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. 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 17. Change in Control.
Section 17.1. Background. The terms of this Section 17 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 17.2. Acceleration of Payment Upon Change in Control. Upon the occurrence of a Change in Control, each Participant, whether or not he or she is still a Director, shall be paid in a single, lump-sum cash payment the balance of his or her Accounts as of the Valuation Date immediately preceding the date payment is made. Such payment shall be made as soon as practicable, but in no event later than 90 days after the date of the Change in Control.
Section 17.3. 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.
Section 17.4. 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 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. Successors and Assigns. This Plan shall be binding upon the successors and assigns of the parties hereto.
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 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.
EXHIBIT 10.06
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 effective March 2, 1994, and is further amended and restated effective as of October 10, 1996.
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 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; 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 into the Plan. Furthermore, "Deferred Amount" included, for 1993, annual cash payments under the Kodak Wage Dividend policy and Success Sharing program payable in 1994 and attributable to 1993 service.
Section 1.8. "Eligible Employee" means a U.S.-based employee of the Company or any of its U.S. Subsidiaries who, as of the first day of the applicable Enrollment Period (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 1.11. "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.
Section 1.13. "Market Value" means the closing price of the shares of Common Stock on the New York Stock Exchange on the day on which such value is to be determined or, if no 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. Except as provided in the next sentence, 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. The Enrollment Period with respect to payouts (if any) in 1997 under the 1994-1996 Long-Term Performance Subplan of the Omnibus Plan shall end prior to October 31, 1996. Elections shall be made annually.
This Plan was first adopted January 1, 1994, and is generally effective with respect to compensation earned on or after such date. However, (i) if a person who is eligible to participate in this Plan made an election under the Kodak Executive Deferred Compensation Plan with respect to a payment under the Management Annual Performance Plan (MAPP) that would be paid in calendar year 1994, such election remained in force and was effective under this Plan for such MAPP payment; and (ii) Participants could elect to defer under this Plan a Wage Dividend or Success Sharing payment payable in calendar year 1994 but attributable to 1993 service.
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.
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 New 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 Compensation Committee or its authorized designee during the period that begins on the third business day following the public release of the Company's quarterly earnings report and that ends on the last business day of the second calendar month following the end of each
fiscal quarter of the Company; 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, (i) 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 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 such 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. Liquidation of Stock Account. The provisions of this Section 7.10 shall be applicable if the Vice President, Human Resources, or the Compensation Committee, as applicable, determines pursuant to Section 8 to pay a Participant's Accounts in annual installments and, on the second anniversary of the Participant's retirement or, if earlier, termination of employment from the Company or any of its U.S. Subsidiaries, the Participant has a balance remaining in his or her Stock Account. In such case, effective as of the first day of the first calendar month immediately following the date of such second anniversary, the entire balance of the Participant's Stock Account shall automatically be transferred to his or her Interest Account and he or she shall thereafter be ineligible to transfer any amounts to his or her 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, in the sole discretion of 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. The maximum number of annual installments is ten. 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 designated in the sole discretion of 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, up through the tenth year 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 installments 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 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. Withdrawals.
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 or $50,000, whichever is less, 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. Section 16. 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 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 all 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 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 for an 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 anytime. 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. Acceleration of Payment Upon Change In Control. Upon the occurrence of a Change in Control, each Participant, whether or not he or she is still employed by the Company or any of its U.S. Subsidiaries, shall be paid in a single, lump-sum cash payment the balance of his or her Accounts as of the Valuation Date immediately preceding the date payment is made. Such payment shall be made as soon as practicable, but in no event later than 90 days after the date of the Change in Control.
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.
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 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.
SCHEDULE A
Holston Defense Corporation
EXHIBIT 10.08
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made as of the 1st day of December, 1996, between Eastman Chemical Company, a Delaware corporation (the "Company") and Harold L. Henderson (the "Executive"),
WITNESSETH:
WHEREAS, the Company desires to employ the Executive as its Senior Vice President and General Counsel, and
WHEREAS, the Company and the Executive desire to enter into an agreement providing for the terms and conditions of such employment (the "Agreement").
NOW, THEREFORE, in consideration of the respective covenants and agreements set forth below, the parties agree as follows:
1. Employment
The Company agrees to employ the Executive, and the Executive agrees to serve the Company, on the terms and conditions set forth herein.
The employment of the Executive by the Company, unless earlier terminated pursuant to Section 7 below, shall be for the period commencing on December 1, 1996 (the "Commencement Date"), and terminating on December 31, 2000 (the "Employment Period").
2. Position and Duties
(a) Effective January 1, 1997, the Executive shall serve as the Senior Vice President and General Counsel of the Company, reporting to the Company's Chief Executive Officer. The Executive shall have the powers and duties of the chief legal officer of the Company, which shall include, without limitation, the responsibility for the general management of the legal affairs of the Company under the supervision of the Chief Executive Officer.
(b) The Executive shall devote his best efforts to the business and affairs of the Company and, effective January 1, 1997, to carrying out the responsibilities of Senior Vice President and General Counsel of the Company, and shall diligently follow and implement all management policies and decisions of the Company.
3. Place of Employment and Relocation
(a) The Executive shall relocate his residence to the Tri-City area in eastern Tennessee. The Executive's services shall normally be performed at the Company's principal executive office in Kingsport, Tennessee.
(b) The Company shall pay, or reimburse the Executive for, all reasonable costs and expenses incurred by the Executive in relocating Executive's residence from Atlanta, Georgia, to the Kingsport area in accordance with the Company's standard policies and practices applicable to the relocation of comparable senior corporate executives.
4. Compensation
(a) The Executive shall receive a beginning salary at an annual rate of $300,000 (the "Base Salary"). The Base Salary may be increased from time to time at the discretion of the Company. Once increased, the Executive's salary shall not be reduced except as a part of a general salary reduction applicable to all comparable senior executives, and in no event to an amount below the Base Salary.
(b) Except as provided in paragraph 6 of this Agreement, the Executive shall be entitled to participate, on the same basis as other comparable senior corporate executives, in all present and future Company incentive, compensation, tax-qualified and non tax-qualified retirement, welfare and severance plans, programs, agreements, or arrangements in effect during the Employment Period; provided, however, that, to the extent legally permissible, the Company agrees to waive, or to obtain the waiver of, any waiting period or periods otherwise required for participation under any of such plans, programs, agreements or arrangements. In addition, upon expiration of the Employment Period, or upon earlier termination of the Executive's employment pursuant to subsections 7(d) or (e), the Executive shall be entitled to receive all medical insurance, life insurance and other welfare benefits provided under the welfare plans described in the preceding sentence to other comparable retired senior executives.
5. Special Restricted Stock and Stock Option Grants
(a) On the Commencement Date, the Executive shall receive a special grant of Company common stock under the Company's restricted stock program, the number of such restricted shares to be included in the grant to be determined by dividing $50,000 by the closing price of the Company's common stock on the New York Stock Exchange on the last regular trading day immediately prior to the Commencement Date.
(b) On the Commencement Date, the Executive shall receive an option under the Company's stock option program to purchase 50,000 shares of the Company's common stock at a price equal to the closing price of the Company's common stock on the New York Stock Exchange on the last regular trading day immediately prior to the Commencement Date. This option grant shall constitute an advance grant of options that would otherwise be granted to Executive during the Employment Period, and any additional grant of options of the Company's common stock shall be made in the sole and uncontrolled discretion of the Compensation Committee of the Company's Board of Directors (the "Board").
6. Retirement Benefits.
In lieu of any annual monetary retirement benefit to which the Executive might otherwise be entitled under the Excess Retirement Income Plan ("ERIP") and the Eastman Unfunded Retirement Income Plan ("URIP"), the Executive shall, immediately upon the earlier of the expiration of the Employment Period or the termination of the Executive's employment pursuant to subsections 7(b), (d) or (e), receive the first lump sum cash payment in the amount determined by Exhibit A hereto, which Exhibit is hereby made a part of this Agreement. In addition, if the Executive is employed hereunder immediately prior to the expiration of the Employment Period, the Executive shall receive the second lump sum cash payment in the amount determined by Exhibit A hereto, payable no later than May 1, 2001.
Finally, if the Executive is employed hereunder immediately prior to the expiration of the Employment Period, the Executive shall be entitled to elect no later than the date the Company announces to participants the performance results under the Company's Long Term Performance Plan for the performance cycle under such plan ending in the year 2000, to receive the third lump sum cash payment in the amount determined by Exhibit A hereto, payable no later than May 1, 2001. If the Executive does not make a timely election as described in the immediately preceding sentence, then Executive shall continue to participate in the Company's Long Term Performance Plan after December 31, 2000, and shall receive awards of stock under such Plan with respect to the performance cycles that commenced prior to December 31, 2000 and end after the expiration of the Employment Period as
though the target performance levels for each such cycle had been achieved by the Company if less than target level performance is actually achieved; provided, however, that the actual delivery of company stock for each such cycle shall be made at the later of (a) the time delivery of company stock would be made to other participants in the Plan with respect to such cycle if target performance with respect to such cycle was achieved, or (b) January 31, 2001. Except as expressly provided in this Agreement, any rights that Executive may have under the incentive compensation, retirement, welfare and severance plans described in subsection 4(b) shall be determined by the terms and conditions of such plans as in effect on the Date of Termination and the Company's applicable programs and practices as in effect on the Date of Termination, and all other rights under this Agreement shall be terminated.
7. Termination
(a) Death. The Executive's employment shall terminate upon his death.
(b) Disability. If the Executive becomes entitled to receive benefits under the Company's group long-term disability plan, from time to time in effect, the Executive may be considered disabled and the Company may terminate this Agreement.
(c) Cause. The Company may terminate the Executive's employment for "Cause". For purposes of this Agreement, "Cause" is defined as (i) a material breach by Executive of the terms of this Agreement, (ii) the conviction of Executive of any criminal act that the Board shall, in its sole and absolute discretion, deem to constitute Cause for purposes of this Agreement, or (iii) conduct by Executive in his office with the Company that is grossly inappropriate and demonstrably likely to lead to material injury to the Company, as determined by the Board acting reasonably and in good faith; provided, however, that in the case of (iii) above, such conduct shall not constitute Cause unless the Board shall have delivered to Executive notice setting forth with specificity (x) the conduct deemed to qualify as Cause, (y) reasonable action that would remedy such objection, and (z) a reasonable time (not less than thirty (30) days) within which Executive may take such remedial action, and Executive shall not have taken such specified remedial action within such specified reasonable time.
(d) Termination by the Company without Cause. Notwithstanding the foregoing provisions, the Company may terminate the Executive's employment without Cause at any time, subject to the provisions of subsection 8(c) hereof.
(e) Termination for Good Reason by the Executive. The Executive may terminate his employment at any time for Good Reason; provided, however, that the Executive shall have delivered a notice of termination to the Company within ninety (90) days after the occurrence of the event or events that the Executive believes constitute Good Reason and specifying the nature thereof. For this purpose, termination for "Good Reason" prior to a Change in Control shall mean the occurrence of any of the following circumstances without the Executive's prior written consent which circumstances are not completely remedied by the Company such that an event of Good Reason no longer exists within thirty (30) days after receipt of the Executive's notice of termination:
i) any substantial limitation of the authority and responsibility of the Executive contemplated by Section 2 hereof;
ii) any organizational change that requires the Executive to report to anyone other than the Chief Executive Officer;
iii) any organizational change or other circumstances that, as a practical matter, require the Executive to perform the majority of his responsibilities and duties at a location more than thirty-five (35) miles from the present Company executive offices, other than any relocation of the executive offices of the Company; or
iv) a material breach by the Company of the terms of this Agreement.
However, if such termination occurs after the Change in Control, then termination for "Good Reason" shall mean "Good Reason" as that term is defined in the Severance Agreement between the Company and its Chief Executive Officer on the date of such Change in Control.
(f) Date of Termination. "Date of Termination" shall mean (i) if the Executive's employment is terminated by death pursuant to subsection 7(a), the date of the Executive's death; (ii) if the Executive's employment is terminated by the Company as a result of the Executive's disability pursuant to subsection 7(b), the date of such termination, (iii) if the Executive's employment is terminated by the Company for Cause pursuant to subsection 7(c), the date that the Notice of Termination is communicated to the Executive, after the expiration of the right to take remedial action in the case of paragraph 7(c)(iii), (iv) if the employment is terminated by the Company without Cause pursuant to subsection 7(d), the date the Notice of Termination is communicated to the Executive; and (v) if the employment is terminated by the Executive for Good Reason under subsection 7(e), thirty (30) days after the Notice of Termination is given if the circumstances causing the Good Reason have not been completely remedied by such date.
8. Compensation and Other Rights of Executive Upon Termination
(a) If the Executive's employment shall be terminated due to death pursuant to subsection 7(a) or disability pursuant to subsection 7(b), the Company shall pay the legal representative of the Executive's estate (in the case of death) or the Executive or his legal guardian or representative (in the case of disability) all salary, incentive compensation, other awards, and payments owed to the Executive up to the date of death or disability, as applicable. All other rights of the Executive and his estate, guardian, legal representatives and heirs under the incentive compensation, retirement, welfare and severance plans described in subsection 4(b) shall be determined by the terms and conditions of such plans as in effect on the date of Executive's death or disability, as applicable and the Company's applicable program and practices as in effect on the date of Executive's death or disability, as applicable; provided, however, that the stock option award provided for in Section 5 shall continue to vest in accordance with the normal vesting schedule under such award and shall remain exercisable for at least the period of time that such exercise would have been permitted had the Executive lived and remained an employee for the entire Employment Period, or not been disabled and remained an employee for the entire Employment Period. Finally, (i) if the Executive's employment shall be terminated due to death pursuant to subsection 7(a), then the Company shall pay the legal representative of the Executive's estate within thirty (30) days following the Executive's death the first lump sum described in Exhibit A if the Executive had terminated employment for Good Reason on the date of his death but determined (A) as though the Executive terminated employment for Good Reason on the date of his death; and (B) as though the calculation of the first lump sum described in Exhibit A was fifty percent (50%) of what such lump sum would be absent this clause (B); and (ii) if the Executive's employment shall be terminated due to disability pursuant to subsection 7(b), then the Company shall pay the Executive or his legal guardian or representative within thirty (30) days following the date of disability the first lump sum described in Exhibit A.
(b) If the Executive's employment shall be terminated by (i) the Company for Cause pursuant to subsection 7(c), or (ii) by the Executive for any reason other than termination by Executive for Good Reason as set forth in subsection 7(e), the Company shall pay the Executive all salary, incentive compensation, other awards, and payments owed to him up to the Date of Termination. Any rights that Executive may have under the incentive compensation, retirement, welfare and severance plans described in subsection 4(b) shall be determined by the terms and conditions of such plans as in effect on the Date of Termination and the Company's applicable programs and practices as in effect on the Date of Termination, and all other rights under this Agreement shall be terminated.
(c) If the Executive's employment shall be terminated by the Company
without Cause pursuant to subsection 7(d) or if the Executive's employment
shall be terminated by the Executive for Good Reason pursuant to subsection
7(e), then the Company shall pay to the Executive all salary, incentive
compensation, other awards, and payments owed to him up to the Date of
Termination. In addition, the Company shall pay as liquidated damages, and
not as penalty, to the Executive:
(i) within thirty (30) days following the Date of Termination, a lump sum cash payment equal to (A) if the Date of Termination is on or after January 1, 1998, the aggregate amount of salary that would have been payable to the Executive between the Date of Termination and December 31, 2000, computed at the Executive's salary rate in effect on the Date of Termination, or (B) if the Date of Termination is prior to January 1, 1998, the aggregate amount of salary that would have been payable to the Executive between the Date of Termination and the third anniversary of his Date of Termination, computed at the Executive's salary rate in effect on the Date of Termination;
(ii) within thirty (30) days following the Date of Termination, a lump sum cash payment equal to the aggregate value of all bonus, incentive and other awards and rights under each annual cash incentive plan and (at the election of the Executive, to be made in writing and delivered to the Company no later than his Date of Termination) the Company's Long Term Performance Plan to which Executive was entitled on the Date of Termination, or to which he would reasonably become entitled during because of his salary grade and position in the Company (including but not limited to all payments and awards under the Long Term Performance Plan that otherwise would have been made subsequent to the expiration of the Employment Period), without any reduction for early payment thereof, assuming (A) (1) if the Date of Termination is on or after January 1, 1998, that the Executive would have been employed until the end of the Employment Period, or (2) if the Date of Termination is prior to January 1, 1998, that the Executive would have been employed for thirty-six (36) consecutive months following the Date of Termination (such period of deemed employment being referred to as the "Deemed Employment Period"); (B) that all conditions relating to such payments would have been fulfilled, (C) that the Company's performance for all uncompleted periods after December 1, 1996 had achieved, or would have achieved, target performance levels under each such plan or program (provided, however, that if the target performance level under any such plan or program has not been established as of the Date of Termination for any such period, then the target performance level for such period shall for purposes of this subsection 8(c)(ii) be deemed to be no less than the last target performance level established under such plan or program prior to the Date of Termination); and (D) for purposes of this computation, awards based on stock under the Long Term Performance Plan would be valued at 100% of the closing price of the Company's common stock on the New York Stock Exchange on the last trading day immediately preceding the Date of Termination; and
(iii) on the date required pursuant to subsection 6(a), the first lump sum payment described in Exhibit A attached hereto.
If the Executive does not make a timely written election to receive
immediate payment of future awards under the Long Term Performance Plan, as
described in clause (ii) above, then Executive shall continue to
participate in the Company's Long Term Performance Plan after his Date of
Termination and for the Deemed Employment Period described in clause
(ii)(A) above, and shall receive awards of stock under such Plan with
respect to the performance cycles that are uncompleted as of the Date of
Termination, and determined as though (w) the Executive remained employed
for the Deemed Employment Period; and (x) the target performance levels for
each such uncompleted cycle had been achieved by the Company if less than
target level performance is actually achieved; provided, however, that if
the target performance level has not been established as of the Date of
Termination for any such period, then the target performance level for such
period shall for purposes of this paragraph be deemed to be no less than
the last target performance level established prior to the Date of
Termination; and further provided, that the actual delivery of Company
stock for each such cycle shall be made at the later of (y) the time
delivery of Company stock is made to other participants in the Plan with
respect to such cycle or (z) within thirty (30) days of the Date of
Termination.
Further, in the event of such termination, (i) all outstanding options on the Company's common stock held by the Executive shall continue to vest under the normal vesting schedule under such grant and shall remain exercisable by the Executive or legal representative of his estate at any time thereafter, in whole or in part, for the period of time that such exercise would have been permitted had the Executive's employment been terminated by the Company without Cause on the last day of the
Employment Period, and (ii) any of the Company's common stock owned by the Executive subject to conditions, restrictions, or limitations which lapse over time or upon a subsequent event shall immediately be free of all such conditions, restrictions and limitations. Through December 31, 2000, the Company shall allow Executive and his family members to participate in all welfare plans described in subsection 4(b) on the same terms and conditions and at the same cost as to which they were entitled to participate immediately prior to the Date of Termination. If the Executive or his family members shall be ineligible to participate in any of such welfare plans as a result of Executive's ceasing to be an employee of the Company, then the Company shall arrange to provide the Executive and his family members with substantially equivalent benefits as if Executive remained employed by the Company throughout the Employment Period. Except as expressly provided in this Agreement, any rights that Executive may have under the incentive compensation, retirement, welfare and severance plans described in subsection 4(b) shall be determined by the terms and conditions of such plans as in effect on the Date of Termination and the Company's applicable programs and practices as in effect on the Date of Termination, and all other rights under this Agreement shall be terminated.
Finally, if the Date of Termination is prior to December 1, 1997, then within sixty (60) days following the Date of Termination, (i) the Company will offer to purchase the Executive's principal residence in the Tri-City area of eastern Tennessee at a guarantee price based on the average of two fair market appraisals if the lower appraisal is within seven percent (7%) of the higher value, and if not, a third appraisal will be used and the average of the two highest appraisals will be used; and (ii) the Company will pay the Executive an amount equal to the reasonable expenses necessary to move the Executive's furnishings and personal belongings from the Tri-City area in eastern Tennessee to metropolitan Atlanta, Georgia.
9. No Mitigation, No Offset
(a) In the event of any termination of employment under Section 7, the Executive shall be under no obligation to seek other employment, and there shall be no offset against amounts due the Executive under this Agreement of account of any remuneration attributable to any subsequent employment that he may obtain.
(b) No payment or benefit of any kind under this Agreement shall duplicate any payment or benefit that the Executive becomes entitled to under any severance or change in control agreement, plan or arrangement of the Company, and in the event of such duplication, such duplicate payment or benefit (to the extent of such duplication) shall be paid under this Agreement, and the remaining amount of such payment or benefit shall be paid under such severance or change in control agreement, plan or arrangement.
10. Assignment; Binding Agreement
(a) This Agreement may be assigned (including any assignment by merger, consolidation, transfer of assets, operation of law or otherwise) by the Company. Neither this Agreement nor any right of the Executive hereunder may be assigned by the Executive (or the Executive's legal representative, if applicable), nor may the Executive in any way delegate the performance of the Executive's covenants and obligations hereunder.
(b) This Agreement and all obligations of the Company hereunder shall be binding upon, and all rights of the Company hereunder shall inure to the benefit of and be enforceable by, the Company, its successors and assigns. This Agreement and all rights of the Executive hereunder shall inure to the benefit of, and be enforceable by, the Executive and the Executive's personal or legal representatives, executors, administrators, successors and heirs.
11. Notice
For the purposes of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Company:
Chief Executive Officer
Eastman Chemical Company
100 North Eastman Road
Kingsport, Tennessee 37660
If to the Executive:
Harold Henderson
Eastman Chemical Company
100 North Eastman Road
Kingsport, Tennessee 37660
or to such other address as either party may have furnished to the other in
writing.
12. Arbitration.
Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in the State of Tennessee by three arbitrators in accordance with the rules of the American Arbitration Association then in effect.
13. Miscellaneous
(a) No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed in writing signed by the Executive and the Chief Executive Officer or such other officer as may be specifically designated by the Chief Executive Officer or the Board. No waiver by either party at any time of any breach by the other party of, or compliance with, any condition or provision of this Agreement to be performed by the other party shall be deemed a waiver of any similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. Any party's failure, at any time, to require strict performance of the other party of any provision of this Agreement shall not waive, affect or diminish any right of the first party thereafter to demand strict compliance and conformance.
(b) The invalidity or unenforceability of any provision of provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.
(c) Anything in this Agreement to the contrary notwithstanding, all payments required to be made by the Company hereunder to the Executive, his estate or legal representatives shall be subject to the withholding of such amounts relating to taxes as the Company may reasonably determine it should withhold pursuant to any applicable law or regulation.
14. Law Governing
This Agreement shall be governed by, and construed and interpreted in accordance with, the laws of the State of Tennessee without reference to principles or conflict of laws.
15. Expenses
The Company shall pay all of the Executive's expenses, including
without limitation attorneys' fees and expenses, incurred by Executive or
his estate (other than attorneys' fees or expenses of the Executive himself
acting as attorney) (a) in defending the validity of this, Agreement, and
(b) in contesting in good faith any determinations by the Company
concerning amounts payable by the Company under this Agreement.
16. "Change in Control."
Change in Control for purposes of this Agreement shall mean "Change in Control" as that term is defined in the Severance Agreement between the Company and its Chief Executive Officer on the earlier of (i) the date the Notice of Termination under subsection 7(d) or 7(e) is given, as applicable, or (ii) the date of a Change in Control.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date and year first above written.
Eastman Chemical Company
Executive
EXHIBIT A
FIRST LUMP SUM
The first lump sum cash payment is intended to provide the Executive with a lump sum payment which is the actuarial equivalent at the Executive's age 65 of A minus [B plus C], where
A equals the benefit the Executive would have been entitled to under the Eastman Retirement Assistance Plan ("ERAP") as in effect on the effective date of this Agreement, expressed as a single life annuity commencing at age 65, assuming that
(i) for benefit accrual purposes, as though the Executive had 36 years of continuous, full-time service with the Company;
(ii) for purposes of determining his Average Participating Compensation ("APC") under the ERAP,
(A) if he was employed by the Company for the entire Employment Period, his APC shall be the higher of (1) his actual APC under the ERAP, or (2) what his APC would have been as though the target performance levels under the Company's annual cash incentive plans had been achieved for each performance year included within the Employment Period; or
(B) if was not employed by the Company for the entire Employment Period, his APC shall be determined (1) for the period from December 1, 1996, through his Date of Termination, by taking into account his actual base salary received from December 1, 1996 through his Date of Termination; (2) for the period between his Date of Termination and December 31, 2000, by assuming that he would have continued to receive base salary from his Date of Termination through December 31, 2000, at the rate in effect immediately prior to his Date of Termination; (3) for the period from December 1, 1996 through his Date of Termination, by taking into account the higher of his actual payments received from the Company's annual cash incentive plans during such period or what such payments would have been if the target performance levels under the Company's annual cash incentive plans had been achieved for each performance year included within such period under this clause (3); and (4) for the period between his Date of Termination and December 31, 2000, by assuming that he would have received payments under such annual cash incentive plans as though the target performance levels under such plans had been met for each performance year included within such period under this clause (4); and
(iii) as though the legal restrictions the ERAP relating to the amount of compensation (Internal Revenue Code Section 401(a)(17)) and the amount of benefit (Internal Revenue Code Section 415) did not exist;
B equals the benefit the Executive is actually entitled to receive under the ERAP at age 65, expressed as a single life annuity commencing at age 65; and
C equals a single life annuity of $196,065 per year, commencing at age 65, which represents certain retirement benefits received by the Executive from his prior employers.
For this purpose, "actuarial equivalent" shall mean the interest rate and mortality table used by the ERAP in calculating the value of a lump sum benefit as of the date of payment of this First Lump Sum.
Notwithstanding the foregoing, if the Executive's Date of Termination is prior to December 31, 2000, then the lump sum calculated under the preceding paragraphs of this Exhibit A shall be multiplied by a fraction, the numerator of which is the number of complete calendar months between November 30, 1996, and the Date of Termination, and the denominator of which is forty-nine (49); provided, however, that the calculation under this sentence shall not reduce the lump sum payable to the Executive by more than fifty percent (50%) of the lump sum that would be payable absent this paragraph.
Furthermore, if the reduced lump sum determined under the immediately preceding sentence is required to be, and is in fact, paid before December 31, 2000, such reduced lump sum shall be discounted to present value as of the date of payment of the lump sum using the interest rate that is used by the ERAP in calculating the value of a lump sum benefit as of the date of payment of this First Lump Sum.
SECOND LUMP SUM
In the event that the Company fails to perform at or above target performance levels under its annual cash incentive plans in effect from time to time (in the aggregate over the performance years included within the Employment Period--December 1, 1996 through December 31, 2000), the Company will pay to the Executive no later than May 1, 2001, an amount equal to (i) the aggregate payments Executive would have received under such annual cash incentive plans attributable to performance years included within the Employment Period (and without adjusting for timing of payment), as if those target performance levels had been achieved by the Company (in the aggregate, over the performance years included within the Employment Period; reduced by (ii) the actual payments received by the Executive under such annual cash incentive plans attributable to the performance years included within the Employment Period.
THIRD LUMP SUM
At the written election of the Executive, to be made no later than the date the Company announces to participants the performance results under the Company's Long Term Performance Plan for the performance cycle ending in the year 2000, and in lieu of receiving any payments under the Company's Long Term Performance Plan after December 31, 2000, the Company shall pay to the Executive no later than May 1, 2001, an amount equal to (i) the aggregate amount the Executive would have received under the Long Term Performance Plan over each performance cycle commencing within the Employment Period (and without adjusting for timing of payment), as if the target performance levels for each cycle under the Long Term Performance Plan had been achieved by the Company (in the aggregate, over each performance cycle commencing within the Employment Period, including cycles commencing within the Employment Period that end after the expiration of the Employment Period); reduced by (ii) the actual payments received by the Executive under the Long Term Performance Plan by May 1, 2001. For purposes of this computation, payments made in the form of Company common stock under the Long Term Performance Plan shall be valued at 100% of the closing price of the Company's common stock on the New York Stock Exchange on the last trading day immediately preceding the day the Company announces to participants the performance results under the Company's Long Term Performance Plan for the performance cycle ending in the year 2000.
EXHIBIT 10.11
EASTMAN ESOP EXCESS PLAN
Preamble. The Eastman ESOP Excess Plan is intended to be an unfunded, non-qualified deferred compensation arrangement for a select group of management or highly compensated employees of Eastman Chemical Company ("the Company") and certain of its subsidiaries, under the Employee Retirement Income Security Act of 1974, as amended, and shall be so interpreted. This Plan is designed to provide benefits payable out of the Company's general assets where certain benefits cannot be paid under the Eastman Employee Stock Ownership Plan (the "ESOP") because of Internal Revenue Code Section 401(a)(17) and the provisions of the ESOP that implement that Section. This Plan is adopted effective February 2, 1995.
Section 1. Definitions.
Section 1.1. "Account" means the Interest-Bearing Account or the Stock Account.
Section 1.2. "Affiliated Company" has the same meaning as in the ESOP.
Section 1.3. "Board" means the Board of Directors of the Company.
Section 1.4. "Change In Control" means a change in control of the Company of a nature that would be required to be reported (assuming such event has not been "previously reported") in response to Item 1(a) of a Current Report on Form 8-K, as in effect on 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 Committee may determine, if it deems it to be in the best
interest of the Company, that an event or events otherwise constituting a Change In Control shall not to be so considered. Such determination shall be effective only if it is made by the Committee prior to the occurrence of an event that otherwise would be or probably will lead to a Change In Control or after such event if made by the Committee a majority of which is composed of directors who were members of the Board immediately prior to the event that otherwise would be or probably will lead to a Change In Control.
Section 1.5. "Committee" means the Compensation and Management Development Committee of the Board.
Section 1.6. "Common Stock" means the $.01 par value common stock of the Company.
Section 1.7. "Company" means Eastman Chemical Company.
Section 1.8. "Effective Date" of an election means (i) the date such election is made, 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 New 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.
Section 1.9. "Eligible Employee" means any Participant in the ESOP.
Section 1.10. "ESOP" means the Eastman Employee Stock Ownership Plan, as the same now exists or may be amended hereafter.
Section 1.11. "ESOP Contribution Date" means the date, if any, on which the Trustee of the ESOP receives the Company's contributions to the ESOP for a particular Plan Year.
Section 1.12. "ESOP Payout Percentage" means the percentage amount of an Eligible Employee's "Compensation" (as defined in the ESOP) to which such Eligible Employee is entitled as an allocation, whether such allocation is in the form of cash, Common Stock, or a combination thereof, under the ESOP for a particular Plan Year.
Section 1.13. "Excess Compensation" means the excess, if any, of (1) an Employee's "Participating Earnings," as specified in Section 2.11(a) of the ESOP, over (2) the dollar amount referred to in Section 2.11(b) of the ESOP.
Section 1.14. "Exchange Act" means the Securities Exchange Act of 1934, as amended.
Section 1.15. "Interest-Bearing Account" means the account established by the Company for a Participant pursuant to Section 4, which shall bear interest as described in Section 4. The maintenance of individual Interest-Bearing Accounts is for bookkeeping purposes only.
Section 1.16. "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.
Section 1.17. "Market Value" means the closing price of the Common Stock on the New York Stock Exchange as quoted in the New York Stock Exchange Composite Transactions on the day for which the determination is to be made, or if no sales of the Common Stock were made on that day, said closing price on the next preceding business day on which the Common Stock was traded.
Section 1.18. "Participant" means a person who in one or more years receives an allocation pursuant to this Plan.
Section 1.19. "Plan" means this Eastman ESOP Excess Plan.
Section 1.20. "Plan Year" has the same meaning as in the ESOP.
Section 1.21. "Section 16 Insider" means a Participant who is, with respect to the Company, subject to Section 16 of the Exchange Act.
Section 1.22. "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 1.23. "Valuation Date" means each business day.
Section 2. Allocations. For any Plan Year (including, without limitations, the 1994 Plan Year) in which an Eligible Employee has Excess Compensation, at such time, if any, as the Company makes a contribution to the ESOP with respect to such Plan Year, the Company shall credit to the Eligible Employee's Stock Account under this Plan, an amount equal to the product of (1) the amount of such Eligible Employee's Excess Compensation multiplied by (2) the ESOP Payout Percentage.
Section 3. Description of Stock Account.
Section 3.1. General. Amounts in a Participant's Stock Account are hypothetically invested in units of Common Stock. Such amounts 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 shares of Common Stock that may be hypothetically purchased through allocations to Stock Accounts under this Plan is 100,000.
Section 3.2. Manner of Crediting Stock Account. If a Participant is entitled to an allocation pursuant to Section 2, effective as of the ESOP Contribution Date, his or her Stock Account shall be credited with that number of units of Common Stock, and fractions thereof, obtained by dividing (1) the dollar amount of such allocation as described in Section 2 by (2) the Market Value of the Common Stock on the ESOP Contribution Date.
Section 3.3. Election Out of the Stock Account. If a Participant elects pursuant to Section 4 to transfer an amount from his or her Stock Account to his or her Interest-Bearing Account, effective as of the election's Effective Date, (i) his or her Interest-Bearing 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 election's Effective Date; and (ii) his or her Stock Account shall be reduced by the number of units elected to be transferred.
Section 3.4. 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 the 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 3.5. 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 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 3.6. 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 3.7. Distributions. Amounts in respect of units of Common Stock shall be distributed in cash in accordance with Sections 5, 6, 7 and 15. For purposes of a distribution pursuant to Sections 5, 6, 7 and 15, 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 of the Stock Account of a Participant who has terminated his or her employment with the Company or any of its Affiliated Companies, the Participant's Stock Account shall continue to be credited with additional units of Common Stock pursuant to Sections 3.4, 3.5 and 3.6.
Section 3.8. Special Provision for Section 16 Insiders. The Stock Account of a Section 16 Insider is not transferable by him or her to any other person or entity other than by will or the laws of descent and distribution. The designation of a beneficiary by a Section 16 Insider does not constitute a transfer for this purpose.
Section 4. Transfers to Interest-Bearing Account.
Section 4.1. General. Each Participant who has become a "Qualified Participant" under Article 9 of the ESOP, or any successor provisions thereto, may direct that an amount determined under Section 4.2 be transferred from the Participant's Stock Account to his or her Interest-Bearing Account at such time or times as such Participant could make a diversification election pursuant to Article 9 of the ESOP, or any successor provisions thereto. Amounts in a Participant's Interest-Bearing Account are hypothetically invested in an account which bears interest computed at the Interest Rate, compounded monthly.
Section 4.2. Amount of Transfer. A Participant who is a Qualified Participant under the ESOP may direct the Plan to transfer from the Participant's Stock Account to the Participant's Interest-Bearing Account, a dollar amount equal to the value of the same portion (or all, if applicable) of the total number of units credited to the Participant's Stock Account as the portion of the total number of shares of "Employer Securities" treated as acquired after 1986 which the Participant could direct the ESOP to distribute pursuant to Article 9 of the ESOP, or any successor provisions thereto; provided, however, that if a Participant does not transfer to the Interest-Bearing Account the full number of units eligible for transfer in a given year, then such untransferred units may be carried forward and eligible for transfer in future years using substantially the same methodology as is used for carry forward of unused shares eligible for diversification under Article 9 of the ESOP, or any successor provisions thereto.
Section 4.3. Manner of Directing Transfer. A Participant's election to transfer under this Section 4 shall be provided to the Company's Vice President, Human Resources, during the same period during which any diversification election pursuant to Article 9 of the ESOP, or any successor provisions thereto, must be provided and shall be in writing. Notwithstanding the provisions of the ESOP, any such election may not be modified or revoked, but shall be effective as of the election's Effective Date. No amounts transferred from a Participant's Stock Account to a Participant's Interest-Bearing Account may subsequently be transferred back to the Participant's Stock Account.
Section 5. Payment of Accounts.
Section 5.1. Background. No withdrawal may be made from a Participant's Accounts except as provided in this Section 5 and Sections 6, 7 and 15.
Section 5.2. Manner of Payment. Payment of a Participant's Accounts shall be made in a single lump sum or installments, in the sole discretion of the Company's Vice President, Human Resources, with respect to Participants other than executive officers of the Company, and by the Committee, with respect to Participants who are executive officers (which, as used herein, includes any officers who are Section 16 Insiders as a result of their positions) of the Company. The maximum number of installments is ten. All payments from the Plan shall be made in cash.
Section 5.3. Timing of Payments. Payments shall be made by the fifth business day in March and shall commence in any year designated in the sole discretion of the Company's Vice President, Human Resources, with respect to Participants other than executive officers of the Company, and by the Committee, with respect to Participants who are executive officers of the Company, up through the tenth year 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 Affiliated Companies, but in no event later than the year the Participant reaches age 71.
Section 5.4. 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 installments remaining to be paid. If a Participant's Accounts are to be paid in installments and the Participant has a balance in both his or her Stock Account and his or her Interest-Bearing Account at the time of the payment of an installment, the amount that shall be distributed from each Account shall be proportional to the value of the balance in each such Account as of the immediately preceding Valuation Date.
Section 6. 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 the same person who would be entitled to receive survivor benefits with respect to the Participant under the ESOP.
Section 7. Withdrawals.
Section 7.1. 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 Committee, with respect to Participants who are executive officers of the Company, a Participant, whether or not he or she is still employed by the Company or any of its Affiliated Companies, may be permitted to receive all or part of his or her Accounts if the Company's Vice President, Human Resources, or the 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. If at the time of such distribution for hardship a Participant has a balance in both his or her Stock Account and his or her Interest-Bearing Account, then the amount to be distributed from each Account shall be determined in accordance with the principles described in Section 5.4.
Section 7.2. Payment to Individuals. Any participant in the Eastman ESOP Excess Plan may at his or her discretion withdraw at any time all or part of that person's account balance under the Plan. If this option is exercised the individual will forfeit to the Corporation 10% of his or her account balance or $50,000, whichever is less, 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 7.3. Accelerated Payment. If under Eastman ESOP Excess Plan one-half or more of the participants or one-fifth of the participants with one-half of the value of all benefits owed exercise their option for immediate distribution in a six month period then this will trigger immediate payout to all participants of all benefits owed under the plans. Immediate payout under this section will not involve reduction of the amounts paid to participants as set forth in section 7.2. Any individual that has been penalized in this six month period for electing immediate withdrawal will be paid that penalty if payout to all participants under this section occurs.
Section 8. Participant's Rights Unsecured. The benefits payable under this Plan shall be paid by the Company 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 stockholder with respect to the units credited to his or her Stock Account.
Section 9. No Right to Continued Employment. Participation in this Plan shall not give any employee any right to remain in the employ of the Company or any of its Affiliated Companies. The Company and each employer Affiliated Company reserve the right to terminate any Participant at any time.
Section 10. 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 11. Deductions. The Company will withhold to the extent required by law all applicable income and other taxes with respect to amounts deferred or paid under the Plan. Such withholding may, at the discretion of the Committee, be deducted from sources outside of this Plan.
Section 12. Administration.
Section 12.1. Responsibility. Except as expressly provided otherwise herein, the Committee shall have total and exclusive responsibility to control, operate, manage and administer the Plan in accordance with its terms.
Section 12.2. Authority of the Committee. The 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 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 12.3. Discretionary Authority. The 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 of the Plan that the decisions of the 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 12.4. Authority of Vice President, Human Resources. Where expressly provided for under Sections 4 and 6, the authority of the Committee is delegated to the Company's Vice President, Human Resources, and to that extent the provisions of Section 11.1 through 11.3 above shall be deemed to apply to such Vice President.
Section 12.5. Delegation of Authority. The Committee may provide for an 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 13. Amendment. The Committee may suspend or terminate the Plan at any time, and may, from time to time, amend the Plan in any manner. 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 14. 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 15. Change In Control.
Section 15.1. Background. The terms of this Section 15 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 15.2. Acceleration of Payment Upon Change In Control. Upon the occurrence of a Change In Control, each Participant, whether or not he or she is still employed by the Company or any of its Affiliated Companies, shall be paid in a single, lump-sum cash payment the balance of his or her Accounts as of the Valuation Date immediately preceding the date payment is made. Such payment shall be made as soon as practicable, but in no event later than 90 days after the date of the Change In Control.
Section 15.3. 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.
Section 15.4. 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 16. Compliance with Securities Laws. The hypothetical units of Common Stock provided for by this Plan are intended not to constitute "derivative securities" for purposes of Rule 16a-1(c), or any successor provisions, under the Exchange Act. To the extent any provision of this Plan or action by the Committee would cause such units to constitute "derivative securities" for those purposes, it shall be deemed to be null and void, to the extent permitted by law and deemed advisable by the Committee.
The Committee may, from time to time, impose additional restrictions upon Participants as it deems necessary, advisable or appropriate in order to comply with applicable federal and state securities laws. All such restrictions shall be accomplished by way of written administrative guidelines adopted by the Committee.
Section 17. Successors and Assigns. This Plan shall be binding upon the successors and assigns of the parties hereto.
EXHIBIT 10.15
EASTMAN CHEMICAL COMPANY
1997-1999 LONG-TERM PERFORMANCE SUBPLAN
OF THE 1994 OMNIBUS LONG-TERM COMPENSATION PLAN
Section 1. Background. Under Section 11 of the Eastman Chemical Company 1994 Omnibus Long-Term Compensation Plan (the "Plan"), the "Committee" (as defined in the Plan), may, among other things, award shares of the $.01 par value common stock ("Common Stock") of Eastman Chemical Company (the "Company") to "Employees" (as defined in the Plan), and such awards may take the form of performance shares, which are contingent upon the attainment of certain performance objectives during a specified period, and subject to such other terms, conditions, and restrictions as the Committee deems appropriate. The purpose of this 1997-1999 Long-Term Performance Subplan (this "Subplan") is to set forth the terms of the grant of performance shares specified herein, effective as of January 1, 1997 (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, 1997.
(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, 1997 through December 31, 1999.
(ix) "TSR" means total return to shareowners, as reflected by the sum of (A) change in stock price (measured as the difference between (I) the average of the closing prices of a company's common stock on the New York Stock Exchange, or of the last sale prices of such stock on the Nasdaq Stock Market, as applicable, over the first 20 trading days of the period for which such change is being measured and (II) the average of such closing or last sale prices for such stock over the final 20 trading days of the period for which such change is being measured) plus (B) dividends declared, assuming reinvestment of dividends, and expressed as a percentage return on a shareowner's hypothetical investment.
(b) Any capitalized terms used but not otherwise defined in this Subplan shall have the respective meanings set forth in the Plan.
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 1997, 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 1997 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 1997 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 1997 as a result of any reevaluation of the Salary Grade appropriate for such position. The Actual Grant Amount shall be determined by comparing the Company's TSR during the Performance Period to the TSRs of the companies in the Peer Group during the Performance Period. Specifically, the Company and each company in the Peer Group shall be ranked by TSR, in descending order, with the company having the highest TSR during the Performance Period being ranked number one. The Company's rank, by TSR, in relation to the Compared Group, shall determine a multiplier to be applied to the Target Grant Amount. Multipliers range from 2.0 (i.e. 200%), if the Company's TSR is ranked number one, to 0.0 (with no shares of Common Stock being delivered to participants under this Subplan), if the Company's rank is lower than company fifteen in the Compared Group. The payout table with multipliers for each TSR rank is shown in Exhibit C. The Actual Grant Amount is determined by applying the multiplier corresponding to the Company's TSR rank (Exhibit C) to the Target Grant Amount. Notwithstanding the foregoing, if the Peer Group produces fewer than 19 distinct TSRs (as a result of the removal of a company from the Peer Group without substitution of a replacement company therefor, as described in Section 7 of this Subplan), then the Committee shall, in its sole discretion, determine the appropriate means of calculating the Actual Grant Amount.
Section 7. Composition of Peer Group. The members of the Peer Group identified in Exhibit B hereto have been identified as companies currently relevant for purposes of TSR comparisons under this Subplan. However, the Committee shall have the authority, at any time and from time to time, to determine that any member of the Peer Group is no longer appropriate for inclusion. Circumstances that might require such a determination include, without limitation, the following events: a company's common stock ceasing to be publicly traded on an exchange or on the Nasdaq Stock Market; a company's being a party to a significant merger, acquisition, or other reorganization; or a company's ceasing to operate in the chemical industry. In any case where the Committee determines that a particular company is no longer appropriate for inclusion in the
Peer Group, the Committee may designate a replacement company, which shall then be substituted in the Peer Group for the former member. In any such case, the Committee shall have authority to determine the appropriate method of calculating the TSR of such former and/or replacement company or companies, whether by complete substitution of the replacement company (and disregard of the former company) over the entire Performance Period or by pro rata calculations for each company or otherwise. Alternatively, in any case where the Committee determines that a particular company is no longer appropriate for inclusion in the Peer Group, the Committee may remove such company from the Peer Group without substituting a replacement company therefor.
Section 8. Preconditions to Receipt of an Award.
(a) Continuous Employment. Except as specified in paragraph (b) below, to remain eligible for an Award under this Subplan, an eligible Employee must remain continuously employed with the Company or a Subsidiary at all times from the Participation Date (or the Effective Date) through the Award Payment Date.
(b) Death, Disability, Retirement, or Termination for an Approved Reason Before the Award Payment Date. If a participant's employment with the Company or a Subsidiary is terminated due to death, disability, retirement, or any approved reason prior to the Award Payment Date, the participant shall receive, subject to the terms and conditions of the Plan and this Subplan, an Award representing a prorated portion of the Actual Grant Amount to which such participant otherwise would be entitled, with the precise amount of such Award to be determined by multiplying the Actual Grant Amount by a fraction, the numerator of which is the number of full calendar months in the Performance Period from the Effective Date through and including the effective date of such termination, and the denominator of which is 36 (the total number of months in the Performance Period). If the effective date of a participant's termination of employment occurs on or after the last business day of a particular calendar month, then such month shall be considered a full calendar month and shall be counted in determining the numerator of the fraction described in the preceding sentence; if the effective date of such termination occurs prior to the last business day of a particular calendar month, then such month shall not be so counted.
Section 9. Manner and Timing of Award Payments.
(a) Timing of Award Payment. Except for deferrals under Sections 9(b) and 9(c), if any Awards are payable under this Subplan, the payment of such Awards to eligible Employees shall be made as soon as is administratively practicable after the end of the Performance Period.
(b) Deferral of Award in Excess of the Maximum Deductible Amount. If payment of the Award would, or could in the reasonable estimation of the Committee, result in the participant's receiving compensation in excess of the Maximum Deductible Amount in a given year, then such portion (or all, as applicable) of the Award as would, or could in the reasonable estimation of the Committee, cause such participant to receive compensation from the Company in excess of the Maximum Deductible Amount shall be converted into the right to receive a cash payment, which shall be deferred until after the participant retires or otherwise terminates employment with the Company and its Subsidiaries.
(c) Election to Defer the Award. Any participant in this Subplan may elect to defer the Award until after the participant retires or otherwise terminates employment with the Company and its Subsidiaries under the terms and subject to the conditions of the Eastman Executive Deferred Compensation Plan, as the same now exists or may be amended hereafter (the "EDCP"). If the participant chooses to defer the Award, the Award shall be converted into the right to receive a cash payment.
(d) Award Deferral to the EDCP. In the event that all or any portion of an Award is converted into a right to receive a cash payment pursuant to Sections 9(b) or 9(c), an amount representing the Fair Market Value, as of the date the Common Stock covered by the Award otherwise would be delivered to the participant, of the Actual Grant Amount (or the deferred portion thereof) will be credited to the Stock Account of the EDCP, and hypothetically invested in units of Common Stock. Thereafter, such amount shall be treated in the same manner as other investments in the EDCP and shall be subject to the terms and conditions thereof.
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 16 (relating to
nonassignability), Section 17 (relating to adjustment of shares available),
Section 18 (relating to withholding taxes), Section 19 (relating to
noncompetition and confidentiality), Section 20 (relating to regulatory
approvals and listings), Section 22 (relating to the governing law), Section 23
(relating to changes in ownership), Section 24 (relating to changes in control),
Section 25 (relating to no rights, title, or interest in Company assets), and
Section 26 (relating to securities laws) shall apply to this Subplan.
Section 12. Amendments. The Committee may, from time to time, amend this Subplan in any manner.
EXHIBIT A
EASTMAN CHEMICAL COMPANY LTPP GRANT TABLE
1997-1999 CYCLE
TARGET GRANT AMOUNT
Original on File in Management Compensation
EXHIBIT B
COMPANIES IN THE PEER GROUP
Air Products and Chemicals, Inc.
ARCO Chemical Company
Crompton & Knowles Corporation
Dow Chemical Company
E. I. du Pont de Nemours and Company
H. B. Fuller Company
The Geon Company
Georgia Gulf Corporation
W. G. Grace, Inc.
Great Lakes Chemical Corporation
M. A. Hanna Company
Hercules Chemical Corporation
Lyondell Petrochemical Company
Millenium
Morton International, Inc.
Rohm and Haas Company
Union Carbide Corporation
Wellman, Inc.
Witco Corporation
EXHIBIT C
EASTMAN CHEMICAL COMPANY
LONG-TERM PERFORMANCE PLAN
Eastman's TSR Payout Multiplier
Ranking (Times Target Grant Amount)
1 2.0 X
2 1.9 X
3 1.8 X
4 1.7 X
5 1.6 X
6 1.5 X
7 1.4 X
8 1.3 X
9 1.2 X
10 1.1 X
11 0.9 X
12 0.7 X
13 0.5 X
14 0.3 X
15 0.1 X
16 0.0 X
17 0.0 X
18 0.0 X
19 0.0 X
20 0.0 X
|
EXHIBIT 11.01
EASTMAN CHEMICAL COMPANY SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
1996 1995 1994
EARNINGS $ 380 $ 559 $ 336
========= ========= =========
PRIMARY EARNINGS PER SHARE
Average number of common shares outstanding 78.5 81.7 82.7
Common share equivalents (1) 0.7 0.7 0.3
--------- --------- ---------
Average number of common shares and share equivalents 79.2 82.4 83.0
========= ========= =========
Primary earnings per share (1) $ 4.80 $ 6.78 $ 4.05
========= ========= =========
FULLY DILUTED EARNINGS PER SHARE
Average number of common shares outstanding 78.5 81.7 82.7
Common share equivalents (1) 0.8 0.9 0.3
--------- --------- ---------
Average number of common shares and share equivalents 79.3 82.6 83.0
========= ========= =========
Fully diluted earnings per share $ 4.79 $ 6.77 $ 4.05
========= ========= =========
|
(1) Common share equivalents of the Company represent the effect of dilutive stock options outstanding during the period.
EXHIBIT 12.01
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
(DOLLARS IN MILLIONS)
1996 1995 1994 1993(1) 1992(1)
Earnings from continuing
operations before provision
for income taxes $ 607 $ 899 $ 550 $ 439 $ 483
Add:
Interest expense 67 79 87 7 3
Rental expense(2) 22 16 7 11 8
Amortization of
capitalized interest 14 13 15 15 14
--------- --------- --------- --------- ---------
Earnings as adjusted $ 710 $ 1,007 $ 659 $ 472 $ 508
========= ========= ========= ========= =========
Fixed charges:
Interest expense $ 67 $ 79 $ 87 $ 7 $ 3
Rental expense(2) 22 16 7 11 8
Capitalized interest 28 9 11 24 27
--------- --------- --------- --------- ---------
Total fixed charges $ 117 $ 104 $ 105 $ 42 $ 38
========= ========= ========= ========= =========
Ratio of earnings to fixed charges 6.1x 9.7x 6.3x 11.2x 13.4x
========= ========= ========= ========= =========
|
(1) The historical amounts for 1992-1993 as presented above, were determined during periods when the Company was a wholly owned chemical business of Kodak. If the Company was an independent publicly held entity during these years, the pro forma ratio of earnings to fixed charges would approximate 4.1x and 3.7x for 1992 and 1993, respectively, reflecting the assumption of $1,800 million of new borrowings at a 6% annual interest rate, and adjustments for pension, postretirement and certain other employee benefit costs. These costs were not allocated to the Company by Kodak during 1992-1993 and therefore, are not included in the historical amounts presented above.
(2) For all periods presented, the interest component of rental expense is estimated to equal one-third of such expense.
EXHIBIT 21.01
SUBSIDIARIES
JURISDICTION OF
INCORPORATION
NAME OF SUBSIDIARY OR ORGANIZATION
ABCO Industries, Incorporated South Carolina
Eastman Chemical Argentina S.A. Argentina
Eastman Chemical, Asia Pacific Pte. Ltd. Singapore
Eastman Chemical Brasileira Ltd. Brazil
Eastman Chemical B.V. Netherlands
Eastman Chemical Canada, Inc. Canada
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 Foreign Sales Corporation Barbados
Eastman Chemical Company Foundation, Inc. Tennessee
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 (Malaysia) Sdn. Bhd. Malaysia
Eastman Chemical Mexicana S.A. de C.V. Mexico
Eastman Chemical, Netherlands B.V. Amsterdam Netherlands
Eastman Chemical S. Com P.A. Spain
Eastman Chemical Singapore Pte. Ltd. Singapore
Eastman Chemical (UK) Limited United Kingdom
|
SUBSIDIARIES
JURISDICTION OF
INCORPORATION
NAME OF SUBSIDIARY OR ORGANIZATION
Eastman International Management Company Tennessee
Enterprise Genetics, Inc. Nevada
Hartlepet, Limited United Kingdom
Holston Defense Corporation Virginia
Mustang Pipeline Company Texas
Pinto Pipeline Company of Texas Texas
Workington Investments Limited United Kingdom
|
EXHIBIT 23.01
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby 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 21, 1997 relating to the consolidated financial statements of Eastman Chemical Company appearing on page 30 of this Annual Report on Form 10-K.
/s/ Price Waterhouse LLP - --------------------------------------- PRICE WATERHOUSE LLP New York, New York March 12, 1997 |
| ARTICLE 5 |
| THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF EASTMAN CHEMICAL COMPANY FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. |
| MULTIPLIER: 1,000,000 |
| PERIOD TYPE | YEAR |
| FISCAL YEAR END | DEC 31 1996 |
| PERIOD START | JAN 01 1996 |
| PERIOD END | DEC 31 1996 |
| CASH | 24 |
| SECURITIES | 0 |
| RECEIVABLES | 744 1 |
| ALLOWANCES | 0 |
| INVENTORY | 465 |
| CURRENT ASSETS | 1,345 |
| PP&E | 7,530 |
| DEPRECIATION | 4,010 |
| TOTAL ASSETS | 5,266 |
| CURRENT LIABILITIES | 787 |
| BONDS | 1,523 |
| PREFERRED MANDATORY | 0 |
| PREFERRED | 0 |
| COMMON | 1 |
| OTHER SE | 1,638 |
| TOTAL LIABILITY AND EQUITY | 5,266 |
| SALES | 4,782 |
| TOTAL REVENUES | 4,782 |
| CGS | 3,603 |
| TOTAL COSTS | 3,603 |
| OTHER EXPENSES | 516 |
| LOSS PROVISION | 0 |
| INTEREST EXPENSE | 67 |
| INCOME PRETAX | 607 |
| INCOME TAX | 227 |
| INCOME CONTINUING | 380 |
| DISCONTINUED | 0 |
| EXTRAORDINARY | 0 |
| CHANGES | 0 |
| NET INCOME | 380 |
| EPS PRIMARY | 4.80 |
| EPS DILUTED | 4.80 |
| 1 | ASSET VALUES REPRESENT NET AMOUNTS |
EXHIBIT 99.01
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
SUPPLEMENTAL BUSINESS SEGMENT INFORMATION
1996 CHANGE FROM 1995
FOURTH QUARTER TWELVE MONTHS
% CHANGE OPERATING % CHANGE OPERATING
SALES VOLUME EARNINGS(1) SALES VOLUME EARNINGS(1)
SPECIALTY & PERFORMANCE SEGMENT (2)
Specialty plastics (5)% 7 % ++ (1)% 3 % ++
Performance chemicals (7)% (8)% -- (2)% (3)% ++
Fine chemicals (15)% (15)% -- (4)% (4)% --
Fibers (3)% (7)% ++ 7 % 1 % ++
Coatings, inks & resins 9 % 14 % - 3 % 6 % -
Total Segment (5)% (3)% 20 % - % - % 20 %
======= ======= ========= ======= ======= =========
CORE PLASTICS SEGMENT (2)
Container plastics (37)% 12 % -- (21)% 1 % --
Flexible plastics 10 % 4 % -- (7)% 2 % --
Total Segment (22)% 10 % (156)% (16)% 1 % (100)%
======= ======= ========= ======= ======= =========
CHEMICAL INTERMEDIATES SEGMENT (2)
Industrial intermediates 7 % 13 % -- 1 % 9 % --
Total Segment 7 % 13 % (39)% 1 % 9 % (21)%
======= ======= ========= ======= ======= =========
Total Eastman (9)% 3 % (46)% (5)% 2 % (31)%
======= ======= ========= ======= ======= =========
|
- ------------------------------
(1) 0 = Change of approximately 0 - 2% (+ or -)
+ = Increase of approximately 2 - 10%
++ = Increase of greater than 10%
- = Decrease of approximately (2) - (10)%
-- = Decrease of greater than (10%)
Sm = Negligible change in dollar amount
Nm = Not meaningful
|
(2) In 1996 the Company created a new business segment, Core Plastics, and renamed the remaining two segments. The Company believes that the new segmentation will provide more useful information for decision-making and for understanding the Company's financial results. The 1995 results have been restated to conform to the 1996 presentation.
EXHIBIT 99.02
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
RESTATED BUSINESS SEGMENT INFORMATION
QUARTERLY SALES AND EARNINGS INFORMATION(1)
(DOLLARS IN MILLIONS) FIRST SECOND THIRD FOURTH TOTAL
QUARTER QUARTER QUARTER QUARTER YEAR
SPECIALTY AND PERFORMANCE
Sales
1996 $ 663 $ 686 $ 674 $ 634 $ 2,657
1995 651 680 649 667 2,647
1994 549 575 609 631 2,364
Operating earnings
1996 $ 119 $ 139 $ 139 $ 122 $ 519
1995 97 115 119 102 433
1994 71 90 97 92 350
CORE PLASTICS
Sales
1996 $ 423 $ 373 $ 311 $ 302 $ 1,409
1995 407 448 441 389 1,685
1994 302 333 372 383 1,390
Operating earnings (losses)
1996 $ 40 $ 8 $ (14) $ (35) $ (1)
1995 92 97 94 64 347
1994 28 44 56 71 199
CHEMICAL INTERMEDIATES
Sales
1996 $ 175 $ 182 $ 182 $ 177 $ 716
1995 174 193 176 165 708
1994 132 139 149 155 575
Operating earnings
1996 $ 32 $ 43 $ 44 $ 26 $ 145
1995 39 53 47 45 184
1994 18 20 26 23 87
|
(1) In 1996 the Company created a new business segment, Core Plastics, and renamed the remaining two segments. The Company believes that the new segmentation will provide more useful information for decision-making and for understanding the Company's financial results. Prior periods have been restated to conform to the 1996 presentation. See Management's Discussion and Analysis of Financial Condition and Results of Operations - Summary by Industry Segment and Note 14 to the consolidated financial statements.