10-Q

 

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, 2011
	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 [  ]                                Smaller reporting company [  ]

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES [  ]  NO  [X]

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Class	Number of Shares Outstanding at September 30, 2011
Common Stock, par value $0.01 per share		137,576,686

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PAGE 1 OF 49 TOTAL SEQUENTIALLY NUMBERED PAGES

EXHIBIT INDEX ON PAGE 48

1

 

TABLE OF CONTENTS

ITEM PAGE

PART I.  FINANCIAL INFORMATION

1.	Financial Statements
	Unaudited Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings	3
	Consolidated Statements of Financial Position	4
	Unaudited Consolidated Statements of Cash Flows	5
	Notes to the Unaudited Consolidated Financial Statements	6
2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	23
3.	Quantitative and Qualitative Disclosures About Market Risk	44
4.	Controls and Procedures	44

PART II.  OTHER INFORMATION

1.	Legal Proceedings	45
1A.	Risk Factors	45
2.	Unregistered Sales of Equity Securities and Use of Proceeds	46
6.	Exhibits	46

SIGNATURES

Signatures 47

EXHIBIT INDEX

Exhibit Index 48

2

 

UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS,

COMPREHENSIVE INCOME AND RETAINED EARNINGS

		Third Quarter				First Nine Months
(Dollars in millions, except per share amounts)		2011		2010		2011		2010
Sales	$	1,812	$	1,507	$	5,455	$	4,379
Cost of sales		1,392		1,085		4,139		3,256
Gross profit		420		422		1,316		1,123
Selling, general and administrative expenses		116		114		350		311
Research and development expenses		41		42		116		108
Asset impairments and restructuring charges (gains), net		7		--		(8)		3
Operating earnings		256		266		858		701
Net interest expense		20		25		57		75
Other charges (income), net		(2)		(3)		(14)		11
Earnings from continuing operations before income taxes		238		244		815		615
Provision for income taxes from continuing operations		73		82		258		207
Earnings from continuing operations		165		162		557		408
Earnings from discontinued operations, net of tax		--		8		8		11
Gain from disposal of discontinued operations, net of tax		--		--		31		--
Net earnings	$	165	$	170	$	596	$	419
Basic earnings per share
Earnings from continuing operations	$	1.19	$	1.13	$	3.96	$	2.83
Earnings from discontinued operations		--		0.06		0.28		0.08
Basic earnings per share	$	1.19	$	1.19	$	4.24	$	2.91
Diluted earnings per share
Earnings from continuing operations	$	1.16	$	1.11	$	3.86	$	2.77
Earnings from discontinued operations		--		0.05		0.27		0.08
Diluted earnings per share	$	1.16	$	1.16	$	4.13	$	2.85
Comprehensive Income
Net earnings	$	165	$	170	$	596	$	419
Other comprehensive income (loss), net of tax
Change in cumulative translation adjustment		(36)		28		--		7
Change in unrecognized losses and prior service credits for benefit plans		7		2		13		11
Change in unrealized (losses) gains on derivative instruments		5		(33)		(28)		(25)
Total other comprehensive income (loss), net of tax		(24)		(3)		(15)		(7)
Comprehensive income	$	141	$	167	$	581	$	412
Retained Earnings
Retained earnings at beginning of period	$	3,243	$	2,755	$	2,879	$	2,570
Net earnings		165		170		596		419
Cash dividends declared		(36)		(32)		(103)		(96)
Retained earnings at end of period	$	3,372	$	2,893	$	3,372	$	2,893

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

3

 

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

		September 30,		December 31,
(Dollars in millions, except per share amounts)		2011		2010
		(Unaudited)
Assets
Current assets
Cash and cash equivalents	$	448	$	516
Short-term time deposits		201		--
Trade receivables, net		711		545
Miscellaneous receivables		95		131
Inventories		850		608
Other current assets		49		30
Current assets held for sale		--		217
Total current assets		2,354		2,047
Properties
Properties and equipment at cost		8,303		7,908
Less:  Accumulated depreciation		5,245		5,063
Properties and equipment held for sale, net		--		374
Net properties		3,058		3,219
Goodwill		410		375
Other noncurrent assets		361		322
Noncurrent assets held for sale		--		23
Total assets	$	6,183	$	5,986
Liabilities and Stockholders' Equity
Current liabilities
Payables and other current liabilities	$	1,047	$	1,012
Borrowings due within one year		154		6
Current liabilities related to assets held for sale		--		52
Total current liabilities		1,201		1,070
Long-term borrowings		1,445		1,598
Deferred income tax liabilities		241		284
Post-employment obligations		1,243		1,274
Other long-term liabilities		144		130
Noncurrent liabilities related to assets held for sale		--		3
Total liabilities		4,274		4,359
Stockholders' equity
Common stock ($0.01 par value – 350,000,000 shares authorized; shares issued – 196,334,654 and 193,688,890 for 2011 and 2010, respectively)		2		2
Additional paid-in capital		888		793
Retained earnings		3,372		2,879
Accumulated other comprehensive loss		(447)		(432)
		3,815		3,242
Less: Treasury stock at cost (58,877,984 shares for 2011 and 52,345,308 shares for 2010 )		1,906		1,615
Total stockholders' equity		1,909		1,627
Total liabilities and stockholders' equity	$	6,183	$	5,986

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

4 

 

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

		First Nine Months
(Dollars in millions)		2011		2010
Cash flows from operating activities
Net earnings	$	596	$	419
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:
Depreciation and amortization		204		212
Gain on sale of assets		(70)		--
Provision (benefit) for deferred income taxes		(18)		52
Changes in operating assets and liabilities, net of effect of acquisitions and divestitures:
(Increase) decrease in trade receivables		(147)		(397)
(Increase) decrease in inventories		(225)		(100)
Increase (decrease) in trade payables		34		56
Increase (decrease) in liabilities for employee benefits and incentive pay		(108)		9
Other items, net		7		46
Net cash provided by operating activities		273		297
Cash flows from investing activities
Additions to properties and equipment		(333)		(133)
Proceeds from sale of assets and investments		651		11
Acquisitions and investments in joint ventures		(154)		(189)
Additions to short-term time deposits		(200)		--
Additions to capitalized software		(7)		(5)
Other items, net		27		(7)
Net cash used in investing activities		(16)		(323)
Cash flows from financing activities
Net increase in commercial paper, credit facility, and other borrowings		1		1
Repayment of borrowings		(2)		(4)
Dividends paid to stockholders		(100)		(96)
Treasury stock purchases		(292)		(68)
Proceeds from stock option exercises and other items, net		67		41
Net cash used in financing activities		(326)		(126)
Effect of exchange rate changes on cash and cash equivalents		1		1
Net change in cash and cash equivalents		(68)		(151)
Cash and cash equivalents at beginning of period		516		793
Cash and cash equivalents at end of period	$	448	$	642

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

5

 

ITEM	Page
Note 1.    Basis of Presentation	7
Note 2.    Discontinued Operations and Assets Held for Sale	7
Note 3.    Acquisitions and Investments in Joint Ventures	8
Note 4.    Inventories	10
Note 5.    Payables and Other Current Liabilities	10
Note 6.    Provision for Income Taxes	10
Note 7.    Borrowings	11
Note 8.    Derivatives	12
Note 9.    Retirement Plans	14
Note 10.  Commitments	15
Note 11.  Environmental Matters	16
Note 12.  Legal Matters	17
Note 13.  Stockholders' Equity	17
Note 14.  Earnings and Dividends Per Share	18
Note 15.  Asset Impairments and Restructuring Charges (Gains), Net	18
Note 16.  Share-Based Compensation Awards	19
Note 17.  Supplemental Cash Flow Information	20
Note 18.  Segment Information	20
Note 19.  Recently Issued Accounting Standards	22

6

 

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 2010 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 2010 Annual Report on Form 10-K.  The unaudited consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States ("GAAP") and, of necessity, include some amounts that are based upon management estimates and judgments.  Future actual results could differ from such current estimates.  The unaudited consolidated financial statements include assets, liabilities, revenues, and expenses of all majority-owned subsidiaries and joint ventures.  Eastman accounts for other joint ventures and investments where it exercises significant influence, but does not have control, on the equity basis.  Intercompany transactions and balances are eliminated in consolidation.  Certain prior period data has been reclassified in the Consolidated Financial Statements and accompanying footnotes to conform to current period presentation.

Effective January 1, 2010, the Company adopted amended accounting guidance on transfers of financial assets.  The impact of this guidance was prospective with changes in full year 2010 Statements of Consolidated Financial Position and first nine months 2010 Unaudited Consolidated Statements of Cash Flows.  For additional information, refer to Notes 7, "Borrowings", and 10, "Commitments".

The Company held $201 million of short-term time deposits as of September 30, 2011.  These investments had staggered maturities between three and ten months at the investment date, which exceeded the 90 day threshold for classification as cash or cash equivalents.

On August 5, 2011, the Company's Board of Directors declared a two-for-one split of the Company's common stock in the form of a 100 percent stock dividend.  Stockholders of record as of September 15, 2011 were issued one additional share of common stock on October 3, 2011 for each share held.  Treasury shares were treated as shares outstanding in the stock split.  All shares and per share amounts in this Quarterly Report on Form 10-Q have been adjusted for all periods presented for the stock split.  For additional information, see Note 14, "Earnings and Dividends Per Share".

2.   DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE

On January 31, 2011, the Company completed the sale of the polyethylene terephthalate ("PET") business, related assets at the Columbia, South Carolina site, and technology of its Performance Polymers segment for $615 million and recognized a gain of approximately $30 million, net of tax.  The Company contracted with the buyer for transition services to supply certain raw materials and services for a period of less than one year.  Transition supply agreement revenues of approximately $220 million, relating to raw materials, were more than offset by costs and reported net in cost of sales.  The PET business, assets, and technology sold were substantially all of the Performance Polymers segment and therefore the segment operating results are presented as discontinued operations for all periods presented and are not included in results from continuing operations.  The assets and liabilities of this business were reclassified as assets held for sale as of December 31, 2010.

Operating results of the discontinued operations which were formerly included in the Performance Polymers segment are summarized below:

		Third Quarter				First Nine Months
(Dollars in millions)		2011		2010		2011		2010
Sales	$	--	$	222	$	105	$	638
Earnings before income taxes		--		14		15		18
Earnings from discontinued operations, net of tax		--		8		8		11
Gain from disposal of discontinued operations, net of tax		--		--		31		--

7 

 

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Assets and liabilities of the discontinued operations classified as held for sale as of December 31, 2010 are summarized below:

		December 31,
(Dollars in millions)		2010
Current assets
Trade receivables, net	$	116
Inventories		101
Total current assets held for sale		217
Non-current assets
Properties and equipment, net		374
Goodwill		1
Other noncurrent assets		22
Total noncurrent assets held for sale		397
Total assets	$	614
Current liabilities
Payables and other current liabilities	$	52
Total current liabilities held for sale		52
Noncurrent liabilities
Other noncurrent liabilities		3
Total noncurrent liabilities held for sale		3
Total liabilities	$	55

3.   ACQUISITIONS AND INVESTMENTS IN JOINT VENTURES

Sterling Chemicals, Inc. and Scandiflex do Brasil S.A. Indústrias Químicas

During third quarter 2011, the Company completed two acquisitions in the Performance Chemicals and Intermediates ("PCI") segment.  On August 9, 2011, Eastman acquired Sterling Chemicals, Inc. ("Sterling"), a single site North American petrochemical producer, to produce non-phthalate plasticizers, including Eastman 168™ non-phthalate plasticizers, and acetic acid.  On September 1, 2011, Eastman acquired Scandiflex do Brasil S.A. Indústrias Químicas ("Scandiflex"), a manufacturer of plasticizers located in São Paulo, Brazil.  The total purchase price for both acquisitions was $133 million, including a post-closure payment of $10 million to the previous shareholders of Scandiflex.  Transaction costs of $4 million associated with the acquisitions were expensed as incurred.  The table below shows the preliminary fair value purchase price allocation for the acquisitions:

		Dollars in millions
Current assets	$	35
Properties and equipment		129
Intangible assets		11
Other noncurrent assets		18
Goodwill		33
Current liabilities		(23)
Long-term liabilities		(70)
Total purchase price	$	133

8

 

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Acquired intangible assets primarily relate to perpetual air emission credits which management has assigned indefinite lives.  Goodwill, which represents the excess of the purchase price over the net tangible and intangible assets acquired and liabilities assumed, was primarily for the Scandiflex acquisition and was attributed to the benefits of access to Brazilian markets and also the synergies between the acquired companies and Eastman.  Long-term liabilities primarily include Sterling pension and other postretirement welfare plan obligations, as well as Scandiflex contingent liabilities for environmental and other contingencies.  In connection with the Sterling acquisition, Sterling's debt was repaid at closing and therefore not included in the above purchase price allocation.

Other 2011 Acquisitions and Investments in Joint Ventures

On July 1, 2011, the Company completed the acquisition of Dynaloy, LLC, a producer of formulated solvents.  The acquisition was accounted for as a business combination and is reported in the Coatings, Adhesives, Specialty Polymers, and Inks ("CASPI") segment.  Dynaloy adds materials science capabilities that are expected to complement growth of the CASPI segment’s electronic materials product line.  Also in 2011, the Company entered into a joint venture in China for a 30,000-ton acetate tow manufacturing facility, expected to be operational in 2013.

Genovique Specialties Corporation

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

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

		Dollars in millions
Current assets	$	48
Properties and equipment		33
Intangible assets		59
Other noncurrent assets		2
Goodwill		63
Current liabilities		(17)
Long-term liabilities		(28)
Total purchase price	$	160

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

Korean Acetate Tow Facility

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

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

9

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

4.   INVENTORIES

		September 30,		December 31,
(Dollars in millions)		2011		2010
At FIFO or average cost (approximates current cost)
Finished goods	$	773	$	611
Work in process		242		206
Raw materials and supplies		402		281
Total inventories		1,417		1,098
LIFO Reserve		(567)		(490)
Total inventories	$	850	$	608

Inventories valued on the LIFO method were approximately 70 percent of total inventories as of both September 30, 2011 and December 31, 2010.

5.   PAYABLES AND OTHER CURRENT LIABILITIES

		September 30,		December 31,
(Dollars in millions)		2011		2010
Trade creditors	$	615	$	569
Accrued payrolls, vacation, and variable-incentive compensation		118		166
Accrued taxes		38		44
Post-employment obligations		57		62
Interest payable		25		21
Other		194		150
Total payables and other current liabilities	$	1,047	$	1,012

The current portion of post-employment obligations is an estimate of current year payments.

6.   PROVISION FOR INCOME TAXES

		Third Quarter				First Nine Months
(Dollars in millions)		2011		2010		2011		2010
Provision for income taxes	$	73	$	82	$	258	$	207
Effective tax rate		31 %		34 %		32 %		34 %

The first nine months 2011 effective tax rate includes an $8 million tax benefit recognized due to an increased level of capital investment which qualified for additional state tax credits.  The Company expects the full year tax rate on reported earnings from continuing operations before income tax to be approximately 32 percent.

10

 

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

7.   BORROWINGS

		September 30,		December 31,
(Dollars in millions)		2011		2010
Borrowings consisted of:
7% notes due 2012	$	149	$	151
3% debentures due 2015		250		250
6.30% notes due 2018		176		178
5.5% notes due 2019		250		250
4.5% debentures due 2021		250		250
7 1/4% debentures due 2024		243		243
7 5/8% debentures due 2024		54		54
7.60% debentures due 2027		222		222
Credit facility borrowings		--		--
Other		5		6
Total borrowings		1,599		1,604
Borrowings due within one year		(154)		(6)
Long-term borrowings	$	1,445	$	1,598

The increase in borrowings due within one year was primarily a result of reclassification of the 7% notes due 2012 from long-term to short-term.

At September 30, 2011, the Company had a $700 million revolving credit facility (the "Credit Facility") in two tranches, with $125 million expiring in April 2012 and $575 million expiring in April 2013.  Borrowings under the Credit Facility are subject to interest at varying spreads above quoted market rates and a facility fee is paid on the total commitment.  In addition, the Credit Facility contains a number of customary covenants and events of default including the requirement to maintain compliance with certain financial ratios.  The Company was in compliance with all such covenants for all periods presented.  At September 30, 2011 and December 31, 2010, the Company had no outstanding borrowings under the Credit Facility.  The Credit Facility provides liquidity support for general corporate purposes.

At September 30, 2011, the Company also had a $200 million line of credit under its annually renewable accounts receivable securitization agreement ("A/R Facility").  The A/R Facility was renewed in July 2011.  Borrowings under the A/R Facility are subject to interest rates based on a spread over the lender's borrowing costs, and the Company pays a fee to maintain availability of the A/R Facility.  In addition, the A/R Facility contains a number of customary covenants and events of default, as well as the requirement to maintain compliance with certain financial ratios.  The Company was in compliance with all such covenants for all periods presented.  At September 30, 2011 and December 31, 2010, the Company had no outstanding borrowings under the A/R Facility.

Fair Value of Borrowings

The fair value for fixed-rate borrowings is based on current interest rates for comparable securities.  The Company's floating-rate borrowings approximate fair value.

		September 30, 2011				December 31, 2010
(Dollars in millions)		Recorded Amount		Fair Value		Recorded Amount		Fair Value
Long-term borrowings	$	1,445	$	1,589	$	1,598	$	1,688

11

 

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

8.   DERIVATIVES

Hedging Programs

The Company is exposed to market risk, such as changes in currency exchange rates, raw material and energy costs, and interest rates.  The Company uses various derivative financial instruments when appropriate pursuant to the Company's hedging policies to mitigate these market risk factors and their effect on the cash flows of the underlying transactions.  Designation is performed on a specific exposure basis to support hedge accounting.  The changes in fair value of these hedging instruments are offset in part or in whole by corresponding changes in the cash flows of the underlying exposures being hedged.  The Company does not hold or issue derivative financial instruments for trading purposes.  For further information, see Note 12, "Derivatives", to the consolidated financial statements in Part II, Item 8 of the Company's 2010 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.  For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in current earnings.  As of September 30, 2011, the Company had no fair value hedges.  As of December 31, 2010, the Company had fair value hedges in the form of interest rate swaps with a total notional amount of $146 million.

Cash Flow Hedges

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

As of September 30, 2011, the total notional amounts of the Company's foreign exchange forward and option contracts were €548 million (approximately $735 million equivalent) and ¥14.6 billion (approximately $195 million equivalent), the total notional volume hedged for energy was approximately 2 million mmbtu (million british thermal units), and the total notional volume hedged for feedstock was approximately 2 million barrels.  Additionally, at September 30, 2011, the total notional value of the interest rate swaps for the future issuance of debt ("forward starting interest rate swaps") was $300 million.

As of December 31, 2010, the total notional amounts of the Company's foreign exchange forward and option contracts were €354 million (approximately $475 million equivalent) and ¥12.8 billion (approximately $160 million equivalent), the total notional volume hedged for energy was approximately 4 million mmbtu, and the total notional volume hedged for feedstock was approximately 1 million barrels.  Additionally, at December 31, 2010, the total notional value of the forward starting interest rate swaps was $300 million.

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 2010 Annual Report on Form 10-K.

The Company has determined that its derivative assets and liabilities are level 2 in the fair value hierarchy.  The following chart shows the financial assets and liabilities valued on a recurring basis and their location in the Statement of Financial Position.  The Company currently has no nonqualifying derivatives or derivatives that are not designated as hedges.

12

 

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Fair Value of Derivatives Designated as Hedging Instruments

(Dollars in millions)			Fair Value Measurements Significant Other Observable Inputs (Level 2)
Derivative Assets	Statement of Financial Position Location		September 30, 2011		December 31, 2010
Fair Value Hedges
Interest rate swaps	Other noncurrent assets	$	--	$	2
Cash Flow Hedges
Commodity contracts	Other current assets		--		4
Foreign exchange contracts	Other current assets		30		23
Foreign exchange contracts	Other noncurrent assets		17		12
Forward starting interest rate swap contracts	Other current assets		--		4
		$	47	$	45

(Dollars in millions)			Fair Value Measurements Significant Other Observable Inputs (Level 2)
Derivative Liabilities	Statement of Financial Position Location		September 30, 2011		December 31, 2010
Cash Flow Hedges
Commodity  contracts	Payables and other current liabilities	$	5	$	2
Foreign exchange contracts	Payables and other current liabilities		8		6
Foreign exchange contracts	Other long-term liabilities		10		9
Forward starting interest rate swap contracts	Payables and other current liabilities		43		--
		$	66	$	17

The fair value of the Company's derivative assets 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 only a minimal risk of nonperformance.

Derivatives' Hedging Relationships

Third Quarter

(Dollars in millions)		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		September 30, 2011		September 30, 2010			September 30, 2011		September 30, 2010
Commodity contracts	$	(3)	$	6	Cost of sales	$	--	$	(2)
Foreign exchange contracts		31		(30)	Sales		(2)		11
Forward starting interest rate swap contracts		(23)		(9)
	$	5	$	(33)		$	(2)	$	9

13

 

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

First Nine Months

(Dollars in millions)		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		September 30, 2011		September 30, 2010			September 30, 2011		September 30, 2010
Commodity  contracts	$	(4)	$	(6)	Cost of sales	$	5	$	2
Foreign exchange contracts		6		(7)	Sales		(5)		34
Forward starting interest rate swap contracts		(30)		(12)
	$	(28)	$	(25)		$	--	$	36

For nine months ended September 30, 2011 and September 30, 2010, there was no material ineffectiveness with regard to the Company's qualifying hedges.

Hedging Summary

At September 30, 2011 and 2010, 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 other comprehensive income before taxes totaled approximately $18 million in losses and $3 million in gains, respectively.  If realized, approximately $13 million in gains in third quarter 2011 will be reclassified into earnings during the next 12 months, primarily related to foreign exchange contracts.  Ineffective portions of hedges are immediately recognized in cost of sales or other charges (income), net.  There were no material gains or losses related to the ineffective portion of hedges recognized in 2011 or 2010.

The gains or losses on nonqualifying derivatives or derivatives that are not designated as hedges are marked to market in the line item "Other charges (income), net" of the Statements of Earnings, and, in all periods presented, represent foreign exchange derivatives denominated in multiple currencies.  The Company recognized approximately $3 million net gain and $11 million net loss on nonqualifying derivatives during third quarter 2011 and 2010, respectively.  The Company recognized approximately $1 million net loss and $4 million net gain on nonqualifying derivatives during first nine months 2011 and 2010, respectively.

9.   RETIREMENT PLANS

Eastman offers various postretirement benefits to its employees.

DEFINED BENFIT PENSION PLANS AND POSTRETIREMENT WELFARE PLANS

Pension Plans:

Eastman maintains defined benefit pension plans that provide eligible employees with retirement benefits.  Costs recognized for these benefits are recorded using estimated amounts, which may change as actual costs derived for the year are determined.

Postretirement Welfare Plans:

Eastman provides a subsidy toward life insurance, health care, and dental benefits for eligible retirees hired prior to January 1, 2007, and a subsidy toward health care and dental benefits for retirees' eligible survivors.  In general, Eastman provides those benefits to retirees eligible under the Company's U.S. plans.

Eligible employees hired on or after January 1, 2007 have access to postretirement health care benefits, but Eastman does not provide a subsidy toward the premium cost of postretirement benefits for those employees.  A few of the Company's non-U.S. operations have supplemental health benefit plans for certain retirees, the cost of which is not significant to the Company.

14

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Costs recognized for benefits for eligible retirees hired prior to January 1, 2007 are recorded using estimated amounts, which may change as actual costs derived for the year are determined.

Components of net periodic benefit cost were as follows:

		Third Quarter								First Nine Months
		Pension Plans				Postretirement Welfare Plans				Pension Plans				Postretirement Welfare Plans
(Dollars in millions)		2011		2010		2011		2010		2011		2010		2011		2010
Service cost	$	11	$	11	$	3	$	2	$	34	$	33	$	7	$	7
Interest cost		22		21		11		11		64		63		33		33
Expected return on assets		(28)		(24)		(1)		(1)		(82)		(77)		(2)		(2)
Curtailment gain (1)		--		--		--		--		--		--		(5)		--
Settlement charge		3		--		--		--		3		--		--		--
Amortization of:
Prior service credit		(3)		(4)		(6)		(6)		(10)		(12)		(16)		(18)
Actuarial loss		14		10		4		4		41		32		11		10
Net periodic benefit cost	$	19	$	14	$	11	$	10	$	50	$	39	$	28	$	30

(1) Includes $5 million gain for the Performance Polymers segment that was sold January 31, 2011 and is included in discontinued operations.  For more information, see Note 2, "Discontinued Operations and Assets Held for Sale."

Third quarter and first nine months 2011 reflects the impact on the U.S. defined benefit pension plan and the other postretirement welfare plan of the Sterling acquisition described in Note 3, "Acquisitions and Investments in Joint Ventures".

The Company contributed $102 million and $35 million to its U.S. defined benefit pension plans in first nine months 2011 and 2010, respectively.

10.   COMMITMENTS

Purchase Obligations and Lease Commitments

At September 30, 2011, the Company had various purchase obligations totaling approximately $1.4 billion over a period of approximately 15 years for materials, supplies, and energy incident to the ordinary conduct of business.  The Company also had various lease commitments for property and equipment under cancelable, noncancelable, and month-to-month operating leases totaling $101 million over a period of several years.  Of the total lease commitments, approximately 20 percent relate to machinery and equipment, including computer and communications equipment and production equipment; approximately 40 percent relate to real property, including office space, storage facilities and land; and approximately 40 percent relate to railcars.

Accounts Receivable Securitization Program

Effective January 1, 2010, the Company adopted amended accounting guidance for transfers of financial assets which impacts the financial statement presentation for activity under the Company's $200 million accounts receivable securitization program.  Beginning for periods after December 31, 2009, transfers of receivables interests that were previously treated as sold and removed from the balance sheet will be included in trade receivables, net and reflected as secured borrowings on the balance sheet.  The Company's Statement of Financial Position at December 30, 2010 reflects an increase in trade receivables, $200 million of which was transferred at December 31, 2009 under the securitization program and reduced cash flows from operating activities by that amount for first nine months 2010.  As a result of the adoption of this accounting guidance, any amounts drawn on this accounts receivable securitization program would be accounted for as secured borrowings and disclosed in Note 7, "Borrowings".

15

 

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Guarantees

The Company has operating leases with terms that require the Company to guarantee a portion of the residual value of the leased assets upon termination of the lease.  These residual value guarantees at September 30, 2011totaled $184 million and consisted primarily of leases for railcars and company aircraft.  Leases with guarantee amounts totaling $139 million and $45 million will expire in 2012 and 2016 and beyond, respectively.  The Company believes, based on current facts and circumstances, that the likelihood of material residual guarantee payments is remote.

Variable Interest Entities

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

11.   ENVIRONMENTAL MATTERS

Certain Eastman manufacturing sites generate hazardous and nonhazardous wastes, the treatment, storage, transportation, and disposal of which are regulated by various governmental agencies.  In connection with the cleanup of various hazardous waste sites, the Company, along with many other entities, has been designated a potentially responsible party ("PRP"), by the U.S. Environmental Protection Agency under the Comprehensive Environmental Response, Compensation and Liability Act, which potentially subjects PRPs to joint and several liability for such cleanup costs.  In addition, the Company will be required to incur costs for environmental remediation and closure and postclosure under the federal Resource Conservation and Recovery Act.  Reserves for environmental contingencies have been established in 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 2010 Annual Report on Form 10-K.  Because of expected sharing of costs, the availability of legal defenses, and the Company's preliminary assessment of actions that may be required, management does not believe that the Company's liability for these environmental matters, individually or in the aggregate, will be material to the Company's consolidated financial position, results of operations or cash flows.  The Company's total reserve for environmental contingencies was $39 million and $40 million at September 30, 2011 and December 31, 2010, respectively.

Estimated future environmental expenditures for remediation costs range from the minimum or best estimate of $12 million to the maximum of $29 million at September 30, 2011, and from the minimum or best estimate of $10 million to the maximum of $27 million at December 31, 2010.  The best estimate accrued to date over the facilities' estimated useful lives for asset retirement obligation costs are $27 million and $30 million at September 30, 2011 and December 31, 2010, respectively.

During third quarter 2011, as described in Note 3, "Acquisitions and Investments in Joint Ventures" the Company completed the acquisitions of Sterling and Scandiflex, resulting in a $4 million increase to the reserve for environmental contingencies consisting of an additional $1 million in asset retirement obligation costs and a minimum or best estimate of $3 million to a maximum of $4 million of estimated future environmental expenditures for remediation.

The Company completed the sale of the PET business on January 31, 2011.  As a result, $3 million in asset retirement obligation costs were divested.

16

 

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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.  However, adverse developments could negatively impact earnings or cash flows in a particular future period.

13.   STOCKHOLDERS' EQUITY

A reconciliation of the changes in stockholders' equity for first nine months 2011 is provided below:

(Dollars in millions)	Common Stock at Par Value $	Paid-in Capital $	Retained Earnings $	Accumulated Other Comprehensive Income (Loss) $	Treasury Stock at Cost $	Total Stockholders' Equity $
Balance at December 31, 2010 (1)	2	793	2,879	(432)	(1,615)	1,627
Net Earnings	--	--	596	--	--	596
Cash Dividends Declared (2)	--	--	(103)	--	--	(103)
Other Comprehensive Income (Loss)	--	--	--	(15)	--	(15)
Share-Based Compensation Expense (3)	--	29	--	--	--	29
Stock Option Exercises	--	58	--	--	--	58
Other (4)	--	8	--	--	1	9
Stock Repurchases	--	--	--	--	(292)	(292)
Balance at September 30, 2011	2	888	3,372	(447)	(1,906)	1,909

(1)   Common Stock at Par Value and Retained Earnings have been adjusted for the two-for-one stock split on October 3, 2011.  For additional information, see Note 1, "Basis of Presentation" and Note 14, "Earnings and Dividends Per Share".

(2)   Includes cash dividends declared, but unpaid.

(3)   Includes the fair value of equity share-based awards recognized for share-based compensation.

(4)   Includes tax benefits relating to the difference between the amounts deductible for federal income taxes over the amounts charged to income for book value purposes credited to paid-in capital and other items.

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX

(Dollars in millions)	Cumulative Translation Adjustment $	Unrecognized Losses and Prior Service Credits for Benefit Plans $	Unrealized Gains (Losses) on Derivative Instruments $	Unrealized Losses on Investments $	Accumulated Other Comprehensive Income (Loss) $
Balance at December 31, 2009	77	(488)	27	(1)	(385)
Period change	2	(39)	(10)	--	(47)
Balance at December 31, 2010	79	(527)	17	(1)	(432)
Period change	--	13	(28)	--	(15)
Balance at September 30, 2011	79	(514)	(11)	(1)	(447)

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

17

 

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

14.   EARNINGS AND DIVIDENDS PER SHARE

	Third Quarter		First Nine Months
	2011	2010	2011	2010
Shares used for earnings per share calculation (in millions):
Basic	139.1	143.8	140.6	144.3
Diluted	142.4	146.6	144.1	147.2

On August 5, 2011, the Company's Board of Directors declared a two-for-one split of the Company's common stock.  The stock split was in the form of a 100 percent stock dividend and was distributed on October 3, 2011 to stockholders of record as of September 15, 2011.  Stockholders were issued one additional share for each share owned.  Treasury shares were treated as shares outstanding in the stock split.  All shares and per share amounts in this Quarterly Report on Form 10-Q have been adjusted for all periods presented for the stock split.

In third quarter 2011, common shares underlying options to purchase 161,800 shares of common stock were excluded from the computation of diluted earnings per share because the total market value of option exercises for these awards was less than the total proceeds that would be received for these awards.  In first nine months 2011, there were no outstanding options to purchase shares of common stock excluded from the computation of diluted earnings per share.  Third quarter and first nine months 2011 reflect the impact of share repurchases of 6.6 million shares.

In third quarter and first nine months 2010, common shares underlying options to purchase 1,179,170 shares of common stock and 1,392,370 shares of common stock, respectively, were excluded from the computation of diluted earnings per share because the total market value of option exercises for these awards was less than the total proceeds that would be received for these awards.  Third quarter and first nine months 2010 reflect the impact of share repurchases of 2.3 million shares.

The Company declared cash dividends of $0.26 and $0.22 per share in third quarter 2011 and 2010, respectively and $0.73 and $0.66 per share in first nine months 2011 and 2010, respectively.

15.   ASSET IMPAIRMENTS AND RESTRUCTURING CHARGES (GAINS), NET

In third quarter 2011, there were $7 million in restructuring charges primarily for severance associated with the acquisition and integration of Sterling.  In second quarter 2011, there was a $15 million gain from the sale of the previously impaired methanol and ammonia assets related to the terminated Beaumont, Texas industrial gasification project.

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

18

 

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

The following table summarizes the beginning reserves, charges to and changes in estimates to the reserves as described above, and the cash and non-cash reductions to the reserves attributable to asset impairments and the cash payments for severance and site closure costs for full year 2010 and first nine months 2011:

(Dollars in millions)		Balance at January 1, 2010		Provision/ Adjustments		Non-cash Reductions		Cash Reductions		Balance at December 31, 2010
Non-cash charges	$	--	$	8	$	(8)	$	--	$	--
Severance costs		3		18		--		(6)		15
Site closure and other restructuring costs		6		3		(3)		--		6
Total	$	9	$	29	$	(11)	$	(6)	$	21
		Balance at January 1, 2011		Provision/ Adjustments		Non-cash Reductions		Cash Reductions		Balance at September 30, 2011
Non-cash charges	$	--	$	(15)	$	15	$	--	$	--
Severance costs		15		7		--		(16)		6
Site closure and other restructuring costs		6		--		--		--		6
Total	$	21	$	(8)	$	15	$	(16)	$	12

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 2011 and 2010, approximately $9 million and $6 million, respectively, of compensation expense before tax were recognized in selling, general and administrative expense in the earnings statement for all share-based awards.  The impact on third quarter 2011 and 2010 net earnings of approximately $5 million and $4 million, respectively, is net of deferred tax expense related to share-based award compensation for each period.

In first nine months 2011 and 2010, $28 million and $16 million, respectively, of compensation expense before tax were recognized in selling, general and administrative expense in the earnings statement for all share-based awards.  The impact on first nine months 2011 and 2010 net earnings of $17 million and $10 million, respectively, is net of deferred tax expense related to share-based award compensation.

For additional information regarding share-based compensation plans and awards, see Note 21, "Share-Based Compensation Plans and Awards", to the consolidated financial statements in Part II, Item 8 of the Company's 2010 Annual Report on Form 10-K.

19

 

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

17.   SUPPLEMENTAL CASH FLOW INFORMATION

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

(Dollars in millions)		First Nine Months
		2011		2010
Current assets	$	13	$	--
Other assets		3		6
Current liabilities		(16)		34
Long-term liabilities and equity		7		6
Total	$	7	$	46

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

18.  SEGMENT INFORMATION

The Company's products and operations are managed and reported in four reportable operating segments, consisting of the CASPI segment, the Fibers segment, the PCI segment, and the Specialty Plastics segment.  For additional information concerning the Company's segments' businesses and products, see Note 23, "Segment Information", to the consolidated financial statements in Part II, Item 8 of the Company's 2010 Annual Report on Form 10-K.

Research and development and other expenses and asset impairments and restructuring charges (gains), net, not identifiable to an operating segment are not included in segment operating results for either of the periods presented and are shown in the tables below as "other" operating earnings (loss).

		Third Quarter
(Dollars in millions)		2011		2010
Sales
CASPI	$	461	$	406
Fibers		334		301
PCI		740		534
Specialty Plastics		277		266
Total Sales	$	1,812	$	1,507

		First Nine Months
(Dollars in millions)		2011		2010
Sales
CASPI	$	1,419	$	1,195
Fibers		955		842
PCI		2,163		1,557
Specialty Plastics		918		785
Total Sales	$	5,455	$	4,379

20

 

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

		Third Quarter
(Dollars in millions)		2011		2010
Operating Earnings (Loss)
CASPI	$	82	$	89
Fibers		92		89
PCI (1)		71		74
Specialty Plastics		29		29
Total Operating Earnings by Segment		274		281
Other		(18)		(15)
Total Operating Earnings	$	256	$	266

(1)   Third quarter 2011 includes $7 million in restructuring charges primarily for severance associated with the acquisition and integration of Sterling.  See Note 15, "Asset Impairments and Restructuring Charges (Gains), Net" for additional information.

		First Nine Months
(Dollars in millions)		2011		2010
Operating Earnings (Loss)
CASPI	$	279	$	246
Fibers		266		248
PCI (1)		247		177
Specialty Plastics		96		69
Total Operating Earnings by Segment		888		740
Other (2)		(30)		(39)
Total Operating Earnings	$	858	$	701

(1)   First nine months 2011 includes $7 million in restructuring charges primarily for severance associated with the acquisition and integration of Sterling.  First nine months 2010 includes restructuring charges of $3 million, primarily for severance.  See Note 15, "Asset Impairments and Restructuring Charges (Gains), Net" for additional information.

(2)   First nine months 2011 includes a $15 million gain from the sale of the previously impaired methanol and ammonia assets related to the terminated Beaumont, Texas industrial gasification project.  See Note 15, "Asset Impairments and Restructuring Charges (Gains), Net" for additional information.

		September 30,		December 31,
(Dollars in millions)		2011		2010
Assets by Segment (1)
CASPI	$	1,416	$	1,280
Fibers		924		874
PCI		1,524		1,235
Specialty Plastics		1,205		1,017
Total Assets by Segment		5,069		4,406
Corporate Assets		1,114		966
Assets Held for Sale (2)		--		614
Total Assets	$	6,183	$	5,986

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

(2)   For information regarding assets held for sale, see Note 2, "Discontinued Operations and Assets Held for Sale".

  21

 

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

19.  RECENTLY ISSUED ACCOUNTING STANDARDS

In May 2011, the Financial Accounting Standards Board ("FASB") issued amended accounting guidance related to fair value measurements and disclosures with the purpose of converging the fair value measurement and disclosure guidance issued by the FASB and the International Accounting Standards Board.  The guidance is effective for reporting periods beginning after December 15, 2011.  The guidance includes amendments that clarify the intent of the application of existing fair value measurement requirements along with amendments that change a particular principle or requirement for fair value measurements and disclosures.  The Company has concluded that the new guidance will not have a material impact on its Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings, Consolidated Statements of Financial Position, or related disclosures.

In June 2011, the FASB issued amended accounting guidance related to presentation of comprehensive income.  The standards update is intended to help financial statement users better understand the causes of an entity’s change in financial position and results of operation.  It is effective for reporting periods beginning after December 15, 2011.  The amendments eliminate the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity.  The amendments require that all nonowner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements.  The guidance also requires that reclassification adjustments for items that are reclassified from other comprehensive income to net income be presented on the face of the financial statement where the components of net income and other comprehensive income are presented.  Upon adoption, the Company will continue to present components of comprehensive income in its Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings.  These statements will include reclassification adjustments as required by the new guidance for all periods presented.  Since this new guidance will affect disclosure requirements only, the Company has concluded that it will not have a material impact on the Company’s financial position or results of operations.

22

 

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

ITEM	Page
Critical Accounting Estimates	24
Presentation of Non-GAAP Financial Measures	24
Overview	25
Results of Operations	26
Summary by Operating Segment	30
Summary by Customer Location	34
Liquidity, Capital Resources, and Other Financial Information	35
Recently Issued Accounting Standards	40
2011 Outlook	40
Forward-Looking Statements and Risk Factors	41

This Management's Discussion and Analysis of Financial Condition and Results of Operations is based upon the consolidated financial statements for 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 Management's Discussion and Analysis of Financial Condition and Results of Operations contained in the Company's 2010 Annual Report on Form 10-K, and the Company's unaudited consolidated financial statements, including related notes, included elsewhere in this Quarterly Report on Form 10-Q.  All references to earnings per share ("EPS") contained in this report are diluted earnings per share unless otherwise noted.

On January 31, 2011, the Company completed the sale of the polyethylene terephthalate ("PET") business, related assets at the Columbia, South Carolina site, and technology of its Performance Polymers segment for $615 million and recognized a gain of approximately $30 million, net of tax.  The Company contracted with the buyer for transition services to supply certain raw materials and services for a period of less than one year.  The PET business, assets, and technology sold were substantially all of the Performance Polymers segment.  Performance Polymers segment operating results are presented as discontinued operations for all periods presented and are therefore not included in results from continuing operations in accordance with U.S. GAAP.  The assets and liabilities of this business were reclassified as assets held for sale as of December 31, 2010.  The sale is not expected to impact product lines in the Specialty Plastics segment.  For additional information, see Note 2, "Discontinued Operations and Assets Held for Sale", to the Company's unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

In third quarter 2011, the Company's Board of Directors declared a two-for-one split of the Company's common stock, distributed October 3, 2011 in the form of a 100 percent stock dividend.  All shares and per share amounts in this Quarterly Report on Form 10-Q have been adjusted for all periods presented for the stock split.  For additional information, see Note 14, "Earnings and Dividends Per Share" to the Company's unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

23 

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

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, U.S. pension and other post-employment benefits, litigation and contingent liabilities, and income taxes.  The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.  Actual results may differ from these estimates under different assumptions or conditions.  The Company's management believes the critical accounting estimates described in Part II, Item 7 of the Company's 2010 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.

PRESENTATION OF NON-GAAP FINANCIAL MEASURES

This Management's Discussion and Analysis includes the following non-GAAP financial measures and accompanying reconciliations to the most directly comparable GAAP financial measures.  The non-GAAP financial measures used by the Company may not be comparable to similarly titled measures used by other companies and should not be considered in isolation or as a substitute for measures of performance or liquidity prepared in accordance with GAAP.

·   Company and segment operating earnings, Company earnings from continuing operations, and diluted earnings per share excluding the asset impairments and restructuring charges (gains), net, described below; and

·   Cash flows from operating activities excluding the impact of adoption of amended accounting guidance for transfers of financial assets and the impact of tax payment for the gain on the sale of the PET business, described below.

In third quarter and first nine months 2011, there were $7 million in restructuring charges primarily for severance associated with the acquisition and integration of Sterling Chemicals, Inc. ("Sterling").  In addition, in first nine months 2011, there was a $15 million gain from the sale of the previously impaired methanol and ammonia assets related to the terminated Beaumont, Texas industrial gasification project.

In first nine months 2011, cash flows included the use of $83 million of a total anticipated $110 million tax payment for the tax gain on the sale of the PET business completed in first quarter 2011.

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

In first quarter 2010, the Company adopted amended accounting guidance for transfers of financial assets which impacts the financial statement presentation for activity under the Company's $200 million accounts receivable securitization program.  For periods beginning after December 31, 2009, transfers of receivables interests that were previously treated as sold and removed from the balance sheet will be included in trade receivables, net and reflected as secured borrowings on the balance sheet.  The Company's Statement of Financial Position at December 31, 2010 reflects an increase in trade receivable of $200 million, the amount transferred at December 31, 2009 under the securitization program, which reduced cash flows from operating activities by that amount for first quarter 2010.

24

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

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

OVERVIEW

The Company generated sales revenue of $1.8 billion and $1.5 billion in third quarter 2011 and 2010, respectively.  The increase in sales revenue was primarily due to higher selling prices which were in response to higher raw material and energy costs.

The Company generated sales revenue of $5.5 billion and $4.4 billion in first nine months 2011 and 2010, respectively.  Sales revenue increases were due to higher selling prices and higher sales volume.  The higher selling prices were in response to higher raw material and energy costs and were also attributed to strengthened demand, particularly in the U.S., and tight industry supply.  The higher sales volume was primarily due to growth in plasticizer product lines, the fourth quarter 2010 restart of a previously idled olefin cracking unit at the Longview, Texas facility, and strengthened end-use demand primarily in the packaging and transportation markets.  The increase was also due to growth initiatives including the increased utilization of the Korean acetate tow manufacturing facility and the Eastman TritanTM copolyester resin manufacturing facility, and the acquisition of the Genovique plasticizer product lines.

Operating earnings were $256 million in third quarter 2011 compared with $266 million in third quarter 2010.  Operating earnings were negatively impacted by restructuring charges of $7 million primarily for severance associated with the acquisition and integration of Sterling in third quarter 2011.  Operating earnings in third quarter 2011 also included $11 million of costs from an unplanned outage of an olefin cracking unit in Longview, Texas and $8 million from an acetyl technology license.  Operating earnings in third quarter 2010 were positively impacted by $22 million from the partial settlement of an insurance claim related to a power outage at the Longview, Texas manufacturing facility.  Outage costs and insurance settlements were primarily reflected in the Performance Chemicals and Intermediates ("PCI") and Coatings, Adhesives, Specialty Polymers, and Inks ("CASPI") segments.  In third quarter 2011 compared to third quarter 2010, higher selling prices more than offset higher raw material and energy costs.

Operating earnings were $858 million in first nine months 2011 compared with $701 million in first nine months 2010.  Operating earnings included $7 million in restructuring charges, primarily for severance associated with the acquisition and integration of Sterling, and a $15 million gain from the sale of the previously impaired methanol and ammonia assets related to the terminated Beaumont, Texas industrial gasification project in first nine months 2011.  Operating earnings included restructuring charges of $3 million in first nine months 2010.  Excluding these items, operating earnings increased primarily due to higher selling prices and higher sales volume more than offsetting higher raw material and energy costs.

The Company generated $273 million of cash from operating activities during first nine months 2011, including $102 million in contributions to its U.S. defined benefit pension plans and $83 million of a total anticipated $110 million tax payment for the tax gain on the sale of the PET business completed in first quarter 2011.  Working capital increased by $338 million due to increased inventory and increased accounts receivable.  The Company generated $297 million cash from operating activities during the first nine months of 2010 including a $200 million increase in working capital resulting from the adoption of amended accounting guidance for transfers of financial assets which impacted the financial statement presentation for activity under the Company’s accounts receivable securitization program.

25

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

In the first nine months of 2011 the Company has made progress on its growth initiatives by:

·   entering into a joint venture in China for a 30,000-ton acetate tow manufacturing facility, expected to be operational in 2013;

·   completing a demonstration facility for market testing of acetylated wood, which is expected to support a market launch beginning in early 2012 to select markets;

·   acquiring Sterling, a single site North American petrochemical producer, to produce non-phthalate plasticizers, including Eastman 168™ non-phthalate plasticizers, and acetic acid;

·   acquiring Scandiflex do Brasil S.A. Indústrias Químicas ("Scandiflex"), a manufacturer of plasticizers located in São Paulo, Brazil;

·   acquiring Dynaloy, LLC, a producer of formulated solvents;

·   continuing commercial introduction of the new Eastman CerfisTM technology;

·   announcing the new EastmanTM microfiber technology; and

·   announcing several manufacturing capacity expansions to support its plasticizer business, including at the Kohtla-Järve, Estonia, Chestertown, Maryland, and Kingsport, Tennessee sites.   

For additional information on acetylated wood, Eastman CerfisTM technology, and EastmanTM microfiber technology, see "Summary by Operating Segment" in this Management's Discussion and Analysis of Financial Condition and Results of Operations.

RESULTS OF OPERATIONS

		Third Quarter				Volume Effect	Price Effect	Product Mix Effect	Exchange Rate Effect
(Dollars in millions)		2011		2010	Change
Sales	$	1,812	$	1,507	20 %	-- %	16 %	4 %	-- %

		First Nine Months				Volume Effect	Price Effect	Product Mix Effect	Exchange Rate Effect
(Dollars in millions)		2011		2010	Change
Sales	$	5,455	$	4,379	25 %	7 %	15 %	2 %	1 %

Sales revenue in third quarter 2011 compared to third quarter 2010 increased $305 million.  The increase was primarily due to higher selling prices in all segments.  The higher selling prices were in response to higher raw material and energy costs.

Sales revenue in first nine months 2011 compared to first nine months 2010 increased $1,076 million.  The increase was primarily due to higher selling prices in all segments (particularly in the PCI segment) and higher sales volume primarily in the PCI segment.  The higher selling prices were in response to higher raw material and energy costs and were also attributed to strengthened demand, particularly in the U.S., and tight industry supply.  The higher sales volume was primarily due to growth in plasticizer product lines, the fourth quarter 2010 restart of a previously idled olefins cracking unit at the Longview, Texas facility, and strengthened end-use demand primarily in the packaging and transportation markets.  The increase was also due to growth initiatives including the increased utilization of the Korean acetate tow manufacturing facility and the Eastman TritanTM copolyester resin manufacturing facility, and the acquisition of the Genovique plasticizer product lines.

26

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

		Third Quarter					First Nine Months
(Dollars in millions)		2011		2010	Change		2011		2010	Change
Gross Profit	$	420	$	422	-- %	$	1,316	$	1,123	17 %
As a percentage of sales		23 %		28 %			24 %		26 %

Gross profit in third quarter 2011 decreased compared to third quarter 2010 with decreases in the CASPI and Specialty Plastics segments mostly offset by increases in the PCI and Fibers segments.  Gross profit in third quarter 2011 included $11 million of costs from the unplanned outage of an olefin cracking unit reflected in the PCI and CASPI segments and $8 million from the acetyl technology license reflected in the PCI segment.  Gross profit in third quarter 2010 was positively impacted by $22 million from the partial settlement of the Longview, Texas insurance claim which was primarily reflected in the PCI and CASPI segments.  Gross profit as a percentage of sales in third quarter 2011 decreased compared to third quarter 2010 as a result of higher raw material and energy costs.  

Gross profit in first nine months 2011 increased compared to first nine months 2010 in all segments.  Gross profit increased primarily due to higher selling prices and higher sales volume more than offsetting higher raw material and energy costs.  Gross profit as a percentage of sales in first nine months 2011 decreased slightly compared to first nine months 2010.

		Third Quarter					First Nine Months
(Dollars in millions)		2011		2010	Change		2011		2010	Change
Selling, General and Administrative Expenses	$	116	$	114	2 %	$	350	$	311	13 %
Research and Development Expenses		41		42	(2) %		116		108	7 %
	$	157	$	156	1 %	$	466	$	419	11 %
As a percentage of sales		9 %		10 %			9 %		10 %

Selling, general and administrative expenses in third quarter 2011 were slightly higher compared to third quarter 2010 primarily due to higher costs of growth and business development initiatives partially offset by lower performance-based compensation expense.

Selling, general and administrative expenses in first nine months 2011 were higher compared to first nine months 2010 primarily due to increased compensation expense and higher costs of growth and business development initiatives.

Research and development ("R&D") expenses were relatively unchanged for third quarter 2011 compared to third quarter 2010.  R&D expenses were higher for first nine months 2011 compared to first nine months 2010 primarily due to higher R&D expenses for growth initiatives.  R&D expenses in third quarter 2010 reflected increased spending for acetylated wood compared to previous periods resulting in comparable expenses between third quarter 2011 and third quarter 2010, but increased expenses in first nine months 2011 compared to first nine months 2010.

Asset Impairments and Restructuring Charges (Gains), Net

In third quarter and first nine months 2011, there were $7 million in restructuring charges primarily for severance associated with the acquisition and integration of Sterling.  In first nine months 2011, there was also a $15 million gain from the sale of the previously impaired methanol and ammonia assets related to the terminated Beaumont, Texas industrial gasification project.

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

27

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

For more information regarding asset impairments and restructuring charges (gains), net, see the segment discussions and Note 15, "Asset Impairments and Restructuring Charges (Gains), Net", to the Company's unaudited consolidated financial statementsin Part I, Item 1 of this Quarterly Report on Form 10-Q.

Operating Earnings

		Third Quarter					First Nine Months
(Dollars in millions)		2011		2010	Change		2011		2010	Change
Operating earnings	$	256	$	266	(4) %	$	858	$	701	22 %
Asset impairments and restructuring charges (gains), net		7		--			(8)		3
Operating earnings excluding asset impairments and restructuring charges (gains), net	$	263	$	266	(1) %	$	850	$	704	21 %

Net Interest Expense

		Third Quarter					First Nine Months
(Dollars in millions)		2011		2010	Change		2011		2010	Change
Gross interest costs	$	23	$	27		$	69	$	81
Less:  Capitalized interest		2		1			7		2
Interest expense		21		26	(19) %		62		79	(22) %
Interest income		1		1			5		4
Net interest expense	$	20	$	25	(20) %	$	57	$	75	(24) %

Net interest expense decreased $5 million and $18 million in third quarter and first nine months 2011, respectively, compared to comparable 2010 periods primarily due to lower borrowing costs resulting from the debt restructuring in fourth quarter 2010 and higher capitalized interest resulting from higher capital spending.

For 2011, the Company expects net interest expense to decrease compared with 2010 primarily due to lower borrowing costs resulting from the debt restructuring in fourth quarter 2010 and higher capitalized interest resulting from higher capital spending.

Other Charges (Income), Net

		Third Quarter				First Nine Months
(Dollars in millions)		2011		2010		2011		2010
Foreign exchange transaction losses	$	--	$	(2)	$	(1)	$	7
Investment (gains) losses, net		(3)		(3)		(13)		(2)
Other, net		1		2		--		6
Other charges (income), net	$	(2)	$	(3)	$	(14)	$	11

First nine months 2011 investment gains included gains from equity investments and joint ventures and sales of business venture investments.

Provision for Income Taxes

		Third Quarter				First Nine Months
(Dollars in millions)		2011		2010		2011		2010
Provision for income taxes	$	73	$	82	$	258	$	207
Effective tax rate		31 %		34 %		32 %		34 %

28

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

The first nine months 2011 effective tax rate includes an $8 million tax benefit recognized due to an increased level of capital investment which qualified for additional state tax credits.  The Company expects the full year tax rate on reported earnings from continuing operations before income tax to be approximately 32 percent.

Earnings from Continuing Operations and Diluted Earnings per Share

		Third Quarter
		2011				2010
(Dollars in millions, except diluted EPS)		$		EPS		$		EPS
Earnings from continuing operations	$	165	$	1.16	$	162	$	1.11
Asset impairments and restructuring charges (gains), net of tax		5		0.03		--		--
Earnings from continuing operations excluding asset impairments and restructuring charges (gains), net of tax	$	170	$	1.19	$	162	$	1.11

		First Nine Months
		2011				2010
(Dollars in millions, except diluted EPS)		$		EPS		$		EPS
Earnings from continuing operations	$	557	$	3.86	$	408	$	2.77
Asset impairments and restructuring charges (gains), net of tax		(5)		(0.03)		2		0.02
Earnings from continuing operations excluding asset impairments and restructuring charges (gains), net of tax	$	552	$	3.83	$	410	$	2.79

Net Earnings and Diluted Earnings per Share

		Third Quarter
		2011				2010
(Dollars in millions, except diluted EPS)		$		EPS		$		EPS
Earnings from continuing operations	$	165	$	1.16	$	162	$	1.11
Earnings from discontinued operations, net of tax		--		--		8		0.05
Gain from disposal of discontinued operations, net of tax		--		--		--		--
Net earnings	$	165	$	1.16	$	170	$	1.16

		First Nine Months
		2011				2010
(Dollars in millions, except diluted EPS)		$		EPS		$		EPS
Earnings from continuing operations	$	557	$	3.86	$	408	$	2.77
Earnings from discontinued operations, net of tax		8		0.06		11		0.08
Gain from disposal of discontinued operations, net of tax		31		0.21		--		--
Net earnings	$	596	$	4.13	$	419	$	2.85

29

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 reportable operating segments, consisting of the CASPI segment, the Fibers segment, the PCI segment, and the Specialty Plastics segment.  For additional information concerning the Company's operating businesses and products,see Note 23, "Segment Information" to the consolidated financial statements in Part II, Item 8 of the Company's 2010 Annual Report on Form 10-K.

Sales revenue and expenses not identifiable to an operating segment are not included in segment operating results for either of the periods presented and are shown as "other" sales revenue and "other" operating earnings (loss) when applicable.  For more information, refer to Note 18, "Segment Information", to the Company's unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.  Included in first nine months 2011 is a $15 million gain from the sale of the previously impaired methanol and ammonia assets related to the terminated Beaumont, Texas industrial gasification project.

The Company continues to explore and invest in R&D initiatives at a corporate level that are aligned with macro trends in sustainability, consumerism, and energy efficiency with a focus on high performance materials, advanced cellulosics, and environmentally-friendly chemistry.  The Company recently announced several innovation projects that are in various stages of development.  One such project is the Company’s process technology for wood acetylation, which chemically modifies wood to increase dimensional stability and durability and improve performance.  This new technology leverages the Company's integrated manufacturing streams to enable new market opportunities in sustainable products.  The Company is also developing Eastman Cerfis™ technology for wood finishing which uses its proprietary copolyesters and technology to extrusion-coat solid or engineered woods; and Eastman™ microfibers technology which leverages its polymers and applications technology expertise in high purity air filtration, liquid filtration, and energy storage media.

CASPI Segment
			Third Quarter							First Nine Months
							Change							Change
(Dollars in millions)			2011		2010		$	%		2011		2010		$	%
Sales		$	461	$	406	$	55	14 %	$	1,419	$	1,195	$	224	19 %
	Volume effect						2	1 %						69	6 %
	Price effect						52	13 %						159	13 %
	Product mix effect						(4)	(1) %						(12)	(1) %
	Exchange rate effect						5	1 %						8	1 %
Operating earnings			82		89		(7)	(8) %		279		246		33	13 %

Sales revenue increased in third quarter 2011 compared to third quarter 2010 primarily due to higher selling prices which were in response to higher raw material and energy costs.

Sales revenue increased in first nine months 2011 compared to first nine months 2010 primarily due to higher selling prices and higher sales volume.  The higher selling prices were in response to higher raw material and energy costs and were also attributed to strengthened demand, particularly in the U.S., and tight industry supply.  The higher sales volume was attributed primarily to strengthened end-use demand in the packaging, durable goods, and transportation markets, particularly in the U.S.

Operating earnings decreased in third quarter 2011 compared to third quarter 2010.  Third quarter 2011 operating earnings included $3 million of costs from the unplanned outage of an olefin cracking unit, while third quarter 2010 operating earnings included $9 million from the partial settlement of an insurance claim.  Third quarter 2011 operating earnings were positively impacted by higher selling prices which more than offset higher raw material and energy costs.

30

 

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Operating earnings increased in first nine months 2011 compared to first nine months 2010 primarily due to higher selling prices, higher sales volume, and the increased benefits from cracking propane to produce low-cost propylene, which more than offset higher raw material and energy costs.  In first nine months 2010, operating earnings included $12 million of the insurance proceeds from the partial settlement related to the Longview, Texas outage.

The Company is progressing on both organic and inorganic growth initiatives in the CASPI segment.  The Company is expanding capacity for its specialty hydrocarbon resins through an additional expansion of the Company's hydrogenated hydrocarbon resins manufacturing capacity in Middelburg, the Netherlands which is expected to be operational in fourth quarter 2011, an additional debottleneck of the hydrogenated hydrocarbon facility in Longview, Texas, which was operational in first quarter 2011, and an expansion of the pure monomer and hydrogenated resins production capacity in Jefferson, Pennsylvania, which is expected to be operational in the first half of 2012.  In third quarter 2011, the Company purchased Dynaloy, LLC, a producer of formulated solvents, to support the segment’s growth efforts for the electronic materials product line.

Fibers Segment
			Third Quarter							First Nine Months
							Change							Change
(Dollars in millions)			2011		2010		$	%		2011		2010		$	%
Sales		$	334	$	301	$	33	11 %	$	955	$	842	$	113	13 %
	Volume effect						1	-- %						30	3 %
	Price effect						14	5 %						33	4 %
	Product mix effect						16	6 %						48	6 %
	Exchange rate effect						2	-- %						2	-- %
Operating earnings			92		89		3	3 %		266		248		18	7 %

Sales revenue increased in third quarter 2011 compared to third quarter 2010 primarily due to a favorable shift in product mix and higher selling prices.  The favorable shift in product mix was mainly due to higher acetate tow sales volume resulting from increased utilization of the recently completed acetate tow manufacturing facility in Korea.  The higher selling prices were in response to higher raw material and energy costs, particularly for wood pulp.  The higher acetate tow sales volume was mostly offset by lower acetyl chemicals sales volume.

Sales revenue increased in first nine months 2011 compared to first nine months 2010 primarily due to a favorable shift in product mix, higher selling prices, and higher sales volume.  The favorable shift in product mix was mainly due to higher acetate tow sales volume resulting from increased utilization of the recently completed acetate tow manufacturing facility in Korea.  The higher selling prices were in response to higher raw material and energy costs, particularly for wood pulp.

Operating earnings increased in third quarter and first nine months 2011 compared to third quarter and first nine months 2010 primarily due to higher acetate tow sales volume in Asia Pacific and higher selling prices, mostly offset by higher raw material and energy costs.

The Company has entered into a joint venture for a 30,000-ton acetate tow manufacturing facility in China.  The facility is expected to be operational in 2013.  Eastman will have 45 percent ownership of the joint venture and will provide 100 percent of the acetate flake raw material to the joint venture from the Company's manufacturing facility in Kingsport.

31 

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

PCI Segment
		Third Quarter							First Nine Months
						Change							Change
(Dollars in millions)		2011		2010		$	%		2011		2010		$	%
Sales	$	740	$	534	$	206	39 %	$	2,163	$	1,557	$	606	39 %
Volume effect						21	4 %						212	14 %
Price effect						134	25 %						323	21 %
Product mix effect						47	9 %						63	4 %
Exchange rate effect						4	1 %						8	-- %
Operating earnings		71		74		(3)	(4) %		247		177		70	40 %
Asset impairments and restructuring charges, net		7		--		7			7		3		4
Operating earnings excluding asset impairments and restructuring charges, net		78		74		4	5 %		254		180		74	41 %

Sales revenue increased in third quarter 2011 compared to third quarter 2010 due to higher selling prices and a favorable shift in product mix.  The higher selling prices were in response to higher raw material and energy costs.  The favorable shift in product mix was due to increased sales revenue from plasticizer product lines, $8 million from the acetyl technology license, and $15 million of sales revenue from the recently acquired Sterling business.

Sales revenue increased in first nine months 2011 compared to first nine months 2010 due to higher selling prices and higher sales volume.  The increased selling prices were in response to higher raw material and energy costs and also attributed to strengthened demand in the U.S. and tight industry supply, particularly for olefin-derivative product lines.  The higher sales volume was primarily due to growth in plasticizer product lines, which included the acquired Genovique plasticizer product lines, particularly in the U.S. and Europe, and the restart of the previously idled Texas olefin cracking unit.

Excluding asset impairments and restructuring charges, net, in third quarter 2011 primarily for severance related to the acquisition and integration of Sterling, operating earnings increased due to higher selling prices and a favorable shift in product mix more than offsetting higher raw material and energy costs.  Operating earnings in third quarter 2011 included $8 million from the acetyl technology license and $8 million of costs from the unplanned outage of an olefin cracking unit.  Operating earnings in third quarter 2010 were positively impacted by $12 million from the partial settlement of an insurance claim. 

32

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Excluding asset impairments and restructuring charges, net, operating earnings increased in first nine months 2011 compared to first nine months 2010 primarily due to higher selling prices, higher sales volume, and the increased benefits from cracking propane to produce low-cost propylene, which more than offset higher raw material and energy costs.  First nine months 2011 operating earnings included $8 million from the acetyl technology license and costs of $10 million from the unplanned outage of an olefin cracking unit at the Longview, Texas facility.  First nine months 2010, operating earnings included $12 million from the acetyl technology license and $18 million of the insurance proceeds from partial settlement related to the 2010 Longview, Texas manufacturing outage.  In first nine months 2011, operating earnings included $7 million in restructuring charges, primarily for severance associated with the acquisition and integration of Sterling, and in first nine months 2010 included $3 million in restructuring charges, primarily for severance associated with the acquisition and integration of Genovique.

In third quarter 2011, the Company acquired Sterling, a single site North American petrochemical producer.  The transaction includes Sterling’s acetic acid contract and plasticizer manufacturing assets in Texas City, Texas.  Eastman plans to modify and restart Sterling's currently idled plasticizer manufacturing facility to produce non-phthalate plasticizers, including Eastman 168™ non-phthalate plasticizers.  Also, in third quarter 2011, the Company acquired Scandiflex, a manufacturer of plasticizers located in São Paulo, Brazil.  Scandiflex’s manufacturing capabilities and customer relationships in Brazil are expected to enable Eastman to accelerate growth of its PCI segment’s non-phthalate plasticizer business in the Latin America region.

In addition to its recent acquisitions, the Company has announced several manufacturing expansions to support its plasticizer business at its Kohtla-Järve, Estonia, Chestertown, Maryland, and Kingsport, Tennessee sites.  These expansions are expected to be completed by the end of second quarter 2012. The Company is increasing capacity to produce its largest oxo aldehyde chemical, 2-ethyl hexanol ("2-EH"), which is expected to be operational in 2012.  The Company both sells 2-EH to external markets and uses it internally in its plasticizers production.  End markets for 2-EH include building and construction, transportation, medical, and consumer and industrial.

Specialty Plastics Segment
			Third Quarter							First Nine Months
							Change							Change
(Dollars in millions)			2011		2010		$	%		2011		2010		$	%
Sales		$	277	$	266	$	11	4 %	$	918	$	785	$	133	17 %
	Volume effect						(31)	(12) %						(2)	-- %
	Price effect						42	16 %						126	16 %
	Product mix effect						(2)	(1) %						5	1 %
	Exchange rate effect						2	1 %						4	-- %
Operating earnings			29		29		--	-- %		96		69		27	39 %

Sales revenue increased in third quarter 2011 compared to third quarter 2010 primarily due to higher selling prices, partially offset by lower sales volume.  Selling prices increased in response to higher raw material and energy costs, particularly for paraxylene.  The lower sales volume was attributed to weakened demand for copolyester product lines, particularly in packaging, consumer durable goods, and liquid crystal display ("LCD") end markets, customer inventory destocking, and some customer shift to other plastic materials that do not use paraxylene as a raw material.

Sales revenue increased in first nine months 2011 compared to first nine months 2010 primarily due to higher selling prices.  Selling prices increased in response to higher raw material and energy costs, particularly for paraxylene.

Operating earnings were unchanged in third quarter 2011 compared to third quarter 2010 as higher selling prices were offset by higher raw materials and energy costs and lower sales volume.

33

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Operating earnings increased in first nine months 2011 compared to first nine months 2010 primarily due to increased selling prices which more than offset higher raw material and energy costs.

The monomer manufacturing facility and the first Eastman TritanTM copolyester resin manufacturing facility in Kingsport, Tennessee commenced production in first quarter 2010. The Company is adding another 30,000 metric tons of resin capacity for TritanTM, which is expected to be operational in early 2012.  The Company is also expanding its capacity for cyclohexane dimethanol ("CHDM"), a monomer used in the manufacture of copolyester, by approximately 25 percent and expects the capacity to be operational in two phases in fourth quarter 2011 and in early 2012, and is expanding its cellulose triacetatecapacity by approximately 70 percent, with the new capacity expected to be operational in second quarter 2012.

SUMMARY BY CUSTOMER LOCATION

    Sales Revenue

		Third Quarter
(Dollars in millions)		2011		2010	Change	Volume Effect	Price Effect	Product Mix Effect	Exchange Rate Effect
United States and Canada	$	978	$	771	27 %	1 %	21 %	5 %	-- %
Asia Pacific		433		369	17 %	-- %	11 %	5 %	1 %
Europe, Middle East, and Africa		323		291	11 %	(2) %	11 %	(1) %	3 %
Latin America		78		76	4 %	(13) %	9 %	8 %	-- %
	$	1,812	$	1,507	20 %	-- %	16 %	4 %	-- %

Sales revenue in the United States and Canada increased in third quarter 2011 compared to third quarter 2010 primarily due to higher selling prices, particularly in the PCI segment.

Sales revenue in Asia Pacific increased in third quarter 2011 compared to third quarter 2010 primarily due to higher selling prices in all segments and a favorable shift in product mix in the Fibers segment.

Sales revenue in Europe, Middle East, and Africa increased in third quarter 2011 compared to third quarter 2010 primarily due to higher selling prices, particularly in the CASPI segment.

Sales revenue in Latin America increased in third quarter 2011 compared to third quarter 2010 primarily due to higher selling prices, particularly in the CASPI and PCI segments, and a favorable shift in product mix primarily in the PCI segment partially offset by lower sales volume in all segments.  Lower sales volume was primarily due to sales being redirected to other regions.

34

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

		First Nine Months
(Dollars in millions)		2011		2010	Change	Volume Effect	Price Effect	Product Mix Effect	Exchange Rate Effect
United States and Canada	$	2,900	$	2,253	29 %	9 %	17 %	3 %	-- %
Asia Pacific		1,264		1,058	19 %	4 %	11 %	4 %	-- %
Europe, Middle East, and Africa		1,048		851	23 %	8 %	13 %	1 %	1 %
Latin America		243		217	12 %	(2) %	13 %	1 %	-- %
	$	5,455	$	4,379	25 %	7 %	15 %	2 %	1 %

Sales revenue in the United States and Canada increased in first nine months 2011 compared to first nine months 2010 due to higher selling prices and higher sales volume, particularly in the PCI segment.

Sales revenue in Asia Pacific increased in first nine months 2011 compared to first nine months 2010 primarily due to higher selling prices in all segments, and higher sales volume and a favorable shift in product mix, primarily in the Fibers segment.

Sales revenue in Europe, Middle East, and Africa increased in first nine months 2011 compared to first nine months 2010 due to higher selling prices in all segments and higher sales volume, particularly in the PCI segment.

Sales revenue in Latin America increased in first nine months 2011 compared to first nine months 2010 primarily due to higher selling prices, particularly in the PCI and CASPI segments.

With a substantial portion of sales to customers outside the United States, Eastman is subject to the risks associated with operating in international markets.  To mitigate its exchange rate risks, the Company frequently seeks to negotiate payment terms in U.S. dollars or euros.  In addition, where it deems such actions advisable, the Company engages in foreign currency hedging transactions and requires letters of credit and prepayment for shipments where its assessment of individual customer and country risks indicates their use is appropriate.  For additional information concerning these practices, see Note 12, "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 2010 Annual Report on Form 10-K and "Forward-Looking Statements and Risk Factors" of this Quarterly Report on Form 10-Q.

LIQUIDITY, CAPITAL RESOURCES, AND OTHER FINANCIAL INFORMATION

Cash Flows

		First Nine Months
(Dollars in millions)		2011		2010
Net cash provided by (used in)
Operating activities	$	273	$	297
Investing activities		(16)		(323)
Financing activities		(326)		(126)
Effect of exchange rate changes on cash and cash equivalents		1		1
Net change in cash and cash equivalents		(68)		(151)
Cash and cash equivalents at beginning of period		516		793
Cash and cash equivalents at end of period	$	448	$	642

35

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

		First Nine Months
(Dollars in millions)		2011		2010
Net cash provided by (used in) operating activities	$	273	$	297
Impact of adoption of amended accounting guidance (1)		--		200
Impact of tax payment on the sale of the PET business (2)		83		--
Net cash provided by operating activities excluding items		356		497
Additions to properties and equipment		(333)		(133)
Dividends paid to stockholders		(100)		(96)
Free Cash Flow	$	(77)	$	268

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

(2)   Third quarter and first nine months 2011 cash flows included the use of $28 million and $83 million, respectively, of a total anticipated $110 million tax payment for the tax gain on the sale of the PET business completed in first quarter 2011.

Cash provided by operating activities was $273 million during first nine months 2011.  The Company contributed $102 million to its U.S. defined benefit pension plans, which is reflected as a reduction in "Post-employment obligations" on the Consolidated Statement of Financial Position.  Additionally, the Company paid $83 million of a total anticipated $110 million tax payment for the tax gain on the sale of the PET business completed in first quarter 2011.  Working capital increased by $338 million due to increased inventory resulting from increased raw material costs and in preparation for planned manufacturing maintenance in fourth quarter 2011 as well as increased accounts receivable primarily attributed to increased sales revenue.  The Company generated $297 million cash from operating activities during the first nine months of 2010 including a $200 million increase in working capital resulting from the adoption of amended accounting guidance for transfers of financial assets which impacted the financial statement presentation for activity under the Company’s accounts receivable securitization program.

Cash used in investing activities was $16 million in first nine months 2011 compared to $323 million used in investing activities in first nine months 2010.  First nine months 2011 included the receipt of $615 million from the sale of the PET business, payments for acquisitions including approximately $120 million for Sterling and Scandiflex, and capital expenditures of $333 million.  Also, in first nine months 2011 the Company invested $200 million in short-term time deposits having staggered maturities between three and ten months at the investment date.First nine months 2010 included the acquisition of Genovique, payments for the acquisition of the Korean acetate tow facility, and capital expenditures of $133 million.

Cash used in financing activities totaled $326 million in first nine months 2011 compared to $126 million used in financing activities in first nine months 2010.  Share repurchases in first nine months 2011 were $292 million compared to share repurchases of $68 million in first nine months 2010.

The payment of dividends and proceeds from stock option exercises are also reflected in financing activities in all periods.

The Company expects free cash flow (cash from operating activities less capital expenditures and dividends, excluding the tax payments on the sale of the PET business) in 2011 of between $175 million and $200 million, assuming capital expenditures of approximately $475 million and $102 million U.S. defined benefit pension plans funding in first nine months 2011.  The priorities for uses of available cash in 2011 are payment of the quarterly cash dividend, funding targeted growth initiatives (including organic initiatives and joint ventures and acquisitions) and defined benefit pension plans, and repurchasing shares.

36

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Liquidity

The Company had cash and cash equivalents and short-term time deposits at September 30, 2011 and December 31, 2010 as follows:

		September 30,		December 31,
(Dollars in millions)		2011		2010
Cash and cash equivalents	$	448	$	516
Short-term time deposits		201		--
Total cash and cash equivalents and short-term time deposits	$	649	$	516

In addition, at September 30, 2011, the Company had access to the sources of liquidity described below.

The Company had a $700 million revolving credit facility ("Credit Facility") in two tranches, with $125 million expiring in April 2012 and $575 million expiring in April 2013.  The Company expects to renew or replace the Credit Facility on similar terms, subject to market conditions, before the end of second quarter 2012.  Borrowings under the Credit Facility are subject to interest at varying spreads above quoted market rates and a facility fee is paid on the total commitment.  In addition, the Credit Facility contains a number of customary covenants and events of default, including the maintenance of certain financial ratios.  The Company was in compliance with all such covenants for all periods presented.  At September 30, 2011 and December 31, 2010, the Company had no outstanding borrowings under the Credit Facility.  The Credit Facility provides liquidity support for general corporate purposes.

The Company also had a $200 million line of credit under its annually renewable accounts receivable securitization agreement ("A/R Facility").  The A/R Facility was renewed in July 2011.  Borrowings under the A/R Facility are subject to interest rates based on a spread over the lender's borrowing costs, and the Company pays a fee to maintain availability of the A/R Facility.  In addition, the A/R Facility contains a number of customary covenants and events of default, including the maintenance of certain financial ratios.  The Company was in compliance with all such covenants for all periods presented.  At September 30, 2011 and December 31, 2010, the Company had no outstanding borrowings under the A/R Facility.

For more information regarding interest rates, refer to Note 7, "Borrowings", to the Company's unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

In first nine months 2011, the Company made $102 million in contributions to its U.S. defined benefit pension plans.  In 2010, the Company made $35 million in contributions to its U.S. defined benefit pension plan.

Cash flows from operations, cash and cash equivalents, short-term time deposits,and the other sources of liquidity described above are expected to be available and sufficient to meet foreseeable cash flow requirements.  However, the Company's cash flows from operations can be affected by numerous factors including risks associated with global operations, raw material availability and cost, demand for and pricing of Eastman's products, capacity utilization, and other factors described under "Forward-Looking Statements and Risk Factors" below.  The Company believes maintaining a financial profile consistent with an investment grade company is important to its long term strategic and financial flexibility.

37

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Capital Expenditures

Capital expenditures were $333 million and $133 million in first nine months 2011 and 2010, respectively.  The higher expenditures in first nine months 2011 were primarily due to capital spending on organic growth initiatives, particularly in the Specialty Plastics, CASPI, and PCI segments.  The lower expenditures in first nine months 2010 were primarily due to the deferral of discretionary spending in response to the global recession.  The Company expects that 2011 capital spending will be approximately $475 million for required maintenance, organic growth initiatives, and environmental infrastructure.

Other Commitments

At September 30, 2011, the Company's obligations related to notes and debentures totaled approximately $1.6 billion to be paid over a period of approximately 15 years.  The Company has $149 million principal amount of 7% notes maturing in second quarter 2012.  The Company expects to fund this obligation through available cash, other available sources of liquidity, or new borrowings.  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 for additional information.

Other borrowings, related primarily to credit facility borrowings, totaled $5 million.

The Company had various purchase obligations at September 30, 2011 totaling approximately $1.4 billion over a period of approximately 15 years for materials, supplies and energy incident to the ordinary conduct of business.  For information regarding the Company's lease commitments, refer to Note 10, "Commitments", to the Company's unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

In addition, the Company had other liabilities at September 30, 2011 totaling approximately $1.3 billion primarily related to pension, retiree medical, and other post-employment obligations.

The items described above are summarized in the following table:

(Dollars in millions)		Payments Due for
Period		Notes and Debentures		Credit Facility Borrowings and Other		Interest Payable		Purchase Obligations		Operating Leases		Other Liabilities (a)		Total
2011	$	--	$	--	$	23	$	74	$	7	$	98	$	202
2012		149		5		87		269		26		48		584
2013		--		--		81		248		20		49		398
2014		--		--		81		131		10		52		274
2015		250		--		81		130		12		56		529
2016 and beyond		1,195		--		528		589		26		1,043		3,381
Total	$	1,594	$	5	$	881	$	1,441	$	101	$	1,346	$	5,368

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

38

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Off Balance Sheet and Other Financing Arrangements

If certain operating leases are terminated by the Company, it has guaranteed a portion of the residual value loss, if any, incurred by the lessors in disposing of the related assets.  For information on the Company's residual value guarantees, refer to Note 10, "Commitments", to the Company's unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

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

Guarantees and claims also arise during the ordinary course of business from relationships with suppliers, customers, and other parties when the Company undertakes an obligation to guarantee the performance of others, if specified triggering events occur.  Non-performance under a contract could trigger an obligation of the Company.  These potential claims include actions based upon intellectual property and environmental matters, and other indemnifications.  The ultimate effect on future financial results is not subject to reasonable estimation because considerable uncertainty exists as to the final outcome of these claims.  However, while the ultimate liabilities resulting from such claims may be significant to results of operations in the period recognized, management does not anticipate they will have a material adverse effect on the Company's consolidated financial position or liquidity.

Treasury Stock

On October 3, 2011, the Company distributed a two-for-one split of the Company's common stock in the form of a 100 percent stock dividend.  For additional information, see Note 14, "Earnings and Dividends Per Share" to the Company's unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

In August 2010, the Company's Board of Directors authorized repurchase of up to $300 million of the Company's outstanding common stock.  The Company completed the $300 million repurchase authorization in June 2011, acquiring a total of 7.1 million shares.

In February 2011, the Company's Board of Directors authorized an additional repurchase of up to $300 million of the Company's outstanding common stock at such times, in such amounts, and on such terms, as determined to be in the best interests of the Company.  As of September 30, 2011, a total of 4,064,430 shares of common stock have been repurchased under this authorization for a total amount of approximately $176 million.

During first nine months 2011, the Company repurchased 6,564,822 shares of common stock for a cost of approximately $292 million.

Dividends

The Company declared cash dividends of $0.26 per share and $0.22 per share in third quarter 2011 and 2010 and $0.73 per share and $0.66 per share in first nine months 2011 and 2010, respectively.

39

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

RECENTLY ISSUED ACCOUNTING STANDARDS

In May 2011, the Financial Accounting Standards Board ("FASB") issued amended accounting guidance related to fair value measurements and disclosures with the purpose of converging the fair value measurement and disclosure guidance issued by the FASB and the International Accounting Standards Board.  The guidance is effective for reporting periods beginning after December 15, 2011.  The guidance includes amendments that clarify the intent of the application of existing fair value measurement requirements along with amendments that change a particular principle or requirement for fair value measurements and disclosures.  The Company has concluded that the new guidance will not have a material impact on its Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings, Consolidated Statements of Financial Position, or related disclosures.

In June 2011, the FASB issued amended accounting guidance related to presentation of comprehensive income.  The standards update is intended to help financial statement users better understand the causes of an entity’s change in financial position and results of operation.  It is effective for reporting periods beginning after December 15, 2011.  The amendments eliminate the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity.  The amendments require that all nonowner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements.  The guidance also requires that reclassification adjustments for items that are reclassified from other comprehensive income to net income be presented on the face of the financial statement where the components of net income and other comprehensive income are presented.  Upon adoption, the Company will continue to present components of comprehensive income in its Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings.  These statements will include reclassification adjustments as required by the new guidance for all periods presented.  Since this new guidance will affect disclosure requirements only, the Company has concluded that it will not have a material impact on the Company’s financial position or results of operations.

2011 OUTLOOK

The Company expects to benefit from the combination of the restart of an olefin cracking unit, lower interest expense, full year integration of the Genovique acquisition and Korean acetate tow manufacturing facility, strong market adoption of the TritanTM copolyester products, continued substitution of Eastman products for other materials, and new applications for existing products.

The Company expects the volatility of market prices for raw materials and energy to continue and that the Company will continue to use pricing and hedging strategies to offset this volatility, and for raw material and energy costs to be higher than 2010.

The Company expects to continue with growth initiatives in all segments, as well as to continue to explore and invest in R&D initiatives at a corporate level that are aligned with macro trends in sustainability, consumerism, and energy efficiency through high performance materials, advanced cellulosics, and environmentally-friendly chemistry.

The Company expects capital spending to be approximately $475 million for required maintenance, organic growth initiatives, and environmental infrastructure.

The Company expects between $175 million and $200 million of free cash flow (operating cash flow less capital expenditures and dividends, excluding the tax payments on the sale of the PET business).

Based upon the foregoing expectations and the expectation that normal seasonality and customer inventory destocking will decrease sales volume in fourth quarter 2011, the Company expects fourth quarter 2011 earnings per share to be higher than fourth quarter 2010 earnings per share of $0.70 and full year 2011 earnings per share to be approximately $4.62, excluding asset impairments and restructuring charges and gains, net, for both periods.

See "Forward-Looking Statements and Risk Factors" below.

40

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS AND RISK FACTORS

The expectations under "2011 Outlook" and certain other statements in this Quarterly Report on Form 10-Q which are not statements of historical fact may be "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995 and other federal securities laws.  These statements, and other written and oral forward-looking statements made by the Company from time to time may relate to, among other things, such matters as planned and expected capacity increases and utilization; anticipated capital spending; expected depreciation and amortization; environmental matters; legal proceedings; exposure to, and effects of hedging of, raw material and energy costs, foreign currencies 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 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 restructuring, acquisition, divestiture, and consolidation activities; cost reduction and control efforts and targets; integration of any acquired businesses; strategic initiatives and development, production, commercialization, and acceptance of new products, services and technologies and related costs; asset, business and product portfolio changes; and expected tax rates and net interest costs.

These plans and expectations are based upon certain underlying assumptions, including those mentioned with the specific statements.  Such assumptions are based upon internal estimates and analyses of current market conditions and trends, management plans and strategies, economic conditions and other factors.  These plans and expectations and the underlying assumptions are necessarily subject to risks and uncertainties inherent in projecting future conditions and results.  Actual results could differ materially from expectations expressed in any forward-looking statement if one or more of the underlying assumptions or expectations proves to be inaccurate or is unrealized.  In addition to the factors described elsewhere in this Quarterly Report on Form 10-Q, the following are the most significant known factors that could cause the Company's actual results to differ materially from those in any such forward-looking statement.  Additional factors not presently known to the Company, or that the Company does not currently believe to be material, may also cause actual results to differ materially from expectations.

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

While economic and financial market conditions have improved from those in 2008 and 2009, 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 recentglobal 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.  If the global economy or financial markets again deteriorate or experience significant new disruptions, the Company's results of operations, financial condition, and cash flows could be materially adversely affected; 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.

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

The Company is reliant on certain strategic raw material and energy commodities for its operations and utilizes risk management tools, including hedging, as appropriate, to mitigate short-term market fluctuations in raw material and energy costs.  These risk mitigation measures cannot eliminate all exposure to market fluctuations.  In addition, natural disasters, plant interruptions, changes in laws or regulations, war or other outbreak of hostilities or terrorism, and breakdown or degradation of transportation infrastructure used for delivery of strategic raw material and energy commodities, could adversely impact both the cost and availability of these commodities.

41

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

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

Significant limitation of the Company's ability to manufacture products due to disruption of manufacturing operations or related infrastructure could have a material adverse 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, operator error, or process failures; or external factors such as natural disasters, pandemic illness, changes in laws or regulations, war or other outbreak of hostilities or terrorism, or breakdown or degradation of transportation infrastructure used for delivery of supplies to the Company or for delivery of products to customers.

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

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

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

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

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

The Company's facilities and businesses are subject to complex health, safety and environmental laws and regulations, which require and will continue to require significant expenditures to remain in compliance with such laws and regulations.  The Company's accruals for such costs and associated liabilities are subject to changes in estimates on which the accruals are based.  The amount accrued reflects the Company's assumptions about remediation requirements at the contaminated site, the nature of the remedy, the outcome of discussions with regulatory agencies and other potentially responsible parties at multi-party sites, and the number and financial 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.  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.

42

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 "2011 Outlook" and "Forward-Looking Statements and Risk Factors," and other forward-looking statements and related disclosures made by the Company in this Quarterly Report on Form 10-Q 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 Securities and Exchange Commission or in Company press releases) on related subjects.

43

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There are no material changes to the Company's market risks from those disclosed in Part II, Item 7A of the Company's 2010 Annual Report on Form 10-K.

ITEM 4.  CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

The Company maintains a set of disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms.  Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the Company's management, including its principal executive and 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, 2011, the Company's disclosure controls and procedures were effective to ensure that information required to be disclosed was accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There has been no change in the Company's internal control over financial reporting that occurred during third quarter 2011 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

44

 

PART II.  OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

General

From time to time, the Company and its operations are parties to, or targets of, lawsuits, claims, investigations and proceedings, including product liability, personal injury, asbestos, patent and intellectual property, commercial, contract, environmental, antitrust, health and safety, and employment matters, which are being handled and defended in the ordinary course of business.  While the Company is unable to predict the outcome of these matters, it does not believe, based upon currently available facts, that the ultimate resolution of any such pending matters will have a material adverse effect on its overall financial condition, results of operations, or cash flows.  However, adverse developments could negatively impact earnings or cash flows in a particular future period.

Jefferson (Pennsylvania) Environmental Proceeding

As previously reported, in December 2005, Eastman Chemical Resins, Inc., a wholly-owned subsidiary of the Company (the "ECR Subsidiary"), received a Notice of Violation ("NOV") from the United States Environmental Protection Agency's Region III Office ("EPA") alleging that the ECR Subsidiary's West Elizabeth, Jefferson Borough, Allegheny County, Pennsylvania manufacturing operation violated certain federally enforceable local air quality regulations and certain provisions in a number of air quality-related permits.  In September 2011, Eastman reached agreement with EPA and the Allegheny County Health Department to settle the alleged noncompliance through a Consent Decree filed with the United States District Court for the Western District of Pennsylvania.  This disclosure is made pursuant to Securities and Exchange Commission Regulation S-K, Item 103, Instruction 5.C., which requires disclosure of administrative proceedings commenced under environmental laws that involve governmental authorities as parties and monetary sanctions of at least $100,000.  The ultimate resolution of this proceeding did not have a material impact on the Company's financial condition, results of operations, or cash flows.

ITEM 1A.  RISK FACTORS

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

45

 

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

 (c)  Purchases of Equity Securities by the Issuer

Period (1)	Total Number of Shares Purchased (2)		Average Price Paid Per Share (3)	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (4)		Approximate Dollar Value (in millions) that May Yet Be Purchased Under the Plans or Programs (4)
July 1- 31, 2011	90,000	$	51.33	90,000	$	234
August 1 - 31, 2011	2,475,000	$	39.84	2,475,000	$	136
September 1 - 30, 2011	300,000	$	41.28	300,000	$	123
Total	2,865,000	$	40.35	2,865,000

(1)   Shares and share prices have been retrospectively adjusted for all periods presented for the two-for-one stock split that was distributed on October 3, 2011.  For additional information, see Note 14, "Earnings and Dividends Per Share", to the Company's unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

(2)   Shares repurchased under a Company announced repurchase plan.

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

(4)   In February 2011, the Board of Directors authorized repurchase of up to $300 million of the Company's outstanding common stock at such times, in such amounts, and on such terms, as determined to be in the best interests of the Company.  As of September 30, 2011, a total of 4,064,430 shares have been repurchased under this authorization for a total amount of approximately $176 million.  During first nine months 2011, the Company repurchased 6,564,822 shares of common stock for a cost of approximately $292 million under the current and a previous stock repurchase authorization.  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.

ITEM 6.  EXHIBITS

Exhibits filed as part of this report are listed in the Exhibit Index appearing on page 48.

46

 

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 1, 2011	By:	/s/Curtis E. Espeland
		Curtis E. Espeland
		Senior Vice President and Chief Financial Officer

47

 

	EXHIBIT INDEX	Sequential
Exhibit		Page
Number	Description	Number
3.01	Amended and Restated Certificate of Incorporation of Eastman Chemical Company, as amended (incorporated herein by reference to Exhibit 3.01 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2011)
3.02	Amended and Restated Bylaws of Eastman Chemical Company (incorporated herein by referenced to Exhibit 3.02 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2011)
4.01	Form of Eastman Chemical Company common stock certificate as amended February 1, 2001 (incorporated herein by reference to Exhibit 4.01 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2001)
4.02	Indenture, dated as of January 10, 1994, between Eastman Chemical Company and The Bank of New York, as Trustee (the "Indenture") (incorporated herein by reference to Exhibit 4(a) to the Company's Current Report on Form 8-K dated January 10, 1994)
4.03	Form of 7 1/4% Debentures due January 15, 2024 (incorporated herein by reference to Exhibit 4(d) to the Company's Current Report on Form 8-K dated January 10, 1994)
4.04	Officers' Certificate pursuant to Sections 201 and 301 of the Indenture (incorporated herein by reference to Exhibit 4(a) to the Company's Current Report on Form 8-K dated June 8, 1994)
4.05	Form of 7 5/8% Debentures due June 15, 2024 (incorporated herein by reference to Exhibit 4(b) to the Company's Current Report on Form 8-K dated June 8, 1994)
4.06	Form of 7.60% Debentures due February 1, 2027 (incorporated herein by reference to Exhibit 4.08 to the Company's Annual Report on Form 10-K for the year ended December 31, 1996)
4.07	Form of 7% Notes due April 15, 2012 (incorporated herein by reference to Exhibit 4.09 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2002)
4.08	Officer's Certificate pursuant to Sections 201 and 301 of the Indenture related to 7.60% Debentures due February 1, 2027 (incorporated herein by reference to Exhibit 4.09 to the Company's Annual Report on Form 10-K for the year ended December 31, 2006)
4.09	Form of 5.500% Notes due 2019 (incorporated  herein by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated November 2, 2009)
4.10	$200,000,000 Accounts Receivable Securitization agreement dated July 9, 2008 (amended February 18, 2009, July 8, 2009, July 7, 2010, January 31, 2011, and July 6, 2011), between the Company and The Bank of Tokyo-Mitsubishi UFJ, Ltd., as agent. (incorporated herein by reference to Exhibit 4.09 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2009, Exhibit 4.10 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2010, and Exhibit 4.10 to the Company's Annual Report on Form 10-K for the year ended December 31, 2010)
4.11	Amended and Restated Credit Agreement, dated as of April 3, 2006 (the "Credit Agreement") among Eastman Chemical Company, the Lenders named therein, and Citigroup Global Markets , Inc. and J. P. Morgan Securities Inc., as  joint lead arrangers, as amended on November 16, 2007 and March 10, 2008 (incorporated herein by reference to Exhibit 4.11 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2006 and Exhibit 4.10 to the Company's Quarterly  Report on Form 10-Q for the quarter ended March 31, 2008)

48

 

	EXHIBIT INDEX	Sequential
Exhibit		Page
Number	Description	Number
4.12	Form of 6.30% Notes due 2018 (incorporated herein by reference to Exhibit 4.14 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2003)
4.13	Form of 3% Note due 2015 (incorporated herein by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated December 10, 2010)
4.14	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)
10.01	Form of Award Notice for Stock Options Granted to Executive Officers on November 1, 2011	50-51
10.02	Forms of Performance Share Award to Executive Officers (2012 – 2014 Performance Period)	52-75
10.03	Amended and Restated Eastman Executive Deferred Compensation Plan	76-93
10.04	Amended and Restated Eastman Directors' Deferred Compensation Plan	94-107
10.05	Form of Award Notice for Stock Options Granted to James P. Rogers, Chief Executive Officer, on November 2, 2011	108-109
12.01	Statement re: Computation of Ratios of Earnings to Fixed Charges	110
31.01	Rule 13a – 14(a) Certification by James P. Rogers, Chief Executive Officer, for the quarter ended September 30, 2011	111
31.02	Rule 13a – 14(a) Certification by Curtis E. Espeland, Senior Vice President and Chief Financial Officer, for the quarter ended September 30, 2011	112
32.01	Section 1350 Certification by James P. Rogers, Chief Executive Officer, for the quarter ended September 30, 2011	113
32.02	Section 1350 Certification by Curtis E. Espeland, Senior Vice President and Chief Financial Officer, for the quarter ended September 30, 2011	114
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema
101.CAL	XBRL Taxonomy Calculation Linkbase
101.LAB	XBRL Taxonomy Label Linkbase
101.PRE	XBRL Presentation Linkbase Document
101.DEF	XBRL Definition Linkbase Document

49

EX-10.01

Exhibit 10.01

AWARD NOTICE

NOTICE OF NONQUALIFIED STOCK OPTION

GRANTED PURSUANT TO THE

EASTMAN CHEMICAL COMPANY

2007 OMNIBUS LONG-TERM COMPENSATION PLAN

Grantee:

Number of Shares:

Option Price:  $____

Grant Date:  November 1, 2011

1.           Grant of Option.  This Award Notice serves to notify you that the Compensation and Management Development Committee (the “Committee”) of the Board of Directors of Eastman Chemical Company ("Company") has granted to you, under the Company’s 2007 Omnibus Long-Term Compensation Plan (the "Plan"), a nonqualified stock option ("Option") to purchase, on the terms and conditions set forth in this Award Notice and the Plan, up to the number of shares of its $.01 par value Common Stock ("Common Stock") set forth above, at a price equal to $____ per share. The Plan is incorporated herein by reference and made a part of this Award Notice.  Capitalized terms not defined herein have the respective meanings set forth in the Plan.  The principal terms of the Plan, and of the offer by the Company of the shares of Common Stock covered by the Option, are described in the Prospectus for the Plan, which Prospectus will be delivered to you by the Company.

2.           Period of Option and Limitations on Right to Exercise.  Subject to earlier cancellation of all or a portion of the Option as described in Sections 6 and 7 of this Award Notice, the Option will expire at 4:00 p.m., Eastern Standard Time, on October 31, 2021 ("Expiration Date").

3.           Exercise of Option.

(a)           Subject to the terms set forth in this Award Notice, the Option will become exercisable as to one-third of the shares covered hereby on November 1, 2012, and one-third of the shares covered hereby on November 1, 2013, and as to the remaining shares on November 1, 2014.

(b)           Upon your death, your personal representative may exercise the Option, subject to the terms set forth in Section 6 of this Award Notice.

(c)           The Option may be exercised in whole or in part.  The exercise generally must be accompanied by, or make provision for, full payment in cash, by check, by a broker-assisted cashless method, or by surrendering unrestricted shares of Common Stock having a value on the date of exercise equal to the exercise price, or in any combination of the foregoing; however, if you wish to pay with shares of Common Stock already held by you, you may submit an Affidavit of Ownership form attesting to the ownership of the shares instead of share certificates.

4.           Nontransferability.  The Option is not transferable except by will or by the laws of descent and distribution, and may not be sold, assigned, pledged or encumbered in any way, whether by operation of law or otherwise.  The Option may be granted only to and exercised only by you during your lifetime, except in the case of a permanent disability involving mental incapacity.

5.           Limitation of Rights.  You will not have any rights as a stockholder with respect to the shares covered by the Option until you become the holder of record of such shares by exercising the Option.  Neither the Plan, the granting of the Option, nor this Award Notice gives you any right to remain employed by the Company or its Subsidiaries.

50

Exhibit 10.01

6.         Termination.  Upon termination of your employment with the Company and its Subsidiaries ("termination") by reason of death, disability, or retirement, the Option will remain exercisable according to its terms until the earliest to occur of: 1) five (5) years following your date of termination or 2) the Expiration Date.  Upon termination due to resignation, the Option will remain exercisable according to its terms until the earliest to occur of: 1) ninety (90) days following your date of termination or 2) the Expiration Date. Upon termination for cause, any portion of the Option not previously exercised by you will be canceled and forfeited by you, without payment of any consideration by the Company.  Upon termination for a reason other than those described in this Section (e.g., reduction in force, divestiture, special separation, termination by mutual consent), the Option will remain exercisable until the Expiration Date, unless the Committee (for executive officers) or the executive officer responsible for Human Resources (for non-executive employees) determines that any portion of the Option will not remain exercisable or that the Option will be exercisable for a shorter period.

7.           Noncompetition; Confidentiality.  You will not, without the written consent of the Company, either during your employment by the Company or thereafter, disclose to anyone or make use of any confidential information which you have acquired during your employment relating to any of the business of the Company, except as such disclosure or use may be required in connection with your work as an employee of the Company.  During your employment by the Company, and for a period of two years after the termination of such employment, you will not, either as principal, agent, consultant, employee or otherwise, engage in any work or other activity in competition with the Company in the field or fields in which you have worked for the Company.  The agreement in this Section 7 applies separately in the United States and in other countries but only to the extent that its application shall be reasonably necessary for the protection of the Company.  You will forfeit all rights under this Award Notice to or related to the Option if, in the determination of the Committee (in the case of executive officers) or of the  executive officer responsible for Human Resources (in the case of non-executive employees), you have violated any of the provisions of this Section 7, and in that event any issuance of shares, payment or other action with respect to the Option shall be made or taken, if at all, in the sole discretion of the Committee or the executive officer responsible for Human Resources.   

8.           Restrictions on Issuance of Shares.  If at any time the Company determines that listing, registration, or qualification of the shares covered by the Option upon any securities exchange or under any state or federal law, or the approval of any governmental agency, is necessary or advisable as a condition to the exercise of the Option, the Option may not be exercised in whole or in part unless and until such listing, registration, qualification, or approval shall have been effected or obtained free of any conditions not acceptable to the Company.

9.           Change in Ownership; Change in Control.  Article 14 of the Plan contains certain special provisions that will apply to the Option in the event of a Change in Ownership or Change in Control, respectively.

10.         Adjustment ofOption Terms.  The adjustment provisions of Article 15 of the Plan will control in the event of a nonreciprocal transaction between the Company and its stockholders that causes the per-share value of the Common Stock to change (including, without limitation, any stock dividend, stock split, spin-off, rights offering, or large nonrecurring cash dividend) or upon the occurrence of or in anticipation of any other corporate event or transaction involving the Company (including, without limitation, any merger, combination, or exchange of shares).

11.         Reimbursement of Certain Compensation Following Restatement.  The Award is subject to the provisions of the Plan and any applicable law or Company policy requiring reimbursement to the Company of certain incentive-based compensation following an accounting restatement due to material non-compliance by the Company with any financial reporting requirement or due to other events or conditions.

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

51

EX-10.02

Exhibit 10.02

PERFORMANCE SHARE AWARD SUBPLAN

OF THE 2007 OMNIBUS LONG-TERM COMPENSATION PLAN

2012-2014 PERFORMANCE PERIOD

EASTMAN CHEMICAL COMPANY

52 

Exhibit 10.02

EASTMAN CHEMICAL COMPANY

PERFORMANCE SHARE AWARD SUBPLAN

OF THE 2007 OMNIBUS LONG-TERM COMPENSATION PLAN

2012-2014 PERFORMANCE PERIOD

Section 1.Background.  Under Article 4 of the Eastman Chemical Company 2007 Omnibus Long-Term Compensation Plan (the “Plan”), the “Committee” (as defined in the Plan), may, among other things, award shares of the $.01 par value common stock (“Common Stock”) of Eastman Chemical Company (the “Company”) to “Participants” (as defined in the Plan), and such awards may take the form of “Performance Awards” (as defined in the Plan) which are contingent upon the attainment of certain performance objectives during a specified period, and subject to such other terms, conditions, and restrictions as the Committee deems appropriate.  Performance Awards may be structured as “Qualified Performance-Based Awards” (as defined in the Plan) in order to be exempt from the compensation deduction limit of Section 162(m) of the Internal Revenue Code of 1986 (“Code Section 162(m)”).The purpose of this Performance Share Award Subplan (this “Subplan”) is to set forth the terms of the Performance Awards to be awarded for the 2012-2014 Performance Period specified herein, effective as of January 1, 2012 (the “Effective Date”).

Section 2.Definitions.

(a)The following definitions shall apply to this Subplan:

(i)“Actual Grant Amount” means the number of shares of Common Stock to which a participant is entitled under a Performance Award, calculated in accordance with Section 6 of this Subplan.

(ii)“Award Amount” means the number of shares of Common Stock subject to the Performance Award granted to the Participant under this Subplan at the beginning of the Performance Period.

(iii)“Award Payment Date” means the date the Committee approves the payout of Common Stock covered by an award under this Subplan to a Participant.

(iv)“Comparison Group” is the group of companies within the S&P 1500 “Materials Sector” that are classified by Standard & Poor’sas Chemical companies.  The S&P “Materials Sector” index is an index of industrial companies selected from the S&P “Super Composite 1500” Index, identified as Global Industry Classification Standard (“GICS”) 15.

(v) “Cost of Capital” reflects the Company’s cost of debt and the cost of equity, expressed as a percentage, reflecting the percentage of interest charged on debt and the percentage of expected return on equity. “Cost”, “debt”, “equity”, “interest”, “interest charged on debt”, and “return on equity” shall be determined and measured in accordance with accounting principles generally accepted in the United States (“GAAP”) as applied in preparing the Company’s consolidated financial statements as of the Effective Date, excluding the impact of any subsequent changes during the Performance Period in GAAP or in the manner of application of GAAP in the preparation of the Company’s consolidated financial statements, and including the results from any operations which are included in the Company's continuing operations as of the Effective Date and which are subsequently presented as discontinued operations during the Performance Period as a result of a divestiture.

  53

Exhibit 10.02

(vi) “Earnings from Continuing Operations” shall be defined as the total sales of the Company minus the costs of all operations of any nature used to produce such sales, including taxes, plus after-tax interest associated with the Company’s capital debt (as defined in Section 2(a)(xi)). “Sales”, “costs of operations”, “taxes”, and “after-tax interest associated with capital debt” shall be determined and measured in accordance with accounting principles generally accepted in the United States (“GAAP”), as applied in preparing the Company’s consolidated financial statements as of the Effective Date, excluding the impact of any subsequent changes during the Performance Period in GAAP or in the manner of application of GAAP in the preparation of the Company’s consolidated financial statements, and including the results from any operations which are included in the Company's continuing operations as of the Effective Date and which are subsequently presented as discontinued operations during the Performance Period as a result of a divestiture.

(vii) “Maximum Deductible Amount” means the maximum amount deductible by the Company, taking into consideration the limitations under Code Section 162(m), of the Internal Revenue Code of 1986, as amended, or any similar or successor provisions thereto.

(viii)“Participation Date” means November 1, 2011.

(ix)“Performance Period” means January 1, 2012 through December 31, 2014.

(x)“Performance Year” means one of the three calendar years in the Performance Period.

(xi)“Return on Capital” shall mean the return produced by funds invested in the Company and shall be determined as Earnings from Continuing Operations, as defined in Section 2(a)(vi), divided by the Average Capital Employed.  Average Capital Employed shall be derived by adding the Company’s capital debt plus equity at the close of the last day of the year preceding the Performance Year to the Company’s capital debt plus equity at the close of the last day of the present Performance Year, with the resulting sum being divided by two.  Capital debt is defined as the sum of borrowing by the Company due within one year and long-term borrowing, as designated on the Company’s balance sheet.  The resulting ratio shall be multiplied by One Hundred (100) in order to convert such to a percentage.  Such percentage shall be calculated to the third place after the decimal point (i.e., xx.xxx%), and then rounded to the second place after the decimal point (i.e., xx.xx%). “Equity”, “borrowing due within one year”, and “long-term borrowing” shall be determined and measured in accordance with accounting principles generally accepted in the United States (“GAAP”), as applied in preparing the Company’s consolidated financial statements as of the Effective Date, excluding the impact of any subsequent changes during the Performance Period in GAAP or in the manner of application of GAAP in the preparation of the Company’s consolidated financial statements, and including the results from any operations which are included in the Company's continuing operations as of the Effective Date and which are subsequently presented as discontinued operations during the Performance Period as a result of a divestiture.

(xii)“Target Award Range” means, with respect to any eligible Participant, the number of Shares within the range specified on Exhibit A hereto for the Salary Grade applicable to such Participant.

(xiii)“TSR” means total stockholder return, as reflected by the sum of (A) change in stock price (measured as the difference between (I) the average of the closing prices of a company’s common stock on the New York Stock Exchange, or of the last sale prices or closing prices of such stock on another national trading exchange, as applicable, in the period beginning on the tenth trading day preceding the beginning of the Performance Period and ending on the tenth trading day of the Performance Period and (II) the average of such closing or last sale prices for such stock in the period beginning on the tenth trading day preceding the end of the Performance Period and ending on the tenth trading day following the end of the Performance Period) plus (B) dividends declared, assuming reinvestment of dividends, and expressed as a percentage return on a stockholder’s hypothetical investment.

(b)Any capitalized terms used but not otherwise defined in this Subplan shall have the respective meanings set forth in the Plan.

54 

Exhibit 10.02

Section 3.Administration.  This Subplan shall be administered by the Compensation and Management Development Committee of the Board of Directors.  The Committee shall have authority to interpret this Subplan, to prescribe rules and regulations relating to this Subplan, and to take any other actions it deems necessary or advisable for the administration of this Subplan, and shall retain all general authority granted to it under Article 4 of the Plan.  At the end of the Performance Period, the Committee shall approve Actual Grant Amounts awarded to participants under this Subplan in accordance with the applicable approval and certification requirements specified in the Plan.

Section 4.Eligibility; Types of Awards.  The Participants who are eligible to participate in this Subplan are those employees who, as of the Participation Date, are at Salary Grade 49 and 105 and above.  Employees who are promoted during the Performance Period to a position that would meet the above criteria, but who do not hold such position as of the Participation Date, are not eligible to participate in this Subplan.  The Covered Employees identified on Schedule A shall receive Performance Awards that are Qualified Performance-Based Awards.  The remainder of the Participants shall receive Performance Awards that are not intended to be Qualified Performance-Based Awards.

Section 5.Form of Payout of Awards.  Subject to the terms and conditions of the Plan and this Subplan, amounts earned in connection with the Performance Awards under this Subplan shall be paid out in the form of unrestricted shares of Common Stock; provided, however, that any fractional share of Common Stock, payable as a result of Section 9 of this Subplan or otherwise, shall be paid in cash in an amount representing the market value of such fractional share at the time of payment.

Section 6.Size of Awards.

(a)Target Award Range.  Exhibit A hereto shows by Salary Grade the Target Award Range. The Salary Grade to be used in determining the size of any Award Amount to a Participant under this Subplan shall be the Salary Grade applicable to the position held by the participant on the Participation Date.  The actual size of the Award Amount to the Participant shall be determined by the Committee with respect to Participants who are executive officers of the Company, and by the Committee’s senior management delegates in the case of all other Participants, based on the Participant’s past performance and potential for contributions to the Company’s future long term success.  Based on this assessment, the Participant may receive no award, the target award amount, or any amount within the Target Award Range in increments of 10 Shares.  The Committee shall provide its delegates with guidelines for determining the cumulative award targets for Participants who are not executive officers of the Company.

(b)Actual Grant Amount.  Subject to the Committee’s authority to adjust the Actual Grant Amount described in Section 12, the Actual Grant Amount awarded to the Participant at the end of the Performance Period is determined by applying a multiplier to the Participant’s Award Amount.  The multiplier shall be determined by comparing Company performance relative to two measures:

(i)The Company’s TSR during the Performance Period relative to the TSRs of the companies in the Comparison Group during the Performance Period.  The Company and each company in the Comparison Group shall be ranked by TSR, in descending order, with the company having the highest TSR during the Performance Period being ranked number one.  The Comparison Group shall further be separated into quintiles (first 20%, second 20%, etc.) and the Company’s position, in relation to the Comparison Group, shall be expressed as a position in the applicable quintile ranking; and

(ii)The arithmetic average, for each of the Performance Years during the Performance Period, of the Company’s average Return on Capital minus a Return on Capital target. The Return on Capital target will be determined by the Committee.  In the case of Performance Awards that are intended to be Qualified Performance-Based Awards, the Return on Capital target for each year included in the Performance Period shall be established within 90 days after commencement of the Performance Period. Moreover, in the case of Performance Awards that are intended to be Qualified Performance-Based Awards, Return on Capital will be measured in a manner that complies with Code Section 162(m), including the requirement that the performance goals be objectively measured.

55 

Exhibit 10.02

An award multiplier table is shown in Exhibit B.  The award multiplier is based on the Company’s performance relative to its quintile ranking relative to the Comparison Group, and its average Return on Capital relative to a target during the Performance Period.  The award multipliers range from 3.0 (i.e., 300%), if the Company’s TSR is in the top performing quintile (top 20%) of companies in the Comparison Group and the average Return on Capital minus the target Return on Capital is greater than 10 percentage points, to 0.0 (with no shares of Common Stock earned by Participants under this Subplan) if the Company does not meet the specified levels of performance relative to the two measures.

Section 7.Composition of Comparison Group.

(a)Qualified Performance-Based Awards.  In the case of Performance Awards that are intended to be Qualified Performance-Based Awards, any member of the Comparison Group that ceases to exist during the Performance Period shall be disregarded for the entire Performance Period.  There shall be no other adjustments in the Comparison Group after commencement of the Performance Period with respect to Performance Awards that are intended to be Qualified Performance-Based Awards.

(b)Performance Awards.  In the case of Performance Awards that are not intended to be Qualified Performance-Based Awards, the Committee retains the discretion to make the following adjustments in the Comparison Group during the Performance Period.  A company in the Comparison Group may be dropped from the Comparison Group if a company’s common stock ceases to be publicly traded on a national stock exchange or market; or a company is a party to a significant merger, acquisition, or other reorganization.  Under these, or similar, circumstances, the company or companies may be removed from the Comparison Group, and may be replaced with another company or companies by Standard & Poor’s, consistent with their established criteria for selection of companies for the Comparison Group.  In any case where the Comparison Group ceases to exist, or is otherwise determined to no longer be appropriate as the basis for a measure under this Subplan, the Committee may designate a replacement Comparison Group.  In any such case, the Committee shall have authority to determine the appropriate method of calculating the TSR of such former and/or replacement Comparison Group, whether by complete substitution of the replacement Comparison Group (and disregard of the former Comparison Group) over the entire Performance Period or by pro rata calculations for each Comparison Group or otherwise.

Section 8.Preconditions to Payout Under Performance Awards.

(a)Continuous Employment.  Except as specified in paragraph (b) below, to be eligible for payout under a Performance Award under this Subplan, a Participant must remain continuously employed with the Company or a Subsidiary at all times from the Effective Date through the Award Payment Date.

(b)Death, Disability, Retirement, or Termination for an Approved Reason Before the Award Payment Date.  If a Participant’s employment is terminated due to death, disability, retirement, or any approved reason as determined by the Committee (in the case of an executive officer) or the executive officer responsible for Human Resources (in the case of non-executive officers) (including reduction in force, divestiture, special separation, or termination by mutual consent) prior to the Award Payment Date, the Participant shall receive, subject to the terms and conditions of the Plan and this Subplan, a payout representing a prorated portion of the Actual Grant Amount to which such Participant otherwise would have been entitled to receive under Section 6 of this Subplan had the Participant remained in employment to the end of the Performance Period, with the precise amount of such payout to be determined by multiplying the Actual Grant Amount by a fraction, the numerator of which is the number of full calendar months employed in the Performance Period from the Effective Date through and including the effective date of such termination, and the denominator of which is 36 (the total number of months in the Performance Period).

Section 9.Manner and Timing of Award Payments.

(a)Timing of Award Payment.  Except as provided in Section 9(c), if any Awards are payable under this Subplan, the payment of such Awards to Participants shall be made as soon as is administratively practicable after final approval by the Committee of such payments and within the first taxable year immediately following the end of the Performance Period.

56

Exhibit 10.02

(b)Tax Withholding.  The Company may withhold or require the grantee to remit a cash amount sufficient to satisfy federal, state, and local taxes (including the participant’s FICA obligation) required by law to be withheld.  Further, either the Company or the grantee may elect to satisfy the withholding requirement by having the Company withhold shares of Common Stock having a Fair Market Value on the date the tax is to be determined equal to the minimum statutory total tax which could be imposed on the transaction.

(c)Deferral of Award in Excess of the Maximum Deductible Amount.  If payment under a Performance Award would, or could in the reasonable estimation of the Committee, result in the participant’s receiving compensation in excess of the Maximum Deductible Amount in a given year, then such portion (or all, as applicable) of the Award as would, or could in the reasonable estimation of the Committee, cause such participant to receive compensation from the Company in excess of the Maximum Deductible Amount may, at the sole discretion of the Committee, be converted into the right to receive a cash payment, which shall be paid at such time as permitted under Internal Revenue Code Section 409A and applicable Treasury Regulations and guidance thereunder.

Section 10.No Rights as Stockholder.  No certificates for shares of Common Stock shall be issued under this Subplan, nor shall any participant have any rights as a stockholder as a result of participation in this Subplan, until the Actual Grant Amount has been determined and such participant has otherwise become entitled to an Award under the terms of the Plan and this Subplan.  In particular, no participant shall have any right to vote or to receive dividends on any shares of Common Stock under this Subplan until certificates for such shares have been issued as described above.

Section 11.Application of Plan.  The provisions of the Plan shall apply to this Subplan, and the provisions of this Subplan shall be interpreted in a manner consistent with the terms of the Plan.

Section 12.Adjustment of Actual Grant Amount.  The Committee may, in its sole discretion, adjust the Actual Grant Amount to reflect overall Company performance and business and financial conditions, except in the case of a Performance Award that is a Qualified Performance-Based Award where such actions would cause the Performance Award that is a Qualified Performance-Based Award to cease to qualify for the Section 162(m) Exemption.  In the case of a Performance Award that is a Qualified Performance-Based Award, the Committee shall retain the discretion to adjust such Award downward, either on a formula or discretionary basis or any combination, as the Committee determined.

Section 13.Reimbursement of Certain Compensation Following Restatement.  The Performance Awards are subject to the provisions of the Plan and any applicable law or Company policy requiring reimbursement to the Company of certain incentive-based compensation following an accounting restatement due to material non-compliance by the Company with any financial reporting requirement or due to other events or conditions.

Section 14.Amendments.  The Committee may, from time to time, amend this Subplan in any manner.

Section 15.  Code Section 409A.  All Performance Awards granted under this Subplan shall be subject to the provisions of the Plan concerning Code Section 409A, which provisions shall be incorporated into this Subplan by reference.

57 

Exhibit 10.02

EXHIBIT A

Eastman Chemical Company

Performance Share Award Grant Table

2012-2014 Cycle

ON FILE IN GLOBAL COMPENSATION

  58

Exhibit 10.02

EXHIBIT B

2012 -2014 Award Multiplier Table

Differential from Target Return on Capital (ROC-(COC+X))*
Eastman TSR Relative to Comparison Companies	<-7%	-7% to -5%	-4.99 to -3%	-2.99 to -1%	-0.99 to 0%	.01 to +1%	+1.01 to +3%	+3.01 to +5%	+5.01 to +7%	+7.01 to +10%	>10%
5th quintile	0	0	0	0	.4	.5	.6	.7	.8	1.1	1.5
4th quintile	0	0	0	.4	.5	.7	.8	.9	1.1	1.5	2
3rd quintile	0	0	.4	.5	.8	1	1.2	1.5	1.8	2.1	2.4
2nd quintile	0	.4	.6	.8	1	1.3	1.6	1.9	2.2	2.5	2.8
1st quintile	0	.6	.8	1	1.3	1.6	1.9	2.2	2.5	2.8	3

* “X” to be determined by the Committee at the December meeting.

  59

Exhibit 10.02

AWARD NOTICE

NOTICE OF PERFORMANCE SHARES

AWARDED PURSUANT TO THE

EASTMAN CHEMICAL COMPANY

2007 OMNIBUS LONG-TERM COMPENSATION PLAN

               Recipient:

               Performance Period: 2012-2014

               Target Award:

1.         Award of Performance Shares.  This Award Notice serves to notify you that the Compensation and Management Development Committee of the Board of Directors (the “Committee”) of Eastman Chemical Company ("Company") has awarded to you, under the 2012-2014 Performance Share Award Subplan ("Subplan") of the 2007 Omnibus Long-Term Compensation Plan ("Plan"), on the terms and conditions set forth in the Subplan and the Plan, the number of performance shares (the "Performance Shares") of its $.01 par value Common Stock ("Common Stock") specified above.  The Performance Shares are rights to receive Awards in the form of shares of Common Stock, subject to the attainment of specified performance conditions by the Company.  Subject to satisfaction of the minimum performance conditions and the other terms of the Subplan, Awards under the Subplan will ultimately be paid in the form of unrestricted shares of Common Stock.

This Award Notice provides a summary of the terms and conditions of your performance shares, all of which terms and conditions are contained in the Subplan and the Plan.  Capitalized terms not defined herein have the respective meanings set forth in the Subplan and the Plan, as applicable.

2.         Performance Conditions.  The performance conditions for the Subplan are: 1)  a comparison of the total stockholder return (referred to in the Subplan as "TSR," and reflecting both the change in stock price and the amount of dividends declared) of the Company during the period from January 1, 2012 through December 31, 2014 (the "Performance Period"), to the TSRs of the companies in the Comparison Group (the group of companies within the Standard and Poor’s “Materials Sector” that are classified as Chemical companies.  The S&P “Materials Sector” index, identified as Global Industry Classification Standard 15, is an index of industrial companies selected from the S&P “Super Composite 1500” index); and 2) the arithmetic average for each of the Performance Years during the Performance Period, of the Company’s average Return on Capital minus a Return on Capital target.   The specific terms of the performance conditions are summarized in Section 3 of this Award Notice and are detailed in Section 6 of the Subplan.

3.         Number of Performance Shares Awarded.  The number of Performance Shares that you have been awarded is shown above (the "Target Award").  However, the actual number of shares of Common Stock to which you will be entitled under the Subplan (the "Actual Grant Amount") may be more or less than the Target Award, depending upon the quintile ranking of the Company's TSR when ranked among the TSRs of the Comparison Group, and the Company’s average Return on Capital relative to a Return on Capital target for each of the Performance Years during the Performance Period.  The Company’s performance relative to these measures shall determine a multiplier to be applied to the Target Grant Amount.  Multipliers range from 3.0 (i.e., 300%), if the Company’s TSR is ranked in the top performing quintile (top 20%) of companies in the Comparison Group, and the average Return on Capital minus the target Return on Capital is greater than 10 percentage points, to 0.0 (with no shares of Common Stock being delivered to participants), if the Company does not meet certain levels of performance relative to the two measures.  The award multiplier table is shown in Exhibit A.  Subject to the Committee’s authority to adjust the Actual Grant Amount described in Section 12 of this Award Notice, your Actual Grant Amount is determined by applying the multiplier corresponding to the Company’s performance (Exhibit A) to your Target Award.

  60

Exhibit 10.02

4.         Payment of Award.  If you are entitled to payment of an Award under the Subplan, such payment will be made as soon as administratively practicable after the end of the Performance Period and final approval by the Committee; provided, however, that if payment of the Award could, in the reasonable estimation of the Committee, result in your

receiving compensation, in the year of scheduled payment, in excess of the amount deductible by the Company under Section 162(m) of the Internal Revenue Code, then such portion (or all, as applicable) of the Award as could, in the reasonable estimation of the Committee,  create such excess compensation, may, at the sole discretion of the Committee, be converted into the right to receive a cash payment, which shall be paid at such time as permitted under Internal Revenue Code Section 409A and applicable Treasury Regulations and guidance thereunder, as specified in Section 9 of the Subplan.

If any portion of an Award is converted into a right to receive a cash payment as described above, an amount representing the Fair Market Value of the deferred portion of the Actual Grant Amount will be credited to the Stock Account of the Executive Deferred Compensation Plan (the “EDCP”) and hypothetically invested in units of Common Stock.  Thereafter, such amount will be treated in the same manner as other investments in the EDCP, all as specified in Section 9 of the Subplan.

The Company may withhold or require you to remit a cash amount sufficient to satisfy federal, state, and local taxes (including your FICA obligation) required by law to be withheld.  Further, either the Company or you may elect to satisfy the withholding requirement by having the Company withhold shares of common stock having a Fair Market Value on the date the tax is to be determined equal to the minimum statutory total tax which could be imposed on the transaction.

5.         Nontransferability.  Unless and until unrestricted shares of Common Stock are delivered or, if applicable, an amount is credited under the EDCP to you in payment of an earned Award of the Performance Shares, the Performance Shares are not transferable except by will or by the laws of descent and distribution, and may not be sold, assigned, pledged or encumbered in any way, whether by operation of law or otherwise.

6.         Limitation of Rights.  You will not have any rights as a stockholder with respect to the Performance Shares unless and until certificates for shares of Common Stock have been issued to you.  No such certificates will be issued under the Subplan until the Actual Grant Amount has been determined and you have otherwise become entitled to payment of an Award under the terms of the Plan and the Subplan.    Neither the Plan, the Subplan, the granting of these Performance Shares nor this Award Notice gives you any right to remain employed by the Company.

7.         Termination.  Upon termination of your employment with the Company and its Subsidiaries by reason of death, disability or retirement, or for another approved reason as determined by the Committee (in the case of executive officers) or the executive officer responsible for Human Resources (in the case of non-executive employees), you will receive after the end of the Performance Period, subject to the terms and conditions of the Plan and the Subplan, an Award representing a prorated portion of the Actual Grant Amount to which you otherwise would have been entitled to receive under Section 6 of the Subplan had you remained in employment to the end of the Performance Period, based on the number of full calendar months from January 1, 2012 through the effective date of such termination.  Upon termination of your employment with the Company and its Subsidiaries for a reason other than death, disability, retirement or another approved reason prior to the date the shares of Common Stock covered by the Award are delivered to you, you will not be eligible or entitled to receive any Award under the Subplan.

8.         Noncompetition; Confidentiality.  You will not, without the written consent of the Company, either during your employment by the Company or thereafter, disclose to anyone or make use of any confidential information which you have acquired during your employment relating to any of the business of the Company, except as such disclosure or use may be required in connection with your work as an employee of the Company.  During your employment by the Company, and for a period of two years after the termination of such employment, you will not, either as principal, agent, consultant, employee or otherwise, engage in any work or other activity in competition with the Company in the field or fields in which you have worked for the Company.  The agreement in this Section 8 applies separately in the United States and in other countries but only to the extent that its application shall be reasonably necessary for the protection of the Company.  You will forfeit all rights under this Award Notice to or related to the Performance Shares if,  in the determination of the Committee (in the case of executive officers) or of the executive officer responsible for Human Resources (in the case of non-executive employees), you have violated any of the provisions of this Section 8, and in that event any issuance of shares, payment or other action with respect to the Performance Shares shall be made or taken, if at all, in the sole discretion of the Committee or the executive officer responsible for Human Resources.

61

Exhibit 10.02

9.         Restrictions on Issuance of Shares.  If at any time the Company determines that listing, registration or qualification of the shares covered by an Award upon any securities exchange or under any state or federal law, or the approval of any governmental agency, is necessary or advisable prior to the delivery of any certificate for shares of Common Stock subject to the Award, no such certificate may be delivered unless and until such listing, registration, qualification or approval shall have been effected or obtained free of any conditions not acceptable to the Company.

10.       Change in Ownership; Change in Control.  Article 14 of the Plan contains certain special provisions that will apply in the event of a Change in Ownership or Change in Control, respectively.

11.       Adjustment of Terms.  The adjustment provisions Article 15 of the Plan will control in the event of a nonreciprocal transaction between the company and its stockholders that causes the per-share value of the Common Stock to change (including, without limitation, any stock dividend, stock split, spin-off, rights offering, or large nonrecurring cash dividend) or upon the occurrence of in anticipation of any other corporate event or transaction involving the Company (including, without limitation, any merger, combination, or exchange of shares).

12.       Adjustment of Actual Grant Amount.   The Committee may, in its sole discretion, adjust the Actual Grant Amount to reflect overall Company performance and business and financial conditions, except in the case of a Performance Award that is a Qualified Performance-Based Award where such actions would cause the Performance Award that is a Qualified Performance-Based Award to cease to qualify for the Section 162(m) Exemption.  In the case of a Performance Award that is a Qualified Performance-Based Award, the Committee shall retain the discretion to adjust such Award downward, either on a formula or discretionary basis or any combination, as the Committee determined.

13.       Reimbursement of Certain Compensation Following Restatement.  The Award is subject to the provisions of the Plan and any applicable law or Company policy requiring reimbursement to the Company of certain incentive-based compensation following an accounting restatement due to material non-compliance by the Company with any financial reporting requirement or due to other events or conditions.

14.       Plan and Subplan Control.  In the event of any conflict between the provisions of the Plan or the Subplan and the provisions of this Award Notice, the provisions of the Plan or the Subplan, as applicable, will be controlling and determinative.

62

Exhibit 10.02

EXHIBIT A

Award Multiplier Table 2012 -2014 Award Multiplier Table

Differential from Target Return on Capital (ROC-(COC+X))*
Eastman TSR Relative to Comparison Companies	<-7%	-7% to -5%	-4.99 to -3%	-2.99 to -1%	-0.99 to 0%	.01 to +1%	+1.01 to +3%	+3.01 to +5%	+5.01 to +7%	+7.01 to +10%	>10%
5th quintile	0	0	0	0	.4	.5	.6	.7	.8	1.1	1.5
4th quintile	0	0	0	.4	.5	.7	.8	.9	1.1	1.5	2
3rd quintile	0	0	.4	.5	.8	1	1.2	1.5	1.8	2.1	2.4
2nd quintile	0	.4	.6	.8	1	1.3	1.6	1.9	2.2	2.5	2.8
1st quintile	0	.6	.8	1	1.3	1.6	1.9	2.2	2.5	2.8	3

* “X” to be determined by the Committee at the December meeting.

63

Exhibit 10.02

PERFORMANCE SHARE AWARD SUBPLAN

OF THE 2007 OMNIBUS LONG-TERM COMPENSATION PLAN

2012-2014 PERFORMANCE PERIOD

MARK J. COSTA

EASTMAN CHEMICAL COMPANY

64

Exhibit 10.02

EASTMAN CHEMICAL COMPANY

PERFORMANCE SHARE AWARD SUBPLAN

OF THE 2007 OMNIBUS LONG-TERM COMPENSATION PLAN

2012-2014 PERFORMANCE PERIOD

MARK J. COSTA

Section 1.Background.  Under Article 4 of the Eastman Chemical Company 2007 Omnibus Long-Term Compensation Plan (the “Plan”), the “Committee” (as defined in the Plan), may, among other things, award shares of the $.01 par value common stock (“Common Stock”) of Eastman Chemical Company (the “Company”) to “Participants” (as defined in the Plan), and such awards may take the form of “Performance Awards” (as defined in the Plan) which are contingent upon the attainment of certain performance objectives during a specified period, and subject to such other terms, conditions, and restrictions as the Committee deems appropriate.  Performance Awards may be structured as “Qualified Performance-Based Awards” (as defined in the Plan) in order to be exempt from the compensation deduction limit of Section 162(m) of the Internal Revenue Code of 1986 (“Code Section 162(m)”).The purpose of this Performance Share Award Subplan (this “Subplan”) is to set forth the terms of the Performance Awards to be awarded for the 2012-2014 Performance Period specified herein, effective as of January 1, 2012 (the “Effective Date”).

Section 2.Definitions.

(a)The following definitions shall apply to this Subplan:

(i)“Actual Grant Amount” means the number of shares of Common Stock to which a participant is entitled under a Performance Award, calculated in accordance with Section 6 of this Subplan.

(ii)“Award Amount” means the number of shares of Common Stock subject to the Performance Award granted to the Participant under this Subplan at the beginning of the Performance Period.

(iii)“Award Payment Date” means the date the Committee approves the payout of Common Stock covered by an award under this Subplan to a Participant.

(iv)“Comparison Group” is the group of companies within the S&P 1500 “Materials Sector” that are classified by Standard & Poor’sas Chemical companies.  The S&P “Materials Sector” index is an index of industrial companies selected from the S&P “Super Composite 1500” Index, identified as Global Industry Classification Standard (“GICS”) 15.

(v) “Cost of Capital” reflects the Company’s cost of debt and the cost of equity, expressed as a percentage, reflecting the percentage of interest charged on debt and the percentage of expected return on equity. “Cost”, “debt”, “equity”, “interest”, “interest charged on debt”, and “return on equity” shall be determined and measured in accordance with accounting principles generally accepted in the United States (“GAAP”) as applied in preparing the Company’s consolidated financial statements as of the Effective Date, excluding the impact of any subsequent changes during the Performance Period in GAAP or in the manner of application of GAAP in the preparation of the Company’s consolidated financial statements, and including the results from any operations which are included in the Company's continuing operations as of the Effective Date and which are subsequently presented as discontinued operations during the Performance Period as a result of a divestiture.

65

Exhibit 10.02

(vi)“Earnings from Continuing Operations” shall be defined as the total sales of the Company minus the costs of all operations of any nature used to produce such sales, including taxes, plus after-tax interest associated with the Company’s capital debt (as defined in Section 2(a)(xi)). “Sales”, “costs of operations”, “taxes”, and “after-tax interest associated with capital debt” shall be determined and measured in accordance with accounting principles generally accepted in the United States (“GAAP”), as applied in preparing the Company’s consolidated financial statements as of the Effective Date, excluding the impact of any subsequent changes during the Performance Period in GAAP or in the manner of application of GAAP in the preparation of the Company’s consolidated financial statements, and including the results from any operations which are included in the Company's continuing operations as of the Effective Date and which are subsequently presented as discontinued operations during the Performance Period as a result of a divestiture.

(vii) “Maximum Deductible Amount” means the maximum amount deductible by the Company, taking into consideration the limitations under Code Section 162(m), of the Internal Revenue Code of 1986, as amended, or any similar or successor provisions thereto.

(viii)“Participation Date” means November 1, 2011.

(ix)“Performance Period” means January 1, 2012 through December 31, 2014.

(x)“Performance Year” means one of the three calendar years in the Performance Period.

(xi)“Return on Capital” shall mean the return produced by funds invested in the Company and shall be determined as Earnings from Continuing Operations, as defined in Section 2(a)(vi), divided by the Average Capital Employed.  Average Capital Employed shall be derived by adding the Company’s capital debt plus equity at the close of the last day of the year preceding the Performance Year to the Company’s capital debt plus equity at the close of the last day of the present Performance Year, with the resulting sum being divided by two.  Capital debt is defined as the sum of borrowing by the Company due within one year and long-term borrowing, as designated on the Company’s balance sheet.  The resulting ratio shall be multiplied by One Hundred (100) in order to convert such to a percentage.  Such percentage shall be calculated to the third place after the decimal point (i.e., xx.xxx%), and then rounded to the second place after the decimal point (i.e., xx.xx%). “Equity”, “borrowing due within one year”, and “long-term borrowing” shall be determined and measured in accordance with accounting principles generally accepted in the United States (“GAAP”), as applied in preparing the Company’s consolidated financial statements as of the Effective Date, excluding the impact of any subsequent changes during the Performance Period in GAAP or in the manner of application of GAAP in the preparation of the Company’s consolidated financial statements, and including the results from any operations which are included in the Company's continuing operations as of the Effective Date and which are subsequently presented as discontinued operations during the Performance Period as a result of a divestiture.

(xii)“Target Award Range” means, with respect to any eligible Participant, the number of Shares within the range specified on Exhibit A hereto for the Salary Grade applicable to such Participant.

(xiii)“TSR” means total stockholder return, as reflected by the sum of (A) change in stock price (measured as the difference between (I) the average of the closing prices of a company’s common stock on the New York Stock Exchange, or of the last sale prices or closing prices of such stock on another national trading exchange, as applicable, in the period beginning on the tenth trading day preceding the beginning of the Performance Period and ending on the tenth trading day of the Performance Period and (II) the average of such closing or last sale prices for such stock in the period beginning on the tenth trading day preceding the end of the Performance Period and ending on the tenth trading day following the end of the Performance Period) plus (B) dividends declared, assuming reinvestment of dividends, and expressed as a percentage return on a stockholder’s hypothetical investment.

66

Exhibit 10.02

(b)Any capitalized terms used but not otherwise defined in this Subplan shall have the respective meanings set forth in the Plan.

Section 3.Administration.  This Subplan shall be administered by the Compensation and Management Development Committee of the Board of Directors.  The Committee shall have authority to interpret this Subplan, to prescribe rules and regulations relating to this Subplan, and to take any other actions it deems necessary or advisable for the administration of this Subplan, and shall retain all general authority granted to it under Article 4 of the Plan.  At the end of the Performance Period, the Committee shall approve Actual Grant Amounts awarded to participants under this Subplan in accordance with the applicable approval and certification requirements specified in the Plan.

Section 4.Eligibility; Types of Awards.  The Participants who are eligible to participate in this Subplan are those employees who, as of the Participation Date, are at Salary Grade 49 and 105 and above.  Employees who are promoted during the Performance Period to a position that would meet the above criteria, but who do not hold such position as of the Participation Date, are not eligible to participate in this Subplan.  The Covered Employees identified on Schedule A shall receive Performance Awards that are Qualified Performance-Based Awards.  The remainder of the Participants shall receive Performance Awards that are not intended to be Qualified Performance-Based Awards.

Section 5.Form of Payout of Awards.  Subject to the terms and conditions of the Plan and this Subplan, amounts earned in connection with the Performance Awards under this Subplan shall be paid out in the form of unrestricted shares of Common Stock; provided, however, that any fractional share of Common Stock, payable as a result of Section 9 of this Subplan or otherwise, shall be paid in cash in an amount representing the market value of such fractional share at the time of payment.

Section 6.Size of Awards.

(a)Target Award Range.  Exhibit A hereto shows by Salary Grade the Target Award Range. The Salary Grade to be used in determining the size of any Award Amount to a Participant under this Subplan shall be the Salary Grade applicable to the position held by the participant on the Participation Date.  The actual size of the Award Amount to the Participant shall be determined by the Committee with respect to Participants who are executive officers of the Company, and by the Committee’s senior management delegates in the case of all other Participants, based on the Participant’s past performance and potential for contributions to the Company’s future long term success.  Based on this assessment, the Participant may receive no award, the target award amount, or any amount within the Target Award Range in increments of 10 Shares.  The Committee shall provide its delegates with guidelines for determining the cumulative award targets for Participants who are not executive officers of the Company.

(b)Actual Grant Amount.  Subject to the Committee’s authority to adjust the Actual Grant Amount described in Section 12, the Actual Grant Amount awarded to the Participant at the end of the Performance Period is determined by applying a multiplier to the Participant’s Award Amount.  The multiplier shall be determined by comparing Company performance relative to two measures:

(i)The Company’s TSR during the Performance Period relative to the TSRs of the companies in the Comparison Group during the Performance Period.  The Company and each company in the Comparison Group shall be ranked by TSR, in descending order, with the company having the highest TSR during the Performance Period being ranked number one.  The Comparison Group shall further be separated into quintiles (first 20%, second 20%, etc.) and the Company’s position, in relation to the Comparison Group, shall be expressed as a position in the applicable quintile ranking; and

(ii)The arithmetic average, for each of the Performance Years during the Performance Period, of the Company’s average Return on Capital minus a Return on Capital target. The Return on Capital target will be determined by the Committee.  In the case of Performance Awards that are intended to be Qualified Performance-Based Awards, the Return on Capital target for each year included in the Performance Period shall be established within 90 days after commencement of the Performance Period. Moreover, in the case of Performance Awards that are intended to be Qualified Performance-Based Awards, Return on Capital will be measured in a manner that complies with Code Section 162(m), including the requirement that the performance goals be objectively measured.

67

Exhibit 10.02

An award multiplier table is shown in Exhibit B.  The award multiplier is based on the Company’s performance relative to its quintile ranking relative to the Comparison Group, and its average Return on Capital relative to a target during the Performance Period.  The award multipliers range from 3.0 (i.e., 300%), if the Company’s TSR is in the top performing quintile (top 20%) of companies in the Comparison Group and the average Return on Capital minus the target Return on Capital is greater than 10 percentage points, to 0.0 (with no shares of Common Stock earned by Participants under this Subplan) if the Company does not meet the specified levels of performance relative to the two measures.

Section 7.Composition of Comparison Group.

(a)Qualified Performance-Based Awards.  In the case of Performance Awards that are intended to be Qualified Performance-Based Awards, any member of the Comparison Group that ceases to exist during the Performance Period shall be disregarded for the entire Performance Period.  There shall be no other adjustments in the Comparison Group after commencement of the Performance Period with respect to Performance Awards that are intended to be Qualified Performance-Based Awards.

(b)Performance Awards.  In the case of Performance Awards that are not intended to be Qualified Performance-Based Awards, the Committee retains the discretion to make the following adjustments in the Comparison Group during the Performance Period.  A company in the Comparison Group may be dropped from the Comparison Group if a company’s common stock ceases to be publicly traded on a national stock exchange or market; or a company is a party to a significant merger, acquisition, or other reorganization.  Under these, or similar, circumstances, the company or companies may be removed from the Comparison Group, and may be replaced with another company or companies by Standard & Poor’s, consistent with their established criteria for selection of companies for the Comparison Group.  In any case where the Comparison Group ceases to exist, or is otherwise determined to no longer be appropriate as the basis for a measure under this Subplan, the Committee may designate a replacement Comparison Group.  In any such case, the Committee shall have authority to determine the appropriate method of calculating the TSR of such former and/or replacement Comparison Group, whether by complete substitution of the replacement Comparison Group (and disregard of the former Comparison Group) over the entire Performance Period or by pro rata calculations for each Comparison Group or otherwise.

Section 8.Preconditions to Payout Under Performance Awards.

(a)Continuous Employment.  Except as specified in paragraph (b) below, to be eligible for payout under a Performance Award under this Subplan, a Participant must remain continuously employed with the Company or a Subsidiary at all times from the Effective Date through the Award Payment Date.

(b)Death, Disability, Retirement, or Termination for an Approved Reason Before the Award Payment Date.  If a Participant’s employment is terminated due to death, disability, retirement, or any approved reason as determined by the Committee (in the case of an executive officer) or the executive officer responsible for Human Resources (in the case of non-executive officers) (including reduction in force, divestiture, special separation, or termination by mutual consent) prior to the Award Payment Date, the Participant shall receive, subject to the terms and conditions of the Plan and this Subplan, a payout representing a prorated portion of the Actual Grant Amount to which such Participant otherwise would have been entitled to receive under Section 6 of this Subplan had the Participant remained in employment to the end of the Performance Period, with the precise amount of such payout to be determined by multiplying the Actual Grant Amount by a fraction, the numerator of which is the number of full calendar months employed in the Performance Period from the Effective Date through and including the effective date of such termination, and the denominator of which is 36 (the total number of months in the Performance Period).

68

Exhibit 10.02

(c)Termination Without Cause or for Good Reason Before the Award Payment Date.  If a participant's employment with the Company or a Subsidiary is terminated without "Cause" or for "Good Reason" (as such terms are defined in the participants' Employment Agreement dated May 4, 2006) prior to the Award Payment Date, the participant shall receive, subject to the terms and conditions of the Plan and this Subplan, within 30 days of termination (or such other date as may be required under Internal Revenue Code Section 409A), shares of Common Stock underlying outstanding performance shares (as if all performance objectives with respect thereto had been met at a level of 100%) on a pro rata basis based upon the number of full calendar months employed in the Performance Period from the Effective Date through and including the effective date of such termination.

Section 9.Manner and Timing of Award Payments.

(a)Timing of Award Payment.  Except as provided in Section 9(c), if any Awards are payable under this Subplan, the payment of such Awards to Participants shall be made as soon as is administratively practicable after final approval by the Committee of such payments and within the first taxable year immediately following the end of the Performance Period.

(b)Tax Withholding.  The Company may withhold or require the grantee to remit a cash amount sufficient to satisfy federal, state, and local taxes (including the participant’s FICA obligation) required by law to be withheld.  Further, either the Company or the grantee may elect to satisfy the withholding requirement by having the Company withhold shares of Common Stock having a Fair Market Value on the date the tax is to be determined equal to the minimum statutory total tax which could be imposed on the transaction.

(c)Deferral of Award in Excess of the Maximum Deductible Amount.  If payment under a Performance Award would, or could in the reasonable estimation of the Committee, result in the participant’s receiving compensation in excess of the Maximum Deductible Amount in a given year, then such portion (or all, as applicable) of the Award as would, or could in the reasonable estimation of the Committee, cause such participant to receive compensation from the Company in excess of the Maximum Deductible Amount may, at the sole discretion of the Committee, be converted into the right to receive a cash payment, which shall be paid at such time as permitted under Internal Revenue Code Section 409A and applicable Treasury Regulations and guidance thereunder.

Section 10.No Rights as Stockholder.  No certificates for shares of Common Stock shall be issued under this Subplan, nor shall any participant have any rights as a stockholder as a result of participation in this Subplan, until the Actual Grant Amount has been determined and such participant has otherwise become entitled to an Award under the terms of the Plan and this Subplan.  In particular, no participant shall have any right to vote or to receive dividends on any shares of Common Stock under this Subplan until certificates for such shares have been issued as described above.

Section 11.Application of Plan.  The provisions of the Plan shall apply to this Subplan, and the provisions of this Subplan shall be interpreted in a manner consistent with the terms of the Plan.

Section 12.Adjustment of Actual Grant Amount.  The Committee may, in its sole discretion, adjust the Actual Grant Amount to reflect overall Company performance and business and financial conditions, except in the case of a Performance Award that is a Qualified Performance-Based Award where such actions would cause the Performance Award that is a Qualified Performance-Based Award to cease to qualify for the Section 162(m) Exemption.  In the case of a Performance Award that is a Qualified Performance-Based Award, the Committee shall retain the discretion to adjust such Award downward, either on a formula or discretionary basis or any combination, as the Committee determined.

Section 13.Reimbursement of Certain Compensation Following Restatement.  The Performance Awards are subject to the provisions of the Plan and any applicable law or Company policy requiring reimbursement to the Company of certain incentive-based compensation following an accounting restatement due to material non-compliance by the Company with any financial reporting requirement or due to other events or conditions.

Section 14.Amendments.  The Committee may, from time to time, amend this Subplan in any manner.

Section 15.  Code Section 409A.  All Performance Awards granted under this Subplan shall be subject to the provisions of the Plan concerning Code Section 409A, which provisions shall be incorporated into this Subplan by reference.

69

Exhibit 10.02

EXHIBIT A

Eastman Chemical Company

Performance Share Award Grant Table

2012-2014 Cycle

ON FILE IN GLOBAL COMPENSATION

70

Exhibit 10.02

EXHIBIT B

2012 -2014 Award Multiplier Table

Differential from Target Return on Capital (ROC-(COC+X))*
Eastman TSR Relative to Comparison Companies	<-7%	-7% to -5%	-4.99 to -3%	-2.99 to -1%	-0.99 to 0%	.01 to +1%	+1.01 to +3%	+3.01 to +5%	+5.01 to +7%	+7.01 to +10%	>10%
5th quintile	0	0	0	0	.4	.5	.6	.7	.8	1.1	1.5
4th quintile	0	0	0	.4	.5	.7	.8	.9	1.1	1.5	2
3rd quintile	0	0	.4	.5	.8	1	1.2	1.5	1.8	2.1	2.4
2nd quintile	0	.4	.6	.8	1	1.3	1.6	1.9	2.2	2.5	2.8
1st quintile	0	.6	.8	1	1.3	1.6	1.9	2.2	2.5	2.8	3

* “X” to be determined by the Committee at the December meeting.

71

Exhibit 10.02

AWARD NOTICE

NOTICE OF PERFORMANCE SHARES

AWARDED PURSUANT TO THE

EASTMAN CHEMICAL COMPANY

2007 OMNIBUS LONG-TERM COMPENSATION PLAN

               Recipient:   Mark J. Costa

               Performance Period: 2012-2014

               Target Award:

1.         Award of Performance Shares.  This Award Notice serves to notify you that the Compensation and Management Development Committee of the Board of Directors (the “Committee”) of Eastman Chemical Company ("Company") has awarded to you, under the 2012-2014 Performance Share Award Subplan ("Subplan") of the 2007 Omnibus Long-Term Compensation Plan ("Plan"), on the terms and conditions set forth in the Subplan and the Plan, the number of performance shares (the "Performance Shares") of its $.01 par value Common Stock ("Common Stock") specified above.  The Performance Shares are rights to receive Awards in the form of shares of Common Stock, subject to the attainment of specified performance conditions by the Company.  Subject to satisfaction of the minimum performance conditions and the other terms of the Subplan, Awards under the Subplan will ultimately be paid in the form of unrestricted shares of Common Stock.

This Award Notice provides a summary of the terms and conditions of your performance shares, all of which terms and conditions are contained in the Subplan and the Plan.  Capitalized terms not defined herein have the respective meanings set forth in the Subplan and the Plan, as applicable.

2.         Performance Conditions.  The performance conditions for the Subplan are: 1)  a comparison of the total stockholder return (referred to in the Subplan as "TSR," and reflecting both the change in stock price and the amount of dividends declared) of the Company during the period from January 1, 2012 through December 31, 2014 (the "Performance Period"), to the TSRs of the companies in the Comparison Group (the group of companies within the Standard and Poor’s “Materials Sector” that are classified as Chemical companies.  The S&P “Materials Sector” index, identified as Global Industry Classification Standard 15, is an index of industrial companies selected from the S&P “Super Composite 1500” index); and 2) the arithmetic average for each of the Performance Years during the Performance Period, of the Company’s average Return on Capital minus a Return on Capital target.   The specific terms of the performance conditions are summarized in Section 3 of this Award Notice and are detailed in Section 6 of the Subplan.

3.         Number of Performance Shares Awarded.  The number of Performance Shares that you have been awarded is shown above (the "Target Award").  However, the actual number of shares of Common Stock to which you will be entitled under the Subplan (the "Actual Grant Amount") may be more or less than the Target Award, depending upon the quintile ranking of the Company's TSR when ranked among the TSRs of the Comparison Group, and the Company’s average Return on Capital relative to a Return on Capital target for each of the Performance Years during the Performance Period.  The Company’s performance relative to these measures shall determine a multiplier to be applied to the Target Grant Amount.  Multipliers range from 3.0 (i.e., 300%), if the Company’s TSR is ranked in the top performing quintile (top 20%) of companies in the Comparison Group, and the average Return on Capital minus the target Return on Capital is greater than 10 percentage points, to 0.0 (with no shares of Common Stock being delivered to participants), if the Company does not meet certain levels of performance relative to the two measures.  The award multiplier table is shown in Exhibit A.  Subject to the Committee’s authority to adjust the Actual Grant Amount described in Section 12 of this Award Notice, your Actual Grant Amount is determined by applying the multiplier corresponding to the Company’s performance (Exhibit A) to your Target Award.

72

Exhibit 10.02

4.         Payment of Award.  If you are entitled to payment of an Award under the Subplan, such payment will be made as soon as administratively practicable after the end of the Performance Period and final approval by the Committee;

provided, however, that if payment of the Award could, in the reasonable estimation of the Committee, result in your receiving compensation, in the year of scheduled payment, in excess of the amount deductible by the Company under Section 162(m) of the Internal Revenue Code, then such portion (or all, as applicable) of the Award as could, in the reasonable estimation of the Committee,  create such excess compensation, may, at the sole discretion of the Committee, be converted into the right to receive a cash payment, which shall be paid at such time as permitted under Internal Revenue Code Section 409A and applicable Treasury Regulations and guidance thereunder, as specified in Section 9 of the Subplan.

If any portion of an Award is converted into a right to receive a cash payment as described above, an amount representing the Fair Market Value of the deferred portion of the Actual Grant Amount will be credited to the Stock Account of the Executive Deferred Compensation Plan (the “EDCP”) and hypothetically invested in units of Common Stock.  Thereafter, such amount will be treated in the same manner as other investments in the EDCP, all as specified in Section 9 of the Subplan.

The Company may withhold or require you to remit a cash amount sufficient to satisfy federal, state, and local taxes (including your FICA obligation) required by law to be withheld.  Further, either the Company or you may elect to satisfy the withholding requirement by having the Company withhold shares of common stock having a Fair Market Value on the date the tax is to be determined equal to the minimum statutory total tax which could be imposed on the transaction.

5.         Nontransferability.  Unless and until unrestricted shares of Common Stock are delivered or, if applicable, an amount is credited under the EDCP to you in payment of an earned Award of the Performance Shares, the Performance Shares are not transferable except by will or by the laws of descent and distribution, and may not be sold, assigned, pledged or encumbered in any way, whether by operation of law or otherwise.

6.         Limitation of Rights.  You will not have any rights as a stockholder with respect to the Performance Shares unless and until certificates for shares of Common Stock have been issued to you.  No such certificates will be issued under the Subplan until the Actual Grant Amount has been determined and you have otherwise become entitled to payment of an Award under the terms of the Plan and the Subplan.    Neither the Plan, the Subplan, the granting of these Performance Shares nor this Award Notice gives you any right to remain employed by the Company.

7.         Termination.  Upon termination of your employment with the Company and its Subsidiaries ("termination")  by reason of death, disability or retirement, or for another approved reason as determine by the Committee, you will receive after the end of the Performance Period, subject to the terms and conditions of the Plan and the Subplan, an Award representing a prorated portion of the Actual Grant Amount to which you would have been entitled to receive under Section 6 of the Subplan had you  remained in employment to the end of the Performance, based on the number of full calendar months employed from January 1, 2012 through the effective date of such termination.  Upon termination without "Cause" or resignation for "Good Reason" (as such terms are defined in your Employment Agreement dated May 4, 2006) Eastman will issue to you, within 30 days of your termination (or such other date as may be required under Internal Revenue Code Section 409A), shares of Common Stock underlying outstanding performance shares (as if all performance objectives with respect thereto had been met at a level of 100%) on a pro rata basis based upon the number of full calendar months employed during the performance period.  Upon termination for a reason other than death, disability, retirement or another reason described above prior to the date the shares of Common Stock covered by the Award are delivered to you, you will not be eligible or entitled to receive any Award under the Subplan.

73

Exhibit 10.02

8.         Noncompetition; Confidentiality.  You will not, without the written consent of the Company, either during your employment by the Company or thereafter, disclose to anyone or make use of any confidential information which you have acquired during your employment relating to any of the business of the Company, except as such disclosure or use may be required in connection with your work as an employee of the Company.  During your employment by the Company, and for a period of two years after the termination of such employment, you will not, either as principal, agent, consultant, employee or otherwise, engage in any work or other activity in competition with the Company in the field or fields in which you have worked for the Company.  The agreement in this Section 8 applies separately in the United States and in other countries but only to the extent that its application shall be reasonably necessary for the protection of the Company.  You will forfeit all rights under this Award Notice to or related to the Performance Shares if,  in the determination of the Committee (in the case of executive officers) or of the executive officer responsible for Human Resources (in the case of non-executive employees), you have violated any of the provisions of this Section 8, and in

that event any issuance of shares, payment or other action with respect to the Performance Shares shall be made or taken, if at all, in the sole discretion of the Committee or the executive officer responsible for Human Resources.

9.         Restrictions on Issuance of Shares.  If at any time the Company determines that listing, registration or qualification of the shares covered by an Award upon any securities exchange or under any state or federal law, or the approval of any governmental agency, is necessary or advisable prior to the delivery of any certificate for shares of Common Stock subject to the Award, no such certificate may be delivered unless and until such listing, registration, qualification or approval shall have been effected or obtained free of any conditions not acceptable to the Company.

10.       Change in Ownership; Change in Control.  Article 14 of the Plan contains certain special provisions that will apply in the event of a Change in Ownership or Change in Control, respectively.

11.       Adjustment of Terms.  The adjustment provisions Article 15 of the Plan will control in the event of a nonreciprocal transaction between the company and its stockholders that causes the per-share value of the Common Stock to change (including, without limitation, any stock dividend, stock split, spin-off, rights offering, or large nonrecurring cash dividend) or upon the occurrence of in anticipation of any other corporate event or transaction involving the Company (including, without limitation, any merger, combination, or exchange of shares).

12.        Adjustment of Actual Grant Amount.   The Committee may, in its sole discretion, adjust the Actual Grant Amount to reflect overall Company performance and business and financial conditions, except in the case of a Performance Award that is a Qualified Performance-Based Award where such actions would cause the Performance Award that is a Qualified Performance-Based Award to cease to qualify for the Section 162(m) Exemption.  In the case of a Performance Award that is a Qualified Performance-Based Award, the Committee shall retain the discretion to adjust such Award downward, either on a formula or discretionary basis or any combination, as the Committee determined.

13.        Reimbursement of Certain Compensation Following Restatement.  The Award is subject to the provisions of the Plan and any applicable law or Company policy requiring reimbursement to the Company of certain incentive-based compensation following an accounting restatement due to material non-compliance by the Company with any financial reporting requirement or due to other events or conditions.

14.        Plan and Subplan Control.  In the event of any conflict between the provisions of the Plan or the Subplan and the provisions of this Award Notice, the provisions of the Plan or the Subplan, as applicable, will be controlling and determinative.

74

Exhibit 10.02

EXHIBIT A

Award Multiplier Table 2012 -2014 Award Multiplier Table

Differential from Target Return on Capital (ROC-(COC+X))*
Eastman TSR Relative to Comparison Companies	<-7%	-7% to -5%	-4.99 to -3%	-2.99 to -1%	-0.99 to 0%	.01 to +1%	+1.01 to +3%	+3.01 to +5%	+5.01 to +7%	+7.01 to +10%	>10%
5th quintile	0	0	0	0	.4	.5	.6	.7	.8	1.1	1.5
4th quintile	0	0	0	.4	.5	.7	.8	.9	1.1	1.5	2
3rd quintile	0	0	.4	.5	.8	1	1.2	1.5	1.8	2.1	2.4
2nd quintile	0	.4	.6	.8	1	1.3	1.6	1.9	2.2	2.5	2.8
1st quintile	0	.6	.8	1	1.3	1.6	1.9	2.2	2.5	2.8	3

* “X” to be determined by the Committee at the December meeting.

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EX-10.03

 Exhibit 10.03

AMENDED AND RESTATED

EASTMAN EXECUTIVE DEFERRED COMPENSATION PLAN

(Effective as of August 4, 2011)

EASTMAN CHEMICAL COMPANY

76 

 Exhibit 10.03

AMENDED AND RESTATED

EASTMAN EXECUTIVE DEFERRED COMPENSATION PLAN

TABLE OF CONTENTS

Section                           TitlePage

Preamble 78

Section 1. Definitions  78

Section 2. Deferral of Compensation; Allocations  82

Section 3. Deferral Elections  82

Section 4. Hypothetical Investments  83

Section 5. Deferrals and Crediting Amounts to Accounts  83

Section 6. Deferral Period  84

Section 7. Investment in the Stock Account and Transfers Between Accounts  84

Section 8. Payment of Deferred Compensation  86

Section 9.  Payment of Deferred Compensation After Death  88

Section 10. Acceleration of Payment for Unforeseeable Emergency  88

Section 11.  Non-Competition and Non-Disclosure Provision  89

Section 12. Participant’s Rights Unsecured  89

Section 13. No Right to Continued Employment  89

Section 14. Statement of Account  89

Section 15. Deductions  89

Section 16. Administration  89

Section 17. Amendment  90

Section 18. Governing Law  90

Section 19. Change in Control  90

Section 20. Compliance with SEC Regulations  91

Section 21. Successors and Assigns  91

Section 22. Claims Procedures  91

Section 23. Compliance with Section 409A  92

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 Exhibit 10.03

AMENDED AND RESTATED

EASTMAN EXECUTIVE DEFERRED COMPENSATION PLAN

Preamble.  This Amended and Restated Eastman Executive Deferred Compensation Plan (the “Plan”) is an unfunded, nonqualified deferred compensation arrangement maintained primarily for a select group of management or highly compensated employees of Eastman Chemical Company (“the Company”) and certain of its subsidiaries, within the meaning of Section 201(2) of the Employee Retirement Income Security Act of 1974, as amended.  Under this Plan, each Eligible Employee is annually given an opportunity to defer payment of part of his or her cash compensation.  In addition, certain amounts not eligible to be contributed to the EIP/ESOP (as defined below) on behalf of Eligible Employees due to certain limitations applicable to that plan are paid on a deferred basis under this Plan.

This Plan originally was adopted effective January 1, 1994, amended and restated effective as of August 1, 2002 and August 1, 2007 and subsequently amended and restated again effective as of December 31, 2008 in order to comply with Code Section 409A.  As permitted under guidance issued under Code Section 409A, this Plan does not contain provisions retroactive to the effective date of Code Section 409A and guidance issued thereunder.  There are no longer any amounts credited to Grandfathered Accounts under the Plan (as that term is defined in the 2008 amended and restated Plan document).

Section 1.                      Definitions.

Section 1.1.                                  “Account” means the EDCP Account.  The EDCP Account is further sub-divided into an Interest Account and a Stock Account and is sub-divided into separate Class Year Accounts.

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

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 Exhibit 10.03

Section 1.3.                                   “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 1 (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 13d-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, or (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 stockholders, 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 stockholders 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.

Section 1.4.                                  “Class Year” means each calendar year.

Section 1.5.                                  “Code” means the Internal Revenue Code of 1986, as amended.

Section 1.6.                                  “Common Stock” means the $.01 par value common stock of the Company.

Section 1.7.                                  “Company” means Eastman Chemical Company.

Section 1.8.                                  “Compensation Committee” or “Committee” shall mean the Compensation and Management Development Committee of the Board.

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

79

 Exhibit 10.03

Section 1.10.                                   “Deferrable Amount” means, for a given fiscal year of the Company, an amount equal to the sum of the Eligible Employee’s (i) annual base cash compensation; (ii) annual cash payments under performance incentive and sales incentive plans of the Company in which an Eligible Employee participates and which may be identified by the Compensation Group from time to time as deferrable under this Plan; (iii) stock and stock-based awards under the Omnibus Plan which, under the terms of the Omnibus Plan and the award, are payable in cash and required or allowed to be deferred into this Plan; (iv) any special compensation payable to an Eligible Employee in connection with his or her initial employment with the Company or the acquisition by the Company of such person’s previous employer (such as a retention bonus) and (v) to the extent applicable, any non-elective deferrals contributed to this Plan by the Company on behalf of an Eligible Employee (other than an ESOP/RSC Allocation).  Notwithstanding the foregoing, the Deferrable Amount shall not include (i) any amount that must be withheld from the Eligible Employee’s wages for income or employment tax purposes or (ii) with respect to elections made during an Initial Enrollment Period, cash payments to an Eligible Employee under an annual incentive performance plan.

Section 1.11.                                  “Disability” means the Participant (i) is, by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than 3 months under the Applicable Disability Plan (as defined below), or (ii) qualifies for Social Security disability benefits.  The “Applicable Disability Plan” shall be the group long-term disability insurance plan offered by the Company to the Participant at the time of the determination.  If no group long-term disability insurance plan is being offered to the Participant at the time of such determination, the Participant shall be required to satisfy clause (ii) in order to be declared Disabled for purposes of this Plan.

Section 1.12.                                  “EIP/ESOP” means the Eastman Investment and Employee Stock Ownership Plan.

“Eligible Employee” means a U.S.-based employee of the Company or any of its U.S. Subsidiaries who (i) has a “Business and Technical” salary grade classification of 49 or above, or of 105 or above, (ii) is paid on the Company’s payroll and (iii) is not party to an agreement that excludes the employee from participation in the Plan. An employee who would be an Eligible Employee except that he or she is not paid on the Company’s payroll shall become an Eligible Employee at the time he or she is transferred onto the Company’s payroll.  If any employee later ceases to be an Eligible Employee, the employee shall continue to be treated as an Eligible Employee for the remainder of the Class Year in which the change occurred that caused the employee to cease to be an Eligible Employee.  Consequently, his or her deferral and payment elections for that Class Year shall remain in effect to the end of the Class Year, and any ESOP/RSC Allocation relating to service performance during such Class Year shall be governed by the Participant’s deferral election for such Class Year or the Plan’s default payment provisions, as applicable.

Section 1.13.                                  “Employee Service Center” means the Company’s internal organization responsible for processing transactions and providing general information for Participants under this Plan.

Section 1.14.                                  “Enrollment Period” means the period designated by the Compensation Group each year, provided however, that such period shall end on or before the last business day of the Class Year immediately prior to the Class Year to which the Enrollment Period relates.

Section 1.15.                                  “ESOP/RSC Allocation” has the meaning assigned to that term in Section 2.2.

Section 1.16.                                  “Excess Compensation” means the excess, if any, of (1) an Employee’s “Company Compensation” as defined in the EIP/ESOP, over (2) the dollar amount under Code Section 401(a)(17) applicable to the EIP/ESOP for a given plan year of the EIP/ESOP.

  80

 Exhibit 10.03

Section 1.17.                                  “Exchange Act” means the Securities Exchange Act of 1934, as amended.

Section 1.18.                                  “Final 409A Regulations” means final Treasury Regulations promulgated under Code Section 409A.

Section 1.19.                                  “Initial Enrollment Period” means, for an Eligible Employee who is newly employed by the Company, the period ending no later than thirty (30) days after the date on which such person became an Eligible Employee, and beginning on such earlier date as may be established by the Compensation Group.  For a person who becomes an Eligible Employee through an acquisition by the Company of such person’s previous employer, “Initial Enrollment Period” shall mean the period ending no later than thirty (30) days after the date of the acquisition, and beginning on such earlier date as may be established by the Compensation Group.  An Eligible Employee who is rehired by the Company may not enroll during the Initial Enrollment Period if he or she was eligible to participate in this Plan (or any plan required to be aggregated with this Plan under the Final 409A Regulations) at any time during the twenty-four (24) month period prior to his or her rehire.

Section 1.20.                                  “Interest Account” means the account established by the Company for each Participant for compensation deferred or Excess Contribution amounts credited pursuant to this Plan and which shall bear interest as described in Section 4.1 below.  The maintenance of individual Interest Accounts is for bookkeeping purposes only.

Section 1.21.                                  “Interest Rate” means the monthly average of bank prime lending rates (as reported by financial information reporting services), such average to be determined as of the last day of each month and credited daily in accordance with procedures established by the Compensation Group.

“Market Value” means the closing price of the shares of Common Stock on the New York Stock Exchange on the day on which such value is to be determined or, if no such shares were traded on such day, said closing price on the next business day on which such shares are traded, provided, however, that if at any relevant time the shares of Common Stock are not traded on the New York Stock Exchange, then “Market Value” shall be determined by reference to the closing price of the shares of Common Stock on another national securities exchange, if applicable, or if the shares are not traded on an exchange but are traded in the over-the-counter market, by reference to the last sale price or the closing “asked” price of the shares in the over-the-counter market as reported by the National Association of Securities Dealers Automated Quotation System (NASDAQ) or other national quotation service.

Section 1.22.                                  “Omnibus Plan” means the Eastman Chemical Company 1994 Omnibus Long-Term Compensation Plan, any successor plan to the Omnibus Plan or any subsequently adopted plan of the Company providing for awards of stock and stock-based compensation to Company employees.

Section 1.23.                                  “Participant” means an Eligible Employee who (i) elects for one or more Class Years to defer compensation pursuant to this Plan; or (ii) receives an ESOP/RSC Allocation under Section 2.2 of this Plan.

Section 1.24.                                  “Plan” means this amended and restated Eastman Executive Deferred Compensation Plan.

Section 1.25.                                  “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.

81

 Exhibit 10.03

Section 1.26.                                   “Senior HR Executive” has the meaning assigned to that term in Section 10.1.

Section 1.27.                                  “Stock Account” means the account established by the Company for each Participant, the performance of which shall be measured by reference to the Market Value of Common Stock.  The maintenance of individual Stock Accounts is for bookkeeping purposes only.

Section 1.28.                                  “Termination of Employment” means a separation from service under Code Section 409A and the Final 409A Regulations.

Section 1.29.                                  “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.

Section 1.30.                                  “U.S. Subsidiaries” means the United States subsidiaries of the Company other than those subsidiaries listed on Schedule A.

Section 1.31.                                  “Valuation Date” means each business day.

Section 2.                      Deferral of Compensation; Allocations.

Deferrable Amount Election.  An Eligible Employee may elect to defer receipt of all or any portion of his or her Deferrable Amount to the Interest Account and/or Stock Account within such person’s EDCP Account for the applicable Class Year.  A Participant may make deferrals under this Plan regardless of whether the Participant elects deferrals under the EIP/ESOP for that Class Year.  If, after the start of a Class Year, an Eligible Employee terminates employment with the Company and all of its U.S. Subsidiaries or otherwise ceases to be an Eligible Employee, any previous Class Year deferral election and distribution election relating to a payment or award under the Company’s Omnibus Plan and any performance incentive or sales incentive plan of the Company in which an Eligible Employee participates (or relating to any other Deferrable Amount), shall remain in effect for such items of compensation payable with respect to such Class Year.

Section 2.1.                                  Deferral of ESOP/RSC Allocation.  For any Class Year during which an Eligible Employee has Excess Compensation, then at such time, if any, as the Company makes a contribution to the EIP/ESOP with respect to such Class Year, the Company shall credit to the Eligible Employee’s EDCP Account under this Plan, an amount equal to the product of (1) the amount of such Eligible Employee’s Excess Compensation multiplied by (2) the ESOP or RSC contribution percentage for that Class Year under the EIP/ESOP (the “ESOP/RSC Allocation”).  Such amount shall be credited according to the Eligible Employee’s investment election.

Section 3.                      Deferral Elections.

Section 3.1.                                  General.  An Eligible Employee 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 Employee’s taxable year in which the services related to the Deferrable Amount will be performed by the Eligible Employee.  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.

82

 Exhibit 10.03

Section 3.2.                                  Elections During the Initial Enrollment Period.  Notwithstanding the foregoing, (i) in the first Class Year in which a person becomes an Eligible Employee by reason of being employed by the Company, and (ii) in the first Class Year in which a person becomes an Eligible Employee through an acquisition by the Company of such person’s previous employer, the Eligible Employee may elect to defer receipt of all or any portion of his or her Deferrable Amount earned for services performed on and after the first day of the payroll beginning immediately after the date on which the Participant makes the deferral election (the “Initial Payroll Date”), 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 Enrollment 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 Initial Payroll Date over the total number of days in the performance period, and

(b)in the case of a rehired Eligible Employee, the Eligible Employee 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 rehire.

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

Section 4.                      Hypothetical Investments.

Section 4.1.                                  Interest Accounts.  Amounts in a Participant’s Interest Accounts are hypothetically invested in an interest bearing account which bears interest computed at the Interest Rate.

Section 4.2.                                  Stock Accounts.  Amounts in a Participant’s Stock Accounts are hypothetically invested in units of Common Stock.  Amounts deferred into Stock Accounts are recorded as units of Common Stock, and fractions thereof with one unit equating to a single share of Common Stock.  Thus, the value of one unit shall be the Market Value of a single share of Common Stock.  The use of units is merely a bookkeeping convenience; the units are not actual shares of Common Stock.  The Company will not reserve or otherwise set aside any Common Stock for or to any Stock Account.

Section 5.                      Deferrals and Crediting Amounts to Accounts.

Section 5.1.                                  Manner of Electing Deferral.  An Eligible Employee may elect to defer compensation by completing the deferral election process established by the Compensation Group.  For each Class Year, each Eligible Employee shall elect, in the manner specified by the Compensation Group, (i) the amount and sources of Deferrable Amount to be deferred; (ii) whether deferral of annual base cash compensation is to be at the same rate throughout the year, or at different rates for each calendar quarter of the year; (iii) the portion of the deferral to be credited to the Participant’s Interest Account and Stock Account respectively; and (iv) the manner of payment for such Deferrable Amount and for any ESOP/RSC Allocation relating to services performed for such Class Year.  An election to defer compensation shall be irrevocable following the end of the applicable Enrollment Period, but the portion of the deferral to be credited to the Participant’s Interest Account and Stock Account, respectively, may be reallocated by the Participant in the manner specified by the Compensation Group or its authorized designee 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.

83

 Exhibit 10.03

Section 5.2.                                  Crediting of Amounts to Accounts.  Except as otherwise provided in this Section with respect to Section 16 Insiders, amounts to be deferred each Class Year shall be credited to the Participant’s Interest Account and/or Stock Account, as applicable, within the Participant’s EDCP Account as of the date such amounts are otherwise payable.  An ESOP/RSC Allocation which is made pursuant to Section 2.2 with respect to services performed during the Class Year shall be credited to the Participant’s EDCP Account as of the date the Company makes the contribution to the EIP/ESOP which triggers the ESOP/RSC Allocation under this Plan.  Notwithstanding the foregoing, for each Section 16 Insider, each and every Deferrable Amount, when initially credited to the Participant’s EDCP Account, shall be held in a Participant’s Interest Account until the next date that dividends are paid on Common Stock (see Section 7.6 of this Plan), and on such date the Deferrable Amount that would have been initially credited to the Participant’s Stock Account but for this sentence shall be transferred, together with allocable interest thereon, to the Participant’s Stock Account, provided that such transfer shall be subject to the restrictions set forth in Section 7.2.

Section 6.                      Deferral Period.  Subject to Sections 9, 10, and 19 hereof, the amounts credited to a Participant’s EDCP Account and earnings thereon will be deferred until the Participant dies, becomes Disabled or has a Termination of Employment with the Company and all of its U.S. Subsidiaries.  Any such election shall be made during the applicable Enrollment Period or Initial Enrollment Period on the deferred compensation form referenced in Section 5 above.  The payment of a Participant’s Account shall be governed by Sections 8, 9, 10, and 19, as applicable.

Section 7.                      Investment in the Stock Account and Transfers Between Accounts.

Section 7.1.                                  Election Into the Stock Account.  Amounts to be credited to a Participant’s Stock Account by reason of a deferral election submitted by the Participant pursuant to Section 5.1 shall be credited, as of the date described in Section 5.2, with that number of units of Common Stock, and fractions thereof, obtained by dividing the dollar amount to be credited into the respective Stock Account by the Market Value of the Common Stock as of such date.

Section 7.2.                                  Transfers Between Accounts.  Except as otherwise provided in this Section, a Participant may direct that all or any portion, designated as a whole dollar amount, of the existing balance of his or her Interest or Stock Account be transferred to the other Account, effective as of (i) the date such election is made, if and only if such election is made prior to the close of trading on the New York Stock Exchange on a day on which the Common Stock is traded on the New York Stock Exchange, or (ii) if such election is made after the close of trading on the New York Stock Exchange on a given day or at any time on a day on which no sales of Common Stock are made on the New York Stock Exchange, then on the next business day on which the Common Stock is traded on the New York Stock Exchange (the date described in (i) or (ii), as applicable, is referred to hereinafter as the election’s “Effective Date”).

Such election shall be made in the manner specified by the Committee or its authorized designee; provided however, that a Section 16 Insider may only elect to transfer between his or her Accounts 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 Account or the Eastman Stock Funds of the Eastman Investment and Employee Stock Ownership Plan, 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. A Participant’s election to transfer less than all of the funds in his or her Interest Accounts to his or her Stock Accounts shall be applied pro rata to the Interest Account in the Participant’s EDCP Account.  The same procedure shall be followed if the Participant elects to transfer less than all of the funds in his or her Stock Accounts to his or her Interest Accounts.

84

 Exhibit 10.03

In addition, and notwithstanding the foregoing, a Section 16 Insider’s Deferrable Amount that is initially allocated to his or her Interest Account as provided in Section 5.2, shall be transferred, following such initial allocation, from the Participant’s Interest Account to his or her Stock Account in the manner provided in Section 5.2.

Section 7.3.                                  Transfer Into the Stock Account.  If a Participant elects pursuant to Section 7.2 to transfer an amount from his or her Interest Accounts to his or her Stock Accounts, then, effective as of the election’s Effective Date, his or her Stock Accounts shall be credited with that number of units of Common Stock; and fractions thereof, obtained by dividing the dollar amount elected to be transferred by the Market Value of the Common Stock on the Valuation Date immediately preceding the election’s Effective Date; and (ii) his or her Interest Accounts shall be reduced by the amount elected to be transferred.

Section 7.4.                                  Transfer Out of the Stock Account.  If a Participant elects pursuant to Section 7.2 to transfer an amount from his or her Stock Accounts to his or her Interest Account, effective as of the election’s Effective Date; (i) his or her Interest Accounts shall be credited with a dollar amount equal to the amount obtained by multiplying the number of units to be transferred by the Market Value of the Common Stock on the Valuation Date immediately preceding the election’s Effective Date; and (ii) his or her Stock Accounts shall be reduced by the number of units elected to be transferred.

Section 7.5.                                  Dividend Equivalents.  Effective as of the payment date for each cash dividend on the Common Stock, the Stock Accounts of each Participant who had a balance in his or her Stock Accounts on the record date for such dividend shall be credited with a number of units of Common Stock, and fractions thereof, obtained by dividing (i) the aggregate dollar amount of such cash dividend payable in respect of such Participant’s Stock Accounts (determined by multiplying the dollar value of the dividend paid upon a single share of Common Stock by the number of units of Common Stock held in the Participant’s Stock Accounts on the record date for such dividend); by (ii) the Market Value of the Common Stock on the Valuation Date immediately preceding the payment date for such cash dividend.

Section 7.6.                                  Stock Dividends.  Effective as of the payment date for each stock dividend on the Common Stock, additional units of Common Stock shall be credited to the Stock Accounts of each Participant who had a balance in his or her Stock Accounts on the record date for such dividend.  The number of units that shall be credited to the Stock Account of such a Participant shall equal the number of shares of Common Stock and fractions thereof, which the Participant would have received as stock dividends had he or she been the owner on the record date for such stock dividend of the number of shares of Common Stock equal to the number of units credited to his or her Stock Accounts on such record date.

Section 7.7.                                  Recapitalization.  If, as a result of a recapitalization of the Company, the outstanding shares of Common Stock shall be changed into a greater number or smaller number of shares, the number of units credited to a Participant’s Stock Accounts shall be appropriately adjusted on the same basis.

Section 7.8.                                  Distributions.  Amounts in respect of units of Common Stock may only be distributed out of the Stock Accounts by transfer to the Interest Accounts (pursuant to Sections 7.2 and 7.4) or withdrawal from the Stock Accounts (pursuant to Sections 8, 9, 10, or 19), and shall be distributed in cash.  The number of units to be distributed from a Participant’s Stock Accounts shall be valued by multiplying the number of such units by the Market Value of the Common Stock as of the Valuation Date immediately preceding the date such distribution is to occur.  Pending the complete distribution under Section 8.2 of the Stock Accounts of a Participant who has terminated his or her employment with the Company or any of its U.S. Subsidiaries, the Participant shall continue to be able to make elections pursuant to Sections 7.2, 7.3, and 7.4 and his or her Stock Accounts shall continue to be credited with additional units of Common Stock pursuant to Sections 7.5, 7.6,   and 7.7.

85

 Exhibit 10.03

Section 7.9.                                  Responsibility for Investment Choices.  Each Participant is solely responsible for any decision to defer compensation into his or her EDCP Stock Account, and to retain in his or her ESOP Stock Account any amounts credited thereto, and to transfer amounts to and from his or her Stock Accounts.  Each Participant accepts all investment risks entailed by such decision, including the risk of loss and a decrease in the value of the amounts he or she elects to transfer into his or her Stock Accounts.

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 19.

Manner of Payment.  Payment of a Participant’s Account shall be made in a single lump sum or annual installments, as elected by the Participant pursuant to this Section 8 for each Class Year.  The payment election shall apply to all amounts deferred with respect to such Class Year, either by election pursuant to Section 2.1 or on a non-elective basis pursuant to Section 2.2.  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 8.2.                                  Timing of Payments.

(a)Subject to Sections 8.3(b), 8.3(c) and 8.3(d), payments shall commence in the year elected by the Participant pursuant to this Section 8, up through the tenth year following the year in which the Participant becomes Disabled or has a Termination of Employment from the Company and all of its U.S. Subsidiaries, but in no event may a Participant elect to have payments commence later than the year the Participant reaches age 71.

(b)If payment is due from this Plan on account of Termination of Employment (but not death or Disability) and payment is due in a lump sum, the Participant’s right to receive such payment will be delayed until the earlier of the Participant’s death, Disability or the first business day of the seventh month following the date of the Participant’s Termination of Employment (subject to the exceptions specified in the Final 409A Regulations).

(c)If payment(s) are due from this Plan on account of Termination of Employment (but not death or Disability) and payments are due in annual installments, the Participant’s right to begin to receive such payments will be delayed until the earlier of the Participant’s death, Disability or the first business day of the seventh month following the date of the Participant’s Termination of Employment (subject to the exceptions specified in the Final 409A Regulations) and the remaining installment payments will be paid on the anniversary of the Participant’s first installment payment.  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.

86

 Exhibit 10.03

(d)If payment(s) are due from this Plan on account of Disability, and payments are due in annual installments, payments from the Participant’s Account shall commence as soon as administratively practicable, but no later than ninety (90) days, following the date on which Participant is determined to be Disabled, and the remaining installment payments will be paid on each anniversary of the initial payment date.  If payment is due from this Plan on account of Disability in a lump sum, payment shall be made to the Participant as soon as administratively practicable, but no later than ninety (90) days, following the date on which the Participant is determined to be Disabled.

Section 8.3.                                  Valuation.  The amount of each payment shall be equal to the value, as of the preceding Valuation Date, of the Participant’s EDCP Account, divided by the number of remaining payments to be paid.  If payment of a Participant’s EDCP Account is to be paid in installments and the Participant has a balance in his or her Stock Account at the time of the payment of an installment, the amount that shall be distributed from his or her Stock Account shall be the amount obtained by multiplying the total amount of the installment determined in accordance with the immediately preceding sentence by the percentage obtained by dividing the balance in the Stock Account as of the immediately preceding Valuation Date by the total value of the Participant’s EDCP Account as of such date.  Similarly, in such case, the amount that shall be distributed from the Participant’s Interest Account shall be the amount obtained by multiplying the total amount of the installment determined in accordance with the first sentence of this Section 8.4 by the percentage obtained by dividing the balance in the Interest Account as of the immediately preceding Valuation Date by the total value of the Participant’s EDCP Account as of such date.

Section 8.4.                                  Participant Payment Elections.  A Participant must elect the method of payment under Section 8.2 and the commencement of payment under Section 8.3 for the amounts deferred with respect to a particular Class Year before the end of the Enrollment Period (or Initial Enrollment Period, if applicable) for that Class Year.  If a Participant fails to make a method of payment or commencement of payment election, the default payment provisions of Section 8.6 shall apply.  A Participant may elect to subsequently change a payment election only in accordance with the provisions of Section 8.7.

Section 8.5.                                  Default Payment Distribution Elections.  If a Participant does not have a valid election in force at the time of Termination of Employment for any Class Year beginning in 2005 or later, then (i) if the value of his Account as of the last Valuation Date of the calendar year in which he has a Termination of Employment is less than ten thousand dollars ($10,000), 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 seventh month following the Participant’s Termination of Employment date; and (ii) if the value of his Account as of the last Valuation Date of the calendar year in which he has a Termination of Employment is ten thousand dollars ($10,000) or more, then the value of his Class Year Account(s) for which a valid distribution election does not exist shall be paid in five (5) annual installments beginning on the first business day of the seventh month following the Participant’s Termination of Employment date with the remaining installments paid to the Participant on each anniversary of the initial payment date.

This Section 8.6 shall apply regardless of the Participant’s age on the date of his Termination of Employment.

Section 8.6.                                  Special Payment Election Rules.

(a)Notwithstanding Sections 8.2, 8.3, 8.5 and 8.6, if a Participant terminates employment less than one (1) year after the date he first becomes eligible to participate in this Plan, then an election made by the Participant under this Section 8 no later than thirty (30) days after the date he first becomes eligible to participate in this Plan shall continue in effect for the remainder of the Class Year to which such election relates.

87

 Exhibit 10.03

(b)The timing of a distribution of a Participant’s 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)(vi) (payment of employment taxes), (j)(4)(vii) (payment upon income inclusion under Code 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).

(c)Any change which delays the timing of distributions or changes the form of distributions from a Participant’s Account may be made 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 the election described in (i) above, must be deferred for a period of at least 5 years from the date such payment otherwise would have been 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.

Any election to change the time or form of distribution from a Participant’s Account must be in effect at least 12 months before the Participant’s Termination of Employment in order to be valid.  The election shall be irrevocable once it is made.

Section 9.                      Payment of Deferred Compensation After Death.  If a Participant dies prior to complete payment of his or her EDCP Account, the balance of such Account, 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 in accordance with procedures established by the Compensation Group, or (ii) in the absence of a valid designation of a beneficiary or contingent beneficiary, the legal representative of the deceased Participant’s estate.

Section 10.                                Acceleration of Payment for Unforeseeable Emergency.

Section 10.1.                                  Unforeseeable Emergency.  Upon written approval from the Company’s senior executive officer responsible for human resources (“Senior HR Executive”), with respect to Participants other than executive officers of the Company, and by the Compensation Committee, with respect to Participants who are executive officers of the Company, and subject to the restrictions in the next two sentences, a Participant, whether or not he or she is still employed by the Company or any of its U.S. Subsidiaries, may be permitted to receive all or part of his or her Account if the Company’s Senior HR Executive (or his delegate), or the Compensation Committee, as applicable, determines that the Participant has suffered an Unforeseeable Emergency.  The amount distributed may not exceed the amount necessary to satisfy the Unforeseeable Emergency plus amounts necessary to pay taxes reasonably anticipated as a result of the distribution.  A distribution on account of Unforeseeable Emergency may not be made to the extent that such Unforeseeable Emergency is or may be relieved through (i) reimbursement or compensation by insurance or otherwise, (ii) by liquidation of the Participant’s assets (to the extent the liquidation of such assets would not itself cause severe financial hardship) or (iii) by cessation of deferrals under the Plan.

88

 Exhibit 10.03

Section 10.2.                                  Section 16 Insiders.  A Section 16 Insider may only receive a payment from his or her Stock Account pursuant to this Section 10 if he or she has made no election within the previous six months to effect a fund-switching transfer into the Stock Account or the Eastman Stock Fund of the Eastman Investment Plan 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 employed by the Company or any of its U.S. Subsidiaries, any election to defer compensation for the year in which the Participant receives a payment shall be ineffective as to compensation earned for the pay period following the pay period during which the payment 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 10.3.                                  Pro Rata Withdrawal.  A Participant’s election to receive payment of less than all of the funds in his or her Account under Section 10.1 above shall be applied pro rata to all of the Participant’s sub-accounts under this Plan (i.e., to the two investment accounts under the EDCP Account).

Section 11.                                Non-Competition and Non-Disclosure Provision.  Participant will not, without the written consent of the Company, either during his or her employment by Company or any of its U.S. Subsidiaries or thereafter, disclose to anyone or make use of any confidential information which he or she has acquired during his or her employment relating to any of the business of the Company or any of its subsidiaries, except as such disclosure or use may be required in connection with his or her work as an employee of Company or any of its U.S. Subsidiaries.  During a Participant’s employment by the Company or any of its U.S. Subsidiaries, and for a period of two years after the termination of such employment, he or she will not, without the written consent of the Company, either as principal, agent, consultant, employee or otherwise, engage in any work or other activity in competition with the Company in the field or fields in which he or she has worked for the Company or any of its U.S. Subsidiaries.  The agreement in this Section 11 applies separately in the United States and in other countries but only to the extent that its application shall be reasonably necessary for the protection of the Company.  Any consent of the Company under this Section shall be provided by the Senior HR Executive.

Section 12.                                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.  No Participant shall have the right to exercise any of the rights or privileges of a shareowner with respect to the units credited to his or her Stock Accounts.

Section 13.                                No Right to Continued Employment.  Participation in this Plan shall not give any employee any right to remain in the employ of the Company or any of its U.S. Subsidiaries.  The Company and each employer U S. Subsidiary reserve the right to terminate any Participant at any time.

Section 14.                                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 15.                                Deductions.  The Company will withhold to the extent required by law an applicable income and other taxes from amounts deferred or paid under this Plan.

Section 16.                                Administration.

Section 16.1.                                  Responsibility.  Except as expressly provided otherwise herein, the Compensation Committee shall have total and exclusive responsibility to control, operate, manage and administer this Plan in accordance with its terms.

  89

 Exhibit 10.03

Section 16.2.                                  Authority of the Compensation Committee.  The Compensation 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 Compensation 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 16.3.                                  Discretionary Authority.  The Compensation 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 Compensation 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 16.4.                                  Authority of Senior HR Executive.  Where expressly provided for under Sections 8, 10, 11 and 22, the authority of the Compensation Committee is delegated to the Company’s Senior HR Executive, and to that extent the provisions of Section 16.1 through 16.3 above shall be deemed to apply to such Senior HR Executive.

Section 16.5.                                  Delegation of Authority.  The Compensation Committee may provide additional delegation of some or all of its authority under this Plan to any person or persons provided that any such delegation be in writing.

Section 17.                                Amendment.  The Board may suspend or terminate this Plan at any time; provided that any payments on account of termination of the Plan 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.  However, no amendment, modification, or termination shall, without the consent of a Participant, adversely affect such Participant’s accruals in his or her EDCP Account as of the date of such amendment, modification, or termination.

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.                                Change in Control.

Section 19.1.                                  Background.  The terms of this Section 19 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 19.2.                                  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 EDCP Account without the written consent of the Participant, or, if the Participant is deceased, the Participant’s beneficiary under this Plan (if any).

90

 Exhibit 10.03

Section 19.3.                                  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 19.3, 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 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 a 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 Committee may make such modifications so as to conform this Plan to the Rule’s requirements.

Section 21.                                Successors and Assigns.  This Plan shall be binding upon the successors and assigns of the parties hereto.

Section 22.                                Claims Procedures.

(a)Benefits under this Plan will be paid only if the Committee decides in its discretion that the applicant is entitled to them.  In accordance with Section 16.4, the Committee has determined that all claims for benefits under the Plan shall be submitted to the Senior HR Executive, which shall have the initial responsibility for determining the eligibility of any Participant or beneficiary for benefits.  Applications for benefits shall be submitted within two years of the later of (i) the date on which payment of benefits under the Plan was made, or (ii) the date on which the action complained or grieved of occurred.  The Senior HR Executive may adopt forms for the submission of claim for benefits in which case all claims for benefits shall be filed on such forms.

(b)Any claims for benefits shall be made in writing and shall set forth the facts which such Participant or beneficiary believes to be sufficient to entitle him to the benefit claimed.  Each such claim must be supported by such information and data as the Senior HR Executive deems relevant and appropriate.  Evidence of age, marital status (and, in the appropriate instances, health, death or Disability), and location of residence shall be required of all claims for benefits.

(c)If a claim for benefits is denied in whole or in part, the Senior HR Executive shall give the claimant written notice of the decision within ninety (90) days of the date the claim was submitted.  Such written notice shall set forth in a manner calculated to be understood by the claimant (i) the specific reason or reasons for the denial; (ii) specific references to pertinent Plan provisions on which the denial is based; (iii) a description of any additional material or information necessary for the claimant to perfect the claim, along with an explanation of why such material or information is necessary; and (iv) appropriate information about the steps to be taken if the claimant wishes to submit the claim for review of the denial.

(d)The ninety-day period for review of a claim for benefits may be extended for an additional ninety (90) days by a written notice to the claimant setting forth the reason for the extension, which notice shall be furnished to the claimant before the end of the original ninety (90) day period.

91

 Exhibit 10.03

(e)The Committee has delegated to the Investment Plan Committee of the EIP/ESOP (“IPCO”) the authority to review appeals of adverse benefit determinations under this Plan.  If a claim for benefits is denied in whole or in part, the claimant or his duly authorized representative, at the claimant’s sole expense, may appeal the denial to IPCO within sixty (60) days of receipt of the denial.  In pursuing his appeal, the claimant or his duly authorized representative:

(i)may request in writing that IPCO review the denial;

(ii)may review pertinent documents; and

(iii)may submit issues and comments in writing.

The decision on review shall be made within sixty (60) days of receipt of the request for review, unless special circumstances require an extension of time for processing, in which case a decision shall be rendered as soon as possible, but not later than one-hundred twenty (120) days after receipt of the request for review.  If such an extension of time is required, written notice of the extension shall be furnished to the claimant before the end of the original sixty-day period.  The decision on review shall be made in writing, shall be written in a manner calculated to be understood by the claimant, and in the event of an adverse decision on review shall give the specific reason or reasons for the denial, shall include specific references to the provision of the plan on which any claim denial is based, and shall inform the claimant that access will be afforded to all documents pertinent to the claim for benefits.  No action at law or in equity to recover benefits under the Plan shall be commenced later than one year from the date a decision on review is furnished to the claimant.

(f)All power and authority granted to the Committee for purposes of this provision may be delegated by the Committee to any person, committee, or entity pursuant to a specific or general delegation.

Section 23.                                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.

92

 Exhibit 10.03

SCHEDULE A

[intentionally blank]

93

EX-10.04

 Exhibit 10.04

AMENDED AND RESTATED

EASTMAN DIRECTORS’ DEFERRED COMPENSATION PLAN

(Effective as of August 4, 2011)

EASTMAN CHEMICAL COMPANY

94

 Exhibit 10.04

AMENDED AND RESTATED

EASTMAN DIRECTORS’ DEFERRED COMPENSATION PLAN

TABLE OF CONTENTS

Section                           TitlePage

Preamble   96

Section 1. Definitions    96

Section 2. Deferral Of Compensation.  100

Section 3. Deferral Elections.  100

Section 4. Hypothetical Investments  100

Section 5. Deferrals And Crediting Amounts To Accounts  101

Section 6. Deferral Period  101

Section 7. Investment In The Stock Account And Transfers Between Accounts  101

Section 8. Payment Of Deferred Compensation  103

Section 9. Payment Of Deferred Compensation After Death  104

Section 10. Acceleration Of Payment In Certain Circumstances  104

Section 11. Participant’s Rights Unsecured.  105

Section 12. No Right To Continued Service  105

Section 13. Statement Of Account  105

Section 14. Deductions.  105

Section 15. Administration  105

Section 16. Amendment  106

Section 17. Change In Control  106

Section 18. Governing Law  107

Section 19. Successors And Assigns  107

Section 20. Compliance With Sec Regulations  107

Section 21. Compliance With Section 409A  107

95

 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. This Plan originally was adopted effective January 1, 1994, was amended and restated effective as of December 1, 1994, as of May 2, 1996, October 10, 1996, and August 1, 2007 and was further amended and restated effective as of December 31, 2008 in order to comply with Code Section 409A and guidance issued thereunder.

Section 1.                      Definitions.

Section 1.1                                “Account” means the Interest Account or the Stock Account.  If applicable, the Interest Account and the Stock Account are each further sub-divided into a Grandfathered Account and a Non-Grandfathered 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 haveoccurredat 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;

96

 Exhibit 10.04

(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.

(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.

97

 Exhibit 10.04

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.

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

Section 1.12                                “Employee Service Center” means the Company’s internal organization responsible for processing transactions and providing general information for Participants under this Plan.

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 Interest Account and Stock 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 Interest Account or Stock 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 Interest Account and Stock 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 Interest Account or Stock Account were not approved.  Any distribution for Hardship shall be limited to distributions from the Participant’s Grandfathered Account.

98

 Exhibit 10.04

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                                “Interest Account” means the account established by the Company for each Participant for compensation deferred pursuant to this Plan and which shall bear interest as described in Section 4.1 below. The maintenance of individual Interest Accounts is for bookkeeping purposes only.  If applicable, each Interest Account shall be further sub-divided into a Grandfathered Account and Non-Grandfathered Account.

Section 1.20                                “Interest Rate” means the monthly average of bank prime lending rates (as reported by financial information reporting services), such average to be determined as of the last day of each month and credited daily in accordance with procedures established by the Compensation Group.

Section 1.21                                “Market Value” means the closing price of the shares of Common Stock on the New York Stock Exchange on the day on which such value is to be determined or, if no such shares were traded on such day, said closing price on the next business day on which such shares are traded; provided, however, that if at any relevant time the shares of Common Stock are not traded on the New York Stock Exchange, then “Market Value” shall be determined by reference to the closing price of the shares of Common Stock on another national securities exchange, if applicable, or if the shares are not traded on an exchange but are traded in the over-the-counter market, by reference to the last sale price or the closing “asked” price of the shares in the over-the-counter market as reported by the National Association of Securities Dealers Automated Quotation System (NASDAQ) or other national quotation service.

Section 1.22                                “Nominating and Corporate Governance Committee” means the Nominating and Corporate Governance Committee of the Board.

Section 1.23                                “Plan” means this amended and restated Eastman Directors’ Deferred Compensation Plan.

Section 1.24                                “Participant” means an Eligible Director who elects for one or more Class Years to defer compensation pursuant to this Plan or who has non-elective deferrals contributed to his Account by the Company.

Section 1.25                                “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 1.26                                “Stock Account” means the account established by the Company for each Participant, the performance of which shall be measured by reference to the Market Value of Common Stock. The maintenance of individual Stock Accounts is for bookkeeping purposes only.  If applicable, each Stock Account shall be further sub-divided into a Grandfathered Account and Non-Grandfathered Account.

Section 1.27                                “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.

99

 Exhibit 10.04

Section 1.28                                “Valuation Date” means each business day.

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 Interest Account and/or Stock Account within such Eligible Director’s 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.                      Hypothetical Investments.

Section 4.1                                Interest Account. Amounts in a Participant’s Interest Account are hypothetically invested in an interest bearing account which bears interest computed at the Interest Rate.

Section 4.2                                Stock Account.  Amounts in a Participant’s Stock Account are hypothetically invested in units of Common Stock. Amounts deferred into a Stock Account are recorded as units of Common Stock, and fractions thereof, with one unit equating to a single share of Common Stock. Thus, the value of one unit shall be the Market Value of a single share of Common Stock. The use of units is merely a bookkeeping convenience; the units are not actual shares of Common Stock. The Company will not reserve or otherwise set aside any Common Stock for or to any Stock Account.

100

 Exhibit 10.04

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 portion of the deferral to be credited to the Participant’s Interest Account and Stock Account, respectively; and (iii) the manner of payment for such Deferrable Amount (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 portion of the deferral to be credited to the Participant’s Interest Account and Stock Account, respectively, may be reallocated by the Participant in the manner specified by the Nominating and Corporate Governance Committee or its authorized designee through and including the business day immediately preceding the date on which the deferred amount is credited to the Participant’s Accounts 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 Interest Account and/or Stock Account, as applicable, as of the date such amounts are otherwise payable.  In the event that the Participant has failed to make an election, amounts to be deferred each Class Year shall be credited to the Participant’s Interest Account. Notwithstanding the foregoing, each and every Deferrable Amount, when initially credited to the Participant’s Account, shall be held in a Participant’s Interest Account until the next date that dividends are paid on Common Stock (see Section 7.6 of this Plan); and on such date the Deferrable Amount that would have been initially credited to the Participant’s Stock Account but for this sentence shall be transferred, together with allocable interest thereon, to the Participant’s Stock Account, provided that such transfer shall be subject to the restrictions set forth in Section 7.2.

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 in the Stock Account and Transfers Between Accounts.

Section 7.1                                Election Into the Stock Account. If a Participant elects to defer compensation into his or her Stock Account, his or her Stock Account shall be credited, as of the date described in Section 5.2, with that number of units of Common Stock, and fractions thereof, obtained by dividing the dollar amount to be deferred into the Stock Account by the Market Value of the Common Stock as of such date.

Section 7.2                                Transfers Between Accounts.  Except as otherwise provided in this Section, a Participant may direct that all or any portion, designated as a whole dollar amount, of the existing balance of one of his or her Accounts be transferred to his or her other Account, effective as of (i) the date such election is made, if and only if such election is made prior to the close of trading on the New York Stock Exchange on a day on which the Common Stock is traded on the New York Stock Exchange, or (ii) if such election is made after the close of trading on the New York Stock Exchange on a given day or at any time on a day on which no sales of Common Stock are made on the New York Stock Exchange, then on the next business day on which the Common Stock is traded on the New York Stock Exchange (the date described in (i) or (ii), as applicable, is referred to hereinafter as the election’s “Effective Date”). Such election shall be made in the manner specified by the Nominating and Corporate Governance Committee or its authorized designee; provided, however, that a Participant may only elect to transfer between his or her Accounts 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 Account or any other “opposite way” intraplan 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.

101

 Exhibit 10.04

In addition, and notwithstanding the foregoing, a Participant’s Deferrable Amount that is initially allocated to his or her Interest Account as provided in Section 5.2, shall be transferred, following such initial allocation, from the Participant’s Interest Account to his or her Stock Account in the manner provided in Section 5.2.

Section 7.3                                Transfer Into the Stock Account.  If a Participant elects pursuant to Section 7.2 to transfer an amount from his or her Interest Account to his or her Stock Account, effective as of the election’s Effective Date, (i) his or her Stock Account shall be credited with that number of units of Common Stock, and fractions thereof, obtained by dividing the dollar amount elected to be transferred by the Market Value of the Common Stock on the Valuation Date immediately preceding the election’s Effective Date; and (ii) his or her Interest Account shall be reduced by the amount elected to be transferred.

Section 7.4                                Transfer Out of the Stock Account. If a Participant elects pursuant to Section 7.2 to transfer an amount from his or her Stock Account to his or her Interest Account, effective as of the election’s Effective Date, (i) his or her Interest Account shall be credited with a dollar amount equal to the amount obtained by multiplying the number of units to be transferred by the Market Value of the Common Stock on the Valuation Date immediately preceding the election’s Effective Date; and (ii) his or her Stock Account shall be reduced by the number of units elected to be transferred.

Section 7.5                                Dividend Equivalents.  Effective as of the payment date for each cash dividend on the Common Stock, the Stock Account of each Participant who had a balance in his or her Stock Account on the record date for such dividend shall be credited with a number of units of Common Stock, and fractions thereof, obtained by dividing (i) the aggregate dollar amount of such cash dividend payable in respect of such Participant’s Stock Account (determined by multiplying the dollar value of the dividend paid upon a single share of Common Stock by the number of units of Common Stock held in the Participant’s Stock Account on the record date for such dividend); by (ii) the Market Value of the Common Stock on the Valuation Date immediately preceding the payment date for such cash dividend.

Section 7.6                                Stock Dividends.  Effective as of the payment date for each stock dividend on the Common Stock, additional units of Common Stock shall be credited to the Stock Account of each Participant who had a balance in his or her Stock Account on the record date for such dividend. The number of units that shall be credited to the Stock Account of such a Participant shall equal the number of shares of Common Stock, and fractions thereof, which the Participant would have received as stock dividends had he or she been the owner on the record date for such stock dividend of the number of shares of Common Stock equal to the number of units credited to his or her Stock Account on such record date.

Section 7.7                                Recapitalization. If, as a result of a recapitalization of the Company, the outstanding shares of Common Stock shall be changed into a greater number or smaller number of shares, the number of units credited to a Participant’s Stock Account shall be appropriately adjusted on the same basis.

Section 7.8                                Distributions.  Amounts in respect of units of Common Stock may only be distributed out of the Stock Account by transfer to the Interest Account (pursuant to Sections 7.2 and 7.4) or withdrawal from the Stock Account (pursuant to Section 8, 9, 10, or 17), and shall be distributed in cash. The number of units to be distributed from a Participant’s Stock Account shall be valued by multiplying the number of such units by the Market Value of the Common Stock as of the Valuation Date immediately preceding the date such distribution is to occur.

Section 7.9                                Responsibility for Investment Choices.  Each Participant is solely responsible for any decision to defer compensation into his or her Stock Account and to transfer amounts to and from his or her Stock Account and accepts all investment risks entailed by such decision, including the risk of loss and a decrease in the value of the amounts he or she elects to defer into his or her Stock Account.

102

 Exhibit 10.04

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 shall commence in any year elected by the Participant pursuant to this Section 8, up through the tenth year following the year in which the Participant ceases to be a member of the Board for any reason, but in no event may a Participant elect to have payment commence later than the year the Participant reaches age 71.

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, 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.

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, but not later than 60 days following the Participant’s Board Termination Date.

(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

103 

 Exhibit 10.04

(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.

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.

104

 Exhibit 10.04

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 from the Grandfathered Account portion of his or her Stock Account pursuant to this Section 10 if he or she has made no election within the previous six months to effect a fund-switching transfer into the Stock Account 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 funds in his or her Account under this Section 10 shall be applied pro rata to all of the Participant’s sub-accounts under this Plan (i.e., to the two investment accounts under his or her Account).

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. No Participant shall have the right to exercise any of the rights or privileges of a shareowner with respect to units credited to his or her Stock Account.

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.

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.

105

 Exhibit 10.04

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.

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.

106

 Exhibit 10.04

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.

107

EX-10.05

 Exhibit 10.05

AWARD NOTICE

NOTICE OF NONQUALIFIED STOCK OPTION

GRANTED PURSUANT TO THE

EASTMAN CHEMICAL COMPANY

2007 OMNIBUS LONG-TERM COMPENSATION PLAN

               Grantee: James P. Rogers

               Number of Shares:  100,000

               Option Price:  $ [Based on closing EMN 11-2-11]

               Grant Date:  November 2, 2011

1.           Grant of Option.  This Award Notice serves to notify you that the Compensation and Management Development Committee (the “Committee”) of the Board of Directors of Eastman Chemical Company ("Company") has granted to you, under the Company’s 2007 Omnibus Long-Term Compensation Plan (the "Plan"), a nonqualified stock option ("Option") to purchase, on the terms and conditions set forth in this Award Notice and the Plan, up to the number of shares of its $.01 par value Common Stock ("Common Stock") set forth above, at a price equal to $____ per share. The Plan is incorporated herein by reference and made a part of this Award Notice.  Capitalized terms not defined herein have the respective meanings set forth in the Plan.  The principal terms of the Plan, and of the offer by the Company of the shares of Common Stock covered by the Option, are described in the Prospectus for the Plan, which Prospectus will be delivered to you by the Company.

2.           Period of Option and Limitations on Right to Exercise.  Subject to earlier cancellation of all or a portion of the Option as described in Sections 6 and 7 of this Award Notice, the Option will expire at 4:00 p.m., Eastern Standard Time, on November 1, 2021 ("Expiration Date").

3.           Exercise of Option.

(a)           Subject to the terms set forth in this Award Notice, the Option will become exercisable as to one-third of the shares covered hereby on November 2, 2012, and one-third of the shares covered hereby on November 2, 2013, and as to the remaining shares on November 2, 2014, subject in each case to your satisfactory performance, as evaluated by and determined in the sole discretion of the Committee, in the area of management and leadership development of  internal candidates for senior leadership positions.

(b)           Upon your death, your personal representative may exercise the Option, subject to the terms set forth in Section 6 of this Award Notice.

(c)           The Option may be exercised in whole or in part.  The exercise generally must be accompanied by, or make provision for, full payment in cash, by check, by a broker-assisted cashless method, or by surrendering unrestricted shares of Common Stock having a value on the date of exercise equal to the exercise price, or in any combination of the foregoing; however, if you wish to pay with shares of Common Stock already held by you, you may submit an Affidavit of Ownership form attesting to the ownership of the shares instead of share certificates.

4.           Nontransferability.  The Option is not transferable except by will or by the laws of descent and distribution, and may not be sold, assigned, pledged or encumbered in any way, whether by operation of law or otherwise.  The Option may be granted only to and exercised only by you during your lifetime, except in the case of a permanent disability involving mental incapacity.

108

 Exhibit 10.05

5.           Limitation of Rights.  You will not have any rights as a stockholder with respect to the shares covered by the Option until you become the holder of record of such shares by exercising the Option.  Neither the Plan, the granting of the Option, nor this Award Notice gives you any right to remain employed by the Company or its Subsidiaries.

6.           Termination.  Upon termination of your employment with the Company and its Subsidiaries ("termination") by reason of death, disability, or retirement, the Option will remain exercisable according to its terms until the earliest to occur of: 1) five (5) years following your date of termination or 2) the Expiration Date, subject to your satisfactory performance, as evaluated by and determined in the sole discretion of the Committee, in the area of management and leadership development of  internal candidates for senior leadership positions.  Upon termination due to resignation, the Option will remain exercisable according to its terms until the earliest to occur of: 1) ninety (90) days following your date of termination or 2) the Expiration Date. Upon termination for cause, any portion of the Option not previously exercised by you will be canceled and forfeited by you, without payment of any consideration by the Company.  Upon termination for a reason other than those described in this Section (e.g., reduction in force, divestiture, special separation, termination by mutual consent), the Option will remain exercisable until the Expiration Date, unless the Committee  determines that any portion of the Option will not remain exercisable or that the Option will be exercisable for a shorter period .

7.           Noncompetition; Confidentiality.  You will not, without the written consent of the Company, either during your employment by the Company or thereafter, disclose to anyone or make use of any confidential information which you have acquired during your employment relating to any of the business of the Company, except as such disclosure or use may be required in connection with your work as an employee of the Company.  During your employment by the Company, and for a period of two years after the termination of such employment, you will not, either as principal, agent, consultant, employee or otherwise, engage in any work or other activity in competition with the Company in the field or fields in which you have worked for the Company.  The agreement in this Section 7 applies separately in the United States and in other countries but only to the extent that its application shall be reasonably necessary for the protection of the Company.  You will forfeit all rights under this Award Notice to or related to the Option if, in the determination of the Committee, you have violated any of the provisions of this Section 7, and in that event any issuance of shares, payment or other action with respect to the Option shall be made or taken, if at all, in the sole discretion of the Committee.   

8.           Restrictions on Issuance of Shares.  If at any time the Company determines that listing, registration, or qualification of the shares covered by the Option upon any securities exchange or under any state or federal law, or the approval of any governmental agency, is necessary or advisable as a condition to the exercise of the Option, the Option may not be exercised in whole or in part unless and until such listing, registration, qualification, or approval shall have been effected or obtained free of any conditions not acceptable to the Company.

9.           Change in Ownership; Change in Control.  Article 14 of the Plan contains certain special provisions that will apply to the Option in the event of a Change in Ownership or Change in Control, respectively.

10.           Adjustment ofOption Terms.  The adjustment provisions of Article 15 of the Plan will control in the event of a nonreciprocal transaction between the Company and its stockholders that causes the per-share value of the Common Stock to change (including, without limitation, any stock dividend, stock split, spin-off, rights offering, or large nonrecurring cash dividend) or upon the occurrence of or in anticipation of any other corporate event or transaction involving the Company (including, without limitation, any merger, combination, or exchange of shares).

11.           Reimbursement of Certain Compensation Following Restatement.  The Award is subject to the provisions of the Plan and any applicable law or Company policy requiring reimbursement to the Company of certain incentive-based compensation following an accounting restatement due to material non-compliance by the Company with any financial reporting requirement or due to other events or conditions.

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

109

EX-12.01

EXHIBIT 12.01

EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES

Computation of Ratios of Earnings to Fixed Charges (1)

	Third Quarter				First Nine Months
(Dollars in millions)		2011		2010		2011		2010
Earnings from continuing operations before income taxes	$	238	$	244	$	815	$	615
Add:
Interest expense		21		26		62		79
Appropriate portion of rental expense (2)		3		3		10		10
Amortization of capitalized interest		2		1		5		5
Earnings as adjusted	$	264	$	274	$	892	$	709
Fixed charges:
Interest expense	$	21	$	26	$	62	$	79
Appropriate portion of rental expense (2)		3		3		10		10
Capitalized interest		2		1		7		2
Total fixed charges	$	26	$	30	$	79	$	91
Ratio of earnings to fixed charges		10.2x		9.1x		11.3x		7.8x

(1)   The Company completed the sale of the polyethylene terephthalate ("PET") business, related assets at the Columbia, South Carolina, site, and technology of its Performance Polymers segment on January 31, 2011.  The PET business, assets, and technology sold were substantially all of the Performance Polymers segment.  Performance Polymers segment operating results are presented as discontinued operations for all periods presented.  For additional information, see Note 2, "Discontinued Operations and Assets Held for Sale" to the Company's consolidated financial statements in this 2011 Quarterly Report on Form 10-Q.

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

110

EX-31.01

Exhibit 31.01

EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES

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

I, James P. Rogers, certify that:

1.  I have reviewed this quarterly report on Form 10-Q of Eastman Chemical Company;

2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

  (a)  Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

  (b)  Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

  (c)  Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

  (d)  Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

  (a)  All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

  (b)  Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 1, 2011

 /s/James P. Rogers        

James P. Rogers

Chief Executive Officer

111

EX-31.02

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 1, 2011

 /s/Curtis E. Espeland                                                 

Curtis E. Espeland

Senior Vice President and Chief Financial Officer

112

EX-32.01

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, 2011, 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 1, 2011

 /s/James P. Rogers         

James P. Rogers

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.

  113

EX-32.02

Exhibit 32.02

EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES

Section 1350 Certifications

In connection with the Quarterly Report of Eastman Chemical Company (the "Company") on Form 10-Q for the period ending September 30, 2011, 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 1, 2011

/s/Curtis E. Espeland                                                 

Curtis E. Espeland

Senior Vice President and Chief Financial Officer

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

114 

XML

Earnings and Dividends per Share (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010
Earnings Per Share [Abstract]
Shares used for earnings per share calculation, Basic (in shares)	139,100,000	143,800,000	140,600,000	144,300,000
Shares used for earnings per share calculation, Diluted (in shares)	142,400,000	146,600,000	144,100,000	147,200,000
Stock Split			On August 5, 2011, the Company's Board of Directors declared a two-for-one split of the Company's common stock in the form of a 100 percent stock dividend. Stockholders of record as of September 15, 2011 were issued one additional share of common stock on October 3, 2011 for each share held. Treasury shares were treated as shares outstanding in the stock
Underlying options excluded from the computation of diluted earnings per share (in shares)	161,800	1,179,170	0	1,392,370
Shares repurchased (in shares)	6,600,000	2,300,000	6,600,000	2,300,000
Cash dividends declared (per share)	$ 0.26	$ 0.22	$ 0.73	$ 0.66

XML

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (USD $) In Millions	Sep. 30, 2011	Dec. 31, 2010
Current assets
Cash and cash equivalents	$ 448	$ 516
Short-term time deposits	201	0
Trade receivables, net	711	545
Miscellaneous receivables	95	131
Inventories	850	608
Other current assets	49	30
Current assets held for sale	0	217
Total current assets	2,354	2,047
Properties
Properties and equipment at cost	8,303	7,908
Less: Accumulated depreciation	5,245	5,063
Properties and equipment held for sale, net	0	374
Net properties	3,058	3,219
Goodwill	410	375
Other noncurrent assets	361	322
Noncurrent assets held for sale	0	23
Total assets	6,183	5,986
Current liabilities
Payables and other current liabilities	1,047	1,012
Borrowings due within one year	154	6
Current liabilities related to assets held for sale	0	52
Total current liabilities	1,201	1,070
Long-term borrowings	1,445	1,598
Deferred income tax liabilities	241	284
Post-employment obligations	1,243	1,274
Other long-term liabilities	144	130
Noncurrent liabilities related to assets held for sale	0	3
Total liabilities	4,274	4,359
Stockholders' equity
Common stock	2	2
Additional paid-in capital	888	793
Retained earnings	3,372	2,879
Accumulated other comprehensive loss	(447)	(432)
Treasury stock at cost	1,906	1,615
Total stockholders' equity	1,909	1,627
Total liabilities and stockholders' equity	$ 6,183	$ 5,986

XML

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION Parenthetical (USD $)	Sep. 30, 2011	Dec. 31, 2010
Stockholders' equity
Common Stock, Par or Stated Value Per Share	$ 0.01	$ 0.01
Common Stock, Shares Authorized	350,000,000	350,000,000
Common Stock, Shares Issued	196,334,654	193,688,890
Treasury Stock, Shares	58,877,984	52,345,308

XML

Supplemental Cash Flow Information (Details) (USD $) In Millions	9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010
Supplemental Cash Flow Information [Abstract]
Current assets	$ 13	$ 0
Other assets	3	6
Current liabilities	(16)	34
Long-term liabilities and equity	7	6
Total	$ 7	$ 46

XML

Segment Information

9 Months Ended

Sep. 30, 2011

Segment Reporting [Abstract]

Segment Information

18.   SEGMENT INFORMATION

The Company's products and operations are managed and reported in four reportable operating segments, consisting of the CASPI segment, the Fibers segment, the PCI segment, and the Specialty Plastics segment.  For additional information concerning the Company's segments' businesses and products, see Note 23, "Segment Information", to the consolidated financial statements in Part II, Item 8 of the Company's 2010 Annual Report on Form 10-K.

Research and development and other expenses and asset impairments and restructuring charges (gains), net, not identifiable to an operating segment are not included in segment operating results for either of the periods presented and are shown in the tables below as "other" operating earnings (loss).

	Third Quarter
(Dollars in millions)	2011		2010
Sales
CASPI	$	461	$	406
Fibers		334		301
PCI		740		534
Specialty Plastics		277		266
Total Sales	$	1,812	$	1,507

	First Nine Months
(Dollars in millions)	2011		2010
Sales
CASPI	$	1,419	$	1,195
Fibers		955		842
PCI		2,163		1,557
Specialty Plastics		918		785
Total Sales	$	5,455		4,379

	Third Quarter
(Dollars in millions)	2011			2010
Operating Earnings (Loss)
CASPI	$	82		$	89
Fibers		92			89
PCI (1)		71			74
Specialty Plastics		29			29
Total Operating Earnings by Segment		274			281
Other		(18	)		(15	)
Total Operating Earnings	$	256		$	266

(1)   Third quarter 2011 includes $7 million in restructuring charges primarily for severance associated with the acquisition and integration of Sterling.  See Note 15, "Asset Impairments and Restructuring Charges (Gains), Net" for additional information.

	First Nine Months
(Dollars in millions)	2011			2010
Operating Earnings (Loss)
CASPI	$	279		$	246
Fibers		266			248
PCI (1)		247			177
Specialty Plastics		96			69
Total Operating Earnings by Segment		888			740
Other (2)		(30	)		(39	)
Total Operating Earnings	$	858		$	701

(1) First nine months 2011 includes $7 million in restructuring charges primarily for severance associated with the acquisition and integration of Sterling.  First nine months 2010 includes restructuring charges of $3 million, primarily for severance.  See Note 15, "Asset Impairments and Restructuring Charges (Gains), Net" for additional information.

(2)   First nine months 2011 includes a $15 million gain from the sale of the previously impaired methanol and ammonia assets related to the terminated Beaumont, Texas industrial gasification project.  See Note 15, "Asset Impairments and Restructuring Charges (Gains), Net" for additional information.

	September 30,		December 31,
(Dollars in millions)	2011		2010
Assets by Segment (1)
CASPI	$	1,416	$	1,280
Fibers		924		874
PCI		1,524		1,235
Specialty Plastics		1,205		1,017
Total Assets by Segment		5,069		4,406
Corporate Assets		1,114		966
Assets Held for Sale (2)		--		614
Total Assets	$	6,183	$	5,986

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

(2)   For information regarding assets held for sale, see Note 2, "Discontinued Operations and Assets Held for Sale".

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Document And Entity Information (USD $)	9 Months Ended
	Sep. 30, 2011	Dec. 31, 2010
Entity Registrant Name	EASTMAN CHEMICAL CO
Entity Central Index Key	0000915389
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	Yes
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Public Float		$ 3,760,118,800
Entity Common Stock, Shares Outstanding	137,576,686
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	Q3
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2011

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Environmental Matters (Details) (USD $) In Millions	9 Months Ended	12 Months Ended
	Sep. 30, 2011	Dec. 31, 2010
Environmental Matters [Abstract]
Accrual For Environmental Loss Contingencies Sterling And Scandiflex	$ 4
Asset Retirement Obligation, Liabilities Acquired With Purchase of Sterling and Scandiflex	1
Estimated Future Environmental Expenditures For Remediation Costs for Acquired Businesses, Minimum	3
Estimated Future Environmental Expenditures For Remediation Costs for Acquired Businesses, Maximum	4
Accrual For Environmental Contingencies	39	40
Estimated Future Environmental Expenditures For Remediation Costs, Minimum	12	10
Estimated Future Environmental Expenditures For Remediation Costs, Maximum	29	27
Best Estimate Accrued to-date For Asset Retirement Obligation	27	30
Asset Retirement Obligation, Liabilities Divested With Sale of PET Business and Related Assets	$ 3

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Acquisitions (Tables)

9 Months Ended

Sep. 30, 2011

Acquisitions [Abstract]

Schedule of Business Combinations

During third quarter 2011, the Company completed two acquisitions in the Performance Chemicals and Intermediates ("PCI") segment.  On August 9, 2011, Eastman acquired Sterling Chemicals, Inc. ("Sterling"), a single site North American petrochemical producer, to produce non-phthalate plasticizers, including Eastman 168™ non-phthalate plasticizers, and acetic acid.  Also, on September 1, 2011, Eastman acquired Scandiflex do Brasil S.A. Indústrias Químicas ("Scandiflex"), a manufacturer of plasticizers located in São Paulo, Brazil.  The total purchase price for both acquisitions was $133 million, including a post-closure payment of $10 million to the previous shareholders of Scandiflex reported as a use of cash in the line item “Proceeds from stock option exercises and other items” of the “Cash flows from financing activities” section of the Unaudited Consolidated Statements of Cash Flows.  Transaction costs of $4 million associated with the acquisitions were expensed as incurred.  The table below shows the preliminary fair value purchase price allocation for the acquisitions:

	Dollars in millions
Current assets	$	35
Properties and equipment		129
Intangible assets		11
Other noncurrent assets		18
Goodwill		33
Current liabilities		(23	)
Long-term liabilities		(70	)
Total purchase price	$	133

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

	Dollars in millions
Current assets	$	48
Properties and equipment		33
Intangible assets		59
Other noncurrent assets		2
Goodwill		63
Current liabilities		(17	)
Long-term liabilities		(28	)
Total purchase price	$	160

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Commitments (Details) (USD $) In Millions, unless otherwise specified	9 Months Ended
	Sep. 30, 2011	Dec. 31, 2010
Purchasing Obligations and Lease Commitments [Abstract]
Purchase Obligations	$ 1,400
Purchase Obligation Description	over a period of approximately 15 years for materials, supplies, and energy incident to the ordinary conduct of business
Operating Lease Commitments, Cancelable Noncancelable and Month-to-month	101
Percentage of Operating Lease Commitments related to machinery and equipment (in hundredths)	20.00%
Percentage of Operating Lease Commitments related to real property (in hundredths)	40.00%
Percentage of Operating Lease Commitments related to railcars (in hundredths)	40.00%
Accounts Receivable Securitization Program [Abstract]
Amount of Accounts Receivable Securitization Program	200
Increase in Trade Receivables under a accounts receivable securitization program		200
Guarantees [Abstract]
Operating Lease Residual Value Guarantees	184
Operating Lease Residual Value Guarantees Expiring in Next Fiscal Year	139
Operating Lease Residual Value Guarantees Expiring in Three Years and Thereafter	$ 45

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Borrowings

9 Months Ended

Sep. 30, 2011

Borrowings [Abstract]

Borrowings

7.   BORROWINGS

	September 30,			December 31,
(Dollars in millions)	2011			2010
Borrowings consisted of:
7% notes due 2012	$	149		$	151
3% debentures due 2015		250			250
6.30% notes due 2018		176			178
5.5% notes due 2019		250			250
4.5% debentures due 2021		250			250
7 1/4% debentures due 2024		243			243
7 5/8% debentures due 2024		54			54
7.60% debentures due 2027		222			222
Credit facility borrowings		--			--
Other		5			6
Total borrowings		1,599			1,604
Borrowings due within one year		(154	)		(6	)
Long-term borrowings	$	1,445		$	1,598

The increase in borrowings due within one year was primarily a result of reclassification of the 7% notes due 2012 from long-term to short-term.

At September 30, 2011, the Company had a $700 million revolving credit facility (the "Credit Facility") in two tranches, with $125 million expiring in April 2012 and $575 million expiring in April 2013.  Borrowings under the Credit Facility are subject to interest at varying spreads above quoted market rates and a facility fee is paid on the total commitment.  In addition, the Credit Facility contains a number of customary covenants and events of default including the requirement to maintain compliance with certain financial ratios.  The Company was in compliance with all such covenants for all periods presented.  At September 30, 2011 and December 31, 2010, the Company had no outstanding borrowings under the Credit Facility.  The Credit Facility provides liquidity support for general corporate purposes.

At September 30, 2011, the Company also had a $200 million line of credit under its annually renewable accounts receivable securitization agreement ("A/R Facility").  The A/R Facility was renewed in July 2011.  Borrowings under the A/R Facility are subject to interest rates based on a spread over the lender's borrowing costs, and the Company pays a fee to maintain availability of the A/R Facility.  In addition, the A/R Facility contains a number of customary covenants and events of default, as well as the requirement to maintain compliance with certain financial ratios.  The Company was in compliance with all such covenants for all periods presented.  At September 30, 2011 and December 31, 2010, the Company had no outstanding borrowings under the A/R Facility.

Fair Value of Borrowings

The fair value for fixed-rate borrowings is based on current interest rates for comparable securities.  The Company's floating-rate borrowings approximate fair value.

	September 30, 2011				December 31, 2010
(Dollars in millions)	Recorded Amount		Fair Value		Recorded Amount		Fair Value
Long-term borrowings	$	1,445	$	1,589	$	1,598	$	1,688

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Inventories (Tables)

9 Months Ended

Sep. 30, 2011

Inventories [Abstract]

Inventories

	September 30,			December 31,
(Dollars in millions)	2011			2010
At FIFO or average cost (approximates current cost)
Finished goods	$	773		$	611
Work in process		242			206
Raw materials and supplies		402			281
Total inventories		1,417			1,098
LIFO Reserve		(567	)		(490	)
Total inventories	$	850		$	608

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Provision for Income Taxes (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010
Provision for Income Taxes [Abstract]
Provision for income taxes from continuing operations	$ 73	$ 82	$ 258	$ 207
Effective tax rate (in hundredths)	31.00%	34.00%	32.00%	34.00%
Expected full year tax rate (in hundredths)			32.00%
Additional capital investment state tax credit			$ 8

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Basis of Presentation (Details) (USD $) In Millions	9 Months Ended
	Sep. 30, 2011
Basis of Presentation [Abstract]
Adopted amended accounting guidance on transfers of financial assets	Effective January 1, 2010, the Company adopted amended accounting guidance on transfers of financial assets. The impact of this guidance was prospective with changes in full year 2010 Statements of Consolidated Financial Position and first nine months 2010 Unaudited Consolidated Statements of Cash Flows.
Short-term time deposits	$ 201
Short-term time deposits maturities description	These investments had staggered maturities between three and ten months at the investment date, which exceeded the 90 day threshold for classification as cash or cash equivalents.
Stock Split	On August 5, 2011, the Company's Board of Directors declared a two-for-one split of the Company's common stock in the form of a 100 percent stock dividend. Stockholders of record as of September 15, 2011 were issued one additional share of common stock on October 3, 2011 for each share held. Treasury shares were treated as shares outstanding in the stock

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Discontinued Operations and Assets Held for Sale (Tables)

9 Months Ended

Sep. 30, 2011

Discontinued Operations and Assets Held for Sale [Abstract]

Operating results of the discontinued operations

Operating results of the discontinued operations which were formerly included in the Performance Polymers segment are summarized below:

		Third Quarter				First Nine Months
(Dollars in millions)		2011		2010		2011		2010
Sales	$	--	$	222	$	105	$	638
Earnings before income taxes		--		14		15		18
Earnings from discontinued operations, net of tax		--		8		8		11
Gain from disposal of discontinued operations, net of tax		--		--		31		--

Assets and liabilities of the discontinued operations classified as held for sale as of December 31, 2010 are summarized below:

		December 31,
(Dollars in millions)		2010
Current assets
Trade receivables, net	$	116
Inventories		101
Total current assets held for sale		217
Non-current assets
Properties and equipment, net		374
Goodwill		1
Other noncurrent assets		22
Total noncurrent assets held for sale		397
Total assets	$	614
Current liabilities
Payables and other current liabilities	$	52
Total current liabilities held for sale		52
Noncurrent liabilities
Other noncurrent liabilities		3
Total noncurrent liabilities held for sale		3
Total liabilities	$	55

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Legal Matters

9 Months Ended

Sep. 30, 2011

Legal Matters [Abstract]

Legal Matters

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.  However, adverse developments could negatively impact earnings or cash flows in a particular future period.

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Acquisitions

9 Months Ended

Sep. 30, 2011

Acquisitions [Abstract]

Acquisitions and Investments in Joint Ventures

3.   ACQUISITIONS AND INVESTMENTS IN JOINT VENTURES

Sterling Chemicals, Inc. and Scandiflex do Brasil S.A. Indústrias Químicas

During third quarter 2011, the Company completed two acquisitions in the Performance Chemicals and Intermediates ("PCI") segment.  On August 9, 2011, Eastman acquired Sterling Chemicals, Inc. ("Sterling"), a single site North American petrochemical producer, to produce non-phthalate plasticizers, including Eastman 168™ non-phthalate plasticizers, and acetic acid.  Also, on September 1, 2011, Eastman acquired Scandiflex do Brasil S.A. Indústrias Químicas ("Scandiflex"), a manufacturer of plasticizers located in São Paulo, Brazil.  The total purchase price for both acquisitions was $133 million, including a post-closure payment of $10 million to the previous shareholders of Scandiflex reported as a use of cash in the line item “Proceeds from stock option exercises and other items” of the “Cash flows from financing activities” section of the Unaudited Consolidated Statements of Cash Flows.  Transaction costs of $4 million associated with the acquisitions were expensed as incurred.  The table below shows the preliminary fair value purchase price allocation for the acquisitions:

	Dollars in millions
Current assets	$	35
Properties and equipment		129
Intangible assets		11
Other noncurrent assets		18
Goodwill		33
Current liabilities		(23	)
Long-term liabilities		(70	)
Total purchase price	$	133

Acquired intangible assets primarily relate to perpetual air emission credits which management has assigned indefinite lives.  Goodwill, which represents the excess of the purchase price over the net tangible and intangible assets acquired and liabilities assumed, was primarily for the Scandiflex acquisition and was attributed to the benefits of access to Brazilian markets and also the synergies between the acquired companies and Eastman.  Long-term liabilities primarily include Sterling pension and other postretirement welfare plan obligations, as well as Scandiflex contingent liabilities for environmental and other contingencies.

Other 2011 Acquisitions and Investments in Joint Ventures

On July 1, 2011, the Company completed the acquisition of Dynaloy, LLC, a producer of formulated solvents.  The acquisition was accounted for as a business combination and is reported in the Coatings, Adhesives, Specialty Polymers, and Inks ("CASPI") segment.  Dynaloy adds materials science capabilities that are expected to complement growth of the CASPI segment’s electronic materials product line.  Also in 2011, the Company entered into a joint venture in China for a 30,000-ton acetate tow manufacturing facility, expected to be operational in 2013.

Genovique Specialties Corporation

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

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

	Dollars in millions
Current assets	$	48
Properties and equipment		33
Intangible assets		59
Other noncurrent assets		2
Goodwill		63
Current liabilities		(17	)
Long-term liabilities		(28	)
Total purchase price	$	160

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

Korean Acetate Tow Facility

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

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

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Asset Impairments and Restructuring Charges, Net (Tables)

9 Months Ended

Sep. 30, 2011

Asset Impairments and Restructuring Charges, Net [Abstract]

Changes to Restructuring Reserve and Related Activities

The following table summarizes the beginning reserves, charges to and changes in estimates to the reserves as described above, and the cash and non-cash reductions to the reserves attributable to asset impairments and the cash payments for severance and site closure costs for full year 2010 and first nine months 2011:

(Dollars in millions)	Balance at January 1, 2010		Provision/ Adjustments			Non-cash Reductions			Cash Reductions			Balance at December 31, 2010
Non-cash charges	$	--	$	8		$	(8	)	$	--		$	--
Severance costs		3		18			--			(6	)		15
Site closure and other restructuring costs		6		3			(3	)		--			6
Total	$	9	$	29		$	(11	)	$	(6	)	$	21
	Balance at January 1, 2011		Provision/ Adjustments			Non-cash Reductions			Cash Reductions			Balance at September 30, 2011
Non-cash charges	$	--	$	(15	)	$	15		$	--		$	--
Severance costs		15		7			--			(16	)		6
Site closure and other restructuring costs		6		--			--			--			6
Total	$	21	$	(8	)	$	15		$	(16	)	$	12

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Retirement Plans

9 Months Ended

Sep. 30, 2011

Compensation and Retirement Disclosure [Abstract]

Retirement Plans

9.   RETIREMENT PLANS

Eastman offers various postretirement benefits to its employees.

DEFINED BENFIT PENSION PLANS AND POSTRETIREMENT WELFARE PLANS

Pension Plans:

Eastman maintains defined benefit pension plans that provide eligible employees with retirement benefits.  Costs recognized for these benefits are recorded using estimated amounts, which may change as actual costs derived for the year are determined.

Postretirement Welfare Plans:

Eastman provides a subsidy toward life insurance, health care, and dental benefits for eligible retirees hired prior to January 1, 2007, and a subsidy toward health care and dental benefits for retirees' eligible survivors.  In general, Eastman provides those benefits to retirees eligible under the Company's U.S. plans.

Eligible employees hired on or after January 1, 2007 have access to postretirement health care benefits, but Eastman does not provide a subsidy toward the premium cost of postretirement benefits for those employees.  A few of the Company's non-U.S. operations have supplemental health benefit plans for certain retirees, the cost of which is not significant to the Company.

Costs recognized for benefits for eligible retirees hired prior to January 1, 2007 are recorded using estimated amounts, which may change as actual costs derived for the year are determined.

Components of net periodic benefit cost were as follows:

	Third Quarter												First Nine Months
	Pension Plans						Postretirement Welfare Plans						Pension Plans						Postretirement Welfare Plans
(Dollars in millions)	2011			2010			2011			2010			2011			2010			2011			2010
Service cost	$	11		$	11		$	3		$	2		$	34		$	33		$	7		$	7
Interest cost		22			21			11			11			64			63			33			33
Expected return on assets		(28	)		(24	)		(1	)		(1	)		(82	)		(77	)		(2	)		(2	)
Curtailment gain (1)		--			--			--			--			--			--			(5	)		--
Settlement charge		3			--			--			--			3			--			--			--
Amortization of:
Prior service credit		(3	)		(4	)		(6	)		(6	)		(10	)		(12	)		(16	)		(18	)
Actuarial loss		14			10			4			4			41			32			11			10
Net periodic benefit cost	$	19		$	14		$	11		$	10		$	50		$	39		$	28		$	30

(1) Includes $5 million gain for the Performance Polymers segment that was sold January 31, 2011 and is included in discontinued operations.  For more information, see Note 2, "Discontinued Operations and Assets Held for Sale."

Third quarter and first nine months 2011 reflects the impact on the U.S. defined benefit pension plan and the other postretirement welfare plan of the Sterling acquisition described in Note 3, "Acquisitions and Investments in Joint Ventures".

The Company contributed $102 million and $35 million to its U.S. defined benefit pension plans in first nine months 2011 and 2010, respectively.

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Earnings and Dividends per Share

9 Months Ended

Sep. 30, 2011

Earnings Per Share [Abstract]

Earnings and Dividends per Share

14.   EARNINGS AND DIVIDENDS PER SHARE

	Third Quarter				First Nine Months
	2011		2010		2011		2010
Shares used for earnings per share calculation (in millions):
Basic		139.1		143.8		140.6		144.3
Diluted		142.4		146.6		144.1		147.2

On August 5, 2011, the Company's Board of Directors declared a two-for-one split of the Company's common stock.  The stock split was in the form of a 100 percent stock dividend and was distributed on October 3, 2011 to stockholders of record as of September 15, 2011.  Stockholders were issued one additional share for each share owned.  Treasury shares were treated as shares outstanding in the stock split.  All shares and per share amounts in this Quarterly Report on Form 10-Q have been adjusted for all periods presented for the stock split.

In third quarter 2011, common shares underlying options to purchase 161,800 shares of common stock were excluded from the computation of diluted earnings per share because the total market value of option exercises for these awards was less than the total proceeds that would be received for these awards.  In first nine months 2011, there were no outstanding options to purchase shares of common stock excluded from the computation of diluted earnings per share.  Third quarter and first nine months 2011 reflect the impact of share repurchases of 6.6 million shares.

In third quarter and first nine months 2010, common shares underlying options to purchase 1,179,170 shares of common stock and 1,392,370 shares of common stock, respectively, were excluded from the computation of diluted earnings per share because the total market value of option exercises for these awards was less than the total proceeds that would be received for these awards.  Third quarter and first nine months 2010 reflect the impact of share repurchases of 2.3 million shares.

The Company declared cash dividends of $0.26 and $0.22 per share in third quarter 2011 and 2010, respectively and $0.73 and $0.66 per share in first nine months 2011 and 2010, respectively.

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Commitments

9 Months Ended

Sep. 30, 2011

Commitments [Abstract]

Commitments

10.   COMMITMENTS

Purchase Obligations and Lease Commitments

At September 30, 2011, the Company had various purchase obligations totaling approximately $1.4 billion over a period of approximately 15 years for materials, supplies, and energy incident to the ordinary conduct of business.  The Company also had various lease commitments for property and equipment under cancelable, noncancelable, and month-to-month operating leases totaling $100 million over a period of several years.  Of the total lease commitments, approximately 20 percent relate to machinery and equipment, including computer and communications equipment and production equipment; approximately 40 percent relate to real property, including office space, storage facilities and land; and approximately 40 percent relate to railcars.

Accounts Receivable Securitization Program

Effective January 1, 2010, the Company adopted amended accounting guidance for transfers of financial assets which impacts the financial statement presentation for activity under the Company's $200 million accounts receivable securitization program.  Beginning for periods after December 31, 2009, transfers of receivables interests that were previously treated as sold and removed from the balance sheet will be included in trade receivables, net and reflected as secured borrowings on the balance sheet.  The Company's Statement of Financial Position at December 30, 2010 reflects an increase in trade receivables, $200 million of which was transferred at December 31, 2009 under the securitization program and reduced cash flows from operating activities by that amount for first nine months 2010.  As a result of the adoption of this accounting guidance, any amounts drawn on this accounts receivable securitization program would be accounted for as secured borrowings and disclosed in Note 7, "Borrowings".

Guarantees

The Company has operating leases with terms that require the Company to guarantee a portion of the residual value of the leased assets upon termination of the lease.  These residual value guarantees at September 30, 2011totaled $184 million and consisted primarily of leases for railcars and company aircraft.  Leases with guarantee amounts totaling $139 million and $45 million will expire in 2012 and 2016 and beyond, respectively.  The Company believes, based on current facts and circumstances, that the likelihood of material residual guarantee payments is remote.

Variable Interest Entities

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

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Retirement Plans (Tables)

9 Months Ended

Sep. 30, 2011

Compensation and Retirement Disclosure [Abstract]

Components of net periodic benefit cost

Components of net periodic benefit cost were as follows:

	Third Quarter												First Nine Months
	Pension Plans						Postretirement Welfare Plans						Pension Plans						Postretirement Welfare Plans
(Dollars in millions)	2011			2010			2011			2010			2011			2010			2011			2010
Service cost	$	11		$	11		$	3		$	2		$	34		$	33		$	7		$	7
Interest cost		22			21			11			11			64			63			33			33
Expected return on assets		(28	)		(24	)		(1	)		(1	)		(82	)		(77	)		(2	)		(2	)
Curtailment gain (1)		--			--			--			--			--			--			(5	)		--
Settlement charge		3			--			--			--			3			--			--			--
Amortization of:
Prior service credit		(3	)		(4	)		(6	)		(6	)		(10	)		(12	)		(16	)		(18	)
Actuarial loss		14			10			4			4			41			32			11			10
Net periodic benefit cost	$	19		$	14		$	11		$	10		$	50		$	39		$	28		$	30

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Derivatives

9 Months Ended

Sep. 30, 2011

Derivatives [Abstract]

Derivatives

8.   DERIVATIVES

Hedging Programs

The Company is exposed to market risk, such as changes in currency exchange rates, raw material and energy costs, and interest rates.  The Company uses various derivative financial instruments when appropriate pursuant to the Company's hedging policies to mitigate these market risk factors and their effect on the cash flows of the underlying transactions.  Designation is performed on a specific exposure basis to support hedge accounting.  The changes in fair value of these hedging instruments are offset in part or in whole by corresponding changes in the cash flows of the underlying exposures being hedged.  The Company does not hold or issue derivative financial instruments for trading purposes.  For further information, see Note 12, "Derivatives", to the consolidated financial statements in Part II, Item 8 of the Company's 2010 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.  For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in current earnings.  As of September 30, 2011, the Company had no fair value hedges.  As of December 31, 2010, the Company had fair value hedges in the form of interest rate swaps with a total notional amount of $146 million.

Cash Flow Hedges

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

As of September 30, 2011, the total notional amounts of the Company's foreign exchange forward and option contracts were €548 million (approximately $735 million equivalent) and ¥14.6 billion (approximately $195 million equivalent), the total notional volume hedged for energy was approximately 2 million mmbtu (million british thermal units), and the total notional volume hedged for feedstock was approximately 2 million barrels.  Additionally, at September 30, 2011, the total notional value of the interest rate swaps for the future issuance of debt ("forward starting interest rate swaps") was $300 million.

As of December 31, 2010, the total notional amounts of the Company's foreign exchange forward and option contracts were €354 million (approximately $475 million equivalent) and ¥12.8 billion (approximately $160 million equivalent), the total notional volume hedged for energy was approximately 4 million mmbtu, and the total notional volume hedged for feedstock was approximately 1 million barrels.  Additionally, at December 31, 2010, the total notional value of the forward starting interest rate swaps was $300 million.

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 2010 Annual Report on Form 10-K.

The Company has determined that its derivative assets and liabilities are level 2 in the fair value hierarchy.  The following chart shows the financial assets and liabilities valued on a recurring basis and their location in the Statement of Financial Position.  The Company currently has no nonqualifying derivatives or derivatives that are not designated as hedges.

Fair Value of Derivatives Designated as Hedging Instruments

(Dollars in millions)			Fair Value Measurements Significant Other Observable Inputs (Level 2)
Derivative Assets	Statement of Financial Position Location		September 30, 2011		December 31, 2010
Fair Value Hedges
Interest rate swaps	Other noncurrent assets	$	--	$	2
Cash Flow Hedges
Commodity contracts	Other current assets		--		4
Foreign exchange contracts	Other current assets		30		23
Foreign exchange contracts	Other noncurrent assets		17		12
Forward starting interest rate swap contracts	Other current assets		--		4
		$	47	$	45

(Dollars in millions)			Fair Value Measurements Significant Other Observable Inputs (Level 2)
Derivative Liabilities	Statement of Financial Position Location		September 30, 2011		December 31, 2010
Cash Flow Hedges
Commodity  contracts	Payables and other current liabilities	$	5	$	2
Foreign exchange contracts	Payables and other current liabilities		8		6
Foreign exchange contracts	Other long-term liabilities		10		9
Forward starting interest rate swap contracts	Payables and other current liabilities		43		--
		$	66	$	17

The fair value of the Company's derivative assets 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 only a minimal risk of nonperformance.

Derivatives' Hedging Relationships

Third Quarter

(Dollars in millions)		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		September 30, 2011		September 30, 2010			September 30, 2011		September 30, 2010
Commodity contracts	$	(3)	$	6	Cost of sales	$	--	$	(2)
Foreign exchange contracts		31		(30)	Sales		(2)		11
Forward starting interest rate swap contracts		(23)		(9)
	$	5	$	(33)		$	(2)	$	9

First Nine Months

(Dollars in millions)		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		September 30, 2011		September 30, 2010			September 30, 2011		September 30, 2010
Commodity  contracts	$	(4)	$	(6)	Cost of sales	$	5	$	2
Foreign exchange contracts		6		(7)	Sales		(5)		34
Forward starting interest rate swap contracts		(30)		(12)
	$	(28)	$	(25)		$	--	$	36

For nine months ended September 30, 2011 and September 30, 2010, there was no material ineffectiveness with regard to the Company's qualifying hedges.

Hedging Summary

At September 30, 2011 and 2010, 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 other comprehensive income before taxes totaled approximately $18 million in losses and $3 million in gains, respectively.  If realized, approximately $13 million in gains in third quarter 2011 will be reclassified into earnings during the next 12 months, primarily related to foreign exchange contracts.  Ineffective portions of hedges are immediately recognized in cost of sales or other charges (income), net.  There were no material gains or losses related to the ineffective portion of hedges recognized in 2011 or 2010.

The gains or losses on nonqualifying derivatives or derivatives that are not designated as hedges are marked to market in the line item "Other charges (income), net" of the Statements of Earnings, and, in all periods presented, represent foreign exchange derivatives denominated in multiple currencies.  The Company recognized approximately $3 million net gain and $11 million net loss on nonqualifying derivatives during third quarter 2011 and 2010, respectively.  The Company recognized approximately $1 million net loss and $4 million net gain on nonqualifying derivatives during first nine months 2011 and 2010, respectively.

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Share-Based Compensation Awards (Details) (USD $) In Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010
Share-based awards under employee and non-employee director compensation programs
Share-based compensation expense before tax in selling, general and administrative expenses	$ 9	$ 6	$ 28	$ 16
Share-based compensation net of deferred tax expense	$ 5	$ 4	$ 17	$ 10

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Basis of Presentation

9 Months Ended

Sep. 30, 2011

Basis of Presentation [Abstract]

Basis of Presentation

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 2010 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 2010 Annual Report on Form 10-K.  The unaudited consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States ("GAAP") and, of necessity, include some amounts that are based upon management estimates and judgments.  Future actual results could differ from such current estimates.  The unaudited consolidated financial statements include assets, liabilities, revenues, and expenses of all majority-owned subsidiaries and joint ventures.  Eastman accounts for other joint ventures and investments where it exercises significant influence, but does not have control, on the equity basis.  Intercompany transactions and balances are eliminated in consolidation.  Certain prior period data has been reclassified in the Consolidated Financial Statements and accompanying footnotes to conform to current period presentation.

Effective January 1, 2010, the Company adopted amended accounting guidance on transfers of financial assets.  The impact of this guidance was prospective with changes in full year 2010 Statements of Consolidated Financial Position and first nine months 2010 Unaudited Consolidated Statements of Cash Flows.  For additional information, refer to Notes 7, "Borrowings", and 10, "Commitments".

The Company held $201 million of short-term time deposits as of September 30, 2011.  These investments had staggered maturities between three and ten months at the investment date, which exceeded the 90 day threshold for classification as cash or cash equivalents.

On August 5, 2011, the Company's Board of Directors declared a two-for-one split of the Company's common stock in the form of a 100 percent stock dividend.  Stockholders of record as of September 15, 2011 were issued one additional share of common stock on October 3, 2011 for each share held.  Treasury shares were treated as shares outstanding in the stock split.  All shares and per share amounts in this Quarterly Report on Form 10-Q have been adjusted for all periods presented for the stock split.  For additional information, see Note 14, "Earnings and Dividends Per Share".

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Inventories

9 Months Ended

Sep. 30, 2011

Inventories [Abstract]

Inventories

4.   INVENTORIES

	September 30,			December 31,
(Dollars in millions)	2011			2010
At FIFO or average cost (approximates current cost)
Finished goods	$	773		$	611
Work in process		242			206
Raw materials and supplies		402			281
Total inventories		1,417			1,098
LIFO Reserve		(567	)		(490	)
Total inventories	$	850		$	608

Inventories valued on the LIFO method were approximately 70 percent of total inventories as of both September 30, 2011 and December 31, 2010.

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Acquisitions (Details) (USD $) In Millions, unless otherwise specified	9 Months Ended
	Sep. 30, 2011
Eastman Chemical Company [Member] | Genovique Specialties Corporation [Member]
Business Acquisition [Line Items]
Business Acquisition, Effective Date of Acquisition	2010/04/30
Cost of Acquired entity, Liabilities Assumed	$ 5
Purchase Price Allocation [Abstract]
Current assets	48
Properties and equipment	33
Intangible assets	59
Other noncurrent assets	2
Goodwill	63
Current liabilities	(17)
Long-term liabilities	(28)
Total purchase price	160
Eastman Chemical Company [Member] | Genovique Specialties Corporation [Member] | Customer Relationships [Member]
Acquired Intangible Assets [Abstract]
Acquired Finite-lived Intangible Assets, Amount	44
Acquired Finite-lived Intangible Assets, Weighted Average Useful Life (in years)	16
Eastman Chemical Company [Member] | Genovique Specialties Corporation [Member] | Trade Names [Member]
Acquired Intangible Assets [Abstract]
Acquired Indefinite-lived Intangible Assets, Amount	14
Eastman Chemical Company [Member] | Genovique Specialties Corporation [Member] | Developed Technology Rights [Member]
Acquired Intangible Assets [Abstract]
Acquired Finite-lived Intangible Assets, Amount	1
Acquired Finite-lived Intangible Assets, Weighted Average Useful Life (in years)	7
Eastman Chemical Company [Member] | Sterling and Scandiflex Acquisitions [Member]
Business Acquisition [Line Items]
Transaction Costs	4
Purchase Price and Post-Closure Payment Description	The total purchase price for both acquisitions was $133 million, including a post-closure payment of $10 million to the previous shareholders of Scandiflex reported as a use of cash in the line item "Proceeds from stock option exercises and other items" of the "Cash flows from financing activities" section of the Unaudited Consolidated Statements of Cash Flows.
Acquisition, Post-Closure Payment	10
Purchase Price Allocation [Abstract]
Current assets	35
Properties and equipment	129
Intangible assets	11
Other noncurrent assets	18
Goodwill	33
Current liabilities	(23)
Long-term liabilities	(70)
Total purchase price	133
Eastman Fibers Korea Limited [Member] | Acetate Tow Facility [Member]
Business Acquisition [Line Items]
Business Acquisition, Effective Date of Acquisition	2010/03/22
Purchase Price Allocation [Abstract]
Inventory	5
Properties and equipment	101
Intangible assets	5
Total purchase price	$ 111

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Derivatives (Tables)

9 Months Ended

Sep. 30, 2011

Derivatives [Abstract]

Schedule of Derivative Financial Assets and Liabilities Based on Fair Value Level 2 Hierarchy on Recurring Basis and Balance Sheet Location

The Company has determined that its derivative assets and liabilities are level 2 in the fair value hierarchy.  The following chart shows the financial assets and liabilities valued on a recurring basis and their location in the Statement of Financial Position.  The Company currently has no nonqualifying derivatives or derivatives that are not designated as hedges.

Fair Value of Derivatives Designated as Hedging Instruments

(Dollars in millions)		Fair Value Measurements Significant Other Observable Inputs (Level 2)
Derivative Assets	Statement of Financial Position Location	September 30, 2011		December 31, 2010
Fair Value Hedges
Interest rate swaps	Other noncurrent assets	$	--	$	2
Cash Flow Hedges
Commodity contracts	Other current assets		--		4
Foreign exchange contracts	Other current assets		30		23
Foreign exchange contracts	Other noncurrent assets		17		12
Forward starting interest rate swap contracts	Other current assets		--		4
		$	47	$	45

(Dollars in millions)		Fair Value Measurements Significant Other Observable Inputs (Level 2)
Derivative Liabilities	Statement of Financial Position Location	September 30, 2011		December 31, 2010
Cash Flow Hedges
Commodity  contracts	Payables and other current liabilities	$	5	$	2
Foreign exchange contracts	Payables and other current liabilities		8		6
Foreign exchange contracts	Other long-term liabilities		10		9
Forward starting interest rate swap contracts	Payables and other current liabilities		43		--
		$	66	$	17

Schedule of Derivative Instrument Gain Loss in Statement of Financial Performance

Derivatives' Hedging Relationships

Third Quarter

(Dollars in millions)		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		September 30, 2011		September 30, 2010			September 30, 2011		September 30, 2010
Commodity contracts	$	(3)	$	6	Cost of sales	$	--	$	(2)
Foreign exchange contracts		31		(30)	Sales		(2)		11
Forward starting interest rate swap contracts		(23)		(9)
	$	5	$	(33)		$	(2)	$	9

First Nine Months

(Dollars in millions)		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		September 30, 2011		September 30, 2010			September 30, 2011		September 30, 2010
Commodity  contracts	$	(4)	$	(6)	Cost of sales	$	5	$	2
Foreign exchange contracts		6		(7)	Sales		(5)		34
Forward starting interest rate swap contracts		(30)		(12)
	$	(28)	$	(25)		$	--	$	36

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Asset Impairments and Restructuring Charges, Net (Details) (USD $) In Millions	3 Months Ended		6 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Jun. 30, 2011	Jun. 30, 2010	Sep. 30, 2011	Sep. 30, 2010	Dec. 31, 2010
Asset Impairments and Restructuring Charges, Net [Abstract]
Asset impairments and restructuring charges (gains), net	$ 7	$ 0	$ 15	$ 3	$ (8)	$ 3
Restructuring Reserve [Roll Forward]
Beginning Balance			21	9	21	9	9
Provision/ Adjustments					(8)		29
Non-cash Reductions					15		(11)
Cash Reductions					(16)		(6)
Ending Balance	12				12		21
Non-Cash Charges [Member]
Restructuring Reserve [Roll Forward]
Beginning Balance			0	0	0	0	0
Provision/ Adjustments					(15)		8
Non-cash Reductions					15		(8)
Cash Reductions					0		0
Ending Balance	0				0		0
Employee Severance [Member]
Restructuring Reserve [Roll Forward]
Beginning Balance			15	3	15	3	3
Provision/ Adjustments					7		18
Non-cash Reductions					0		0
Cash Reductions					(16)		(6)
Ending Balance	6				6		15
Facility Closing [Member]
Restructuring Reserve [Roll Forward]
Beginning Balance			6	6	6	6	6
Provision/ Adjustments					0		3
Non-cash Reductions					0		(3)
Cash Reductions					0		0
Ending Balance	$ 6				$ 6		$ 6

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Payables and Other Current Liabilities

9 Months Ended

Sep. 30, 2011

Payables and Accruals [Abstract]

Payables and Other Current Liabilities

5.   PAYABLES AND OTHER CURRENT LIABILITIES

	September 30,		December 31,
(Dollars in millions)	2011		2010
Trade creditors	$	615	$	569
Accrued payrolls, vacation, and variable-incentive compensation		118		166
Accrued taxes		38		44
Post-employment obligations		57		62
Interest payable		25		21
Other		194		150
Total payables and other current liabilities	$	1,047	$	1,012

The current portion of post-employment obligations is an estimate of current year payments.

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Payables and Other Current Liabilities (Details) (USD $) In Millions	Sep. 30, 2011	Dec. 31, 2010
Payables and other current liabilities [Abstract]
Trade creditors	$ 615	$ 569
Accrued payrolls, vacation, and variable-incentive compensation	118	166
Accrued taxes	38	44
Post-employment obligations	57	62
Interest payable	25	21
Other	194	150
Total payables and other current liabilities	$ 1,047	$ 1,012

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Payables and Other Current Liabilities (Tables)

9 Months Ended

Sep. 30, 2011

Payables and Accruals [Abstract]

Payables and Other Liabilities

	September 30,		December 31,
(Dollars in millions)	2011		2010
Trade creditors	$	615	$	569
Accrued payrolls, vacation, and variable-incentive compensation		118		166
Accrued taxes		38		44
Post-employment obligations		57		62
Interest payable		25		21
Other		194		150
Total payables and other current liabilities	$	1,047	$	1,012

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Stockholders' Equity (Tables)

9 Months Ended

Sep. 30, 2011

Stockholders' Equity [Abstract]

Reconciliation of the changes in stockholders' Equity

A reconciliation of the changes in stockholders' equity for first nine months 2011 is provided below:

(Dollars in millions)	Common Stock at Par Value $		Paid-in Capital $		Retained Earnings $			Accumulated Other Comprehensive Income (Loss) $			Treasury Stock at Cost $			Total Stockholders' Equity $
Balance at December 31, 2010 (1)		2		793		2,879			(432	)		(1,615	)		1,627
Net Earnings		--		--		596			--			--			596
Cash Dividends Declared (2)		--		--		(103	)		--			--			(103	)
Other Comprehensive Income (Loss)		--		--		--			(15	)		--			(15	)
Share-Based Compensation Expense (3)		--		29		--			--			--			29
Stock Option Exercises		--		58		--			--			--			58
Other (4)		--		8		--			--			1			9
Stock Repurchases		--		--		--			--			(292	)		(292	)
Balance at September 30, 2011		2		888		3,372			(447	)		(1,906	)		1,909

(1)   Common Stock at Par Value and Retained Earnings have been adjusted for the two-for-one stock split on October 3, 2011.  For additional information, see Note 1, "Basis of Presentation" and Note 14, "Earnings and Dividends Per Share".

(2)   Includes cash dividends declared, but unpaid.

(3)   Includes the fair value of equity share-based awards recognized for share-based compensation.

(4)   Includes tax benefits relating to the difference between the amounts deductible for federal income taxes over the amounts charged to income for book value purposes credited to paid-in capital and other items.

Accumulated Other Comprehensive Income (Loss), Net of Tax

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX

(Dollars in millions)	Cumulative Translation Adjustment $		Unrecognized Losses and Prior Service Credits for Benefit Plans $			Unrealized Gains (Losses) on Derivative Instruments $			Unrealized Losses on Investments $			Accumulated Other Comprehensive Income (Loss) $
Balance at December 31, 2009		77		(488	)		27			(1	)		(385	)
Period change		2		(39	)		(10	)		--			(47	)
Balance at December 31, 2010		79		(527	)		17			(1	)		(432	)
Period change		--		13			(28	)		--			(15	)
Balance at September 30, 2011		79		(514	)		(11	)		(1	)		(447	)

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Inventories (Details) (USD $) In Millions, unless otherwise specified	Sep. 30, 2011	Dec. 31, 2010
At FIFO or average cost (approximates current cost)
Finished goods	$ 773	$ 611
Work in process	242	206
Raw materials and supplies	402	281
Total inventories	1,417	1,098
LIFO Reserve	(567)	(490)
Total inventories	$ 850	$ 608
Percentage of LIFO inventory (in hundredths)	70.00%	70.00%

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Borrowings (Tables)

9 Months Ended

Sep. 30, 2011

Borrowings [Abstract]

Long-term Borrowings

	September 30,			December 31,
(Dollars in millions)	2011			2010
Borrowings consisted of:
7% notes due 2012	$	149		$	151
3% debentures due 2015		250			250
6.30% notes due 2018		176			178
5.5% notes due 2019		250			250
4.5% debentures due 2021		250			250
7 1/4% debentures due 2024		243			243
7 5/8% debentures due 2024		54			54
7.60% debentures due 2027		222			222
Credit facility borrowings		--			--
Other		5			6
Total borrowings		1,599			1,604
Borrowings due within one year		(154	)		(6	)
Long-term borrowings	$	1,445		$	1,598

Fair Value of Borrowings

	September 30, 2011				December 31, 2010
(Dollars in millions)	Recorded Amount		Fair Value		Recorded Amount		Fair Value
Long-term borrowings	$	1,445	$	1,589	$	1,598	$	1,688

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Stockholders' Equity

9 Months Ended

Sep. 30, 2011

Stockholders' Equity [Abstract]

Stockholders' Equity

13.   STOCKHOLDERS' EQUITY

A reconciliation of the changes in stockholders' equity for first nine months 2011 is provided below:

(Dollars in millions)	Common Stock at Par Value $		Paid-in Capital $		Retained Earnings $			Accumulated Other Comprehensive Income (Loss) $			Treasury Stock at Cost $			Total Stockholders' Equity $
Balance at December 31, 2010 (1)		2		793		2,879			(432	)		(1,615	)		1,627
Net Earnings		--		--		596			--			--			596
Cash Dividends Declared (2)		--		--		(103	)		--			--			(103	)
Other Comprehensive Income (Loss)		--		--		--			(15	)		--			(15	)
Share-Based Compensation Expense (3)		--		29		--			--			--			29
Stock Option Exercises		--		58		--			--			--			58
Other (4)		--		8		--			--			1			9
Stock Repurchases		--		--		--			--			(292	)		(292	)
Balance at September 30, 2011		2		888		3,372			(447	)		(1,906	)		1,909

(1)   Common Stock at Par Value and Retained Earnings have been adjusted for the two-for-one stock split on October 3, 2011.  For additional information, see Note 1, "Basis of Presentation" and Note 14, "Earnings and Dividends Per Share".

(2)   Includes cash dividends declared, but unpaid.

(3)   Includes the fair value of equity share-based awards recognized for share-based compensation.

(4)   Includes tax benefits relating to the difference between the amounts deductible for federal income taxes over the amounts charged to income for book value purposes credited to paid-in capital and other items.

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX

(Dollars in millions)	Cumulative Translation Adjustment $		Unrecognized Losses and Prior Service Credits for Benefit Plans $			Unrealized Gains (Losses) on Derivative Instruments $			Unrealized Losses on Investments $			Accumulated Other Comprehensive Income (Loss) $
Balance at December 31, 2009		77		(488	)		27			(1	)		(385	)
Period change		2		(39	)		(10	)		--			(47	)
Balance at December 31, 2010		79		(527	)		17			(1	)		(432	)
Period change		--		13			(28	)		--			(15	)
Balance at September 30, 2011		79		(514	)		(11	)		(1	)		(447	)

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

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Provision for Income Taxes

9 Months Ended

Sep. 30, 2011

Provision for Income Taxes [Abstract]

Provision for Income Taxes

6.   PROVISION FOR INCOME TAXES

	Third Quarter						First Nine Months
(Dollars in millions)	2011			2010			2011			2010
Provision for income taxes	$	73		$	82		$	258		$	207
Effective tax rate		31	%		34	%		32	%		34	%

The first nine months 2011 effective tax rate includes an $8 million tax benefit recognized due to an increased level of capital investment which qualified for additional state tax credits.  The Company expects the full year tax rate on reported earnings from continuing operations before income tax to be approximately 32 percent.

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Share-Based Compensation Awards

9 Months Ended

Sep. 30, 2011

Share-Based Compensation Awards [Abstract]

Share Based Compensation Awards

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 2011 and 2010, approximately $9 million and $6 million, respectively, of compensation expense before tax were recognized in selling, general and administrative expense in the earnings statement for all share-based awards.  The impact on third quarter 2011 and 2010 net earnings of approximately $5 million and $4 million, respectively, is net of deferred tax expense related to share-based award compensation for each period.

In first nine months 2011 and 2010, $28 million and $16 million, respectively, of compensation expense before tax were recognized in selling, general and administrative expense in the earnings statement for all share-based awards.  The impact on first nine months 2011 and 2010 net earnings of $17 million and $10 million, respectively, is net of deferred tax expense related to share-based award compensation.

For additional information regarding share-based compensation plans and awards, see Note 21, "Share-Based Compensation Plans and Awards", to the consolidated financial statements in Part II, Item 8 of the Company's 2010 Annual Report on Form 10-K.

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Discontinued Operations and Assets Held for Sale (Details) (USD $) In Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010	Jan. 31, 2011	Dec. 31, 2010
Discontinued Operations and Assets Held for Sale [Abstract]
Sales price of polyethylene terephthalate business, the Performance Polymers segment					$ 615
Contracted period for transition services to supply certain raw materials and services (in years)					1
Transition supply agreement revenues			220
Income Statement earnings from discontinued operations [Abstract]
Earnings from discontinued operations, net of tax	0	8	8	11
Gain from disposal of discontinued operations, net of tax	0	0	31	0
Noncurrent liabilities
Total noncurrent liabilities held for sale	0		0			3
Performance Polymers Segment [Member]
Income Statement earnings from discontinued operations [Abstract]
Sales	0	222	105	638
Earnings before income taxes	0	14	15	18
Earnings from discontinued operations, net of tax	0	8	8	11
Gain from disposal of discontinued operations, net of tax	0	0	31	0
Current assets [Abstract]
Trade receivables, net						116
Inventories						101
Total current assets held for sale						217
Non-current assets
Properties and equipment, net						374
Goodwill						1
Other noncurrent assets						22
Total noncurrent assets held for sale						397
Total assets						614
Current liabilities
Payables and other current liabilities						52
Total current liabilities held for sale						52
Noncurrent liabilities
Other noncurrent liabilities						3
Total noncurrent liabilities held for sale						3
Total current liabilities held for sale						$ 55

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Provision for Income Taxes (Tables)

9 Months Ended

Sep. 30, 2011

Provision for Income Taxes [Abstract]

Provision for income taxes

	Third Quarter						First Nine Months
(Dollars in millions)	2011			2010			2011			2010
Provision for income taxes	$	73		$	82		$	258		$	207
Effective tax rate		31	%		34	%		32	%		34	%

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CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Millions	9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010
Cash flows from operating activities
Net earnings	$ 596	$ 419
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:
Depreciation and amortization	204	212
Gain on sale of assets	(70)	0
Provision (benefit) for deferred income taxes	(18)	52
Changes in operating assets and liabilities, net of effect of acquisitions and divestitures:
(Increase) decrease in trade receivables	(147)	(397)
(Increase) decrease in inventories	(225)	(100)
Increase (decrease) in trade payables	34	56
Increase (decrease) in liabilities for employee benefits and incentive pay	(108)	9
Other items, net	7	46
Net cash provided by operating activities	273	297
Cash flows from investing activities
Additions to properties and equipment	(333)	(133)
Proceeds from sale of assets and investments	651	11
Additions to short-term time deposits	(200)	0
Acquisitions and investments in joint ventures	(154)	(189)
Additions to capitalized software	(7)	(5)
Other items, net	27	(7)
Net cash used in investing activities	(16)	(323)
Cash flows from financing activities
Net increase in commercial paper, credit facility, and other borrowings	1	1
Repayment of borrowings	(2)	(4)
Dividends paid to stockholders	(100)	(96)
Treasury stock purchases	(292)	(68)
Proceeds from stock option exercises and other items, net	67	41
Net cash used in financing activities	(326)	(126)
Effect of exchange rate changes on cash and cash equivalents	1	1
Net change in cash and cash equivalents	(68)	(151)
Cash and cash equivalents at beginning of period	516	793
Cash and cash equivalents at end of period	$ 448	$ 642

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Supplemental Cash Flow Information

9 Months Ended

Sep. 30, 2011

Supplemental Cash Flow Information [Abstract]

Supplemental Cash Flow Information

17.   SUPPLEMENTAL CASH FLOW INFORMATION

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

(Dollars in millions)	First Nine Months
	2011			2010
Current assets	$	13		$	--
Other assets		3			6
Current liabilities		(16	)		34
Long-term liabilities and equity		7			6
Total	$	7		$	46

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

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Borrowings (Details) (USD $) In Millions, unless otherwise specified	9 Months Ended
	Sep. 30, 2011	Dec. 31, 2010
Borrowings [Abstract]
Borrowings due within one year	$ (154)	$ (6)
Long-term borrowings	1,445	1,598
Fair Value of Borrowings [Abstract]
Long-term Borrowings, Recorded Amount	1,445	1,598
Long-term Borrowings, Fair Value	1,589	1,688
7% notes due 2012 [Member]
Borrowings [Abstract]
Stated Interest Rate	7.00%
Maturity Date	2012
Long-term Debt, Noncurrent	149	151
3% debentures due 2015 [Member]
Borrowings [Abstract]
Stated Interest Rate	3.00%
Maturity Date	2015
Long-term Debt, Noncurrent	250	250
6.30% notes due 2018 [Member]
Borrowings [Abstract]
Stated Interest Rate	6.30%
Maturity Date	2018
Long-term Debt, Noncurrent	176	178
5.5% notes due 2019 [Member]
Borrowings [Abstract]
Stated Interest Rate	5.50%
Maturity Date	2019
Long-term Debt, Noncurrent	250	250
4.5% debentures due 2021 [Member]
Borrowings [Abstract]
Stated Interest Rate	4.50%
Maturity Date	2021
Long-term Debt, Noncurrent	250	250
7 1/4% debentures due 2024 [Member]
Borrowings [Abstract]
Stated Interest Rate	7.25%
Maturity Date	2024
Long-term Debt, Noncurrent	243	243
7 5/8% debentures due 2024 [Member]
Borrowings [Abstract]
Stated Interest Rate	7.625%
Maturity Date	2024
Long-term Debt, Noncurrent	54	54
7.60% debentures due 2027 [Member]
Borrowings [Abstract]
Stated Interest Rate	7.60%
Maturity Date	2027
Long-term Debt, Noncurrent	222	222
Credit facility borrowings [Member]
Borrowings [Abstract]
Long-term Debt, Noncurrent	0	0
Other debt [Member]
Borrowings [Abstract]
Long-term Debt, Noncurrent	5	6
Credit Facility [Member]
Credit Facilities
Credit Facility, Description	At September 30, 2011, the Company had a $700 million revolving credit facility (the "Credit Facility") in two tranches, with $125 million expiring in April 2012 and $575 million expiring in April 2013. Borrowings under the Credit Facility are subject to interest at varying spreads above quoted market rates and a facility fee is paid on the total commitment. In addition, the Credit Facility contains a number of customary covenants and events of default including the requirement to maintain compliance with certain financial ratios. The Company was in compliance with all such covenants for all periods presented. At September 30, 2011 and December 31, 2010, the Company had no outstanding borrowings under the Credit Facility. The Credit Facility provides liquidity support for general corporate purposes.
Credit Facility, Borrowing Capacity	700
Credit Facility, Interest Rate Description	Borrowings under the Credit Facility are subject to interest at varying spreads above quoted market rates
Credit Facility, Commitment Fee Description	a facility fee is paid on the total commitment
Credit Facility, Covenant Terms	In addition, the Credit Facility contains a number of customary covenants and events of default including the requirement to maintain compliance with certain financial ratios.
Credit Facility Covenant Compliance	The Company was in compliance with all such covenants for all periods presented.
Amount Outstanding	0	0
Credit Facility Tranche 1 [Member]
Credit Facilities
Credit Facility, Borrowing Capacity	125
Credit Facility, Expiration	April 2012
Credit Facility Tranche 2 [Member]
Credit Facilities
Credit Facility, Borrowing Capacity	575
Credit Facility, Expiration	April 2013
A/R Facility [Member]
Credit Facilities
Credit Facility, Borrowing Capacity	200
Credit Facility, Expiration	July 2012
Credit Facility, Interest Rate Description	Borrowings under the A/R Facility are subject to interest rates based on a spread over the lender's borrowing costs
Credit Facility, Commitment Fee Description	the Company pays a fee to maintain availability of the A/R Facility
Credit Facility, Covenant Terms	In addition, the A/R Facility contains a number of customary covenants and events of default, as well as the requirement to maintain compliance with certain financial ratios.
Credit Facility Covenant Compliance	The Company was in compliance with all such covenants for all periods presented.
Amount Outstanding	$ 0	$ 0

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Recently Issued Accounting Standard

9 Months Ended

Sep. 30, 2011

Description Of New Accounting Pronouncements Not Yet Adopted [Abstract]

Recently Issued Accounting Standards

19.   RECENTLY ISSUED ACCOUNTING STANDARDS

In May 2011, the Financial Accounting Standards Board ("FASB") issued amended accounting guidance related to fair value measurements and disclosures with the purpose of converging the fair value measurement and disclosure guidance issued by the FASB and the International Accounting Standards Board.  The guidance is effective for reporting periods beginning after December 15, 2011.  The guidance includes amendments that clarify the intent of the application of existing fair value measurement requirements along with amendments that change a particular principle or requirement for fair value measurements and disclosures.  The Company has concluded that the new guidance will not have a material impact on its Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings, Consolidated Statements of Financial Position, or related disclosures.

In June 2011, the FASB issued amended accounting guidance related to presentation of comprehensive income.  The standards update is intended to help financial statement users better understand the causes of an entity’s change in financial position and results of operation.  It is effective for reporting periods beginning after December 15, 2011.  The amendments eliminate the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity.  The amendments require that all nonowner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements.  The guidance also requires that reclassification adjustments for items that are reclassified from other comprehensive income to net income be presented on the face of the financial statement where the components of net income and other comprehensive income are presented.  Upon adoption, the Company will continue to present components of comprehensive income in its Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings.  These statements will include reclassification adjustments as required by the new guidance for all periods presented.  Since this new guidance will affect disclosure requirements only, the Company has concluded that it will not have a material impact on the Company’s financial position or results of operations.

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Discontinued Operations and Assets Held for Sale

9 Months Ended

Sep. 30, 2011

Discontinued Operations and Assets Held for Sale [Abstract]

Discontinued Operations and Assets Held for Sale

2.   DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE

On January 31, 2011, the Company completed the sale of the polyethylene terephthalate ("PET") business, related assets at the Columbia, South Carolina site, and technology of its Performance Polymers segment for $615 million and recognized a gain of approximately $30 million, net of tax.  The Company contracted with the buyer for transition services to supply certain raw materials and services for a period of less than one year.  Transition supply agreement revenues of approximately $220 million, relating to raw materials, were more than offset by costs and reported net in cost of sales.  The PET business, assets, and technology sold were substantially all of the Performance Polymers segment and therefore the segment operating results are presented as discontinued operations for all periods presented and are not included in results from continuing operations.  The assets and liabilities of this business were reclassified as assets held for sale as of December 31, 2010.

Operating results of the discontinued operations which were formerly included in the Performance Polymers segment are summarized below:

		Third Quarter				First Nine Months
(Dollars in millions)		2011		2010		2011		2010
Sales	$	--	$	222	$	105	$	638
Earnings before income taxes		--		14		15		18
Earnings from discontinued operations, net of tax		--		8		8		11
Gain from disposal of discontinued operations, net of tax		--		--		31		--

Assets and liabilities of the discontinued operations classified as held for sale as of December 31, 2010 are summarized below:

		December 31,
(Dollars in millions)		2010
Current assets
Trade receivables, net	$	116
Inventories		101
Total current assets held for sale		217
Non-current assets
Properties and equipment, net		374
Goodwill		1
Other noncurrent assets		22
Total noncurrent assets held for sale		397
Total assets	$	614
Current liabilities
Payables and other current liabilities	$	52
Total current liabilities held for sale		52
Noncurrent liabilities
Other noncurrent liabilities		3
Total noncurrent liabilities held for sale		3
Total liabilities	$	55

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Environmental Matters

9 Months Ended

Sep. 30, 2011

Environmental Matters [Abstract]

Environmental Matters

11.   ENVIRONMENTAL MATTERS

Certain Eastman manufacturing sites generate hazardous and nonhazardous wastes, the treatment, storage, transportation, and disposal of which are regulated by various governmental agencies.  In connection with the cleanup of various hazardous waste sites, the Company, along with many other entities, has been designated a potentially responsible party ("PRP"), by the U.S. Environmental Protection Agency under the Comprehensive Environmental Response, Compensation and Liability Act, which potentially subjects PRPs to joint and several liability for such cleanup costs.  In addition, the Company will be required to incur costs for environmental remediation and closure and postclosure under the federal Resource Conservation and Recovery Act.  Reserves for environmental contingencies have been established in 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 2010 Annual Report on Form 10-K.  Because of expected sharing of costs, the availability of legal defenses, and the Company's preliminary assessment of actions that may be required, management does not believe that the Company's liability for these environmental matters, individually or in the aggregate, will be material to the Company's consolidated financial position, results of operations or cash flows.  The Company's total reserve for environmental contingencies was $39 million and $40 million at September 30, 2011 and December 31, 2010, respectively.

Estimated future environmental expenditures for remediation costs range from the minimum or best estimate of $12 million to the maximum of $29 million at September 30, 2011, and from the minimum or best estimate of $10 million to the maximum of $27 million at December 31, 2010.  The best estimate accrued to date over the facilities' estimated useful lives for asset retirement obligation costs are $27 million and $30 million at September 30, 2011 and December 31, 2010, respectively.

During third quarter 2011, as described in Note 3, "Acquisitions and Investments in Joint Ventures" the Company completed the acquisitions of Sterling and Scandiflex, resulting in a $4 million increase to the reserve for environmental contingencies consisting of an additional $1 million in asset retirement obligation costs and a minimum or best estimate of $3 million to a maximum of $4 million of estimated future environmental expenditures for remediation.

The Company completed the sale of the PET business on January 31, 2011.  As a result, $3 million in asset retirement obligation costs were divested.

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Earnings and Dividends per Share (Tables)

9 Months Ended

Sep. 30, 2011

Earnings Per Share [Abstract]

Earnings per share, basic and diluted

	Third Quarter				First Nine Months
	2011		2010		2011		2010
Shares used for earnings per share calculation (in millions):
Basic		139.1		143.8		140.6		144.3
Diluted		142.4		146.6		144.1		147.2

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Asset Impairments and Restructuring Charges, Net

9 Months Ended

Sep. 30, 2011

Asset Impairments and Restructuring Charges, Net [Abstract]

Asset Impairments and Restructuring Charges, Net

15.   ASSET IMPAIRMENTS AND RESTRUCTURING CHARGES (GAINS), NET

In third quarter 2011, there were $7 million in restructuring charges primarily for severance associated with the acquisition and integration of Sterling.  In second quarter 2011, there was a $15 million gain from the sale of the previously impaired methanol and ammonia assets related to the terminated Beaumont, Texas industrial gasification project.

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

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

The following table summarizes the beginning reserves, charges to and changes in estimates to the reserves as described above, and the cash and non-cash reductions to the reserves attributable to asset impairments and the cash payments for severance and site closure costs for full year 2010 and first nine months 2011:

(Dollars in millions)	Balance at January 1, 2010		Provision/ Adjustments			Non-cash Reductions			Cash Reductions			Balance at December 31, 2010
Non-cash charges	$	--	$	8		$	(8	)	$	--		$	--
Severance costs		3		18			--			(6	)		15
Site closure and other restructuring costs		6		3			(3	)		--			6
Total	$	9	$	29		$	(11	)	$	(6	)	$	21
	Balance at January 1, 2011		Provision/ Adjustments			Non-cash Reductions			Cash Reductions			Balance at September 30, 2011
Non-cash charges	$	--	$	(15	)	$	15		$	--		$	--
Severance costs		15		7			--			(16	)		6
Site closure and other restructuring costs		6		--			--			--			6
Total	$	21	$	(8	)	$	15		$	(16	)	$	12

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CONSOLIDATED STATEMENTS OF EARNINGS, COMPREHENSIVE INCOME and RETAINED EARNINGS (USD $) In Millions, except Per Share data	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010
CONSOLIDATED STATEMENTS OF EARNINGS, COMPREHENSIVE INCOME and RETAINED EARNINGS [Abstract]
Sales	$ 1,812	$ 1,507	$ 5,455	$ 4,379
Cost of sales	1,392	1,085	4,139	3,256
Gross profit	420	422	1,316	1,123
Selling, general and administrative expenses	116	114	350	311
Research and development expenses	41	42	116	108
Asset impairments and restructuring charges (gains), net	7	0	(8)	3
Operating earnings	256	266	858	701
Net interest expense	20	25	57	75
Other charges (income), net	(2)	(3)	(14)	11
Earnings from continuing operations before income taxes	238	244	815	615
Provision for income taxes from continuing operations	73	82	258	207
Earnings from continuing operations	165	162	557	408
Earnings from discontinued operations, net of tax	0	8	8	11
Gain from disposal of discontinued operations, net of tax	0	0	31	0
Net earnings	165	170	596	419
Basic earnings per share
Earnings from continuing operations	$ 1.19	$ 1.13	$ 3.96	$ 2.83
Earnings from discontinued operations	$ 0.00	$ 0.06	$ 0.28	$ 0.08
Basic earnings per share	$ 1.19	$ 1.19	$ 4.24	$ 2.91
Diluted earnings per share
Earnings from continuing operations	$ 1.16	$ 1.11	$ 3.86	$ 2.77
Earnings (loss) from discontinued operations	$ 0.00	$ 0.05	$ 0.27	$ 0.08
Diluted earnings per share	$ 1.16	$ 1.16	$ 4.13	$ 2.85
Comprehensive Income
Net earnings	165	170	596	419
Other comprehensive income (loss), net of tax
Change in cumulative translation adjustment	(36)	28	0	7
Change in unrecognized losses and prior service credits for benefit plans	7	2	13	11
Change in unrealized (losses) gains on derivative instruments	5	(33)	(28)	(25)
Total other comprehensive income (loss), net of tax	(24)	(3)	(15)	(7)
Comprehensive income	141	167	581	412
Retained Earnings
Retained earnings at beginning of period	3,243	2,755	2,879	2,570
Net earnings	165	170	596	419
Cash dividends declared	(36)	(32)	(103)	(96)
Retained earnings at end of period	$ 3,372	$ 2,893	$ 3,372	$ 2,893

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Supplemental Cash Flow Information (Tables)

9 Months Ended

Sep. 30, 2011

Supplemental Cash Flow Information [Abstract]

Supplemental Cash Flow Information of Changes to Certain Balance Sheet Accounts

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

(Dollars in millions)	First Nine Months
	2011			2010
Current assets	$	13		$	--
Other assets		3			6
Current liabilities		(16	)		34
Long-term liabilities and equity		7			6
Total	$	7		$	46

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Stockholders' Equity (Details) (USD $) In Millions	3 Months Ended		9 Months Ended			12 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011		Sep. 30, 2010	Dec. 31, 2010		Dec. 31, 2009
Beginning balance	$ 1,909		$ 1,909			$ 1,627
Net Earnings	165	170	596		419
Cash Dividends Declared	(36)	(32)	(103)		(96)
Other Comprehensive Income (Loss)	(24)	(3)	(15)		(7)	(47)
Share-Based Compensation Expense			29	[1]
Stock Option Exercises			58
Other			9	[2]
Stock Repurchases			(292)
Ending balance	1,909		1,909			1,627
Accumulated other comprehensive income (loss), net of tax [Abstract]
Cumulative Translation Adjustment	79		79			79		77
Unrecognized Losses and Prior Service Credits for Benefit Plans	(514)		(514)			(527)		(488)
Unrealized Gains (Losses) on Derivative Instruments	(11)		(11)			17		27
Unrealized Losses on Investments	(1)		(1)			(1)		(1)
Accumulated Other Comprehensive Income (Loss)	(447)		(447)			(432)		(385)
Cumulative Translation Adjustment	(36)	28	0		7	2
Change in unrecognized losses and prior service credits for benefit plans	7	2	13		11	(39)
Unrealized Gains (Losses) on Derivative Instruments	5	(33)	(28)		(25)	(10)
Unrealized Losses on Investments						0
Accumulated Other Comprehensive Income (Loss)	(24)	(3)	(15)		(7)	(47)
Common Stock [Member]
Beginning balance	2		2			2	[3]
Net Earnings			0
Cash Dividends Declared			0	[4]
Other Comprehensive Income (Loss)			0
Share-Based Compensation Expense			0	[1]
Stock Option Exercises			0
Other			0	[2]
Stock Repurchases			0
Ending balance	2		2			2	[3]
Accumulated other comprehensive income (loss), net of tax [Abstract]
Accumulated Other Comprehensive Income (Loss)			0
Additional Paid In Capital [Member]
Beginning balance	888		888			793	[3]
Net Earnings			0
Cash Dividends Declared			0	[4]
Other Comprehensive Income (Loss)			0
Share-Based Compensation Expense			29	[1]
Stock Option Exercises			58
Other			8	[2]
Stock Repurchases			0
Ending balance	888		888			793	[3]
Accumulated other comprehensive income (loss), net of tax [Abstract]
Accumulated Other Comprehensive Income (Loss)			0
Retained Earnings [Member]
Beginning balance	3,372		3,372			2,879	[3]
Net Earnings			596
Cash Dividends Declared			(103)	[4]
Other Comprehensive Income (Loss)			0
Share-Based Compensation Expense			0	[1]
Stock Option Exercises			0
Other			0	[2]
Stock Repurchases			0
Ending balance	3,372		3,372			2,879	[3]
Accumulated other comprehensive income (loss), net of tax [Abstract]
Accumulated Other Comprehensive Income (Loss)			0
Accumulated Other Comprehensive Income [Member]
Beginning balance	(447)		(447)			(432)	[3]
Net Earnings			0
Cash Dividends Declared			0	[4]
Other Comprehensive Income (Loss)			(15)
Share-Based Compensation Expense			0	[1]
Stock Option Exercises			0
Other			0	[2]
Stock Repurchases			0
Ending balance	(447)		(447)			(432)	[3]
Accumulated other comprehensive income (loss), net of tax [Abstract]
Accumulated Other Comprehensive Income (Loss)			(15)
Treasury Stock [Member]
Beginning balance	(1,906)		(1,906)			(1,615)	[3]
Net Earnings			0
Cash Dividends Declared			0	[4]
Other Comprehensive Income (Loss)			0
Share-Based Compensation Expense			0	[1]
Stock Option Exercises			0
Other			1	[2]
Stock Repurchases			(292)
Ending balance	(1,906)		(1,906)			(1,615)	[3]
Accumulated other comprehensive income (loss), net of tax [Abstract]
Accumulated Other Comprehensive Income (Loss)			$ 0

[1] Includes the fair value of equity share-based awards recognized for share-based compensation

[2] Includes tax benefits relating to the difference between the amounts deductible for federal income taxes over the amounts charged to income for book value purposes credited to paid-in capital and other items.

[3] Common Stock at Par Value and Retained Earnings have been adjusted for the two-for-one stock split on October 3, 2011. For additional information, see Note 1, "Basis of Presentation" and Note 14, "Earnings and Dividends Per Share".

[4] Includes cash dividends declared, but unpaid

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Derivatives (Details) In Millions	3 Months Ended		9 Months Ended		12 Months Ended							3 Months Ended		9 Months Ended		3 Months Ended		9 Months Ended						3 Months Ended		9 Months Ended		3 Months Ended		9 Months Ended									3 Months Ended		9 Months Ended
	Sep. 30, 2011 USD ($)	Sep. 30, 2010 USD ($)	Sep. 30, 2011 USD ($)	Sep. 30, 2010 USD ($)	Dec. 31, 2010 USD ($)	Sep. 30, 2011 JPY (¥)	Sep. 30, 2011 EUR (€)	Dec. 31, 2010 JPY (¥)	Dec. 31, 2010 EUR (€)	Sep. 30, 2011 Interest Rate Swap [Member] Other Noncurrent Assets [Member] Designated as Hedging Instrument [Member] USD ($)	Dec. 31, 2010 Interest Rate Swap [Member] Other Noncurrent Assets [Member] Designated as Hedging Instrument [Member] USD ($)	Sep. 30, 2011 Commodity Contract [Member] Cash Flow Hedging [Member] USD ($)	Sep. 30, 2010 Commodity Contract [Member] Cash Flow Hedging [Member] USD ($)	Sep. 30, 2011 Commodity Contract [Member] Cash Flow Hedging [Member] USD ($)	Sep. 30, 2010 Commodity Contract [Member] Cash Flow Hedging [Member] USD ($)	Sep. 30, 2011 Commodity Contract [Member] Cash Flow Hedging [Member] Cost of Sales [Member] USD ($)	Sep. 30, 2010 Commodity Contract [Member] Cash Flow Hedging [Member] Cost of Sales [Member] USD ($)	Sep. 30, 2011 Commodity Contract [Member] Cash Flow Hedging [Member] Cost of Sales [Member] USD ($)	Sep. 30, 2010 Commodity Contract [Member] Cash Flow Hedging [Member] Cost of Sales [Member] USD ($)	Sep. 30, 2011 Commodity Contract [Member] Other Current Assets [Member] Designated as Hedging Instrument [Member] USD ($)	Dec. 31, 2010 Commodity Contract [Member] Other Current Assets [Member] Designated as Hedging Instrument [Member] USD ($)	Sep. 30, 2011 Commodity Contract [Member] Payables And Other Current Liabilities [Member] Designated as Hedging Instrument [Member] USD ($)	Dec. 31, 2010 Commodity Contract [Member] Payables And Other Current Liabilities [Member] Designated as Hedging Instrument [Member] USD ($)	Sep. 30, 2011 Foreign Exchange Contract [Member] Cash Flow Hedging [Member] USD ($)	Sep. 30, 2010 Foreign Exchange Contract [Member] Cash Flow Hedging [Member] USD ($)	Sep. 30, 2011 Foreign Exchange Contract [Member] Cash Flow Hedging [Member] USD ($)	Sep. 30, 2010 Foreign Exchange Contract [Member] Cash Flow Hedging [Member] USD ($)	Sep. 30, 2011 Foreign Exchange Contract [Member] Cash Flow Hedging [Member] Sales [Member] USD ($)	Sep. 30, 2010 Foreign Exchange Contract [Member] Cash Flow Hedging [Member] Sales [Member] USD ($)	Sep. 30, 2011 Foreign Exchange Contract [Member] Cash Flow Hedging [Member] Sales [Member] USD ($)	Sep. 30, 2010 Foreign Exchange Contract [Member] Cash Flow Hedging [Member] Sales [Member] USD ($)	Sep. 30, 2011 Foreign Exchange Contract [Member] Other Noncurrent Assets [Member] Designated as Hedging Instrument [Member] USD ($)	Dec. 31, 2010 Foreign Exchange Contract [Member] Other Noncurrent Assets [Member] Designated as Hedging Instrument [Member] USD ($)	Sep. 30, 2011 Foreign Exchange Contract [Member] Other Current Assets [Member] Designated as Hedging Instrument [Member] USD ($)	Dec. 31, 2010 Foreign Exchange Contract [Member] Other Current Assets [Member] Designated as Hedging Instrument [Member] USD ($)	Sep. 30, 2011 Foreign Exchange Contract [Member] Payables And Other Current Liabilities [Member] Designated as Hedging Instrument [Member] USD ($)	Dec. 31, 2010 Foreign Exchange Contract [Member] Payables And Other Current Liabilities [Member] Designated as Hedging Instrument [Member] USD ($)	Dec. 31, 2010 Foreign Exchange Contract [Member] Other Long-term Liabilities [Member] Designated as Hedging Instrument [Member] USD ($)	Sep. 30, 2011 Forward Starting Interest Rate Swap [Member] Cash Flow Hedging [Member] USD ($)	Sep. 30, 2010 Forward Starting Interest Rate Swap [Member] Cash Flow Hedging [Member] USD ($)	Sep. 30, 2011 Forward Starting Interest Rate Swap [Member] Cash Flow Hedging [Member] USD ($)	Sep. 30, 2010 Forward Starting Interest Rate Swap [Member] Cash Flow Hedging [Member] USD ($)	Sep. 30, 2011 Forward Starting Interest Rate Swap [Member] Other Current Assets [Member] Designated as Hedging Instrument [Member] USD ($)	Dec. 31, 2010 Forward Starting Interest Rate Swap [Member] Other Current Assets [Member] Designated as Hedging Instrument [Member] USD ($)	Sep. 30, 2011 Forward Starting Interest Rate Swap [Member] Payables And Other Current Liabilities [Member] Designated as Hedging Instrument [Member] USD ($)	Dec. 31, 2010 Forward Starting Interest Rate Swap [Member] Payables And Other Current Liabilities [Member] Designated as Hedging Instrument [Member] USD ($)
Hedging Programs [Abstract]
Objectives for Using Derivative Instruments			The Company is exposed to market risk, such as changes in currency exchange rates, raw material and energy costs, and interest rates. The Company uses various derivative financial instruments when appropriate pursuant to the Company's hedging policies to mitigate these market risk factors and their effect on the cash flows of the underlying transactions. Designation is performed on a specific exposure basis to support hedge accounting. The changes in fair value of these hedging instruments are offset in part or in whole by corresponding changes in the cash flows of the underlying exposures being hedged. The Company does not hold or issue derivative financial instruments for trading purposes.
Fair Value Hedges [Abstract]
Notional Amount of Interest Rate Fair Value Hedge Derivatives	$ 0		$ 0		$ 146
Cash Flow Hedges [Abstract]
Nonmonetary Notional amount of Derivative Energy Contracts (in million British thermal units - mmbtu)	2		2		4
Notional Amount Interest Rate Swaps For Future Debt Issuance	300		300		300
Nonmonetary Notional amount of Derivative Feedstock Contracts (in million barrels)	2		2		1
NotionalAmountOfForeignExchangeForwardandOptionContractsEur	735		735		475		548		354
NotionalAmountOfForeignExchangeForwardandOptionContractsJPY	195		195		160	14,600		12,800
Derivative Assets [Abstract]
Derivative Assets, Fair Value Hedge, Fair Value										0	2
Derivative Assets Cash Flow Hedge at Fair Value																				0	4											17	12	30	23								0	4
Derivative Asset, Fair Value, Gross Asset	47		47		45
Derivative Liabilities [Abstract]
Derivative Liability, Cash Flow Hedge, Fair Value																						5	2													8	6	9							43	0
Derivative Liability, Fair Value, Gross Liability	66		66		17
Amount After Tax of Gain (Loss) Recognized in Other Comprehensive Income On Derivatives, Effective Portion [Abstract]
Derivative Instruments, Gain (Loss) Recognized in Other Comprehensive Income (Loss), Effective Portion, Net Total	5	(33)	(28)	(25)	(10)							(3)	6	(4)	(6)									31	(30)	6	(7)												(23)	(9)	(30)	(12)
Pre-tax Amount of Gain (Loss) reclassified From Accumulated Other Comprehensive Income Into Income (Effective Portion) [Abstract]
Derivative Instruments, Gain (Loss) Reclassified From Accumulated Other Comprehensive Income, Effective Portion, Net Total	(2)	9	0	36												0	(2)	5	2									(2)	11	(5)	34
Hedging Summary [Abstract]
Unrealized Gain (Loss) on Price Risk Cash Flow Derivatives, before Tax			(18)	3
Price Risk Cash Flow Hedge Unrealized Gain (Loss) to be Reclassified During Next 12 Months	13		13
Derivative Instruments Not Designated as Hedging Instruments, Gain (Loss), Net	$ 3	$ (11)	$ (1)	$ 4

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Retirement Plans (Details) (USD $) In Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011		Sep. 30, 2010
Components of net periodic benefit cost [Abstract]
Curtailment gain for Performance Polymers segment			$ 5
Contribution to U.S. defined benefit plan			102		35
Pension Plans [Member]
Components of net periodic benefit cost [Abstract]
Service cost	11	11	34		33
Interest cost	22	21	64		63
Expected return on assets	(28)	(24)	(82)		(77)
Curtailment gain	0	0	0		0
Amortization of prior service credit	(3)	(4)	(10)		(12)
Settlement Charge	3	0	3		0
Amortization of actuarial loss	14	10	41		32
Net periodic benefit cost	19	14	50		39
Postretirement Welfare Plans [Member]
Components of net periodic benefit cost [Abstract]
Service cost	3	2	7		7
Interest cost	11	11	33		33
Expected return on assets	(1)	(1)	(2)		(2)
Curtailment gain	0	0	(5)	[1]	0
Amortization of prior service credit	(6)	(6)	(16)		(18)
Settlement Charge	0	0	0		0
Amortization of actuarial loss	4	4	11		10
Net periodic benefit cost	$ 11	$ 10	$ 28		$ 30

[1] Includes $5 million gain for the Performance Polymers segment that was sold January 31, 2011 and is included in discontinued operations. For more information, see Note 2, "Discontinued Operations and Assets Held for Sale."

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Segment Information (Details) (USD $) In Millions	3 Months Ended			9 Months Ended
	Sep. 30, 2011		Sep. 30, 2010	Sep. 30, 2011		Sep. 30, 2010		Dec. 31, 2010
Sales [Abstract]
Sales	$ 1,812		$ 1,507	$ 5,455		$ 4,379
Operating Earnings (Loss) [Abstract]
Operating Earnings (Loss)	256		266	858		701
Assets by Segment [Abstract]
Assets by Segment	6,183			6,183				5,986
CASPI [Member]
Sales [Abstract]
Sales	461		406	1,419		1,195
Operating Earnings (Loss) [Abstract]
Operating Earnings (Loss)	82		89	279		246
Assets by Segment [Abstract]
Assets by Segment	1,416			1,416				1,280
Fibers [Member]
Sales [Abstract]
Sales	334		301	955		842
Operating Earnings (Loss) [Abstract]
Operating Earnings (Loss)	92		89	266		248
Assets by Segment [Abstract]
Assets by Segment	924			924				874
PCI [Member]
Sales [Abstract]
Sales	740		534	2,163		1,557
Operating Earnings (Loss) [Abstract]
Operating Earnings (Loss)	71	[1]	74	247	[2]	177	[2]
Assets by Segment [Abstract]
Assets by Segment	1,524			1,524				1,235
Restructuring charges for severance in the PCI segment	7			7
Specialty Plastics [Member]
Sales [Abstract]
Sales	277		266	918		785
Operating Earnings (Loss) [Abstract]
Operating Earnings (Loss)	29		29	96		69
Assets by Segment [Abstract]
Assets by Segment	1,205			1,205				1,017
Restructuring charges for severance in the PCI segment						3
Other Segments [Member]
Operating Earnings (Loss) [Abstract]
Operating Earnings (Loss)	(18)		(15)	(30)	[3]	(39)
Assets by Segment [Abstract]
Positive adjustment to previously reported asset impairments and restructuring charges for Pandora				15
Corporate [Member]
Assets by Segment [Abstract]
Assets by Segment	1,114			1,114				966
Held for Sale Assets [Member]
Assets by Segment [Abstract]
Assets by Segment	$ 0			$ 0				$ 614	[4]

[1] Third quarter 2011 includes $7 million in restructuring charges primarily for severance associated with the acquisition and integration of Sterling. See Note 15, "Asset Impairments and Restructuring Charges (Gains), Net" for additional information.

[2] First nine months 2011 includes $7 million in restructuring charges primarily for severance associated with the acquisition and integration of Sterling. First nine months 2010 includes restructuring charges of $3 million, primarily for severance. See Note 15, "Asset Impairments and Restructuring Charges (Gains), Net" for additional information.

[3] First nine months 2011 includes a $15 million gain from the sale of the previously impaired methanol and ammonia assets related to the terminated Beaumont, Texas industrial gasification project. See Note 15, "Asset Impairments and Restructuring Charges (Gains), Net" for additional information.

[4] For information regarding assets held for sale, see Note 2, "Discontinued Operations and Assets Held for Sale".

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Segment Information (Tables)

9 Months Ended

Sep. 30, 2011

Segment Reporting [Abstract]

Segment Information Disclosure

	Third Quarter
(Dollars in millions)	2011		2010
Sales
CASPI	$	461	$	406
Fibers		334		301
PCI		740		534
Specialty Plastics		277		266
Total Sales	$	1,812	$	1,507

	First Nine Months
(Dollars in millions)	2011		2010
Sales
CASPI	$	1,419	$	1,195
Fibers		955		842
PCI		2,163		1,557
Specialty Plastics		918		785
Total Sales	$	5,455		4,379

	Third Quarter
(Dollars in millions)	2011			2010
Operating Earnings (Loss)
CASPI	$	82		$	89
Fibers		92			89
PCI (1)		71			74
Specialty Plastics		29			29
Total Operating Earnings by Segment		274			281
Other		(18	)		(15	)
Total Operating Earnings	$	256		$	266

(1)   Third quarter 2011 includes $7 million in restructuring charges primarily for severance associated with the acquisition and integration of Sterling.  See Note 15, "Asset Impairments and Restructuring Charges (Gains), Net" for additional information.

	First Nine Months
(Dollars in millions)	2011			2010
Operating Earnings (Loss)
CASPI	$	279		$	246
Fibers		266			248
PCI (1)		247			177
Specialty Plastics		96			69
Total Operating Earnings by Segment		888			740
Other (2)		(30	)		(39	)
Total Operating Earnings	$	858		$	701

(1) First nine months 2011 includes $7 million in restructuring charges primarily for severance associated with the acquisition and integration of Sterling.  First nine months 2010 includes restructuring charges of $3 million, primarily for severance.  See Note 15, "Asset Impairments and Restructuring Charges (Gains), Net" for additional information.

(2)   First nine months 2011 includes a $15 million gain from the sale of the previously impaired methanol and ammonia assets related to the terminated Beaumont, Texas industrial gasification project.  See Note 15, "Asset Impairments and Restructuring Charges (Gains), Net" for additional information.

	September 30,		December 31,
(Dollars in millions)	2011		2010
Assets by Segment (1)
CASPI	$	1,416	$	1,280
Fibers		924		874
PCI		1,524		1,235
Specialty Plastics		1,205		1,017
Total Assets by Segment		5,069		4,406
Corporate Assets		1,114		966
Assets Held for Sale (2)		--		614
Total Assets	$	6,183	$	5,986

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

(2)   For information regarding assets held for sale, see Note 2, "Discontinued Operations and Assets Held for Sale".