1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission file number 1-12626
EASTMAN CHEMICAL COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 62-1539359
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 N. EASTMAN ROAD
KINGSPORT, TENNESSEE 37660
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (423) 229-2000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Number of Shares Outstanding at
Class June 30, 1999
Common Stock, par value $0.01 per share 78,205,777
(including rights to purchase shares of
Common Stock or Participating Preferred Stock)
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PAGE 1 OF 54 TOTAL SEQUENTIALLY NUMBERED PAGES
EXHIBIT INDEX ON PAGE 25
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TABLE OF CONTENTS
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ITEM PAGE
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PART I. FINANCIAL INFORMATION
1. Financial Statements 3-10
2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 11-19
PART II. OTHER INFORMATION
1. Legal Proceedings 20-21
4. Submission of Matters to a Vote of Security Holders 21-22
5. Other Information 22
6. Exhibits and Reports on Form 8-K 23
SIGNATURES
Signatures 24
2
3
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS, COMPREHENSIVE INCOME,
AND RETAINED EARNINGS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
SECOND QUARTER FIRST SIX MONTHS
1999 1998 1999 1998
EARNINGS
Sales $ 1,122 $ 1,165 $ 2,145 $ 2,313
Cost of sales 897 868 1,726 1,762
------- ------- ------- -------
Gross profit 225 297 419 551
Selling and general administrative expenses 83 85 159 160
Research and development costs 46 48 93 94
------- ------- ------- -------
Operating earnings 96 164 167 297
Interest expense, net 28 21 54 42
Other (income) charges, net 4 (6) 12 (8)
------- ------- ------- -------
Earnings before income taxes 64 149 101 263
Provision for income taxes 21 52 33 92
------- ------- ------- -------
Net earnings $ 43 $ 97 $ 68 $ 171
======= ======= ======= =======
Earnings per share
--Basic $ .55 $ 1.22 $ .86 $ 2.17
======= ======= ======= =======
--Diluted $ .54 $ 1.21 $ .86 $ 2.15
======= ======= ======= =======
COMPREHENSIVE INCOME
Net earnings $ 43 $ 97 $ 68 $ 171
Other comprehensive loss (13) (2) (42) (3)
------- ------- ------- -------
Comprehensive income $ 30 $ 95 $ 26 $ 168
======= ======= ======= =======
RETAINED EARNINGS
Retained earnings at beginning of period $ 2,178 $ 2,117 $ 2,188 $ 2,078
Net earnings 43 97 68 171
Cash dividends declared (35) (35) (70) (70)
------- ------- ------- -------
Retained earnings at end of period $ 2,186 $ 2,179 $ 2,186 $ 2,179
======= ======= ======= =======
The accompanying notes are an integral part of these financial statements.
3
4
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(DOLLARS IN MILLIONS)
JUNE 30, DECEMBER 31,
1999 1998
ASSETS
Current assets
Cash and cash equivalents $ 90 $ 29
Receivables 680 759
Inventories 503 493
Other current assets 135 117
------- -------
Total current assets 1,408 1,398
------- -------
Properties
Properties and equipment at cost 8,644 8,594
Less: Accumulated depreciation 4,711 4,560
------- -------
Net properties 3,933 4,034
------- -------
Other noncurrent assets 820 418
------- -------
Total assets $ 6,161 $ 5,850
======= =======
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities
Payables and other current liabilities $ 860 $ 959
------- -------
Total current liabilities 860 959
Long-term borrowings 2,085 1,649
Deferred income tax credits 435 415
Postemployment obligations 775 712
Other long-term liabilities 166 181
------- -------
Total liabilities 4,321 3,916
------- -------
Shareowners' equity
Common stock ($0.01 par-350,000,000 shares authorized;
shares issued - 84,469,143 and 84,432,114) 1 1
Paid-in capital 94 94
Retained earnings 2,186 2,188
Other comprehensive loss (60) (18)
------- -------
2,221 2,265
Less: Treasury stock at cost (6,421,790 and 5,326,990 shares) 381 331
------- -------
Total shareowners' equity 1,840 1,934
------- -------
Total liabilities and shareowners' equity $ 6,161 $ 5,850
======= =======
The accompanying notes are an integral part of these financial statements.
4
5
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN MILLIONS)
FIRST SIX MONTHS
1999 1998
Cash flows from operating activities
Net earnings $ 68 $ 171
------- -------
Adjustments to reconcile net earnings to net
cash provided by operating activities
Depreciation 177 168
Provision (benefit) for deferred income taxes (6) 25
(Increase) decrease in receivables 78 (89)
Increase in inventories (12) (56)
Decrease in incentive pay and
employee benefit liabilities (74) (32)
Increase (decrease) in liabilities excluding borrowings,
incentive pay, and employee benefit liabilities 19 (6)
Other items, net 26 28
------- -------
Total adjustments 208 38
------- -------
Net cash provided by operating activities 276 209
------- -------
Cash flows from investing activities
Additions to properties and equipment (134) (268)
Acquisitions, net of cash acquired (376) -
Proceeds from sales of assets - 1
Capital advances to suppliers (21) (21)
------- -------
Net cash used in investing activities (531) (288)
------- -------
Cash flows from financing activities
Net increase in commercial paper borrowings 436 139
Dividends paid to shareowners (70) (70)
Treasury stock purchases (51) -
Other items 1 14
------- -------
Net cash provided by financing activities 316 83
------- -------
Net change in cash and cash equivalents 61 4
Cash and cash equivalents at beginning of period 29 29
------- -------
Cash and cash equivalents at end of period $ 90 $ 33
======= =======
The accompanying notes are an integral part of these financial statements.
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6
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements have
been prepared by the Company in accordance and consistent with the
accounting policies stated in the Company's 1998 Annual Report on Form 10-K
and should be read in conjunction with the consolidated financial
statements appearing therein. In the opinion of the Company, all normally
recurring adjustments necessary for a fair presentation have been included
in the unaudited interim consolidated financial statements. The unaudited
interim consolidated financial statements are based in part on estimates
made by management.
The Company has reclassified certain 1998 amounts to conform to the 1999
presentation.
2. SECURITIZATION OF ACCOUNTS RECEIVABLE
On April 13, 1999, the Company entered into an agreement that will allow
the Company to sell certain domestic accounts receivable under a planned
continuous sale program to a third party. The agreement permits the sale of
undivided interests in domestic trade accounts receivable. As of the date
of this filing, receivables totaling $75 million had been sold to the third
party. Undivided interests in designated receivable pools were sold to the
purchaser with recourse limited to the receivables purchased. Fees to be
paid by the Company under this agreement are based on certain variable
market rate indices and are included in other (income) charges, net, in the
Consolidated Statements of Earnings, Comprehensive Income, and Retained
Earnings.
3. INVENTORIES
JUNE 30, DECEMBER 31,
(Dollars in millions) 1999 1998
At FIFO or average cost (approximates current cost):
Finished goods $ 409 $ 409
Work in process 142 138
Raw materials and supplies 192 203
------- -------
Total inventories 743 750
Reduction to LIFO value (240) (257)
------- -------
Total inventories at LIFO value $ 503 $ 493
======= =======
Inventories valued on the LIFO method are approximately 70% of total
inventories in each of the periods.
4. ACQUISITION OF LAWTER INTERNATIONAL, INC.
On June 9, 1999, the Company completed its acquisition of Lawter
International, Inc. ("Lawter"), a company that develops, produces and
markets specialty products for the inks and coatings market. The purchase
price included cash consideration of $364 million (net of $41 million cash
acquired) and the assumption of $145 million of Lawter's debt. The
historical book value of Lawter's net assets, excluding cash acquired and
debt assumed, was $133 million at the acquisition date.
This transaction, which was funded through commercial paper borrowings,
will be accounted for as a purchase. At June 30, 1999, the Company has
included its investment in Lawter in other non-current
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7
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
assets in the Consolidated Statement of Financial Position. The purchase
price will be allocated based on fair values of assets acquired and
liabilities assumed, pending the completion of an independent appraisal
currently underway. The excess of purchase price over fair value of
identified tangible and intangible net assets acquired will be allocated to
goodwill and amortized on a straight-line basis over 40 years.
The Company has included in its consolidated financial statements the
results of operations of Lawter from the date of acquisition. Assuming this
acquisition had been made at January 1, 1999 and 1998, the pro forma
results for the three and six months 1999 and 1998 would not be materially
different from reported results.
5. SEGMENT INFORMATION
FIRST SIX MONTHS
(Dollars in millions) 1999 1998
SALES
Specialty and Performance $ 1,325 $ 1,394
Core Plastics 496 558
Chemical Intermediates 324 361
------- -------
Consolidated Eastman total $ 2,145 $ 2,313
======= =======
OPERATING EARNINGS (LOSS)
Specialty and Performance $ 178 $ 220
Core Plastics (53) 2
Chemical Intermediates 42 75
------- -------
Consolidated Eastman total $ 167 $ 297
======= =======
JUNE 30, DECEMBER 31,
1999 1998
ASSETS
Specialty and Performance $ 3,770 $ 3,395
Core Plastics 1,781 1,822
Chemical Intermediates 610 633
------- -------
Consolidated Eastman total $ 6,161 $ 5,850
======= =======
6. HOLSTON DEFENSE CORPORATION
Holston Defense Corporation ("Holston"), a wholly owned subsidiary of the
Company, managed, as its primary business, the government-owned Holston
Army Ammunition Plant in Kingsport, Tennessee (the "Facility") under a
series of contracts with the Department of Army (the "DOA") from 1949 until
expiration of the Contract (the "Contract") on December 31, 1998. The DOA
awarded a contract to manage the Facility to a third party commencing
January 1, 1999.
The Contract provided for payment of a management fee to Holston and
reimbursement by the DOA of allowable costs incurred for the operation of
the Facility. Holston's operating results were historically insignificant
to the Company's consolidated sales and earnings.
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8
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pension and other postretirement benefits were provided to Holston's
employees under the terms of Holston's employee benefit plans. In prior
reporting periods, the Company has recognized, in accordance with generally
accepted accounting principles, a charge to earnings of approximately $75
million for pension and other postretirement benefit obligations related to
Holston's management of the Facility under the Contract. The Company
expects that the DOA will reimburse these pension and other postretirement
benefit obligations and such amounts will be credited to earnings at the
time of receipt of reimbursement from the DOA. The reimbursement may or may
not occur in a single payment. In addition to the above, the Company
previously recognized a receivable of $48 million from the DOA for pension
obligations and termination costs related to expiration of the Contract.
Approximately $39 million of this receivable was collected in second
quarter 1999.
Holston terminated its pension plan in a standard termination as of January
1, 1999. In order to terminate the pension plan in a standard termination,
the assets of the plan had to be sufficient to provide all benefit
liabilities with respect to each participant. The ending of Holston's
operation of the Facility also resulted in obligations for severance pay to
eligible Holston employees (the amount based on length of service). The
Company advanced approximately $44 million through June 30, 1999 to fund
these liabilities due to delays in payment by the DOA. The Company will
likely be required to advance additional funds to pay pension benefit
liabilities and termination costs if there are further delays in payment or
reimbursement by the DOA.
As previously reported, the Company is negotiating with the DOA the
settlement of certain postretirement benefit obligations. The Company's
potential obligation for these postretirement benefits, if any, in excess
of the negotiated amount will be recognized as a liability at such time
that it is probable and reasonably estimable that projected benefit
obligations exceed assets provided by the DOA. The Company expects that the
DOA will reimburse the Company for all costs associated with operation of
the Facility and expiration of the Contract.
Although the DOA's position with respect to similar contracts is that it
has no legal liability for unfunded postretirement benefit costs, other
than pension obligations, and the DOA may disagree with the specific amount
of other postretirement obligations, it is the opinion of the Company,
based on the Contract terms, applicable law, and legal and equitable
precedents, that substantially all of the other postretirement benefit
costs will be paid by the DOA or recovered from the government in related
proceedings, and that the amounts, if any, not paid or recovered, or the
advancement of funds by the Company pending such reimbursement or recovery,
should not have a material adverse effect on the consolidated financial
position or results of operations of the Company.
7. PAYABLES AND OTHER CURRENT LIABILITIES
JUNE 30, DECEMBER 31,
(Dollars in millions) 1999 1998
Trade creditors $ 309 $ 316
Accrued payrolls and vacation 95 100
Accrued variable-incentive compensation 24 74
Accrued pension liabilities 103 182
Accrued taxes 107 58
Accrued interest 45 43
Other 177 186
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Total $ 860 $ 959
======= =======
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9
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. AMENDMENT OF RETIREMENT PLAN
In June 1999, the Company announced amendments to its defined benefit
pension plan, the Eastman Retirement Assistance Plan, and its
postretirement welfare plans effective January 1, 2000. The amended defined
benefit pension plan will use a new pension equity formula based on age and
years of service to calculate an employee's retirement benefit under the
revised plan provisions. The Company's 1999 pension and postretirement
welfare expenses were remeasured as of June 1, 1999 based on amended plan
provisions using the assumptions set forth in the Company's 1998
consolidated financial statements, except for the changes listed in the
following table:
WEIGHTED-AVERAGE ASSUMPTIONS AS OF: JUNE 1, 1999 DECEMBER 31, 1998
---------------------------------------------------------------------------------------
Discount rate 7.50% 6.75%
Rate of compensation increase 4.00% 3.75%
The plan amendments and changes in plan assumptions will result in a
decrease in 1999 pension and postretirement benefits expense of
approximately $37 million. Approximately $24 million relates to plan
amendments and $13 million relates to changes in plan assumptions.
9. DIVIDENDS
SECOND QUARTER FIRST SIX MONTHS
1999 1998 1999 1998
Cash dividends declared per share $ .44 $ .44 $ .88 $ .88
10. EARNINGS PER SHARE
SECOND QUARTER FIRST SIX MONTHS
1999 1998 1999 1998
Shares used for earnings per share calculation
(in millions):
--Basic 78.0 79.0 78.3 78.7
--Diluted 78.4 79.9 78.6 79.5
Certain shares underlying options outstanding during the second quarters of
1999 and 1998 were excluded from the computation of diluted earnings per
share because the options' exercise prices were greater than the average
market price of the common shares. Excluded from second quarter 1999 and
1998 calculations were shares underlying options to purchase 1,914,448
shares of common stock at a range of prices from $52.0625 to $74.25 and
19,461 shares of common stock at a range of prices from $68.3875 to $74.25,
respectively. Excluded from the year to date 1999 and 1998 calculations
were shares underlying options to purchase 1,915,720 common shares at a
range of prices from $50.6250 to $74.25 and 77,960 common shares at a range
of prices from $66.125 to $74.25, respectively.
Additionally, 200,000 shares underlying an option issued to the Chief
Executive Officer in third quarter 1997 were excluded from diluted earnings
per share calculations because the conditions to exercise had not been met
as to any of the shares as of June 30, 1999.
9
10
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. SUPPLEMENTAL CASH FLOW INFORMATION
On June 9, 1999 the Company completed its acquisition of Lawter
International, Inc. which then became a wholly owned subsidiary of Eastman
(see Note 4). On February 1, 1999 the Company acquired the North American
textile chemical business of Rhodia Inc.
In March 1998, the Company issued 536,188 treasury shares to its Employee
Stock Ownership Plan as partial settlement of the Company's Eastman
Performance Plan payout. The shares issued had a market value of $35
million and a carrying value of $33 million. This noncash transaction is
not reflected in the Consolidated Statement of Cash Flows.
10
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the Company's consolidated
financial statements and Management's Discussion and Analysis contained in the
1998 Annual Report on Form 10-K and the unaudited interim consolidated
financial statements included elsewhere in this report. All references to
earnings per share contained in this report are diluted earnings per share
unless otherwise noted.
RESULTS OF OPERATIONS
EARNINGS
(Dollars in millions, except SECOND QUARTER FIRST SIX MONTHS
per share amounts) 1999 1998 CHANGE 1999 1998 CHANGE
Operating earnings $ 96 $ 164 (41)% $ 167 $ 297 (44)%
Net earnings 43 97 (56)% 68 171 (60)%
Earnings per share
--Basic .55 1.22 (55)% .86 2.17 (60)%
--Diluted .54 1.21 (55)% .86 2.15 (60)%
Although sales volumes improved overall for the quarter and six months, results
reflect a continuation of global economic conditions which exerted extreme
pressure on selling prices, negatively impacting every segment and region.
Lower selling prices worldwide were particularly evident for EASTAPAK polymers,
a result of excess industry capacity for polyethylene terephthalate ("PET").
Decreased volumes for filter products sold in North America and Asia Pacific
and lower selling prices for oxo products sold in North America also had a
significant negative impact on sales and earnings for the second quarter.
For second quarter and six months, cost structure improvements resulting from
the Company's Advantaged Cost 2000 initiative positively affected results.
Also, positively impacting six months results were lower raw materials and
preproduction costs.
SUMMARY BY OPERATING SEGMENT
(Dollars in millions)
SPECIALTY AND PERFORMANCE SEGMENT
SECOND QUARTER FIRST SIX MONTHS
1999 1998 CHANGE 1999 1998 CHANGE
Sales $ 693 $ 709 (2)% $ 1,325 $ 1,394 (5)%
Operating earnings 95 115 (17) 178 220 (19)
Sales volumes improved significantly overall but revenues declined due to
economic conditions and competitive markets, which pressured selling prices for
all product lines. Sales and earnings were also negatively impacted by product
mix. Specialty plastics volumes improved but lower selling prices more than
offset the volume improvements. EASTAPAK polymers and cellulosic plastics
declines were more than offset by higher volume on specialty flexible plastics,
including strong volume growth for SPECTAR. Sales revenues declined for fibers,
mainly due to lower volumes.
11
12
Improved revenues for performance chemicals products were mainly attributable
to increased volume, which more than offset the negative effects of lower
prices and mix. Recent acquisitions contributed to improved volume for
coatings, inks and resins products, although pricing pressures continue. Sales
volumes for fine chemicals improved but a shift in the mix of products sold had
a negative impact on revenues.
Operating earnings were negatively impacted by the decline in selling prices.
For second quarter and six months, however, the impact of lower selling prices
was partially offset by cost structure improvements resulting from the Company's
Advantage Cost 2000 initiative. Additionally, six months results were also
favorably affected by lower raw materials costs.
CORE PLASTICS SEGMENT
SECOND QUARTER FIRST SIX MONTHS
1999 1998 CHANGE 1999 1998 CHANGE
Sales $ 267 $ 283 (6)% $ 496 $ 558 (11)%
Operating earnings (loss) (17) 12 >(100) (53) 2 >(100)
The availability of new EASTAPAK polymers manufacturing capacity in Europe and
Latin America contributed to significantly improved sales volume. The effect of
increased volume, however, was more than offset by the negative impact of lower
selling prices, particularly in North America and Europe.
Although negatively affected by the decline in selling prices, the impact on
operating earnings for the second quarter and six months was partially offset by
higher volumes and cost structure improvements resulting from the Company's
Advantaged Cost 2000 initiative. Also favorably affecting results for six months
were lower raw materials and preproduction costs. Operating earnings for
flexible plastics increased for second quarter due to margin improvements aided
by recent price increases.
CHEMICAL INTERMEDIATES SEGMENT
SECOND QUARTER FIRST SIX MONTHS
1999 1998 CHANGE 1999 1998 CHANGE
Sales $ 162 $ 173 (6)% $ 324 $ 361 (10)%
Operating earnings 18 37 (51) 42 75 (44)
Higher volumes were more than offset by price declines resulting in lower
revenues. Sales and earnings were lower due to lower selling prices, primarily
for oxo products. Cost structure improvements resulting from the Company's
Advantaged Cost 2000 initiative partially offset the impact of lower selling
prices for second quarter and for six months. Lower raw materials costs also
positively impacted results for six months.
(For supplemental analysis of Specialty and Performance, Core Plastics, and
Chemical Intermediates segment results, see Exhibit 99.01 to this Form 10-Q.)
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SUMMARY BY CUSTOMER LOCATION
(Dollars in millions)
SALES BY REGION
SECOND QUARTER FIRST SIX MONTHS
1999 1998 CHANGE 1999 1998 CHANGE
United States and Canada $ 708 $ 778 (9)% $ 1,370 $ 1,532 (11)%
Asia Pacific 112 106 6 223 204 9
Europe, Middle East, and Africa 213 195 9 387 402 (4)
Latin America 89 86 3 165 175 (6)
Sales in the United States for second quarter 1999 were $657 million, down 10%
from second quarter 1998 sales of $727 million. Sales volumes improved in North
America but lower selling prices, particularly for EASTAPAK polymers, resulted
in lower revenues. For six months, sales revenues in the United States declined
11% to $1.276 billion in 1999 compared to $1.440 billion in 1998. Significant
sales volume improvements for six months were offset by selling price declines
and a shift in the mix of products sold.
Sales outside the United States for second quarter 1999 were $465 million, up
6% from 1998 second quarter sales of $438 million. Sales outside the United
States were 41% of total sales in second quarter 1999 compared with 38% for
second quarter 1998. Significantly higher sales volumes outside the United
States for the quarter more than offset the negative impact of lower selling
prices and product mix. Increased sales in Asia Pacific resulted from higher
sales volumes for oxo products, although prices were lower. In Europe, improved
sales revenues were attributable to significantly increased sales volumes for
EASTAPAK polymers and coatings, inks and resins products, partially offset by
lower selling prices and the negative impact of foreign exchange losses.
Increased sales volumes in Latin America, particularly for EASTAPAK polymers,
resulted in higher revenues, although selling prices declined.
SUMMARY OF CONSOLIDATED RESULTS
(Dollars in millions)
SECOND QUARTER FIRST SIX MONTHS
1999 1998 CHANGE 1999 1998 CHANGE
SALES $ 1,122 $ 1,165 (4)% $ 2,145 $ 2,313 (7)%
Sales volumes overall were significantly higher in second quarter and six
months, but revenues declined as a result of lower selling prices and a shift
in product mix.
SECOND QUARTER FIRST SIX MONTHS
1999 1998 CHANGE 1999 1998 CHANGE
GROSS PROFIT $ 225 $ 297 (24)% $ 419 $ 551 (24)%
As a percentage of sales 20.1% 25.5% 19.5% 23.8%
Gross profit declined primarily as a result of significantly lower selling
prices and a shift in the mix of products sold. Cost of sales for second
quarter reflected significantly higher selling volumes, lower preproduction
costs resulting from the 1998 and early 1999 start up of several new
manufacturing sites, and cost structure improvements resulting from the
Company's Advantaged Cost 2000 initiative.
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SECOND QUARTER FIRST SIX MONTHS
1999 1998 CHANGE 1999 1998 CHANGE
SELLING AND GENERAL
ADMINISTRATIVE EXPENSES $ 83 $ 85 (2)% $ 159 $ 160 (1)%
As a percentage of sales 7.4% 7.3% 7.4% 6.9%
RESEARCH AND
DEVELOPMENT COSTS $ 46 $ 48 (4)% $ 93 $ 94 (1)%
As a percentage of sales 4.1% 4.1% 4.3% 4.1%
INTEREST COSTS $ 32 $ 33 $ 63 $ 65
LESS CAPITALIZED INTEREST 4 12 9 23
------ ------ ------ ------
NET INTEREST EXPENSE $ 28 $ 21 $ 54 $ 42 29%
====== ====== 33% ====== ======
Increased interest expense for second quarter and six months reflects decreased
capitalized interest, resulting from the 1998 and early 1999 completion of
several major capital projects, and increased commercial paper borrowings.
SECOND QUARTER FIRST SIX MONTHS
1999 1998 CHANGE 1999 1998 CHANGE
OTHER INCOME (CHARGES), NET $ (4) $ 6 >(100)% $ (12) $ 8 >(100)%
Other income and charges include interest income and royalty income, gains and
losses on asset sales, results from equity investments, foreign exchange
transactions, and other items. The change in other income for second quarter
was due primarily to the negative impact of foreign exchange rates on company
operations.
LIQUIDITY, CAPITAL RESOURCES AND OTHER FINANCIAL DATA
FINANCIAL INDICATORS 1999 1998
For the first six months:
Ratio of earnings to fixed charges 2.4x 4.2x
At the periods ended June 30, 1999 and December 31, 1998:
Current ratio 1.6x 1.5x
Percent of long-term borrowings to total capital* 55% 46%
Percent of floating-rate borrowings to total borrowings* 25% 7%
*Includes Lawter International, Inc. debt assumed.
CASH FLOW FIRST SIX MONTHS
(Dollars in millions) 1999 1998
Net cash provided by (used in)
Operating activities $ 276 $ 209
Investing activities (531) (288)
Financing activities 316 83
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Net change in cash and cash equivalents $ 61 $ 4
======= =======
Cash and cash equivalents at end of period $ 90 $ 33
======= =======
14
15
Cash provided by operations increased due to the sale of receivables to a third
party and reimbursements received from the Department of Army related to
Holston Defense Corporation, partially offset by the funding of Company
obligations to the Employee Stock Ownership Plan (such obligation having been
funded with treasury stock in 1998), and funding of pension plans. Cash used in
investing activities increased as a result of acquisition activity in 1999. The
change in cash provided by financing activities reflects an increase in
commercial paper borrowings to fund acquisitions and treasury stock purchases
in 1999.
CAPITAL EXPENDITURES AND OTHER COMMITMENTS
For 1999, the Company estimates that depreciation will be $360 million and that
capital expenditures will be equal to or less than depreciation. Capital
expenditures through June 30, 1999 were $134 million. Long-term commitments
related to planned capital expenditures are not material. The Company had
various purchase commitments at June 30, 1999 for materials, supplies, and
energy incident to the ordinary conduct of business. These commitments
approximate $2 billion over 15 years.
LIQUIDITY
Eastman has access to an $800 million revolving credit facility (the "Credit
Facility") expiring in December 2000. Although the Company does not have any
amounts outstanding under the Credit Facility, any such borrowings would be
subject to interest at varying spreads above quoted market rates, principally
LIBOR. The Credit Facility also requires a facility fee on the total commitment
that varies based on Eastman's credit rating. The rate for such fee was 0.085%
as of June 30, 1999. The Credit Facility contains a number of covenants and
events of default, including the maintenance of certain financial ratios.
Eastman was in compliance with all such covenants for all periods.
Eastman utilizes commercial paper, generally with maturities of 90 days or
less, to meet its liquidity needs. The Company's commercial paper, supported by
the Credit Facility, is classified as long-term borrowings because the Company
has the ability and intent to refinance such borrowings long term. As of
June 30, 1999, the Company's commercial paper outstanding balance was
$560 million at an effective interest rate of 5.17%. At June 30, 1998, the
Company's commercial paper outstanding balance was $352 million at an effective
interest rate of 5.73%.
The Company has an effective registration statement on file with the Securities
and Exchange Commission to issue up to $1 billion of debt or equity securities.
No securities have been sold from this shelf registration.
During 1998, the Company issued $23 million of tax-exempt bonds at variable
interest rates, the proceeds of which are to be used for the construction of
certain solid waste disposal facilities in Kingsport, Tennessee. The proceeds
from this issuance are held in trust and become available to the Company as
expenditures are made for construction of the designated solid waste disposal
facilities. Approximately $5 million of qualifying expenditures related to
these projects had been made as of June 30, 1999.
On April 13, 1999, the Company entered into an agreement that will allow the
Company to sell certain domestic accounts receivable under a planned continuous
sale program to a third party. The agreement permits the sale of undivided
interests in domestic trade accounts receivable. As of the date of this filing,
receivables totaling $75 million had been sold to the third party. Undivided
interests in designated receivable pools were sold to the purchaser with
recourse limited to the receivables purchased. Fees to be paid by the Company
under this agreement are based on certain variable market rate indices and are
included in other (income) charges, net, in the Consolidated Statements of
Earnings, Comprehensive Income, and Retained Earnings.
On June 9, 1999, the Company completed its acquisition of Lawter International,
Inc. The Company purchased all outstanding shares of Lawter International, Inc.
common stock for $12.25 per share. The purchase price included cash
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consideration of $364 million (net of $41 million cash acquired) and the
assumption of $145 million of Lawter's debt. The transaction was financed with
available cash and commercial paper borrowings.
The Company is currently authorized to repurchase up to $400 million of its
common stock. During first quarter 1999, a total of 1,094,800 shares of common
stock at a cost of approximately $50 million were repurchased. Repurchased
shares may be used to meet common stock requirements for compensation and
benefit plans and other corporate purposes. During the second half of 1999,
additional share repurchases will be weighed against alternative uses for
available cash.
Existing sources of capital, together with cash flows from operations, are
expected to be sufficient to meet foreseeable cash flow requirements.
DIVIDENDS
SECOND QUARTER FIRST SIX MONTHS
1999 1998 1999 1998
Cash dividends declared per share $ .44 $ .44 $ .88 $ .88
RETIREMENT PLAN AMENDMENT
In June 1999, the Company announced amendments to its defined benefit pension
plan, the Eastman Retirement Assistance Plan, and its postretirement welfare
plans effective January 1, 2000. The amended defined benefit pension plan will
use a new pension equity formula based on age and years of service to calculate
an employee's retirement benefit under the revised plan provisions. The
Company's 1999 pension and postretirement welfare expenses were remeasured as
of June 1, 1999 based on amended plan provisions using the assumptions set
forth in the Company's 1998 consolidated financial statements, except for the
changes noted in Note 8 to Consolidated Financial Statements.
The plan amendments and changes in plan assumptions will result in a decrease
in 1999 pension and postretirement benefits expense of approximately $37
million. Approximately $24 million relates to plan amendments and $13 million
relates to changes in plan assumptions.
YEAR 2000 ISSUE
The year 2000 issue is the result of computer programs written using two digits
rather than four to define the applicable year. Without corrective action,
programs with date-sensitive software could potentially recognize a date ending
in "00" as the year 1900 rather than the year 2000, causing many computer
applications to fail or create erroneous results. This is a significant issue
for most, if not all, companies, with far reaching implications, some of which
cannot be anticipated or predicted with any degree of certainty. Year 2000
problems could affect many of the Company's processes, including production,
distribution, research and development, financial, administrative and
communications operations. The Company's date-dependent systems can be
summarized in three categories: computerized business systems; computerized
distributed control systems for manufacturing; and other devices using embedded
chips.
Internal identification of all business systems, manufacturing systems and
embedded chip devices for year 2000 compliance is complete. An outside
consultant has evaluated the Company's identification, assessment, and testing
process related to manufacturing and embedded equipment and concluded that the
results of the internal processes are reliable.
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The Company considers its key enterprise business computer systems capable of
accurately handling year 2000 dates. Final integrated acceptance testing of the
Company's existing key enterprise business computer systems was completed
successfully during 1998. Very few problems were encountered in this area,
primarily because of the Company's aggressive implementation of enterprise
software and standardized desktop/office software earlier this decade. The
Company will continue its year 2000 assessment and testing efforts for new or
modified business computer systems throughout 1999.
By the end of June 1999, the Company had completed assessment, testing, and
most of the remediation or workaround solutions on critical control systems and
embedded chip devices as scheduled. However, because of the need to synchronize
year 2000-ready solutions with scheduled plant shutdowns, some upgrade work
will occur during the second half of 1999. Specific schedules for
implementation of the upgrades have been established to provide adequate time
for successful completion prior to January 1, 2000. A minimal number of devices
were determined to be non-compliant, with most requiring software upgrades at
minimal cost. Additionally, some lower priority embedded chip devices may not
be tested or remediated but will be managed by contingency plans. Although some
risk is inherent with this plan, the Company believes the risk is controllable
with contingency plans being developed and that this plan does not pose
significant problems for the Company's various manufacturing control systems.
As a result of assessments, modifications, upgrades, or replacements planned,
ongoing or already completed, the Company believes the year 2000 issue as it
relates to the Company's own date-dependent systems will not pose significant
problems for the Company's business, processes and operations. The Company
considers itself to be effectively year 2000 ready. The Company believes that
the costs of modifications, upgrades, or replacements of software, hardware, or
capital equipment which would not be incurred but for year 2000 compatibility
requirements have not and will not have a material impact on the Company's
financial position or results of operations. Overall costs attributable to the
Company's year 2000 efforts, incurred over a period of several years, are
expected to be less than $20 million.
The Company has identified and is communicating with key suppliers and other
service providers to determine if entities with which the Company transacts
business have an effective plan in place to address the year 2000 issue, and to
determine the extent of the Company's vulnerability to the failure of third
parties to remediate their own year 2000 issue. The Company has received year
2000 disclosure statements from 96% of companies surveyed which includes raw
materials suppliers, indirect suppliers and other key service providers. In
addition, the Company has identified key customers with whom it is exchanging
more detailed information. While all customers have not been surveyed directly,
the Company has exchanged information with certain customers as they contact
Eastman about its year 2000 compliance. The Company is proceeding with a more
detailed assessment of selected critical suppliers, service providers and key
customers to further assess the Company's risk. The Company expects to complete
these assessments by September 1, 1999. Assessment of suppliers, service
providers and customers is dependent upon the accuracy and validity of their
year 2000 disclosure statements.
A business contingency planning team composed of key business managers has been
assigned to develop company-wide contingency plans. This team is actively
assessing the internal and external risks posed by the year 2000 issue such as
energy, telecommunications, financial, transportation and material supply
disruptions. Existing business continuity plans adjusted for unique year 2000
issues provide the basis for contingency planning. Major elements of the plan
were completed by June 1999 with refinement and execution continuing up to and
through the year 2000 rollover.
The Company has identified and is communicating with recently-acquired
subsidiaries (ABCO Industries, Incorporated, Jager, and Lawter International,
Inc.) as well as joint venture partners and other companies with which the
Company shares services or infrastructure to determine if these entities
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with which the Company has financial interests have an effective plan in place
to address the year 2000 issue, and to assess the extent of the Company's
vulnerability to the failure of these parties. These entities have their own
independent year 2000 readiness programs with several programs still underway.
Current assessments indicate that satisfactory progress has been made to resolve
year 2000 issues and that these arrangements do not pose significant risk to the
Company.
Based on current plans and efforts to date, the Company does not anticipate that
the year 2000 issue will have a material effect on results of operations or
financial condition. However, a number of customers have indicated a potential
change in their buying patterns such that they may increase inventories during
the fourth quarter 1999, which could impact purchases during the first quarter
2000. If this were to occur, it could have a material impact upon operating
results for each of these quarters. The Company will continue to assess and work
with customers to determine the likelihood of these changes occurring and their
impact on the Company. The above expectations are subject to uncertainties. For
example, if the Company is unsuccessful in identifying or remediating all year
2000 problems in its critical operations, or if it is affected by the inability
of suppliers or major customers to continue operations due to such a problem,
then the Company's results of operations or financial condition could be
materially impacted.
HOLSTON DEFENSE CORPORATION
Holston Defense Corporation ("Holston"), a wholly owned subsidiary of the
Company, managed the government-owned Holston Army Ammunition Plant in
Kingsport, Tennessee (the "Facility") under contract with the Department of
Army ("DOA") from 1949 until expiration of the contract (the "Contract") on
December 31, 1998. The DOA awarded a contract to manage the Facility to a third
party effective January 1, 1999.
The Contract provided for reimbursement of allowable costs incurred by Holston.
The Company has recognized liabilities associated with Holston's curtailment of
pension, other postretirement benefits and other termination costs in
accordance with generally accepted accounting principles and expects the DOA to
reimburse substantially all such costs and payments. A portion of such costs
have been funded by the Company and subsequently reimbursed by the DOA. The
Company will likely be required to advance additional funds to pay pension
benefit liabilities, as well as other postretirement and termination costs, if
there are further delays in payment or reimbursement by the DOA.
The recording of previously unrecognized liabilities for pension and other
termination costs had no effect on earnings because the Company also recorded a
receivable from the DOA for reimbursement of such amounts. Reimbursement of
certain previously recognized pension and postretirement benefit costs will be
credited to earnings at the time of receipt of reimbursement from the DOA. The
Company expects no significant impact on financial position or results of
operations related to expiration of the Contract. See Note 6 to Consolidated
Financial Statements.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998 the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which standardizes the accounting for
derivative instruments, including certain derivative instruments embedded in
other contracts, by requiring that an entity recognize those items as assets or
liabilities in the statement of financial position and measure them at fair
value. The effective date of SFAS No. 133 has been delayed for one year and is
now effective for all fiscal quarters of all fiscal years beginning after
June 15, 2000. The Company is evaluating the effect of this standard on its
financial statements and will comply with requirements of the new standard which
now become effective for the Company's 2001 financial reporting cycle.
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OUTLOOK
The Company remains cautiously optimistic that results for the second half of
1999 will improve in comparison to the first half of 1999. Capacity additions
which were brought on line in 1998 and early 1999 and the recent acquisition of
Lawter International, Inc. are contributing to significant volume gains across
the Company. Prices have recently increased for many key products and have
stabilized for others. It is expected that the Company will continue to
experience increased demand for its products throughout the next few months and
increased available capacity levels over 1998.
The Company will continue to pursue alternatives to diminish the impact of the
container plastics business on its portfolio, while focusing on improving cash
flow from this business.
In 1999, the Company has placed an increased priority on cash flow through
increased sales volumes, reduced capital expenditures, working capital
reduction efforts, continued emphasis on cost structure improvements and
productivity gains through its Advantaged Cost 2000 initiative, reinforced by
basing a portion of annual incentive payments for senior management on free
cash flow.
The above-stated expectations, other forward-looking statements in this report,
and other statements of the Company relating to matters such as cost reduction
targets; additional available manufacturing capacity; capital spending and
depreciation; the year 2000 issue; legal proceedings; global economic
conditions; and supply and demand, volumes, prices, costs, margins, and sales
and earnings and cash flow expectations and strategies for individual products,
businesses, and segments, as well as for the whole of the Company, are based
upon certain underlying assumptions. These underlying assumptions are in turn
based upon internal estimates and analyses of current market conditions and
trends, management plans and strategies, economic conditions, and other factors
and are subject to risks and uncertainties inherent in projecting future
conditions and results.
The forward-looking statements in this Management's Discussion and Analysis are
based upon the following assumptions and those mentioned in the context of the
specific statements: realization of recently announced price increases;
continued good demand overall for the Company's products; continued demand
growth worldwide for EASTAPAK polymers and coatings, inks, and resins products;
capacity additions within the ethylene industry worldwide; availability of key
purchased raw materials with no additional significant increases in costs;
continued market reception of new polyethylene products and continued shift of
polyethylene product mix to less commodity products; availability of recent
manufacturing capacity increases for container plastics, SPECTAR, coatings,
inks, and oxo products; realization of expected cost savings and revenue
synergies related to the acquisition of Lawter International, Inc.; no
significant disruptions in the Company's business and operations as a result of
the year 2000 issue; and labor and material productivity gains sufficient to
meet targeted cost structure reductions.
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EASTAPAK and SPECTAR are trademarks of Eastman Chemical Company.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
GENERAL
The Company's operations are parties to or targets of lawsuits,
claims, investigations, and proceedings, including product liability,
personal injury, patent and intellectual property, commercial,
contract, environmental, antitrust, health and safety, and employment
matters, which are being handled and defended in the ordinary course
of business. While the Company is unable to predict the outcome of
these matters, it does not believe, based upon currently available
facts, that the ultimate resolution of any of such pending matters,
including those described in the following paragraphs, will have a
material adverse effect on the Company's overall financial position
or results of operations. However, adverse developments could
negatively impact earnings in a particular period.
SORBATES LITIGATION
As previously reported, on September 30, 1998, Eastman entered into a
voluntary plea agreement with the U. S. Department of Justice and
agreed to pay an $11 million fine to resolve a charge brought against
the Company for violation of Section One of the Sherman Act. Under
the agreement, Eastman entered a plea of guilty to one count of
price-fixing for sorbates, a class of food preservatives, from
January 1995 through June 1997. The plea agreement was approved by
the United States District Court for the Northern District of
California on October 21, 1998. The Company recognized the entire
fine in third quarter 1998 and is paying the fine in installments
over a period of five years.
In addition, the Company, along with other companies, has been named
as a defendant in fourteen antitrust lawsuits brought subsequent to
the Company's plea agreement as putative class actions on behalf of
certain purchasers of sorbates. In each case, the plaintiffs allege
that the defendants engaged in a conspiracy to fix the price of
sorbates and that the class members paid more for sorbates than they
would have paid absent the defendants' conspiracy. Five of the suits
were filed in Superior Courts for the State of California under
various state antitrust and consumer protection laws on behalf of
classes of indirect purchasers of sorbates; five of the proceedings
were filed in the United States District Court for the Northern
District of California, four (which have subsequently been
consolidated into one action) under federal antitrust laws on behalf
of classes of direct purchasers of sorbates and one under
California's antitrust and consumer protection laws on behalf of a
class of all indirect purchasers of sorbates; two cases were filed in
Circuit Courts for the State of Tennessee under the antitrust and
consumer protection laws of various states, including Tennessee, on
behalf of classes of indirect purchasers of sorbates in those states;
one case was filed in the United States District Court for the
Southern District of New York (and will likely be transferred to the
Northern District of California) under federal antitrust laws on
behalf of a class of direct purchasers of sorbates; and one action
was filed in the Circuit Court for the State of Wisconsin under
various state antitrust laws on behalf of a class of indirect
purchasers of sorbates in those states. The plaintiffs in most cases
seek treble damages of unspecified amounts, attorneys' fees and
costs, and other unspecified relief; in addition, certain of the
actions claim restitution, injunction against alleged illegal
conduct, and other equitable relief. Each proceeding is in
preliminary pretrial motion and discovery stage, and none of the
proposed classes has been certified.
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The Company intends vigorously to defend these actions unless they
can be settled on terms acceptable to the parties. These matters
could result in the Company being subject to monetary damages and
expenses. The Company recognized a charge to earnings in the fourth
quarter of 1998 of $8 million for the estimated costs, including
legal fees, related to the pending sorbates litigation described
above. Because of the early stage of these putative class action
lawsuits, however, the ultimate outcome of these matters cannot
presently be determined, and they may result in greater or lesser
liability than that currently provided for in the Company's financial
statements.
ENVIRONMENTAL MATTER
As previously reported, in May 1997, the Company received notice from
the Tennessee Department of Environment and Conservation ("TDEC")
alleging that the manner in which hazardous waste was fed into
certain boilers at the Tennessee Eastman facility in Kingsport,
Tennessee violated provisions of the Tennessee Hazardous Waste
Management Act. The Company had voluntarily disclosed this matter to
TDEC in December 1996. Over the course of the last two years, the
Company has provided extensive information relating to this matter to
TDEC, the U.S. Environmental Protection Agency ("EPA"), and the U.S.
Department of Justice. EPA has recently indicated that it is
contemplating an enforcement proceeding, the terms of which are
currently the subject of discussions between the Company and EPA.
Monetary sanctions are expected to exceed the $100,000 threshold of
Regulation S-K, Item 103, Instruction 5.C. under the Securities
Exchange Act of 1934 for reporting such contemplated proceedings in
this Report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's 1999 Annual Meeting of Shareowners was held on
May 6, 1999. Four items of business were acted upon at the meeting:
(i) election of four directors to serve in the class for which the
term in office expires at the Annual Meeting of Shareowners in 2002
and until their successors are duly elected and qualified; (ii)
approval of the 1999 Director Long-Term Compensation Plan; (iii)
ratification of the appointment of PricewaterhouseCoopers LLP as
independent accountants for the Company until the Annual Meeting of
Shareowners in 2000; and (iv) shareowner proposal to discontinue use
of "bonuses" and "options, rights, SARs, etc." as management
compensation.
The results of the voting for the election of directors were as
follows:
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VOTES BROKER
NOMINEE VOTES FOR WITHHELD ABSTENTIONS NON-VOTES
----------------------------------------------------------------------------------------------
Calvin A. Campbell, Jr. 63,869,586 541,533 0 0
Earnest W. Deavenport, Jr. 63,822,216 588,903 0 0
John W. Donehower 63,859,855 551,264 0 0
Lee Liu 63,855,985 555,134 0 0
Accordingly, the four nominees received a plurality of the votes cast
in the election of directors at the meeting and were elected.
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The results of the voting on the approval of the 1999 Director
Long-Term Compensation Plan were as follows:
-----------------------------------------------------------------------------------------
VOTES FOR VOTES AGAINST ABSTENTIONS BROKER NON-VOTES
-----------------------------------------------------------------------------------------
56,422,939 7,552,660 435,520 0
Accordingly, the number of affirmative votes cast on the proposal
constituted a majority of the votes cast on the proposal at the
meeting, and the 1999 Director Long-Term Compensation Plan was
approved.
The results of the voting on the ratification of the appointment of
PricewaterhouseCoopers LLP as independent accountants were as
follows:
-----------------------------------------------------------------------------------------
VOTES FOR VOTES AGAINST ABSTENTIONS BROKER NON-VOTES
-----------------------------------------------------------------------------------------
63,946,510 296,504 168,105 0
Accordingly, the number of affirmative votes cast on the proposal
constituted a majority of the votes cast on the proposal at the
meeting, and the appointment of PricewaterhouseCoopers LLP as
independent accountants was ratified.
The results of the voting on the shareowner proposal to discontinue
use of "bonuses" and "options, rights, SARs, etc." as management
compensation were as follows:
---------------------------------------------------------------------------------------
VOTES FOR VOTES AGAINST ABSTENTIONS BROKER NON-VOTES
---------------------------------------------------------------------------------------
3,061,688 50,613,548 746,400 9,989,483
Accordingly, the number of affirmative votes cast on the proposal did
not constitute a majority of the votes cast on the proposal at the
meeting, and the shareowner proposal was not approved.
ITEM 5. OTHER INFORMATION
Effective September 1, 1999, the Company's management structure will
be reorganized into two major business groups--polymers and
chemicals--and their major supporting processes. The two groups will
be managed by Brian Ferguson, president, polymers group, and Allan
Rothwell, president, chemicals group. These two groups and their
supporting processes will report to the newly established Office of
the CEO, led by Earnest Deavenport, Jr.
Replacing Mr. Rothwell as senior vice president and chief financial
officer, effective August 15, 1999, will be James P. Rogers. Mr.
Rogers is currently the executive vice president and chief financial
officer of GAF Materials Corp. and has concurrently served as the
executive vice president of finance for International Specialty
Products.
The Company is evaluating the impact of this reorganization on its
current segment reporting.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits filed as part of this report are listed in the Exhibit
Index appearing on page 25.
(b) Reports on Form 8-K
The Company filed two reports on Form 8-K, dated
April 27, 1999 and June 1, 1999 during the quarter ended
June 30, 1999. Both reports were filed pursuant to Item 5
of Form 8-K and related to the Company's acquisition of
Lawter International, Inc.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Eastman Chemical Company
Date: July 30, 1999 By: /s/ Allan R. Rothwell
---------------------
Allan R. Rothwell
Senior Vice President and
Chief Financial Officer
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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)
3.02 Amended and Restated By-laws of Eastman Chemical
Company, as amended October 1, 1994 (incorporated by
reference to Exhibit 3.02 to Eastman Chemical Company's
Annual Report on Form 10-K for the year ended
December 31, 1994)
4.01 Form of Eastman Chemical Company Common Stock
certificate (incorporated herein by reference to Exhibit 3.02
to Eastman Chemical Company's Annual Report on Form
10-K for the year ended December 31, 1993)
4.02 Stockholder Protection Rights Agreement dated as of
December 13, 1993, between Eastman Chemical
Company and First Chicago Trust Company of New York, as Rights
Agent (incorporated herein by reference to Exhibit 4.4 to
Eastman Chemical Company's Registration Statement on
Form S-8 relating to the Eastman Investment Plan, File No.
33-73810)
4.03 Indenture, dated as of January 10, 1994, between Eastman
Chemical Company and The Bank of New York, as Trustee
(incorporated herein by reference to Exhibit 4(a) to Eastman
Chemical Company's current report on Form 8-K dated January
10, 1994 (the "8-K"))
4.04 Form of 6 3/8% Notes due January 15, 2004 (incorporated
herein by reference to Exhibit 4(c) to the 8-K)
4.05 Form of 7 1/4% Debentures due January 15, 2024
(incorporated herein by reference to Exhibit 4(d) to the 8-K)
4.06 Officers' Certificate pursuant to Sections 201 and 301 of the
Indenture (incorporated herein by reference to Exhibit 4(a) to
Eastman Chemical Company's Current Report on Form 8-K
dated June 8, 1994 (the "June 8-K"))
4.07 Form of 7 5/8% Debentures due June 15, 2024 (incorporated
herein by reference to Exhibit 4(b) to the June 8-K)
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EXHIBIT INDEX
EXHIBIT DESCRIPTION SEQUENTIAL
NUMBER PAGE
NUMBER
4.08 Form of 7.60% Debenture due February 1, 2027
(incorporated herein by reference to Exhibit 4.08 to Eastman
Chemical Company's Annual Report on Form 10-K for the
year ended December 31, 1996 (the "1996 10-K")
4.09 Officer's Certificate pursuant to Sections 201 and 301 of the
Indenture related to 7.60% Debentures due February 1, 2027
(incorporated herein by reference to Exhibit 4.09 to the 1996
10-K)
4.10 Credit Agreement, dated as of December 19, 1995 (the
"Credit Agreement") among Eastman Chemical Company,
the Lenders named therein, and The Chase Manhattan Bank,
as Agent (incorporated herein by reference to Exhibit 4.08 to
Eastman Chemical Company's Annual Report on Form 10-K
for the year ended December 31, 1995)
*10.01 1999 Director Long-Term Compensation Plan (incorporated
herein by reference to Appendix A to Eastman Chemical
Company's definitive 1999 Annual Meeting Proxy Statement
filed pursuant to Regulation 14A)
*10.02 1997 Omnibus Long-Term Compensation Plan, as amended 27-42
*10.03 Eastman 1999-2001 Long Term Performance Subplan of 1997
Omnibus Long-Term Compensation Plan 43-52
12.01 Statement re: Computation of Ratios of Earnings to Fixed
Charges 53
27.01 Financial Data Schedule for Second Quarter 1999 (for SEC
use only)
99.01 Supplemental Business Segment Information 54
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*Management contract or compensatory plan or arrangement filed pursuant to Item
601(b)(10)(iii) of Regulation S-K.
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