-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, S561GAxSxXQOrq5S5rrq6Cyv+NJrvS/8/GIm0YYz9qi6FdipzmN2eCwouStZdfML YMswywbYgjUT33oSuJ+sYw== 0000915389-10-000060.txt : 20100803 0000915389-10-000060.hdr.sgml : 20100803 20100803154107 ACCESSION NUMBER: 0000915389-10-000060 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 16 CONFORMED PERIOD OF REPORT: 20100630 FILED AS OF DATE: 20100803 DATE AS OF CHANGE: 20100803 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EASTMAN CHEMICAL CO CENTRAL INDEX KEY: 0000915389 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS, MATERIALS, SYNTH RESINS & NONVULCAN ELASTOMERS [2821] IRS NUMBER: 621539359 STATE OF INCORPORATION: DE FISCAL YEAR END: 0506 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-12626 FILM NUMBER: 10987472 BUSINESS ADDRESS: STREET 1: PO BOX 511 STREET 2: 200 SOUTH WILCOX DRIVE CITY: KINGSPORT STATE: TN ZIP: 37660 BUSINESS PHONE: 4232292000 MAIL ADDRESS: STREET 1: P O BOX BOX 511 B-54D CITY: KINGSPORT STATE: TN ZIP: 37662 10-Q 1 emn2010q2_10q.htm EASTMAN 2010 Q2 10-Q emn2010q2_10q.htm


 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, 2010
 
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.)
     
200 South Wilcox Drive
   
Kingsport, Tennessee
 
37662
(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 by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
YES [  ]  NO  [  ]
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [X]                             Accelerated filer [  ]
Non-accelerated filer [  ]                                Smaller reporting company [  ]
    (Do not check if a smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES [  ]  NO  [X]

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Class
Number of Shares Outstanding at June 30, 2010
Common Stock, par value $0.01 per share
 
72,242,224
     
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PAGE 1 OF 45 TOTAL SEQUENTIALLY NUMBERED PAGES
EXHIBIT INDEX ON PAGE 44

 
 

 

TABLE OF CONTENTS

ITEM
 
PAGE

PART I.  FINANCIAL INFORMATION


PART II.  OTHER INFORMATION


SIGNATURES

 
43

EXHIBIT INDEX


  2
 

 


   
Second Quarter
   
First Six Months
 
(Dollars in millions, except per share amounts)
 
2010
   
2009
   
2010
   
2009
 
                         
Sales
  $ 1,724     $ 1,253     $ 3,288     $ 2,382  
Cost of sales
    1,320       993       2,563       1,943  
Gross profit
    404       260       725       439  
                                 
Selling, general and administrative expenses
    108       98       211       192  
Research and development expenses
    36       34       72       68  
Asset impairments and restructuring charges, net
    3       (3 )     3       23  
Operating earnings
    257       131       439       156  
                                 
Net interest expense
    25       20       50       39  
Other charges (income), net
    8       5       14       9  
Earnings before income taxes
    224       106       375       108  
Provision for income taxes
    76       41       126       41  
Net earnings
  $ 148     $ 65     $ 249     $ 67  
                                 
Earnings per share
                               
Basic
  $ 2.05     $ 0.89     $ 3.44     $ 0.92  
Diluted
  $ 2.02     $ 0.89     $ 3.38     $ 0.91  
                                 
Comprehensive Income
                               
Net earnings
  $ 148     $ 65     $ 249     $ 67  
Other comprehensive income (loss), net of tax
                               
Change in cumulative translation adjustment
    (9 )     25       (21 )     15  
Change in unrecognized losses and prior service credits for benefit plans
    6       (2 )     9       (2 )
Change in unrealized gains on derivative instruments
    2       (8 )     8       1  
Total other comprehensive income (loss), net of tax
    (1 )     15       (4 )     14  
Comprehensive income
  $ 147     $ 80     $ 245     $ 81  
                                 
Retained Earnings
                               
Retained earnings at beginning of period
  $ 2,640     $ 2,533     $ 2,571     $ 2,563  
Net earnings
    148       65       249       67  
Cash dividends declared
    (32 )     (32 )     (64 )     (64 )
Retained earnings at end of period
  $ 2,756     $ 2,566     $ 2,756     $ 2,566  

The accompanying notes are an integral part of these consolidated financial statements.

  3
 

 
 

   
June 30,
   
December 31,
 
(Dollars in millions, except per share amounts)
 
2010
   
2009
 
   
(Unaudited)
       
Assets
           
Current assets
           
Cash and cash equivalents
  $ 435     $ 793  
Trade receivables, net
    721       277  
Miscellaneous receivables
    88       102  
Inventories
    635       531  
Other current assets
    30       32  
Total current assets
    1,909       1,735  
                 
Properties
               
Properties and equipment at cost
    8,631       8,525  
Less:  Accumulated depreciation
    5,476       5,415  
Net properties
    3,155       3,110  
                 
Goodwill
    376       315  
Other noncurrent assets
    359       355  
Total assets
  $ 5,799     $ 5,515  
                 
Liabilities and Stockholders' Equity
               
Current liabilities
               
Payables and other current liabilities
  $ 880     $ 800  
Borrowings due within one year
    6       --  
Total current liabilities
    886       800  
                 
Long-term borrowings
    1,605       1,604  
Deferred income tax liabilities
    285       258  
Post-employment obligations
    1,216       1,221  
Other long-term liabilities
    130       119  
Total liabilities
    4,122       4,002  
                 
Stockholders' equity
               
Common stock ($0.01 par value – 350,000,000 shares authorized; shares issued – 95,417,504 and 94,775,064 for 2010 and 2009, respectively)
    1       1  
Additional paid-in capital
    697       661  
Retained earnings
    2,756       2,571  
Accumulated other comprehensive loss
    (389 )     (385 )
      3,065       2,848  
Less: Treasury stock at cost (23,257,954 shares for 2010 and 22,389,696 shares for 2009 )
    1,388       1,335  
                 
Total stockholders' equity
    1,677       1,513  
                 
Total liabilities and stockholders' equity
  $ 5,799     $ 5,515  
                 

The accompanying notes are an integral part of these consolidated financial statements.

 4
 

 


   
       First Six Months
 
(Dollars in millions)
 
         2010
   
      2009
 
             
Cash flows from operating activities
           
    Net earnings
  $ 249     $ 67  
 
               
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:
               
    Depreciation and amortization
    139       134  
    Provision for deferred income taxes
    12       140  
Changes in operating assets and liabilities, net of effect of acquisitions and divestitures:
               
    (Increase) decrease in trade receivables
    (433 )     (52 )
    (Increase) decrease in inventories
    (90 )     191  
    Increase (decrease) in trade payables
    90       (55 )
    Increase (decrease) in liabilities for employee benefits and incentive pay
    (10 )     (22 )
    Other items, net
    24       (66 )
                 
    Net cash provided by (used in) operating activities
    (19 )     337  
                 
Cash flows from investing activities
               
    Additions to properties and equipment
    (76 )     (204 )
    Proceeds from sale of assets and investments
    11       25  
    Acquisitions and investments in joint ventures
    (189 )     (36 )
    Additions to capitalized software
    (3 )     (4 )
    Other items, net
    --       (7 )
                 
Net cash used in investing activities
    (257 )     (226 )
                 
Cash flows from financing activities
               
    Net increase in commercial paper, credit facility, and other borrowings
    1       9  
    Repayment of borrowings
    --       (2 )
    Dividends paid to stockholders
    (64 )     (64 )
    Treasury stock purchases
    (53 )     --  
    Proceeds from stock option exercises and other items
    33       9  
                 
Net cash used in financing activities
    (83 )     (48 )
                 
Effect of exchange rate changes on cash and cash equivalents
    1       --  
                 
Net change in cash and cash equivalents
    (358 )     63  
                 
Cash and cash equivalents at beginning of period
    793       387  
                 
Cash and cash equivalents at end of period
  $ 435     $ 450  
                 


The accompanying notes are an integral part of these consolidated financial statements.

  5
 

 


Page
   
Note 1.    Basis of Presentation
7
Note 2.    Acquisitions
7
Note 3.    Asset Impairments and Restructuring Charges, Net
8
Note 4.    Inventories
9
Note 5.    Goodwill and Intangible Assets
9
Note 6.    Payables and Other Current Liabilities
9
Note 7.    Provision for Income Taxes
10
Note 8.    Borrowings
10
Note 9.    Retirement Plans
11
Note 10.  Environmental Matters
12
Note 11.  Commitments
12
Note 12.  Fair Value of Financial Instruments
13
Note 13.  Stockholders' Equity
16
Note 14.  Earnings and Dividends per Share
16
Note 15.  Share-Based Compensation Awards
17
Note 16.  Supplemental Cash Flow Information
17
Note 17.  Segment Information
17
Note 18.  Legal Matters
19

  6
 

 

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared by Eastman Chemical Company (the "Company" or "Eastman") in accordance and consistent with the accounting policies stated in the Company's 2009 Annual Report on Form 10-K and should be read in conjunction with the consolidated financial statements in Part II, Item 8 of the Company's 2009 Annual Report on Form 10-K.  The unaudited consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States ("GAAP") and, of necessity, include some amounts that are based upon management estimates and judgments.  Future actual results could differ from such current estimates.  The unaudited consolidated financial statements include assets, liabilities, revenues, and expenses of all ma jority-owned subsidiaries and joint ventures.  Eastman accounts for other joint ventures and investments where it exercises significant influence, but does not have control, on the equity basis.  Intercompany transactions and balances are eliminated in consolidation.  Certain prior period data has been reclassified in the Consolidated Financial Statements and accompanying footnotes to conform to current period presentation.

Effective January 1, 2010, the Company adopted amended accounting guidance on transfers of financial assets.  The impact of this guidance is prospective with changes in first six months Statements of Consolidated Financial Position and the Statements of Cash Flows.  For additional information, refer to Notes 8, "Borrowings," and 11, "Commitments."

ACQUISITIONS

Genovique Specialties Corporation
On April 30, 2010, Eastman completed the stock purchase of Genovique Specialties Corporation ("Genovique"), which has been accounted for as a business combination.  Genovique is a global producer of specialty plasticizers, benzoic acid, and sodium benzoate.  This acquisition includes Genovique's manufacturing operations in Kohtla-Järve, Estonia, Chestertown, Maryland, and a joint venture in Wuhan, China.  Genovique's benzoate ester plasticizers are a strategic addition to Eastman's existing general-purpose and specialty non-phthalate plasticizers.  The acquisition adds differentiated, sustainably-advantaged products to Eastman's Performance Chemicals and Intermediates ("PCI") segment and enhances the Company's diversification into emerging geographic regions.

The total purchase price was approximately $160 million, including assumed debt of $5 million.  Transaction costs associated with the acquisition were expensed as incurred.  The table below shows the preliminary fair value purchase price allocation for the Genovique acquisition:

   
Dollars in millions
 
       
Current assets
  $ 48  
Properties and equipment
    33  
Intangible assets
    59  
Other noncurrent assets
    2  
Goodwill
    64  
Current liabilities
    (17 )
Long-term liabilities
    (29 )
Total purchase price
  $ 160  

Acquired intangible assets consist of $44 million in established customer relationships, $14 million in trade names, and $1 million in developed technology.  The customer relationships and developed technology intangible assets have remaining useful lives of 16 and 7 years, respectively.  Trade names have been determined to have an indefinite life.  Goodwill, which represents the excess of the purchase price over the net tangible and intangible assets acquired and liabilities assumed, is attributed to the synergies between the acquired company and Eastman.


  7
 

 

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


Korean Acetate Tow Facility
On March 22, 2010, Eastman Fibers Korea Limited ("EFKL") completed the purchase of the acetate tow facility in Ulsan, Korea from SK Chemicals Co., Ltd. ("SK"), which has been accounted for as a business combination.  EFKL is a venture between the Company and SK, in which the Company has controlling ownership and operates the facility.  This acquisition established acetate tow manufacturing capacity for the Company in Asia and supports projected long term sales growth for acetate tow in the region.

The fair value of total consideration was $111 million, which was paid in installments beginning first quarter 2009 and completed second quarter 2010.  The Company has determined the preliminary fair value of the acquired assets to be as follows: property, plant, and equipment of $101 million, inventory of $5 million, and technology of $5 million.

ASSET IMPAIRMENTS AND RESTRUCTURING CHARGES, NET

In second quarter 2010, there were $3 million in restructuring charges primarily for severance associated with the acquisition and integration of Genovique.

In second quarter 2009, there was a $3 million reduction of the first quarter 2009 restructuring charge resulting in a net $23 million charge in first six months 2009.  The charges, primarily for severance, resulted from a reduction in force.

Changes in Reserves for Asset Impairments, Restructuring Charges, and Severance Charges

The following table summarizes the beginning reserves, charges to and changes in estimates to the reserves as described above, and the cash and non-cash reductions to the reserves attributable to asset impairments and the cash payments for severance and site closure costs for full year 2009 and first six months 2010:
 
 
(Dollars in millions)
 
Balance at January 1, 2009
   
Provision/ Adjustments
   
Non-cash Reductions
   
Cash Reductions
   
Balance at December 31, 2009
 
                               
Non-cash charges
  $ --     $ 179     $ (179 )   $ --     $ --  
Severance costs
    5       23       --       (23 )     5  
Site closure and other restructuring costs
    25       (2 )     --       (18 )     5  
Total
  $ 30     $ 200     $ (179 )   $ (41 )   $ 10  
                                         
   
Balance at January 1, 2010
   
Provision/ Adjustments
   
Non-cash Reductions
   
Cash Reductions
   
Balance at June 30, 2010
 
                                         
Non-cash charges
  $ --     $ --     $ --     $ --     $ --  
Severance costs
    5       3       --       (6 )     2  
Site closure and other restructuring costs
    5       --       --       --       5  
Total
  $ 10     $ 3     $ --     $ (6 )   $ 7  


 

 

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


INVENTORIES
 
   
June 30,
   
December 31,
 
(Dollars in millions)
 
2010
   
2009
 
             
At FIFO or average cost (approximates current cost)
           
Finished goods
  $ 612     $ 547  
Work in process
    189       168  
Raw materials and supplies
    297       262  
Total inventories
    1,098       977  
LIFO Reserve
    (463 )     (446 )
Total inventories
  $ 635     $ 531  
 
Inventories valued on the LIFO method were approximately 70 percent and 75 percent of total inventories as of June 30, 2010 and December 31, 2009, respectively.

 GOODWILL AND INTANGIBLE ASSETS

Changes in the carrying amount of goodwill are as follows:
 
(Dollars in millions)
 
CASPI Segment
   
PCI Segment
   
Other Segments
   
Total
 
                         
Reported balance at December 31, 2009
  $ 309     $ 1     $ 5     $ 315  
Additions
    --       64       --       64  
Currency translation adjustments
    (3 )     --       --       (3 )
Reported balance at June 30, 2010
  $ 306     $ 65     $ 5     $ 376  

As a result of the purchase of Genovique during second quarter 2010, the Company recorded goodwill of $64 million.  The remaining goodwill and indefinite-lived intangibles primarily consist of goodwill in the Coatings, Adhesives, Specialty Polymers and Inks ("CASPI") and PCI segments.  Included in the reported balance for goodwill are accumulated impairment losses of $44 million at December 31, 2009 and June 30, 2010.

Intangible assets include developed technology, customer lists, patents and patent licenses, and trademarks with a net book value of $102 million as of June 30, 2010 and $43 million as of December 31, 2009.  As a result of the Genovique acquisition, the Company recorded $59 million in customer relationships, technology, and other intangible assets.  Intangible assets are included in other noncurrent assets on the balance sheet.

Refer to Note 2, "Acquisitions" for further details regarding the acquisition of Genovique.

PAYABLES AND OTHER CURRENT LIABILITIES
 
   
June 30,
   
December 31,
 
(Dollars in millions)
 
2010
   
2009
 
             
Trade creditors
  $ 540     $ 433  
Accrued payrolls, vacation, and variable-incentive compensation
    104       125  
Accrued taxes
    30       33  
Post-employment obligations
    63       61  
Interest payable
    31       32  
Other
    112       116  
Total payables and other current liabilities
  $ 880     $ 800  
 
The current portion of post-employment obligations is an estimate of current year payments.
 

 

 

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS



PROVISION FOR INCOME TAXES

   
Second Quarter
   
First Six Months
 
(Dollars in millions)
 
2010
   
2009
   
2010
   
2009
 
                         
Provision for income taxes
  $ 76     $ 41     $ 126     $ 41  
Effective tax rate
    34 %     39 %     33 %     38 %

Excluding discrete items, second quarter and first six months 2010 effective tax rates reflect the Company's expected full year tax rate on reported earnings before income taxes of approximately 33 percent.  Second quarter and first six months 2009 effective tax rates reflect a $7 million tax charge associated with a change in accounting method for tax purposes to accelerate timing of deductions for manufacturing repairs expense.

The Company or one of its subsidiaries files tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions.  With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2005.  It is reasonably possible that within the next 12 months the Company will recognize approximately $2 million of unrecognized tax benefits as a result of the expiration of relevant statutes of limitations.

BORROWINGS

   
June 30,
   
December 31,
 
(Dollars in millions)
 
2010
   
2009
 
             
Borrowings consisted of:
           
7% notes due 2012
  $ 151     $ 152  
6.30% notes due 2018
    204       205  
5.5% notes due 2019
    250       250  
7 1/4% debentures due 2024
    498       497  
7 5/8% debentures due 2024
    200       200  
7.60% debentures due 2027
    298       298  
Other
    10       2  
Total borrowings
    1,611       1,604  
Borrowings due within one year
    (6 )     --  
Long-term borrowings
  $ 1,605     $ 1,604  

At June 30, 2010, the Company had a $700 million revolving credit facility ("Credit Facility") in two tranches, with $125 million expiring in 2012 and $575 million expiring in 2013.  Borrowings under the Credit Facility are subject to interest at varying spreads above quoted market rates and a facility fee is paid on the total commitment.  In addition, the Credit Facility contains a number of customary covenants and events of default, including the maintenance of certain financial ratios.  The Company was in compliance with all such covenants for all periods presented.  At June 30, 2010 and December 31, 2009, the Company had no outstanding borrowings under the Credit Facility.

The Credit Facility provides liquidity support for commercial paper borrowings and general corporate purposes.  Accordingly, any outstanding commercial paper borrowings reduce borrowings available under the Credit Facility.  Given the expiration dates of the Credit Facility, any commercial paper borrowings supported by the Credit Facility are classified as long-term borrowings because the Company has the ability and intent to refinance such borrowings on a long-term basis.


10 
 

 

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


At June 30, 2010, the Company also had a $200 million line of credit under its annually renewable accounts receivable securitization agreement ("A/R Facility").  The A/R Facility was renewed in July 2010.  Borrowings under the A/R Facility are subject to interest rates based on a spread over the lender's borrowing costs, and the Company pays a fee to maintain availability of the A/R Facility.  In addition, the A/R Facility contains a number of customary covenants and events of default, including the maintenance of certain financial ratios.  The Company was in compliance with all such covenants for all periods presented.  At June 30, 2010, the Company had no outstanding borrowings under the A/R Facility.  Refer to Note 11, "Commitments" for further details regarding the A/R Facili ty.

RETIREMENT PLANS

DEFINED BENFIT PENSION PLANS

Eastman maintains defined benefit pension plans that provide eligible employees with retirement benefits.  Costs recognized for these benefits are recorded using estimated amounts, which may change as actual costs derived for the year are determined.
 
Below is a summary of the components of net periodic benefit cost recognized for Eastman's significant defined benefit pension plans:
 
Summary of Components of Net Periodic Benefit Costs
           
   
Second Quarter
   
First Six Months
 
(Dollars in millions)
 
2010
   
2009
   
2010
   
2009
 
                         
Service cost
  $ 11     $ 10     $ 22     $ 21  
Interest cost
    21       22       42       43  
Expected return on assets
    (26 )     (25 )     (53 )     (49 )
Amortization of:
                               
Prior service credit
    (4 )     (4 )     (8 )     (8 )
Actuarial loss
    11       10       22       17  
Net periodic benefit cost
  $ 13     $ 13     $ 25     $ 24  

POSTRETIREMENT WELFARE PLANS

Eastman provides a subsidy toward life insurance and health care and dental benefits for eligible retirees hired prior to January 1, 2007, and a subsidy toward health care benefits for retirees' eligible survivors.  In general, Eastman provides those benefits to retirees eligible under the Company's U.S. plans.  Similar benefits are also made available to retirees of Holston Defense Corporation, a wholly-owned subsidiary of the Company that, prior to January 1, 1999, operated a government-owned ammunitions plant.

Eligible employees hired on or after January 1, 2007 have access to postretirement health care benefits, but Eastman does not provide a subsidy toward the premium cost of postretirement benefits for those employees.

A few of the Company's non-U.S. operations have supplemental health benefit plans for certain retirees, the cost of which is not significant to the Company.


11 
 

 

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS



Costs recognized for benefits for eligible retirees hired prior to January 1, 2007 are recorded using estimated amounts, which may change as actual costs derived for the year are determined.  Below is a summary of the components of net periodic benefit cost recognized for the Company's U.S. other post-employment plans:

Summary of Components of Net Periodic Benefit Costs
           
   
Second Quarter
   
First Six Months
 
(Dollars in millions)
 
2010
   
2009
   
2010
   
2009
 
                         
Service cost
  $ 2     $ 2     $ 5     $ 4  
Interest cost
    11       11       22       22  
Expected return on assets
    --       --       (1 )     (1 )
Amortization of:
                               
Prior service credit
    (6 )     (6 )     (12 )     (12 )
Actuarial loss
    3       3       6       6  
Net periodic benefit cost
  $ 10     $ 10     $ 20     $ 19  

ENVIRONMENTAL MATTERS

Certain Eastman manufacturing sites generate hazardous and nonhazardous wastes, the treatment, storage, transportation, and disposal of which are regulated by various governmental agencies.  In connection with the cleanup of various hazardous waste sites, the Company, along with many other entities, has been designated a potentially responsible party ("PRP"), by the U.S. Environmental Protection Agency under the Comprehensive Environmental Response, Compensation and Liability Act, which potentially subjects PRPs to joint and several liability for such cleanup costs.  In addition, the Company will be required to incur costs for environmental remediation and closure and postclosure under the federal Resource Conservation and Recovery Act.  Reserves for environmental contingencies have been established in accord ance with Eastman's policies described in Note 1, "Significant Accounting Policies", to the consolidated financial statements in Part II, Item 8 of the Company's 2009 Annual Report on Form 10-K.  Because of expected sharing of costs, the availability of legal defenses, and the Company's preliminary assessment of actions that may be required, management does not believe that the Company's liability for these environmental matters, individually or in the aggregate, will be material to the Company's consolidated financial position, results of operations or cash flows.  The Company's total reserve for environmental contingencies was $40 million and $42 million at June 30, 2010 and December 31, 2009, respectively.  Estimated future environmental expenditures for remediation costs range from the minimum or best estimate of $10 million to the maximum of $21 million at June 30, 2010, and $10 million to the maximum of $20 million at December 31, 2009.  The best estimate accrued to date over the facilities' estimated useful lives for asset retirement obligation costs is $30 million and $32 million at June 30, 2010 and December 31, 2009, respectively.

COMMITMENTS

Purchasing Obligations and Lease Commitments

At June 30, 2010, the Company had various purchase obligations totaling approximately $1 billion over a period of approximately 15 years for materials, supplies, and energy incident to the ordinary conduct of business.  The Company also had various lease commitments for property and equipment under cancelable, noncancelable, and month-to-month operating leases totaling $85 million over a period of several years.  Of the total lease commitments, approximately 15 percent relates to machinery and equipment, including computer and communications equipment and production equipment; approximately 50 percent relates to real property, including office space, storage facilities and land; and approximately 35 percent relates to railcars.


12 
 

 

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


Accounts Receivable Securitization Program

Effective January 1, 2010, the Company adopted amended accounting guidance for transfers of financial assets which impacts the financial statement presentation for activity under the Company's $200 million accounts receivable securitization program.  Beginning for periods after December 31, 2009, transfers of receivables interests that were previously treated as sold and removed from the balance sheet will be included in trade receivables, net and reflected as secured borrowings on the balance sheet.  The Company's Statement of Financial Position at June 30, 2010 reflects an increase in trade receivables, $200 million of which was transferred at December 31, 2009 under the securitization program and reduced cash flows from operating activities by that amount for first six months 2010.  As a result of the adop tion of this accounting guidance, any amounts drawn on this accounts receivable securitization program would now be reflected as secured borrowings and disclosed in Note 8, "Borrowings."  At December 31, 2009 and June 30, 2009 the accounts receivable securitization program was fully drawn.

Guarantees

The Company has operating leases with terms that require the Company to guarantee a portion of the residual value of the leased assets upon termination of the lease.  These residual value guarantees at June 30, 2010 totaled $160 million and consisted primarily of leases for railcars and company aircraft.  Leases with guarantee amounts totaling $11 million, $139 million, and $10 million will expire in 2011, 2012, and 2014 and beyond, respectively.  The Company believes, based on current facts and circumstances, that the likelihood of a material payment pursuant to such guarantees is remote.

Variable Interest Entities

In June 2009, new accounting guidance on the consolidation of Variable Interest Entities ("VIEs") was issued.  This guidance is effective for all VIEs or potential VIEs the Company is involved with on or after January 1, 2010.  This guidance amends the evaluation criteria to identify which entity has a controlling financial interest of a variable interest entity and requires ongoing reassessments.  The Company has evaluated its material contractual relationships under the new guidance and concluded that the entities involved in these relationships are not VIEs or, in the case of Primester, a joint venture that manufactures cellulose acetate at the Company's Kingsport, Tennessee plant, the Company has shared control of the VIE.  As such, the Company is not required to consolidate these entities.

FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair Value of Borrowings

The fair value for fixed-rate borrowings is based on current interest rates for comparable securities.

   
June 30, 2010
   
December 31, 2009
 
(Dollars in millions)
 
Recorded Amount
   
Fair Value
   
Recorded Amount
   
Fair Value
 
                         
Long-term borrowings
  $ 1,605     $ 1,800     $ 1,604     $ 1,656  

The Company's floating-rate borrowings approximate fair value.

13 
 

 

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


Fair Value Measurements

The following chart shows the financial assets and liabilities measured at fair value on a recurring basis.

(Dollars in millions)
       
Fair Value Measurements at June 30, 2010
 
Description
 
June 30, 2010
   
Quoted Prices in Active Markets for Identical Assets (Level 1)
   
Significant Other Observable Inputs (Level 2)
   
Significant Unobservable Inputs (Level 3)
 
Derivative Assets
  $ 139     $ 2     $ 137     $ --  
Derivative Liabilities
    (93 )     (4 )     (89 )     --  
    $ 46     $ (2 )   $ 48     $ --  

(Dollars in millions)
       
Fair Value Measurements at December 31, 2009
 
Description
 
December 31, 2009
   
Quoted Prices in Active Markets for Identical Assets (Level 1)
   
Significant Other Observable Inputs (Level 2)
   
Significant Unobservable Inputs (Level 3)
 
Derivative Assets
  $ 52     $ --     $ 52     $ --  
Derivative Liabilities
    (21 )     --       (21 )     --  
    $ 31     $ --     $ 31     $ --  

Hedging Programs

The Company is exposed to market risk, such as changes in currency exchange rates, raw material and energy costs and interest rates.  The Company uses various derivative financial instruments pursuant to the Company's hedging policies to mitigate these market risk factors and their effect on the cash flows of the underlying transactions.  Designation is performed on a specific exposure basis to support hedge accounting.  The changes in fair value of these hedging instruments are offset in part or in whole by corresponding changes in the cash flows of the underlying exposures being hedged.  The Company does not hold or issue derivative financial instruments for trading purposes.  For further information, see Note 9, "Fair Value of Financial Instruments", to the consolidated financial statem ents in Part II, Item 8 of the Company's 2009 Annual Report on Form 10-K.

Fair Value Hedges
Fair value hedges are derivative or non-derivative instruments designated as and used to hedge the exposure to changes in the fair value of an asset or a liability or an identified portion thereof that is attributable to a particular risk.  For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in current earnings.

As of June 30, 2010, the total notional amount of the Company's interest rate swaps was $146 million.  The fair value of the derivative of $2 million was recorded in other noncurrent assets.

Cash Flow Hedges
Cash flow hedges are derivative instruments designated as and used to hedge the exposure to variability in expected future cash flows that is attributable to a particular risk.  For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income, net of income taxes and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings.  Gains and losses on the derivatives representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings.

During the second quarter 2010, the Company entered into forward starting interest rate swaps designated as cash flow hedges to manage interest rate exposure related to the probable future issuance of fixed-rate debt.  These forward starting interest rate swaps are based on a total notional amount of $300 million.

As of June 30, 2010, the total amount of the Company's foreign exchange forward and option contracts was a $62 million asset.  As of June 30, 2010, the total amount of the Company's feedstock/energy forward and option contracts was a $14 million liability.  As of June 30, 2010, the total amount of the Company's forward starting interest rate swaps contracts was a $4 million liability.


14 
 

 

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


Fair Value of Derivatives Designated as Cash Flow Hedging Instruments

 (Dollars in millions)
     
Fair Value
 
Derivative Assets
 
Balance Sheet Location
 
June 30, 2010
   
December 31, 2009
 
Commodity contracts
 
Other current assets
  $ --     $ 7  
Foreign exchange contracts
 
Other current assets
    33       14  
Foreign exchange contracts
 
Other noncurrent assets
    30       11  
        $ 63     $ 32  
 
 
(Dollars in millions)
     
Fair Value
 
Derivative Liabilities
 
Balance Sheet Location
 
June 30, 2010
   
December 31, 2009
 
Commodity  contracts
 
Payables and other current liabilities
  $ 14     $ 1  
Foreign exchange contracts
 
Other noncurrent liabilities
    1       --  
Forward starting interest rate swap contracts
 
Other noncurrent liabilities
    4       --  
        $ 19     $ 1  

Derivatives' Cash Flow Hedging Relationships

Second Quarter
 
(Dollars in millions)
     
Derivatives' Cash Flow Hedging Relationships
 
Amount after tax of gain/ (loss) recognized in Other Comprehensive Income on derivatives (effective portion)
 
Location of gain/(loss) reclassified from Accumulated Other Comprehensive Income into income (effective portion)
 
Pre-tax amount of gain/(loss) reclassified from Accumulated Other Comprehensive Income into income (effective portion)
 
   
June 30, 2010
   
June 30, 2009
   
June 30, 2010
   
June 30, 2009
 
Commodity  contract
  $ (8 )   $ 1  
Cost of sales
  $ (1 )   $ (3 )
Foreign exchange contracts
    13       (9 )
Sales
    14       6  
Forward starting interest rate swap contracts
    (3 )     --                    
    $ 2     $ (8 )     $ 13     $ 3  

First Six Months
 
(Dollars in millions)
     
Derivatives' Cash Flow Hedging Relationships
 
Amount after tax of gain/ (loss) recognized in Other Comprehensive Income on derivatives (effective portion)
 
Location of gain/(loss) reclassified from Accumulated Other Comprehensive Income into income (effective portion)
 
Pre-tax amount of gain/(loss) reclassified from Accumulated Other Comprehensive Income into income (effective portion)
 
   
June 30, 2010
   
June 30, 2009
   
June 30, 2010
   
June 30, 2009
 
Commodity  contract
  $ (12 )   $ 5  
Cost of sales
  $ 4     $ (9 )
Foreign exchange contracts
    23       (4 )
Sales
    23       14  
Forward starting interest rate swap contracts
    (3 )     --                    
    $ 8     $ 1       $ 27     $ 5  

For all periods presented, there were no material ineffectiveness with regard to the Company's cash flow hedges.

Nondesignated / Nonqualifying Derivative Instruments
The Company mitigates foreign currency transaction exposure within a quarter from point of recording a sale or purchase transaction to the point of receipt of the currency related to that transaction through its foreign exchange tactical hedging program.  The gains or losses on these nonqualifying derivatives or derivatives that are not designated as hedges are marked to market in the line item "Other charges (income), net" of the Statements of Earnings.  The Company recognized approximately $12 million net gain on nonqualifying derivatives during the quarter ended June 30, 2010.  The Company recognized approximately $15 million net gain on nonqualifying derivatives during the six months ended June 30, 2010.

15 
 

 

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


STOCKHOLDERS' EQUITY

A reconciliation of the changes in stockholders' equity for first six months 2010 is provided below:

(Dollars in millions)
 
Common Stock at Par Value
$
   
Paid-in Capital
$
   
Retained Earnings
$
   
Accumulated Other Comprehensive Income (Loss)
$
   
Treasury Stock at Cost
$
   
Total Stockholders' Equity
$
 
Balance at December 31, 2009
    1       661       2,571       (385 )     (1,335 )     1,513  
                                                 
Net Earnings
    --       --       249       --       --       249  
Cash Dividends Declared (1)
    --       --       (64 )     --       --       (64 )
Other Comprehensive Income (Loss)
    --       --       --       (4 )     --       (4 )
Share-Based Compensation Expense (2)
    --       10       --       --       --       10  
Stock Option Exercises
    --       26       --       --       --       26  
Stock Repurchases
    --       --       --       --       (53 )     (53 )
Balance at June 30, 2010
    1       697       2,756       (389 )     (1,388 )     1,677  

(1)  
Includes cash dividends declared, but unpaid.
(2)  
Includes the fair value of equity share-based awards recognized for share-based compensation.

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX

 
 
 
 
(Dollars in millions)
 
Cumulative Translation Adjustment
$
   
Unrecognized Losses and Prior Service Credits for Benefit Plans
$
   
Unrealized Gains on Derivative Instruments
$
   
Unrealized Losses on Investments
$
   
Accumulated Other Comprehensive Income (Loss)
$
 
Balance at December 31, 2008
    60       (414 )     20       (1 )     (335 )
Period change
    17       (74 )     7       --       (50 )
Balance at December 31, 2009
    77       (488 )     27       (1 )     (385 )
Period change
    (21 )     9       8       --       (4 )
Balance at June 30, 2010
    56       (479 )     35       (1 )     (389 )

Amounts of other comprehensive income (loss) are presented net of applicable taxes.  The Company records deferred income taxes on the cumulative translation adjustment related to branch operations and other entities included in the Company's consolidated U.S. tax return.  No deferred income taxes are provided on the cumulative translation adjustment of subsidiaries outside the United States, as such cumulative translation adjustment is considered to be a component of permanently invested, unremitted earnings of these foreign subsidiaries.

EARNINGS AND DIVIDENDS PER SHARE
 
 
Second Quarter
 
First Six Months
 
2010
 
2009
 
2010
 
2009
               
Shares used for earnings per share calculation (in millions):
             
Basic
72.3
 
72.5
 
72.3
 
72.5
Diluted
73.5
 
73.1
 
73.5
 
73.0
 
In second quarter and first six months 2010, common shares underlying options to purchase 594,551 shares of common stock and 709,801 shares of common stock, respectively, were excluded from the computation of diluted earnings per share because the total market value of option exercises for these awards was less than the total proceeds that would be received for these awards.  Second quarter and first six months 2010 reflect the impact of share repurchases of 0.9 million shares.

In second quarter and first six months 2009, common shares underlying options to purchase 3,745,729 shares of common stock and 4,031,829 shares of common stock, respectively, were excluded from the computation of diluted earnings per share because the total market value of option exercises for these awards was less than the total proceeds that would be received for these awards.  There were no repurchases in first six months 2009.

  16
 

 

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 
The Company declared cash dividends of $0.44 per share in second quarter 2010 and 2009 and $0.88 per share in first six months 2010 and 2009.
 
SHARE-BASED COMPENSATION AWARDS

The Company utilizes share-based awards under employee and non-employee director compensation programs.  These share-based awards may include restricted and unrestricted stock, restricted stock units, stock options, and performance shares.  In both second quarter 2010 and 2009, approximately $5 million of compensation expense before tax were recognized in selling, general and administrative expense in the earnings statement for all share-based awards.  The impact on second quarter 2010 and 2009 net earnings of approximately $3 million and $2 million, respectively, is net of deferred tax expense related to share-based award compensation for each period.

In first six months 2010 and 2009, $10 million and $9 million, respectively, of compensation expense before tax were recognized in selling, general and administrative expense in the earnings statement for all share-based awards.  The impact on first six months 2010 and 2009 net earnings of $6 million and $5 million, respectively, is net of deferred tax expense related to share-based award compensation.

Additional information regarding share-based compensation plans and awards may be found in Note 15, "Share-Based Compensation Plans and Awards", to the consolidated financial statements in Part II, Item 8 of the Company's 2009 Annual Report on Form 10-K.

SUPPLEMENTAL CASH FLOW INFORMATION

Included in the line item "Other items, net" of the "Cash flows from operating activities" section of the Consolidated Statements of Cash Flows are specific changes to certain balance sheet accounts as follows:

(Dollars in millions)
 
First Six Months
 
   
2010
   
2009
 
             
Current assets
  $ 7     $ (72 )
Other assets
    (8 )     37  
Current liabilities
    11       (34 )
Long-term liabilities and equity
    14       3  
Total
  $ 24     $ (66 )

The above changes included transactions such as monetized positions from raw material and energy, currency, and certain interest rate hedges, prepaid insurance, miscellaneous deferrals, accrued taxes, value-added taxes, and other miscellaneous accruals.

 SEGMENT INFORMATION

The Company's products and operations are managed and reported in five reportable operating segments, consisting of the CASPI segment, the Fibers segment, the PCI segment, the Performance Polymers segment, and the Specialty Plastics segment.  For additional information concerning the Company's segments' businesses and products, see Note 22, "Segment Information", to the consolidated financial statements in Part II, Item 8 of the Company's 2009 Annual Report on Form 10-K.

Research and development and other expenses not identifiable to an operating segment are not included in segment operating results for either of the periods presented and are shown in the tables below as "other" operating losses.


17 
 

 

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


In first quarter 2010, the Company transferred certain intermediates product lines from the Performance Polymers segment to the PCI segment to improve optimization of manufacturing assets supporting the three raw material streams that supply the Company's downstream businesses.  The revised segment composition reflects how management views and evaluates operations.  Accordingly, the amounts for sales, operating earnings, and assets have been adjusted to retrospectively apply these changes to all periods presented.

   
Second Quarter
 
(Dollars in millions)
 
2010
   
2009
 
Sales
           
CASPI
  $ 416     $ 302  
Fibers
    274       263  
PCI
    541       316  
Performance Polymers
    222       185  
Specialty Plastics
    271       187  
                 
Total Sales
  $ 1,724     $ 1,253  

   
First Six Months
 
(Dollars in millions)
 
2010
   
2009
 
Sales
           
CASPI
  $ 789     $ 552  
Fibers
    541       522  
PCI
    1,023       620  
Performance Polymers
    416       344  
Specialty Plastics
    519       344  
                 
Total Sales
  $ 3,288       2,382  

   
Second Quarter
 
(Dollars in millions)
 
2010
   
2009
 
Operating Earnings (Loss)
           
CASPI (1)
  $ 94     $ 50  
Fibers
    83       74  
PCI (2)
    69       1  
Performance Polymers
    6       7  
Specialty Plastics (1)
    21       8  
Total Operating Earnings by Segment
    273       140  
Other
    (16 )     (9 )
                 
Total Operating Earnings
  $ 257     $ 131  

(1)  
Second quarter 2009 includes a positive adjustment to first quarter 2009 restructuring charge of ($2) million and ($1) million in the CASPI and Specialty Plastics segments, respectively.
(2)  
Second quarter 2010 includes restructuring charges of $3 million, primarily for severance in the PCI segment.  See Note 3, "Asset Impairments and Restructuring Charges, Net" for additional information.


18 
 

 

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 
   
First Six Months
 
(Dollars in millions)
 
2010
   
2009
 
Operating Earnings (Loss)
           
CASPI (1)
  $ 160     $ 64  
Fibers (1)
    162       143  
PCI (1) (2)
    106       (9 )
Performance Polymers (1)
    (7 )     (11 )
Specialty Plastics (1)
    42       (10 )
Total Operating Earnings by Segment
    463       177  
Other
    (24 )     (21 )
                 
Total Operating Earnings
  $ 439     $ 156  

(1)  
First six months 2009 includes a restructuring charge primarily for a severance program of $5 million, $4 million, $6 million, $4 million, and $4 million in the CASPI, Fibers, PCI, Performance Polymers, and Specialty Plastics segments, respectively.
(2)  
First six months 2010 includes restructuring charges of $3 million, primarily for severance in the PCI segment.  See Note 3, "Asset Impairments and Restructuring Charges, Net" for additional information.

   
June 30,
   
December 31,
 
(Dollars in millions)
 
2010
   
2009
 
Assets by Segment (1)
           
CASPI
  $ 1,270     $ 1,128  
Fibers
    845       726  
PCI
    1,177       845  
Performance Polymers
    614       575  
Specialty Plastics
    1,001       910  
Total Assets by Segment
    4,907       4,184  
Corporate Assets
    892       1,331  
                 
Total Assets
  $ 5,799     $ 5,515  

(1)  
The chief operating decision maker holds segment management accountable for accounts receivable, inventory, fixed assets, goodwill, and intangibles.

LEGAL MATTERS

From time to time, the Company and its operations are parties to, or targets of, lawsuits, claims, investigations and proceedings, including product liability, personal injury, asbestos, 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 such pending matters will have a material adverse effect on its overall financial condition, results of operations or cash flows.  However, adverse developments could negatively impact earnings or cash flows in a particular future period.

19 
 

 




This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with Eastman Chemical Company's (the "Company" or "Eastman") audited consolidated financial statements, including related notes, and Management's Discussion and Analysis of Financial Condition and Results of Operations contained in the Company's 2009 Annual Report on Form 10-K, and the Company's unaudited consolidated financial statements, including related notes, included elsewhere in this report.  All references to earnings per share contained in this report are diluted earnings per share unless otherwise noted.


20 
 

 

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS



In preparing the consolidated financial statements in conformity with accounting principles generally accepted in the United States ("GAAP"), the Company's management must make decisions which impact the reported amounts and the related disclosures.  Such decisions include the selection of the appropriate accounting principles to be applied and assumptions on which to base estimates and judgments that affect the reported amounts of assets, liabilities, sales revenue and expenses, and related disclosure of contingent assets and liabilities.  On an ongoing basis, the Company evaluates its estimates, including those related to allowances for doubtful accounts, impairment of long-lived assets, environmental costs, U.S. pension and other post-employment benefits, litigation and contingent liabilities, and income taxes.  ; The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.  Actual results may differ from these estimates under different assumptions or conditions.  The Company's management believes the critical accounting estimates described in Part II, Item 7 of the Company's 2009 Annual Report on Form 10-K are the most important to the fair presentation of the Company's financial condition and results.  These estimates require management's most significant judgments in the preparation of the Company's consolidated financial statements.


This Management's Discussion and Analysis includes the following non-GAAP financial measures and accompanying reconciliations to the most directly comparable GAAP financial measures.  The non-GAAP financial measures used by the Company may not be comparable to similarly titled measures used by other companies and should not be considered in isolation or as a substitute for measures of performance or liquidity prepared in accordance with GAAP.
·  
Company and segment operating earnings, net earnings, and diluted earnings per share excluding asset impairments and restructuring charges, net; and
·  
Cash flows from operating activities excluding the impact of adoption of amended accounting guidance for transfers of financial assets.

In second quarter 2010, there were $3 million in restructuring charges, primarily for severance associated with the acquisition and integration of Genovique Specialties Corporation ("Genovique").

In second quarter 2009, the Company recognized a $3 million reduction of the first quarter 2009 restructuring charge resulting in a net $23 million charge in first six months 2009.  The charges, primarily for severance, resulted from a reduction in force.

In first quarter 2010, the Company adopted amended accounting guidance for transfers of financial assets which impacts the financial statement presentation for activity under the Company's $200 million accounts receivable securitization program.  For periods beginning after December 31, 2009, transfers of receivables interests that were previously treated as sold and removed from the balance sheet will be included in trade receivables, net and reflected as secured borrowings on the balance sheet.  The Company's Statement of Financial Position at June 30, 2010 reflects an increase in trade receivables, $200 million of which was transferred at December 31, 2009 under the securitization program and reduced cash flows from operating activities by that amount for first quarter 2010.  At June 30, 2010, there w ere no transfers of receivables interests under the accounts receivable securitization program.

For evaluation and analysis of ongoing business results and of the impact on the Company and segments of strategic decisions and actions to reduce costs and to improve the profitability of the Company, Eastman's management believes that Company and segment earnings should be considered both with and without asset impairments and restructuring charges.  Management believes that investors can better evaluate and analyze historical and future business trends if they also consider the reported Company and segment results, respectively, without the asset impairments and restructuring charges, net.  In addition, management believes that cash provided by (used in) operating earnings should be considered both with and without the impact of adoption of amended accounting guidance for transfers of financial assets.  Ma nagement utilizes these measures to evaluate business performance and its cash position and in determining certain performance-based compensation.  These measures, excluding the identified items, are not recognized in accordance with GAAP and should not be viewed as alternatives to the GAAP measures of performance.

21 
 

 

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS



The Company generated sales revenue of $1.7 billion and $1.3 billion in second quarter 2010 and 2009, respectively and $3.3 billion and $2.4 billion in first six months 2010 and 2009, respectively.  Sales revenue increases for both second quarter and first six months 2010 compared to comparable 2009 periods were due to higher sales volume primarily attributed to improved customer demand due to the upturn in the global economy and the positive impact of growth initiatives, and increased selling prices in response to higher raw material and energy costs.
 
Operating earnings were $257 million in second quarter 2010 compared with $131 million in second quarter 2009 and $439 million in first six months 2010 compared with $156 million in first six months 2009.  Operating earnings were negatively impacted by restructuring charges of $3 million in both second quarter and first six months 2010 and $23 million in first six months 2009.  Operating earnings in second quarter 2009 were positively impacted by a $3 million reduction of a first quarter 2009 restructuring charge.  The increase in both comparable periods was due to higher sales volume and higher capacity utilization which led to lower unit costs.  In addition, higher selling prices mo re than offset higher raw material and energy costs.  Operating earnings in second quarter 2010 were negatively impacted by costs recognized during the quarter related to the previously announced power outage at the Company's Longview, Texas manufacturing facility, which were mostly offset by a partial settlement of a related insurance claim and were primarily reflected in the Performance Chemicals and Intermediates ("PCI") and Coatings, Adhesives, Specialty Polymers, and Inks ("CASPI") segments.  In first six months 2010, operating earnings included the cumulative negative impact of approximately $25 million related to the outage, net of these insurance proceeds from partial settlement.  The Company expects additional insurance proceeds in the second half of the year.  First six months 2010 operating earnings also included $12 million from acetyl license revenue.  Second quarter and first six months 2009 operating earnings included approximately $20 million in costs related to the reconfiguration of the Longview, Texas facility.
 
The Company used $19 million in cash from operating activities during first six months 2010 compared to $337 million provided by operating activities in first six months 2009.  Excluding the $200 million impact of the adoption of amended accounting guidance discussed above in "Presentation of Non-GAAP Financial Measures", Eastman generated $181 million in cash from operating activities primarily due to higher net earnings partially offset by an increase in working capital.  Excluding the impact of the adoption of this amended accounting guidance, the Company expects to generate free cash flow of approximately $300 million for full year 2010, assuming capital expenditures of approximately $250 million and U.S. defined benefit pension plan funding in an amount of approximately $25 million.  Free cash flow is defined as cash from operating activities less capital expenditures and dividends.
 
The Company is progressing on its growth initiatives in 2010.
·  
In the Fibers segment, the Korean acetate tow facility was acquired and commenced production in first quarter, and began customer qualifications during second quarter.
·  
In the Specialty Plastics segment, the monomer manufacturing facility and the first Eastman TritanTM copolyester polymer manufacturing facility in Kingsport, Tennessee commenced production in first quarter.
·  
In the PCI segment, Genovique, a global producer of specialty non-phthalate plasticizers for water-based adhesives and other applications, was acquired in second quarter.
·  
In the Specialty Plastics segment, the expansion of capacity by approximately 25 percent for cyclohexane dimethanol ("CHDM") modified polymers, a monomer used in the manufacture of copolyester, has commenced and is expected to be online in two phases in late 2011 and in 2012.
·  
In the Specialty Plastics segment, the second thirty thousand metric ton expansion of the resin capacity for TritanTM copolyesters has commenced and is expected to be online by the end of 2011.
·  
In the CASPI segment, the third expansion of the Company’s hydrogenated hydrocarbon resins capacity in Middelburg, the Netherlands will increase this capacity by an additional 20 percent and is expected to be online in early 2011.  A Longview, Texas hydrogenated hydrocarbon resins expansion will commence in the second half of the year and will also be online in early 2011.
 
In addition, the Company announced on April 23, 2010 that it will review strategic options, including a possible divestiture, for its polyethylene terephthalate ("PET") business in the Performance Polymers segment and anticipates completing this effort by year end.

22 
 

 

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS


 
   
Second Quarter
                         
(Dollars in millions)
 
2010
   
2009
   
Change
   
Volume Effect
   
Price Effect
   
Product
Mix Effect
   
Exchange
Rate
Effect
 
                                           
Sales
  $ 1,724     $ 1,253       38 %     21 %     13 %     4 %     -- %
                                                         
 
 
   
First Six Months
                         
(Dollars in millions)
 
2010
   
2009
   
Change
   
Volume Effect
   
Price Effect
   
Product
Mix Effect
   
Exchange
Rate
Effect
 
                                           
Sales
  $ 3,288     $ 2,382       38 %     21 %     11 %     5 %     1 %
                                                         

Sales revenue in second quarter 2010 compared to second quarter 2009 increased $471 million primarily due to higher sales volume in all segments and increased selling prices primarily in the PCI, CASPI, and Performance Polymers segments.  The higher sales volume was attributed primarily to improved customer demand due to the upturn in the global economy and the positive impact of growth initiatives.  The increased selling prices were in response to higher raw material and energy costs.
 
Sales revenue in first six months 2010 compared to first six months 2009 increased $906 million primarily due to higher sales volume in all segments and increased selling prices primarily in the PCI, Performance Polymers, and CASPI segments.  The higher sales volume was attributed primarily to improved customer demand due to the upturn in the global economy and the positive impact of growth initiatives.  The increased selling prices were in response to higher raw material and energy costs.

   
Second Quarter
   
First Six Months
 
(Dollars in millions)
 
2010
   
2009
   
Change
   
2010
   
2009
   
Change
 
                                     
Gross Profit
  $ 404     $ 260       55 %   $ 725     $ 439       65 %
As a percentage of sales
    23 %     21 %             22 %     18 %        
                                                 

Gross profit and gross profit as a percentage of sales in second quarter and first six months 2010 increased compared to second quarter and first six months 2009 in all segments except Performance Polymers.  The increase in both comparable periods was due to higher sales volume and higher capacity utilization which led to lower unit costs.  In addition, higher selling prices more than offset higher raw material and energy costs.  Gross profit in second quarter 2010 included costs recognized during the quarter related to the previously announced power outage, which were mostly offset by a partial settlement of a related insurance claim and were primarily reflected in the PCI and CASPI segments.& #160; In first six months 2010, gross profit included the cumulative negative impact of approximately $25 million related to the outage, net of these insurance proceeds from partial settlement.  First six months 2010 gross profit also included $12 million from acetyl license revenue.  Second quarter and first six months 2009 included approximately $20 million in costs related to the reconfiguration of the Longview, Texas facility.  The reconfiguration costs impacted the PCI and CASPI segments.

23
 

 

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS


 
   
Second Quarter
   
First Six Months
 
(Dollars in millions)
 
2010
   
2009
   
Change
   
2010
   
2009
   
Change
 
                                     
Selling, General and Administrative Expenses
  $ 108     $ 98       10 %   $ 211     $ 192       10 %
Research and Development Expenses
    36       34       6 %     72       68       6 %
    $ 144     $ 132       9 %   $ 283     $ 260       9 %
As a percentage of sales
    8 %     11 %             9 %     11 %        

Selling, general and administrative ("SG&A") expenses in second quarter 2010 were higher compared to second quarter 2009 primarily due to higher expenses for growth initiatives.  SG&A expenses in first six months 2010 were higher compared to first six months 2009 primarily due to increased performance-based compensation expense and higher expenses for growth initiatives.
 
Research and development ("R&D") expenses were higher in second quarter and first six months 2010 compared to second quarter and first six months 2009 primarily due to higher R&D expenses for growth initiatives.
 
Asset Impairments and Restructuring Charges, Net
 
In second quarter 2010, there were $3 million in restructuring charges primarily for severance associated with the acquisition and integration of Genovique.
 
In second quarter 2009, there was a $3 million reduction of the first quarter 2009 restructuring charge resulting in a net $23 million charge in first six months 2009.  The charges, primarily for severance, resulted from a reduction in force.
 
For more information regarding asset impairments and restructuring charges, net see the segment discussions and Note 3, "Asset Impairments and Restructuring Charges, Net", to the Company's unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.
 
Operating Earnings
   
Second Quarter
   
First Six Months
(Dollars in millions)
 
2010
   
2009
   
Change
   
2010
   
2009
 
Change
                                 
Operating earnings
  $ 257     $ 131       96 %   $ 439     $ 156  
>100 %
Asset impairments and restructuring charges, net
    3       (3 )             3       23    
Operating earnings excluding asset impairments and restructuring charges, net
  $ 260     $ 128    
>100
%   $ 442     $ 179  
>100 %

Net Interest Expense
   
Second Quarter
   
First Six Months
 
(Dollars in millions)
 
2010
   
2009
   
Change
   
2010
   
2009
   
Change
 
                                     
Gross interest costs
  $ 27     $ 26           $ 54     $ 50        
Less:  Capitalized interest
    --       4             1       7        
Interest expense
    27       22       23 %     53       43       23 %
Interest income
    2       2               3       4          
Net interest expense
  $ 25     $ 20       25 %   $ 50     $ 39       28 %
                                                 


24
 


MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

 
 
Net interest expense increased $5 million and $11 million in second quarter and first six months 2010, respectively, compared to comparable 2009 periods primarily due to lower capitalized interest resulting from lower capital spending and higher average borrowings.
 
For 2010, the Company expects net interest expense to increase compared with 2009 primarily due to lower capitalized interest and higher average borrowings.

Other Charges (Income), Net
   
Second Quarter
   
First Six Months
 
(Dollars in millions)
 
2010
   
2009
   
2010
   
2009
 
                         
Foreign exchange transaction losses
  $ 6     $ 2     $ 9     $ 2  
Investment losses, net
    --       2       1       5  
Other, net
    2       1       4       2  
Other charges (income), net
  $ 8     $ 5     $ 14     $ 9  

Provision for Income Taxes
   
Second Quarter
   
First Six Months
 
(Dollars in millions)
 
2010
   
2009
   
2010
   
2009
 
                         
Provision for income taxes
  $ 76     $ 41     $ 126     $ 41  
Effective tax rate
    34 %     39 %     33 %     38 %

Excluding discrete items, second quarter and first six months 2010 effective tax rates reflect the Company's expected full year tax rate on reported earnings before income taxes of approximately 33 percent.  Second quarter and first six months 2009 effective tax rates reflect a $7 million tax charge associated with a change in accounting method for tax purposes to accelerate timing of deductions for manufacturing repairs expense.

Net Earnings and Diluted Earnings per Share
 
   
Second Quarter
 
   
2010
   
2009
 
(Dollars in millions, except diluted EPS)
  $     EPS      $     EPS  
                         
Net earnings
  $ 148     $ 2.02     $ 65     $ 0.89  
Asset impairments and restructuring charges, net of tax
    2       0.03       (2 )     (0.03 )
Net earnings excluding asset impairments and restructuring charges, net of tax
  $ 150     $ 2.05     $ 63     $ 0.86  

   
First Six Months
 
   
2010
   
2009
 
(Dollars in millions, except diluted EPS)
   $     EPS      $     EPS  
                         
Net earnings
  $ 249     $ 3.38     $ 67     $ 0.91  
Asset impairments and restructuring charges, net of tax
    2       0.03       14       0.20  
Net earnings excluding asset impairments and restructuring charges, net of tax
  $ 251     $ 3.41     $ 81     $ 1.11  


25 
 

 

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS


The Company's products and operations are managed and reported in five reportable operating segments, consisting of the CASPI segment, the Fibers segment, the PCI segment, the Performance Polymers segment, and the Specialty Plastics segment.  For additional information concerning the Company's operating businesses and products, see Note 22, "Segment Information", to the consolidated financial statements in Part II, Item 8 of the Company's 2009 Annual Report on Form 10-K.
 
Sales revenue and expenses not identifiable to an operating segment are not included in segment operating results for either of the periods presented and are shown in Note 17, "Segment Information", to the Company's unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q, as "other" sales revenue and operating losses.
 
In first quarter 2010, the Company transferred certain intermediates product lines from the Performance Polymers segment to the PCI segment to improve optimization of manufacturing assets supporting the three raw material streams that supply the Company's downstream businesses.  The revised segment composition reflects how management views and evaluates operations.  Accordingly, the amounts for sales and operating earnings have been adjusted to retrospectively apply these changes to all periods presented.

CASPI Segment
 
Second Quarter
 
First Six Months
         
Change
         
Change
(Dollars in millions)
2010
 
2009
 
$
 
%
 
2010
 
2009
 
$
 
%
                               
Sales
$
416
$
302
$
114
 
37 %
$
789
$
552
$
237
 
43 %
 
Volume effect
         
48
 
16 %
         
133
 
24 %
 
Price effect
         
42
 
14 %
         
49
 
9 %
 
Product mix effect
         
26
 
8 %
         
50
 
9 %
 
Exchange rate effect
         
(2)
 
(1) %
         
5
 
1 %
                                 
                                 
Operating earnings
 
94
 
50
 
44
 
88 %
 
160
 
64
 
96
 
>100 %
                                 
Asset impairments and restructuring charges, net
 
--
 
(2)
 
2
     
--
 
5
 
(5)
   
                                 
Operating earnings excluding asset impairments and restructuring charges, net
 
94
 
48
 
46
 
96 %
 
160
 
69
 
91
 
>100 %

Sales revenue increased second quarter and first six months 2010 compared to second quarter and first six months 2009 in all product lines due to higher sales volume, higher selling prices, and a favorable shift in product mix.  The higher sales volume was attributed to improved customer demand due to the upturn in the global economy and the positive impact of growth initiatives, including the hydrogenated hydrocarbon resins manufacturing capacity expansion in Middelburg, the Netherlands which was completed in fourth quarter 2009.  The higher selling prices were in response to higher raw material costs, particularly for commodity solvents product lines.  The favorable shift in product mix was due to higher sales volume for specialty polymers and specialty coalescents product lines attributed to the demand recovery in coatings markets, particularly in the Asia Pacific and Europe, Mid dle East, and Africa regions.

26
 

 

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS


Excluding the segment's portion of an adjustment to the severance charge for a reduction in force in first quarter 2009, operating earnings increased $46 million in second quarter 2010 compared to second quarter 2009 due primarily to higher sales volume and higher capacity utilization which led to lower unit costs and the favorable shift in product mix.  Operating earnings in second quarter 2010 were negatively impacted by costs recognized during the quarter related to the previously announced power outage, which were mostly offset by a partial settlement of a related insurance claim.  Second quarter 2009 operating earnings included approximately $5 million in costs related to the reconfiguration of the Longview, Texas facility.
 
Excluding the segment's portion of the severance charge for a reduction in force in first six months 2009, operating earnings increased $91 million in first six months 2010 compared to first six months 2009 due primarily to higher sales volume and higher capacity utilization which led to lower unit costs and the favorable shift in product mix.  Operating earnings in first six months 2010 were negatively impacted by higher raw material and energy costs.  Operating earnings also included the cumulative negative impact of approximately $10 million related to the previously announced power outage, net of a partial settlement of a related insurance claim.  The Company expects additional insuran ce proceeds in the second half of the year.  First six months 2009 operating earnings included approximately $5 million in costs related to the reconfiguration of the Longview, Texas facility.  The asset impairments and restructuring charges, net for 2009 reflect the segment's portion of the severance charge for a reduction in force in first quarter 2009.

Fibers Segment
 
Second Quarter
 
First Six Months
         
Change
         
Change
(Dollars in millions)
2010
 
2009
 
$
 
%
 
2010
 
2009
 
$
 
%
                               
Sales
$
274
$
263
$
11
 
4 %
$
541
$
522
$
19
 
4 %
 
Volume effect
       
14
 
5 %
         
13
 
2 %
 
Price effect
       
(3)
 
(1) %
         
2
 
1 %
 
Product mix effect
       
--
 
-- %
         
4
 
1 %
 
Exchange rate effect
       
--
 
-- %
         
--
 
-- %
                               
                               
Operating earnings
83
 
74
 
9
 
12 %
 
162
 
143
 
19
 
13 %
                               
Asset impairments and restructuring charges, net
--
 
--
 
--
     
--
 
4
 
(4)
   
                               
Operating earnings excluding asset impairments and restructuring charges, net
83
 
74
 
9
 
12 %
 
162
 
147
 
15
 
10 %

Sales revenue increased in second quarter and first six months 2010 compared to second quarter and first six months 2009 due to higher sales volume primarily for acetate yarn product lines in the Asia Pacific region.
 
Operating earnings increased $9 million in second quarter 2010 compared to second quarter 2009 primarily due to higher sales volume and higher capacity utilization for acetate yarn product lines.
 
Excluding the segment's portion of the severance charge for a reduction in force in first six months 2009, operating earnings increased $15 million in first six months 2010 primarily due to higher selling prices and higher capacity utilization for acetate yarn product lines.
 
  27
 

 

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS


During first quarter 2010, the Company completed the acquisition of and commenced production at the Korean acetate tow manufacturing facility.  The Company commenced customer qualifications during second quarter 2010.  The acquisition is expected to be fully integrated into the segment's production and sales processes in 2011.

PCI Segment
 
Second Quarter
 
First Six Months
         
Change
         
Change
(Dollars in millions)
2010
 
2009
 
$
 
%
 
2010
 
2009
 
$
 
%
                               
Sales
$
541
$
316
$
225
 
72 %
$
1,023
$
620
$
403
 
65 %
Volume effect
         
122
 
39 %
         
189
 
31 %
Price effect
         
90
 
28 %
         
163
 
26 %
Product mix effect
         
14
 
5 %
         
48
 
8 %
Exchange rate effect
         
(1)
 
-- %
         
3
 
-- %
                               
                               
Operating earnings (loss)
69
 
1
 
68
 
>100 %
 
106
 
(9)
 
115
 
>100 %
                               
Asset impairments and restructuring charges, net
3
 
--
 
3
     
3
 
6
 
(3)
   
                               
Operating earnings (loss) excluding asset impairments and restructuring charges, net
72
 
1
 
71
 
>100 %
 
109
 
(3)
 
112
 
>100 %
                               

Sales revenue increased in second quarter and first six months 2010 compared to second quarter and first six months 2009 due to higher sales volume and higher selling prices.  The higher sales volume, particularly for olefin derivative product lines, was attributed to improved customer demand due to the upturn in the global economy and the impact of competitor outages in the quarter, as well as the addition of new plasticizer product lines from the acquisition of Genovique.  The higher selling prices were primarily in the olefin-based product lines in response to higher raw material and energy costs.  Sales revenue also included $12 million from an acetyl technology licensing agreement in first six months 2010.  
 
Excluding asset impairments and restructuring charges, net, operating earnings increased $71 million in second quarter 2010 compared to second quarter 2009 due to higher selling prices more than offsetting higher raw material and energy costs and higher sales volume and higher capacity utilization which led to lower unit costs.  Operating earnings in second quarter 2010 included $3 million in restructuring charges, primarily for severance associated with the acquisition and integration of Genovique.  Operating earnings in second quarter 2010 were negatively impacted by costs recognized during the quarter related to the previously announced power outage, which were mostly offset by a partial settleme nt of a related insurance claim.  Operating earnings in second quarter 2009 included approximately $15 million of costs related to the reconfiguration of the Longview, Texas facility. 


28 
 

 

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS


Excluding asset impairments and restructuring charges, net, operating earnings increased $112 million in first six months 2010 compared to first six months 2009 primarily due to higher selling prices and higher sales volume and higher capacity utilization which led to lower unit costs.  Operating earnings in first six months 2010 were negatively impacted by higher raw material and energy costs.  Operating earnings also included the cumulative negative impact of approximately $12 million related to the previously announced power outage, net of a partial settlement of a related insurance claim.  The Company expects additional insurance proceeds in the second half of the year.  Firs t six months 2010 operating earnings also included $12 million from acetyl license revenue and $3 million in restructuring charges, primarily for severance associated with the acquisition and integration of Genovique.  Operating earnings in first six months 2009 included approximately $15 million of costs related to the reconfiguration of the Longview, Texas facility.  A restructuring charge in first six months 2009 consisted of the segment's portion of the severance charge for a reduction in force.
 
In second quarter 2010, the Company acquired Genovique, a global producer of specialty non-phthalate plasticizers for water-based adhesives and other applications.  The transaction is expected to be accretive to the Company's full-year 2010 earnings per share.

Performance Polymers Segment
 
Second Quarter
 
First Six Months
         
Change
         
Change
(Dollars in millions)
2010
 
2009
 
$
 
%
 
2010
 
2009
 
$
 
%
                               
Sales
$
222
$
185
$
37
 
20 %
$
416
$
344
$
72
 
21 %
Volume effect
         
13
 
7 %
         
23
 
7 %
Price effect
         
26
 
14 %
         
54
 
16 %
Product mix effect
         
(2)
 
(1) %
         
(5)
 
(2) %
Exchange rate effect
         
--
 
-- %
         
--
 
-- %
                               
                               
Operating earnings (loss)
6
 
7
 
(1)
 
(14) %
 
(7)
 
(11)
 
4
 
36 %
                               
Asset impairments and restructuring charges, net
--
 
--
 
--
     
--
 
4
 
(4)
   
                               
Operating earnings (loss) excluding asset impairments and restructuring charges, net
6
 
7
 
(1)
 
(14) %
 
(7)
 
(7)
 
--
 
-- %

Sales revenue increased in second quarter and first six months 2010 compared to second quarter and first six months 2009 primarily due to higher selling prices and higher sales volume.  Higher selling prices were primarily in response to higher raw material and energy costs.  Sales volume increased due to improved operations of the Eastman IntegRexTM-based PET manufacturing facility.
 
Operating earnings in second quarter 2010 decreased $1 million compared to second quarter 2009 as the favorable impact of improved IntegRex™ operations was offset by continued difficult market conditions for PET in North America which limited the ability to offset higher raw material and energy costs with higher selling prices.  
 
Excluding the segment's portion of the severance charge for a reduction in force in first quarter 2009, operating results in first six months 2010 were similar to first six months 2009 as the favorable impact of higher selling prices and improved IntegRex™ operations were offset by higher raw material and energy costs.  
 
29 
 

 

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

 
The Company announced in second quarter 2010 that it will review strategic options, including a possible divestiture, for the PET business and anticipates completing this effort by year end.

Specialty Plastics Segment
 
Second Quarter
 
First Six Months
         
Change
         
Change
(Dollars in millions)
2010
 
2009
 
$
 
%
 
2010
 
2009
 
$
 
%
                               
Sales
$
271
$
187
$
84
 
44 %
$
519
$
344
$
175
 
51 %
 
Volume effect
       
67
 
36 %
         
146
 
42 %
 
Price effect
       
4
 
2 %
         
(1)
 
-- %
 
Product mix effect
       
12
 
6 %
         
26
 
8 %
 
Exchange rate effect
       
1
 
-- %
         
4
 
1 %
                               
                               
Operating earnings (loss)
21
 
8
 
13
 
>100 %
 
42
 
(10)
 
52
 
>100 %
                               
Asset impairments and restructuring charges, net
--
 
(1)
 
1
     
--
 
4
 
(4)
   
                               
Operating earnings (loss) excluding asset impairments and restructuring charges, net
21
 
7
 
14
 
>100 %
 
42
 
(6)
 
48
 
>100 %

Sales revenue increased in second quarter and first six months 2010 compared to second quarter and first six months 2009 primarily due to higher sales volume and a favorable shift in product mix.  The higher sales volume was attributed to improved customer demand due to the upturn in the global economy and the positive impact of growth initiatives for core copolyesters and the TritanTM copolyester product lines.  The favorable shift in product mix was due to higher sales volume for cellulosic plastics sold into the liquid crystal display market.
 
Excluding the segment's portion of an adjustment to first quarter 2009 severance charge in second quarter 2009, operating earnings increased $14 million in second quarter 2010 compared to second quarter 2009 primarily due to higher sales volume and higher capacity utilization which led to lower unit costs.
 
Excluding the segment's portion of the severance charge for a reduction in force in first quarter 2009, operating results increased $48 million in first six months 2010 compared to first six months 2009 primarily due to higher sales volume and higher capacity utilization which led to lower unit costs.
 
The Specialty Plastics segment is progressing with the market introduction of its new TritanTM copolyester, which it will supply from the monomer manufacturing facility and its first TritanTM copolyester polymer manufacturing facility in Kingsport, Tennessee which were both completed in 2009 and became operational in first quarter 2010. 

  30
 

 

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS


 Sales Revenue

   
Second Quarter
                         
(Dollars in millions)
 
2010
   
2009
   
Change
   
Volume Effect
   
Price Effect
   
Product
Mix Effect
   
Exchange
Rate
Effect
 
                                           
United States and Canada
  $ 963     $ 688       40 %     24 %     16 %     -- %     -- %
Asia Pacific
    355       277       28 %     9 %     9 %     9 %     1 %
Europe, Middle East, and Africa
    285       207       38 %     23 %     4 %     13 %     (2 )%
Latin America
    121       81       50 %     32 %     17 %     1 %     -- %
    $ 1,724     $ 1,253       38 %     21 %     13 %     4 %     -- %

Sales revenue in the United States and Canada increased in second quarter 2010 compared to second quarter 2009 primarily due to higher sales volume and higher selling prices in all segments except the Fibers segment.
 
Sales revenue in Asia Pacific increased in second quarter 2010 compared to second quarter 2009 primarily due to higher selling prices particularly in the PCI segment, higher sales volume particularly in the Specialty Plastics segment, and a favorable shift in product mix in all segments.  The sales volume increase was less for the region than in other regions as Asia Pacific was less affected by the global recession and recovered earlier than the other regions.
 
Sales revenue in Europe, Middle East, and Africa increased in second quarter 2010 compared to second quarter 2009 primarily due to higher sales volume and a favorable shift in product mix in all segments.  Sales volume was impacted by growth initiatives including the hydrogenated hydrocarbon resins manufacturing capacity expansion in Middelburg, the Netherlands in the CASPI segment which was completed in fourth quarter 2009.  The region had less significant price effect change compared to other regions due to fewer sales from commodity product lines.
 
Sales revenue in Latin America increased in second quarter 2010 compared to second quarter 2009 primarily due to higher sales volume particularly in the Performance Polymers segment and higher selling prices in the Performance Polymers segment.

   
First Six Months
                         
(Dollars in millions)
 
2010
   
2009
   
Change
   
Volume Effect
   
Price Effect
   
Product
Mix Effect
   
Exchange
Rate
Effect
 
                                           
United States and Canada
  $ 1,800     $ 1,359       33 %     19 %     13 %     1 %     -- %
Asia Pacific
    689       487       42 %     20 %     11 %     10 %     1 %
Europe, Middle East, and Africa
    561       385       46 %     25 %     2 %     17 %     2 %
Latin America
    238       151       57 %     38 %     19 %     -- %     -- %
    $ 3,288     $ 2,382       38 %     21 %     11 %     5 %     1 %

Sales revenue in the United States and Canada increased in first six months 2010 compared to first six months 2009 primarily due to higher sales volume and higher selling prices particularly in the PCI segment.

31 
 

 

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Sales revenue in Asia Pacific increased in first six months 2010 compared to first six months 2009 primarily due to higher sales volume and a favorable shift in product mix in all segments except the Fibers segment, and higher selling prices in all segments except the Specialty Plastics segment.
 
Sales revenue in Europe, Middle East, and Africa increased in first six months 2010 compared to first six months 2009 primarily due to higher sales volume in all segments and a favorable shift in product mix in all segments.  Sales volume wasimpacted by growth initiatives including the hydrogenated hydrocarbon resins manufacturing capacity expansion in Middelburg, the Netherlands in the CASPI segment which was completed in fourth quarter 2009.  Product mix included sales revenue from the acetyl license in the PCI segment. The region had minimal price effect change compared to other regions due to fewer sales from commodity product lines.
 
Sales revenue in Latin America increased in first six months 2010 compared to first six months 2009 primarily due to higher sales volume particularly in the Performance Polymers segment and higher selling prices in the Performance Polymers segments.
 
With a substantial portion of sales to customers 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 or euros.  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.  For additional information on these practices, see Note 9, "Fair Value of Financial Instruments", to the consolidated financial stat ements in Part II, Item 8 and Part II, Item 7A of the Company's 2009 Annual Report on Form 10-K and Forward-Looking Statements and Risk Factors of this Quarterly Report on Form 10-Q.


Cash Flows

   
First Six Months
 
(Dollars in millions)
 
2010
   
2009
 
             
Net cash provided by (used in)
           
Operating activities
  $ (19 )   $ 337  
Investing activities
    (257 )     (226 )
Financing activities
    (83 )     (48 )
Effect of exchange rate changes on cash and cash equivalents
    1       --  
Net change in cash and cash equivalents
    (358 )     63  
 
               
Cash and cash equivalents at beginning of period
    793       387  
                 
Cash and cash equivalents at end of period
  $ 435     $ 450  
 
 
   
First Six Months
 
(Dollars in millions)
 
2010
   
2009
 
             
Net cash provided by (used in) operating activities
  $ (19 )   $ 337  
Impact of adoption of amended accounting guidance (1)
    200       --  
Net cash provided by operating activities excluding item
    181       337  
                 
Additions to properties and equipment
    (76 )     (204 )
Dividends paid to stockholders
    (64 )     (64 )
                 
Free Cash Flow
  $ 41     $ 69  

(1)  
First six months 2010 cash from operating activities reflected the adoption of amended accounting guidance for transfers of financial assets which resulted in $200 million of receivables, which were previously accounted for as sold and removed from the balance sheet when transferred under the accounts receivable securitization program, being included on the first quarter balance sheet as trade receivables, net.  This increase in receivables reduced cash from operations by $200 million in first quarter 2010.


32 
 

 

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

 
Cash used in operating activities was $19 million during first six months 2010 compared to $337 million provided by operating activities in first six months 2009.  The use of cash was primarily due to an increase in working capital, particularly trade receivables, net, more than offsetting higher net earnings.  End of first six months 2010 receivables were higher primarily due to increased sales and the impact of the adoption of amended accounting guidance for transfers of financial assets which impacts the financial statement presentation for activity under the Company's accounts receivable securitization program.  Inventories increased in response to higher quantities and pr ices attributed to improved demand for the Company's products.  Both the increase in receivables and inventory were partially offset by an increase in accounts payable driven by a higher level of purchasing activity.
 
Cash used in investing activities was $257 million in first six months 2010 compared to $226 million used in investing activities in first six months 2009.  First six months 2010 includes the acquisition of Genovique and payments for the acquisition of the Korean acetate tow facility.  Capital spending of $76 million in first six months 2010 was lower primarily due to the deferral of discretionary spending in response to the global recession compared to first six months 2009 which included the completion of large growth initiatives.
 
Cash used in financing activities totaled $83 million in first six months 2010 compared to $48 million used in financing activities in first six months 2009.  Share repurchases in first six months 2010 were $53 million.
 
The payment of dividends is also reflected in financing activities in all periods.
 
The Company expects to generate positive free cash flow (operating cash flow excluding the $200 million impact of adoption of amended accounting guidance, less capital expenditures and dividends) in 2010 of approximately $300 million, assuming capital expenditures of approximately $250 million and U.S. defined benefit pension plan funding in an amount of approximately $25 million.  The priorities for uses of available cash in 2010 are payment of the quarterly cash dividend, funding targeted growth initiatives (including organic initiatives, joint ventures and acquisitions), and repurchasing shares.

Liquidity

At June 30, 2010, the Company had a $700 million revolving credit facility ("Credit Facility") in two tranches, with $125 million expiring in 2012 and $575 million expiring in 2013.  Borrowings under the Credit Facility are subject to interest at varying spreads above quoted market rates and a facility fee is paid on the total commitment.  In addition, the Credit Facility contains a number of customary covenants and events of default, including the maintenance of certain financial ratios.  The Company was in compliance with all such covenants for all periods presented.  At June 30, 2010 and December 31, 2009, the Company had no outstanding borrowings under the Credit Facility.
 
The Credit Facility provides liquidity support for commercial paper borrowings and general corporate purposes.  Accordingly, any outstanding commercial paper borrowings reduce borrowings available under the Credit Facility.  Given the expiration dates of the Credit Facility, any commercial paper borrowings supported by the Credit Facility are classified as long-term borrowings because the Company has the ability to refinance such borrowings on a long-term basis.
 
Additionally, at June 30, 2010, the Company also had a $200 million line of credit under its annually renewable accounts receivable securitization agreement ("A/R Facility").  The A/R Facility was renewed in July 2010.  Borrowings under the A/R Facility are subject to interest rates based on a spread over the lender's borrowing costs, and the Company pays a fee to maintain availability of the A/R Facility.  In addition, the A/R Facility contains a number of customary covenants and events of default, including the maintenance of certain financial ratios.  The Company was in compliance with all such covenants for all periods presented.  At June 30, 2010, the Company had no outstanding borrowings under the A/R Facility.
 
For more information regarding interest rates, refer to Note 8, "Borrowings", to the Company's unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.


33
 

 

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS


In 2009, the Company made $181 million in contributions to its U.S. defined benefit pension plan.  The Company expects to make contributions to its defined benefit pension plans in 2010 in an amount of approximately $25 million.
 
Cash flows from operations and the other sources of liquidity described above are expected to be available and sufficient to meet foreseeable cash flow requirements.  However, the Company's cash flows from operations can be affected by numerous factors including risks associated with global operations, raw material availability and cost, demand for and pricing of Eastman's products, capacity utilization, and other factors described under "Forward-Looking Statements and Risk Factors" below.  The Company believes maintaining a financial profile consistent with an investment grade company is important to its long term strategic and financial flexibility.

Capital Expenditures

Capital expenditures were $76 million and $204 million in first six months 2010 and 2009, respectively.  The lower expenditures in first six months 2010 were primarily due to the deferral of discretionary spending in response to the global recession compared to first six months 2009 which included the completion of large growth initiatives.  The Company expects that 2010 capital spending will be approximately $250 million as the Company increases spending on discretionary infrastructure projects and certain strategic growth initiatives.

Other Commitments

At June 30, 2010, the Company's obligations related to notes and debentures totaled approximately $1.6 billion to be paid over a period of approximately 20 years.  Other borrowings, related primarily to credit facility borrowings, totaled $8 million.
 
The Company had various purchase obligations at June 30, 2010 totaling approximately $1 billion over a period of approximately 15 years for materials, supplies and energy incident to the ordinary conduct of business.  For information regarding the Company's lease commitments, refer to Note 11, "Commitments", to the Company's unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.
 
In addition, the Company had other liabilities at June 30, 2010 totaling approximately $1.4 billion primarily related to pension, retiree medical, and other post-employment obligations.
 
The items described above are summarized in the following table:

(Dollars in millions)
 
Payments Due for
 
 
Period
 
 
Notes and Debentures
   
 
Credit Facility Borrowings and Other
   
Interest Payable
   
 
Purchase Obligations
   
 
Operating Leases
   
Other Liabilities (a)
   
 
 
Total
 
                                           
2010
  $ --     $ 6     $ 55     $ 130     $ 12     $ 159     $ 362  
2011
    2       2       110       252       23       64       453  
2012
    151       --       105       245       16       56       573  
2013
    --       --       99       231       10       58       398  
2014
    --       --       99       36       7       59       201  
2015 and beyond
    1,450       --       889       152       17       957       3,465  
Total
  $ 1,603     $ 8     $ 1,357     $ 1,046     $ 85     $ 1,353     $ 5,452  

(a) Amounts represent the current estimated cash payments to be made by the Company primarily for pension and other post-employment benefits and taxes payable in the periods indicated.  The amount and timing of such payments is dependent upon interest rates, health care cost trends, actual returns on plan assets, retirement and attrition rates of employees, continuation or modification of the benefit plans, and other factors.  Such factors can significantly impact the amount and timing of any future contributions by the Company.


34 
 

 

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

 
Off Balance Sheet and Other Financing Arrangements

If certain operating leases are terminated by the Company, it has guaranteed a portion of the residual value loss, if any, incurred by the lessors in disposing of the related assets.  For information on the Company's residual value guarantees, refer to Note 11, "Commitments", to the Company's unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.
 
At June 30, 2010, the Company did not have any other material relationships with unconsolidated entities or financial partnerships, including special purpose entities, for the purpose of facilitating off-balance sheet arrangements with contractually narrow or limited purposes.  Thus, Eastman is not materially exposed to any financing, liquidity, market, or credit risk related to the above or any other such relationships.
 
In June 2009, new accounting guidance on the consolidation of Variable Interest Entities ("VIEs") was issued.  This guidance is effective for all VIEs or potential VIEs the Company is involved with on or after January 1, 2010.  This guidance amends the evaluation criteria to identify which entity has a controlling financial interest of a variable interest entity and requires ongoing reassessments.  The Company has evaluated its material contractual relationships under this new guidance and has concluded that the entities involved in these relationships are not VIEs or, in the case of Primester, a joint venture that manufactures cellulose acetate at the Company's Kingsport, Ten nessee plant, the Company has shared control of the VIE.  As such, the Company is not required to consolidate these entities.
 
Guarantees and claims also arise during the ordinary course of business from relationships with suppliers, customers, and other parties when the Company undertakes an obligation to guarantee the performance of others, if specified triggering events occur.  Non-performance under a contract could trigger an obligation of the Company.  These potential claims include actions based upon alleged exposures to products, intellectual property and environmental matters, and other indemnifications.  The ultimate effect on future financial results is not subject to reasonable estimation because considerable uncertainty exists as to the final outcome of these claims.  However, wh ile the ultimate liabilities resulting from such claims may be significant to results of operations in the period recognized, management does not anticipate they will have a material adverse effect on the Company's consolidated financial position or liquidity.
 
Treasury Stock

In October 2007, the Company's Board of Directors authorized the repurchase of up to $700 million of the Company's outstanding common stock at such times, in such amounts, and on such terms, as determined to be in the best interests of the Company.  As of June 30, 2010, a total of 10.6 million shares have been repurchased under this authorization for a total amount of approximately $658 million.  During first six months 2010, the Company repurchased 859,900 shares of common stock for a cost of approximately $53 million.

Dividends

The Company declared cash dividends of $0.44 per share in second quarter 2010 and 2009 and $0.88 per share in first six months 2010 and 2009.


For 2010, the Company expects:

·  
increases in volume due to the recovery from the global recession and continued substitution of Eastman products for other materials and new applications for existing products;

·  
the volatility of market prices for raw materials and energy to continue and that the Company will continue to use pricing and hedging strategies to offset this volatility and for raw material and energy costs to be higher than 2009;


35 
 

 

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS


·  
to acquire and operate a cellulose acetate tow manufacturing facility and related business in Korea, with the facility to be operational in first quarter 2010 (acquired and operational in first quarter 2010) and fully integrated into the Fibers segment's production and sales processes in 2011;

·  
to continue to progress with the introduction of its new Eastman TritanTM copolyester, which it will supply from the monomer manufacturing facility and its first TritanTM copolyester polymer manufacturing facility in Kingsport, Tennessee which were both completed in 2009 and are expected to be operational in early 2010 (operational in first quarter 2010);

·  
to improve the profitability of its PET product lines in the Performance Polymers segment as a result of improved operational performance of the South Carolina facility and more profitable mix of PET product sales, and to continue to pursue licensing opportunities;

·  
to review strategic options, including a possible divestiture, for the PET business and anticipates completing this effort by year end;

·  
the acquisition of Genovique Specialties Corporation, a global producer of specialty non-phthalate plasticizers for water-based adhesives and other applications, completed in the second quarter, to be accretive to the Company's full-year earnings per share;

·  
depreciation and amortization to be slightly higher than 2009 primarily due to expected completion of manufacturing facilities in 2010;

·  
pension expense to be slightly higher than 2009, and to fund the U.S. defined benefit pension plan in an amount of approximately $25 million;

·  
net interest expense to increase compared with 2009 primarily due to lower capitalized interest and higher average borrowings;
 
·  
the effective tax rate to be approximately 33 percent;

·  
capital spending to be approximately $250 million for required maintenance, discretionary infrastructure projects, and certain strategic growth initiatives;

·  
to generate approximately $300 million of positive free cash flow (operating cash flow excluding the $200 million impact of adoption of amended accounting guidance, less capital expenditures and dividends);
 
·  
priorities for uses of available cash to be payment of the quarterly cash dividend, funding targeted growth initiatives (including organic initiatives, joint ventures and acquisitions), and repurchasing shares; and
 
·  
full year earnings per share to be between $6.20 and $6.40 excluding any charges related to restructuring actions.
 
See "Forward-Looking Statements and Risk Factors" below.

36 
 

 

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

 
 
The expectations under "Outlook" and certain other statements in this Quarterly Report on Form 10-Q which are not statements of historical fact may be "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995 and other federal securities laws.  These statements, and other written and oral forward-looking statements made by the Company from time to time may relate to, among other things, such matters as planned and expected capacity increases and utilization; anticipated capital spending; expected depreciation and amortization; environmental matters; legal proceedings; exposure to, and effects of hedging of, raw material and energy costs, foreign currencies an d interest rates; global and regional economic, political, and business conditions; competition; growth opportunities; supply and demand, volume, price, cost, margin, and sales; earnings, cash flow, dividends and other expected financial results and conditions; expectations, strategies, and plans for individual assets and products, businesses and segments as well as for the whole of Eastman; cash requirements and uses of available cash; financing plans; pension expenses and funding; credit ratings; anticipated restructuring, divestiture, and consolidation activities; cost reduction and control efforts and targets; integration of any acquired businesses; strategic initiatives and development, production, commercialization, and acceptance of new products, services and technologies and related costs; asset, business and product portfolio changes; and expected tax rates and net interest costs.
 
These plans and expectations are based upon certain underlying assumptions, including those mentioned with the specific statements.  Such assumptions are 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 underlying assumptions are necessarily subject to risks and uncertainties inherent in projecting future conditions and results.  Actual results could differ materially from expectations expressed in any forward-looking statement if one or more of the underlying assumptions or expectations proves to be inaccurate or is unrealized.   In addition to the factors described elsewhere in this report, the following are the most significant known factors that could cause the Company's actual results to differ materially from those in any such forward-looking statement.  Additional factors not presently known to the Company, or that the Company does not currently believe to be material, may also cause actual results to differ materially from expectations:
 
Adverse and uncertain conditions in the global economy and the financial markets could negatively impact the Company.
 
Conditions in the global economy and global capital markets may adversely affect the Company's results of operations, financial condition, and cash flows.  The Company's business and operating results have been affected by the impact of the recent global recession, including the credit market crisis, declining consumer and business confidence, fluctuating commodity prices, volatile exchange rates, and other challenges currently affecting the global economy.  The Company's customers may experience deterioration of their businesses, cash flow shortages, and difficulty obtaining financing.  As a result, existing or potential customers may still delay or cancel plans to purchase products and may not be able to, or may be unwilling to, fulfill their obligations in a timely fashion.  Further, suppliers may experience similar conditions, which could impact their ability to fulfill their obligations to the Company.  If weakness in the global economy continues for significant future periods or if the global economy or financial markets experience significant new disruptions or deteriorations, the Company's results of operations, financial condition and cash flows could be materially adversely affected and the Company's ability to access the credit and capital markets under attractive rates and terms could be constrained, which may negatively impact the Company's liquidity or ability to pursue certain growth initiatives.


37
 

 

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS


Volatility in costs for strategic raw material and energy commodities or disruption in the supply of these commodities could adversely affect our financial results.

The Company is reliant on certain strategic raw material and energy commodities for its operations and utilizes risk management tools, including hedging, as appropriate, to mitigate short-term market fluctuations in raw material and energy costs.  It is unlikely, however, that these risk mitigation measures will eliminate all exposure to market fluctuations.  In addition, natural disasters, plant interruptions, changes in laws or regulations, war or other outbreak of hostilities or terrorism, and breakdown or degradation of transportation infrastructure used for delivery of strategic raw material and energy commodities, could adversely impact both the cost and availability of these comm odities.

The Company could be materially adversely affected by disruptions to manufacturing operations or related infrastructure.

Significant limitation of the Company's ability to manufacture products due to disruption of manufacturing operations or related infrastructure could have a material adverse affect on sales revenue, costs, results of operations, and financial condition.  Disruptions could occur due to internal factors such as computer or equipment malfunction, operator error, or process failures; or external factors such as natural disasters, pandemic illness, changes in laws or regulations, war or other outbreak of hostilities or terrorism, or breakdown or degradation of transportation infrastructure used for delivery of supplies to the Company or for delivery of products to customers.

Loss or financial weakness of the Company's largest customers could adversely affect our financial results.

The Company has an extensive customer base; however, loss of, or material financial weakness of, certain of the largest customers could adversely affect the Company's financial condition and results of operations until such business is replaced and no assurances can be made that the Company would be able to regain or replace any lost customers.

Growth initiatives may not achieve desired business or financial objectives and may require a significant use of resources.

The Company continues to identify and pursue growth opportunities through both internal development and acquisitions and joint ventures to diversify and extend the portfolio of our businesses.  These growth opportunities include development and commercialization of new products and technologies, expansion into new markets and geographic regions, and alliances, ventures, and acquisitions that complement and extend the Company's portfolio of businesses and capabilities.  There can be no assurance that such efforts, investments, or acquisitions and alliances will result in financially successful commercialization of products or acceptance by existing or new customers or new markets or achi eve their underlying strategic business objectives or that they will be beneficial to the Company's results of operations.  There also can be no assurance that capital projects for such growth efforts can be completed within the time or at the costs projected due, among other things, to demand for and availability of construction materials and labor and obtaining regulatory approvals and operating permits and reaching agreement on terms of key agreements and arrangements with potential suppliers and customers.  Any such delays or cost overruns or the inability to obtain such approvals or to reach such agreements on acceptable terms could negatively affect the returns from any proposed investments and projects.


38
 

 

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 

Legislative and regulatory actions could increase the Company's future compliance costs.

The Company's facilities and businesses are subject to complex health, safety and environmental laws and regulations, which require and will continue to require significant expenditures to remain in compliance with such laws and regulations currently and in the future.  The Company's accruals for such costs and associated liabilities are subject to changes in estimates on which the accruals are based.  The amount accrued reflects the Company's assumptions about remediation requirements at the contaminated site, the nature of the remedy, the outcome of discussions with regulatory agencies and other potentially responsible parties at multi-party sites, and the number and financial viabi lity of other potentially responsible parties.  Changes in the estimates on which the accruals are based, unanticipated government enforcement action, or changes in health, safety, environmental, chemical control regulations, and testing requirements could result in higher costs.  Pending and proposed U.S. Federal legislation and regulation increase the likelihood that the Company's manufacturing sites will in the future be impacted by regulation or taxation of greenhouse gas emissions, which legislation and regulation, if enacted, may result in capital expenditures, increases in costs for raw materials and energy, limitations on raw material and energy source and supply choices, and other direct compliance costs.
 
In addition to the foregoing most significant known risk factors to the Company, there may be other factors, not currently known to the Company, which could, in the future, materially adversely affect the Company, its business, financial condition, or results of operations.  The foregoing discussion of the most significant risk factors to the Company does not necessarily present them in order of importance.  This disclosure, including that under "Outlook" and "Forward-Looking Statements and Risk Factors," and other forward-looking statements and related disclosures made by the Company in this Quarterly Report on Form 10-Q and elsewhere from time to time, represents management's best jud gment as of the date the information is given.  The Company does not undertake responsibility for updating any of such information, whether as a result of new information, future events, or otherwise, except as required by law.  Investors are advised, however, to consult any further public Company disclosures (such as in filings with the Securities and Exchange Commission or in Company press releases) on related subjects.

39
 

 

 


There are no material changes to the Company's market risks from those disclosed in Part II, Item 7A of the Company's 2009 Annual Report on Form 10-K.

ITEM 4.  CONTROLS AND PROCEDURES
 
Disclosure Controls and Procedures

The Company maintains a set of disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms.  Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the Company's management, including its principal executive and p rincipal financial officers, as appropriate to allow timely decisions regarding required disclosure.  An evaluation was carried out under the supervision and with the participation of the Company's management, including the Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), of the effectiveness of the Company's disclosure controls and procedures.  Based on that evaluation, the CEO and CFO have concluded that as of June 30, 2010, the Company's disclosure controls and procedures were effective to ensure that information required to be disclosed was accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There has been no change in the Company's internal control over financial reporting that occurred during the first six months of 2010 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.
 
 

40
 

 

 

General

From time to time, the Company and its operations are parties to, or targets of, lawsuits, claims, investigations and proceedings, including product liability, personal injury, asbestos, 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 such pending matters will have a material adverse effect on its overall financial condition, results of operations, or cash flows.  However, adve rse developments could negatively impact earnings or cash flows in a particular future period.

Jefferson (Pennsylvania) Environmental Proceeding

In December 2005, Eastman Chemical Resins, Inc., a wholly-owned subsidiary of the Company (the "ECR Subsidiary"), received a Notice of Violation ("NOV") from the United States Environmental Protection Agency's Region III Office ("EPA") alleging that the ECR Subsidiary's West Elizabeth, Jefferson Borough, Allegheny County, Pennsylvania manufacturing operation violated certain federally enforceable local air quality regulations and certain provisions in a number of air quality-related permits.  In October 2006, the EPA referred the matter to the United States Department of Justice's Environmental Enforcement Section ("DOJ").  Company representatives have met with the EPA and DOJ on a numb er of occasions since the NOV's issuance and have determined that it is not reasonably likely that any civil penalty assessed by the EPA and DOJ will be less than $100,000.  While the Company intends to vigorously defend against these allegations, this disclosure is made pursuant to Securities and Exchange Commission Regulation S-K, Item 103, Instruction 5.C., which requires disclosure of administrative proceedings commenced under environmental laws that involve governmental authorities as parties and potential monetary sanctions of at least $100,000.  The Company believes that the ultimate resolution of this proceeding will not have a material impact on the Company's financial condition, results of operations, or cash flows.

Kingsport (Tennessee) Environmental Proceeding

In March 2010, representatives of the Company met with the Tennessee Department of Environment and Conservation ("TDEC") regarding alleged violations of state water quality control statutory provisions and regulations by the Company's manufacturing operations in Kingsport, Tennessee.  At this meeting, TDEC provided the Company a draft enforcement order addressing these alleged violations.  Based on the Company's meeting with TDEC and review of the draft enforcement order, the Company has determined that it is not reasonably likely that any civil penalty assessed by TDEC will be less than $100,000.  While the Company intends to vigorously defend against these allegations, this disclosure is made pursuant to Securities and Exchange Commission Regulation S-K, Item 103, Instruction 5.C., which requires disclosure of administrative proceedings commenced under environmental laws that involve governmental authorities as parties and potential monetary sanctions of at least $100,000.  The Company believes that the ultimate resolution of this proceeding will not have a material impact on the Company's financial condition, results of operation, or cash flows.
 
Franklin (Virginia) Environmental Proceeding

In 2005, the EPA’s National Enforcement Investigations Center ("NEIC") conducted a multimedia inspection of the ECR Subsidiary’s Franklin manufacturing operation located in Courtland, Virginia.  The NEIC’s report resulting from that inspection alleges that the Franklin operations violated certain federally enforceable environmental laws and regulations.  Based on recent communication with EPA Region III and the DOJ, the Company has determined that it is not reasonably likely that any civil penalty assessed by the EPA and DOJ will be less than $100,000.  While the Company intends to vigorously defend against these allegations, this disclosure is made pursuant to Securities and Exchange Commission Regulation S-K, Item 103, Instruction 5.C., which requires disclosure of administrative proceedings commenced under environmental laws that involve governmental authorities as parties and potential monetary sanctions of at least $100,000.  The Company believes that the ultimate resolution of this proceeding will not have a material impact on the Company's financial condition, results of operations, or cash flows.

41
 

 
 

For identification and discussion of the most significant risks applicable to the Company and its business, see "Part I – Item 2 – Management's Discussion and Analysis of Financial Condition and Results of Operations – Forward-Looking Statements and Risk Factors" of this Quarterly Report on Form 10-Q.
 
(c)  Purchases of Equity Securities by the Issuer

Period
Total Number
of Shares
Purchased
(1)
 
Average Price Paid Per Share
(2)
 
Total Number of Shares Purchased as Part of Publicly Announced Plans
or Programs
(3)
 
Approximate Dollar
Value (in millions) that May Yet Be Purchased Under the Plans or Programs
(3)
April 1- 30, 2010
          0
$
--
 
          0
$
75
May 1 - 31, 2010
519,900
$
63.59
 
519,900
$
42
June 1 - 30, 2010
           0
$
--
 
           0
$
42
Total
519,900
$
63.59
 
519,900
   

   (1)  
Shares repurchased under a Company announced repurchase plan.
(2)  
Average price paid per share reflects the weighted average purchase price paid for share.
(3)  
In October 2007, the Board of Directors authorized $700 million for repurchase of the Company's outstanding common shares at such times, in such amounts, and on such terms, as determined to be in the best interests of the Company.  As of June 30, 2010, a total of 10.6 million shares have been repurchased under this authorization for a total amount of $658 million. For additional information, see Note 13, "Stockholders' Equity", to the Company's unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.


Exhibits filed as part of this report are listed in the Exhibit Index appearing on page 44.


42
 

 
 
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:  August 03, 2010
 
By:
  /s/ Curtis E. Espeland
     
Curtis E. Espeland
     
Senior Vice President and Chief Financial Officer

 

 

43
 

 


 Exhibit    
Sequential
Eh
     
Page
Number
 
Description
 
Number
         
3.01
   
46
         
3.02
   
53
         
4.01
 
Form of Eastman Chemical Company common stock certificate as amended February 1, 2001 (incorporated herein by reference to Exhibit 4.01 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2001)
   
         
4.02
 
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 the Company's Current Report on Form 8-K dated January 10, 1994)
   
         
4.03
 
Form of 7 1/4% Debentures due January 15, 2024 (incorporated herein by reference to Exhibit 4(d) to the Company's Current Report on Form 8-K dated January 10, 1994)
   
         
4.04
 
Officers' Certificate pursuant to Sections 201 and 301 of the Indenture (incorporated herein by reference to Exhibit 4(a) to the Company's Current Report on Form 8-K dated June 8, 1994)
   
         
4.05
 
Form of 7 5/8% Debentures due June 15, 2024 (incorporated herein by reference to Exhibit 4(b) to the Company's Current Report on Form 8-K dated June 8, 1994)
   
         
4.06
 
Form of 7.60% Debentures due February 1, 2027 (incorporated herein by reference to Exhibit 4.08 to the Company's Annual Report on Form 10-K for the year ended December 31, 1996)
   
         
4.07
 
Form of 7% Notes due April 15, 2012 (incorporated herein by reference to Exhibit 4.09 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2002)
   
         
4.08
 
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 Company's Annual Report on Form 10-K for the year ended December 31, 2006)
   
         
4.09
 
Form of 5.500% Notes due 2019 (incorporated  herein by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated November 2, 2009)
   
         
4.10
 
July 7, 2010 Letter Amendment to $200,000,000 Accounts Receivable Securitization agreement dated July 9, 2008 (amended February 18, 2009, and July 8, 2009), between the Company and The Bank of Tokyo-Mitsubishi UFJ, Ltd., as agent. (incorporated herein by reference to Exhibit 4.09 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2009)
 
64
         
4.11
 
Amended and Restated Credit Agreement, dated as of April 3, 2006 (the "Credit Agreement") among Eastman Chemical Company, the Lenders named therein, and Citigroup Global Markets , Inc. and J. P. Morgan Securities Inc., as  joint lead arrangers, as amended on November 16, 2007 and March 10, 2008 (incorporated herein by reference to Exhibit 4.11 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2006 and Exhibit 4.10 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2008)
   


44
 

 


Exhibit  
EXHIBIT INDEX
 
Sequential
Exhibit
     
Page
Number
 
Description
 
Number
         
4.12
 
Form of 6.30% Notes due 2018 (incorporated herein by reference to Exhibit 4.14 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2003)
   
         
12.01
   
71
         
31.01
   
72
         
31.02
   
73
         
32.01
   
74
         
32.02
   
75
         
101.INS
 
XBRL Instance Document (furnished, not filed)
   
         
101.SCH
 
XBRL Taxonomy Extension Schema (furnished, not filed)
   
         
101.CAL
 
XBRL Taxonomy Calculation Linkbase (furnished, not filed)
   
         
101.LAB
 
XBRL Taxonomy Label Linkbase (furnished, not filed)
   
         
101.PRE
 
XBRL Presentation Linkbase Document (furnished, not filed)
   
         
 101.DEF  
XBRL Definition Linkbase Document (furnished, not filed)
   


45
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Exhibit 3.01



AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
EASTMAN CHEMICAL COMPANY

ORIGINAL CERTIFICATE OF INCORPORATION FILED WITH SECRETARY OF STATE OF DELAWARE ON JULY 29, 1993; AMENDMENTS FILED ON DECEMBER 3, 1993 (EFFECTIVE DECEMBER 31, 1993); MAY 9, 2001 (EFFECTIVE MAY 10, 2001); AND MAY 6, 2010 (EFFECTIVE MAY 6, 2010)

ARTICLE I

Name

The name of the corporation is Eastman Chemical Company.

ARTICLE II

Address of Registered Office;
Name of Registered Agent

The address of the registered office of the Corporation in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle, 19801.  The name of its registered agent at that address is The Corporation Trust Company.

ARTICLE III

Purpose and Powers

The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may now or hereafter be organized under the Delaware General Corporation Law.  It shall have all powers that may now or hereafter be lawful for a corporation to exercise under the Delaware General Corporation Law.

ARTICLE IV

Capital Stock

Section 4.1.  Total Number of Shares of Stock.  The total number of shares of stock of all classes that the Corporation shall have authority to issue is 400,000,000 shares.  The authorized capital stock is divided into 50,000,000 shares of Preferred Stock, of the par value of $.01 each (the "Preferred Stock"), and 350,000,000 shares of Common Stock of the par value of $.01 each (the "Common Stock").

Section 4.2.  Preferred Stock.  (a) The shares of Preferred Stock of the Corporation may be issued from time to time in one or more classes or series thereof, the shares of each class or series thereof to have such voting powers, full or limited, or no voting powers, and such designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof, as are stated and expressed herein or in the resolution or resolutions providing for the issue of such class or series, adopted by the Board of Directors as hereinafter provided.


 

46

 
 

 
Exhibit 3.01



(b) Authority is hereby expressly granted to the Board of Directors of the Corporation, subject to the provisions of this Article IV and to the limitations prescribed by the Delaware General Corporation Law, to authorize the issue of one or more classes, or series thereof, of Preferred Stock and with respect to each such class or series to fix by resolution or resolutions providing for the issue of such class or series the voting powers, full or limited, if any, of the shares of such class or series and the designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof.  The authority of the Board of Directors with respect to each class or series thereof shall include, but not be limited to, the d etermination or fixing of the following:

(i)           the maximum number of shares to constitute such class or series, which may subsequently be increased or decreased by resolution of the Board of Directors unless otherwise provided in the resolution providing for the issue of such class or series, the distinctive designation thereof and the stated value thereof if different than the par value thereof;

(ii)           the dividend rate of such class or series, the conditions and dates upon which such dividends shall be payable, the relation which such dividends shall bear to the dividends payable on any other class or classes of stock or any other series of any class of stock of the Corporation, and whether such dividends shall be cumulative or noncumulative;

(iii)           whether the shares of such class or series shall be subject to redemption, in whole or in part, and, if made subject to such redemption, the times, prices and other terms and conditions of such redemption, including whether or not such redemption may occur at the option of the Corporation or at the option of the holder or holders thereof or upon the happening of a specified event;

(iv)           the terms and amount of any sinking fund established for the purchase or redemption of the shares of such class or series;

(v)           whether or not the shares of such class or series shall be convertible into or exchangeable for shares of any other class or classes of any stock or any other series of any class of stock of the Corporation, and, if provision is made for conversion or exchange, the times, prices, rates, adjustments, and other terms and conditions of such conversion or exchange;

(vi)           the extent, if any, to which the holders of shares of such class or series shall be entitled to vote with respect to the election of directors or otherwise;

(vii)           the restrictions, if any, on the issue or reissue of any additional Preferred Stock;

(viii)           the rights of the holders of the shares of such class or series upon the dissolution of, or upon the subsequent distribution of assets of, the Corporation; and

(ix)           the manner in which any facts ascertainable outside the resolution or resolutions providing for the issue of such class or series shall operate upon the voting powers, designations, preferences, rights and qualifications, limitations or restrictions of such class or series.

Section 4.3.  Common Stock.  The shares of Common Stock of the Corporation shall be of one and the same class.  The holders of Common Stock shall have one vote per share of Common Stock on all matters on which holders of Common Stock are entitled to vote.




 

47

 
 

 
Exhibit 3.01



Section 4.4.  Reverse/Forward Split of Common Stock.
(1)  Effective at 6:00 p.m. (Eastern Time) on the effective date of the certificate of amendment adding this Section 4.4 to the Certificate of Incorporation (the "Reverse Split Effective Time"),
 each share of the Common Stock, par value $.01 per share, of the Corporation outstanding at the Reverse Split Effective Time shall, without any action on the part of the holder thereof, automatically be reclassified and changed into one tenth (1/10th) of a share of Common Stock, par value $.01 per share, of the Corporation; provided, however, that (i) if the foregoing reverse stock split (the "Reverse Split") would result in the record account of any holder of Common Stock having a number of shares of Common Stock that is, in the aggregate, less than one (1) share ("Fractional Shares"), such Fractional Shares shall, without any action on the part of the holder thereof, automatically be canceled in the Reverse Split; and (ii) in the Reverse Split, all of the Fractional Shares shall automatically be converted into the right to receive the Trading Value thereof upon surrender by the holder thereof of the certificate or certificates representing such Fractional Shares.  For purposes hereof, the term "Trading Value" of any Fractional Shares shall mean the product of:  (A) the average of the closing sale prices, as reported by The New York Stock Exchange ("NYSE"), per share of the Common Stock on each of the twenty (20) consecutive NYSE trading days that ends with the NYSE trading day that immediately precedes the date of the Reverse Split Effective Time, multiplied by (B) the number of shares of Common Stock that were converted into such Fractional Shares as a result of the Reverse Split.  From and after the Reverse Split Effective Time, each holder of Fractional Shares shall have no further interest as a stockholder in the Corporation in respect of such Fractional Shares.

(2)           Effective at 6:01 p.m. (Eastern Time) on the effective date of the certificate of amendment adding this Section 4.4 to the Certificate of Incorporation (the "Forward Split Effective Time"):  (i) each whole share of the Common Stock, par value $.01 per share, of the Corporation outstanding at the Forward Split Effective Time (after giving effect to the Reverse Split at the Reverse Split Effective Time) shall, without any action on the part of the holder thereof, automatically be reclassified and changed into ten (10) shares of Common Stock, par value $.01 per share, of the Corporation; and (ii) fractions of a share outstanding at the Forward Split Effective Time (after giving effect to the Reverse Split at the Reverse Split Effective Time) shall be proportionately reclassified and changed."

ARTICLE V

Board of Directors

Section 5.1.  Powers of the Board of Directors.  The business and affairs of the Corporation shall be managed by or under the direction of its Board of Directors.  In furtherance, and not in limitation, of the powers conferred by the laws of the State of Delaware, the Board of Directors is expressly authorized to:

(a)           adopt, amend, alter, change or repeal the Bylaws of the Corporation; provided, however, that no Bylaws hereafter adopted shall invalidate any prior act of the directors that would have been valid if such new Bylaws had not been adopted;

(b)           determine the rights, powers, duties, rules and procedures that affect the power of the Board of Directors to manage and direct the business and affairs of the Corporation, including the power to designate and empower committees of the Board of Directors, to elect, appoint and empower the officers and other agents of the Corporation, and to determine the time and place of, and the notice requirements for, Board meetings, as well as quorum and voting requirements for, and the manner of taking, Board action; and

(c)           exercise all such powers and do all such acts as may be exercised or done by the Corporation, subject to the provisions of the laws of the State of Delaware, this Certificate of Incorporation, and the Bylaws of the Corporation.
Section 5.2.  Number of Directors.  The number of directors constituting the Board of Directors shall be as specified in the Bylaws or fixed in the manner provided therein.


 

48

 
 

 
Exhibit 3.01



Section 5.3.  Classified Board of Directors.  Effective upon the distribution of shares of the Corporation's Common Stock by its sole stockholder, Eastman Kodak Company, to the stockholders thereof, the directors shall be divided into three classes, with each class to be as nearly equal in number as reasonably possible, and with the initial term of office of the first class of directors to expire at the 1994 Annual Meeting of Stockholders, the initial term of office of the second class of directors to expire at the 1995 Annual Meeting of Stockholders and the initial term of office of the third class of directors to expire at the 1996 Annual Meeting of Stockholders.  Commencing with the 1994 Annual Meeti ng of Stockholders, directors elected to succeed those directors whose terms have thereupon expired shall be elected to a term of office to expire at the third succeeding Annual Meeting of Stockholders after their election, and upon the election and qualification of their successors.  If the number of directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain or attain, if possible, the number of directors in each class as nearly equal as reasonably possible, but in no case will a decrease in the number of directors shorten the term of any incumbent director.

Section 5.4.  Vacancies.  Any vacancies in the Board of Directors for any reason and any newly created directorships resulting by reason of any increase in the number of directors may be filled only by the Board of Directors, acting by a majority of the remaining directors then in office, although less than a quorum, or by a sole remaining director, and any directors so appointed shall hold office until the next election of directors or, after Section 5.3 is effective, until the next election of the class for which such directors have been chosen and, in either instance, until their successors are elected and qualified or their earlier resignation or removal.

Section 5.5.  Removal of Directors.  Except as may be provided in a resolution or resolutions providing for any class or series of Preferred Stock pursuant to Article IV hereof with respect to any directors elected by the holders of such class or series, any director, or the entire Board of Directors, may be removed from office at any time, but only for cause, and only by the affirmative vote of the holders of at least 66 2/3% of the voting power of all of the shares of capital stock of the Corporation then entitled to vote generally in the election of directors, voting together as a single class.

Section 5.6.  Factors to be Considered by Directors.  In connection with the exercise of its or their judgment in determining what is in the best interests of the Corporation and its stockholders, the Board of Directors of the Corporation, any committee of the Board of Directors or any individual director may, but shall not be required to, in addition to considering the long-term and short-term interests of the stockholders, consider all of the following factors and any other factors that it or he deems relevant: (i) the social and economic effects of the matter to be considered on the Corporation and its subsidiaries, its and their employees, customers and creditors and the communities in which the Corporation a nd its subsidiaries operate or are located; and (ii) when evaluating a business combination or a proposal by another Person or Persons to make a business combination or a tender or exchange offer or any other proposal relating to a potential change of control of the Corporation, (x) the business and financial condition and earnings prospects of the acquiring Person or Persons, including, but not limited to, debt service and other existing financial obligations, financial obligations to be incurred in connection with the acquisition, and other likely financial obligations of the acquiring Person or Persons, and the possible effect of such conditions upon the Corporation and its subsidiaries and the communities in which the Corporation and its subsidiaries operate or are located, (y) the competence, experience and integrity of the acquiring Person or Persons and its or their management, and (z) the prospects for successful conclusion of the business combination, offer or proposal.  The provisions of this Section shall be deemed solely to grant discretionary authority to the directors and shall not be deemed to provide to any constituency the right to be considered.  As used in this Section, the term "Person" means any individual, partnership, firm, corporation, association, trust, unincorporated organization or other entity; when two or more Persons act as a partnership, limited partnership, syndicate, or other group acting in concert for the purpose of acquiring, holding, voting or disposing of securities of the Corporation, such partnership, limited partnership, syndicate or group shall also be deemed a "Person" for purposes of this Section


 

49

 
 

 
Exhibit 3.01



ARTICLE VI

Stockholder Actions and
Meetings of Stockholders

Except as may be provided in a resolution or resolutions providing for any class or series of Preferred Stock pursuant to Article IV hereof, any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of such holders and may not be effected by any consent in writing by such holders.  Special meetings of stockholders of the Corporation may be called only by the Board of Directors (i) pursuant to a resolution adopted by a majority of the members of the Board of Directors then in office, or (ii) upon the written request of the holders of at least twenty-five percent of the outstanding voting stock of the Corporation in accordance with the requirements set forth in the Bylaws of the Corporation. 0; Elections of directors need not be by written ballot, unless otherwise provided in the Bylaws.

ARTICLE VII

Indemnification

Section 7.1.  Right to Indemnification.  Each person who was or is made a party or is threatened to be made a party to or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact:

(a)           that he or she is or was a director or officer of the Corporation, or

(b)           that he or she, being at the time a director or officer of the Corporation, is or was serving at the request of the Corporation as a director, trustee, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan (collectively, "another enterprise" or "other enterprise"), whether either in case (a) or in case (b) the basis of such proceeding is alleged action or inaction (x) in an official capacity as a director or officer of the Corporation, or as a director, trustee, officer, employee or agent of such other enterprise, or (y) in any other capacity related to the Corporation or such other enterprise while so s erving as a director, trustee, officer, employee or agent, shall be indemnified and held harmless by the Corporation to the fullest extent not prohibited by Section 145 of the Delaware General Corporation Law (or any successor provision or provisions) as the same exists or may hereafter be amended (but, in the case of any such amendment, with respect to alleged action or inaction occurring prior to such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than permitted prior thereto), against all expense, liability and loss (including without limitation attorneys' fees and expenses, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) reasonably incurred or suffered by such person in connection therewith.  The persons indemnified by this Article VII are hereinafter referred to as "indemnitees." Such indemnification as to such alleged action or inaction shall continue as to an indemnitee who has after such a lleged action or inaction ceased to be a director or officer of the Corporation, or director, officer, employee or agent of such other enterprise; and shall inure to the benefit of the indemnitee's heirs, executors and administrators.  Notwithstanding the foregoing, except as may be provided in the Bylaws or by the Board of Directors, the Corporation shall not indemnify any such indemnitee in connection with a proceeding (or portion thereof) initiated by such indemnitee (but this prohibition shall not apply to a counterclaim, cross-claim or third-party claim brought by the indemnitee in any proceeding) unless such proceeding (or portion thereof) was authorized by the Board of Directors.  The right to indemnification conferred in this Article VII: (i) shall be a contract right; (ii) shall not be affected adversely to any indemnitee by any amendment of this Certificate of Incorporation with respect to any alleged action or inaction occurring prior to such amendment; and (iii) shall,< /div>
 subject to any requirements imposed by law and the Bylaws, include the right to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition.


 

50

 
 

 
Exhibit 3.01



Section 7.2.  Relationship to Other Rights and Provisions Concerning Indemnification.  The rights to indemnification and to the advancement of expenses conferred in this Article VII shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, this Certificate of Incorporation, bylaw, agreement, vote of stockholders or disinterested directors or otherwise.  The Bylaws may contain such other provisions concerning indemnification, including provisions specifying reasonable procedures relating to and conditions to the receipt by indemnitees of indemnification, provided that such provisions are not inconsistent with the provisions of this Article VII.

Section 7.3.  Agents and Employees.  The Corporation may, to the extent authorized from time to time by the Board of Directors, grant rights to indemnification, and to the advancement of expenses, to any employee or agent of the Corporation (or any person serving at the Corporation's request as a director, trustee, officer, employee or agent of another enterprise) or to any person who is or was a director, officer, employee or agent of any of the Corporation's affiliates, predecessor or subsidiary corporations or of a constituent corporation absorbed by the Corporation in a consolidation or merger or who is or was serving at the request of such affiliate, predecessor or subsidiary corporation or of such constitue nt corporation as a director, officer, employee or agent of another enterprise, in each case as determined by the Board of Directors to the fullest extent of the provisions of this Article VII in cases of the indemnification and advancement of expenses of directors and officers of the Corporation, or to any lesser extent (or greater extent, if permitted by law) determined by the Board of Directors.

ARTICLE VIII

Limitation on Liability of Directors

No person shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that the foregoing shall not eliminate or limit the liability of a director (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit.  If the Delaware General Corporation Law is amended hereafter to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a dir ector of the Corporation shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended.  Any amendment, repeal or modification of this Article VIII shall not adversely affect any right or protection of a director of the Corporation existing hereunder with respect to any act or omission occurring prior to such amendment, repeal or modification.

ARTICLE IX

Compromise

Whenever a compromise or arrangement is proposed between this Corporation and its creditors or any class of them and/or between this Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this Corporation under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation under the provisions of Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of t his Corporation, as the case may be, to be summoned in such manner
as the said court directs.  If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this Corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this Corporation, as the case may be, and also on this Corporation.


 

51

 
 

 
Exhibit 3.01





ARTICLE X

Amendment of Bylaws

The Board of Directors shall have power to adopt, amend, alter, change or repeal any Bylaws of the Corporation.  In addition to any requirements of the Delaware General Corporation Law (and notwithstanding the fact that a lesser percentage may be specified by the Delaware General Corporation Law), the affirmative vote of the holders of at least 66 2/3% of the voting power of all of the shares of capital stock of the Corporation then entitled to vote generally in the election of directors, voting together as a single class, shall be required for the stockholders of the Corporation to adopt, amend, alter, change or repeal any Bylaws of the Corporation.

ARTICLE XI

Amendment of Certificate of Incorporation

The Corporation hereby reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation.  Except as may be provided in a resolution or resolutions providing for any class or series of Preferred Stock pursuant to Article IV hereof and which relate to such class or series of Preferred Stock, any such amendment, alteration, change or repeal shall require the affirmative vote of both (a) a majority of the members of the Board of Directors then in office and (b) a majority of the voting power of all of the shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class.

ARTICLE XII

Severability

In the event that any of the provisions of this Certificate of Incorporation (including any provision within a single Section, paragraph or sentence) is held by a court of competent jurisdiction to be invalid, void or otherwise unenforceable, the remaining provisions are severable and shall remain enforceable to the full extent permitted by law.


52
EX-3.02 4 exhibit3_02.htm AMENDED AND RESTATED BYLAWS OF EASTMAN CHEMICAL COMPANY exhibit3_02.htm

 
 

 
Exhibit 3.02


EASTMAN CHEMICAL COMPANY BYLAWS

SECTION I

Capital Stock

Section 1.1.  Certificates.  Every holder of stock in the Corporation shall be entitled to have a certificate signed in the name of the Corporation by the Chairman of the Board of Directors, the Chief Executive Officer, or the Vice Chairman or a Vice President, and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary of the Corporation certifying the number of shares in the Corporation owned by such holder.  Any or all of the signatures on the certificate may be a facsimile.  In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or re gistrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were such officer, transfer agent, or registrar at the date of issue.

Section 1.2.  Record Ownership.  A record of the name and address of the holder of each certificate, the number of shares represented thereby and the date of issue thereof shall be made on the Corporation's books.  The Corporation shall be entitled to treat the holder of record of any share of stock as the holder in fact thereof, and accordingly shall not be bound to recognize any equitable or other claim to or interest in any share on the part of any other person, whether or not it shall have express or other notice thereof, except as required by the laws of the State of Delaware.

Section 1.3.  Transfer of Record Ownership.  Transfers of stock shall be made on the books of the Corporation only by direction of the person named in the certificate or such person's attorney, lawfully constituted in writing, and only upon the surrender of the certificate therefor and a written assignment of the shares evidenced thereby, which certificate shall be canceled before the new certificate is issued.

Section 1.4.  Lost Certificates.  Any person claiming a stock certificate in lieu of one lost, stolen or destroyed shall give the Corporation an affidavit as to such person's ownership of the certificate and of the facts which go to prove its loss, theft or destruction.  Such person shall also, if required by policies adopted by the Board of Directors, give the Corporation a bond, in such form as may be approved by the Corporation, sufficient to indemnify the Corporation against any claim that may be made against it on account of the alleged loss of the certificate or the issuance of a new certificate.

Section 1.5.  Transfer Agents; Registrars; Rules Respecting Certificates.  The Board of Directors may appoint, or authorize any officer or officers to appoint, one or more transfer agents and one or more registrars.  The Board of Directors may make such further rules and regulations as it may deem expedient concerning the issue, transfer and registration of stock certificates of the Corporation.

Section 1.6.  Record Date.  The Board of Directors may fix in advance a future date, not exceeding 60 days (nor, in the case of a stockholders' meeting, less than ten days) preceding the date of any meeting of stockholders, payment of dividend or other distribution, allotment of rights, or change, conversion or exchange of capital stock or for the purpose of any other lawful action, as the record date for determination of the stockholders entitled to notice of and to vote at any such meeting and any adjournment thereof, or to receive any such dividend or other distribution or allotment of rights, or to exercise the rights in respect of any such change, conversion or exchange of capital stock, or to participate in any such other lawful action, and in such case such stockholders and only such stockholders as shall be stockholders of record on the date so fixed shall be entitled to such notice of and to vote at such meeting and any adjournment thereof, or to receive such dividend or other distribution or allotment of rights, or to exercise such rights, or to participate in any such other lawful action, as the case may be, notwithstanding any transfer of any stock on the books of the Corporation after any such record date fixed as aforesaid.

53
 
 

 
Exhibit 3.02



SECTION II

Meetings of Stockholders

Section 2.1.  Annual.  The annual meeting of stockholders for the election of directors and the transaction of such other proper business shall be held on the first Thursday in May, unless otherwise specified by resolution adopted by the Board of Directors, and at the time and place, within or without the State of Delaware, as determined by the Board of Directors.

Section 2.2.  Special.  (a) Special meetings of stockholders for any purpose or purposes may be called only by the Board of Directors, (i) pursuant to a resolution adopted by a majority of the members of the Board of Directors then in office, or (ii) upon the written request of the holders of at least twenty-five percent of the outstanding voting stock of the Corporation (a “Request”) in accordance with the requirements set forth in Section 2.2(b) hereof.

(b)  Any Request shall set forth with particularity (i) the names and business addresses of the stockholder or stockholders requesting the meeting (each a “Meeting Proponent”) and all Persons (as such term is defined in Article V of the Certificate of Incorporation) acting in concert with any Meeting Proponent; (ii) the name and address of each Meeting Proponent and the Persons identified in clause (i), as they appear on the Corporation’s books (if they so appear); (iii) the class and number of shares of the Corporation beneficially owned by each Meeting Proponent and the Persons identified in clause (i); (iv) the text of the proposal or business (including the text of any resolutions proposed for consideration and, if the business includes a proposal to amend these Bylaws or the Certificate of Incorporation, the language of the proposed amendment); and (v) all arrangements or understandings between each Meeting Proponent and any other Persons, including their names, in connection with the proposed business of the special meeting and any material interest of each Meeting Proponent in such business.  Except as permitted in Section 2.2(c), the only business that may be conducted at the special meeting shall be the business proposed in the Request. The Request shall be delivered personally or sent by registered mail to the Secretary of the Corporation at its principal executive offices.  If the Board of Directors determines that the Request complies with the Certificate of Incorporation and the provisions of these Bylaws and that the proposal to be considered or business to be conducted is a proper subject for stockholder action under applicable law, the Board of Directors shall call and send notice of a special meeting for the purpose set forth in the Request in accordance with Section 2.3 of these Bylaws. The Board of Directors shall determine the date for such special meeting, which date shall be not later than 90 days following the Corporation’s receipt of the Request, and the record date(s) for stockholders entitled to notice of and to vote at such special meeting.

(c)  Special meetings may be held at any place, within or without the State of Delaware, as determined by the Board of Directors.  The only business which may be conducted at a special meeting, other than procedural matters and matters relating to the conduct of the special meeting, shall be the matter or matters described in the notice of the meeting.

Section 2.3.  Notice. Notice of each meeting of stockholders, shall be made in writing, or electronically to such stockholders as have consented to the receipt of such notice by electronic means, or by any such other means permitted by the Delaware General Corporation Law.  Such notice shall state the date, time, place and, in the case of a special meeting, the purpose thereof, shall be given as provided by law by the Secretary or an Assistant Secretary not less than ten days nor more than 60 days before such meeting (unless a different time is specified by law) to every stockholder entitled by law to notice of such meeting.

54
 
 

 
Exhibit 3.02



Section 2.4.  List of Stockholders.  A complete list of the stockholders entitled to vote at any meeting of stockholders, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder, shall be prepared by the Secretary.  Such list shall be available for examination of any stockholder, for any purpose germane to the meeting, either on a reasonably accessible electronic network or, during normal business hours, at the Corporation’s principal place of business, for at least ten days before the meeting and at the place of the meeting during the whole time of the meeting.  In the event that such list is to be made available on an electronic network, the noti ce of meeting given under Section 2.3 hereof shall provide the information required to gain access to such list.

Section 2.5.  Quorum.  The holders of shares of stock entitled to cast a majority of the votes on the matters at issue at a meeting of stockholders, present in person or represented by proxy, shall constitute a quorum, except as otherwise required by the Delaware General Corporation Law.  In the event of a lack of a quorum, the chairman of the meeting or a majority in interest of the stockholders present in person or represented by proxy may adjourn the meeting from time to time without notice other than announcement at the meeting, until a quorum shall be obtained.  At any such adjourned meeting at which there is a quorum, any business may be transacted that might have been transacted at the meeting originally called.

Section 2.6.  Organization and Procedure.  (a)  The Chairman of the Board, the Chief Executive Officer, or such other officer of the Corporation designated by a majority of the directors that the Corporation would have if there were no vacancies on the Board of Directors (the “Whole Board”), will call meetings of the stockholders to order and will act as presiding officer thereof.  Unless otherwise determined prior to the meeting by a majority of the Whole Board, the presiding officer of the meeting of the stockholders will have the right and the authority to determine and maintain the rules, regulations and procedures for the proper conduct of the meeting, including, witho ut limitation, restricting entry to the meeting after it has commenced, maintaining order and the safety of those in attendance, opening and closing the polls for voting, dismissing business or proposals not properly submitted, limiting the time allowed for discussion of the business of the meeting, restricting the persons (other than stockholders of the Corporation or their duly appointed proxies) that may attend the meeting, and ascertaining whether any stockholder or proxy holder may be excluded from the meeting based upon any determination by the presiding officer, in his or her sole discretion, that the stockholder or proxy holder is unduly disruptive or is likely to disrupt the meeting.  The Secretary of the Corporation shall act as secretary, but in the absence of the Secretary, the presiding officer may appoint a secretary.
 
(b)  At an annual meeting of the stockholders, only such business will be conducted or considered as is properly brought before the meeting.  To be properly brought before an annual meeting, business must be (i) specified in the notice of meeting (or any supplement thereto) given in accordance with these bylaws, (ii) brought before the meeting by the presiding officer or by or at the direction of a majority of the Whole Board, or (iii) otherwise properly requested to be brought before the meeting by a stockholder of the Corporation in accordance with these bylaws.
 
(c)  At a special meeting of stockholders, only such business may be conducted or considered as is properly brought before the meeting.  To be properly brought before a special meeting, business must be (i) specified in the notice of the meeting (or any supplement thereto) given in accordance with these bylaws or (ii) brought before the meeting by the presiding officer or by or at the direction of a majority of the Whole Board.  The determination of whether any business sought to be brought before any annual or special meeting of the stockholders is properly brought before such meeting will be made by the presiding officer of the meeting.  If the presiding officer determines that any business is not properly brought before such meeting, he or she will so declare at the meeting and any such busin ess will not be conducted or considered.
 

55
 
 

 
Exhibit 3.02

 
 
Section 2.7.  Stockholder Nominations and Proposals.  (a)  No proposal for a stockholder vote shall be submitted by a stockholder (a "Stockholder Proposal") to the Corporation's stockholders unless the stockholder submitting such proposal (the "Proponent") shall have filed a written notice setting forth with particularity (i) the names and business addresses of the Proponent and all Persons (as such term is defined in Article V of the Certificate of Incorporation) acting in concert with the Proponent; (ii) the name and address of the Proponent and the Persons identified in clause (i), as they appear on the Corporation's books (if they so appear); (iii) the class and number of shares of the Corporation b eneficially owned by the Proponent and the Persons identified in clause (i); (iv) a description of the Stockholder Proposal containing all material information relating thereto; and (v) such other information as the Board of Directors reasonably determines is necessary or appropriate to enable the Board of Directors and stockholders of the Corporation to consider the Stockholder Proposal.  The presiding officer at any stockholders' meeting may determine that any Stockholder Proposal was not made in accordance with the procedures prescribed in these Bylaws or is otherwise not in accordance with law, and if it is so determined, such officer shall so declare at the meeting and the Stockholder Proposal shall be disregarded.

(b)  Only persons who are selected and recommended by the Board of Directors or the committee of the Board of Directors designated to make nominations, or who are nominated by stockholders in accordance with the procedures set forth in this Section 2.7, shall be eligible for election, or qualified to serve, as directors.  Nominations of individuals for election to the Board of Directors of the Corporation at any annual meeting or any special meeting of stockholders at which directors are to be elected may be made by any stockholder of the Corporation entitled to vote for the election of directors at that meeting by compliance with the procedures set forth in this Section 2.7.  Nominations by stockholders shall be made by written notice (a "Nomination Notice" ), which shall set forth (i) as to each individual nominated, (A) the name, date of birth, business address and residence address of such individual; (B) the business experience during the past five years of such nominee, including his or her principal occupations and employment during such period, the name and principal business of any corporation or other organization in which such occupations and employment were carried on, and such other information as to the nature of his or her responsibilities and level of professional competence as may be sufficient to permit assessment of his or her prior business experience; (C) whether the nominee is or has ever been at any time a director, officer or owner of 5% or more of any class of capital stock, partnership interests or other equity interest of any corporation, partnership or other entity; (D) any directorships held by such nominee in any company with a class of securities registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended, or subject to the requirements of Section 15(d) of such Act or any company registered as an investment company under the Investment Company Act of 1940, as amended; (E) whether, in the last five years, such nominee has been convicted in a criminal proceeding or has been subject to a judgment, order, finding or decree of any federal, state or other governmental entity, concerning any violation of federal, state or other law, or any proceeding in bankruptcy, which conviction, order, finding, decree or proceeding may be material to an evaluation of the ability or integrity of the nominee; and (F) all information relevant to a determination of the nominee's status as to "independence," including references to the criteria established by the New York Stock Exchange (or any other exchange or quotation system on which the Corporation's equity securities are then listed or quoted) and the Corporation's Corporate Governance Guidelines, in each case as in effect at the time of such Stockholder Nomination; and (ii) as to the Person submitting the Nomination Notice and any Person acting in concert with such Person, (x) the name and business address of such Person, (y) the name and address of such Person as they appear on the Corporation's books (if they so appear), and (z) the class and number of shares of the Corporation that are beneficially owned by such Person.  A written consent to being named in a proxy statement as a nominee, and to serve as a director if elected, signed by the nominee, shall be filed with any Nomination Notice.  If the presiding officer at any stockholders' meeting determines that a nomination was not made in accordance with the procedures prescribed by these Bylaws, he shall so declare to the meeting and the defective nomination shall be disregarded.


56
 
 

 
Exhibit 3.02



(c)  In the case of an annual meeting of stockholders, Nomination Notices and Stockholder Proposals shall be delivered to the Secretary at the principal executive office of the Corporation not less than 45 days prior to the date on which the notice of the immediately preceding year's annual meeting of stockholders was first sent to the stockholders of the Corporation.  In the case of a special meeting of stockholders, Nomination Notices and Stockholder Proposals shall be delivered to the Secretary at the principal executive office of the Corporation no later than the close of business on the 15th day following the day on which notice of the date of a special meeting of stockholders was given.

Section 2.8.  Voting. Unless otherwise provided in a resolution or resolutions providing for any class or series of Preferred Stock pursuant to Article IV of the Certificate of Incorporation or by the Delaware General Corporation Law, each stockholder shall be entitled to one vote, in person or by proxy, for each share held of record by such stockholder who is entitled to vote generally in the election of directors.  Each stockholder voting by proxy shall grant such authority in writing, by electronic or telephonic transmission or communication, or by any such other means permitted by the Delaware General Corporation Law.  All questions, including elections for the Board of Directors, shall be decided b y a majority of the votes cast, except as otherwise required by the Delaware General Corporation Law or as provided for in the Certificate of Incorporation or these Bylaws. Abstentions shall not be considered to be votes cast. For purposes of this Bylaw, a majority of votes cast shall mean that the number of shares voted "for" a director's election exceeds 50% of the number of votes cast with respect to that director's election or, in the case where the number of nominees exceeds the number of directors to be elected, cast with respect to election of directors generally. Votes cast shall include votes to withhold authority in each case and exclude abstentions with respect to that director's election, or, in the case where the number of nominees exceeds the number of directors to be elected, abstentions with respect to election of directors generally.

If a nominee for director who is an incumbent director is not elected and no successor has been elected at such meeting, the director shall promptly tender his or her resignation to the Board of Directors. The Nominating and Corporate Governance Committee of the Board of Directors shall make a recommendation to the Board of Directors as to whether to accept or reject the tendered resignation, or whether other action should be taken. The Board of Directors shall act on the tendered resignation, taking into account the Nominating and Corporate Governance Committee's recommendation, and publicly disclose (by a press release, a filing with the Securities and Exchange Commission, or other broadly disseminated means of communication) its decision regarding the tendered resignation and the rationale for the decision within 90 days from the da te of the certification of the election results. The Nominating and Corporate Governance Committee in making its recommendation, and the Board of Directors in making its decision, may each consider any factors or other information that it considers appropriate and relevant. The director who tenders his or her resignation will not participate in the recommendation of the Nominating and Corporate Governance Committee or the decision of the Board of Directors with respect to his or her resignation. If such incumbent director's resignation is not accepted by the Board of Directors, such director shall continue to serve until the next annual meeting of stockholders at which the class in which he or she is serving is nominated and re-elected and until his or her successor is duly elected, or his or her earlier resignation and removal. If a director's resignation is accepted by the Board of Directors pursuant to this Bylaw, or if a nominee for director is not elected and the nominee is not an incumbent director, th en the Board of Directors, in its sole discretion, may fill any resulting vacancy or may decrease the size of the Board of Directors pursuant to the Delaware General Corporation Law and the Certificate of Incorporation and these Bylaws of the Company.


57
 
 

 
Exhibit 3.02



Section 2.9.  Inspectors.  The Board of Directors by resolution shall, in advance of any meeting of stockholders, appoint one or more inspectors, which inspector or inspectors may include individuals who serve the Corporation in other capacities, including, without limitation, as officers, employees, agents or representatives of the Corporation, to act at the meeting and make a written report thereof.  One or more persons may be designated by the Board of Directors as alternate inspectors to replace any inspector who fails to act.  If no inspector or alternate is able to act at a meeting of stockholders, the chairman of the meeting shall appoint one or more inspectors to act at the meeting. 60; Each inspector, before discharging his or her duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his or her ability.  The inspectors shall have the duties prescribed by the Delaware General Corporation Law.


SECTION III

Board of Directors

Section 3.1.  Number and Qualifications. The business and affairs of the Corporation shall be managed by or under the direction of its Board of Directors.  The number of directors constituting the Board of Directors shall be as authorized from time to time exclusively by a vote of a majority of the members of the Board of Directors then in office.  The maximum number of consecutive three-year terms of office that may be served by any director is three, and for purposes of calculating such maximum number of terms there shall not be counted as a three-year term any service during a partial term for which such director is serving or during any initial term; provided, however, that the Board of Directors is authorized in circumstances it deems appropriate to nominate and thereby render eligible a person for a fourth or subsequent consecutive three-year term. These term limits shall not apply to a Chief Executive Officer of the Corporation who is also a member of the Board of Directors.  Notwithstanding the foregoing, (i) a person who is not serving as a director shall not be eligible for nomination, appointment, or election if such person has or will have reached age 70 on the date of his or her appointment or election; and (ii) any director reaching the age of 70 during any term of office shall continue to be qualified to serve as a director only until the next annual meeting of stockholders following his or her 70th birthday, provided, however, that the Board of Directors is authorized, in circumstances it deems appropriate and by unanim ous approval of all of the directors then in office (excepting the director whose qualification is the subject of the action),  to render a director then in office eligible to serve until the next annual meeting of stockholders following his or her 71st birthday.

Section 3.2.  Resignation.  A director may resign at any time by giving notice, in writing, by electronic transmission or by any other means permitted by the Delaware General Corporation Law, to the Chairman of the Board or to the Secretary.  Unless otherwise stated in such notice of resignation, the acceptance thereof shall not be necessary to make it effective; and such resignation shall take effect at the time specified therein or, in the absence of such specification, it shall take effect upon the receipt thereof.

Section 3.3.  Regular Meetings.  Regular meetings of the Board of Directors may be held without further notice at such time as shall from time to time be determined by the Board of Directors.  Unless otherwise determined by the Board of Directors, the locations of the regular meetings of the Board of Directors shall be in Kingsport, Tennessee.  A meeting of the Board of Directors for the election of officers and the transaction of such other business as may come before it may be held without notice immediately following the annual meeting of stockholders.

Section 3.4.  Special Meetings.  Special meetings of the Board of Directors may be called by the Chairman of the Board, or the Vice Chairman or at the request in writing of one third of the members of the Board of Directors then in office.



58
 
 

 
Exhibit 3.02



Section 3.5.  Notice of Special Meetings.  Notice of the date, time and place of each special meeting shall be mailed by regular mail to each director at his designated address at least six days before the meeting; or sent by overnight courier to each director at his designated address at least two days before the meeting (with delivery scheduled to occur no later than the day before the meeting); or given orally by telephone or other means, or by telegraph or telecopy, or by any other means comparable to any of the foregoing, to each director at his designated address at least 24 hours before the meeting; provided, however, that if less than five days' notice is provided and one third of the members of the Board of Directors then in office object in writing pr ior to or at the commencement of the meeting, such meeting shall be postponed until five days after such notice was given pursuant to this sentence (or such shorter period to which a majority of those who objected in writing agree), provided that notice of such postponed meeting shall be given in accordance with this Section 3.5.  The notice of the special meeting shall state the general purpose of the meeting, but other routine business may be conducted at the special meeting without such matter being stated in the notice.

Section 3.6.  Place of Meetings.  The Board of Directors may hold their meetings and have an office or offices inside or outside of the State of Delaware.

Section 3.7.  Telephonic Meeting and Participation.  Any or all of the directors may participate in a meeting of the Board of Directors or any committee thereof by conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation shall constitute presence in person at the meeting.

Section 3.8.  Action by Directors Without a Meeting.  Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the Board or of such committee, as the case may be, consent thereto in writing, by electronic transmission, or by any other means permitted by the Delaware General Corporation Law, and the writing or writings or, if the consent action is taken by electronic transmission, paper reproductions of such electronic transmissions, are filed with the minutes of proceedings of the Board or committee.

Section 3.9.  Quorum and Adjournment.  A majority of the directors then holding office shall constitute a quorum.  The vote of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors.  Whether or not a quorum is present to conduct a meeting, any meeting of the Board of Directors (including an adjourned meeting) may be adjourned by a majority of the directors present, to reconvene at a specific time and place.  It shall not be necessary to give to the directors present at the adjourned meeting notice of the reconvened meeting or of the business to be transacted, other than by announcement at the meeting that was adjour ned; provided, however, notice of such reconvened meeting, stating the date, time, and place of the reconvened meeting, shall be given to the directors not present at the adjourned meeting in accordance with the requirements of Section 3.5 hereof.

Section 3.10.  Organization.  The Chairman of the Board, or, in the absence of the Chairman of the Board, the Vice Chairman, or in the absence of the Vice Chairman, a member of the Board selected by the members present, shall preside at meetings of the Board.  The Secretary of the Corporation shall act as secretary, but in the absence of the Secretary, the presiding officer may appoint a secretary.

Section 3.11.  Compensation of Directors.  Directors shall receive such compensation for their services as the Board of Directors may determine.  Any director may serve the Corporation in any other capacity and receive compensation therefor.

Section 3.12.  Presumption of Assent.  A director of the Corporation who is present at a meeting of the Board of Directors when a vote on any matter is taken is deemed to have assented to the action taken unless he votes against or abstains from the action taken, or unless at the beginning of the meeting or promptly upon arrival the director objects to the holding of the meeting or transacting specified business at the meeting.  Any such dissenting votes, abstentions or objections shall be entered in the minutes of the meeting.

59
 
 

 
Exhibit 3.02



SECTION IV

Committees

Section 4.1.  Committees.  The Board of Directors may, by resolutions passed by a majority of the members of the Board of Directors, designate members of the Board of Directors to constitute other committees which shall in each case consist of such number of directors, and shall have and may execute such powers as may be determined and specified in the respective resolutions appointing them.  Any such committee may fix its rules of procedure, determine its manner of acting and the time and place, whether within or without the State of Delaware, of its meetings and specify what notice thereof, if any, shall be given, unless the Board of Directors shall otherwise by resolution provide.  Unless o therwise provided by the Board of Directors or such committee, the quorum, voting and other procedures shall be the same as those applicable to actions taken by the Board of Directors.  A majority of the members of the Board of Directors then in office shall have the power to change the membership of any such committee at any time, to fill vacancies therein and to discharge any such committee or to remove any member thereof, either with or without cause, at any time.


SECTION V

Officers

Section 5.1.  Designation.  The officers of the Corporation shall be a Chairman of the Board of Directors, a Chief Executive Officer, a Chief Financial Officer, a Treasurer, a Controller, and a Secretary, and such other officers as the Board of Directors may elect or appoint, or provide for the appointment of, as may from time to time appear necessary or advisable in the conduct of the business and affairs of the Corporation.  Any number of offices may be held by the same persons, except that the Chairman of the Board must be a director of the Corporation and may also be the Chief Executive Officer.

Section 5.2.  Election Term.  At its first meeting after each annual meeting of stockholders, the Board of Directors shall elect the officers or provide for the appointment thereof.  Subject to Section 5.3 and Section 5.4 hereof, the term of each officer elected by the Board of Directors shall be until the first meeting of the Board of Directors following the next annual meeting of stockholders and until such officer’s successor is chosen and qualified.

Section 5.3.  Resignation.  Any officer may resign at any time by giving written notice to the Secretary.  Unless otherwise stated in such notice of resignation, the acceptance thereof shall not be necessary to make it effective; and such resignation shall take effect at the time specified therein or, in the absence of such specification, it shall take effect upon the receipt thereof.

Section 5.4.  Removal.  Any officer may be removed at any time with or without cause by affirmative vote of a majority of the members of the Board of Directors then in office.  Any officer appointed by another officer may be removed with or without cause by such officer or the Chief Executive Officer.

Section 5.5.  Vacancies.  A vacancy in any office may be filled for the unexpired portion of the term by the Board of Directors or, in the case of offices held by officers who may be appointed by other officers, by any officer authorized to appoint such officer.

Section 5.6.  Chief Executive Officer.  The Chief Executive Officer shall be responsible for carrying out the policies adopted by the Board of Directors.

60
 
 

 
Exhibit 3.02



Section 5.7.  Chairman of the Board.  The Chairman of the Board shall have such powers and perform such duties as may be provided for herein and as may be incident to the office and as may be assigned by the Board of Directors.

Section 5.8.  Chief Financial Officer.  The Chief Financial Officer shall act in an executive financial capacity, and assist the Chief Executive Officer in the general supervision of the Corporation’s financial policies and affairs, and shall perform all acts incident to the position of Chief Financial Officer, subject to the control of the Board of Directors.

Section 5.9.  Treasurer.  The Treasurer shall have charge of all funds of the Corporation and shall perform all acts incident to the position of Treasurer, subject to the control of the Board of Directors.

Section 5.10.  Controller.  The Controller shall serve as principal accounting officer of the Corporation, having the custody and operation of the accounting books and records of the Corporation, and shall perform all acts incident to the position of Controller, subject to the control of the Board of Directors.

Section 5.11.  Secretary.  The Secretary shall keep the minutes, and give notices, of all meetings of stockholders and directors and of such committees as directed by the Board of Directors.  The Secretary shall have charge of such books and papers as the Board of Directors may require.  The Secretary (or any Assistant Secretary) is authorized to certify copies of extracts from minutes and of documents in the Secretary’s charge and anyone may rely on such certified copies to the same effect as if such copies were originals and may rely upon any statement of fact concerning the Corporation certified by the Secretary (or any Assistant Secretary).  The Secretary shall perform all acts incident to the office of Secretary, subjec t to the control of the Board of Directors.

Section 5.12.  Compensation of Officers.  The officers of the Corporation shall receive such compensation for their services as the Board of Directors or the appropriate committee thereof may determine.  The Board of Directors may delegate its authority to determine compensation to designated officers of the Corporation.

Section 5.13.  Execution of Instruments.  Checks, notes, drafts, other commercial instruments, assignments, guarantees of signatures and contracts (except as otherwise provided herein or by law) shall be executed by the Chief Executive Officer or other officers or employees or agents, in any such case as the Board of Directors may direct or authorize.

Section 5.14.  Mechanical Endorsements.  The Chief Executive Officer, the Secretary, or other authorized officers may authorize any endorsement on behalf of the Corporation to be made by such mechanical means or stamps as any of such officers may deem appropriate.


SECTION VI

Indemnification

Section 6.1.  Indemnification Provisions in Certificate of Incorporation.  The provisions of this Section VI are intended to supplement Article VII of the Certificate of Incorporation pursuant to Sections 7.2 and 7.3 thereof.  To the extent that this Section VI contains any provisions inconsistent with said Article VII, the provisions of the Certificate of Incorporation shall govern.  Terms defined in such Article VII shall have the same meaning in this Section VI.

Section 6.2.  Indemnification of Employees.  The Corporation shall indemnify and advance expenses to its employees to the same extent as to its directors and officers, as set forth in the Certificate of Incorporation and in this Section VI of the Bylaws of the Corporation.

61
 
 

 
Exhibit 3.02




Section 6.3.  Undertakings for Advances of Expenses.  If and to the extent the Delaware General Corporation Law requires, an advancement by the Corporation of expenses incurred by an indemnitee pursuant to clause (iii) of the last sentence of Section 7.1 of the Certificate of Incorporation (hereinafter an "advancement of expenses") shall be made only upon delivery to the Corporation of an undertaking (hereinafter an "undertaking"), by or on behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal (hereinafter a "final adjudication") that such indemnitee is not entitled to be indemnified for such expen ses under Article VII of the Certificate of Incorporation or otherwise.

Section 6.4.  Claims for Indemnification.  If a claim for indemnification under Section 7.1 of the Certificate of Incorporation is not paid in full by the Corporation within 60 days after it has been received in writing by the Corporation, except in the case of a claim for an advancement of expenses, in which case the applicable period shall be 20 days, the indemnitee may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim.  If successful in whole or in part in any such suit, or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the indemnitee shall be entitled to be paid also the expense of prosecuting or defending such suit.  In any suit brought by the indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by the indemnitee to enforce a right to an advancement of expenses) it shall be a defense that, and in any suit by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking the Corporation shall be entitled to recover such expenses only upon a final adjudication that, the indemnitee has not met the applicable standard of conduct set forth in Section 145 of the Delaware General Corporation Law (or any successor provision or provisions).  Neither the failure of the Corporation (including the Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such suit that indemnification of the indemnitee is proper in the circumstances because the indemnitee has met the applicable standard of conduct set forth in Section 145 of the Delaware General C orporation Law (or any successor provision or provisions), nor an actual determination by the Corporation (including the Board of Directors, independent legal counsel, or its stockholders) that the indemnitee has not met such applicable standard of conduct, shall create a presumption that the indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by the indemnitee, be a defense to such suit.  In any suit brought by the indemnitee to enforce a right to indemnification or to an advancement of expenses hereunder, or by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the indemnitee is not entitled to be indemnified, or to have or retain such advancement of expenses, under Article VII of the Certificate of Incorporation or this Section VI or otherwise, shall be on the Corporation.

Section 6.5.  Insurance.  The Corporation may maintain insurance, at its expense, to protect itself and any director, trustee, officer, employee or agent of the Corporation or another enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law.

Section 6.6.  Severability.  In the event that any of the provisions of this Section VI (including any provision within a single section, paragraph or sentence) is held by a court of competent jurisdiction to be invalid, void or otherwise unenforceable, the remaining provisions are severable and shall remain enforceable to the full extent permitted by law.



62
 
 

 
Exhibit 3.02



SECTION VII

Miscellaneous

Section 7.1.  Seal.  The Corporation shall have a suitable seal, containing the name of the Corporation.  The Secretary shall be in charge of the seal and may authorize one or more duplicate seals to be kept and used by any other officer or person.

Section 7.2.  Waiver of Notice.  Whenever any notice is required to be given, a waiver thereof in writing, signed by the person or persons entitled to the notice, whether before or after the time stated therein shall be deemed equivalent thereto.  Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.

Section 7.3.  Voting of Stock Owned by the Corporation.  Powers of attorney, proxies, waivers of notice of meeting, consents and other instruments relating to securities owned by the Corporation may be executed in the name of and on behalf of the Corporation by the Chairman of the Board, the Chief Executive Officer, the Vice Chairman, any Vice President or such officers or employees or agents as the Board of Directors or any of such designated officers may direct.  Any such officer may, in the name of and on behalf of the Corporation, take all such action as any such officer may deem advisable to vote in person or by proxy at any meeting of security holders of any corporation in which the Corporation ma y own securities and at any such meeting shall possess and may exercise any and all rights and powers incident to the ownership of such securities and which, as the owner thereof, the Corporation might have exercised and possessed if present.  The Board of Directors may from time to time confer like powers upon any other person or persons.

SECTION VIII

Amendment of Bylaws

Section 8.1.  Power to Amend.  Except as otherwise provided by law or by the certificate of incorporation or these bylaws, these bylaws or any of them may be amended in any respect or repealed at any time, either (i) at any meeting of stockholders, subject to these bylaws, provided that any amendment or supplement proposed to be acted upon at any such meeting has been described in reasonable detail in the notice of such meeting, or (ii) at any meeting of the Board of Directors, provided in all events that any action relating to the last sentence of Section 3.1 hereof concerning the age 70 qualification limitation on Board service shall require the vote of 100% of the directors then in office, and provided further in all events that no amendment to any by-law that conflicts or varies with, or frustrates the purposes or effect of, any provision of the certificate of incorporation or other provisions of these bylaws may be adopted (including, without limitation, any bylaw the purpose or effect of which is to require approvals of matters by supermajority vote of the Board of Directors or a committee) without amendment of such provision of the certificate of incorporation or other provision of the bylaws in accordance with applicable law and, to the extent otherwise applicable, these bylaws.

Section 8.2.  Approval of Amendments.  Notwithstanding the foregoing and anything contained in these bylaws to the contrary, these bylaws may not be amended, supplemented, or repealed by the stockholders, and no provision inconsistent in intent, operation, or effect therewith may be adopted by the stockholders, without the affirmative vote of the holders of at least 80% of the stock of the Corporation of any class or series entitled to vote generally in the election of the directors of the Board of Directors, voting together as a single class.  Notwithstanding anything contained in these bylaws to the contrary, the affirmative vote of the holders of at least 80% of the stock of the Corporation of any cl ass or series entitled to vote generally in the election of the directors of the Board of Directors, voting together as a single class, is required to amend, supplement or repeal, or to adopt any provisions inconsistent with, this section.

63
EX-4.10 5 exhibit4_10.htm JULY 7, 2010 LETTER AMENDMENT TO $200,000,000 ACCOUNTS RECEIVABLE SECURITIZATION AGREEMENT DATED JULY 9, 2008 exhibit4_10.htm
 
 

 
Exhibit 4.10

AMENDMENT NO. 5 TO AMENDED AND RESTATED
RECEIVABLES PURCHASE AGREEMENT

THIS AMENDMENT (this “Amendment”), effective as of July 7, 2010, is entered into by and among:
 
(a)           Eastman Chemical Financial Corporation, a Delaware corporation, as Seller and as initial Servicer (“ECFC”),
 
(b)           SunTrust Robinson Humphrey, Inc., a Tennessee corporation, as TPF Agent and as co-administrative agent (in either such agency capacity “STRH”),
 
(c)           Three Pillars Funding LLC, a Delaware limited liability company (“TPF”)
 
(d)           SunTrust Bank, a Georgia banking corporation (“SunTrust”), as TPF Liquidity Bank, and
 
(e)           The Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch, formerly known as The Bank of Tokyo-Mitsubishi, Ltd., New York Branch, individually as a Victory Liquidity Bank (“BTMU”), as Victory Agent (the “Victory Agent”) and as administrative agent (the “Administrative Agent”),
 
with respect to the Amended and Restated Receivables Purchase Agreement dated as of July 9, 2008 by and among the parties hereto, TPF, Victory Receivables Corporation, SunTrust Bank, as TPF Liquidity Bank and BTMU, individually as a Victory Liquidity Bank, as Victory Agent and as Administrative Agent (as heretofore amended, the “Existing Agreement” which, as amended hereby, is hereinafter referred to as the “Agreement”).
 
Unless defined elsewhere herein, capitalized terms used in this Amendment shall have the meanings assigned to such terms in the Existing Agreement.
 
W I T N E S S E T H :
 
WHEREAS, effective on the date hereof, STRH, SunTrust and TPF withdraw from the Existing Agreement, and BTMU extends and increases its Commitment thereunder; and
 
WHEREAS, the parties are willing to agree to such modifications on the terms and subject to the conditions set forth in this Amendment;
 
NOW, THEREFORE, in consideration of the premises and the mutual agreements herein contained, the parties hereto hereby agree as follows:
 
1. Amendments to Existing Agreement.
 
(a)           SunTrust’s Commitment is hereby reduced to $0, and each of SunTrust, STRH and TPF hereby withdraws from the Existing Agreement.  From and after the date hereof, none of SunTrust, STRH or TPF shall be required to be a party to any amendment, restatement or waiver of the Existing Agreement, any references in the Agreement to SunTrust, TPF, the TPF Agent, the TPF Group, any TPF Liquidity Bank or the Co-Administrative Agent shall be disregarded, and any references in the Agreement to the “Agents” or the “Co-Agents” shall be deemed to be references to the Administrative Agent or the Victory Agent, respectively, only.
 
(b)           BTMU’s Commitment is hereby increased to $200,000,000, and, accordingly, its Pro Rata Share is hereby increased to 100%.
 
(c)           The definition of Co-Agents’ Fee Letter in Exhibit I to the Existing Agreement is hereby amended and restated in its entirety to read as follows:
 

64 
 

 
Exhibit 4.10
 
Co-Agents’ Fee Letter means that certain letter agreement dated as of July 7, 2010 between the Seller and BTMU, as amended, restated and/or otherwise modified from time to time.
 
(d)           The definition of “Liquidity Termination Date” in Exhibit I to the Existing Agreement is hereby amended to delete “July 7, 2010” where it appears and to substitute in lieu thereof “July 6, 2011”.
 
2. Representations and Warranties.
 
  In order to induce the other parties to agree to this Amendment, ECFC hereby represents and warrants that  (a) after giving effect to the amendments set forth in Section 1 above, the representations and warranties set forth in Section 5.1 of the Existing Agreement are true and correct in all material respects on and as of the date hereof,  and (b) no event has occurred and is continuing that constitutes a Servicer Default or Potential Servicer Default.
 
3. Conditions Precedent.
 
  This Amendment will become effective as of the date first above written upon receipt by the Administrative Agent of (a) counterparts of this Amendment, duly executed by each of the parties hereto, and (b) counterparts of the replacement Co-Agents’ Fee Letter, duly executed by ECFC and BTMU, and payment of the renewal fee referenced therein.
 
4. CHOICE OF LAW.
 
  THIS AMENDMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW) WITHOUT REGARD TO ANY CONFLICT OF LAW PRINCIPLES.
 
5. WAIVER OF JURY TRIAL.
 
  EACH PARTY HERETO HEREBY WAIVES TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS AMENDMENT OR THE AGREEMENT.
 
6. Binding Effect.
 
  This Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns (including any trustee in bankruptcy).  A facsimile or .pdf copy of a signed counterpart hereof shall have the same force and effect as an original.
 
7. Counterparts.
 
  This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement.
 
<Signature pages follow>

 

65 
 

 
Exhibit 4.10

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed and delivered by their duly authorized officers or signatories as of the date hereof.
 
EASTMAN CHEMICAL FINANCIAL CORPORATION, as Seller and Initial Servicer



By:                                                                
Name:
Title:

66 
 

 
Exhibit 4.10



SUNTRUST ROBINSON HUMPHREY, INC., as TPF Agent and Co-Administrative Agent



By:                                                                
Name:
Title:


67 
 

 
Exhibit 4.10


SUNTRUST BANK, as a TPF Liquidity Bank



By:                                                                
Name:
Title:


68 
 

 
Exhibit 4.10


THREE PILLARS FUNDING LLC



By:                                                                
Name:
Title:

69 
 

 
Exhibit 4.10



THE BANK OF TOKYO-MITSUBISHI UFJ, LTD., NEW YORK BRANCH, as a Victory Liquidity Bank



By:                                                                
Name:
Title:

Commitment:  $200,000,000.00



 

 
THE BANK OF TOKYO-MITSUBISHI UFJ, LTD., NEW YORK BRANCH, as Victory Agent and Administrative Agent



By:                                                                
Name:
Title:

 


70

 
EX-12.01 6 exhibit12_01.htm STATEMENT RE: COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES exhibit12_01.htm

EXHIBIT 12.01

EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
 
Computation of Ratios of Earnings to Fixed Charges
 
       
   
Second Quarter
   
First Six Months
 
(Dollars in millions)
 
2010
   
2009
   
2010
   
2009
 
                         
Earnings before income taxes
  $ 224     $ 106     $ 375     $ 108  
Add:
                               
Interest expense
    27       22       53       43  
Appropriate portion of rental expense (1)
    3       3       6       7  
Amortization of capitalized interest
    3       1       4       4  
Earnings as adjusted
  $ 257     $ 132     $ 438     $ 162  
                                 
Fixed charges:
                               
Interest expense
  $ 27     $ 22     $ 53     $ 43  
Appropriate portion of rental expense (1)
    3       3       6       7  
Capitalized interest
    --       3       2       14  
Total fixed charges
  $ 30     $ 28     $ 61     $ 64  
                                 
Ratio of earnings to fixed charges
    8.6 x     4.7 x     7.2 x     2.5 x
                                 
(1)  
For all periods presented, the interest component of rental expense is estimated to equal one-third of such expense.
 

 

71 
 

 

EX-31.01 7 exhibit31_01.htm RULE 13A -14(A) CERTIFICATION BY JAMES P. ROGERS, PRESIDENT AND CHIEF EXECUTIVE OFFICER, FOR THE QUARTER ENDED JUNE 30, 2010 exhibit31_01.htm
 
 

 

Exhibit 31.01
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
 
Rule 13a – 14(a)/15d – 14(a) Certifications
 
I, James P. Rogers, certify that:
 
 
1.  I have reviewed this quarterly report on Form 10-Q of Eastman Chemical Company;
 
 
2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
 
3.  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
 
4.  The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
 
(a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
 
(b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
 
(c)   Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
 
(d)   Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
 
 
5.  The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
 
 
(a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
 
 
(b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
 
Date: August  03, 2010
 
/s/ James P. Rogers           
James P. Rogers
President and Chief Executive Officer
 
72
EX-31.02 8 exhibit31_02.htm RULE 13A -14(A) CERTIFICATION BY CURTIS E. ESPELAND, SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER, FOR THE QUARTER ENDED JUNE 30, 2010 exhibit31_02.htm
 
 

 

Exhibit 31.02
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
 
Rule 13a – 14(a)/15d – 14(a) Certifications
 
I, Curtis E. Espeland, certify that:
 
 
1.  I have reviewed this quarterly report on Form 10-Q of Eastman Chemical Company;
 
 
2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
 
3.  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
 
4.  The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
 
(a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
 
(b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
 
(c)   Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
 
(d)   Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
 
 
5.  The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
 
 
(a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
 
 
(b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
 
Date: August 03, 2010
 
   /s/ Curtis E. Espeland                   
Curtis E. Espeland
Senior Vice President and Chief Financial Officer
 
73
EX-32.01 9 exhibit32_01.htm SECTION 1350 CERTIFICATION BY JAMES P. ROGERS, PRESIDENT AND CHIEF EXECUTIVE OFFICER, FOR THE QUARTER ENDED JUNE 30, 2010 exhibit32_01.htm

 
 

 

Exhibit 32.01


EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES

Section 1350 Certifications


In connection with the Quarterly Report of Eastman Chemical Company (the "Company") on Form 10-Q for the period ending June 30, 2010, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), each of the undersigned officers of the Company certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to such officer's knowledge:

1.  
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
2.  
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report.
 
A signed original of this written statement required by Section 906 has been provided to Eastman Chemical Company and will be retained by Eastman Chemical Company and furnished to the Securities and Exchange Commission or its staff upon request.
 

 
Date: August  03, 2010

   /s/ James P. Rogers                                   
James P. Rogers
President and Chief Executive Officer

 
The foregoing certification is being furnished solely pursuant to 18 U.S.C. §1350 and is not being filed as part of the Report or as a separate disclosure document.
 












74
EX-32.02 10 exhibit32_02.htm SECTION 1350 CERTIFICATION BY CURTIS E. ESPELAND, SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER, FOR THE QUARTER ENDED JUNE 30, 2010 exhibit32_02.htm
 
 

 

Exhibit 32.02

EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES

Section 1350 Certifications


In connection with the Quarterly Report of Eastman Chemical Company (the "Company") on Form 10-Q for the period ending June 30, 2010, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), each of the undersigned officers of the Company certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to such officer's knowledge:

1.
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
2.
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report.
 
A signed original of this written statement required by Section 906 has been provided to Eastman Chemical Company and will be retained by Eastman Chemical Company and furnished to the Securities and Exchange Commission or its staff upon request.
 

 
Date: August  03, 2010

  /s/ Curtis E. Espeland                                         
Curtis E. Espeland
Senior Vice President and Chief Financial Officer

 
The foregoing certification is being furnished solely pursuant to 18 U.S.C. §1350 and is not being filed as part of the Report or as a separate disclosure document.
 











75
EX-101.INS 11 emn-20100630.xml EXHIBIT 101 INSTANCE DOCUMENT 0000915389 2009-06-30 0000915389 2008-12-31 0000915389 2009-12-31 0000915389 us-gaap:TreasuryStockMember 2009-12-31 0000915389 us-gaap:AdditionalPaidInCapitalMember 2009-12-31 0000915389 us-gaap:CommonStockMember 2009-12-31 0000915389 us-gaap:RetainedEarningsMember 2009-12-31 0000915389 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2009-12-31 0000915389 2009-01-01 2009-06-30 0000915389 2010-04-01 2010-06-30 0000915389 2009-04-01 2009-06-30 0000915389 2010-01-01 2010-06-30 0000915389 us-gaap:TreasuryStockMember 2010-01-01 2010-06-30 0000915389 us-gaap:AdditionalPaidInCapitalMember 2010-01-01 2010-06-30 0000915389 us-gaap:CommonStockMember 2010-01-01 2010-06-30 0000915389 us-gaap:RetainedEarningsMember 2010-01-01 2010-06-30 0000915389 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2010-01-01 2010-06-30 0000915389 2010-06-30 0000915389 us-gaap:TreasuryStockMember 2010-06-30 0000915389 us-gaap:AdditionalPaidInCapitalMember 2010-06-30 0000915389 us-gaap:CommonStockMember 2010-06-30 0000915389 us-gaap:RetainedEarningsMember 2010-06-30 0000915389 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2010-06-30 0000915389 2010-03-31 0000915389 2009-03-31 iso4217:USD xbrli:shares iso4217:USD xbrli:shares <div align="left"><table style="FONT-SIZE: 10pt; 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FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td><td style="TEXT-ALIGN: right" valign="bottom" width="9%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">298</font></td><td style="TEXT- ALIGN: left" valign="bottom" nowrap="nowrap" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td></tr><tr bgcolor="#cceeff"><td style="PADDING-BOTTOM: 2px" valign="bottom" width="55%"><div style="DISPLAY: block; MARGIN-LEFT: 9pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Other</font></div></td><td style="PADDING-BOTTOM: 2px" valign="bottom" align="right" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td><td style="BORDER-BOTTOM: black 2px solid; TEXT-ALIGN: left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td><td style="BORDER-BOTTOM: black 2px solid; TEXT-ALIGN: right" valign="bottom" width="9%"><font st yle="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">10</font></td><td style="PADDING-BOTTOM: 2px; TEXT-ALIGN: left" valign="bottom" nowrap="nowrap" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td><td style="PADDING-BOTTOM: 2px" valign="bottom" align="right" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td><td style="BORDER-BOTTOM: black 2px solid; TEXT-ALIGN: left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td><td style="BORDER-BOTTOM: black 2px solid; TEXT-ALIGN: right" valign="bottom" width="9%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">2</font></td><td style="PADDING-BOTTOM: 2px; TEXT-ALIGN: left" valign="bottom" nowrap="nowrap" width="1%"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td></tr><tr bgcolor="white"><td valign="bottom" width="55%"><div style="DISPLAY: block; 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Activities Cash flows from operating activities Net cash provided by (used in) operating activities Net Cash Provided By Used In Operating Activities Net earnings Net Earnings Net change in cash and cash equivalents Cash And Cash Equivalents Period Increase Decrease Interest Expense Net Net interest expense Operating earnings Operating Income Loss Other items, net Increase Decrease In Other Operating Capital Net Change in cumulative translation adjustment Change in unrecognized losses and prior service credits for benefit plans Change in benefit plans, unrecognized gains (losses), and prior service credits Total other comprehensive loss, net of tax Other Comprehensive Income (Loss) Other Comprehensive Income Loss Net Of Tax Period Increase Decrease Change in unrealized gains on derivative instruments Other Comprehensive Income Unrealized Gain Loss On Derivatives Arising During Period Net Of Tax Other current assets Other Items, Net Other items, net Other (Income) Charges, Net Other 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assets Assets Current Properties Total assets Assets Other long-term liabilities Deferred income tax liabilities Assets Assets [Abstract] Basic earnings per share Earnings Per Share Basic Other noncurrent assets Basic earnings per share Diluted earnings per share Earnings before income taxes Income Loss From Continuing Operations Before Income Taxes Minority Interest And Income Loss From Equity Method Investments Total stockholders' equity Balance Ending Balance Stockholders Equity Provision for income taxes Other operating income, net Other operating income, net Comprehensive Income Comprehensive Income Net Of Tax Share-based Compensation Costs Stock Option Exercises, Value Share-based Compensation Expense, Shares Stock Option Exercises, Shares Effect of adoption of accounting for uncertain income tax positions Effect of adoption of accounting for uncertain income tax positions Stock Repurchases Stock Repurchases, Shares Cash dividends declared Adjustments to reconcile net earnings to 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Proceeds from sale of assets and investments Proceeds From Sale Of Assets And Investments Acquisitions of and investments in joint ventures The cash outflow associated with the investment in or advances to an entity in which the reporting entity shares control of the entity with another party or group and associated with the acquisition of a business, net of the cash acquired from the purchase. Acquisitions of and investments in joint ventures Change In Unrealized Gains Losses On Investments Net Of Tax Change in unrealized gains (losses) on investments Current assets held for sale Assets Held For Sale Current Assets Held-for-sale, Long Lived Noncurrent assets held for sale Liabilities of Assets Held-for-sale Current liabilities related to assets held for sale Significant Accounting Policies Properties And Accumulated Depreciation Goodwill And Other Intangible Assets Equity Investments Other Operating Income Net Other Operating Income, Net The total amount of other operating income (expense), not previously categorized, from items that are associated with the entity's normal revenue producing operation Other Charges (Income), Net Supplemental Cash Flow Information Quarterly Sales And Earnings Data: Unaudited Reserve Rollforwards Document Information [Text Block] Entity [Text Block] Commitments and contingencies (Note 12) Treasury stock, at cost Treasury stock, at cost Disposal Group Including Divestitures Disclosure Text Block Disclosure includes the facts and circumstances leading to the completed or expected disposal, manner and timing of disposal, the gain or loss recognized in the income statement and the income statement caption that includes that gain or loss, amounts of revenues and pretax profit or loss reported in discontinued operations, the segment in which the disposal group was reported, and the classification (whether sold or classified as held for sale) and carrying value of the assets and liabilities comprising the disposal group. 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FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td><td style="BORDER-BOTTOM: black 4px double; TEXT-ALIGN: left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td><td style="BORDER-BOTTOM: black 4px double; TEXT-ALIGN: right" valign="bottom" width="9%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">(389</font></td><td style="PADDING-BOTTOM: 4px; TEXT-ALIGN: left" valign="bottom" nowrap="nowrap" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">)</font></td></tr></table></div><div style="DISPLAY: block; TEXT-INDENT: 0pt"><br /></div><div style="DISPLAY: block; MARGIN- LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Amounts of other comprehensive income (loss) are presented net of applicable taxes.&#160;&#160;The Company records deferred income taxes on the cumulative translation adjustment related to branch operations and other entities included in the Company's consolidated U.S. tax return.&#160;&#160;No deferred income taxes are provided on the cumulative translation adjustment of subsidiaries outside the United States, as such cumulative translation adjustment is considered to be a component of permanently invested, unremitted earnings of these foreign subsidiaries.</font></div> A reconciliation of the changes in stockholders' equity for first six months 2010 is provided below:(Dollars in millions)&#160;Common Stock at Par false false false us-types:textBlockItemType textblock Disclosures related to accounts comprising shareholders' equity, including other comprehensive income. Includes: (1) balances of common stock, preferred stock, additional paid-in capital, other capital and retained earnings; (2) accumulated balance for each classification of other comprehensive income and total amount of comprehensive income; (3) amount and nature of changes in separate accounts, including the number of shares authorized and outstanding, number of shares issued upon exercise and conversion, and for other comprehensive income, the adjustments for reclassifications to net income; (4) rights and privileges of each class of stock authorized; (5) basis of treasury stock, if other than cost, and amounts paid and accounting treatment for treasury stock purchased significantly in excess of market; (6) dividends paid or payable per share and in the aggregate for each class of stock for each period presented; (7) dividend restrictions and accumulated preferred dividends in ar rears (in aggregate and per share amount); (8) retained earnings appropriations or restrictions, such as dividend restrictions; (9) impact of change in accounting principle, initial adoption of new accounting principle and correction of an error in previously issued financial statements; (10) shares held in trust for Employee Stock Ownership Plan (ESOP); (11) deferred compensation related to issuance of capital stock; (12) note received for issuance of stock; (13) unamortized discount on shares; (14) description, terms and number of warrants or rights outstanding; (15) shares under subscription and subscription receivables; effective date of new retained earnings after quasi-reorganization and deficit eliminated by quasi-reorganization and, for a period of at least ten years after the effective date, the point in time from which the new retained dates; and (16) retroactive effective of subsequent change in capital structure. 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If the entity does not present consolidated financial statements, the amount of profit or loss for the period, net of income taxes. 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Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 52 -Paragraph 13, 20, 31 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher AICPA -Name Accounting Research Bulletin (ARB) -Number 51 -Paragraph 38 -Subparagraph c(3) Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 130 -Paragraph 24 -Subparagraph b Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 130 -Paragraph 14, 17, 19, 26 false 23 3 us-gaap_OtherComprehensiveIncomeMinimumPensionLiabilityNetAdjustmentNetOfTax us-gaap true debit duration No definition available. false false false false false false false false false false false label false 1 false true false false 6000000 6 false false false 2 false true false false -2000000 -2 false false false 3 false true false false 9000000 9 false false false 4 false true false false -2000000 -2 false false false xbrli:monetaryItemType monetary The after-tax amount of the change in the additional pension liability not yet recognized pursuant to FAS 87 par 37 and 38 as a net periodic pension cost. If the additional pension liability required to be recognized exceeds the unrecognized prior service costs, then the excess (which is the net loss not yet recognized as net periodic pension cost) is to be recorded as a reduction of other comprehensive income, before adjusting for tax effects. If in a subsequent measurement, the amount of minimum liability is eliminated or adjusted, this adjustment is offset against other comprehensive income in Accumulated Comprehensive Income. This line also includes changes in an entity's share of an equity investee's increase (decrease) in additional pension liability not yet recognized as a net periodic pension cost. Eliminated upon adoption of FAS 158. 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The after tax effect change includes an entity's share of an equity investee's increase (decrease) in deferred hedging gains or losses. 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Includes deferred gains (losses) on qualifying hedges, unrealized holding gains (losses) on available-for-sale securities, minimum pension liability, and cumulative translation adjustment. 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It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners, but excludes any and all transactions which are directly or indirectly attributable to that ownership interest in subsidiary equity which is not attributable to the parent. 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If the entity does not present consolidated financial statements, the amount of profit or loss for the period, net of income taxes. 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It also includes other kinds of accounts that have the general characteristics of demand deposits in that the Entity may deposit additional funds at any time and also effectively may withdraw funds at any time without prior notice or penalty. Cash equivalents, excluding items classified as marketable securities, include short-term, highly liquid investments that are both readily convertible to known amounts of cash, and so near their maturity that they present minimal risk of changes in value because of changes in interest rates. Generally, only investments with original maturities of three months or less qualify under that definition. Original maturity means original maturity to the entity holding the investment. For example, both a three-month US Treasury bill and a three-year Treasury note purchased three months from maturity qualify as cash equivalents. However, a Treasury note purchased th ree years ago does not become a cash equivalent when its remaining maturity is three months. Compensating balance arrangements that do not legally restrict the withdrawal or usage of cash amounts may be reported as Cash and Cash Equivalents, while legally restricted deposits held as compensating balances against borrowing arrangements, contracts entered into with others, or company statements of intention with regard to particular deposits should not be reported as cash and cash equivalents. 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Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 02 -Paragraph 9 -Article 5 true 11 2 us-gaap_PropertyPlantAndEquipmentNetAbstract us-gaap true na duration No definition available. false false false false false true false false false false false false 1 false false false false 0 0 false false false 2 false false false false 0 0 false false false xbrli:stringItemType string No definition available. false 12 3 us-gaap_PropertyPlantAndEquipmentGross us-gaap true debit instant No definition available. false false false false false false false false false false false false 1 false true false false 8631000000 8631 false false false 2 false true false false 8525000000 8525 false false false xbrli:monetaryItemType monetary Carrying amount at the balance sheet date for long-lived physical assets used in the normal conduct of business and not intended for resale. This can include land, physical structures, machinery, vehicles, furniture, computer equipment, construction in progress, and similar items. Amount does not include depreciation. Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher AICPA -Name Accounting Principles Board Opinion (APB) -Number 12 -Paragraph 5 false 13 3 us-gaap_AccumulatedDepreciationDepletionAndAmortizationPropertyPlantAndEquipment us-gaap true credit instant No definition available. false false false false false false false false false false false false 1 false true false false 5476000000 5476 false false false 2 false true false false 5415000000 5415 false false false xbrli:monetaryItemType monetary The cumulative amount of depreciation, depletion and amortization (related to property, plant and equipment, but not including land) that has been recognized in the income statement. 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Examples include land, buildings, and production equipment. 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Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 142 -Paragraph 43 false 16 2 us-gaap_OtherAssetsNoncurrent us-gaap true debit instant No definition available. false false false false false false false false false false false false 1 false true false false 359000000 359 false false false 2 false true false false 355000000 355 false false false xbrli:monetaryItemType monetary Aggregate carrying amount, as of the balance sheet date, of noncurrent assets not separately disclosed in the balance sheet due to materiality considerations. Noncurrent assets are expected to be realized or consumed after one year (or the normal operating cycle, if longer). 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Examples include taxes, interest, rent, salaries and benefits, and utilities. For classified balance sheets, used to reflect the current portion of the liabilities (due within one year or within the normal operating cycle if longer); for unclassified balance sheets, used to reflect the total liabilities (regardless of due date). Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 02 -Paragraph 19, 20 -Article 5 false 21 3 us-gaap_ShortTermBorrowings us-gaap true credit instant No definition available. false false false false false false false false false false false false 1 false true false false 6000000 6 false false false 2 false true false false 0 0 false false false xbrli:monetaryItemType monetary Reflects the total carrying amount as of the balance sheet date of debt having initial terms less than one year or the normal operating cycle, if longer. 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Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 02 -Paragraph 21 -Article 5 true 23 2 us-gaap_LongTermDebtNoncurrent us-gaap true credit instant No definition available. false false false false false false false false false false false false 1 false true false false 1605000000 1605 false false false 2 false true false false 1604000000 1604 false false false xbrli:monetaryItemType monetary Sum of the carrying values as of the balance sheet date of all long-term debt, which is debt initially having maturities due after one year from the balance sheet date or beyond the operating cycle, if longer, but excluding the portions thereof scheduled to be repaid within one year (current maturities) or the normal operating cycle, if longer, and after deducting unamortized discount or premiums, if any. Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 02 -Paragraph 22 -Article 5 false 24 2 us-gaap_DeferredTaxLiabilitiesNoncurrent us-gaap true credit instant No definition available. false false false false false false false false false false false false 1 false true false false 285000000 285 false false false 2 false true false false 258000000 258 false false false xbrli:monetaryItemType monetary Represents the noncurrent portion of deferred tax liabilities, which result from applying the applicable tax rate to net taxable temporary differences pertaining to each jurisdiction to which the entity is obligated to pay income tax. A noncurrent taxable temporary difference is a difference between the tax basis and the carrying amount of a noncurrent asset or liability in the financial statements prepared in accordance with generally accepted accounting principles. In a classified statement of financial position, an enterprise shall separate deferred tax liabilities and assets into a current amount and a noncurrent amount. Deferred tax liabilities and assets shall be classified as current or noncurrent based on the classification of the related asset or liability for financial reporting. A deferred tax liability or asset that is not related to an asset or liability for financial reporting, including deferred tax assets related to carryforwards, shall be classified according to the expected reversal date of the temporary difference. Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 41, 42 false 25 2 us-gaap_PostemploymentBenefitsLiabilityNoncurrent us-gaap true credit instant No definition available. false false false false false false false false false false false false 1 false true false false 1216000000 1216 false false false 2 false true false false 1221000000 1221 false false false xbrli:monetaryItemType monetary For a classified balance sheet, the carrying amount as of the balance sheet date of the portion of the obligations recognized for the various benefits provided to former or inactive employees, their beneficiaries, and covered dependents after employment but before retirement that is payable after one year (or beyond the operating cycle if longer). 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Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 02 -Paragraph 24 -Article 5 false 27 2 us-gaap_Liabilities us-gaap true credit instant No definition available. false false false false false false false false false false false totallabel false 1 false true false false 4122000000 4122 false false false 2 false true false false 4002000000 4002 false false false xbrli:monetaryItemType monetary Sum of the carrying amounts as of the balance sheet date of all liabilities that are recognized. Liabilities are probable future sacrifices of economic benefits arising from present obligations of an entity to transfer assets or provide services to other entities in the future. No authoritative reference available. true 28 2 us-gaap_StockholdersEquityAbstract us-gaap true na duration No definition available. false false false false false true false false false false false false 1 false false false false 0 0 false false false 2 false false false false 0 0 false false false xbrli:stringItemType string No definition available. false 29 3 us-gaap_CommonStockValue us-gaap true credit instant No definition available. false false false false false false false false false false false false 1 false true false false 1000000 1 false false false 2 false true false false 1000000 1 false false false xbrli:monetaryItemType monetary Dollar value of issued common stock whether issued at par value, no par or stated value. This item includes treasury stock repurchased by the entity. Note: elements for number of common shares, par value and other disclosure concepts are in another section within stockholders' equity. Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 02 -Paragraph 30 -Article 5 false 30 3 us-gaap_AdditionalPaidInCapital us-gaap true credit instant No definition available. false false false false false false false false false false false false 1 false true false false 697000000 697 false false false 2 false true false false 661000000 661 false false false xbrli:monetaryItemType monetary Excess of issue price over par or stated value of the entity's capital stock and amounts received from other transactions involving the entity's stock or stockholders. Includes adjustments to additional paid in capital. Some examples of such adjustments include recording the issuance of debt with a beneficial conversion feature and certain tax consequences of equity instruments awarded to employees. Use this element for the aggregate amount of APIC associated with common AND preferred stock. For APIC associated with only common stock, use the element Additional Paid In Capital, Common Stock. For APIC associated with only preferred stock, use the element Additional Paid In Capital, Preferred Stock. Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 02 -Paragraph 31 -Article 5 false 31 3 us-gaap_RetainedEarningsAccumulatedDeficit us-gaap true credit instant No definition available. false false false false false false false false false false false false 1 false true false false 2756000000 2756 false false false 2 false true false false 2571000000 2571 false false false xbrli:monetaryItemType monetary The cumulative amount of the reporting entity's undistributed earnings or deficit. Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher AICPA -Name Accounting Principles Board Opinion (APB) -Number 12 -Paragraph 10 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 02 -Paragraph 31 -Article 5 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 04 -Article 3 false 32 3 us-gaap_AccumulatedOtherComprehensiveIncomeLossNetOfTax us-gaap true credit instant No definition available. false false false false false false false false false false false false 1 false true false false -389000000 -389 false false false 2 false true false false -385000000 -385 false false false xbrli:monetaryItemType monetary Accumulated change in equity from transactions and other events and circumstances from non-owner sources, net of tax effect, at fiscal year-end. Excludes Net Income (Loss), and accumulated changes in equity from transactions resulting from investments by owners and distributions to owners. Includes foreign currency translation items, certain pension adjustments, and unrealized gains and losses on certain investments in debt and equity securities as well as changes in the fair value of derivatives related to the effective portion of a designated cash flow hedge. 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Treasury stock is issued but is not outstanding. This stock has no voting rights and receives no dividends. Note that treasury stock may be recorded at its total cost or separately as par (or stated) value and additional paid in capital. Note: number of treasury shares concept is in another section within stockholders' equity. Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name FASB Technical Bulletin (FTB) -Number 85-6 -Paragraph 3 false 34 3 us-gaap_StockholdersEquity us-gaap true credit instant No definition available. false false false false false false false false false false false totallabel false 1 false true false false 1677000000 1677 false false false 2 false true false false 1513000000 1513 false false false xbrli:monetaryItemType monetary Total of all Stockholders' Equity (deficit) items, net of receivables from officers, directors owners, and affiliates of the entity which are attributable to the parent. The amount of the economic entity's stockholders' equity attributable to the parent excludes the amount of stockholders' equity which is allocable to that ownership interest in subsidiary equity which is not attributable to the parent (noncontrolling interest, minority interest). This excludes temporary equity and is sometimes called permanent equity. Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher AICPA -Name Accounting Research Bulletin (ARB) -Number 51 -Paragraph A3 -Appendix A Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Staff Accounting Bulletin (SAB) -Number Topic 4 -Section E Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 02 -Paragraph 29, 30, 31 -Article 5 true 35 2 us-gaap_LiabilitiesAndStockholdersEquity us-gaap true credit instant No definition available. false false false false false false false false false false false totallabel false 1 true true false false 5799000000 5799 false false false 2 true true false false 5515000000 5515 false false false xbrli:monetaryItemType monetary Total of all Liabilities and Stockholders' Equity items. 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