EASTMAN CHEMICAL CO (Form: 10-Q, Received: 11/04/2016 11:25:57)



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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 September 30, 2016
	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 [X] 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	[ ]	(Do not check if a smaller reporting company)	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 September 30, 2016
Common Stock, par value $0.01 per share	146,750,874

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TABLE OF CONTENTS



ITEM		PAGE



	Forward-Looking Statements	3

PART I. FINANCIAL INFORMATION



1.	Financial Statements

	Unaudited Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings	4
	Unaudited Consolidated Statements of Financial Position	5
	Unaudited Consolidated Statements of Cash Flows	6
	Notes to the Unaudited Consolidated Financial Statements	7

2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	31

3.	Quantitative and Qualitative Disclosures About Market Risk	53

4.	Controls and Procedures	53

PART II. OTHER INFORMATION



1.	Legal Proceedings	54

1A.	Risk Factors	54

2.	Unregistered Sales of Equity Securities and Use of Proceeds	54

6.	Exhibits	55

SIGNATURES



	Signatures	56

EXHIBIT INDEX



	Exhibit Index	57



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FORWARD-LOOKING STATEMENTS

Certain statements made in this Quarterly Report are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act, Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities and Exchange Act of 1934, as amended. Forward-looking statements are all statements, other than statements of historical fact, that may be made by Eastman Chemical Company (the "Company" or "Eastman") from time to time. In some cases, you can identify forward-looking statements by terminology such as "anticipates," "believes," "estimates," "expects," "intends," "may," "plans," "projects," "will," "would," and similar expressions or expressions of the negative of these terms. Forward-looking statements 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; pending and future legal proceedings; exposure to, and effects of hedging of, raw material and energy costs or disruption of raw material or energy supply, foreign currencies and 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, events, 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 and activities; pension expenses and funding; credit ratings; anticipated and other future restructuring, acquisition, divestiture, and consolidation activities; cost reduction and control efforts and targets; the timing and costs of, and benefits from, the integration of, and expected business and financial performance of, 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.

Forward-looking statements are based upon certain underlying assumptions as of the date such statements were made. Such assumptions are based upon internal estimates and other analyses of current market conditions and trends, management expectations, plans, and strategies, economic conditions, and other factors. Forward-looking statements and the assumptions underlying them are necessarily subject to risks and uncertainties inherent in projecting future conditions and results. Actual results could differ materially from expectations expressed in the forward-looking statements if one or more of the underlying assumptions and expectations proves to be inaccurate or is unrealized. The most significant known factors, risks, and uncertainties that could cause actual results to differ materially from those in the forward-looking statements are identified and discussed under "Risk Factors" in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part I, Item 2 of this Quarterly Report.

The Company cautions you not to place undue reliance on forward-looking statements, which speak only as of the date such statements are made. Except as may be required by law, the Company undertakes no obligation to update or alter these forward-looking statements, whether as a result of new information, future events, or otherwise.



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UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS,

COMPREHENSIVE INCOME AND RETAINED EARNINGS



	Third Quarter				First Nine Months
(Dollars in millions, except per share amounts)	2016		2015		2016			2015
Sales	$	2,287	$	2,447	$	6,820		$	7,423
Cost of sales	1,666		1,752		4,960			5,352
Gross profit	621		695		1,860			2,071
Selling, general and administrative expenses	181		183		538			561
Research and development expenses	54		59		163			168
Asset impairments and restructuring charges, net	30		21		28			130
Operating earnings	356		432		1,131			1,212
Net interest expense	64		66		191			198
Early debt extinguishment costs	—		—		9			—
Other charges (income), net	3		13		(5		)	2
Earnings before income taxes	289		353		936			1,012
Provision for income taxes	56		95		195			283
Net earnings	233		258		741			729
Less: Net earnings attributable to noncontrolling interest	1		2		3			5
Net earnings attributable to Eastman	$	232	$	256	$	738		$	724

Basic earnings per share attributable to Eastman	$	1.57	$	1.73	$	5.00		$	4.87
Diluted earnings per share attributable to Eastman	$	1.56	$	1.71	$	4.96		$	4.83



Comprehensive Income
Net earnings including noncontrolling interest	$	233		$	258		$	741		$	729
Other comprehensive income (loss), net of tax:
Change in cumulative translation adjustment	(42		)	(47		)	(6		)	(183		)
Defined benefit pension and other postretirement benefit plans:
Amortization of unrecognized prior service credits included in net periodic costs	(7		)	(4		)	(21		)	(15		)
Derivatives and hedging:
Unrealized (loss) gain during period	(7		)	(66		)	13			(27		)
Reclassification adjustment for losses included in net income, net	19			34			56			56
Total other comprehensive income (loss), net of tax	(37		)	(83		)	42			(169		)
Comprehensive income including noncontrolling interest	196			175			783			560
Less: Comprehensive income attributable to noncontrolling interest	1			2			3			5
Comprehensive income attributable to Eastman	$	195		$	173		$	780		$	555
Retained Earnings
Retained earnings at beginning of period	$	5,517		$	4,893		$	5,146		$	4,545
Net earnings attributable to Eastman	232			256			738			724
Cash dividends declared	(69		)	(59		)	(204		)	(179		)
Retained earnings at end of period	$	5,680		$	5,090		$	5,680		$	5,090

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



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UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION



	September 30,			December 31,
(Dollars in millions, except per share amounts)	2016			2015
Assets
Current assets
Cash and cash equivalents	$	207		$	293
Trade receivables, net of allowance for doubtful accounts	905			792
Miscellaneous receivables	258			246
Inventories	1,471			1,479
Other current assets	59			68
Total current assets	2,900			2,878
Properties
Properties and equipment at cost	11,564			11,234
Less: Accumulated depreciation	6,367			6,104
Net properties	5,197			5,130
Goodwill	4,474			4,518
Intangible assets, net of accumulated amortization	2,543			2,650
Other noncurrent assets	375			404
Total assets	$	15,489		$	15,580
Liabilities and Stockholders' Equity
Current liabilities
Payables and other current liabilities	$	1,531		$	1,625
Borrowings due within one year	675			431
Total current liabilities	2,206			2,056
Long-term borrowings	5,933			6,577
Deferred income tax liabilities	1,022			928
Post-employment obligations	1,239			1,297
Other long-term liabilities	573			701
Total liabilities	10,973			11,559
Stockholders' equity
Common stock ($0.01 par value – 350,000,000 shares authorized; shares issued – 217,598,989 and 216,899,964 for 2016 and 2015, respectively)	2			2
Additional paid-in capital	1,907			1,863
Retained earnings	5,680			5,146
Accumulated other comprehensive loss	(348		)	(390		)
	7,241			6,621
Less: Treasury stock at cost (70,898,913 shares for 2016 and 69,137,973 shares for 2015)	2,800			2,680
Total Eastman stockholders' equity	4,441			3,941
Noncontrolling interest	75			80
Total equity	4,516			4,021
Total liabilities and stockholders' equity	$	15,489		$	15,580

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



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UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS



	First Nine Months
(Dollars in millions)	2016			2015
Operating activities
Net earnings	$	741		$	729
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization	436			429
Mark-to-market loss on pension and other postretirement benefit plans	30			2
Asset impairment charges	—			107
Early debt extinguishment costs	9			—
Gain on sale of equity investment	(17		)	—
Provision for deferred income taxes	89			29
Changes in operating assets and liabilities, net of effect of acquisitions and divestitures:
Increase in trade receivables	(105		)	(54		)
Decrease (increase) in inventories	12			(23		)
Decrease in trade payables	(66		)	(139		)
Pension and other postretirement contributions in excess of expenses	(121		)	(149		)
Variable compensation (in excess of) less than expenses	(19		)	20
Other items, net	2			99
Net cash provided by operating activities	991			1,050
Investing activities
Additions to properties and equipment	(375		)	(426		)
Proceeds from sale of assets and equity investment	41			4
Acquisitions, net of cash acquired	(26		)	(45		)
Other items, net	1			—
Net cash used in investing activities	(359		)	(467		)
Financing activities
Net (decrease) increase in commercial paper borrowings	(255		)	157
Proceeds from borrowings	807			250
Repayment of borrowings	(957		)	(675		)
Dividends paid to stockholders	(204		)	(179		)
Treasury stock purchases	(120		)	(48		)
Dividends paid to noncontrolling interest	(8		)	(6		)
Proceeds from stock option exercises and other items, net	20			20
Net cash used in financing activities	(717		)	(481		)
Effect of exchange rate changes on cash and cash equivalents	(1		)	(7		)
Net change in cash and cash equivalents	(86		)	95
Cash and cash equivalents at beginning of period	293			214
Cash and cash equivalents at end of period	$	207		$	309

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



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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS



ITEM		Page

Note 1.	Basis of Presentation	8
Note 2.	Inventories	9
Note 3.	Goodwill	9
Note 4.	Equity Investments	9
Note 5.	Payables and Other Current Liabilities	10
Note 6.	Provision for Income Taxes	10
Note 7.	Borrowings	11
Note 8.	Derivative and Non-Derivative Financial Instruments	13
Note 9.	Retirement Plans	17
Note 10.	Commitments	19
Note 11.	Environmental Matters and Asset Retirement Obligations	20
Note 12.	Legal Matters	21
Note 13.	Stockholders' Equity	22
Note 14.	Earnings and Dividends Per Share	24
Note 15.	Asset Impairments and Restructuring	24
Note 16.	Share-Based Compensation Awards	26
Note 17.	Supplemental Cash Flow Information	26
Note 18.	Segment Information	27
Note 19.	Recently Issued Accounting Standards	28



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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


1.	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 2015 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 2015 Annual Report on Form 10-K. The December 31, 2015 financial position data included herein was derived from the audited consolidated financial statements included in the 2015 Annual Report on Form 10-K but does not include all disclosures required by accounting principles generally accepted in the United States ("GAAP"). The unaudited consolidated financial statements are prepared in conformity with 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, sales revenue, and expenses of all majority-owned subsidiaries and joint ventures in which a controlling interest is maintained. Eastman accounts for other joint ventures and investments where it exercises significant influence 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. Third quarter 2016 includes a $47 million correction of prior periods' cumulative foreign currency translation adjustment related to the Solutia, Inc. ("Solutia") and Taminco Corporation ("Taminco") acquisitions. See Note 3, "Goodwill" and Note 13, "Stockholders' Equity" .

In April 2015, the Financial Accounting Standards Board ("FASB") issued new guidance for debt issuance costs as a part of the simplification initiative. Under this guidance, debt issuance costs will be presented as a direct reduction from the carrying amount of the debt liability, consistent with the presentation of debt discounts. The amortization of debt issuance costs will be reported as interest expense. The recognition and measurement guidance for debt issuance costs is not affected by the amendment. As of March 31, 2016, the new guidance was applied on a retrospective basis which resulted in a reclassification of $31 million from "Other noncurrent assets" to "Long-term borrowings" in the Unaudited Consolidated Statement of Financial Position at December 31, 2015 . See Note 7, "Borrowings" .

In January 2016, Eastman changed its organizational and management structure following completion of the integration of recently acquired businesses to better align similar strategies and business models. As a result, beginning first quarter 2016, the Company's products and operations are managed and reported in four operating segments: Additives & Functional Products ("AFP"), Advanced Materials ("AM"), Chemical Intermediates ("CI"), and Fibers. For further information, see Note 3, "Goodwill" and Note 18, " Segment Information ".

Off Balance Sheet Financing Arrangements

The Company has rights and obligations under non-recourse factoring facilities that have a combined limit of €158 million ( $177 million ) as of September 30, 2016 and are committed until December 2017. These arrangements include receivables in the United States, Belgium, Germany, and Finland, and are subject to various eligibility requirements. The Company sells the receivables at face value but receives funding (approximately 85 percent ) net of a deposit amount until collections are received from customers for the receivables sold. The total amounts of cumulative receivables sold in third quarter and first nine months 2016 were approximately $220 million and $680 million , respectively. The total amounts of cumulative receivables sold in third quarter and first nine months 2015 were approximately $245 million and $780 million , respectively. As part of the program, the Company continues to service the sold receivables at market rates with no servicing assets or liabilities recognized. The amounts of sold receivables outstanding under the non-recourse factoring facilities were $105 million and $106 million at September 30, 2016 and December 31, 2015 , respectively. The fair value of the receivables sold equals the carrying value at the time of the sale, and no gain or loss is recognized. The Company is exposed to a credit loss of up to 10 percent on sold receivables.



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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


2.	INVENTORIES



	September 30,		December 31,
(Dollars in millions)	2016		2015
At FIFO or average cost (approximates current cost)
Finished goods	$	1,057	$	1,063
Work in process	197		212
Raw materials and supplies	476		500
Total inventories	1,730		1,775
Less: LIFO reserve	259		296
Total inventories	$	1,471	$	1,479

Inventories valued on the last-in, first-out ("LIFO") method were approximately 60 percent at both September 30, 2016 and December 31, 2015 .


3.	GOODWILL

In January 2016, as a result of the changes in Eastman's organizational and management structure, goodwill was reassigned to segments using a relative fair value allocation. In conjunction with the organizational changes and in accordance with GAAP, during first quarter 2016 Eastman performed an impairment assessment and concluded that no indication of an impairment existed. For further information on the organizational changes, see Note 1, "Basis of Presentation" and Note 18, " Segment Information ".

Changes to the carrying value of goodwill follow:



(Dollars in millions)	Additives & Functional Products			Adhesives & Plasticizers			Advanced Materials			Chemical Intermediates			Other Segments		Total
Balance at December 31, 2015	$	1,865		$	111		$	1,293		$	1,239		$	10	$	4,518
Adjustments to net goodwill resulting from reorganization	583			(111		)	—			(472		)	—		—
Currency translation adjustments ⁽¹⁾	(26		)	—			(14		)	(4		)	—		(44		)
Balance at September 30, 2016	$	2,422		$	—		$	1,279		$	763		$	10	$	4,474


⁽¹⁾	See Note 1, "Basis of Presentation" regarding correction of prior period foreign currency translation.

As of September 30, 2016, the reported balance of goodwill included accumulated impairment losses of $23 million , $12 million , and $14 million in the AFP segment, CI segment, and other segments, respectively. As of December 31, 2015, the reported balance of goodwill included accumulated impairment losses of $35 million and $14 million in the Adhesives & Plasticizers segment and other segments, respectively.


4.	EQUITY INVESTMENTS

In June 2016, Eastman sold its 50 percent interest in Primester, a joint venture which manufactures cellulose acetate at the Company's Kingsport site, to an affiliate of the joint venture partner for $35 million . This investment was accounted for under the equity method. Eastman's net investment in the joint venture at the date of sale was $18 million . Such amounts were included in "Other noncurrent assets" in the Unaudited Consolidated Statements of Financial Position and the gain of $17 million was recorded in " Other charges (income), net " in the Unaudited Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings.



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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


5.	PAYABLES AND OTHER CURRENT LIABILITIES



	September 30,		December 31,
(Dollars in millions)	2016		2015
Trade creditors	$	629	$	699
Accrued payrolls, vacation, and variable-incentive compensation	197		227
Derivative hedging liability	185		218
Post-employment obligations	116		120
Accrued taxes	99		80
Other	305		281
Total payables and other current liabilities	$	1,531	$	1,625

"Other" consists primarily of accruals for interest payable, dividends payable, the current portion of environmental liabilities, and miscellaneous accruals.


6.	PROVISION FOR INCOME TAXES



	Third Quarter						First Nine Months
(Dollars in millions)	2016			2015			2016			2015
Provision for income taxes	$	56		$	95		$	195		$	283
Effective tax rate	20		%	27		%	21		%	28		%

The third quarter and first nine months 2016 effective tax rates reflect a benefit from the extension of favorable U.S. federal tax provisions, primarily research and development ("R&D") tax credits and deferral of certain earnings of foreign subsidiaries from U.S. income taxes in fourth quarter of 2015. The favorable tax provisions will benefit all quarters in 2016, compared to only fourth quarter in 2015. The third quarter and first nine months 2016 effective tax rates include a tax benefit of $16 million related to foreign tax credits as a result of the amendment of prior year income tax returns. The first nine months 2016 effective tax rate includes a $16 million one-time benefit for the restoration of tax basis for which depreciation deductions were previously limited and a $9 million tax benefit primarily due to adjustments to the tax provision to reflect the finalization of 2014 foreign income tax returns. The first nine months 2015 effective tax rate included a $6 million benefit from the settlement of non-U.S. income tax audits offset by an unfavorable foreign rate variance due to increased earnings in higher-tax jurisdictions.



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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


7.	BORROWINGS



	September 30,		December 31,
(Dollars in millions)	2016		2015
Borrowings consisted of:
2.4% notes due June 2017	$	499	$	998
6.30% notes due November 2018	166		166
5.5% notes due November 2019	249		249
2.7% notes due January 2020	795		794
4.5% notes due January 2021	249		249
3.6% notes due August 2022	890		896
1.50% notes due May 2023	607		—
7 1/4% debentures due January 2024	244		244
7 5/8% debentures due June 2024	54		54
3.8% notes due March 2025	792		791
7.60% debentures due February 2027	222		222
4.8% notes due September 2042	492		492
4.65% notes due October 2044	870		869
Credit facilities borrowings	300		550
Commercial paper borrowings	175		430
Capital leases	4		4
Total borrowings	6,608		7,008
Borrowings due within one year	675		431
Long-term borrowings	$	5,933	$	6,577

On May 26, 2016, the Company sold euro-denominated 1.50% notes due 2023 in the principal amount of €550 million ( $614 million ). Proceeds from the sale of the notes, net of transaction costs, were €544 million ( $607 million ) and were used for the early repayment of $500 million of 2.4% notes due June 2017 and repayment of other borrowings. Total consideration for the partial redemption of 2.4% notes due June 2017 was $507 million ( $500 million for the principal amount and $7 million for the early redemption premium) and are reported as financing activities on the Unaudited Consolidated Statements of Cash Flows. The early repayment resulted in a charge of $9 million for early debt extinguishment costs primarily attributable to the early redemption premium and related unamortized costs. The book value of the redeemed debt was $498 million . In conjunction with the euro-denominated public debt offering, the Company contemporaneously designated these borrowings as a non-derivative hedge of a portion of its net investment in one of its euro functional currency denominated subsidiaries. For further information, see Note 8, "Derivative and Non-Derivative Financial Instruments" .

Credit Facility and Commercial Paper Borrowings

In connection with the 2014 acquisition of Taminco Corporation ("Taminco"), Eastman borrowed $1.0 billion under a five-year Term Loan. As of September 30, 2016 , the Term Loan balance outstanding was $250 million with an interest rate of 1.77 percent . In second quarter 2016 , $100 million of the Company's borrowings under the Term Loan were repaid using available cash. As of December 31, 2015 , the Term Loan balance outstanding was $350 million with an interest rate of 1.67 percent . Borrowings under the Term Loan are subject to interest at varying spreads above quoted market rates.

The Company has access to a $1.25 billion revolving credit agreement (the "Credit Facility") that expires October 2021. Borrowings under the Credit Facility are subject to interest at varying spreads above quoted market rates and a commitment fee is paid on the total unused commitment. The Credit Facility provides liquidity support for commercial paper borrowings and general corporate purposes. Commercial paper borrowings are classified as short-term. At September 30, 2016 and December 31, 2015, the Company had no outstanding borrowings under the Credit Facility. At September 30, 2016 , the Company's commercial paper borrowings were $175 million with a weighted average interest rate of 0.76 percent . At December 31, 2015, the Company's commercial paper borrowings were $430 million with a weighted average interest rate of 0.80 percent .



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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The Company has access to a $ 250 million accounts receivable securitization agreement (the "A/R Facility") that expires April 2019. Eastman Chemical Financial Corporation ("ECFC"), a subsidiary of the Company, has an agreement to sell interests in trade receivables under the A/R Facility to a third party purchaser. Third party creditors of ECFC have first priority claims on the assets of ECFC before those assets would be available to satisfy the Company's general obligations. Borrowings under the A/R Facility are subject to interest rates based on a spread over the lender's borrowing costs, and ECFC pays a fee to maintain availability of the A/R Facility. At September 30, 2016 , the Company's borrowings under the A/R Facility were $50 million supported by trade receivables with an interest rate of 1.58 percent . In third quarter 2016 , $150 million of the available amount under the A/R Facility was repaid. In first nine months 2016 , $350 million of the available amount under the A/R Facility was repaid and $200 million borrowed. At December 31, 2015, the Company's borrowings under the A/R Facility were $200 million supported by trade receivables with an interest rate of 1.11 percent .

The Credit and A/R Facilities and the Term Loan contain 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. Total available borrowings under the Credit and A/R Facilities were $1,275 million and $842 million as of September 30, 2016 and December 31, 2015, respectively. Changes in available borrowings were due primarily to a decrease in commercial paper borrowings and borrowings under the A/R Facility. The Company would not have violated applicable covenants for these periods if the total available amounts of the facilities had been borrowed.

Fair Value of Borrowings

The Company has classified its long-term borrowings at September 30, 2016 and December 31, 2015 , under the fair value hierarchy as defined in the accounting policies in Note 1, "Significant Accounting Policies", to the consolidated financial statements in Part II, Item 8 of the Company's 2015 Annual Report on Form 10-K. The fair value for fixed-rate debt securities is based on current market prices and is classified as Level 1. The fair value for the Company's other borrowings, which relate to the Term Loan, the A/R Facility, and capital leases, equals the carrying value and is classified as Level 2.



			Fair Value Measurements at September 30, 2016
(Dollars in millions)	Recorded Amount September 30, 2016		Total Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Long-term borrowings	$	5,933	$	6,410	$	6,107	$	303	$	—



			Fair Value Measurements at December 31, 2015
(Dollars in millions)	Recorded Amount December 31, 2015		Total Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Long-term borrowings	$	6,577	$	6,647	$	6,094	$	553	$	—



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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


8.	DERIVATIVE AND NON-DERIVATIVE FINANCIAL INSTRUMENTS

Hedging Programs

The Company is exposed to market risks, such as changes in foreign currency exchange rates, commodity prices, and interest rates. To mitigate these market risks and their effects on the cash flows of the underlying transactions and investments in foreign subsidiaries, the Company uses various derivative and non-derivative instruments when appropriate in accordance with the Company's hedging strategy and policies. Designation is performed on a specific exposure basis to support hedge accounting. The Company does not enter into derivative transactions for speculative purposes.

For further information on hedging programs, see Note 10, "Derivatives", to the consolidated financial statements in Part II, Item 8 of the Company's 2015 Annual Report on Form 10-K.

Fair Value Hedges

Fair value hedges are defined as 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. All derivative instruments that are designated and qualify as fair value hedges are recorded on the balance sheet at fair value and the changes in fair value of these hedging instruments are offset in part or in whole by corresponding changes in the anticipated cash flows of the underlying exposures being hedged. 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. In second quarter 2016, the Company entered into a fixed-to-floating interest rate swap on a portion of the 3.8% notes due March 2025 in order to manage the Company's interest rate mix of fixed and variable rate debt. As of September 30, 2016 , the total notional amount of the Company's interest rate swap was $75 million . As of December 31, 2015 , there were no outstanding interest rate swap hedges that were designated as fair value hedges. There was no hedge ineffectiveness associated with the fair value hedges during third quarter and first nine months 2016 and 2015 .

Fair Value Measurement of Derivatives Designated as Fair Value Hedging Instruments



(Dollars in millions)	Statement of Financial Position Location	Fair Value Measurement
Derivative Assets	Statement of Financial Position Location	September 30, 2016		December 31, 2015
Interest rate swap	Other noncurrent assets	$	1	$	—

Derivatives' Fair Value Hedging Relationships



	Third Quarter
(Dollars in millions)	Consolidated Statement of Earnings Location of Gain/(Loss) Recognized in Income on Derivatives	Amount of Gain/(Loss) Recognized in Income on Derivatives
Derivatives' Fair Value Hedging Relationships		2016		2015
Interest rate swaps	Net interest expense	$	2	$	3



	First Nine Months
(Dollars in millions)	Consolidated Statement of Earnings Location of Gain/(Loss) Recognized in Income on Derivatives	Amount of Gain/(Loss) Recognized in Income on Derivatives
Derivatives' Fair Value Hedging Relationships		2016		2015
Interest rate swaps	Net interest expense	$	9	$	10



Table of Contents

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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 are attributable to a particular risk. All derivative instruments that are designated and qualify as a cash flow hedge are recorded on the balance sheet at fair value and the changes in fair value of these hedging instruments are offset in part or in whole by corresponding changes in the anticipated cash flows of the underlying exposures being hedged. The effective portion of the gain or loss on the derivative is reported as a component of "Other comprehensive income (loss), net of tax" ("OCI") located in the Unaudited Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings and reclassified into earnings as part of "Cost of sales" 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.

Total Notional Amounts



		September 30, 2016	December 31, 2015
Foreign Exchange Forward and Option Contracts (in millions):
	EUR/USD (in EUR)	€438	€618
	EUR/USD (in approximate USD equivalent)	$492	$689
	JPY/USD (in JPY)	¥2,100	¥2,400
	JPY/USD (in approximate USD equivalent)	$21	$20
Commodity Forward and Collar Contracts:
	Feedstock (in million barrels)	14	22
	Energy (in million million British thermal units)	26	32
Interest rate swaps for the future issuance of debt (in millions)		$500	$500

Fair Value Measurement of Derivatives Designated as Cash Flow Hedging Instruments



(Dollars in millions)		Fair Value Measurements Significant Other Observable Inputs
Derivative Assets	Statement of Financial Position Location	September 30, 2016		December 31, 2015
Commodity contracts	Other current assets	$	1	$	—
Commodity contracts	Other noncurrent assets	1		—
Foreign exchange contracts	Other current assets	41		65
Foreign exchange contracts	Other noncurrent assets	42		79
		$	85	$	144



(Dollars in millions)		Fair Value Measurements Significant Other Observable Inputs
Derivative Liabilities	Statement of Financial Position Location	September 30, 2016		December 31, 2015
Commodity contracts	Payables and other current liabilities	$	100	$	194
Commodity contracts	Other long-term liabilities	119		242
Forward starting interest rate swap contracts	Payables and other current liabilities	76		—
Forward starting interest rate swap contracts	Other long-term liabilities	—		30
		$	295	$	466



Table of Contents

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Derivatives' Cash Flow Hedging Relationships



	Third Quarter
(Dollars in millions)	Change in 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)
Derivatives' Cash Flow Hedging Relationships	2016			2015				2016			2015
Commodity contracts	$	23		$	(6	)	Sales	$	—		$	1
							Cost of Sales	(46		)	(74		)
Foreign exchange contracts	(13		)	(11		)	Sales	15			20
Forward starting interest rate swap contracts	2			(15		)	Net interest expense	(1		)	(1		)
	$	12		$	(32	)		$	(32	)	$	(54	)

	First Nine Months
(Dollars in millions)	Change in 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)
Derivatives' Cash Flow Hedging Relationships	2016			2015				2016			2015
Commodity contracts	$	132		$	21		Sales	$	—		$	4
							Cost of sales	(131		)	(152		)
Foreign exchange contracts	(38		)	16			Sales	45			63
Forward starting interest rate swap contracts	(25		)	(8		)	Net interest expense	(5		)	(5		)
	$	69		$	29			$	(91	)	$	(90	)

Ineffective portions of raw material and energy hedges are immediately recognized in earnings within "Cost of sales" in the Unaudited Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings. The Company recognized pre-tax losses for ineffectiveness of the commodity hedging portfolio of $1 million during both third quarter 2016 and 2015 and recognized $3 million in pre-tax losses during first nine months 2016 . There was no hedge ineffectiveness associated with the interest rate and foreign exchange cash flow hedges during third quarter and first nine months 2016 and 2015 .

Net Investment Hedges

Net investment hedges are defined as derivative or non-derivative instruments designated as and used to hedge the foreign currency exposure of the net investment in certain foreign operations. The effective portion of the gain or loss on the net investment hedge is reported as a component of "Change in cumulative translation adjustment" ("CTA") within OCI located in the Unaudited Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings. Gains and losses representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings.



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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes the change in the unrealized loss on the net investment hedge instruments recognized as part of the CTA within OCI during third quarter and first nine months 2016 and 2015 . There were no reclassifications to earnings or hedge ineffectiveness with these instruments during third quarter and first nine months 2016 and 2015 .



	Third Quarter					First Nine Months
(Dollars in millions)	2016			2015		2016		2015
Change in unrealized loss in other comprehensive income	$	(3	)	$	—	$	—	$	—

Hedging Summary

Monetized positions and mark-to-market gains and losses from raw materials and energy, currency, and certain interest rate hedges that were included in accumulated OCI before taxes totaled losses of $267 million at September 30, 2016 and $386 million at September 30, 2015 . If realized, $61 million net losses as of September 30, 2016 will be reclassified into earnings during the next 12 months.

The gains or losses on nonqualifying derivatives or derivatives that are not designated as hedges are marked to market and reported in " Other charges (income), net " in the Unaudited Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings, and, in all periods presented, represent foreign exchange derivatives denominated in multiple currencies and are transacted and settled in the same quarter. The Company recognized net losses on nonqualifying derivatives of $11 million during third quarter 2015 and net losses of $14 million and $23 million during the first nine months of 2016 and 2015 , respectively.

Fair Value Measurements

For additional information on fair value measurement, see Note 1, "Significant Accounting Policies", to the consolidated financial statements in Part II, Item 8 of the Company's 2015 Annual Report on Form 10-K.

The following chart shows the gross financial assets and liabilities valued on a recurring basis. During the periods presented, there were no transfers between fair value hierarchy levels.



(Dollars in millions)				Fair Value Measurements at September 30, 2016
Description	September 30, 2016			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Derivative Assets	$	86		$	—	$	86		$	—
Derivative Liabilities	(295		)	—		(295		)	—
	$	(209	)	$	—	$	(209	)	$	—



(Dollars in millions)				Fair Value Measurements at December 31, 2015
Description	December 31, 2015			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Derivative Assets	$	144		$	—	$	144		$	—
Derivative Liabilities	(466		)	—		(466		)	—
	$	(322	)	$	—	$	(322	)	$	—



Table of Contents

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

All of the Company's derivative assets and liabilities are currently classified as Level 2. Level 2 fair value is based on estimates using standard pricing models. These standard pricing models use inputs which are derived from or corroborated by observable market data such as interest rate yield curves and currency spot and forward rates. The fair value of commodity contracts is derived using forward curves supplied by an industry recognized and unrelated third party. In addition, on an ongoing basis, the Company tests a subset of its valuations against valuations received from the transaction's counterparty to validate the accuracy of its standard pricing models. Counterparties to these derivative contracts are highly rated financial institutions which the Company believes carry minimal risk of nonperformance.

All of the Company's derivative contracts are subject to master netting arrangements, or similar agreements, which provide for the option to settle contracts on a net basis when they settle on the same day and in the same currency. In addition, these arrangements provide for a net settlement of all contracts with a given counterparty in the event that the arrangement is terminated due to the occurrence of default or a termination event. Management has elected to present the derivative contracts on a gross basis in the Unaudited Consolidated Statements of Financial Position. Had it chosen to present the derivatives contracts on a net basis, it would have a derivative in a net asset position of $85 million and a derivative in a net liability position of $294 million as of September 30, 2016 . The Company does not have any cash collateral due under such agreements.


9.	RETIREMENT PLANS

Defined Benefit Pension Plans and Other Postretirement Benefit Plans

Eastman maintains defined benefit pension plans that provide eligible employees with retirement benefits. In addition, Eastman provides a subsidy for life insurance, health care, and dental benefits to eligible retirees hired prior to January 1, 2007, and a subsidy for health care and dental benefits to retirees' eligible survivors. Costs recognized for these benefits are recorded using estimated amounts, which may change as actual costs derived for the year are determined.

For additional information regarding retirement plans, see Note 11, "Retirement Plans", to the consolidated financial statements in Part II, Item 8 of the Company's 2015 Annual Report on Form 10-K.



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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Components of net periodic benefit (credit) cost were as follows:



	Third Quarter
	Pension Plans												Other Postretirement Benefit Plans
	2016						2015						2016			2015
(Dollars in millions)	U.S.			Non-U.S.			U.S.			Non-U.S.
Components of net periodic benefit (credit) cost:
Service cost	$	9		$	3		$	10		$	3		$	2		$	2
Interest cost	18			5			21			7			7			9
Expected return on assets	(34		)	(7		)	(38		)	(9		)	(1		)	(1		)
Amortization of:
Prior service credit, net	(1		)	—			(1		)	—			(11		)	(6		)
Mark-to-market pension and other postretirement benefits loss ⁽¹⁾	—			30			—			—			—			—
Net periodic benefit (credit) cost	$	(8	)	$	31		$	(8	)	$	1		$	(3	)	$	4


	First Nine Months
	Pension Plans												Other Postretirement Benefit Plans
	2016						2015						2016			2015
(Dollars in millions)	U.S.			Non-U.S.			U.S.			Non-U.S.
Components of net periodic benefit (credit) cost:
Service cost	$	29		$	9		$	29		$	11		$	5		$	6
Interest cost	55			17			65			20			21			29
Expected return on assets	(102		)	(23		)	(111		)	(28		)	(4		)	(4		)
Curtailment gain ⁽²⁾	—			—			—			(7		)	—			—
Amortization of:
Prior service credit, net	(3		)	—			(3		)	—			(31		)	(18		)
Mark-to-market pension and other postretirement benefits loss ⁽¹⁾	—			30			—			2			—			—
Net periodic benefit (credit) cost	$	(21	)	$	33		$	(20	)	$	(2	)	$	(9	)	$	13


⁽¹⁾	In third quarter 2016, a change to a UK pension plan triggered an interim remeasurement of the plan obligation and resulted in a $30 million mark-to-market loss and in 2015 the closure of the Workington, UK acetate tow manufacturing site triggered an interim remeasurement of a UK pension plan obligation both included in Other in Note 18, "Segment Information" .


⁽²⁾	Gain in the Fibers segment due to the closure of the Workington, UK acetate tow manufacturing site.

The Company contributed $50 million and $90 million to its U.S. defined benefit pension plans in first nine months 2016 and 2015 , respectively.

In third quarter 2016, the Company announced a change to a UK defined benefit pension plan which triggered an interim remeasurement of the plan obligation resulting in a mark-to-market ("MTM") loss of $30 million . The MTM loss was primarily due to a lower discount rate at the third quarter 2016 remeasurement date compared to December 31, 2015. The lower discount rate is reflective of changes in global market conditions and interest rates on high-grade corporate bonds.

In first quarter 2016 , the Company changed the approach used to calculate service and interest cost components of net periodic benefit costs for its significant defined benefit pension and other postretirement benefit plans. The Company elected to calculate service and interest costs by applying the specific spot rates along the yield curve to the plans' projected cash flows. The change does not affect the measurement of the total benefit obligation or the annual net periodic benefit cost or credit of the plans because the change in the service and interest costs will be offset in the MTM actuarial gain or loss which typically is recognized in the fourth quarter of each year or in any other quarters in which an interim remeasurement is triggered.



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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


10.	COMMITMENTS

Purchase Obligations and Lease Commitments

The Company had various purchase obligations at September 30, 2016 , totaling $1.5 billion over a period of approximately 30 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 $259 million over a period of approximately 40 years . Of the total lease commitments, approximately 50 percent relate to real property, including office space, storage facilities, and land; approximately 40 percent relate to railcars; and approximately 10 percent relate to machinery and equipment, including computer and communications equipment and production equipment.

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 as well as other guarantees. Disclosures about each group of similar guarantees are provided below.

Residual Value 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 totaled $125 million at September 30, 2016 and consist primarily of leases for railcars and the company aircraft mostly expiring in 2016 and 2017. Residual guarantee payments that become probable and estimable are accrued to rent expense over the remaining life of the applicable lease. Management's current expectation is that the likelihood of material residual guarantee payments is remote.

Other Guarantees

Guarantees and claims also arise during the ordinary course of business from relationships with customers, suppliers, joint venture partners, 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. The Company's current other guarantees include guarantees relating primarily to intellectual property, environmental matters, and other indemnifications and have arisen through the normal course of business. 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, if they were to occur. These other guarantees have terms up to 30 years with maximum potential future payments of approximately $35 million in the aggregate, with none of these guarantees being individually significant to the Company's operating results, financial position, or liquidity. Management's current expectation is that future payment or performance related to non-performance under other guarantees is remote.



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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


11.	ENVIRONMENTAL MATTERS AND ASSET RETIREMENT OBLIGATIONS

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 post-closure under the federal Resource Conservation and Recovery Act. Reserves for environmental contingencies have been established in accordance 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 2015 Annual Report on Form 10-K. The Company's total reserve for environmental contingencies was $325 million and $336 million at September 30, 2016 and December 31, 2015 , respectively. At both September 30, 2016 and December 31, 2015 , this reserve included $8 million related to sites previously closed and impaired by Eastman and sites that have been divested by Eastman but for which the Company retains the environmental liability related to these sites.

The Company's total environmental reserve that management believes to be probable and estimable for environmental contingencies, including remediation costs and asset retirement obligations, is included as part of "Payables and other current liabilities" and "Other long-term liabilities" in the Unaudited Consolidated Statements of Financial Position as follows:



(Dollars in millions)	September 30, 2016		December 31, 2015
Environmental contingent liabilities, current	$	30	$	35
Environmental contingent liabilities, long-term	295		301
Total	$	325	$	336

Remediation

Estimated future environmental expenditures for remediation costs ranged from the minimum or best estimate of $300 million to the maximum of $510 million and from the minimum or best estimate of $308 million to the maximum of $516 million at September 30, 2016 and December 31, 2015 , respectively. The maximum estimated future costs are considered to be reasonably possible and include the amounts accrued at both September 30, 2016 and December 31, 2015 . Although the resolution of uncertainties related to these environmental matters may have a material adverse effect on the Company's consolidated results of operations in the period recognized, because of the availability of legal defenses, the Company's preliminary assessment of actions that may be required, and if applicable, the expected sharing of costs, 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 or cash flows.

Reserves for environmental remediation include liabilities expected to be paid within approximately 30 years . The amounts charged to pre-tax earnings for environmental remediation and related charges are included within "Cost of sales" in the Unaudited Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings. Changes in the reserves for environmental remediation liabilities during first nine months 2016 are summarized below:



(Dollars in millions)	Environmental Remediation Liabilities
Balance at December 31, 2015	$	308
Changes in estimates recognized in earnings and other	10
Cash reductions	(18		)
Balance at September 30, 2016	$	300



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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Closure/Post-Closure

An asset retirement obligation is an obligation for the retirement of a tangible long-lived asset that is incurred upon the acquisition, construction, development, or normal operation of that long-lived asset. The Company recognizes asset retirement obligations in the period in which they are incurred if a reasonable estimate of fair value can be made. The asset retirement obligations are discounted to expected present value and subsequently adjusted for changes in fair value. The associated estimated asset retirement costs are capitalized as part of the carrying value of the long-lived assets and depreciated over their useful life. Environmental asset retirement obligations consist primarily of closure and post-closure costs. For sites that have environmental asset retirement obligations, the best estimate accrued to date over the sites' estimated useful lives for these environmental asset retirement obligation costs was $25 million and $28 million at September 30, 2016 and December 31, 2015 , respectively.

Other

The Company also has contractual asset retirement obligations not associated with environmental liabilities. Eastman's non-environmental asset retirement obligations are primarily associated with the future closure of leased manufacturing assets at Pace, Florida and Oulu, Finland. These accrued non-environmental asset retirement obligations were $46 million at both September 30, 2016 and December 31, 2015 .


12.	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.



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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


13.	STOCKHOLDERS' EQUITY

A reconciliation of the changes in stockholders' equity for first nine months 2016 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 Attributed to Eastman			Noncontrolling Interest			Total Stockholders' Equity
Balance at December 31, 2015	$	2	$	1,863	$	5,146		$	(390	)	$	(2,680	)	$	3,941		$	80		$	4,021
Net Earnings	—		—		738			—			—			738			3			741
Cash Dividends Declared ⁽¹⁾ ($1.38 per share)	—		—		(204		)	—			—			(204		)	—			(204		)
Other Comprehensive Income ⁽²⁾	—		—		—			42			—			42			—			42
Share-Based Compensation Expense ⁽³⁾	—		27		—			—			—			27			—			27
Stock Option Exercises	—		17		—			—			—			17			—			17
Share Repurchase	—		—		—			—			(120		)	(120		)	—			(120		)
Distributions to Noncontrolling Interest	—		—		—			—			—			—			(8		)	(8		)
Balance at September 30, 2016	$	2	$	1,907	$	5,680		$	(348	)	$	(2,800	)	$	4,441		$	75		$	4,516


⁽¹⁾	Cash dividends declared includes cash dividends paid and dividends declared, but unpaid.


⁽²⁾	See Note 1, "Basis of Presentation" regarding correction of prior period foreign currency translation.


⁽³⁾	Share-based compensation expense is the fair value of share-based awards.

Accumulated Other Comprehensive Income (Loss), Net of Tax



(Dollars in millions)	Cumulative Translation Adjustment			Benefit Plans Unrecognized Prior Service Credits			Unrealized Gains (Losses) on Derivative Instruments			Unrealized Losses on Investments			Accumulated Other Comprehensive Income (Loss)
Balance at December 31, 2014	$	(68	)	$	61		$	(269	)	$	(1	)	$	(277	)
Period change	(216		)	68			35			—			(113		)
Balance at December 31, 2015	(284		)	129			(234		)	(1		)	(390		)
Period change ⁽¹⁾	(6		)	(21		)	69			—			42
Balance at September 30, 2016	$	(290	)	$	108		$	(165	)	$	(1	)	$	(348	)


⁽¹⁾	See Note 1, "Basis of Presentation" regarding correction of prior period foreign currency translation.

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



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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Components of other comprehensive income recognized in the Unaudited Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings are presented below, before tax and net of tax effects:



	Third Quarter
	2016						2015
(Dollars in millions)	Before Tax			Net of Tax			Before Tax			Net of Tax
Other comprehensive income (loss)
Change in cumulative translation adjustment ⁽¹⁾	$	(42	)	$	(42	)	$	(47	)	$	(47	)
Defined benefit pension and other postretirement benefit plans:
Amortization of unrecognized prior service credits included in net periodic costs ⁽²⁾	(12		)	(7		)	(7		)	(4		)
Derivatives and hedging: ⁽³⁾
Unrealized loss during period	(11		)	(7		)	(107		)	(66		)
Reclassification adjustment for losses included in net income, net	30			19			55			34
Total other comprehensive income (loss)	$	(35	)	$	(37	)	$	(106	)	$	(83	)

	First Nine Months
	2016						2015
(Dollars in millions)	Before Tax			Net of Tax			Before Tax			Net of Tax
Other comprehensive income (loss)
Change in cumulative translation adjustment ⁽¹⁾	$	(6	)	$	(6	)	$	(183	)	$	(183	)
Defined benefit pension and other postretirement benefit plans:
Amortization of unrecognized prior service credits included in net periodic costs ⁽²⁾	(34		)	(21		)	(24		)	(15		)
Derivatives and hedging: ⁽³⁾
Unrealized gain (loss) during period	21			13			(44		)	(27		)
Reclassification adjustment for losses included in net income, net	90			56			90			56
Total other comprehensive income (loss)	$	71		$	42		$	(161	)	$	(169	)


⁽¹⁾	See Note 1, "Basis of Presentation" regarding correction of prior period foreign currency translation.


⁽²⁾	Included in the calculation of net periodic benefit costs for pension and other postretirement benefit plans. See Note 9, "Retirement Plans" .


⁽³⁾	For additional information regarding the impact of reclassifications into earnings, see Note 8, "Derivative and Non-Derivative Financial Instruments" .



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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


14.	EARNINGS AND DIVIDENDS PER SHARE

The following table sets forth the computation of basic and diluted earnings per share ("EPS"):



	Third Quarter				First Nine Months
(In millions, except per share amounts)	2016		2015		2016		2015
Numerator
Earnings attributable to Eastman:
Earnings, net of tax	$	232	$	256	$	738	$	724

Denominator
Weighted average shares used for basic EPS	147.2		148.6		147.6		148.6
Dilutive effect of stock options and other awards	1.0		1.2		1.0		1.2
Weighted average shares used for diluted EPS	148.2		149.8		148.6		149.8

(Calculated using whole dollars and shares)
EPS
Basic	$	1.57	$	1.73	$	5.00	$	4.87
Diluted	$	1.56	$	1.71	$	4.96	$	4.83

In third quarter and first nine months 2016 , options to purchase 1,437,767 and 1,076,143 shares of common stock, respectively, were excluded from the shares treated as outstanding for computation of diluted earnings per share because the total market value of option exercises for these awards was less than the total cash proceeds that would be received for these exercises. Third quarter and first nine months 2016 reflect the impact of share repurchases of 1,128,869 and 1,760,940 , respectively.

In third quarter and first nine months 2015 , options to purchase 773,643 and 264,043 shares of common stock, respectively, were excluded from the shares treated as outstanding for computation of diluted earnings per share because the total market value of option exercises for these awards was less than the total cash proceeds that would be received for these exercises. Third quarter and first nine months 2015 reflect the impact of share repurchases of 221,578 and 656,578 , respectively.

The Company declared cash dividends of $0.46 and $0.40 per share in third quarter 2016 and 2015 , respectively, and $1.38 and $1.20 per share in first nine months 2016 and 2015 , respectively.


15.	ASSET IMPAIRMENTS AND RESTRUCTURING



	Third Quarter				First Nine Months
(Dollars in millions)	2016		2015		2016			2015
Severance	$	30	$	3	$	30		$	17
Gain on sale of assets	—		—		(2		)	—
Intangible asset and goodwill impairments	—		18		—			22
Fixed asset impairments	—		—		—			85
Site closure and restructuring charges	—		—		—			6
Total	$	30	$	21	$	28		$	130

As part of the Company's previously announced plan to reduce costs primarily in 2017, the Company recognized restructuring charges of $30 million for severance in third quarter 2016.

In first nine months 2016, there was a gain of $2 million in the AFP segment for the sale of previously impaired assets at the Crystex ^® R&D site in France.



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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

As a result of the annual impairment testing of indefinite-lived intangible assets, in third quarter and first nine months 2015 the Company recognized intangible asset impairments of $18 million in the AM segment primarily to reduce the carrying value of the V-Kool ^® window films products trade name to the estimated fair value. The estimated fair value was determined using an income approach, specifically, the relief from royalty method. The impairment resulted from a decrease in projected revenues since the tradename was acquired from Solutia in 2012. The decrease in projected revenues was primarily due to the Asian economic downturn impacting car sales growth in those geographic markets.

In first nine months 2015, net asset impairments and restructuring charges included $81 million of fixed asset impairments and $14 million of restructuring charges, including severance, in the Fibers segment due to the closure of the Workington, UK acetate tow manufacturing site which was substantially completed in 2015. Additionally, in first nine months 2015, management decided not to continue a growth initiative that was reported in "Other". This resulted in the Company recognizing fixed asset and goodwill impairments of $8 million and restructuring charges of $4 million . Additionally, during first nine months 2015, net asset impairments and restructuring charges included $4 million of restructuring charges primarily for severance associated with the integration of Taminco.

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

The following table summarizes the changes in asset impairments and restructuring charges and gains, the non-cash reductions attributable to asset impairments, and the cash reductions in restructuring reserves for severance costs and site closure costs paid in first nine months 2016 and full year 2015 :



(Dollars in millions)	Balance at January 1, 2016		Provision/ Adjustments			Non-cash Reductions		Cash Reductions			Balance at September 30, 2016
Non-cash charges	$	—	$	—		$	—	$	—		$	—
Severance costs	55		30			—		(32		)	53
Site closure and restructuring costs	11		(2		)	1		(2		)	8
Total	$	66	$	28		$	1	$	(34	)	$	61



(Dollars in millions)	Balance at January 1, 2015		Provision/ Adjustments		Non-cash Reductions			Cash Reductions			Balance at December 31, 2015
Non-cash charges	$	—	$	107	$	(107	)	$	—		$	—
Severance costs	13		67		1			(26		)	55
Site closure and restructuring costs	15		9		3			(16		)	11
Total	$	28	$	183	$	(103	)	$	(42	)	$	66

Severance payments in first nine months 2016 relate primarily to fourth quarter 2015 actions taken to reduce non-operations workforce. Substantially all severance costs remaining are expected to be applied to the reserves within one year.



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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


16.	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 third quarter 2016 and 2015 , $7 million and $9 million , respectively, of compensation expense before tax were recognized in "Selling, general and administrative expenses" in the Unaudited Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings for all share-based awards. The impact on both third quarter 2016 and 2015 net earnings of $5 million is net of deferred tax expense related to share-based award compensation for each period.

In first nine months 2016 and 2015 , $27 million and $30 million , respectively, of compensation expense before tax were recognized in "Selling, general and administrative expenses" in the Unaudited Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings for all share-based awards. The impact on first nine months 2016 and 2015 net earnings of $17 million and $18 million , respectively, is net of deferred tax expense related to share-based award compensation for each period.

For additional information regarding share-based compensation plans and awards, see Note 18, "Share-Based Compensation Plans and Awards", to the consolidated financial statements in Part II, Item 8 of the Company's 2015 Annual Report on Form 10-K.


17.	SUPPLEMENTAL CASH FLOW INFORMATION

Included in the line item "Other items, net" of the "Operating activities" section of the Unaudited Consolidated Statements of Cash Flows are the following changes to Unaudited Consolidated Statement of Financial Position:



(Dollars in millions)	First Nine Months
	2016			2015
Other current assets	$	(25	)	$	29
Other noncurrent assets	27			74
Payables and other current liabilities	50			92
Long-term liabilities and equity	(50		)	(96		)
Total	$	2		$	99

The above changes resulted primarily from accrued taxes, deferred taxes, environmental liabilities, monetized positions from raw material and energy, currency, and certain interest rate hedges, prepaid insurance, miscellaneous deferrals, value-added taxes, and other miscellaneous accruals.



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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


18.	SEGMENT INFORMATION

As reported in the 2015 Annual Report on Form 10-K, the Company's products and operations were managed and reported in five operating segments: Additives & Functional Products ("AFP"), Adhesives & Plasticizers ("A&P"), Advanced Materials ("AM"), Fibers, and Specialty Fluids & Intermediates ("SFI"). Beginning first quarter 2016, as a result of changes in the Company's organizational structure and management, the Company's products and operations are managed and reported in four operating segments: AFP, AM, Chemical Intermediates ("CI"), and Fibers. The new structure supports the Company's strategy to transform towards a specialty portfolio by better aligning similar businesses in a more streamlined structure.

Under the new structure, the adhesives resins product line of the former A&P segment is moved to the AFP segment, the specialty fluids product line of the former SFI segment is moved to the AFP segment, and the plasticizers product line of the former A&P segment is moved to the new CI segment. In addition to the product line changes, there were shifts in products among product lines in different segments. Acetyl and olefin products with animal nutrition and food ingredient applications of the former SFI segment are moved to the AFP segment as part of the care chemicals and animal nutrition product lines. Distribution solvents, ethylene oxide derivatives, and ethyl acetate products are moved from the AFP segment to the new CI segment in the other intermediates product line.



	Third Quarter				First Nine Months
(Dollars in millions)	2016		2015		2016		2015
Sales
Additives & Functional Products	$	752	$	794	$	2,259	$	2,428
Advanced Materials	638		624		1,873		1,832
Chemical Intermediates	638		697		1,891		2,224
Fibers	248		320		762		903
Total Sales by Segment	2,276		2,435		6,785		7,387
Other	11		12		35		36
Total Sales	$	2,287	$	2,447	$	6,820	$	7,423



	Third Quarter						First Nine Months
(Dollars in millions)	2016			2015			2016			2015
Operating Earnings (Loss)
Additives & Functional Products	$	160		$	176		$	481		$	511
Advanced Materials	141			98			381			301
Chemical Intermediates	39			72			121			277
Fibers	79			102			237			188
Total Operating Earnings by Segment	419			448			1,220			1,277
Other
Growth initiatives and businesses not allocated to segments	(17		)	(18		)	(59		)	(66		)
Pension and other postretirement benefits (loss) income, net not allocated to operating segments	(16		)	11			9			28
Acquisition integration, transaction, and restructuring costs	(30		)	(9		)	(39		)	(27		)
Total Operating Earnings	$	356		$	432		$	1,131		$	1,212



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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS



	September 30,		December 31,
(Dollars in millions)	2016		2015
Assets by Segment ⁽¹⁾
Additives & Functional Products	$	6,345	$	6,370
Advanced Materials	4,295		4,227
Chemical Intermediates	3,105		2,930
Fibers	775		969
Total Assets by Segment	14,520		14,496
Corporate Assets	969		1,084
Total Assets	$	15,489	$	15,580


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


19.	RECENTLY ISSUED ACCOUNTING STANDARDS

In May 2014, the FASB and International Accounting Standards Board jointly issued new principles-based accounting guidance for revenue recognition that will supersede virtually all existing revenue guidance. The core principle of this guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. To achieve the core principle, the guidance establishes the following five steps: 1) identify the contract(s) with a customer, 2) identify the performance obligation in the contract, 3) determine the transaction price, 4) allocate the transaction price to the performance obligations in the contract, and 5) recognize revenue when (or as) the entity satisfies a performance obligation. The guidance also details the accounting treatment for costs to obtain or fulfill a contract. Lastly, disclosure requirements have been enhanced to provide sufficient information to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. In August 2015, the FASB issued new guidance to delay the effective date of the new revenue standard by one year. The deferral results in the new revenue standard being effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early application is permitted under the original effective date of fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. In April 2016, the FASB issued clarifying guidance to the 2014 revenue standard in regards to the identification of performance obligations and licensing. In May 2016, the FASB issued narrow-scope improvements and practical expedients to the new revenue standard that includes clarification of the collectability criterion, specification for the measurement of noncash considerations, clarifies a completed contract for transition purposes and clarification in regards to the retrospective application, as well as, policy elections, and practical expedients. The effective date for both amendments is the same as that of the revenue standard stated above. Management is currently evaluating the impact on the Company's financial position and results of operations and related disclosures.



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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

In January 2016, the FASB issued targeted improvements in regards to the recognition and measurement of financial assets and financial liabilities. The changes are as follows: requires equity investments (except equity method and consolidated investments) to be measured at fair value with changes in fair value recognized in net income; simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment, when a qualitative assessment indicates that impairment exists, an entity is required to measure the investment at fair value; eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; and requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements. This guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period and early adoption is permitted but limited. The new guidance is to be applied by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption and for equity securities without readily determinable fair values, applied prospectively to equity investments that exist as of the date of adoption. Management has concluded that changes in its accounting required by this new guidance will not materially impact the Company's financial position or results of operations and related disclosures.

In February 2016, the FASB issued guidance on lease accounting. The new guidance establishes two types of leases for lessees: finance or operating. The guidance for lessors is largely unchanged. Under the guidance, a lessee is to recognize a right-of-use asset and lease liability that arises from a lease. A lessee can make a policy election, by asset class, to not recognize lease assets or liabilities for leases with a term of 12 months or less. Both finance and operating leases will have associated right-of-use assets and liabilities initially measured at the present value of the lease payments. Current and noncurrent balance sheet classification will apply. Finance leases will have another reported element for interest associated with the principal lease liability. The component concept from the 2014 revenue recognition standard has been included in the new lease standard which will guide identification of individual assets and non-lease components. As with current GAAP, the guidance does not apply to the following leases: intangible assets to explore for or use minerals, oil, natural gas, and similar nonregenerative resources, biological assets (includes timber), inventory, or assets under construction. This guidance is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period and early adoption is permitted. The new guidance is to be applied under a modified retrospective approach wherein practical expedients have been allowed that will not require reassessment of current leases at the effective date. Management is currently evaluating the impact on the Company's financial position and results of operations and related disclosures.

In March 2016, the FASB issued guidance for derivatives and hedging given lack of specific guidance and diversity in practice. The guidance clarifies that a change in the counterparty to a derivative instrument does not, in and of itself, require dedesignation of that hedge accounting relationship provided all other hedge accounting criteria continue to be met (specifically points to counterparty credit worthiness). This guidance is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period and early adoption is permitted, including adoption in an interim period. The new guidance is to be applied under the prospective method or modified retrospective approach. Management has concluded that changes in its accounting required by this new guidance will not materially impact the Company's financial position or results of operations and related disclosures.



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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

In March 2016, the FASB issued guidance for stock compensation as a part of the simplification initiative that covers related tax accounting, cash flow presentation, and forfeitures. The two tax accounting related amendments are as follows: all excess tax benefits and tax deficiencies (including tax benefits of dividends on share-based payment awards) should be recognized within income tax expense or benefit in the income statement, the tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur, an entity also should recognize excess tax benefits regardless of whether the benefit reduces taxes payable in the current period; and the threshold to qualify for equity classification permits withholding up to the maximum statutory tax rates in the applicable jurisdictions. The cash flow presentation items sets forth that excess tax benefits should be classified along with other income tax cash flows as an operating activity and cash paid by an employer when directly withholding shares for tax withholding purposes should be classified as a financing activity. For forfeitures, an entity can make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest (current GAAP) or account for forfeitures when they occur. This guidance is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period and early adoption is permitted, including adoption in an interim period. The new guidance application is mixed among the various elements that include retrospective, prospective, and modified retrospective transition methods. Management is currently evaluating the impact on the Company's financial position and results of operations and related disclosures.

In June 2016, the FASB issued guidance relating to credit losses. The amendments require a financial asset (or group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected through the use of allowances for credit losses valuation account. The income statement will reflect the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. This guidance is effective for annual reporting periods beginning after December 15, 2019, including interim periods within that reporting period and early adoption is permitted, including adoption in an interim period, beginning after December 15, 2018. The new guidance application is mixed among the various elements that include modified retrospective and prospective transition methods. Management is currently evaluating the impact on the Company's financial position and results of operations and related disclosures.

In August 2016, the FASB issued guidance to reduce existing diversity in practice in regards to how cash receipts and cash payments are presented and classified in the statement of cash flows. The guidance specifically addresses the following items: debt prepayment or debt extinguishment costs; settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies; distributions received from equity method investees; beneficial interest in securitization transactions; and separately identifiable cash flows and application of the predominance principle. This guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period and early adoption is permitted, including adoption in an interim period. The new guidance is to be applied retrospectively to each period presented at the date of adoption. Management is currently evaluating the impact on the Company's related disclosures.



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ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



ITEM	Page

Critical Accounting Estimates	31

Non-GAAP Financial Measures	32

Overview	34

Results of Operations	35

Summary by Operating Segment	40

Sales by Customer Location	43

Liquidity, Capital Resources, and Other Financial Information	44

Recently Issued Accounting Standards	48

2016 Outlook	49

Risk Factors	49

This Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is based upon the consolidated financial statements of Eastman Chemical Company ("Eastman" or the "Company"), which have been prepared in accordance with accounting principles generally accepted ("GAAP") in the United States, and should be read in conjunction with the Company's audited consolidated financial statements, including related notes, and MD&A contained in the Company's 2015 Annual Report on Form 10-K, the Company's unaudited consolidated financial statements, including related notes, included elsewhere in this Quarterly Report on Form 10-Q, and the Current Report on Form 8-K filed with the Securities and Exchange Commission ("SEC") on April 18, 2016. All references to earnings per share ("EPS") contained in this report are diluted EPS unless otherwise noted.

CRITICAL ACCOUNTING ESTIMATES

In preparing the consolidated financial statements in conformity with 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, pension and other postretirement benefits, litigation and contingent liabilities, income taxes, and purchase accounting. 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 2015 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.



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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

NON-GAAP FINANCIAL MEASURES

Non-GAAP financial measures, and the accompanying reconciliations of the non-GAAP financial measures to the most comparable GAAP measures, are presented in "Overview", "Results of Operations", "Summary by Operating Segment", and "2016 Outlook" in this MD&A.

Company Use of Non-GAAP Financial Measures

In addition to evaluating the Company's financial condition, results of operations, liquidity, and cash flows as reported in accordance with GAAP, Eastman management also evaluates Company and operating segment performance, and makes resource allocation and performance evaluation decisions, excluding the effect of transactions, costs, and losses or gains that do not directly arise from Eastman's normal, or "core", business and operations, or are otherwise of an unusual or non-recurring nature. These transactions, costs, and losses or gains relate to, among other things, cost reductions, growth and profitability improvement initiatives, and other events outside of core business operations (such as asset impairments and restructuring charges and gains, costs of and related to acquisitions, gains and losses from and costs related to dispositions of businesses, financing transaction costs, and mark-to-market ("MTM") losses or gains for pension and other postretirement benefit plans). Because non-core, unusual, or non-recurring transactions, costs, and losses or gains may materially affect the Company's, or any particular operating segment's, financial condition or results in a specific period in which they are recognized, Eastman believes it is appropriate to evaluate both the financial measures prepared and calculated in accordance with GAAP and the related non-GAAP financial measures excluding the effect on our results of these non-core, unusual, or non-recurring items. In addition to using such measures to evaluate results in a specific period, management evaluates such non-GAAP measures, and believes that investors may also evaluate such measures, because such measures may provide more complete and consistent comparisons of the Company's, and its segments', operational performance on a period-over-period historical basis and, as a result, provide a better indication of expected future trends. Management discloses these non-GAAP measures, and the related reconciliations to the most comparable GAAP financial measures, because it believes investors use these metrics in evaluating longer term period-over-period performance, and to allow investors to better understand and evaluate the information used by management to assess the Company's, and its operating segments', performance, make resource allocation decisions and evaluate organizational and individual performance in determining certain performance-based compensation. Non-GAAP measures do not have definitions under GAAP, and may be defined differently by, and not be comparable to, similarly titled measures used by other companies. As a result, management cautions investors not to place undue reliance on any non-GAAP measure, but to consider such measures with the most directly comparable GAAP measure.

Non-GAAP Measures in this Quarterly Report

The following non-core items are excluded by management in its evaluation of certain results in this Quarterly Report, in each case for the periods and in the amounts in the table below:


•	Asset impairments and restructuring charges, net, of which asset impairments are non-cash transactions impacting profitability;


•	MTM pension and other postretirement benefit plans losses resulting from interim remeasurements of a UK pension plan obligation;


•	Acquisition integration and transaction costs;


•	Costs resulting from the sale of acquired inventories at fair value, net of the last-in, first-out ("LIFO") impact for certain of these inventories (as required by purchase accounting, these inventories were marked to fair value);


•	Early debt extinguishment costs resulting from repayment of $500 million of 2.4% notes due June 2017 ;


•	Cost of disposition of claims against operations that were discontinued by Solutia, Inc., ("Solutia") prior to the Company's acquisition of Solutia in 2012; and


•	Gain from the sale of the Company's 50 percent interest in the Primester joint venture.



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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Non-GAAP Financial Measures -- Excluded Non-Core Items



	Third Quarter				First Nine Months
(Dollars in millions)	2016		2015		2016			2015
Non-core items impacting operating earnings:
Asset impairments and restructuring charges, net	$	30	$	21	$	28		$	130
Mark-to-market pension and other postretirement benefits loss	30		—		30			2
Acquisition integration and transaction costs	—		6		9			23
Additional costs of acquired inventories	—		—		—			7
Non-core items impacting earnings before income taxes:
Early debt extinguishment costs	—		—		9			—
Cost of disposition of claims against discontinued Solutia operations	—		—		5			—
Gain from sale of equity investment in Primester joint venture	—		—		(17		)	—

This MD&A includes an analysis of the effect of the foregoing on the following GAAP financial measures:


•	Gross profit,


•	Selling, general and administrative ("SG&A") expenses,


•	Operating earnings,


•	Other charges (income), net ,


•	Net earnings, and


•	Diluted earnings per share.

Other Non-GAAP Financial Measures

Alternative Non-GAAP Cash Flow Measures

In addition to the non-GAAP measures presented in this Quarterly Report and other periodic reports, from time to time management evaluates and discloses to investors and securities analysts the non-GAAP measure cash provided by operating activities excluding certain non-core, unusual, or non-recurring items ("cash provided by operating activities, as adjusted") when analyzing, among other things, business performance, liquidity and financial position, and performance-based compensation. Management uses this non-GAAP measure in conjunction with the GAAP measure cash provided by operating activities because it believes it is a more appropriate metric to evaluate the cash flows from Eastman's core operations that are available for organic and inorganic growth initiatives and because it allows for a more consistent period-over-period presentation of such amounts. In its evaluation, management generally excludes the impact of certain non-core activities and decisions of management because such activities and decisions are not considered core, ongoing components of operations and the decisions to undertake or not to undertake such activities may be made irrespective of the cash generated from operations. From time to time, management discloses this non-GAAP measure and the related reconciliation to investors and securities analysts to allow them to better understand and evaluate the information used by management in its decision making processes and because management believes investors and securities analysts use similar measures to assess Company performance, liquidity, and financial position over multiple periods and to compare these with other companies.



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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Similarly, from time to time, Eastman may disclose to investors and securities analysts an alternative non-GAAP measure of "free cash flow", which management defines as cash provided by operating activities, as adjusted, described above, less the amount of capital expenditures. Management believes such items are generally funded from available cash and, as such, should be considered in determining free cash flow. Management believes this is an appropriate metric to assess the Company's ability to fund priorities for uses of cash. The priorities for cash after funding operations include payment of quarterly dividends, additional repayment of debt, inorganic growth opportunities, and from time to time repurchasing shares. Management believes this metric is useful to investors and securities analysts in order to provide them with information similar to that used by management in evaluating potential future cash available for various initiatives and because management believes investors and securities analysts often use a similar measure of free cash flow to compare the results, and value, of comparable companies. In addition, Eastman may disclose to investors and securities analysts an alternative non-GAAP measure of "free cash flow yield", which management defines as annual free cash flow divided by the Company's market capitalization. Management believes this metric is useful to investors and securities analysts in comparing cash flow generation with that of peer and other companies.

Alternative Non-GAAP Earnings Measures

From time to time, Eastman may also disclose to investors and securities analysts the non-GAAP earnings measures "Adjusted EBITDA", "EBITDA Margin", and "Return on Invested Capital" (or "ROIC"). Management defines Adjusted EBITDA as EBITDA (net earnings or net earnings per share before interest, taxes, depreciation and amortization) adjusted to exclude the same non-core, unusual, and non-recurring items as are excluded from the Company's other non-GAAP earnings measures for the same periods. EBITDA Margin is Adjusted EBITDA divided by the GAAP measure sales revenue in the Company's income statement for the same periods. Management defines ROIC as net income plus interest expense after tax divided by average total borrowings plus average stockholders' equity for the periods presented, each derived from the GAAP measures in the Company's financial statements for the periods presented. Management believes that Adjusted EBITDA and ROIC are useful as supplemental measures in evaluating the performance of and returns from Eastman's operating businesses, and from time to time uses such measures in internal performance calculations. Further, management understands that investors and securities analysts often use similar measures of Adjusted EBITDA and ROIC to compare the results, returns, and value of the Company with those of other companies.

OVERVIEW

The Company's products and operations are managed and reported in four operating segments: Additives & Functional Products ("AFP"), Advanced Materials ("AM"), Chemical Intermediates ("CI"), and Fibers. Eastman is focused on consistent earnings growth through a market-driven approach that takes advantage of the Company's existing technology platforms, global market and manufacturing presence, and leading positions in key end markets such as transportation, building and construction, and consumables. Management believes that the Company's end-market diversity is a source of strength, and that many of the markets into which the Company's products are sold are benefiting from longer-term global trends such as energy efficiency, a rising middle class in emerging economies, and an increased focus on health and wellness. Management believes that these trends, combined with the diversity of the Company's end markets, facilitate more consistent demand for the Company's products over time.

The Company generated sales revenue of $2.3 billion and $2.4 billion in third quarter 2016 and 2015 , respectively. Sales revenue decreased $160 million in third quarter 2016 compared to third quarter 2015 , primarily due to lower selling prices in all operating segments and lower Fibers segment sales volume more than offsetting higher sales volumes in the other operating segments.

The Company generated sales revenue of $6.8 billion and $7.4 billion in first nine months 2016 and 2015, respectively. Sales revenue decreased $603 million in first nine months 2016 compared to first nine months 2015 , primarily due to lower selling prices in all operating segments and lower Fibers segment sales volume more than offsetting higher AM segment sales volume.

Operating earnings were $356 million in third quarter 2016 compared with $432 million in third quarter 2015 . Excluding the non-core items identified in "Non-GAAP Financial Measures", operating earnings in third quarter 2016 and 2015 were $416 million and $459 million , respectively. Adjusted operating earnings decreased in third quarter 2016 as an increase in the AM segment was more than offset by declines in the other operating segments.



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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Operating earnings were $1.1 billion in first nine months 2016 compared with $1.2 billion in first nine months 2015 . Excluding the non-core items identified in "Non-GAAP Financial Measures", operating earnings in first nine months 2016 and 2015 were $1.2 billion and $1.4 billion , respectively. Adjusted operating earnings decreased in first nine months 2016 primarily due to a decline in the CI segment.

Net earnings and EPS and adjusted net earnings and EPS attributable to Eastman were as follows:



	Third Quarter
	2016				2015
(Dollars in millions, except diluted EPS)	$		EPS		$		EPS
Net earnings	$	232	$	1.56	$	256	$	1.71
Total non-core items, net of tax ⁽¹⁾	43		0.30		20		0.13
Net earnings excluding non-core items	$	275	$	1.86	$	276	$	1.84


	First Nine Months
	2016				2015
(Dollars in millions, except diluted EPS)	$		EPS		$		EPS
Net earnings	$	738	$	4.96	$	724	$	4.83
Total non-core items, net of tax ⁽¹⁾	42		0.29		128		0.86
Net earnings excluding non-core items	$	780	$	5.25	$	852	$	5.69


⁽¹⁾	See "Results of Operations - Net Earnings and Diluted Earnings per Share" for the tax effected amount of each non-core item.

The Company generated $991 million in cash from operating activities in first nine months 2016 .

RESULTS OF OPERATIONS

Sales



	Third Quarter									First Nine Months
					Change									Change
(Dollars in millions)	2016		2015		$			%		2016		2015		$			%
Sales	$	2,287	$	2,447	$	(160	)	(7	)%	$	6,820	$	7,423	$	(603	)	(8	)%
Volume / product mix effect					3			—	%					12			—	%
Price effect					(161		)	(7	)%					(594		)	(8	)%
Exchange rate effect					(2		)	—	%					(21		)	—	%

Sales revenue decreased $160 million in third quarter 2016 compared to third quarter 2015 , primarily due to lower selling prices in all operating segments and lower Fibers segment sales volume more than offsetting higher sales volumes in the other operating segments. Sales revenue decreased $603 million in first nine months 2016 compared to first nine months 2015 , primarily due to lower selling prices in all operating segments and lower Fibers segment sales volume more than offsetting higher AM segment sales volume.



Table of Contents

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Gross Profit



	Third Quarter						First Nine Months
(Dollars in millions)	2016		2015		Change		2016		2015		Change
Gross Profit	$	621	$	695	(11	)%	$	1,860	$	2,071	(10	)%
Mark-to-market pension and other postretirement benefits loss	18		—				18		2
Additional costs of acquired inventories	—		—				—		7
Gross Profit excluding non-core items	$	639	$	695	(8	)%	$	1,878	$	2,080	(10	)%

Gross profit in third quarter and first nine months 2016 included an $18 million MTM loss as a result of a change to a UK pension plan which triggered an interim remeasurement of the plan obligation. Gross profit in first nine months 2015 included a $2 million MTM loss in the Fibers segment due to an interim remeasurement of a UK pension plan obligation triggered by the closure of the Workington, UK acetate tow manufacturing site. Gross profit in first nine months 2015 was negatively impacted $7 million in the AM segment by the sale of Commonwealth Laminating and Coating, Inc. ("Commonwealth") inventories, which were marked to fair value in the acquisition of Commonwealth. Excluding these non-core items, gross profit decreased in third quarter 2016 compared with third quarter 2015 as an increase in the AM segment of $22 million was more than offset by declines in the other operating segments of $80 million. Excluding these non-core items, gross profit decreased in first nine months 2016 compared with first nine months 2015 primarily due to a decline in the CI segment of $172 million. Gross profit in third quarter and first nine months 2016 includes the benefit of reduced labor and manufacturing costs from corporate cost reduction actions in first half 2016.

Selling, General and Administrative Expenses



	Third Quarter								First Nine Months
(Dollars in millions)	2016			2015			Change		2016			2015			Change
Selling, General and Administrative Expenses	$	181		$	183		(1	)%	$	538		$	561		(4	)%
Mark-to-market pension and other postretirement benefits loss	(12		)	—					(12		)	—
Acquisition integration and transaction costs	—			(6		)			(9		)	(23		)
Selling, General and Administrative Expenses excluding non-core items	$	169		$	177		(5	)%	$	517		$	538		(4	)%

SG&A expenses in third quarter and first nine months 2016 included a $12 million MTM loss as a result of a change to a UK pension plan which triggered an interim remeasurement of the plan obligation. Included in first nine months 2016 SG&A expenses are transaction costs for final resolution of the 2011 Sterling Chemicals, Inc. acquisition purchase price and integration costs for the Commonwealth business acquired in December 2014. Included in third quarter and first nine months 2015 SG&A expenses are integration and transaction costs associated with the Taminco Corporation ("Taminco") and Commonwealth acquisitions. Excluding these non-core items, SG&A expenses decreased in third quarter and first nine months 2016 compared with third quarter and first nine months 2015 primarily due to lower costs resulting from corporate cost reduction actions in first half 2016.

Research and Development Expenses



	Third Quarter						First Nine Months
(Dollars in millions)	2016		2015		Change		2016		2015		Change
Research and Development Expenses	$	54	$	59	(8	)%	$	163	$	168	(3	)%



Table of Contents

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Asset Impairments and Restructuring



	Third Quarter				First Nine Months
(Dollars in millions)	2016		2015		2016			2015
Severance	$	30	$	3	$	30		$	17
Gain on sale of assets	—		—		(2		)	—
Intangible asset and goodwill impairments	—		18		—			22
Fixed asset impairments	—		—		—			85
Site closure and restructuring charges	—		—		—			6
Total	$	30	$	21	$	28		$	130

As part of the Company's previously announced plan to reduce approximately $100 million of costs primarily in 2017, the Company recognized restructuring charges of $30 million for severance in third quarter 2016.

In first nine months 2016, there was a gain of $2 million in the AFP segment for the sale of previously impaired assets at the Crystex ^® research and development ("R&D") site in France.

As a result of the annual impairment testing of indefinite-lived intangible assets, in third quarter 2015 the Company recognized intangible asset impairments of $18 million in the AM segment primarily to reduce the carrying value of the V-Kool ^® window films products trade name to the estimated fair value. The estimated fair value was determined using an income approach, specifically, the relief from royalty method. The impairment resulted from a decrease in projected revenues since the tradename was acquired from Solutia in 2012. The decrease in projected revenues was primarily due to the Asian economic downturn impacting car sales growth in those geographic markets.

In first nine months 2015, net asset impairments and restructuring charges included $81 million of fixed asset impairments and $14 million of restructuring charges, including severance, in the Fibers segment due to the closure of the Workington, UK acetate tow manufacturing site. Management expected annual cost savings in the Fibers segment of approximately $20 million as a result of the closure and those cost savings have been realized as of the end of the third quarter 2016. Additionally, in first nine months 2015, management decided not to continue a growth initiative that was reported in "Other". This resulted in the Company recognizing fixed asset and goodwill impairments of $8 million and restructuring charges of $4 million . Additionally, during first nine months 2015, net asset impairments and restructuring charges included $4 million of restructuring charges primarily for severance associated with the integration of Taminco.

For more information regarding asset impairments and restructuring charges and gains see Note 15, "Asset Impairments and Restructuring", to the Company's unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Operating Earnings



	Third Quarter						First Nine Months
(Dollars in millions)	2016		2015		Change		2016		2015		Change
Operating earnings	$	356	$	432	(18	)%	$	1,131	$	1,212	(7	)%
Mark-to-market pension and other postretirement benefits loss	30		—				30		2
Asset impairments and restructuring charges, net	30		21				28		130
Acquisition integration and transaction costs	—		6				9		23
Additional costs of acquired inventories	—		—				—		7
Operating earnings excluding non-core items	$	416	$	459	(9	)%	$	1,198	$	1,374	(13	)%



Table of Contents

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Net Interest Expense



	Third Quarter						First Nine Months
(Dollars in millions)	2016		2015		Change		2016		2015		Change
Gross interest costs	$	73	$	71			$	219	$	215
Less: Capitalized interest	2		1				7		5
Interest expense	71		70		1	%	212		210		1	%
Less: Interest income	7		4				21		12
Net interest expense	$	64	$	66	(3	)%	$	191	$	198	(4	)%

Early Debt Extinguishment Costs

Other Charges (Income), Net



	Third Quarter						First Nine Months
(Dollars in millions)	2016			2015			2016			2015
Foreign exchange transaction losses, net	$	5		$	14		$	19		$	9
(Income) loss from equity investments and other investment (gains) losses, net	(4		)	(2		)	(10		)	(10		)
Gain from sale of equity investment in Primester joint venture	—			—			(17		)	—
Other, net	2			1			3			3
Other charges (income), net	$	3		$	13		$	(5	)	$	2
Cost of disposition of claims against discontinued Solutia operations	—			—			(5		)	—
Gain from sale of equity investment in Primester joint venture	—			—			17			—
Other charges (income), net excluding non-core items	$	3		$	13		$	7		$	2

Included in other charges (income), net are losses or gains on foreign exchange transactions, equity investments, business venture investments, and non-operating assets. Foreign exchange transaction losses (gains), net include the revaluation of foreign entity assets and liabilities partially offset by gains and losses from certain derivative instruments, both items impacted primarily by the euro. See Note 8, "Derivative and Non-Derivative Financial Instruments", to the Company's unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

First nine months 2016 other charges (income), net includes a gain of $17 million from the sale of the Company's interest in the Primester joint venture equity investment. For additional information, see Note 4, "Equity Investments", to the Company's unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q. First nine months 2016 other charges (income), net also includes cost of disposition of claims against operations that were discontinued by Solutia prior to the Company's acquisition of Solutia in 2012.



Table of Contents

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Provision for Income Taxes



	Third Quarter						First Nine Months
(Dollars in millions)	2016			2015			2016			2015
Provision for income taxes	$	56		$	95		$	195		$	283
Effective tax rate	20		%	27		%	21		%	28		%

The third quarter and first nine months 2016 effective tax rates reflect a benefit from the extension of favorable U.S. federal tax provisions, primarily R&D tax credits and deferral of certain earnings of foreign subsidiaries from U.S. income taxes in fourth quarter of 2015. The favorable tax provisions will benefit all quarters in 2016, compared to only fourth quarter in 2015. The third quarter and first nine months 2016 effective tax rates include a tax benefit of $16 million related to foreign tax credits as a result of the amendment of prior year income tax returns. The first nine months 2016 effective tax rate includes a $16 million one-time benefit for the restoration of tax basis for which depreciation deductions were previously limited and a $9 million tax benefit primarily due to adjustments to the tax provision to reflect the finalization of 2014 foreign income tax returns. The first nine months 2015 effective tax rate included a $6 million benefit from the settlement of non-U.S. income tax audits offset by an unfavorable foreign rate variance due to increased earnings in higher-tax jurisdictions.

Net Earnings and Diluted Earnings per Share



	Third Quarter
	2016						2015
(Dollars in millions, except diluted EPS)	$			EPS			$		EPS
Net earnings attributable to Eastman	$	232		$	1.56		$	256	$	1.71
Mark-to-market pension and other post-employment benefits loss, net of tax ⁽¹⁾	24			0.16			—		—
Asset impairments and restructuring charges, net of tax ⁽²⁾	19			0.14			17		0.10
Acquisition integration and transaction costs, net of tax ⁽³⁾	—			—			3		0.03
Net earnings attributable to Eastman excluding non-core items, net of tax	$	275		$	1.86		$	276	$	1.84


	First Nine Months
	2016						2015
(Dollars in millions, except diluted EPS)	$			EPS			$		EPS
Net earnings attributable to Eastman	$	738		$	4.96		$	724	$	4.83
Mark-to-market pension and other post-employment benefits loss, net of tax ⁽¹⁾	24			0.16			1		0.01
Asset impairments and restructuring charges, net of tax ⁽⁴⁾	15			0.10			109		0.72
Acquisition transaction and integration costs, net of tax ⁽³⁾	5			0.04			14		0.10
Additional costs of acquired inventories, net of tax ⁽³⁾	—			—			4		0.03
Early debt extinguishment costs, net of tax ⁽³⁾	6			0.04			—		—
Cost of disposition of claims against discontinued Solutia operations, net of tax ⁽³⁾	3			0.02			—		—
Gain from sale of equity investment in Primester joint venture, net of tax ⁽³⁾	(11		)	(0.07		)	—		—
Net earnings attributable to Eastman excluding non-core items, net of tax	$	780		$	5.25		$	852	$	5.69


⁽¹⁾	UK statutory tax rate was used because the expense was attributed to a UK operation.


⁽²⁾	Blended tax rates for the tax jurisdictions where the expenses are deductible were used.


⁽³⁾	A U.S. corporate tax rate comprised of the U.S. federal rate plus a blended state rate was used.


⁽⁴⁾	Blended statutory rates for the tax jurisdictions where the expenses are deductible were used. First nine months 2016 also included a tax benefit from resolution of tax deductions for 2014 asset impairments.



Table of Contents

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

SUMMARY BY OPERATING SEGMENT

The Company's products and operations are managed and reported in four operating segments: Additives & Functional Products ("AFP"), Advanced Materials ("AM"), Chemical Intermediates ("CI"), and Fibers. For additional financial and product information for each segment, see the Current Report on Form 8-K filed with the SEC on April 18, 2016.

Additives & Functional Products Segment



	Third Quarter									First Nine Months
					Change										Change
(Dollars in millions)	2016		2015		$			%		2016			2015		$			%

Sales	$	752	$	794	$	(42	)	(5	)%	$	2,259		$	2,428	$	(169	)	(7	)%
Volume / product mix effect					13			2	%						20			1	%
Price effect					(55		)	(7	)%						(181		)	(8	)%
Exchange rate effect					—			—	%						(8		)	—	%


Operating earnings	$	160	$	176	$	(16	)	(9	)%	$	481		$	511	$	(30	)	(6	)%
Asset impairments and restructuring gains, net	—		—		—					(2		)	—		(2		)
Operating earnings excluding non-core item	$	160	$	176	$	(16	)	(9	)%	$	479		$	511	$	(32	)	(6	)%

Sales revenue in third quarter 2016 decreased compared to third quarter 2015 due to lower selling prices partially offset by higher sales volume, across the segment. The lower selling prices are attributed to lower raw material and energy costs and competitive pressure across the segment, particularly in Asia Pacific.

Sales revenue in first nine months 2016 decreased compared to first nine months 2015 due to lower selling prices attributed to lower raw material and energy costs and competitive pressure across the segment, particularly in Asia Pacific.

Operating earnings decreased in third quarter 2016 compared to third quarter 2015 primarily due to lower selling prices more than offsetting lower raw material and energy costs by $23 million, partially offset by higher sales volume of $3 million.

Operating earnings in first nine months 2016 included a $2 million gain for the sale of previously impaired assets at the Crystex ^® R&D site in France. Excluding this non-core item, operating earnings decreased in first nine months 2016 compared to first nine months 2015 primarily due to lower selling prices more than offsetting lower raw material and energy costs by $32 million.



Table of Contents

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Advanced Materials Segment



	Third Quarter									First Nine Months
					Change									Change
(Dollars in millions)	2016		2015		$			%		2016		2015		$			%

Sales	$	638	$	624	$	14		2	%	$	1,873	$	1,832	$	41		2	%
Volume / product mix effect					30			5	%					94			5	%
Price effect					(16		)	(3	)%					(48		)	(3	)%
Exchange rate effect					—			—	%					(5		)	—	%


Operating earnings	$	141	$	98	$	43		44	%	$	381	$	301	$	80		27	%
Asset impairments and restructuring charges, net	—		18		(18		)			—		18		(18		)
Additional costs of acquired inventories	—		—		—					—		7		(7		)
Operating earnings excluding non-core items	$	141	$	116	$	25		22	%	$	381	$	326	$	55		17	%

Sales revenue in third quarter and first nine months 2016 increased compared to third quarter and first nine months 2015 primarily due to higher sales volume of premium products, including Eastman Tritan ^® copolyester, Saflex ^® acoustic interlayers, and automotive performance films, partially offset by lower selling prices, primarily for other copolyesters, attributed to lower raw material and energy costs.

Operating earnings in third quarter and first nine months 2015 included $18 million of indefinite-lived intangible asset impairments, primarily to reduce the carrying value of trade names in the window films market to their estimated current fair value. Operating earnings in first nine months 2015 included additional costs of acquired Commonwealth inventories of $7 million.

Excluding the non-core items, operating earnings in third quarter and first nine months 2016 increased compared to third quarter and first nine months 2015 primarily due to the combined impact of higher sales volume and improved product mix of premium products and lower unit costs due to higher capacity utilization of $26 million and $69 million, respectively.

Chemical Intermediates Segment



	Third Quarter									First Nine Months
					Change									Change
(Dollars in millions)	2016		2015		$			%		2016		2015		$			%

Sales	$	638	$	697	$	(59	)	(8	)%	$	1,891	$	2,224	$	(333	)	(15	)%
Volume / product mix effect					10			2	%					(15		)	(1	)%
Price effect					(68		)	(10	)%					(312		)	(14	)%
Exchange rate effect					(1		)	—	%					(6		)	—	%


Operating earnings	$	39	$	72	$	(33	)	(46	)%	$	121	$	277	$	(156	)	(56	)%



Table of Contents

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Sales revenue in third quarter 2016 decreased compared to third quarter 2015 due to lower selling prices. The lower selling prices were primarily attributed to the negative impact of continued competitive pressures due to lower oil prices and weak demand in Asia Pacific.

Sales revenue in first nine months 2016 decreased compared to first nine months 2015 due to lower selling prices. The lower selling prices were primarily attributed to the negative impact of lower market prices for propylene, ethylene, and methanol and continued competitive pressures due to lower oil prices and weak demand in Asia Pacific.

Operating earnings decreased in third quarter 2016 compared to third quarter 2015 primarily due to lower selling prices more than offsetting lower raw material and energy costs and the reduced negative impact of commodity hedges on raw material costs, primarily for propane, by $44 million.

Operating earnings decreased in first nine months 2016 compared to first nine months 2015 primarily due to lower selling prices more than offsetting lower raw material and energy costs by $166 million.

Fibers Segment



	Third Quarter									First Nine Months
					Change									Change
(Dollars in millions)	2016		2015		$			%		2016		2015		$			%

Sales	$	248	$	320	$	(72	)	(23	)%	$	762	$	903	$	(141	)	(16	)%
Volume / product mix effect					(50		)	(16	)%					(86		)	(10	)%
Price effect					(22		)	(7	)%					(53		)	(6	)%
Exchange rate effect					—			—	%					(2		)	—	%


Operating earnings	$	79	$	102	$	(23	)	(23	)%	$	237	$	188	$	49		26	%
Asset impairments and restructuring charges, net	—		—		—					—		95		(95		)
Operating earnings excluding non-core item	$	79	$	102	$	(23	)	(23	)%	$	237	$	283	$	(46	)	(16	)%

Sales revenue in third quarter and first nine months 2016 decreased compared to third quarter and first nine months 2015 primarily due to lower sales volume and lower selling prices, particularly for acetate tow. Lower acetate tow sales volume was primarily due to reduced sales in China attributed to weaker demand and customer backward integration and inventory destocking. Lower acetate tow selling prices was primarily due to lower industry capacity utilization rates.

Operating earnings in third quarter 2016 decreased compared to third quarter 2015 primarily due to lower sales volume of $25 million and lower selling prices exceeding lower raw material and energy costs by $12 million, partially offset by lower operating costs resulting from recent changes in segment business operations.

Operating earnings in first nine months 2015 included asset impairments and restructuring charges, net of $95 million for the closure of the Workington, UK acetate tow manufacturing site. Excluding this non-core item, operating earnings in first nine months 2016 decreased compared to first nine months 2015 primarily due to lower sales volume of $36 million and lower selling prices exceeding lower raw material and energy costs by $31 million, partially offset by lower operating costs resulting from changes in segment business operations and assets.



Table of Contents

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Other



	Third Quarter						First Nine Months
(Dollars in millions)	2016			2015			2016			2015

Sales	$	11		$	12		$	35		$	36

Operating loss
Growth initiatives and businesses not allocated to segments	(17		)	(18		)	(59		)	(66		)
Pension and other postretirement benefits income, net not allocated to operating segments	(16		)	11			9			28
Acquisition integration, transaction, and restructuring costs	(30		)	(9		)	(39		)	(27		)
Operating loss before non-core items	(63		)	(16		)	(89		)	(65		)
Asset impairments and restructuring charges, net	30			3			30			17
Mark-to-market pension and other postretirement benefits loss	30			—			30			2
Acquisition integration and transaction costs	—			6			9			23
Operating loss excluding non-core items	$	(3	)	$	(7	)	$	(20	)	$	(23	)

Sales revenue and costs related to growth initiatives, certain components of pension and other postretirement benefits, and other expenses and income not identifiable to an operating segment are not included in segment operating results for any of the periods presented and are shown as "Other" sales revenue and "Other" operating loss. Sales revenue in third quarter and first nine months 2016 and third quarter and first nine months 2015 is primarily sales from the microfiber technology platform.

Included in third quarter and first nine months 2016 are restructuring costs of $30 million for severance resulting from the Company's previously announced actions to reduce costs. Also included in third quarter and first nine months 2016 is a $30 million MTM loss as a result of a change to a UK pension plan which triggered an interim remeasurement of the plan obligation. Included in first nine months 2016 are transaction costs for final resolution of the 2011 Sterling Chemicals, Inc. acquisition purchase price and integration costs for the Commonwealth business acquired in December 2014.

Included in third quarter and first nine months 2015 operating loss are integration and transaction costs of $6 million and $23 million, respectively, primarily for the acquired Taminco and Commonwealth businesses. Included in first nine months 2015 operating loss are severance costs associated with the integration of Taminco of $4 million and $12 million for asset impairments and restructuring charges resulting from management's decision not to continue a growth initiative.

SALES BY CUSTOMER LOCATION



	Sales Revenue
	Third Quarter									First Nine Months
					Change									Change
(Dollars in millions)	2016		2015		$			%		2016		2015		$			%
United States and Canada	$	1,028	$	1,089	$	(61	)	(6	)%	$	3,064	$	3,391	$	(327	)	(10	)%
Asia Pacific	576		600		(24		)	(4	)%	1,601		1,741		(140		)	(8	)%
Europe, Middle East, and Africa	545		615		(70		)	(11	)%	1,760		1,865		(105		)	(6	)%
Latin America	138		143		(5		)	(3	)%	395		426		(31		)	(7	)%
	$	2,287	$	2,447	$	(160	)	(7	)%	$	6,820	$	7,423	$	(603	)	(8	)%

Sales revenue in United States and Canada decreased in third quarter and first nine months 2016 compared to third quarter and first nine months 2015, primarily due to lower selling prices in all operating segments, particularly in the CI and AFP segments.

Sales revenue in Asia Pacific decreased in third quarter and first nine months 2016 compared to third quarter and first nine months 2015, primarily due to lower selling prices in all operating segments and lower Fibers segment sales volume partially offset by higher sales volume in the other operating segments.



Table of Contents

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Sales revenue in Europe, Middle East, and Africa decreased in third quarter 2016 compared to third quarter 2015, primarily due to lower Fibers and AFP segments sales volume and lower selling prices in all operating segments. Sales revenue in Europe, Middle East, and Africa decreased in first nine months 2016 compared to first nine months 2015, primarily due to lower selling prices in all operating segments.

Sales revenue in Latin America decreased in third quarter 2016 compared to third quarter 2015, primarily due to lower selling prices in all operating segments, particularly in the CI segment partially offset by higher AFP and CI segments sales volume. Sales revenue in Latin America decreased in first nine months 2016 compared to first nine months 2015, primarily due to lower selling prices in all operating segments, particularly in the CI segment.

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, the Company engages in foreign currency derivative 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 concerning these practices, see Note 10, "Derivatives", to the consolidated financial statements in Part II, Item 8 and Part II, Item 7A "Qualitative and Quantitative Disclosures About Market Risk" of the Company's 2015 Annual Report on Form 10-K and "Risk Factors" of this Quarterly Report on Form 10-Q.

LIQUIDITY, CAPITAL RESOURCES, AND OTHER FINANCIAL INFORMATION

Cash and Cash Flows



	First Nine Months
(Dollars in millions)	2016			2015
Net cash provided by (used in)
Operating activities	$	991		$	1,050
Investing activities	(359		)	(467		)
Financing activities	(717		)	(481		)
Effect of exchange rate changes on cash and cash equivalents	(1		)	(7		)
Net change in cash and cash equivalents	(86		)	95
Cash and cash equivalents at beginning of period	293			214
Cash and cash equivalents at end of period	$	207		$	309

Cash provided by operating activities was $991 million in first nine months 2016 compared with $1.1 billion in first nine months 2015 . The difference in cash from operating activities was primarily due to lower net earnings excluding non-core items in first nine months 2016 compared with first nine months 2015.

Cash used in investing activities decreased $108 million in first nine months 2016 compared with first nine months 2015 primarily due to $51 million less additions to properties and equipment, $37 million higher proceeds primarily from the sale of Primester, and $19 million less cash used for acquisitions.

Cash used in financing activities increased $236 million in first nine months 2016 compared with first nine months 2015 primarily due to an increase of $137 million in net repayment of borrowings and increases in share repurchases and dividend payments of $72 million and $25 million, respectively. Cash used in financing activities in first nine months 2016 included cash provided by $607 million net proceeds from the sale of euro-denominated 1.50% notes due 2023 and $200 million from a $250 million accounts receivable securitization agreement (the "A/R Facility") borrowings, and cash used in repayment of $500 million of 2.4% notes due June 2017 (including $7 million early redemption premium), repayment of $350 million of A/R Facility borrowings, and repayment of $100 million of Term Loan borrowings.

The priorities for uses of available cash in 2016 include payment of the quarterly dividend, repayment of debt, funding targeted growth initiatives, and repurchasing shares .



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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Debt and Other Commitments

Debt Securities and Term Loan

At September 30, 2016 , the Company's borrowings totaled $6.6 billion with various maturities. See Note 7, "Borrowings", to the Company's unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

On October 31, 2016, the Company commenced a cash tender offer (the "Tender Offer") for up to $400 million combined aggregate principal amount of its 4.5% notes due 2021, 3.6% notes due 2022, 7 1/4% debentures due 2024, 7 5/8% debentures due 2024, 3.8% notes due 2025, and 7.60% debentures due 2027. The consummation of the Tender Offer is conditioned upon the offer and sale by the Company of new debt securities on terms acceptable to the Company and other customary closing conditions. In addition, on October 31, 2016 the Company delivered an irrevocable notice of redemption to the holders of the Company's 6.30% Notes due 2018 (the "2018 Notes"). In accordance with the terms and conditions of the 2018 Notes and the indenture governing the 2018 Notes, the Company will redeem the entire aggregate principal amount of the 2018 Notes outstanding on November 30, 2016.

The Company expects to refinance the remaining $500 million aggregate principal amount of its 2.4% notes due June 2017 with new borrowings prior to the due date.

In connection with the 2014 acquisition of Taminco, Eastman borrowed $1.0 billion under a five-year Term Loan. As of September 30, 2016 , the Term Loan balance outstanding was $250 million with an interest rate of 1.77 percent . In second quarter 2016 , $100 million of the Company's borrowings under the Term Loan were repaid using available cash. As of December 31, 2015 , the Term Loan balance outstanding was $350 million with an interest rate of 1.67 percent . Borrowings under the Term Loan are subject to interest at varying spreads above quoted market rates.

Other Commitments

In addition, the Company had other liabilities at September 30, 2016 , totaling $ 1.9 billion related primarily to pension and other postretirement benefits, environmental loss contingency reserves, commodity and foreign exchange hedging, and accrued compensation benefits.

As of September 30, 2016 , there have been no material changes to the Company's commitments at December 31, 2015 . See "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of the Company's 2015 Annual Report on Form 10-K.



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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Liquidity and Capital Resources

The Company has access to the sources of liquidity described below.

The Company has access to a $ 250 million A/R Facility that expires April 2019. Borrowings under the A/R Facility are subject to interest rates based on a spread over the lender's borrowing costs, and a fee is paid to maintain availability of the A/R Facility. At September 30, 2016 , the Company's borrowings under the A/R Facility were $50 million supported by trade receivables with an interest rate of 1.58 percent . In third quarter 2016 , $150 million of the available amount under the A/R Facility was repaid. In first nine months 2016 , $350 million of the available amount under the A/R Facility was repaid and $200 million borrowed. At December 31, 2015, the Company's borrowings under the A/R Facility were $200 million supported by trade receivables with an interest rate of 1.11 percent .

In first nine months 2016 , the Company made $50 million in contributions to its U.S. defined benefit pension plans.

Cash flows from operations, cash and cash equivalents, and other sources of liquidity are expected to be available and sufficient to meet foreseeable cash 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 "Risk Factors" in this MD&A. Eastman management believes maintaining a financial profile consistent with an investment grade credit rating is important to its long-term strategic and financial flexibility.

Capital Expenditures

Capital expenditures were $375 million and $426 million in first nine months 2016 and 2015 , respectively, primarily for organic growth initiatives particularly in the AM and AFP segments and for manufacturing asset improvements. The Company expects that year-end 2016 capital spending to be between $600 million and $625 million , including the continuation of the expansion projects in Kuantan, Kingsport, and Longview along with site modernization projects in Kingsport and Longview.

Treasury Stock

In February 2014, the Company's Board of Directors authorized repurchase of up to an additional $1 billion 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 September 30, 2016 , a total of 6,171,629 shares have been repurchased under this authorization for a total amount of $473 million.

During third quarter and first nine months 2016 , the Company repurchased 1,128,869 shares of common stock for a cost of $75 million and 1,760,940 shares of common stock for a cost of $120 million, respectively. During third quarter and first nine months 2015 , the Company repurchased 221,578 shares of common stock for a cost of $17 million and 656,578 shares of common stock for a cost of $48 million, respectively.



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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Dividends

The Company declared cash dividends of $0.46 and $0.40 per share in third quarter 2016 and 2015 , respectively, and $1.38 and $1.20 per share in first nine months 2016 and 2015 , respectively.

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, see Note 10, "Commitments", to the Company's unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Guarantees and claims also arise during the ordinary course of business from relationships with customers, suppliers, joint venture partners, 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. The Company's current other guarantees include guarantees relating primarily to intellectual property, environmental matters, and other indemnifications and have arisen through the normal course of business. 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, if they were to occur. These other guarantees have terms up to 30 years with maximum potential future payments of approximately $35 million in the aggregate, with none of these guarantees being individually significant to the Company's operating results, financial position, or liquidity. The Company's current expectation is that future payment or performance related to non-performance under other guarantees is considered remote.

The Company has rights and obligations under non-recourse factoring facilities that have a combined limit of €158 million ( $177 million ) as of September 30, 2016 and are committed until December 2017. These arrangements include receivables in the United States, Belgium, Germany, and Finland, and are subject to various eligibility requirements. The Company sells the receivables at face value but receives funding (approximately 85 percent ) net of a deposit amount until collections are received from customers for the receivables sold. The total amounts of cumulative receivables sold in third quarter and first nine months 2016 , were approximately $220 million and $680 million , respectively. The total amounts of cumulative receivables sold in third quarter and first nine months 2015 , were approximately $245 million and $780 million , respectively. As part of the program, the Company continues to service the sold receivables at market rates with no servicing assets or liabilities recognized. The amounts of sold receivables outstanding under the non-recourse factoring facilities were $105 million and $106 million at September 30, 2016 and December 31, 2015 , respectively. The fair value of the receivables sold equals the carrying value at the time of the sale, and no gain or loss is recognized. The Company is exposed to a credit loss of up to 10 percent on sold receivables.

Environmental Matters and Asset Retirement Obligations



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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS



(Dollars in millions)	September 30, 2016		December 31, 2015
Environmental contingent liabilities, current	$	30	$	35
Environmental contingent liabilities, long-term	295		301
Total	$	325	$	336

Remediation

Reserves for environmental remediation include liabilities expected to be paid within approximately 30 years. The amounts charged to pre-tax earnings for environmental remediation and related charges are included within "Cost of sales" in the Unaudited Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings. Changes in the reserves for environmental remediation liabilities during first nine months 2016 are summarized below:



(Dollars in millions)	Environmental Remediation Liabilities
Balance at December 31, 2015	$	308
Changes in estimates recognized in earnings and other	10
Cash reductions	(18		)
Balance at September 30, 2016	$	300

Closure/Post-Closure

Other

RECENTLY ISSUED ACCOUNTING STANDARDS

For information regarding the impact of recently issued accounting standards, see Note 19, "Recently Issued Accounting Standards", to the Company's unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.



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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

2016 OUTLOOK

Eastman is focused on consistent earnings growth through a market-driven approach that takes advantage of the Company's existing technology platforms, global market and manufacturing presence, leading positions in key end markets, vertically integrated manufacturing streams, and advantaged cost positions. This focus is supported by the Company's end-market and geographic diversity as it serves global markets and offers both original equipment manufacturing and after-market products in a variety of end markets, such as transportation, building and construction, and consumables.

Management expects that market prices for commodity products and raw material and energy costs will continue to be volatile, and will continue to evaluate and use pricing strategies to mitigate this volatility. Management expects that the significant declines in crude oil and certain related commodity prices will not be fully reflected in Company raw material and energy costs primarily because the positive impact will be largely offset in 2016 by our current commodity hedges, particularly for propane. Management also expects the strength of the U.S. dollar in recent periods to continue to have an overall negative impact on the Company's results, partially offset by hedging of those foreign currencies, particularly the euro.

For full year 2016, management also expects:


•	operating results to continue to benefit from organic growth and improved product mix from continued market

adoption of specialty products;


•	cost reduction actions to result in cost savings of approximately $100 million in 2016, and additional cost reduction actions in second half 2016 to result in further cost savings of approximately $100 million, primarily in 2017;


•	acquisition costs and tax synergies;


•	cash generated by operating activities of approximately $1.5 billion;


•	capital spending to be between $600 million and $625 million ;


•	priorities for uses of available cash in 2016 include payment of the quarterly dividend, repayment of debt, funding targeted growth initiatives, and repurchasing shares ; and


•	the full year effective tax rate on reported earnings before income tax to be between 22 and 23 percent, excluding non-core items.

Based on the foregoing expectations and assumptions, management expects that 2016 earnings per share excluding the non-core items in first nine months 2016 detailed under "Non-GAAP Financial Measures" in this MD&A and any non-core, unusual, or non-recurring items in fourth quarter 2016 to be between $6.70 and $6.80. The Company's fourth quarter 2016 financial results forecasts do not include non-core items (such as MTM pension and other postretirement benefit gains or loss in fourth quarter 2016) or any unusual or non-recurring items, and management accordingly is unable to reconcile projected full-year 2016 earnings excluding non-core and any unusual or non-recurring items to reported GAAP earnings without unreasonable efforts.

See "Risk Factors" below.

RISK FACTORS

In addition to the factors described elsewhere in this Quarterly Report, the following are the most significant known factors, risks, and uncertainties that could cause actual results to differ materially from those in the forward-looking statements made in this Quarterly Report and elsewhere from time to time. See "Forward-looking Statements".

Continued uncertain conditions in the global economy and the financial markets could negatively impact the Company.

Continued uncertain 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 were affected by the impact of the last global recession, including the credit market crisis, declining consumer and business confidence, fluctuating commodity prices, volatile exchange rates, and other challenges that affected the global economy. Continuing deterioration and weakness of the global economy and financial markets and uncertainty over timing and extent of recovery have adversely affected the Company's results of operations, financial condition, and cash flows. In addition, 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.



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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 market fluctuations in raw material and energy costs. These risk mitigation measures cannot eliminate all exposure to market fluctuations and have from time-to-time reduced the positive impact of unexpected decreases of the market price of purchased raw materials. 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 commodities.

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

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

The Company's business is subject to operating risks common to chemical manufacturing businesses, including cyber risks, any of which could disrupt manufacturing operations or related infrastructure and adversely affect results of operations.

As a global specialty chemicals manufacturing company, our business is subject to operating risks common to chemical manufacturing, storage, handling, and transportation including explosions, fires, inclement weather, natural disasters, mechanical failure, unscheduled downtime, transportation interruptions, remediation, chemical spills, discharges or releases of toxic or hazardous substances or gases. Significant limitation on the Company's ability to manufacture products due to disruption of manufacturing operations or related infrastructure could have a material adverse effect on the Company's sales revenue, costs, results of operations, and financial condition. Disruptions could occur due to internal factors such as computer or equipment malfunction (accidental or intentional), operator error, or process failures; or external factors such as computer or equipment malfunction at third-party service providers, natural disasters, pandemic illness, changes in laws or regulations, war or other outbreak of hostilities or terrorism, cyber attacks, or breakdown or degradation of transportation infrastructure used for delivery of supplies to the Company or for delivery of products to customers. The Company has in the past experienced cyber attacks and breaches of its computer information systems, and although none of these has had a material adverse effect on the Company's operations, no assurances can be provided that any future disruptions due to these, or other, circumstances will not have a material effect on operations. Such disruptions could result in an unplanned event that could be significant in scale and could negatively impact operations, neighbors, and the environment, and could have a negative impact on the Company's results of operations.

Growth initiatives may not achieve desired business or financial objectives and may require a significant use of resources in excess of those estimated or budgeted for such initiatives.

The Company continues to identify and pursue growth opportunities through both organic growth initiatives and inorganic initiatives. These growth opportunities include development and commercialization or licensing of innovative new products and technologies and related employee leadership, expertise, and skill development and retention, 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 innovation, development and commercialization or licensing efforts, investments, or acquisitions and alliances (including integration of acquired businesses) will result in financially successful commercialization of products, or acceptance by existing or new customers, or successful entry into new markets or otherwise achieve their underlying strategic business objectives or that they will be beneficial to the Company's results of operations. There also can be no assurance regarding the timing of completion of proposed acquisitions or licensing, expected benefits of proposed acquisitions or licensing, completion of integration plans, and synergies therefrom. There also can be no assurance that capital projects for 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 or current investments and projects.



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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Significant acquisitions expose the Company to risks and uncertainties, the occurrence of any of which could materially adversely affect the Company's business, financial condition, and results of operations.

While acquisitions have been and continue to be a part of the Company's growth strategy, acquisitions of large companies (such as the acquisition of Taminco and Solutia) subject the Company to a number of risks and uncertainties, the occurrence of any of which could have a material adverse effect on Eastman. These include, but are not limited to the possibilities that the financial performance of the acquired business may be significantly worse than expected; that significant additional indebtedness may constrain the Company's ability to access the credit and capital markets at attractive interest rates and favorable terms, which may negatively impact the Company's liquidity or ability to pursue certain growth initiatives; that the Company may not be able to achieve the cost, revenue, tax, or other "synergies" expected from any acquisition, or that there may be delays in achieving any such synergies; that management's time and effort may be dedicated to the new business resulting in a loss of focus on the successful operation of the Company's existing businesses; and that the Company may be required to expend significant additional resources in order to integrate any acquired business into Eastman or that the integration efforts will not achieve the expected benefits.

The Company's substantial global operations subject it to risks of doing business in foreign countries, which could adversely affect its business, financial condition and results of operations.

More than half of the Company's sales for 2015 were to customers outside of North America. The Company expects sales from international markets to continue to represent a significant portion of the Company's sales. Also, a significant portion of manufacturing capacity is located outside of the United States. Accordingly, the Company's business is subject to risks related to the differing legal, political, cultural, social and regulatory requirements and economic conditions of many jurisdictions. Fluctuations in exchange rates may affect product demand and may adversely affect the profitability in U.S. dollars of products and services provided in foreign countries. In addition, foreign countries may impose additional withholding taxes or otherwise tax Eastman's foreign income, or adopt other restrictions on foreign trade or investment, including currency exchange controls. Certain legal and political risks are also inherent in the operation of a company with Eastman's global scope. For example, it may be more difficult for Eastman to enforce its agreements or collect receivables through foreign legal systems, and the laws of some countries may not protect the Company's intellectual property rights to the same extent as the laws of the United States. Failure of foreign countries to have laws to protect Eastman's intellectual property rights or an inability to effectively enforce such rights in foreign countries could result in loss of valuable proprietary information. There is also risk that foreign governments may nationalize private enterprises in certain countries where Eastman operates. Social and cultural norms in certain countries may not support compliance with Eastman's corporate policies including those that require compliance with substantive laws and regulations. Also, changes in general economic and political conditions in countries where Eastman operates are a risk to the Company's financial performance. As Eastman continues to operate its business globally, its success will depend, in part, on its ability to anticipate and effectively manage these and other related risks. There can be no assurance that the consequences of these and other factors relating to its multinational operations will not have an adverse effect on Eastman's business, financial condition or results of operations.

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

The Company and its 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. The Company's accruals for such costs and associated liabilities are subject to changes in estimates on which the accruals are based. For example, any amount accrued for environmental matters 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 viability 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. Specifically, 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 of greenhouse gas emissions and energy policy, 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.



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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

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 other forward-looking statements and related disclosures made by the Company in this Quarterly Report and elsewhere from time to time, represents management's best judgment 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 SEC or in Company press releases) on related subjects.



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ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Contemporaneously with its sale on May 26, 2016 of euro-denominated 1.50% notes due 2023 in the principal amount of €550 million ($614 million), the Company designated these borrowings as a non-derivative hedge of a portion of its net investment in one of its euro functional currency denominated subsidiaries to protect the designated net investment against foreign currency fluctuations. At September 30, 2016, a 10% fluctuation in the euro currency rate would have a $61 million impact on the designated net investment value in the foreign subsidiary. As a result of the designation of the euro-denominated borrowings as a hedge of the net investment, foreign currency translation gains and losses on the borrowings are recorded as a component of the "Change in cumulative translation adjustment" within "Other comprehensive income (loss), net of tax" in the Unaudited Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings. Therefore, a foreign currency change in the designated investment value of the foreign subsidiary will generally be offset by a foreign currency change in the carrying value of the euro-denominated borrowings.

Excluding the net investment hedge discussed above, there have been no other material changes to the Company's market risks from those disclosed in Part II, Item 7A of the Company's 2015 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 provide reasonable assurance 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 principal 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 September 30, 2016 the Company's disclosure controls and procedures were effective to provide reasonable assurance 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 third quarter of 2016 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.



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PART II.	OTHER INFORMATION


ITEM 1.	LEGAL PROCEEDINGS

General

From time to time, Eastman Chemical Company ("Eastman" or 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 (including the Solutia Inc. ("Solutia") Legacy Torts Claims described below) will have a material adverse effect on its overall financial condition, results of operations, or cash flows.

Solutia Legacy Torts Claims Litigation

Pursuant to an Amended and Restated Settlement Agreement effective February 28, 2008, between Solutia and Monsanto Company ("Monsanto") in connection with Solutia's emergence from Chapter 11 bankruptcy proceedings (the "Monsanto Settlement Agreement"), Monsanto is responsible to defend and indemnify Solutia against any Legacy Tort Claims (as defined in the Monsanto Settlement Agreement) and Solutia agreed to retain responsibility for certain tort claims, if any, that may arise from Solutia's conduct after its spinoff from Pharmacia Corporation (f/k/a Monsanto), which occurred on September 1, 1997. Solutia, which became a wholly owned subsidiary of Eastman on July 2, 2012, has been named as a defendant in several such proceedings, and has submitted the matters to Monsanto as Legacy Tort Claims. To the extent these matters are not within the meaning of Legacy Tort Claims, Solutia could potentially be liable thereunder. In connection with the completion of its acquisition of Solutia, Eastman guaranteed the obligations of Solutia and Eastman was added as an indemnified party under the Monsanto Settlement Agreement.


ITEM 1A.	RISK FACTORS

For identification and discussion of the most significant risks applicable to the Company and its business, see "Risk Factors" in Management's Discussion and Analysis of Financial Condition and Results of Operations in Part I, Item 2 of this Quarterly Report on Form 10-Q.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

In February 2014, the Board of Directors authorized repurchase of up to an additional $1 billion of the Company's outstanding common stock. As of September 30, 2016 , a total of 6,171,629 shares have been repurchased under this authorization for a total amount of $473 million. During first nine months 2016 , the Company repurchased 1,760,940 shares of common stock for a cost of $120 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.



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	Approximate Dollar Value (in millions) that May Yet Be Purchased Under the Plans or Programs
July 1 - 31, 2016	293,851	$	68.06	293,851	$	582
August 1 - 31, 2016	405,000	$	66.08	405,000	$	555
September 1 - 30, 2016	430,018	$	65.66	430,018	$	527
Total	1,128,869	$	66.44	1,128,869


⁽¹⁾	All shares were repurchased under a Company announced repurchase plan.


⁽²⁾	Average price paid per share reflects the weighted average purchase price paid for shares.



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ITEM 6.	EXHIBITS

Exhibits filed as part of this report are listed in the Exhibit Index.



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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



			Eastman Chemical Company



Date:	November 4, 2016	By:	/s/ Curtis E. Espeland
			Curtis E. Espeland
			Executive Vice President and Chief Financial Officer



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		EXHIBIT INDEX
Exhibit Number		Description

3.01		Amended and Restated Certificate of Incorporation of Eastman Chemical Company (incorporated herein by reference to Exhibit 3.01 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2012)

3.02		Amended and Restated Bylaws of Eastman Chemical Company (incorporated herein by reference to Exhibit 3.02 to the Company's Annual Report on Form 10-K for the year ended December 31, 2015)

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 (incorporated herein by reference to Exhibit 4(a) to the Company's Current Report on Form 8-K dated January 10, 1994)

4.03		Indenture, dated as of June 5, 2012, between Eastman Chemical Company and Wells Fargo Bank, as Trustee (incorporated herein by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated June 5, 2012)

4.04		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)

4.05		Officers' Certificate pursuant to Sections 201 and 301 of the Indenture related to 7 5/8% Debentures due 2024 (incorporated herein by reference to Exhibit 4(a) to the Company's Current Report on Form 8-K dated June 8, 1994)

4.06		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)

4.07		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)

4.08		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		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)

4.11		Form of 4.5% Note due 2021 (incorporated herein by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K dated December 10, 2010)

4.12		Form of 2.4% Note due 2017 (incorporated herein by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K dated June 5, 2012)

4.13		Form of 3.6% Note due 2022 (incorporated herein by reference to Exhibit 4.3 to the Company's Current Report on Form 8-K dated June 5, 2012)

4.14		Form of 4.8% Note due 2042 (incorporated herein by reference to Exhibit 4.4 to the Company's Current Report on Form 8-K dated June 5, 2012)

4.15		Form of 4.65% Note due 2044 (incorporated herein by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K dated May 15, 2014)



Table of Contents



		EXHIBIT INDEX
Exhibit Number		Description

4.16		Form of 2.70% Note due 2020 (incorporated herein by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K dated November 20, 2014)

4.17		Form of 3.80% Note due 2025 (incorporated herein by reference to Exhibit 4.18 to the Company's Annual Report on Form 10-K for the year ended December 31, 2014)

4.18		Form of 1.50% Note due 2023 (incorporated herein by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K dated May 26, 2016)

10.01 *		Amendment dated August 31, 2016 to the Amended and Restated $250,000,000 Accounts Receivable Securitization agreement dated July 9, 2008 between the Company and The Bank of Tokyo-Mitsubishi UFJ, Ltd., as agent

10.02 *		Amendment dated August 31, 2016 to the Second Amended and Restated Five-Year Credit Agreement, dated as of October 9, 2014 (amended October 9, 2015), among Eastman Chemical Company, the initial lenders named therein, and Citibank N.A., as administrative agent, Citigroup Global Markets Inc. and J.P. Morgan Securities LLC, as joint lead arrangers

10.03 *		2016 Director Stock Compensation Subplan of the 2012 Omnibus Stock Compensation Plan and Form of Restricted Stock Award Notice **

10.04 *		Amended and Restated Eastman Directors' Deferred Compensation Plan **

12.01 *		Statement re: Computation of Ratios of Earnings to Fixed Charges

31.01 *		Rule 13a – 14(a) Certification by Mark J. Costa, Chief Executive Officer, for the quarter ended September 30, 2016

31.02 *		Rule 13a – 14(a) Certification by Curtis E. Espeland, Executive Vice President and Chief Financial Officer, for the quarter ended September 30, 2016

32.01 *		Section 1350 Certification by Mark J. Costa, Chief Executive Officer, for the quarter ended September 30, 2016

32.02 *		Section 1350 Certification by Curtis E. Espeland, Executive Vice President and Chief Financial Officer, for the quarter ended September 30, 2016

101.INS *		XBRL Instance Document

101.SCH *		XBRL Taxonomy Extension Schema Document

101.CAL *		XBRL Taxonomy Calculation Linkbase Document

101.DEF *		XBRL Definition Linkbase Document

101.LAB *		XBRL Taxonomy Label Linkbase Document

101.PRE *		XBRL Presentation Linkbase Document

* Denotes exhibit filed or furnished herewith.

** Management contract or compensatory plan or arrangement filed pursuant to Item 601(b)(10)(iii) of Regulation S-K.

Exhibit 10.01

EXECUTION VERSION

AMENDMENT NO. 12 TO

AMENDED AND RESTATED RECEIVABLES PURCHASE AGREEMENT

THIS AMENDMENT NO. 12 TO AMENDED AND RESTATED RECEIVABLES PURCHASE AGREEMENT , dated as of August 31, 2016 (this “ Amendment ”), amends that certain AMENDED AND RESTATED RECEIVABLES PURCHASE AGREEMENT dated as of July 9, 2008 (as amended by Amendment No. 1 to Amended and Restated Receivables Purchase Agreement dated as of September 15, 2008, Amendment No. 2 to Amended and Restated Receivables Purchase Agreement dated as of February 18, 2009, Amendment No. 3 to Amended and Restated Receivables Purchase Agreement dated as of July 8, 2009, Amendment No. 4 to Amended and Restated Receivables Purchase Agreement dated as of January 29, 2010, Amendment No. 5 to Amended and Restated Receivables Purchase Agreement dated as of July 7, 2010, Omnibus Amendment (Amendment No. 1 to Second Amended and Restated Receivables Purchase and Sale Agreement and Amendment No. 6 to Amended and Restated Receivables Purchase Agreement and Partial Release) dated as of January 31, 2011, Amendment No. 7 to Amended and Restated Receivables Purchase Agreement dated as of July 6, 2011, Amendment No. 8 to Amended and Restated Receivables Purchase Agreement dated as of April 30, 2012, Amendment No. 9 to Amended and Restated Receivables Purchase Agreement dated as of August 1, 2013, Amendment No. 10 to Amended and Restated Receivables Purchase Agreement dated as of August 29, 2014, Letter Agreement dated as of March 16, 2015, Amendment No. 11 to Amended and Restated Receivables Purchase Agreement dated as of July 8, 2015 (as so amended, the “ Existing Agreement ”, and the Existing Agreement, as amended hereby and as it may be further amended, restated, supplemented or otherwise modified from time to time, the “ Agreement ”), by and among EASTMAN CHEMICAL FINANCIAL CORPORATION , a Delaware corporation, as Seller (in such capacity, the “ Seller ”) and as initial Servicer (in such capacity, the “ Initial Servicer ”), VICTORY RECEIVABLES CORPORATION (“ Victory ”), and THE BANK OF TOKYO-MITSUBISHI UFJ, LTD., NEW YORK BRANCH as a Victory Liquidity Bank (in such capacity, the “ Victory Liquidity Bank ”), Victory Agent (in such capacity, the “ Victory Agent ”) and as administrative agent (in such capacity, the “ Administrative Agent ”). Capitalized terms used and not otherwise defined herein shall have the meanings given to such terms in the Agreement.

Recitals:

WHEREAS, the parties hereto are party to the Agreement, pursuant to which, from time to time during the term thereof, the Seller may transfer and assign Receivable Interests to the Administrative Agent for the benefit of the Purchasers, in each case, on the terms and conditions set forth in the Agreement; and

WHEREAS, the parties hereto wish to amend the Agreement as further provided herein.

NOW, THEREFORE, for good and valuable consideration, the sufficiency of which is hereby acknowledged, the parties hereby agree as follows:


SECTION 1.	Amendment .


(a)	Each reference to “the Originator” or “Originator” in the Existing Agreement is hereby amended to read as “each Originator” or “any Originator”, as applicable.

Exhibit 10.01


(b)	Section 5.1(l) of the Existing Agreement is hereby amended and restated in its entirety to read as follows:

Actions, Suits . Except as set forth in the most recent Annual Report of Eastman Chemical Company on Form 10-K or in any document filed pursuant to Section 13(a), 14 or 15 of the Securities and Exchange Act of 1934 or in the financial statements delivered to the Administrative Agent and the Co-Agents from time to time, there are no actions, suits or proceedings pending, or to the best of such Seller Party’s knowledge, threatened, against or affecting such Seller Party, or any of the properties of such Seller Party, in or before any court, arbitrator or other body, which are reasonably likely to have a Material Adverse Effect of the types described in clauses (i)-(v) of the definition of “Material Adverse Effect.” Such Seller Party is not in default with respect to any order of any court, arbitrator or governmental or regulatory body.


(c)	Section 5.1(o) of the Existing Agreement is hereby amended and restated in its entirety to read as follows:

Ownership of the Seller . Eastman Chemical Company owns, directly or indirectly, 100% of the issued and outstanding capital stock of the Seller, free and clear of any Adverse Claim. Such capital stock is validly issued, fully paid and nonassessable, and there are no options, warrants or other rights to acquire securities of the Seller.


(d)	Section 7.1(k)(ix) of the Existing Agreement is hereby amended and restated in its entirety to read as follows:

prepare financial statements that are separate from those of any Originator and insure that any consolidated financial statements of any Originator or any Affiliate thereof that include the Seller have detailed notes clearly stating that the Seller is a separate corporate entity and that its assets will be available first and foremost to satisfy the claims of the creditors of the Seller;


(e)	Section 7.1(k)(xii) of the Existing Agreement is hereby amended and restated in its entirety to read as follows:

take such other actions as are necessary on its part to ensure that the facts and assumptions set forth in the opinion issued by Jones Day, as counsel for the Seller, in connection with Amendment No. 12 dated as of August 31, 2016 to this Agreement and relating to substantive consolidation issues, and in the certificates accompanying such opinion, remain true and correct in all material respects at all times.


(f)	Section 8.2(d) of the Existing Agreement is hereby amended and restated in its entirety to read as follows:

The Servicer shall hold in trust for the Seller and the Purchasers, in accordance with their respective interests in the Receivables, all Records that evidence or relate to the Receivables, the related Invoices and Related Security or that are otherwise necessary to collect the Receivables and shall, as soon as practicable upon demand of the Administrative Agent at the direction of the Co-Agents, deliver or make available to the Administrative Agent all such Records, (x) if such demand is made at any time prior to the replacement of Eastman Chemical Financial Corporation as Servicer hereunder, at the chief executive office of Eastman Chemical Company and (y) if such demand is made at any time after the replacement of Eastman Chemical Financial Corporation as Servicer hereunder, to such location as the Administrative Agent may designate in writing. The Servicer shall, as soon as practicable following receipt thereof, turn over to the Seller (i) that portion of Collections of Receivables representing the Seller’s undivided fractional ownership or security interest therein, and (ii) any cash collections or other cash proceeds received with respect to indebtedness not constituting Receivables. The Servicer shall, from time to time at the request of any Purchaser, furnish to the Purchasers (promptly after any such request) a calculation of the amounts set aside for the Purchasers pursuant to Section 3.3 .

Exhibit 10.01


(g)	The address for notices in Seller’s signature page to the Existing Agreement is hereby amended and restated in its entirety to read as follows:

Address for Notices:

Attention:

Telephone:

Fax:

E-mail:


(h)	The address for notices in Victory’s signature page to the Existing Agreement is hereby amended and restated in its entirety to read as follows:

Address for Notices:

Attention:

Telephone:

Fax:

Email:


(i)	The definition of “ Change of Control ” in Exhibit I to the Existing Agreement is hereby amended and restated in its entirety to read as follows:

“ Change of Control ” means:

(a) a change in control of Eastman Chemical Company of a nature that would be required to be reported (assuming such event has not been previously reported) in response to Item 1(a) of the Current Report on Form 8-K, pursuant to Section 13 or 15(d) of the Exchange Act; provided that, without limitation, a Change in Control shall be deemed to have occurred at such time as (i) any “person” within the meaning of Section 14(d) of the Exchange Act, other than Eastman Chemical Company, a Subsidiary of Eastman Chemical Company, or any employee benefit plan(s) sponsored by Eastman Chemical Company or any Subsidiary of Eastman Chemical Company, is or has become the “beneficial owner,” as defined in Rule 13d-3 under the Exchange Act, directly or indirectly, of 30% or more of the combined voting power of the outstanding securities of Eastman Chemical Company ordinarily having the right to vote at the election of directors, or (ii) individuals who constituted the Board of Directors of Eastman Chemical Company on the date of this Agreement (the “Incumbent Board”) have ceased for any reason to constitute at least a majority thereof; provided further that any person becoming a director subsequent to the date of this Agreement whose election, or nomination for election by Eastman Chemical Company’s shareholders, was approved by a vote of at least a majority of the directors comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of Eastman Chemical Company in which such person is named as a nominee for director without objection to such nomination) shall be, for purposes of this definition, considered as though such person were a member of the Incumbent Board; or

(b) Eastman Chemical Company shall cease to own directly, free and clear of all Adverse Claims, all of the outstanding shares of voting stock of the Seller on a fully-diluted basis; or

Exhibit 10.01

(c) Eastman Chemical Company shall cease to own directly or indirectly, free and clear of all Adverse Claims, all of the outstanding shares of voting stock or partnership interests, as applicable, of Solutia Inc. and Flexsys America L.P. on a fully-diluted basis.


(j)	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:

“ Co-Agents’ Fee Letter ” means that certain Fourth Amended and Restated Co-Agents’ Fee Letter dated as of August 31, 2016 between the Seller and BTMU, as amended, restated and/or otherwise modified from time to time.


(k)	Section (a) of the definition of “ Concentration Limit ” in Exhibit I to the Existing Agreement is hereby amended and restated in its entirety to read as follows:

for all Receivables that require payment (i) within 66-90 days after the original invoice date therefor, an amount equal to 15% of the aggregate Outstanding Balance of all Eligible Receivables at such time, and (ii) within 91-120 days after the original invoice date therefor, an amount equal to 5% of the aggregate Outstanding Balance of all Eligible Receivables at such time;


(l)	The definition of “ Credit Agreement ” in Exhibit I to the Existing Agreement is hereby amended and restated in its entirety to read as follows:

“Credit Agreement” means that certain Second Amended and Restated Five-Year Credit Agreement dated as of October 9, 2014 by and among Eastman Chemical Company, the lenders and issuing banks from time to time party thereto, Citigroup Global Markets Inc. and J.P. Morgan Securities LLC, as joint lead arrangers, JPMorgan Chase Bank, N.A., as syndication agent, Bank of America, N.A., Barclays Bank PLC, The Royal Bank of Scotland PLC and Wells Fargo Bank, National Association, as documentation agents, and Citibank, N.A., as administrative agent thereunder, as the same may be amended, restated or otherwise modified or replaced from time to time.


(m)	The definition of “ Existing Concentration Account ” in Exhibit I to the Existing Agreement is hereby amended and restated in its entirety to read as follows:

“ Existing Concentration Account ” means Eastman Chemical Company’s account no [ ], or any account established in substitution therefor upon not less than fifteen (15) Business Days’ prior written notice to the Administrative Agent, accompanied by any necessary amendments to Collection Agreements which reference funds being swept or transferred each Business Day from Collection Accounts into such existing concentration account.


(n)	The definition of “ LIBOR ” in Exhibit I to the Existing Agreement is hereby amended by inserting the following sentence at the end thereof:

Notwithstanding the foregoing, in no event shall LIBOR be less than zero.


(o)	The definition of “ Liquidity Termination Date ” in Exhibit I to the Existing Agreement is hereby amended and restated in its entirety to read as follows:

“ Liquidity Termination Date ” means April 29, 2019.


(p)	The definition of “ Originator ” in Exhibit I to the Existing Agreement is hereby amended and restated in its entirety to read as follows:

“ Originator ” means each of Eastman Chemical Company, a Delaware corporation, Solutia Inc., a Delaware corporation, and Flexsys America L.P., a Delaware limited partnership.

Exhibit 10.01


(q)	The definition of “ Performance Indemnitor ” in Exhibit I to the Existing Agreement is hereby amended and restated in its entirety to read as follows:

“ Performance Indemnitor ” means Eastman Chemical Company.


(r)	The definition of “ Performance Indemnity ” in Exhibit I to the Existing Agreement is hereby amended and restated in its entirety to read as follows:

“ Performance Indemnity ” means an Amended and Restated Performance Indemnity in the form of Exhibit VIII hereto, duly executed by the Performance Indemnitor in favor of the Administrative Agent and the Purchasers, as amended, restated, supplemented or otherwise modified from time to time, in each case with the consent of the Administrative Agent.


(s)	The definition of “ Sale Agreement ” in Exhibit I to the Existing Agreement is hereby amended and restated in its entirety to read as follows:

“ Sale Agreement ” means that certain Third Amended and Restated Receivables Purchase and Sale Agreement dated as of August 31, 2016, by and between each Originator, as seller, and the Seller, as buyer, as the same may be further amended, restated and/or otherwise modified from time to time in accordance with the terms thereof and hereof.


(t)	Exhibit III to the Existing Agreement is hereby deleted and replaced with Exhibit III hereto.


SECTION 2.	Representations and Warranties.

As of the date hereof, the Seller makes, for the benefit of the Administrative Agent for the benefit of the Purchasers, the following representations and warranties: (i) each of the representations and warranties set forth in Section 5.1 of the Agreement (in each case, as each such representation and warranty has been amended hereby), (ii) the Seller has the corporate power and authority to execute, deliver and carry out the terms and provisions of this Amendment (and the Agreement as amended by this Amendment), (iii) the Seller has taken all necessary corporate action to authorize its execution, delivery and performance of this Amendment (and the Agreement as amended by this Amendment), and (iv) the Seller has duly executed and delivered this Amendment, and each of this Amendment (and the Agreement as amended by this Amendment) constitutes the Seller’s legal, valid and binding obligation, enforceable in accordance with the terms of each such document, except as enforcement thereof may be subject to (x) the effect of any applicable bankruptcy, insolvency, reorganization, moratorium or similar law affecting creditors’ rights generally and (y) general principles of equity (regardless of whether such enforcement is sought in a proceeding in equity or at law).


SECTION 3.	Consent .

Pursuant to Section 7.2(f) of the Agreement, the Administrative Agent hereby consents to execution by the Seller of the Third Amended and Restated Receivables Purchase and Sale Agreement, dated as of the date hereof, by and among Eastman Chemical Company, Solutia Inc., Flexsys America L.P. and the Seller.


SECTION 4.	Miscellaneous .


(a)	Costs and Expenses . Seller agrees to pay on demand all reasonable costs and expenses in connection with the preparation, execution and delivery of this Amendment, including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for the Administrative Agent with respect thereto.

(b)

Counterparts . This Amendment may be executed in any number of counterparts, and by the different parties hereto on separate counterparts; each such counterpart shall be deemed an original and all of such counterparts taken together shall be deemed to constitute one and the same instrument. A facsimile or electronic copy of an executed counterpart of this Amendment shall be effective as an original for all purposes.

Exhibit 10.01

(c)

Effect; Transaction Document. Upon (i) the execution and delivery of this Amendment, (ii) payment by Seller to the Victory Agent of all amounts payable under the Fourth Amended and Restated Co-Agents’ Fee Letter entered into on the date hereof in connection herewith, and (iii) the execution and/or delivery of each other document listed on the closing checklist attached hereto as Schedule I in form and substance satisfactory to the Administrative Agent, the Agreement shall be and be deemed to be amended as set forth in this Amendment. All of the provisions of the Agreement shall remain in full force and effect as so amended. This Amendment shall be deemed to be a Transaction Document for all purposes (including, without limitation, for the purposes of each of the representations and warranties in Section 5.1 of the Agreement).


(d)	Governing Law . This Amendment shall be governed by and construed in accordance with the Laws of the State of New York without regard to the principles of conflicts of law thereof (other than Sections 5-1401 and 5-1402 of the New York General Obligations Law).


(e)	Consent to Jurisdiction . Any litigation based hereon, or arising out of, under or in connection with this Amendment may be brought and maintained in the courts of the State of New York sitting in New York County, New York or in the United States district court for the Southern District of New York.

(f)

WAIVER OF JURY TRIAL . EACH PARTY HERETO HEREBY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AMENDMENT OR ANY APPLICATION, INSTRUMENT, DOCUMENT, AMENDMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR ARISING FROM ANY BANKING RELATIONSHIP EXISTING IN CONNECTION WITH THIS AMENDMENT, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.

[Signature page follows]

Exhibit 10.01

IN WITNESS WHEREOF , the parties have executed this Amendment by their undersigned, duly authorized officers on the date first above written:

EASTMAN CHEMICAL FINANCIAL CORPORATION ,

as Seller and as Initial Servicer


By:

Name:

Title:

Exhibit 10.01

THE BANK OF TOKYO-MITSUBISHI UFJ, LTD., NEW YORK BRANCH,

as Victory Agent and as Administrative Agent


By:

Name:

Title:

Exhibit 10.01

THE BANK OF TOKYO-MITSUBISHI UFJ, LTD., NEW YORK BRANCH,

as a Victory Liquidity Bank


By:

Name:

Title:

Exhibit 10.01

SCHEDULE I

Closing Checklist

Attached.

Exhibit 10.02

EXECUTION COPY

AMENDMENT NO. 2 TO THE

CREDIT AGREEMENT

Dated as of August 31, 2016

AMENDMENT NO. 2 TO THE CREDIT AGREEMENT among EASTMAN CHEMICAL COMPANY, a Delaware corporation (the “ Company ”), the banks, financial institutions and other institutional lenders parties to the Credit Agreement referred to below (collectively, the “ Lenders ”) and CITIBANK, N.A., as agent (the “ Agent ”) for the Lenders.

PRELIMINARY STATEMENTS:

(1) The Company, the Lenders and the Agent have entered into a Second Amended and Restated Five Year Credit Agreement dated as of October 9, 2014 (as amended by the amendment thereto dated as of October 9, 2015, the “ Credit Agreement ”). Capitalized terms not otherwise defined in this Amendment have the same meanings as specified in the Credit Agreement.

(2) Pursuant to Section 2.20 of the Credit Agreement, the Company has requested that the Termination Date be extended from October 9, 2020 to October 9, 2021.

(3) The Company and the Required Lenders have agreed to amend the Credit Agreement as hereinafter set forth.

SECTION 1. Amendments to Credit Agreement . The Credit Agreement is, effective as of the date hereof and subject to the satisfaction of the conditions precedent set forth in Section 3, hereby amended as follows:

(a) Section 1.01 is amended by inserting in the appropriate alphabetical location the new defined term:

“ Bail-In Action ” has the meaning specified in Section 9.20.

(b) Clause (c) of the definition of “Base Rate” in Section 1.01 is amended in full to read as follows:

(c) the rate calculated by the Intercontinental Exchange Benchmark Administration Ltd (ICE) (or the successor thereto if the ICE Benchmark Administration is no longer making such a rate available) appearing on the Reuters LIBOR01 page (or on any successor or substitute page of such service) at approximately 11:00 a.m. London time on such day or, if no such rate is published on such day, the next preceding day on which a rate is published) applicable to Dollars for a period of one month (“One Month LIBOR”) plus 1.00%; provided that, if One Month LIBOR shall be less than zero, such rate shall be deemed to be zero for purposes of this Agreement.

(c) The definition of “Federal Funds Rate” in Section 1.01 is amended by deleting the phrase “arranged by Federal funds brokers” and adding a proviso at the end thereof to read as follows:

; provided that, if the Federal Funds Rate shall be less than zero, such rate shall be deemed to be zero for purposes of this Agreement.

(d) The definition of “Lender Insolvency Event” in Section 1.01 is amended by deleting the phrase “the subject of a bankruptcy, insolvency, reorganization, liquidation or similar proceeding” and substituting therefor the phrase “the subject of a bankruptcy, insolvency, reorganization, liquidation or similar proceeding or a Bail-In Action”.

(e) Section 2.21(a)(i) is amended by adding immediately after the word “provided” following clause (D) thereof the phrase “subject to Section 9.20,”.

(f) A new Section 9.20 is added to read as follows:

Exhibit 10.02

SECTION 9.20. Acknowledgement and Consent to Bail-In of EEA Financial Institutions . Notwithstanding anything to the contrary in this Agreement or in any other agreement, arrangement or understanding among any such parties, each party hereto acknowledges that any liability of any EEA Financial Institution arising under this Agreement, to the extent such liability is unsecured, may be subject to the Write-Down and Conversion Powers of an EEA Resolution Authority and agrees and consents to, and acknowledges and agrees to be bound by:

(a) the application of any Write-Down and Conversion Powers by an EEA Resolution Authority to any such liabilities arising hereunder which may be payable to it by any party hereto that is an EEA Financial Institution; and

(b) the effects of any Bail-In Action on any such liability, including, if applicable:

(i) a reduction in full or in part or cancellation of any such liability;

(ii) a conversion of all, or a portion of, such liability into shares or other instruments of ownership in such EEA Financial Institution, its parent undertaking, or a bridge institution that may be issued to it or otherwise conferred on it, and that such shares or other instruments of ownership will be accepted by it in lieu of any rights with respect to any such liability under this Agreement; or

(iii) the variation of the terms of such liability in connection with the exercise of the Write-Down and Conversion Powers of any EEA Resolution Authority.

As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined):

“ Bail-In Action ” means the exercise of any Write-Down and Conversion Powers by the applicable EEA Resolution Authority in respect of any liability of an EEA Financial Institution.

“ Bail-In Legislation ” means, with respect to any EEA Member Country implementing Article 55 of Directive 2014/59/EU of the European Parliament and of the Council of the European Union, the implementing law for such EEA Member Country from time to time which is described in the EU Bail-In Legislation Schedule.

“ EEA Financial Institution ” means (a) any credit institution or investment firm established in any EEA Member Country which is subject to the supervision of an EEA Resolution Authority, (b) any entity established in an EEA Member Country which is a parent of an institution described in clause (a) of this definition, or (c) any financial institution established in an EEA Member Country which is a subsidiary of an institution described in clauses (a) or (b) of this definition and is subject to consolidated supervision with its parent.

“ EEA Member Country ” means any of the member states of the European Union, Iceland, Liechtenstein, and Norway.

“ EEA Resolution Authority ” means any public administrative authority or any Person entrusted with public administrative authority of any EEA Member Country (including any delegee) having responsibility for the resolution of any EEA Financial Institution.

“ EU Bail-In Legislation Schedule ” means the EU Bail-In Legislation Schedule published by the Loan Market Association (or any successor Person), as in effect from time to time.

“ Loan Market Association ” means the London trade association, which is the self-described authoritative voice of the syndicated loan markets in Europe, the Middle East and Africa.

“ Write-Down and Conversion Powers ” means, with respect to any EEA Resolution Authority, the write-down and conversion powers of such EEA Resolution Authority from time to time under the Bail-In Legislation for the applicable EEA Member Country, which write-down and conversion powers are described in the EU Bail-In Legislation Schedule.

Exhibit 10.02

SECTION 2. Consent to Extension Request . Each Lender so indicating on its signature page to this Amendment agrees to extend the Termination Date with respect to its Commitment(s) for a period of one year, expiring October 9, 2021. This agreement to extend the Termination Date is subject in all respects to the terms of the Credit Agreement. For the avoidance of doubt, upon satisfaction of the applicable conditions set forth in Section 3.03 of the Credit Agreement, the extension of the Termination Date of each Consenting Lender shall be effective on October 9, 2016.

SECTION 3. Conditions of Effectiveness . This Amendment shall become effective as of the date first above written when, and only when, the Agent shall have received counterparts of this Amendment executed by the Company and the Required Lenders.

SECTION 4. Representations and Warranties of the Company . The Company represents and warrants that (i) the representations and warranties contained in Section 4.01 of the Credit Agreement are correct on and as of the date hereof, as though made on and as of the date hereof (or, if any such representation or warranty is expressly stated to have been made as of a specific date, as of such specific date) and (ii) no Default has occurred and is continuing.

SECTION 5. Reference to and Effect on the Credit Agreement and the Notes . (a) On and after the effectiveness of this Amendment, each reference in the Credit Agreement to “this Agreement”, “hereunder”, “hereof” or words of like import referring to the Credit Agreement, and each reference in the Notes to “the Credit Agreement”, “thereunder”, “thereof” or words of like import referring to the Credit Agreement, shall mean and be a reference to the Credit Agreement, as amended by this Amendment.

(b) The Credit Agreement and the Notes, as specifically amended by this Amendment, are and shall continue to be in full force and effect and are hereby in all respects ratified and confirmed.

(c) The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of any Lender or the Agent under the Credit Agreement or any Notes, nor constitute a waiver of any provision of the Credit Agreement or any Notes.

(d) This Amendment is subject to the provisions of Section 9.01 of the Credit Agreement.

SECTION 6. Costs and Expenses . The Company agrees to pay on demand all costs and expenses of the Agent in connection with the preparation, execution, delivery and administration, modification and amendment of this Amendment (including, without limitation, the reasonable fees and expenses of counsel for the Agent) in accordance with the terms of Section 9.04 of the Credit Agreement.

SECTION 7. Execution in 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 taken together shall constitute but one and the same agreement. Delivery of an executed counterpart of a signature page to this Amendment by telecopier shall be effective as delivery of a manually executed counterpart of this Amendment.

SECTION 8. Governing Law . This Amendment shall be governed by, and construed in accordance with, the law of the State of New York.

Exhibit 10.02

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized, as of the date first above written.

EASTMAN CHEMICAL COMPANY

By: ____________________________

Name:

Title:

CITIBANK, N.A., as Agent

By: _____________________________

Name:

Title:

Exhibit 10.02

SIGNATURE PAGE

CONSENT to Amendment No. 2 to the Second Amended and Restated Five Year Credit Agreement dated as of October 9, 2014 of EASTMAN CHEMICAL COMPANY.

Name of Lender:

_________________________________________

Name:

Title:

by ¹

_________________________________________

Name:

Title:

CONSENT to extension of Termination Date:

Name of Lender:

__________________________________________

Name:

Title:

by ²

__________________________________________

Name:

Title:

¹ For any Lender requiring a second signature line.

² For any Lender requiring a second signature line.

Exhibit 10.03

EASTMAN CHEMICAL COMPANY

2016 DIRECTOR STOCK COMPENSATION SUBPLAN

(a Subplan of the 2012 Omnibus Stock Compensation Plan)

Exhibit 10.03

EASTMAN CHEMICAL COMPANY

2016 DIRECTOR STOCK COMPENSATION SUBPLAN

(a Subplan of the 2012 Omnibus Stock Compensation Plan)

ARTICLE 1

PURPOSE

1.1. PURPOSE . The purpose of the Plan is to attract, retain and compensate highly-qualified individuals who are not employees of Eastman Chemical Company or any of its subsidiaries or affiliates for service as members of the Board by providing them with competitive compensation and an ownership interest in the Stock of the Company. The Company intends that the Plan will benefit the Company and its stockholders by allowing Non-Employee Directors to have a personal financial stake in the Company through an ownership interest in the Stock and will closely associate the interests of Non-Employee Directors with that of the Company’s stockholders. The Plan replaces and supersedes the 2015 Director Stock Compensation Subplan of the 2012 Omnibus Stock Compensation Plan.

1.2. ELIGIBILITY . Non-Employee Directors of the Company who are Eligible Participants, as defined below, shall automatically be participants in the Plan.

ARTICLE 2

DEFINITIONS

2.1. DEFINITIONS . Capitalized terms used herein and not otherwise defined shall have the meanings assigned such terms in the Omnibus Plan. Unless the context clearly indicates otherwise, the following terms shall have the following meanings:


(a)	“Committee” means the Nominating and Corporate Governance Committee of the Board.


(b)	“Deferred Compensation Plan” means the Eastman Directors’ Deferred Compensation Plan, as amended and restated October 6, 2016.


(c)	“Deferral Election Form” means the form designated by the Committee (or the Company as agent for the Committee) for making a Stock Deferral Election pursuant to Section 5.5 of the Plan. The Deferral Election Form shall be in such written or electronic format as may be specified by the Committee (or the Company as the Committee’s agent).


(d)	“Deferral Year” means a calendar year in which an Annual Restricted Stock Award will be awarded to an Eligible Participant and for which an Eligible Participant can make a Stock Deferral Election pursuant to Section 5.5 of the Plan.


(e)	“Effective Date” of the Plan has the meaning set forth in Section 7.4 hereof.


(f)	“Election Deadline” means the deadline established by the Committee (or the Company as the Committee’s agent) for making a Stock Deferral Election with respect to a Deferral Year. The Election Deadline shall in no event be later than December 31 of the calendar year immediately preceding the Deferral Year.


(g)	“Eligible Participant” means any person who is a Non-Employee Director on the Effective Date or becomes a Non-Employee Director while this Plan is in effect; except that during any period a director is prohibited from participating in the Plan by his or her employer or otherwise waives participation in the Plan, such director shall not be an Eligible Participant.


(h)	“Omnibus Plan” means the Eastman Chemical Company 2012 Omnibus Stock Compensation Plan, or any subsequent equity compensation plan approved by the Board and designated as the Omnibus Plan for purposes of this Plan.

Exhibit 10.03


(i)	“Plan” means this Eastman Chemical Company 2016 Director Stock Compensation Subplan, as amended from time to time. The Plan is a subplan of the Omnibus Plan.


(j)	“Plan Year(s)” means the approximate twelve-month periods between annual meetings of the stockholders of the Company, which, for purposes of the Plan, are the periods for which equity Awards are earned.


(k)	Stock Deferral Election” means an election made by an Eligible Participant to defer receipt of the Annual Restricted Stock Award to be granted to the Eligible Participant during a Deferral Year.


(l)	“Vested Deferred Share” has the meaning specified in Section 5.5.

(m) “Vesting Date” has the meaning specified in Section 5.3.

ARTICLE 3

ADMINISTRATION

3.1. ADMINISTRATION . The Plan shall be administered by the Committee. Subject to the provisions of the Plan, the Committee shall be authorized to interpret the Plan, to establish, amend, and rescind any rules and regulations relating to the Plan, and to make all other determinations necessary or advisable for the administration of the Plan. The Committee’s interpretation of the Plan, and all actions taken and determinations made by the Committee pursuant to the powers vested in it hereunder, shall be conclusive and binding upon all parties concerned including the Company, its stockholders, and Non-Employee Directors with Awards under the Plan. The Committee may appoint a plan administrator to carry out the ministerial functions of the Plan, but the administrator shall have no other authority or powers of the Committee. The Board may reserve to itself any or all of the authority and responsibility of the Committee under the Plan or may act as administrator of the Plan for any and all purposes. To the extent the Board has reserved any authority and responsibility or during any time that the Board is acting as administrator of the Plan, it shall have all the powers of the Committee hereunder, and any reference herein to the Committee (other than in this Section 3.1) shall include the Board. To the extent any action of the Board under the Plan conflicts with actions taken by the Committee, the actions of the Board shall control.

3.2. RELIANCE . In administering the Plan, the Committee may rely upon any information furnished by the Company, its public accountants, and other experts. No individual will have personal liability by reason of anything done or omitted to be done by the Company or the Committee in connection with the Plan. This limitation of liability shall not be exclusive of any other limitation of liability to which any such person may be entitled under the Company’s Certificate of Incorporation or otherwise.

ARTICLE 4

4.1. SOURCE OF SHARES FOR THE PLAN . The shares of Stock that may be issued pursuant to the Plan shall be issued under the Omnibus Plan, subject to all of the terms and conditions of the Omnibus Plan. The terms contained in the Omnibus Plan are incorporated into and made a part of this Plan with respect to Restricted Stock Awards pursuant hereto and such Awards shall be governed by and construed in accordance with the Omnibus Plan. In the event of any actual or alleged conflict between the provisions of the Omnibus Plan and the provisions of this Plan, the provisions of the Omnibus Plan shall be controlling and determinative; provided that the provisions of Section 5.4 of this Plan (rather than those of Section 14.6 of the Omnibus Plan) shall control and be determinative in the event of a Change in Control. This Plan does not constitute a separate source of shares for the Awards described herein.

Exhibit 10.03

ARTICLE 5

RESTRICTED STOCK AWARDS

5.1 INITIAL AWARD OF RESTRICTED STOCK . Subject to share availability under the Omnibus Plan, on the date that a new Non-Employee Director is initially elected or appointed to the Board, such director will receive a Restricted Stock Award. The number of shares of Restricted Stock to be awarded shall be established from time to time by the Board. Unless and until changed by the Board, the number of shares of Restricted Stock to be awarded in each initial Restricted Stock Award shall be determined by dividing $10,000 by the Fair Market Value of one share of Stock as of the award date, and rounding up to the nearest whole share (the “Initial Restricted Stock Award”). Non-Employee Directors shall be eligible to receive both an Initial Restricted Stock Award and an Annual Restricted Stock Award (as defined below) in his or her initial year of service. Such shares of Restricted Stock shall be evidenced by a written Award Notice in the form at the end of this Plan and shall be subject to such restrictions and risk of forfeiture as are described in the form of Award Notice and any other restrictions and terms determined by the Board, and shall be granted under and pursuant to the terms of the Omnibus Plan.

5.2 ANNUAL AWARD OF RESTRICTED STOCK . Subject to share availability under the Omnibus Plan, on the date of each annual meeting of the Company’s stockholders, each Eligible Participant in service on the close of business on that date shall receive a Restricted Stock Award. The number of shares of Restricted Stock to be awarded shall be established from time to time by the Board. Unless and until changed by the Board, the number of shares of Restricted Stock to be awarded in each annual Restricted Stock Award for a full Plan Year shall be determined by dividing $75,000 by the Fair Market Value of one share of Stock as of the award date, and rounding up to the nearest whole share (the “Annual Restricted Stock Award”). Such shares of Restricted Stock shall be evidenced by a written Award Notice in the form at the end of this Plan and shall be subject to such restrictions and risk of forfeiture as are described in the form of Award Notice and any other restrictions and terms determined by the Board, and shall be granted under and pursuant to the terms of the Omnibus Plan.

5.3 VESTING . Unless and until provided otherwise by the Board, the Initial Restricted Stock Awards and the Annual Restricted Stock Awards shall vest and all restrictions with respect thereto shall lapse only upon the earliest to occur of: (i) the date that is one (1) year from the date of grant, but only if the Non-Employee Director is still a director of the Company immediately prior to the election of directors at the annual meeting of stockholders as of such date; (ii) the date that his or her tenure as a director of the Company terminates by reason of death, Disability, resignation effective at an annual meeting of stockholders because he or she is no longer qualified to serve as a director under Section 3.1 of the Bylaws of the Company, or for another approved reason as determined by the Committee; or (iii) the date that his or her tenure as director of the Company terminates by reason of his or her failure to be reelected as a director in an election in which he or she consented to be named as a director nominee (each, a “Vesting Date”). If the grantee’s service as a director of the Company (whether or not in a Non-Employee Director capacity) terminates prior to the first anniversary of the date of grant other than as described in clause (ii) or (iii) of the foregoing sentence, then the grantee shall forfeit all of his or her right, title and interest in and to any unvested shares of Restricted Stock as of the date of such termination from the Board and such shares of Restricted Stock shall be reconveyed to the Company without further consideration or any act or action by the grantee.

5.4 CHANGE IN CONTROL .

(a) Vesting of Awards . Upon a Change in Control: (i) the terms of this Section 5.4 shall immediately become operative, without further action or consent by any person or entity; (ii) all conditions, restrictions, and limitations in effect on Restricted Stock Awards pursuant to this Plan shall immediately lapse as of the date of such event; (iii) no other terms, conditions, restrictions or limitations shall be imposed upon any such Awards on or after such date, and in no circumstance shall such Awards be forfeited on or after such date; and (iv) all such Awards shall automatically become one hundred percent (100%) vested immediately.

(b) Valuation and Payment of Awards . Upon a Change in Control, each Non-Employee Director, whether or not continuing in service as a director of the Company in any capacity, shall be paid, in a single lump-sum cash payment, as soon as practicable but in no event later than seventy-five (75) days after the effective date of the Change in Control, the value of all of his or her outstanding Restricted Stock Awards. For purposes of calculating the cash-out value of Awards for purposes of this Section 5.4, the Fair Market Value of Shares as of the date of the Change in Control shall be used as the Fair Market Value of the Shares.

Exhibit 10.03

5.5 DEFERRAL OF RESTRICTED STOCK AWARDS.

(a) An Eligible Participant may elect to defer receipt of the whole shares of Restricted Stock granted to the Eligible Participant during a Deferral Year as an Annual Restricted Stock Award. Such a Stock Deferral Election shall be made by the Eligible Participant by filing with the Committee (or with the Company as the Committee’s agent) a Deferral Election Form on or before the Election Deadline for the Deferral Year. A Stock Deferral Election shall become irrevocable on the first day of the Deferral Year to which it relates.

(b) The shares of Restricted Stock under an Annual Restricted Stock Award for which a Stock Deferral Election is made under this Section 5.5 and which became vested pursuant to Section 5.3 (“Vested Deferred Shares”) shall be converted as of the Vesting Date to a credit under the Deferred Compensation Plan and shall be credited to an account under that plan. The amount credited to the Deferred Compensation Plan for the Vested Deferred Shares shall be equal to the Fair Market Value of such Vested Deferred Shares, determined as of the Vesting Date. No shares of Stock shall be issued with respect to the Vested Deferred Shares. An Eligible Participant’s rights with respect to amounts credited to the Deferred Compensation Plan with respect to Vested Deferred Shares shall be governed by the terms of the Deferred Compensation Plan.


(c)	An Eligible Participant who does not submit a valid Deferral Election Form to the Committee (or the Company as the Committee’s agent) on or before the Election Deadline for the Deferral Year shall have issued to him or her a certificate or certificates for unrestricted shares of Stock in accordance with the terms of his or her Award Notice and the terms of this Plan and the Omnibus Plan.

ARTICLE 6

AMENDMENT, MODIFICATION, AND TERMINATION

6.1. AMENDMENT, MODIFICATION AND TERMINATION . The Board may, at any time and from time to time, amend, modify, or terminate the Plan without stockholder approval; provided, however, that if an amendment to the Plan would, in the reasonable opinion of the Board, require stockholder approval under applicable laws, policies, or regulations or the applicable listing or other requirements of a securities exchange on which the Stock is listed or traded, then such amendment shall be subject to stockholder approval; and provided further, that the Board may condition any other amendment or modification on the approval of stockholders of the Company for any reason.

ARTICLE 7

GENERAL PROVISIONS

7.1. ADJUSTMENTS . The adjustment provisions of the Omnibus Plan shall apply with respect to Awards outstanding or to be awarded or granted pursuant to this Plan.

7.2. DURATION OF THE PLAN . The Plan shall remain in effect until terminated by the Board or until the earlier termination of the Omnibus Plan.

7.3. EXPENSES OF THE PLAN . The expenses of administering the Plan shall be borne by the Company.

7.4. EFFECTIVE DATE . The Plan was adopted by the Board on October 5, 2016, and became effective on that date (the “Effective Date”).

Exhibit 10.03

FORM OF NOTICE OF RESTRICTED STOCK AWARDS

UNDER THE EASTMAN CHEMICAL COMPANY

2016 DIRECTOR STOCK COMPENSATION SUBPLAN

OF THE 2012 OMNIBUS STOCK COMPENSATION PLAN

Grantee:

Number of Restricted Shares:

Date of Award:

1. Award of Restricted Stock . Eastman Chemical Company (“Company”) has granted to you, under the 2016 Director Stock Compensation Subplan of the 2012 Eastman Chemical Company Omnibus Stock Compensation Plan (the “Plan”), the number of Restricted Shares shown above (“Restricted Stock”) of its $.01 par value Common Stock (“Common Stock”) to be held as restricted stock under the terms of the Plan and this Award Notice (“Award Notice”). The Plan is incorporated herein by reference and made a part of this Award Notice. Capitalized terms not defined herein shall have the respective meanings set forth in the Plan.

2. Lapse of Restrictions . The restrictions on transfer described below with respect to the Restricted Stock awarded to you hereunder will lapse upon the “Vesting Date”, which shall be the earliest of: (a) 4:00 p.m., Eastern Time, the first anniversary of the Date of Award, if and only if you are still a director of the Company immediately prior to the election of directors at the annual meeting of stockholders at the end of such one-year period; or (b) the date that your tenure as a director of the Company terminates by reason of death, disability, resignation effective at an annual meeting of stockholders because you are no longer qualified to serve as a director under Section 3.1 of the Bylaws of the Company, or for another approved reason as determined by the Nominating and Corporate Governance Committee of the Board of Directors ; or (c) the date that your tenure as a director of the Company terminates by reason of completion of your then-current term in office and you fail to be reelected as a director to another term.

3. Book-Entry Registration . The Restricted Stock awarded pursuant to this Award Notice initially will be evidenced by book-entry registration only, without the issuance of a certificate representing such shares.

4. Issuance of Shares . Subject to the provisions of Sections 7 and 11 of this Award Notice, the Company shall, provided that the conditions to vesting specified in Section 2 of this Award Notice are satisfied, issue a certificate or certificates for unrestricted shares of Common Stock equal to the number of shares of Restricted Stock as promptly as practicable following the Vesting Date.

5. Restrictions on Transfer of Shares . Shares of Restricted Stock awarded under the Plan, and the right to vote such shares and to receive dividends thereon, may not, except as otherwise provided in the Plan, be sold, assigned, transferred, pledged, or encumbered in any way prior to the Vesting Date, whether by operation of law or otherwise, except by will or the laws of descent and distribution. After the Vesting Date, the unrestricted shares of Common Stock may be issued during your lifetime only to you, except in the case of a permanent disability involving mental incapacity.

6. Rights as a Stockholder . Except as otherwise provided in the Plan or this Award Notice, prior to the Vesting Date, you will have all of the other rights of a stockholder with respect to the Restricted Stock, including, but not limited to, the right to receive such cash or other dividends, if any, as may be declared on such shares from time to time and the right to vote (in person or by proxy) such shares at any meeting of stockholders of the Company.

7. Termination of Tenure as a Director . Upon termination of your tenure as a director of the Company prior to the Vesting Date, all of the Restricted Stock awarded to you shall be canceled and forfeited by you to the Company without the payment of any consideration by the Company. In such event, neither you nor your successors, heirs, assigns, or personal representatives will thereafter have any further rights or interest in or with respect to such shares.

8. Change in Control . Upon a Change in Control of the Company, the provisions of Section 5.4 of the Plan shall automatically and immediately become operative with respect to the Restricted Stock.

9. No Right to Continued Position on Board . Neither the Plan, the award of Restricted Stock, nor this Award Notice, shall give you any right to remain on the Company’s Board of Directors.

Exhibit 10.03

10. Restrictions on Issuance of Shares. If at any time the Company shall determine, in its sole discretion, that listing, registration, or qualification of the shares of Restricted Stock upon any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body, is necessary or advisable as a condition to the award or issuance of certificate(s) for such Restricted Stock hereunder, such award or issuance may not be made in whole or in part unless and until such listing, registration, qualification, consent, or approval shall have been effected or obtained free of any conditions not acceptable to the Company.

11. Deferral Elections . Notwithstanding any provision of this Award Notice to the contrary, any shares of Restricted Stock for which you have made a valid deferral election, and which cease to be subject to transfer restrictions and become nonforfeitable on the Vested Date (the “Vested Deferred Shares”), shall be converted to a credit under the Eastman Directors’ Deferred Compensation Plan, in accordance with the provisions of the Plan. No certificate or certificates of Common Stock shall be issued with respect to such Vested Deferred Shares.

12. Plan Controls . In the event of any actual or alleged conflict between the provisions of the Plan and the provisions of this Award Notice, the provisions of the Plan shall be controlling and determinative.

13. Successors . This Award Notice shall be binding upon any successor of the Company, in accordance with the terms of this Award Notice and the Plan.

Exhibit 10.04

AMENDED AND RESTATED

EASTMAN DIRECTORS’ DEFERRED COMPENSATION PLAN

(Amended and Restated October 5, 2016)

EASTMAN CHEMICAL COMPANY

Exhibit 10.04

AMENDED AND RESTATED

EASTMAN DIRECTORS’ DEFERRED COMPENSATION PLAN

TABLE OF CONTENTS

Section Title Page

Preamble


Section 1.	Definitions


Section 2.	Deferral Of Compensation


Section 3.	Deferral Elections


Section 4.	Investment Performance of Accounts


Section 5.	Deferrals And Crediting Amounts To Accounts


Section 6.	Deferral Period


Section 7.	Investment Performance Elections


Section 8.	Payment Of Deferred Compensation


Section 9.	Payment Of Deferred Compensation After Death


Section 10.	Acceleration Of Payment In Certain Circumstances


Section 11.	Participant’s Rights Unsecured


Section 12.	No Right To Continued Service


Section 13.	Statement Of Account


Section 14.	Deductions


Section 15.	Administration


Section 16.	Amendment


Section 17.	Change In Control


Section 18.	Governing Law


Section 19.	Successors And Assigns


Section 20.	Compliance With Sec Regulations


Section 21.	Compliance With Section 409A

Exhibit 10.04

AMENDED AND RESTATED

EASTMAN DIRECTORS’ DEFERRED COMPENSATION PLAN

Preamble . This Amended and Restated Eastman Directors’ Deferred Compensation Plan is an unfunded, non‑qualified deferred compensation arrangement for non‑employee members of the Board of Directors of Eastman Chemical Company (the “Company”). Under this Plan, each Eligible Director is annually given an opportunity to elect to defer payment of part of his or her compensation for serving as a non-employee director. The Plan also provides an account for amounts attributable to equity compensation awards that Eligible Directors have elected to defer payment of under other Company stock compensation plans. This Plan originally was adopted effective January 1, 1994, was amended and restated December 1, 1994, May 2, 1996, October 10, 1996, August 1, 2007, December 31, 2008 (in order to comply with Code Section 409A and guidance issued thereunder), August 4, 2011, December 1, 2014 and October 5, 2016.


Section 1.	Definitions.

Section 1.1 “Account” means the account established for a Participant under the Plan. A Participant’s Account is further sub-divided into a Grandfathered Account, a Non-Grandfathered Account and a Deferred Stock Account, as well as separate Class Year Accounts.

Section 1.2 “Board” means the Board of Directors of the Company.

Section 1.3 “Board Termination Date” has the meaning described in Section 8.3(a).

Section 1.4 “Change in Control” shall have the meaning specified below.

(a)

For all purposes other than Section 17.3, the term “Change in Control” means a change in control of the Company of a nature that would be required to be reported (assuming such event has not been previously reported”) in response to Item l(a) of a Current Report on Form 8‑K, as in effect on December 31, 2001, pursuant to Section 13 or 15(d) of the Exchange Act; provided that, without limitation, a Change in Control shall be deemed to have occurred at such time as:

(i) any “person” within the meaning of Section 14(d) of the Exchange Act, other than the Company, a subsidiary of the Company, or any employee benefit plan(s) sponsored by the Company or any subsidiary of the Company, is or has become the “beneficial owner,” as defined in Rule l3d‑3 under the Exchange Act, directly or indirectly, of 25% or more of the combined voting power of the outstanding securities of the Company ordinarily having the right to vote at the election of directors; provided, however, that the following will not constitute a Change in Control: any acquisition by any corporation if, immediately following such acquisition, more than 75% of the outstanding securities of the acquiring corporation ordinarily having the right to vote in the election of directors is beneficially owned by all or substantially all of those persons who, immediately prior to such acquisition, were the beneficial owners of the outstanding securities of the Company ordinarily having the right to vote in the election of directors;

(ii) individuals who constitute the Board on January 1, 2002 (the “Incumbent Board”) have ceased for any reason to constitute at least a majority thereof, provided that: any person becoming a director subsequent to January 1, 2002 whose election, or nomination for election by the Company’s shareowners, was approved by a vote of at least three-quarters (3/4) of the directors comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director without objection to such nomination) shall be, for purposes of this Plan, considered as though such person were a member of the Incumbent Board;

(iii) upon approval by the Company’s shareowners of a reorganization, merger or consolidation, other than one with respect to which all or substantially all of those persons who were the beneficial owners, immediately prior to such reorganization, merger or consolidation, of outstanding securities of the Company ordinarily having the right to vote in the election of directors own, immediately after such transaction, more than 75% of the outstanding securities of the resulting corporation ordinarily having the right to vote in the election of directors; or

(iv) upon approval by the Company’s stockholders of a complete liquidation and dissolution of the Company or the sale or other disposition of all or substantially all of the assets of the Company other than to a subsidiary of the Company.

Exhibit 10.04


(b)	For purposes of Section 17.3 only, a “Change in Control” shall be deemed to have occurred at such time as:

(i) any “person” within the meaning of Section 14(d) of the Exchange Act, other than the Company, a subsidiary of the Company, or any employee benefit plan(s) sponsored by the Company or any subsidiary of the Company, becomes or has become the “beneficial owner,” as defined in Rule l3d‑3 under the Exchange Act, directly or indirectly, of more than 50% of the total fair market value or the combined voting power of the outstanding securities of the Company ordinarily having the right to vote at the election of directors; provided, however, that the following will not constitute a Change in Control: any acquisition by any corporation if, immediately following such acquisition, 50% or more of the outstanding securities of the acquiring corporation ordinarily having the right to vote in the election of directors is beneficially owned by all or substantially all of those persons who, immediately prior to such acquisition, were the beneficial owners of the outstanding securities of the Company ordinarily having the right to vote in the election of directors;

(ii) any “person” within the meaning of Section 14(d) of the Exchange Act, other than the Company, a subsidiary of the Company, or any employee benefit plan(s) sponsored by the Company or any subsidiary of the Company, becomes (or has become during the 12-consecutive-month period ending on the date of the most recent acquisition or acquisitions by such person) the “beneficial owner,” as defined in Rule l3d‑3 under the Exchange Act, directly or indirectly, of 30% or more of the combined voting power of the outstanding securities of the Company ordinarily having the right to vote at the election of directors; provided, however, that the following will not constitute a Change in Control: any acquisition by any corporation if, immediately following such acquisition, more than 70% of the outstanding securities of the acquiring corporation ordinarily having the right to vote in the election of directors is beneficially owned by all or substantially all of those persons who, immediately prior to such acquisition, were the beneficial owners of the outstanding securities of the Company ordinarily having the right to vote in the election of directors;

(iii) individuals who constitute the Board on January 1, 2002 (the “Incumbent Board”) are replaced during a 12-consecutive-month period such that the Incumbent Board is no longer a majority of the Board, provided that: any person becoming a director subsequent to January 1, 2002 whose election, or nomination for election by the Company’s shareowners, was approved by a vote of at least three-quarters (3/4) of the directors comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director without objection to such nomination) shall be, for purposes of this Plan, considered as though such person were a member of the Incumbent Board; or

(iv) there occurs a reorganization, merger or consolidation, other than one with respect to which all or substantially all of those persons who were the beneficial owners, immediately prior to such reorganization, merger or consolidation, of outstanding securities of the Company ordinarily having the right to vote in the election of directors own, immediately after such transaction, 50% or more of the outstanding securities of the resulting corporation ordinarily having the right to vote in the election of directors.

Notwithstanding anything in this Plan to the contrary, no event or series of events will be deemed to constitute a “Change in Control” for purposes of this subsection (b) unless both (i) the event or series of events constitutes a “change in control event” as defined under Section 409A and the Final 409A Regulations and (ii) the event or series of events would have constituted a Change in Control as defined under the Plan as in effect immediately prior to this amendment and restatement of the Plan.

Section 1.5 “Class Year” means each calendar year. Notwithstanding the foregoing, the “2004 Class Year” includes all amounts deferred into this Plan in 2004 and in any calendar years prior to 2004, plus any earnings accruing to the Participant’s 2004 Class Year.

Section 1.6 “Code” means the Internal Revenue Code of 1986, as amended.

Section 1.7 “Common Stock” means the $.01 par value common stock of the Company.

Section 1.8 “Company” means Eastman Chemical Company.

Section 1.9 “Compensation Group” shall mean the Company’s internal organization responsible for the administration of the payment of benefits under this Plan.

Exhibit 10.04

Section 1.10 “Deferrable Amount” means an amount equal to the sum of the Eligible Director’s cash compensation, including retainer, meeting fees, and any other compensation otherwise payable in cash plus any non-elective deferrals contributed to this Plan by the Company on behalf of an Eligible Director.

Section 1.11 “Deferred Stock Account” means the portion of a Participant’s Account that is attributable to the value of Vested Deferred Shares that have been deferred into this Plan pursuant to a Stock Deferral Election.

Section 1.12 “Eligible Director” means a member of the Board who is not an employee of the Company or any subsidiary of the Company.

Section 1.13 “Enrollment Period” means the period designated by the Compensation Group or the Nominating and Corporate Governance Committee each year; provided however, that such period shall end on or before December 31 of the Class Year immediately prior to the Class Year to which the Enrollment Period relates.

Section 1.14 “Exchange Act” means the Securities Exchange Act of 1934, as amended.

Section 1.15 “Final 409A Regulations” means final Treasury Regulations promulgated under Code Section 409A.

Section 1.16 “Grandfathered Account” means the value of the Account of each Participant on December 31, 2004, including (i) any amounts the Participant is entitled to receive during 2004 that have not be credited to a Participant’s Account as of December 31, 2004, and (ii) any earnings accruing to the Participant’s Grandfathered Account. For purposes of this Plan, no portion of a Participant’s Grandfathered Account shall be subject to Code Section 409A. For purposes of this Plan, the “Non-Grandfathered Account” shall equal the value of the Participant’s Account on the Participant’s Board Termination Date, minus the amount of the Participant’s Grandfathered Account. The Non-Grandfathered Account shall be subject to Code Section 409A.

Section 1.17 “Hardship” means an emergency event beyond the Participant’s control which would cause the Participant severe financial hardship if the payment of amounts from his or her Account were not approved. Any distribution for Hardship shall be limited to distributions from the Participant’s Grandfathered Account.

Section 1.18 “Initial Enrollment Period” means, for an Eligible Director who is newly elected or appointed to serve as an Eligible Director, the period ending no later than thirty (30) days after the date on which such Eligible Director was elected or appointed, and beginning on such earlier date as may be established by the Compensation Group. An Eligible Director who is re-elected or re-appointed to the Board after a period of not having been a member of the Board may enroll during the Initial Enrollment Period only if he or she was not eligible to participate in this Plan at any time during the twenty-four (24) month period prior to his re-election or re-appointment.

Section 1.19 “Nominating and Corporate Governance Committee” means the Nominating and Corporate Governance Committee of the Board.

Section 1.20 “Plan” means this amended and restated Eastman Directors’ Deferred Compensation Plan.

Section 1.21 “Participant” means an Eligible Director who elects for one or more Class Years to defer compensation pursuant to this Plan, has non-elective deferrals credited to his Account by the Company or has Vested Deferred Share Credits credited to his Account.

Section 1.22 “Section 16 Insider” means a Participant who is, with respect to the Company, subject to the reporting requirements of Section 16 of the Exchange Act.

Section 1.23 “Stock Deferral Election” means an election made by a Participant to defer receipt of all or a portion of the annual award of restricted stock made to the Participant pursuant and subject to the terms of a Company stock compensation plan (and any applicable subplan thereunder).

Section 1.24 “Stock Fund” has the meaning assigned to that term in Section 4.2.

Exhibit 10.04

Section 1.25 “Unforeseeable Emergency” means severe financial hardship of the Participant resulting from an illness or accident of the Participant, the Participant’s spouse, the Participant’s beneficiary or a dependent (as defined in Code Section 152 without regard to Code Section 152(b)(1), (b)(2) and (d)(1)(B), loss of the Participant’s property due to casualty (including the need to rebuild a home not otherwise covered by insurance), or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant. Except as otherwise provided herein, the purchase of a home and the payment of college tuition are not unforeseeable emergencies. Any distribution for an Unforeseeable Emergency shall be limited to amounts in a Participant’s Non-Grandfathered Account.

Section 1.26 “Valuation Date” means each business day.

Section 1.27 “Vested Deferred Share” means a share of restricted stock for which a Stock Deferral Election has been made and which became transferrable and nonforfeitable under the terms of a Company stock compensation plan (and an applicable subplan thereunder).

Section 1.28 “Vested Deferred Share Credit” shall have the meaning specified in Section 5.3.

Section 2. Deferral of Compensation . An Eligible Director may elect to defer receipt of all or any portion of his or her Deferrable Amount to his or her Account for the applicable Class Year. If, after the start of a Class Year, an Eligible Director terminates service on the Board or otherwise ceases to be an Eligible Director, any previous Class Year deferral election and distribution election relating to any Deferrable Amount for such Class Year shall remain in effect for any such Deferrable Amount payable with respect to such Class Year.

Section 3. Deferral Elections .

Section 3.1 General . An Eligible Director who wishes to defer compensation must irrevocably elect to do so during the applicable Enrollment Period. The Enrollment Period shall end prior to the first day of the service year with respect to the applicable Deferrable Amount. The “service year” is the Eligible Director’s taxable year in which the services related to the Deferrable Amount will be performed by the Eligible Director. Elections shall be made annually for each Class Year. An election made during an Enrollment Period shall become irrevocable on the date the Enrollment Period ends.

Section 3.2 Elections During the Initial Enrollment Period . Notwithstanding the foregoing, in the first Class Year in which a person becomes an Eligible Director by reason of being appointed or elected to the Board, the Eligible Director may elect to defer receipt of all or any portion of his or her Deferrable Amount earned on and after the last day of the Initial Enrollment Period for services performed as a Director, provided that such deferral election is made no later than the last day of the Initial Enrollment Period and that the following conditions are met:

(a) where the Deferrable Amount will be earned over a specified performance period that began prior to the last day of the Initial Election Period, the amount deferred is limited to an amount equal to the amount payable for the performance period multiplied by the ratio of the number of days remaining in the performance period after the last day of the Initial Enrollment Period over the total number of days in the performance period, and

(b) in the case of a re-elected or re-appointed Eligible Director, the Eligible Director has not been eligible to participate in the Plan (or any plan required to be aggregated with the Plan under the Final 409A Regulations) at any time during the twenty-four month period prior to his or her re-election or re-appointment.

A deferral election made during an Initial Enrollment Period shall become irrevocable at the time it is made.

Section 4. Investment Performance of Accounts.

Section 4.1 General . The Company shall designate at least two investment funds and may designate other investment funds to measure the deemed investment performance of each Participant’s Account. The designation of any such investment funds shall not require the Company or any of its subsidiaries or affiliates to invest or earmark their general assets in any specific manner. The Company may change prospectively the designation of investment funds from time to time, in its sole discretion, and any such change shall not be treated as an amendment or modification affecting Participants’ accruals under the Plan for purposes of Section 16. The investment funds designated by the Company shall be for bookkeeping purposes only.

Exhibit 10.04

Section 4.2 Company Stock Fund . One of the investment funds designated by the Company pursuant to Section 4.1 shall be an investment fund that is deemed to be primarily invested in shares of Common Stock (the “Stock Fund”).

Section 5. Deferrals and Crediting Amounts to Accounts.

Section 5.1 Manner of Electing Deferral . An Eligible Director may elect to defer compensation for each Class Year by completing the deferral election process established by the Compensation Group. For each Class Year, each Eligible Director shall elect, in the manner specified by the Compensation Group: (i) the amount of Deferrable Amount to be deferred; (ii) the investment performance election for the deferral; and (iii) the manner of payment of such Deferrable Amount and whether the commencement of payment will be deferred to a specified calendar year following the calendar year in which occurs the Director’s Board Termination Date (as such term is defined in Section 8.3) (and for any Deferrable Amount that constitutes non-elective deferrals contributed to this Plan by the Company on behalf of the Eligible Director). An election to defer compensation shall be irrevocable following the end of the applicable Enrollment Period, but the Participant’s investment performance election may be modified by the Participant in the manner specified by the Company through and including the business day immediately preceding the date on which the deferred amount is credited to the Participant’s Account pursuant to Section 5.2.

Section 5.2 Crediting of Amounts to Accounts . Except as otherwise provided in this Section, amounts to be deferred each Class Year shall be credited to the Participant’s Account as of the date such amounts are otherwise payable and shall be credited in accordance with the Participant’s investment performance election made pursuant to Section 7. Notwithstanding the foregoing, each and every Deferrable Amount, when initially credited to the Participant’s Account, shall be credited to an investment fund other than the Stock Fund until the next date that dividends are paid on Common Stock and on such date the Deferrable Amount that would have been initially credited to the Stock Fund but for this sentence shall be deemed to be reallocated, as adjusted for earnings and losses, to the Stock Fund.

Section 5.3 Deferred Stock Accounts . An amount equal to the fair market value of the Vested Deferred Shares covered by a Stock Deferral Election (a “Vested Deferred Share Credit”) shall be credited to an Eligible Director’s Deferred Stock Account under this Plan in accordance with and subject to the terms of the Company stock compensation plan (and applicable subplan) under which such Stock Deferral Election was made. Such Vested Deferred Share Credit shall be invested in the Stock Fund at the time it is credited to the Plan. Amounts credited to an Eligible Director’s Deferred Stock Account shall be payable (along with any earnings thereon) in accordance with the provisions of Section 8 based on the manner of payment elected by the Eligible Director for any other amounts deferred by the Eligible Director under this Plan for the same Class Year as the Class Year in which the restricted stock award relating to the Vested Deferred Shares was granted to the Eligible Director. If the Eligible Director did not elect to defer any cash compensation under this Plan for that Class Year or did not make a manner of payment election for any amount deferred for that Class Year, the Vested Deferred Share Credit (along with any earnings thereon) shall be paid in accordance with Section 8.4. Payment of amounts credited to an Eligible Director’s Deferred Stock Account shall also be governed by Sections 9, 10 and 17, as applicable.

Section 6. Deferral Period . Subject to Sections 9, 10 and 17 hereof, the compensation which a Participant elects to defer under this Plan shall be deferred until the Participant dies or ceases to serve as a member of the Board. Any such election shall be made during the applicable Enrollment Period or Initial Enrollment Period in the manner established by the Compensation Group. The payment of a Participant’s Account shall be governed by Sections 8, 9, 10 and 17, as applicable.

Section 7. Investment Performance Elections.

Section 7.1 Investment Performance Elections . Each Participant shall file an initial investment performance election with the Compensation Group with respect to the investment of the Participant’s Account. The election shall designate the investment fund or funds which shall be used to measure the investment performance of the Participant’s Account. The election shall be made within such time period and on such form as the Compensation Group may prescribe and shall be made in whole percentages of the Participant’s Account balance or the Deferrable Amount to be credited to the Participant’s Account, as applicable. If the Participant does not file an investment performance election, his Account shall be credited with earnings and losses as if based on the performance of a default investment fund selected by the Company in its discretion.

Exhibit 10.04

Section 7.2 Changing Investment Performance Elections . A Participant may change his or her election in Section 7.1 with respect to his or her Account by filing an appropriate notice with the Compensation Group in accordance with procedures established by the Compensation Group. A Participant may reallocate the current balance of his or her Account, thereby changing the investment fund or funds used to measure the future investment performance of his or her existing Account balance, by filing a notice with the Compensation Group.

Section 7.3 Special Rules for Section 16 Insiders . A Section 16 Insider may only elect to reallocate between the Stock Fund and one or more of the Plan’s other investment funds if he or she has made no election within the previous six months to effect an “opposite way” fund-switching (i.e., transfer out versus transfer in) transfer into or out of the Stock Fund, or any other “opposite way” intra-plan transfer or plan distribution involving a Company equity securities fund which constitutes a “Discretionary Transaction” as defined in Rule 16b-3 under the Exchange Act. In addition, and notwithstanding the foregoing, a Section 16 Insider’s Deferrable Amount that is initially deemed to be invested in an investment fund other than the Stock Fund as provided in Section 5.2, shall be reallocated, following such initial allocation, to the Stock Fund in the manner provided in Section 5.2.

Section 7.4 Distributions. All distributions from a Participant’s Account shall be made in cash. Pending the complete distribution of the Account of a Participant, the Participant shall continue to be able to make elections pursuant to this Section 7.

Section 7.5 Responsibility for Investment Performance Elections . Each Participant is solely responsible for any investment performance election that he or she makes pursuant to this Section 7. Each Participant accepts all investment risks entailed by such elections, including the risk of loss and a decrease in the value of the amounts credited to his or her Account.

Section 8. Payment of Deferred Compensation .

Section 8.1 Background . No payment may be made from a Participant’s Account except as provided in this Section 8 and Sections 9, 10 and 17.

Section 8.2 Manner of Payment . Payment of a Participant’s Account shall be made in a single lump sum or annual installments as elected by each Participant pursuant to this Section 8 for each Class Year. The maximum number of annual installments that may be elected for Class Years ending on or before December 31, 2011 is ten. The maximum number of annual installments that may be elected for a Class Year beginning on or after January 1, 2012 is five. If a Participant elects installments, the amount of each payment shall be equal to the value, as of the preceding Valuation Date, of the Participant’s Class Year Account, divided by the number of installments remaining to be paid. All payments from this Plan shall be made in cash.

Section 8.3 Timing of Payments .

(a) Payments will commence at the time specified in subsection (i) or (ii) below based on the form of payment elected by the Participant:

(i) If the Participant elected to receive his or her payment in annual installments, payments shall commence on the first business day of the month following the Participant’s termination of service with the Board (“Board Termination Date”), or as soon as administratively possible thereafter, but not later than 60 days following the Participant’s Board Termination Date, and the remaining installment payments will be paid on the anniversary of the initial payment date. For purposes of this Plan, each installment payment under an election of installment payments made for a Class Year ending on or before December 31, 2011 shall be considered to be a separate payment for purposes of the Final 409A Regulations. For Class Years beginning on or after January 1, 2012, installment payments under an election of installment payments (or a default payment in the form of installment payments) shall be treated as a single payment for purposes of the Final 409A Regulations.

(ii) If the Participant elected to receive his or her payment in a lump sum, payment shall be made on the first business day of the month following the Participant’s Board Termination Date, or as soon as administratively possible thereafter, but not later than 60 days following the Participant’s Board Termination Date.

Exhibit 10.04

A Participant may elect pursuant to Section 5.1 or Section 8.3(b) to designate that payment in one of the forms of payment specified above will commence in a specified calendar year following the calendar year in which occurs his or her Board Termination Date, up to and including the tenth calendar year following the calendar year in which occurs the Board Termination Date. Notwithstanding any other provision of the Plan to the contrary, the following limitations shall apply to such payment commencement elections:

(i) if the Participant has attained age 71 by, or will attain age 71 in, the calendar year in which occurs the Participant’s Board Termination Date, payment shall commence on the first business day of the month following the Participant’s Board Termination Date, or as soon as administratively possible thereafter, but not later than 60 days following the Participant’s Board Termination Date, and

(ii) if, based on the Participant’s Board Termination Date, the Participant will attain age 71 in a calendar year prior to the specified calendar year of payment elected by the Participant, payment shall commence on the first business day of the month following the Participant’s 71st birthday, or as soon as administratively possible thereafter, but not later than 60 days following the Participant’s 71st birthday.

(b)

The timing of the distribution of a Participant’s Non-Grandfathered Account may not be accelerated, except in the event of an Unforeseeable Emergency or other permissible acceleration of distribution under the following sections of the Final 409A Regulations: Section 1.409A-3(j)(4)(iii) (conflicts of interest), (j)(4)(vii) (payment upon income inclusion under Section 409A), (j)(4)(ix) (plan terminations and liquidation), (j)(4)(xi) (payment of state, local or foreign taxes), (j)(4)(xiii) (certain offsets) and (i)(4)(xiv) (bona fide disputes).

Any change which delays the timing of the distributions or changes the form of distribution from the Participant’s Non-Grandfathered Account may only be made by a written agreement signed by the Nominating and Corporate Governance Committee and the Participant and only if the following requirements are met:

(i) Any election to change the time and form of distribution may not take effect until at least 12 months after the date on which the election is made;

(ii) Other than in the event of death, the first payment with respect to such election must be deferred for a period of at least five years from the date such payment would otherwise be made; and

(iii) Any election related to a payment to be made at a specified time may not be made less than 12 months prior to the date of the first scheduled payment.

The election shall be irrevocable once it is made.

Any election to change the time or form of distribution from the Participant’s Grandfathered Account may only be made by a written agreement signed by the Nominating and Corporate Governance Committee and the Participant and such change will be effective only if it is made at least 12 months before the Participant’s Board Termination Date in order to be valid.

Section 8.4 Default Payment Distribution Elections . If a Participant does not have a valid election in force on the Participant’s Board Termination Date for any Class Year, then the value of his Class Year Account(s) for which a valid distribution election does not exist shall be paid in a single lump sum to the Participant on the first business day of the month following the Participant’s Board Termination Date.

Section 8.5 Valuation . If a Participant elects installments, the amount of each payment shall be equal to the value, of the preceding Valuation Date, of the Participant’s Class Year Account, divided by the number of installments remaining to be paid.

Section 9. Payment of Deferred Compensation After Death . If a Participant dies prior to complete payment of his or her Accounts, the balance of such Accounts, valued as of the Valuation Date immediately preceding the date payment is made, shall be paid in a single, lump-sum payment no later than ninety (90) days after the Participant’s death to: (i) the beneficiary or contingent beneficiary designated by the Participant on forms supplied by the Nominating and Corporate Governance Committee; or (ii) in the absence of a valid designation of a beneficiary or contingent beneficiary, the legal representative of the deceased Participant’s estate.

Exhibit 10.04

Section 10. Acceleration of Payment in Certain Circumstances .

Section 10.1 Hardship or Unforeseeable Emergency . Hardship distributions shall be limited to amounts in a Participant’s Grandfathered Account and distributions for an Unforeseeable Emergency shall be limited to amounts in a Participant’s Non-Grandfathered Account. Upon written approval from the Nominating and Corporate Governance Committee, a Participant may be permitted to receive all or part of his or her Accounts if the Nominating and Corporate Governance Committee determines that the Participant has suffered a Hardship or Unforeseeable Emergency. The amount distributed may not exceed the amount necessary to satisfy the Hardship or Unforeseeable Emergency plus amounts necessary to pay taxes reasonably anticipated as a result of the distribution, after taking into account the extent to which such Hardship or Unforeseeable Emergency is or may be relieved through reimbursement or compensation by insurance or otherwise by liquidation of the Participant’s assets (to the extent liquidation of such assets would not itself cause severe financial hardship). In addition, in the case of a distribution to meet an Unforeseeable Emergency, a distribution may not be made to the extent that such Unforeseeable Emergency is or may be relieved by cessation of deferrals under the Plan.

Section 10.2 Payment to Individuals . Any participant in this Plan may at his or her discretion withdraw at any time all or part of that person’s Grandfathered Account balance under this Plan; provided, if this option is exercised the individual will forfeit to the Company 10% of his or her account balance, and will not be permitted to participate in this Plan for a period of 36 months from date any payment to a Participant is made under this section.

Section 10.3 Other Accelerated Payment . If under this Plan one-half or more of the Participants with a Grandfathered Account or one-fifth or more of the Participants with Grandfathered Accounts totaling one-half or more of the value of all benefits owed, exercise their option for immediate distribution in any consecutive six-month period this will trigger immediate payment to all Participants of all benefits owed under the terms of this Plan from the Grandfathered Accounts, immediate payout under this section will not involve reduction of the amounts paid to Participants as set forth in section 10.2. Any individual that has been penalized in this six-month period for electing immediate withdrawal will be paid that penalty, and continuing participation will be allowed, if payout to all Participants under this section occurs. Solely for purposes of this Section 10.3, “benefits” shall refer to amounts held in Grandfathered Accounts under this Plan.

Section 10.4 Section 16 Insiders . A Participant who is a Section 16 Insider may only receive a payment under this Section 10 from the portion of his or her Account credited to the Stock Fund if he or she has made no election within the previous six months to effect a fund-switching transfer into the Stock Fund or any other “opposite way” intra-plan transfer into a Company equity securities fund which constitutes a “Discretionary Transaction” as defined in Rule 16b-3 under the Exchange Act. If such a payment occurs while the Participant is an Eligible Director, any election to defer compensation for the year in which the Participant receives a withdrawal shall be ineffective as to compensation earned following the pay period during which the withdrawal is made and thereafter for the remainder of such Class Year and shall be ineffective as to any other compensation elected to be deferred for such Class Year.

Section 10.5 Pro Rata Withdrawal . A Participant’s election to receive payment of less than all of the balance credited to his or her Account under this Section 10 shall be applied pro rata to all of the investment funds to which the Participant’s Account is credited under this Plan.

Section 11. Participant’s Rights Unsecured . The benefits payable under this Plan shall be paid by the Company each year out of its general assets. To the extent a Participant acquires the right to receive a payment under this Plan, such right shall be no greater than that of an unsecured general creditor of the Company. No amount payable under this Plan may be assigned, transferred, encumbered or subject to any legal process for the payment of any claim against a Participant. The Stock Fund shall not confer on any Participant the right to exercise any of the rights or privileges of a shareowner of Common Stock.

Section 12. No Right to Continued Service . Participation in this Plan shall not give any Participant any right to remain a member of the Board.

Section 13. Statement of Account . Statements will be made available no less frequently than annually to each Participant or his or her estate showing the value of the Participant’s Account.

Section 14. Deductions . The Company will withhold to the extent required by law all applicable income and other taxes from amounts deferred or paid under this Plan.

Exhibit 10.04

Section 15. Administration.

Section 15.1 Responsibility . Except as expressly provided otherwise herein, the Nominating and Corporate Governance Committee shall have total and exclusive responsibility to control, operate, manage and administer this Plan in accordance with its terms.

Section 15.2 Authority of the Nominating and Corporate Governance Committee . The Nominating and Corporate Governance Committee shall have all the authority that may be necessary or helpful to enable it to discharge its responsibilities with respect to this Plan. Without limiting the generality of the preceding sentence, the Nominating and Corporate Governance Committee shall have the exclusive right: to interpret this Plan, to determine eligibility for participation in this Plan, to decide all questions concerning eligibility for and the amount of benefits payable under this Plan, to construe any ambiguous provision of this Plan, to correct any default, to supply any omission, to reconcile any inconsistency, and to decide any and all questions arising in the administration, interpretation, and application of this Plan.

Section 15.3 Discretionary Authority . The Nominating and Corporate Governance Committee shall have full discretionary authority in all matters related to the discharge of its responsibilities and the exercise of its authority under this Plan including, without limitation, its construction of the terms of this Plan and its determination of eligibility for participation and benefits under this Plan. It is the intent that the decisions of the Nominating and Corporate Governance Committee and its action with respect to this Plan shall be final and binding upon all persons having or claiming to have any right or interest in or under this Plan and that no such decision or action shall be modified upon judicial review unless such decision or action is proven to be arbitrary or capricious.

Section 15.4 Delegation of Authority . The Nominating and Corporate Governance Committee may delegate some or all of its authority under this Plan to any person or persons provided that any such delegation be in writing. Where expressly provided for in this Plan, the authority of the Compensation Committee to manage and administer the Plan is delegated to the Compensation Group.

Section 15.5 Restriction on Authority of the Nominating and Corporate Governance Committee . Under any circumstances where the Nominating and Corporate Governance Committee is authorized to make a discretionary decision concerning a payment of any type under this Plan to a member of such Committee, the member of the Committee who is to receive such payment shall take no part in the deliberations or have any voting or other power with respect to such decision.

Section 16. Amendment . The Board may suspend or terminate this Plan at any time. Notwithstanding the foregoing, payments on account of Plan termination with respect to the portion of this Plan that includes the Non-Grandfathered Accounts must comply with the requirements of Section 1.409A-3(j)(4)(ix) of the Final 409A Regulations. In addition, the Board may, from time to time, amend this Plan in any manner without shareowner approval; provided, however, that the Board may condition any amendment on the approval of shareowners if such approval is necessary or advisable with respect to tax, securities, or other applicable laws. No amendment, modification, or termination shall, without the consent of a Participant, adversely affect such Participant’s accruals in his or her Account as of the date of such amendment, modification, or termination.

Section 17. Change in Control .

Section 17.1 Background . The terms of this Section 17 shall immediately become operative, without further action or consent by any person or entity, upon a Change in Control, and once operative shall supersede and control over any other provisions of this Plan.

Section 17.2 Acceleration of Payment of Grandfathered Accounts . Upon the occurrence of a Change in Control, each Participant, whether or not he or she is still a Director, shall be paid in a single, lump‑sum cash payment the balance of his or her Grandfathered Account as of the Valuation Date immediately preceding the date payment is made. Such payment shall be made as soon as practicable, but in no event later than 90 days after the date of the Change in Control.

Section 17.3 Acceleration of Payment of Non-Grandfathered Accounts . Upon the occurrence of a Change in Control (as defined in Section 1.4(b)), each Participant, whether or not he or she is still a Director, shall be paid in a single, lump‑sum cash payment the balance of his or her Non-Grandfathered Account as of the Valuation Date immediately preceding the date payment is made. Such payment shall be made as soon as practicable, but in no event later than 90 days after the date of such Change in Control.

Exhibit 10.04

Section 17.4 Amendment On or After Change in Control . On or after a Change in Control, no action, including, but not by way of limitation, the amendment, suspension or termination of this Plan, shall be taken which would affect the rights of any Participant or the operation of this Plan with respect to the balance in the Participant’s Account.

Section 17.5 Attorney Fees . The Company shall pay all reasonable legal fees and related expenses incurred by a participant in seeking to obtain or enforce any payment, benefit or right such participant may be entitled to under this plan after a Change in Control; provided, however, the Participant shall be required to repay any such amounts to the Company to the extent a court of competent jurisdiction issues a final and non-appealable order setting forth the determination that the position taken by the Participant was frivolous or advanced in bad faith. For purposes of this Section, the legal fees and related expenses must be incurred by the Participant within 5 years of the date the Change in Control occurs. All reimbursements must be paid to the Participant by the Company no later than the end of the tax year following the tax year in which the expense is incurred.

Section 18. Governing Law . This Plan shall be construed, governed and enforced in accordance with the law of Tennessee, except as such laws are preempted by applicable federal law.

Section 19. Successors and Assigns . This Plan shall be binding upon the successors and assigns of the parties hereto.

Section 20. Compliance with SEC Regulations . It is the Company’s intent that this Plan comply in all respects with Rule 16b-3 of the Exchange Act, and any regulations promulgated thereunder. If any provision of this Plan is found not to be in compliance with such rule, the provision shall be deemed null and void. All transactions under this Plan, including, but not by way of limitation, a Participant’s election to defer compensation under Section 7 and withdrawals in the event of Hardship or Unforeseeable Emergency under Section 10, shall be executed in accordance with the requirements of Section 16 of the Exchange Act, as amended and any regulations promulgated thereunder. To the extent that any of the provisions contained herein do not conform with Rule 16b-3 of the Exchange Act or any amendments thereto or any successor regulation, then the Nominating and Corporate Governance Committee may make such modifications so as to conform this Plan to the Rule’s requirements.

Section 21. Compliance with Section 409A . At all times during each Class Year, this Plan shall be administered and interpreted in accordance with the requirements of Code Section 409A and the Final 409A Regulations. In all cases, the provisions of this Section shall apply notwithstanding any contrary provision of the Plan that is not contained in this Section. Notwithstanding the foregoing, Grandfathered Accounts shall be administered in accordance with the terms of the Plan as in effect prior to December 31, 2008.

Exhibit 12.01

EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES

Computation of Ratios of Earnings to Fixed Charges



		Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in millions)		2016		2015		2016		2015
Earnings before income taxes excluding noncontrolling interest	$	288	$	351	$	933	$	1,007
Add:
Interest expense		71		70		212		210
Appropriate portion of rental expense ⁽¹⁾		8		7		23		20
Amortization of capitalized interest		1		1		4		4
Earnings as adjusted	$	368	$	429	$	1,172	$	1,241

Fixed charges:
Interest expense	$	71	$	70	$	212	$	210
Appropriate portion of rental expense ⁽¹⁾		8		7		23		20
Capitalized interest		1		1		5		5
Total fixed charges	$	80	$	78	$	240	$	235

Ratio of earnings to fixed charges		4.6x		5.5x		4.9x		5.3x


⁽¹⁾	For all periods presented, the interest component of rental expense is estimated to equal one-third of such expense.

Exhibit 31.01

EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES

Rule 13a - 14(a)/15d - 14(a) Certifications

I, Mark J. Costa, 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: November 4, 2016

/s/ Mark J. Costa

Mark J. Costa

Chief Executive Officer

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: November 4, 2016

/s/ Curtis E. Espeland

Curtis E. Espeland

Executive Vice President and Chief Financial Officer

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 September 30, 2016 , 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: November 4, 2016

/s/ Mark J. Costa

Mark J. Costa

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.

Exhibit 32.02

EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES

Section 1350 Certifications


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.

Date: November 4, 2016

/s/ Curtis E. Espeland

Curtis E. Espeland

Executive 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.