Eastman Chemical Company

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.

Further Reading

“Eastman Chemical,” Rubber World, August 1995, p. 6.

“Eastman Growth Strategy Includes a Global Reach,” Chemical Marketing Reporter, November 14, 1994, p. 24.

Hunter, David, “Eastman’s Deavenport in the Driver’s Seat,” Chemical Week, June 29, 1994, p. 36.

Kiesche, Elizabeth, “Prospects for Success of Fresh Chemical Spinoffs Look Mixed,” Chemical Week, January 5, 1994, p. 20.

McCall, Ron, Eastman Chemical Company: Years of Glory, Times of Change, Rochester: Eastman Kodak Company, 1990, 69 p.

Miller, James P., “Eastman Chemical Co. Is Developing Its Own Image,” Wall Street Journal, November 14, 1994, p. B3.

Prince, Greg, “Summer Vacation? No Way!,” Beverage World, August 1991, p. 48.

Sparks, Debra, “‘We Have to Show Them’: There’s a Lot Below the Surface at Eastman Chemical —Too Bad Wall Street Can’t See It,” Financial World, May 10, 1994, p. 37.

—Jeffrey L. Covell