Eastman Chemical Company

views updated May 18 2018

Eastman Chemical Company

100 North Eastman Road
P.O. Box 511
Kingsport, Tennessee 37662
U.S.A.
(423) 229-2000

Public Company
Incorporated: 1993 as Eastman Chemical Company
Employees: 17,495
Sales: $4.32 billion
Stock Exchanges: New York
SICs: 2821 Plastic Materials&Resins; 2823 Cellulosic Man-
Made Fibers; 2869 Industrial Organic Chemicals, Nec;
2819 Industrial Inorganic Chemicals, Nec

Founded in 1920 as a subsidiary of the Eastman Kodak Company, Eastman Chemical Company was spun off as an independent company by Kodak in 1994. Eastman Chemical produces a wide range of plastics, chemicals and fibers —more than 400 products in all —but is most heavily supported by two products, polyethylene terephthalate (PET) resin and cellulose acetate filter tow, which together contribute roughly 40 percent of the company’s total revenues and 50 percent of its earnings.

When the First World War broke out in 1914, George Eastman watched the supply of essential materials arriving from European producers to his company, the Eastman Kodak Company, slow to a trickle. The ramifications were nearly disastrous. The company had grown dependent on European manufacturers for many of the raw materials required to sustain its operations, particularly photographic paper, optical glass, and gelatin, without which Eastman’s photography empire would shrivel into insolvency. Also of great importance and in short supply during the war years were the numerous chemicals crucial to the photography company’s production processes, including methanol, acetic acid, and acetone. As the war dragged on, Eastman’s predicament grew increasingly severe, and film production at Eastman Kodak’s manufacturing facilities in Rochester, New York, nearly ground to a halt.

Determined to ensure Kodak’s future self-reliance, Eastman decided the most prudent solution was to develop an independent supply of chemicals. Accordingly, after the conclusion of the war, Eastman and other Kodak delegates began searching for a suitable location for a Kodak-owned and operated chemical production facility. As Kodak employees were scouting the country, a resident of Kingsport, Tennessee, named J. Fred Johnson was conducting a nationwide search of his own, hoping to sell a half-built wood distillation plant to an interested party. Johnson, an employee of the Kingsport Improvement Company, was attempting to revitalize Kingsport’s economy, which had thrived during the war but was limping along at the war’s conclusion, bereft of the business generated by the manufacturing industries that had temporarily established operations in Kingsport for war-related work.

One company that had come to Kingsport during the war was the American Wood Reduction Company, which had contracted with the federal government to construct a wood distillation plant for making methanol and other related chemicals. Before the plant was finished, however, the war ended and American Wood Reduction cut its ties to Kingsport, leaving a lone watchman to stand guard over the partly constructed facility. After the retreat of American Wood Reduction, Johnson began his search for an industrial concern that could use the idle wood distillation plant.

By 1920 Kodak and Johnson had found each other, and a group of Kodak representatives led by Perley S. Wilcox, a future chairman of Kodak and an employee since 1898, arrived in Kingsport to examine the half-built wood distillation facility Johnson was eager to sell. Finding it to their liking, the Kodak group pushed for its acquisition, and later that year George Eastman authorized the purchase of the plant and surrounding acreage for $205,000. Wilcox was named director and general manager of the new company, becoming the first leader of Tennessee Eastman Corporation, a Kodak subsidiary.

Shortly after the construction of the wood distillation plant was finished, the solitary watchman who had guarded an architectural skeleton was replaced by more than 300 Tennessee Eastman employees, who were put to the task of meeting Kodak’s substantial chemical needs. Kodak’s Rochester facilities required 40,000 gallons of methanol per month, in addition to other necessary chemicals such as acetic acid and acetone.

Tennessee Eastman delivered its first shipment of methanol to Rochester in July 1921. The company generated $35,000 in sales after its first year, but its total production fell short of Kodak’s chemical needs for the next several years. In addition, the Kingsport plant was unprofitable and would remain so long after its production volume was raised to a sufficient level.

By the mid-1920s Tennessee Eastman was satisfying Rochester’s monthly methanol needs, but weak profits continued to hound Tennessee Eastman for another decade. To improve profitability, the company began marketing the by-products created from the Kingsport plant’s distillation processes, including charcoal, tars, wood preservatives, and other process wastes. Charcoal powder and wood tar were combined to form a charcoal briquette that the company sold as cooking and household fuel, transforming the 300 railroad cars of charcoal dust the company produced each month into a money-making sideline business. Other by-products from the Kingsport plant were also marketed, including coal tars and various derivatives of acetone, which were marketed to sugar refineries, as well as lumber.

Process economy started Tennessee Eastman down the road toward profitability and provided a springboard for diversification into segments of the chemical industry exclusive of Kodak’s needs. Sales in 1930 were $1.95 million, with acetic anhydride and lumber ranking as the company’s two major products. During the 1930s, Tennessee Eastman began to make pivotal contributions to its parent company’s Rochester facilities, beginning with its manufacture of cellulose acetate in 1930. Kodak had experimented with using cellulose acetate as a film base back in 1907, striving to replace flammable nitrocellulose with a non-flammable alternative. The company’s innovation quickly became the industry standard.

Perhaps more important, Tennessee Eastman distinguished itself as a leader and pioneer in the chemical industry through its production of acetate yarn. An experimental acetate yarn plant had been constructed in 1928, and by 1931 the Kingsport-based facility had begun large-scale production, churning out 287,000 pounds of yarn that year alone. Within a decade, Tennessee Eastman’s acetate yarn was recognized throughout the textile industry as the best quality yarn on the market, securing the company’s economic stability for the next two decades and paving the way for the development of other mainstay products.

One year after large-scale production of acetate yarn had begun, Tennessee Eastman began producing Tenite cellulosic plastics, which were used for radio parts, toys, telephones, and automobile steering wheels. That year, 1932, also was the first year Tennessee Eastman’s trade sales exceeded its sales to Kodak.

By 1940 Tennessee Eastman was recording nearly $30 million in annual sales, an exponential increase from the $1.95 million generated 10 years earlier. The increase had been fueled largely by the company’s production of acetate yarn, which by this point was Tennessee Eastman’s single major product, as it would be a decade later, when annual sales stood at $130 million. Kodak organized an additional chemical subsidiary in 1950, Texas Eastman Company, then formed Eastman Chemical Products, Inc., in 1953 to serve as the marketing arm for both Texas Eastman and Tennessee Eastman. Tennessee Eastman, meanwhile, had undergone a name change, switching its corporate title from Tennessee Eastman Corporation to Tennessee Eastman Company in 1951. Although the name change was minor, a significant development occurred contemporaneously that dramatically altered the company’s future. During the early 1950s, Tennessee Eastman developed cellulose acetate filter tow, which was used in cigarette filters, giving the company a product that drove sales upward for the next half century and supplanted acetate yarn as its mainstay product.

With filter tow sales leading the way, Tennessee Eastman registered $244 million in annual sales in 1960, continuing to record exponential leaps in annual revenues decade by decade. In 1968 the Eastman Chemicals Division of Eastman Kodak Company was formed, bringing together the various chemical concerns within Kodak’s corporate structure and unifying them as a division. When it was organized, the chemicals division included Tennessee Eastman, Texas Eastman Company, Carolina Eastman Company, Eastman Chemicals Products, Inc., and the following related marketing organizations: Holston Defense Corporation, Ectona Fibers Limited, Bay Mountain Construction Company, and Caddo Construction Company.

With this collection of companies banded together, annual sales generated by the division shot upward, swelling to $588 million in 1970, a revenue total derived largely from the production of filter tow and polyester fibers. Late in the decade, the Eastman Chemicals Division introduced polyethylene terephthalate (PET) resin, used to make plastic containers. The addition of PET to the division’s product line helped annual sales exceed $2 billion by the beginning of the 1980s.

In 1990 Kodak reorganized its chemicals division, renaming it Eastman Chemical Company. Annual sales by this point exceeded $3.5 billion, ranking the company among the largest chemical concerns in the world. With large market shares in PET and cellulosics, Eastman Chemical entered the 1990s as the jewel of the Kodak empire. Kodak, on the other hand, was not faring as well. As the decade progressed, debt began to mount, and Eastman Chemical was put in the awkward position of supplying cash to its debt-heavy parent, a reversal of roles for the former captive chemical supplier that complicated its corporate priorities and hobbled its investments in chemical operations.

As a result, Kodak spun off its chemical subsidiary to Kodak shareholders on the first day of 1994, creating the 10th largest chemical company in the country. As part of the spin-off, Eastman Chemical was also saddled with $1.8 billion in long-term debt. By the end of its first year as an independent company, however, Eastman Chemical had whittled its debt down by $600 million, reducing its ratio of debt to total capital from 63 percent to 48 percent during a 12-month span.

Intent on expanding internationally, Eastman Chemical moved toward its future as an independent chemical supplier supported by four core product groups: container plastics, specialty polyester packaging plastics, coatings materials for paints and solvents, and filter tow. With its quick success in paring its once heavy debt to a more manageable level and its commanding lead in the global market for PET resin and cellulose acetate filter tow, Eastman Chemical appeared destined for profitable years ahead.

Eastman Chemical Company

views updated May 23 2018

Eastman Chemical Company

100 North Eastman Road
P.O. Box 511
Kingsport, Tennessee 37662-5075
U.S.A.
Telephone: (423) 229-2000
Toll Free: (800) 327-8626
Fax: (423) 229-1351
Web site: http://www.eastman.com

Public Company
Incorporated: 1994
Employees: 14,736
Sales: $4.59 billion (1999)
Stock Exchanges: New York
Ticker Symbol: EMN
NAIC: 325131 Inorganic Dye and Pigment Mfg. (pt); 325188 All Other Basic Inorganic Chemical Mfg. (pt); 325199 All Other Basic Organic Chemical Mfg. (pt); 325211 Plastics Material and Resin Mfg.; 325221 Cellulosic Organic Fiber Mfg.; 32591 Printing Ink Mfg.; 325998 All Other Miscellaneous Chemical Product and Preparation Mfg. (pt); 541710 Research and Development in the Physical, Engineering, and Life Sciences

Founded in 1920 as a subsidiary of the Eastman Kodak Company, Eastman Chemical Company was spun off as an independent company by Kodak in 1994. Eastman Chemical produces a wide range of plastics, chemicals, and fibers and is a world leader in the production and recycling of polyester plastics. Since the mid-1990s the company has been engaged in a major globalization effort, making a number of key acquisitions worldwide and establishing a prominent e-commerce presence.

U.S. Chemical Production in the Wake of World War I

When World War I broke out in 1914, George Eastman watched the supply of essential materials arriving from European producers to his company, the Eastman Kodak Company, slow to a trickle. The ramifications were nearly disastrous. The company had grown dependent on European manufacturers for many of the raw materials required to sustain its operations, particularly photographic paper, optical glass, and gelatin, without which Eastman’s photography empire would shrivel into insolvency. Also of great importance and in short supply during the war years were the numerous chemicals crucial to the photography company’s production processes, including methanol, acetic acid, and acetone. As the war dragged on, Eastman’s predicament grew increasingly severe, and film production at Eastman Kodak’s manufacturing facilities in Rochester, New York, nearly ground to a halt.

Determined to ensure Kodak’s future self-reliance, Eastman decided the most prudent solution was to develop an independent supply of chemicals. Accordingly, after the conclusion of the war, Eastman and other Kodak delegates began searching for a suitable location for a Kodak-owned and -operated chemical production facility. As Kodak employees were scouting the country, a resident of Kingsport, Tennessee, named J. Fred Johnson was conducting a nationwide search of his own, hoping to sell a half-built wood distillation plant to an interested party. Johnson, an employee of the Kingsport Improvement Company, was attempting to revitalize Kingsport’s economy, which had thrived during the war but was limping along at the war’s conclusion, bereft of the business generated by the manufacturing industries that had temporarily established operations in Kingsport for war-related work.

Shortly after the construction of the wood distillation plant was finished, the solitary watchman who had guarded an architectural skeleton was replaced by more than 300 Tennessee Eastman employees, who were given the task of meeting Kodak’s substantial chemical needs. Kodak’s Rochester facilities required 40,000 gallons of methanol per month, in addition to other necessary chemicals such as acetic acid and acetone.

Product Diversification in the 1920s and 1930s

By the mid-1920s Tennessee Eastman was satisfying Rochester’s monthly methanol needs, but weak profits continued to hound Tennessee Eastman for another decade. To improve profitability, the company began marketing the byproducts created from the Kingsport plant’s distillation processes, including charcoal, tars, wood preservatives, and other process wastes. Charcoal powder and wood tar were combined to form a charcoal briquette that the company sold as cooking and household fuel, transforming the 300 railroad cars of charcoal dust the company produced each month into a money-making sideline business. Other byproducts from the Kingsport plant also were marketed, including coal tars and various derivatives of acetone (which were sold to sugar refineries), as well as lumber.

Process economy started Tennessee Eastman down the road toward profitability and provided a springboard for diversification into segments of the chemical industry exclusive of Kodak’s needs. Sales in 1930 were $1.95 million, with acetic anhydride and lumber ranking as the company’s two major products. During the 1930s, Tennessee Eastman began to make pivotal contributions to its parent company’s Rochester facilities, beginning with its manufacture of cellulose acetate in 1930. Kodak had experimented with using cellulose acetate as a film base back in 1907, striving to replace flammable nitrocellulose with a nonflammable alternative. The company’s innovation quickly became the industry standard.

Reorganization: 1950-68

By 1940 Tennessee Eastman was recording nearly $30 million in annual sales, an exponential increase from the $1.95 million generated ten years earlier. The increase had been fueled primarily by the company’s production of acetate yarn, which by this point was Tennessee Eastman’s single major product, as it would be a decade later, when annual sales stood at $130 million. Kodak organized an additional chemical subsidiary in 1950, Texas Eastman Company, then formed Eastman Chemical Products, Inc., in 1953 to serve as the marketing arm for both Texas Eastman and Tennessee Eastman. Tennessee Eastman, meanwhile, had undergone a name change, switching its corporate title from Tennessee Eastman Corporation to Tennessee Eastman Company in 1951. Although the name change was minor, a significant development occurred contemporaneously that dramatically altered the company’s future. During the early 1950s, Tennessee Eastman developed cellulose acetate filter tow, which was used in cigarette filters, giving the company a product that drove sales upward for the next half century and supplanted acetate yarn as its mainstay product.

Company Perspectives:

“With our intense focus on delivering improved performance, we expect to improve earnings as business conditions improve and the benefits of our cost reductions are realized. I firmly believe that the best days of Eastman are ahead of us. The industry has moved through the trough of the chemical cycle and the business climate worldwide is becoming more favorable to us. This growth, along with innovative efforts such as e-commerce, should produce significant value creation for all of us as shareowners.”

—Earnest W. Deavenport, Jr., chairman and CEO

With this collection of companies banded together, annual sales generated by the division shot upward, swelling to $588 million in 1970, a revenue total derived in large part from the production of filter tow and polyester fibers. Late in the decade, the Eastman Chemicals Division introduced polyethylene ter-ephthalate (PET) resin, used to make plastic containers. The addition of PET to the division’s product line helped annual sales exceed $2 billion by the beginning of the 1980s.

As a result, Kodak spun off its chemical subsidiary to Kodak shareholders on the first day of 1994, creating the tenth largest chemical company in the country. As part of the spinoff, Eastman Chemical was saddled with $1.8 billion in long-term debt. By the end of its first year as an independent company, however, Eastman Chemical had whittled its debt down by $600 million, reducing its ratio of debt to total capital from 63 percent to 48 percent during a 12-month span. Sales also continued to grow into the mid-1990s, surpassing the $5 billion mark for the first time in 1995.

Globalization in the 1990s

Eastman Chemical moved toward its future as an independent chemical supplier supported by four core product groups: container plastics, specialty polyester packaging plastics, coatings materials for paints and solvents, and filter tow. Like other major chemical companies, Eastman realized that international expansion was the only way to maintain a competitive edge into the next century. Overall, the U.S. chemical industry saw significant growth in exports in the first half of the 1990s, from $43 billion in 1991 to $64.7 billion in 1996, and Eastman was no exception. In 1994 approximately one-third of Eastman’s $4.3 billion in total sales came from international markets; by 1997 foreign sales exceeded $1.8 billion and accounted for 39 percent of the company’s total sales. Much of the increase was the result of increased production capacity, both at home and abroad. In 1996 and 1997, Eastman opened new container plastics manufacturing operations in Mexico and Spain; in 1998 it began production at plants in Argentina and Malaysia, and at two new plants in The Netherlands. Also in 1997, Eastman Chemical Ltd., Singapore took steps toward establishing a niche in the burgeoning Chinese market, investing several hundred million dollars into new facilities in the Special Economic Zone of Shenzhen, China.

Eastman’s expansion plans ultimately got ahead of economic reality, however, and by 1997 the company found itself burdened with significant production overcapacity. This reversal of fortune was in part the result of decreased demand for the company’s specialty and performance products, particularly in the United States and China. Increased competition, brought on by globalization and the struggle over emerging marketplaces, also contributed to the excess capacity. The subsequent lower prices and decreased volume were accompanied by rising raw material costs, and Eastman suffered steadily decreasing earnings from 1996 to 1998.

The company responded to this sudden downturn with an aggressive restructuring plan. It implemented a drastic cost-reduction program, pledging to cut $500 million in expenses between 1997 and 2000, and in 1999 it reorganized itself into two business segments, polymers and chemicals. In addition, by the end of 2000 the company divested itself of the propylene glycol segment of its fine chemicals division, to focus its attention on potentially more lucrative adhesives, inks, and coatings markets. Toward this aim, in 2000 the company announced its intention to acquire the hydrocarbon resins and part of the rosins resins concerns of Hercules, Inc.

In the late 1990s Eastman also made strides toward establishing Internet capability. The commodity nature of chemicals made them a logical fit for e-commerce, since they were subject to fairly regular international standards, which made the selling process relatively straightforward. Eastman was determined to take advantage of the new technology, and in October 2000 it announced a plan to make its chemicals and polymers available through online business-to-business relationships with existing customers, as well as through its web site and a number of virtual marketplaces.

This reorganization, along with the shift to e-commerce, made some downsizing inevitable, and Eastman’s workforce was reduced by almost 2,000 employees between 1996 and 1999. By 1999, however, Eastman saw a slight increase in business for the first time in four years, and in 2000 it was able to announce a plan to increase its PET manufacturing capacity by 110,000 metric tons a year. By the end of the third quarter of 2000 the company was on a pace to exceed $5 billion in sales for the first time since 1995, although continually rising fuel prices and the general slowdown of the world’s economy made the future far from certain.

Key Dates:

1920:: Tennessee Eastman Corporation is created as a subsidiary of Eastman Kodak Company.
1931:: Tennessee Eastman begins large-scale production of acetate yarn.
1950:: Texas Eastman Company is formed.
1951:: Tennessee Eastman Corporation becomes Tennessee Eastman Company.
1954:: Eastman begins producing polyethylene.
1968:: Eastman Chemicals Division is formed.
1978:: Eastman begins producing PET resin.
1990:: Eastman Chemicals Division is reorganized as Eastman Chemical Company.
1994:: Eastman Chemical Company is incorporated.
2000:: Eastman announces that it will begin online marketing of its chemicals and polymers.

Principal Subsidiaries

ABCO Industries, Incorporated; Lawter International, Inc.; Mc-Whorter Technologies, Inc.; Genencor International, Inc. (50%); Primester (50%); Jager, Fabrik Chemischer Rohstoffe GmbH & Co. (Germany); Eastman Chemical, Europe, Middle East and Africa, Ltd. (The Netherlands); Chemicke Zavody Sokolov (Czech Republic; 76%); Eastman Chemical Ltd. (Singapore).