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 March 31, 2012
	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 March 31, 2012
Common Stock, par value $0.01 per share		137,958,478

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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	25
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	46
6.	Exhibits	46

SIGNATURES

Signatures 47

EXHIBIT INDEX

Exhibit Index 48

2 

   

UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS,

COMPREHENSIVE INCOME AND RETAINED EARNINGS

	First Three Months
(Dollars in millions, except per share amounts)	2012			2011
Sales	$	1,821		$	1,758
Cost of sales		1,390			1,300
Gross profit		431			458
Selling, general and administrative expenses		126			108
Research and development expenses		41			36
Operating earnings		264			314
Net interest expense		19			19
Other charges (income), net		1			(6	)
Earnings from continuing operations before income taxes		244			301
Provision for income taxes from continuing operations		85			100
Earnings from continuing operations		159			201
Earnings from discontinued operations, net of tax		--			9
Gain (loss) from disposal of discontinued operations, net of tax		(1	)		30
Net earnings	$	158		$	240
Basic earnings per share
Earnings from continuing operations	$	1.15		$	1.42
Earnings from discontinued operations		--			0.28
Basic earnings per share	$	1.15		$	1.70
Diluted earnings per share
Earnings from continuing operations	$	1.13		$	1.39
Earnings (loss) from discontinued operations		(0.01	)		0.27
Diluted earnings per share	$	1.12		$	1.66
Comprehensive Income
Net earnings	$	158		$	240
Other comprehensive income (loss), net of tax
Change in cumulative translation adjustment		15			25
Defined benefit pension and other postretirement benefit plans:
Amortization of unrecognized prior service credit included in net periodic costs		(5	)		(8	)
Derivatives and hedging:
Unrealized gain (loss) during period		10			(13	)
Reclassification adjustment for gains included in net income		(5	)		(1	)
Total other comprehensive income (loss), net of tax		15			3
Comprehensive income	$	173		$	243
Retained Earnings
Retained earnings at beginning of period	$	2,760		$	2,253
Net earnings		158			240
Cash dividends declared		(36	)		(34	)
Retained earnings at end of period	$	2,882		$	2,459

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

3 

   

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

	March 31,		December 31,
(Dollars in millions, except per share amounts)	2012		2011
	(Unaudited)
Assets
Current assets
Cash and cash equivalents	$	569	$	577
Short-term time deposits		80		200
Trade receivables, net		740		632
Miscellaneous receivables		68		72
Inventories		768		779
Other current assets		39		42
Total current assets		2,264		2,302
Properties
Properties and equipment at cost		8,479		8,383
Less:  Accumulated depreciation		5,343		5,276
Net properties		3,136		3,107
Goodwill		408		406
Other noncurrent assets		383		369
Total assets	$	6,191	$	6,184
Liabilities and Stockholders' Equity
Current liabilities
Payables and other current liabilities	$	846	$	961
Borrowings due within one year		151		153
Total current liabilities		997		1,114
Long-term borrowings		1,444		1,445
Deferred income tax liabilities		223		210
Post-employment obligations		1,395		1,411
Other long-term liabilities		107		134
Total liabilities		4,166		4,314
Stockholders' equity
Common stock ($0.01 par value – 350,000,000 shares authorized; shares issued – 197,409,655 and 196,455,131 for 2012 and 2011, respectively)		2		2
Additional paid-in capital		918		900
Retained earnings		2,882		2,760
Accumulated other comprehensive income		153		138
		3,955		3,800
Less: Treasury stock at cost (59,539,633 shares for 2012 and 2011)		1,930		1,930
Total stockholders' equity		2,025		1,870
Total liabilities and stockholders' equity	$	6,191	$	6,184

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

4 

   

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

	First Three Months
(Dollars in millions)	2012			2011
Cash flows from operating activities
Net earnings	$	158		$	240
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:
Depreciation and amortization		69			68
Gain on sale of assets		--			(52	)
Provision (benefit) for deferred income taxes		13			(40	)
Pension and other postretirement contributions (in excess of) less than expenses		(27	)		(114	)
Variable compensation (in excess of) less than expenses		(71	)		(82	)
Changes in operating assets and liabilities, net of effect of acquisitions and divestitures:
(Increase) decrease in trade receivables		(103	)		(229	)
(Increase) decrease in inventories		14			(49	)
Increase (decrease) in trade payables		(20	)		8
Other items, net		(14	)		104
Net cash provided by (used in) operating activities		19			(146	)
Cash flows from investing activities
Additions to properties and equipment		(90	)		(97	)
Proceeds from sale of short-term time deposits		120			--
Proceeds from sale of assets and investments		6			617
Acquisitions and investments in joint ventures		(10	)		--
Additions to short-term time deposits		--			(200	)
Additions to capitalized software		(1	)		(2	)
Other items, net		(35	)		(11	)
Net cash provided by (used in) investing activities		(10	)		307
Cash flows from financing activities
Net increase in commercial paper, credit facility, and other borrowings		(1	)		1
Dividends paid to stockholders		(36	)		(34	)
Treasury stock purchases		--			(74	)
Proceeds from stock option exercises and other items, net		20			70
Net cash used in financing activities		(17	)		(37	)
Effect of exchange rate changes on cash and cash equivalents		--			--
Net change in cash and cash equivalents		(8	)		124
Cash and cash equivalents at beginning of period		577			516
Cash and cash equivalents at end of period	$	569		$	640

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

5 

   

ITEM	Page
Note 1.    Basis of Presentation	7
Note 2.    Accounting Methodology Change for Pension and Other Postretirement Benefit Plans	7
Note 3.    Acquisitions and Investments in Joint Ventures	12
Note 4.    Discontinued Operations	12
Note 5.    Inventories	13
Note 6.    Payables and Other Current Liabilities	13
Note 7.    Provision for Income Taxes	13
Note 8.    Borrowings	14
Note 9.    Derivatives	15
Note 10.  Retirement Plans	17
Note 11.  Commitments	18
Note 12.  Environmental Matters	19
Note 13.  Legal Matters	20
Note 14.  Stockholders' Equity	20
Note 15.  Earnings and Dividends Per Share	21
Note 16.  Asset Impairments and Restructuring Charges (Gains), Net	21
Note 17.  Share-Based Compensation Awards	22
Note 18.  Supplemental Cash Flow Information	22
Note 19.  Segment Information	22
Note 20.  Recently Issued Accounting Standards	24

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 ("Eastman" or the "Company") in accordance and consistent with the accounting policies stated in the Company's 2011 Annual Report on Form 10-K and the change in accounting for pension and other postretirement benefit ("OPEB") plans described in Note 2, "Accounting Methodology Change for Pension and Other Postretirement Benefit Plans", and should be read in conjunction with the consolidated financial statements in Part II, Item 8 of the Company's 2011 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, sales revenue, and expenses of all majority-owned subsidiaries and joint ventures in which a controlling interest is maintained.  Eastman accounts for other joint ventures and investments where it exercises significant influence on the equity basis.  Intercompany transactions and balances are eliminated in consolidation.  Certain prior period data has been reclassified in the Consolidated Financial Statements and accompanying footnotes to conform to current period presentation.

Other comprehensive income

Beginning January 1, 2012, the Company adopted amended accounting guidance related to the presentation of other comprehensive income which became effective for reporting periods beginning after December 15, 2011.  This change has been retrospectively applied to all periods presented.

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 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.

2.   ACCOUNTING METHODOLOGY CHANGE FOR PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS

As previously reported on March 7, 2012, Eastman has elected to change its method of accounting for actuarial gains and losses for its pension and OPEB plans to a more preferable method permitted under GAAP.  The new method recognizes actuarial gains and losses in the Company's operating results in the year in which the gains and losses occur rather than amortizing them over future periods.  Eastman's management believes that this change in accounting will improve transparency of reporting of its operating results by recognizing the effects of economic and interest rate trends on pension and OPEB plan investments and assumptions in the year these actuarial gains and losses are incurred.  Historically, Eastman has recognized pension and OPEB actuarial gains and losses annually in its Consolidated Statements of Financial Position as Accumulated Other Comprehensive Income and Loss as a component of Stockholders' Equity, and then amortized these gains and losses each period in its Consolidated Statements of Earnings.  The expected return on assets component of Eastman's pension expense has historically been calculated using a five-year smoothing of asset gains and losses, and the gain or loss component of pension and OPEB expense has historically been based on amortization of actuarial gains and losses that exceed 10 percent of the greater of plan assets or projected benefit obligations over the average future service period of active employees.  Under the new method of accounting, these gains and losses are now measured annually at the plan's December 31 measurement date and recorded as a mark-to-market ("MTM") adjustment during the fourth quarter of each year and any quarters in which an interim remeasurement is triggered.  This methodology is preferable under GAAP since it aligns more closely with fair value principles and does not delay the recognition of gains and losses into future periods.  The new method has been retrospectively applied to the financial results of all periods presented.

7 

     

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Under the new method of accounting, Eastman's pension and OPEB costs consist of two elements: 1) ongoing costs recognized quarterly, which are comprised of service and interest costs, expected returns on plan assets, and amortization of prior service credits; and 2) MTM gains and losses recognized annually, in the fourth quarter of each year, resulting from changes in actuarial assumptions and the differences between actual and expected returns on plan assets and discount rates.  Any interim remeasurement triggered by a curtailment, settlement, or significant plan change is recognized as an MTM adjustment in the quarter in which such remeasurement event occurs.

Eastman's operating segment results follow internal management reporting, which is used for making operating decisions and assessing performance.  Historically, total pension and OPEB costs have been allocated to each segment.  In conjunction with the change in accounting principle, the service cost, which represents the benefits earned by active employees during the period, and amortization of prior service credits will continue to be allocated to each segment.  Interest costs, expected return on assets, and the MTM adjustment (including any interim remeasurement) for actuarial gains and losses will be included in corporate expense and not allocated to segments.  Management believes this change in expense allocation better reflects the operating results of each business.

Management has also elected to change its method of accounting for certain costs included in inventory.  Effective in first quarter 2012, the portion of pension and OPEB costs attributable to former employees (inactives) is not a component of inventoriable costs and instead is charged directly to the cost of sales line item as a period cost.  Applying this change in inventory retrospectively did not have a material impact on previously reported inventory, cost of sales, or financial results in any prior period and prior period results have not been retrospectively adjusted for this change in accounting for certain related costs included in inventory.

The cumulative effect of the change in accounting for pension and OPEB plans was a decrease in Retained Earnings as of December 31, 2011 (the most recent measurement date prior to the change) of $676 million, and an equivalent increase in Accumulated Other Comprehensive Income, leaving total stockholders' equity unchanged.  See Note 10, "Retirement Plans".

8 

     

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Following are the changes to financial statement line items as a result of the accounting methodology change for the periods presented in the accompanying unaudited consolidated financial statements:

Unaudited Condensed Consolidated Statement of Earnings
	Three Months Ended March 31, 2012
(Dollars in millions, except per share amounts, unaudited)	Previous Accounting Method		Effect of Accounting Change			As Reported
Cost of sales	$	1,405	$	(15	)	$	1,390
Gross profit		416		15			431
Selling, general and administrative expenses		130		(4	)		126
Operating earnings		245		19			264
Earnings from continuing operations before income taxes		225		19			244
Provision for income taxes from continuing operations		78		7			85
Earnings from continuing operations		147		12			159
Net earnings		146		12			158
Basic earnings per share
Earnings from continuing operations	$	1.06	$	0.09		$	1.15
Diluted earnings per share
Earnings from continuing operations	$	1.05	$	0.08		$	1.13
Diluted earnings per share		1.04		0.08			1.12
Comprehensive Income
Net earnings	$	146	$	12		$	158
Amortization of prior service credit included in net periodic costs (1)		8		(13	)		(5	)
Total other comprehensive income (loss), net of tax		28		(13	)		15
Comprehensive income		174		(1	)		173
Retained Earnings
Retained earnings at beginning of period	$	3,436	$	(676	)	$	2,760
Net earnings		146		12			158
Retained earnings at end of period		3,546		(664	)		2,882

(1)    Updated to reflect first quarter 2012 presentation of other comprehensive income.

9 

     

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Unaudited Condensed Consolidated Statement of Earnings
	Three Months Ended March 31, 2011
(Dollars in millions, except per share amounts, unaudited)	As Previously Reported (Before Accounting Change)		Effect of Accounting Change			As Adjusted (After Accounting Change)
Cost of sales	$	1,325	$	(25	)	$	1,300
Gross profit		433		25			458
Selling, general and administrative expenses		113		(5	)		108
Operating earnings		284		30			314
Earnings from continuing operations before income taxes		271		30			301
Provision for income taxes from continuing operations		89		11			100
Earnings from continuing operations		182		19			201
Earnings from discontinued operations, net of tax		8		1			9
Net earnings		220		20			240
Basic earnings per share
Earnings from continuing operations	$	1.29	$	0.13		$	1.42
Earnings from discontinued operations		0.26		0.02			0.28
Basic earnings per share	$	1.55	$	0.15		$	1.70
Diluted earnings per share
Earnings from continuing operations	$	1.26	$	0.13		$	1.39
Earnings from discontinued operations		0.26		0.01			0.27
Diluted earnings per share	$	1.52	$	0.14		$	1.66
Comprehensive Income
Net earnings	$	220	$	20		$	240
Amortization of prior service credit included in net periodic costs (1)		4		(12	)		(8	)
Total other comprehensive income (loss), net of tax		15		(12	)		3
Comprehensive income		235		8			243
Retained Earnings
Retained earnings at beginning of period	$	2,880	$	(627	)	$	2,253
Net earnings		220		20			240
Retained earnings at end of period		3,066		(607	)		2,459

(1)    Updated to reflect first quarter 2012 presentation of other comprehensive income.

10 

     

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Statements of Financial Position
	March 31, 2012
(Dollars in millions, unaudited)	Previous Accounting Method			Effect of Accounting Change			As Reported
Other noncurrent assets	$	382		$	1		$	383
Post-employment obligations		1,393			2			1,395
Retained earnings		3,546			(664	)		2,882
Accumulated other comprehensive income (loss)		(510	)		663			153

	December 31, 2011
(Dollars in millions)	As Previously Reported (Before Accounting Change)			Effect of Accounting Change			As Adjusted (After Accounting Change)
Retained earnings	$	3,436		$	(676	)	$	2,760
Accumulated other comprehensive income (loss)		(538	)		676			138

Unaudited Consolidated Statements of Cash Flows
	Three Months Ended March 31, 2012
(Dollars in millions)	Previous Accounting Method			Effect of Accounting Change			As Reported
Net earnings	$	146		$	12		$	158
Provision (benefit) for deferred income taxes		6			7			13
Pension and other postretirement contributions (in excess of) less than expenses		(16	)		(11	)		(27	)
Other items, net		(6	)		(8	)		(14	)

	Three Months Ended March 31, 2011
(Dollars in millions)	As Previously Reported (Before Accounting Change)			Effect of Accounting Change			As Adjusted (After Accounting Change)
Net earnings	$	220		$	20		$	240
Provision (benefit) for deferred income taxes		(52	)		12			(40	)
Pension and other postretirement contributions (in excess of) less than expenses (1)		(88	)		(26	)		(114	)
Other items, net (1)		110			(6	)		104

(1)   Updated to reflect first quarter 2012 presentation of cash flows from operating activities.

11 

     

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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-closing payment of $10 million to the previous shareholders of Scandiflex.  Transaction costs of $4 million associated with these acquisitions were expensed as incurred and are included in the "Selling, general and administrative expenses" line item in the Unaudited Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings.  The table below shows the final fair value purchase price allocation for these acquisitions:

	Dollars in millions
Current assets	$	33
Properties and equipment		129
Intangible assets		11
Other noncurrent assets		20
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 estimated fair value of 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 acquired Dynaloy, LLC ("Dynaloy"), 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.  On November 2, 2011, the Company acquired TetraVitae Bioscience, Inc., a developer of renewable chemicals, including bio-based butanol and acetone.  Also in 2011, the Company entered into a joint venture for a 30,000 metric ton acetate tow manufacturing facility in China, that is expected to be operational in mid-2013, with investment primarily during 2011 and 2012.

Pro forma financial information for the acquisitions is not required to be presented due to the immaterial financial impact to the Company.

4.   DISCONTINUED OPERATIONS

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.

12

     

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

	For three months ended March 31,
(Dollars in millions)	2012			2011
Sales	$	--		$	105
Earnings before income taxes		--			18
Earnings from discontinued operations, net of tax		--			9
Gain (loss) from disposal of discontinued operations, net of tax		(1	)		30

5.   INVENTORIES

	March 31,			December 31,
(Dollars in millions)	2012			2011
At FIFO or average cost (approximates current cost)
Finished goods	$	745		$	777
Work in process		229			239
Raw materials and supplies		374			353
Total inventories		1,348			1,369
LIFO Reserve		(580	)		(590	)
Total inventories	$	768		$	779

Inventories valued on the LIFO method were approximately 70 percent of total inventories as of both March 31, 2012 and December 31, 2011.

6.   PAYABLES AND OTHER CURRENT LIABILITIES

	March 31,		December 31,
(Dollars in millions)	2012		2011
Trade creditors	$	512	$	529
Accrued payrolls, vacation, and variable-incentive compensation		51		146
Accrued taxes		67		40
Post-employment obligations		57		58
Interest payable		26		26
Other		133		162
Total payables and other current liabilities	$	846	$	961

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

7.   PROVISION FOR INCOME TAXES

	First Quarter
(Dollars in millions)	2012			2011
Provision for income taxes	$	85		$	100
Effective tax rate		35	%		33	%

13 

       

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The first quarter 2012 effective tax rate was impacted by the non-deductibility of certain transaction costs related to the pending acquisition of Solutia Inc. ("Solutia").  Excluding the impact of certain non-deductible transaction costs, the Company's expected full year tax rate on reported earnings from continuing operations before income tax is approximately 33 percent.

8.   BORROWINGS

	March 31,			December 31,
(Dollars in millions)	2012			2011
Borrowings consisted of:
7% notes due 2012	$	147		$	147
3% debentures due 2015		250			250
6.30% notes due 2018		175			176
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		4			6
Total borrowings		1,595			1,598
Borrowings due within one year		(151	)		(153	)
Long-term borrowings	$	1,444		$	1,445

In December 2011, the Company entered into a $750 million revolving credit agreement (the "Credit Facility") expiring December 2016.  The Credit Facility replaces, and has terms substantially similar to, the $700 million revolving credit agreement entered into in April 2006 (the "Prior Credit Facility") which was terminated concurrently with the entry into the Credit Facility.  Borrowings under the Credit Facility are subject to interest at varying spreads above quoted market rates and a commitment fee is paid on the total unused commitment.  At March 31, 2012 and December 31, 2011, the Company had no outstanding borrowings under the Credit Facility.

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

At March 31, 2012, the Company also had a $200 million line of credit under its accounts receivable securitization agreement ("A/R Facility").  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.  At March 31, 2012 and December 31, 2011, the Company had no outstanding borrowings under the A/R Facility.

The Credit Facility and the A/R Facility contain a number of customary covenants and events of default, including the maintenance of certain financial ratios.  The Company was in compliance with all such covenants for all periods presented.  In addition, the entire amount of these facilities was available without violating applicable covenants as of March 31, 2012 and December 31, 2011.

14 

       

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

On February 29, 2012, Eastman entered into a $1.2 billion five-year Term Loan Agreement ("Term Loan Agreement") and a $2.3 billion Bridge Loan Agreement ("Bridge Loan Agreement").  Eastman intends to use financing from the Term Loan Agreement and, in certain circumstances, the Bridge Loan Agreement, to pay, in part, the cash portion of the pending acquisition of Solutia and a portion of the fees and expenses related to the acquisition, which may include the repayment of certain outstanding borrowings of Solutia.  Each of the Term Loan Agreement and the Bridge Loan Agreement contains certain customary representations, warranties and covenants, including maintenance of certain financial ratios.  The Company has been in compliance with all such covenants since February 29, 2012.

Fair Value of Borrowings

The Company has determined that its long-term borrowings at March 31, 2012 and December 31, 2011 were classified within level 1 in the fair value hierarchy as defined in the accounting policies in the Company's 2011 Annual Report on Form 10-K.  The fair value for fixed-rate borrowings is based on current market quotes.  The Company's floating-rate borrowings approximate fair value.

	March 31, 2012				December 31, 2011
(Dollars in millions)	Recorded Amount		Fair Value		Recorded Amount		Fair Value
Long-term borrowings	$	1,444	$	1,617	$	1,445	$	1,656

9.   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 2011 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 March 31, 2012 and December 31, 2011, the Company had no fair value hedges.

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.

15 

       

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

As of March 31, 2012, the total notional amounts of the Company's foreign exchange forward and option contracts were €347 million (approximately $465 million equivalent) and ¥12.5 billion (approximately $155 million equivalent), and the total notional volume hedged for raw materials was approximately 1 million barrels.  Additionally, at March 31, 2012, the total notional value of interest rate swaps for the future issuance of debt ("forward starting interest rate swaps") was $750 million as the Company entered into interest rate hedges in anticipation of the acquisition of Solutia and the expected related offering of new debt securities.  The Company had no hedges for energy at March 31, 2012.

As of December 31, 2011, the total notional amounts of the Company's foreign exchange forward and option contracts were €270 million (approximately $350 million equivalent) and ¥13.7 billion (approximately $185 million equivalent), respectively, the total notional volume hedged for energy was approximately 1 million mmbtu (million british thermal units), and the total notional volume hedged for raw materials was approximately 2 million barrels.  Additionally, the total notional value of forward starting interest rate swaps was $200 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 2011 Annual Report on Form 10-K.

The Company has determined that its derivative assets and liabilities at March 31, 2012 and December 31, 2011 were classified within 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 had 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	March 31, 2012		December 31, 2011
Cash Flow Hedges
Commodity contracts	Other current assets	$	--	$	1
Commodity contracts	Other noncurrent assets		--		1
Foreign exchange contracts	Other current assets		14		20
Foreign exchange contracts	Other noncurrent assets		11		12
Forward starting interest rate swap contracts	Other current assets		10		--
		$	35	$	34

(Dollars in millions)		Fair Value Measurements Significant Other Observable Inputs (Level 2)
Derivative Liabilities	Statement of Financial Position Location	March 31, 2012		December 31, 2011
Cash Flow Hedges
Commodity  contracts	Payables and other current liabilities	$	2	$	8
Commodity  contracts	Other long-term liabilities		1		--
Foreign exchange contracts	Payables and other current liabilities		4		7
Foreign exchange contracts	Other long-term liabilities		1		7
Forward starting interest rate swap contracts	Payables and other current liabilities		--		1
		$	8	$	23

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.

16

     

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Derivatives' Hedging Relationships

(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	Pre-tax amount of gain/(loss) reclassified from Accumulated Other Comprehensive Income into income (effective portion)
Derivatives' Cash Flow Hedging Relationships	March 31, 2012			March 31, 2011			income (effective portion)	March 31, 2012		March 31, 2011
Commodity contracts	$	(7	)	$	2		Cost of sales	$	--	$	--
Foreign exchange contracts		(1	)		(16	)	Sales		8		1
Forward starting interest rate swap contracts		13			--		Interest Expense		--		--
	$	5		$	(14	)		$	8	$	1

For three months ended March 31, 2012 and March 31, 2011, there was no material ineffectiveness with regard to the Company's qualifying hedges.

Hedging Summary

At March 31, 2012 and 2011, 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 $3 million and $5 million in losses, respectively.  If realized, approximately $21 million in gains in first quarter 2012 will be reclassified into earnings during the next 12 months, including foreign exchange contracts monetized and prospectively dedesignated in fourth quarter 2011.  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 2012 or 2011.

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 $1 million and $4 million net losses on nonqualifying derivatives during first quarter 2012 and 2011, respectively.

10.   RETIREMENT PLANS

As discussed in Note 2, "Accounting Methodology Change for Pension and Other Postretirement Benefit Plans", effective January 1, 2012, Eastman elected to change its method of accounting for actuarial gains and losses for its pension and OPEB plans.  This accounting change has been applied retrospectively to all periods presented.

As described in more detail below, Eastman offers various postretirement benefits to its employees.

DEFINED BENEFIT 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.

In August 2011, in connection with its acquisition of Sterling, the Company assumed Sterling's U.S. defined benefit pension plan.  Prior to the acquisition, the plan had been closed to new participants and was no longer accruing additional benefits.  For more information, see Note 3, "Acquisitions and Investments in Joint Ventures".

17 

       

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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.

In August 2011, in connection with its acquisition of Sterling, the Company assumed Sterling's postretirement welfare plan.  For more information, see Note 3, "Acquisitions and Investments in Joint Ventures".

Costs recognized for benefits for eligible retirees hired prior to January 1, 2007 are recognized using estimated amounts, which may change as actual costs for the year are determined.  Components of net periodic benefit cost were as follows:

	First Quarter
	Pension Plans						Postretirement Welfare Plans
(Dollars in millions)	2012			2011			2012			2011
Service cost	$	12		$	12		$	2		$	2
Interest cost		21			21			11			11
Expected return on assets		(25	)		(25	)		--			(1	)
Curtailment gain (1)		--			--			--			(7	)
Amortization of:
Prior service credit		(1	)		(3	)		(5	)		(5	)
Mark-to-market gain (2)		--			--			--			(15	)
Net periodic benefit cost	$	7		$	5		$	8		$	(15	)

(1)   Gain for the Performance Polymers segment that was sold January 31, 2011 and is included in discontinued operations.  For more information, see Note 4, "Discontinued Operations."

(2)   Mark-to-market gain due to the interim remeasurement of the OPEB plan obligation, triggered by the exit of employees associated with the sale of the PET business.

First quarter 2012 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 $25 million and $100 million to its U.S. defined benefit pension plans in first quarter 2012 and 2011, respectively.

11.   COMMITMENTS

Purchase Obligations and Lease Commitments

The Company had various purchase obligations at March 31, 2012 totaling approximately $1.5 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 $134 million over a period of several years.  Of the total lease commitments, approximately 10 percent relate to machinery and equipment, including computer and communications equipment and production equipment; approximately 50 percent relate to real property, including office space, storage facilities, and land; and approximately 40 percent relate to railcars.

18 

       

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 March 31, 2012totaled $110 million and consisted primarily of leases for railcars and company aircraft and will expire beginning in 2016.  Management believes, based on current facts and circumstances, that the likelihood of material residual guarantee payments is remote.

Variable Interest Entities

The Company has evaluated its material contractual relationships under accounting guidance for consolidation of Variable Interest Entities ("VIEs") 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.

12.   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 2011 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 at both March 31, 2012 and December 31, 2011.  At both March 31, 2012 and December 31, 2011, this reserve included $6 million related to previously closed and impaired sites, as well as sites that have been divested but for which the Company retains the environmental liability related to these sites.

Estimated future environmental expenditures for remediation costs ranged from the minimum or best estimate of $11 million to the maximum of $29 million at both March 31, 2012 and December 31, 2011.  The best estimate accrued to date over the facilities' estimated useful lives for asset retirement obligation costs were $28 million at both March 31, 2012 and December 31, 2011.

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.

19 

       

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

13.   LEGAL MATTERS

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.  In addition, certain putative shareholder class and derivative action complaints have been filed against, among others, the Company in connection with Eastman's pending acquisition of Solutia.  For additional information, see Part II, Item 1, "Legal Proceedings" in this Quarterly Report on Form 10-Q.  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.

14.   STOCKHOLDERS' EQUITY

A reconciliation of the changes in stockholders' equity for first three months 2012 is provided below:

(Dollars in millions)	Common Stock at Par Value $		Paid-in Capital $		Retained Earnings $			Accumulated Other Comprehensive Income $		Treasury Stock at Cost $			Total Stockholders' Equity $
Balance at December 31, 2011 (1) (2)		2		900		2,760			138		(1,930	)		1,870
Net Earnings		--		--		158			--		--			158
Cash Dividends Declared (3)		--		--		(36	)		--		--			(36	)
Other Comprehensive Income		--		--		--			15		--			15
Share-Based Compensation Expense (4)		--		7		--			--		--			7
Stock Option Exercises		--		7		--			--		--			7
Other (5)		--		4		--			--		--			4
Stock Repurchases		--		--		--			--		--			--
Balance at March 31, 2012		2		918		2,882			153		(1,930	)		2,025

(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 15, "Earnings and Dividends Per Share".

(2)   Retained Earnings and Accumulated Other Comprehensive Income have been adjusted for the change in accounting methodology for pension and OPEB plans.  For additional information, see Note 2, "Accounting Methodology Change for Pension and Other Postretirement Benefit Plans".

(3)   Includes cash dividends declared, but unpaid.

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

(5)   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 Prior Service Credits for Benefit Plans (1) $			Unrealized Gains (Losses) on Derivative Instruments $			Unrealized Losses on Investments $			Accumulated Other Comprehensive Income (Loss) $
Balance at December 31, 2010 (1)		79			99			17			(1	)		194
Period change		(15	)		(21	)		(20	)		--			(56	)
Balance at December 31, 2011 (1)		64			78			(3	)		(1	)		138
Period change		15			(5	)		5			--			15
Balance at March 31, 2012		79			73			2			(1	)		153

(1)   Unrecognized Prior Service Credits for Benefit Plans have been adjusted for the change in accounting methodology for pension and OPEB plans.  For additional information, see Note 2, "Accounting Methodology Change for Pension and Other Postretirement Benefit Plans".

20 

       

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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.

15.   EARNINGS AND DIVIDENDS PER SHARE

	First Quarter
	2012		2011
Shares used for earnings per share calculation (in millions):
Basic		137.3		141.4
Diluted		140.7		144.6

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 first quarter 2012, there were no outstanding options to purchase shares of common stock excluded from the computation of diluted earnings per share.  In first 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.  There were no share repurchases in first quarter 2012.  First quarter 2011 reflects the impact of share repurchases of 1.7 million shares.

The Company declared cash dividends of $0.26 and $0.235 per share in first quarter 2012 and 2011, respectively.

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

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

The following table summarizes the changes in other asset impairments and restructuring charges and gains, the non-cash reductions attributable to asset impairments, and the cash reductions in shutdown reserves for severance costs and site closure costs paid for full year 2011 and first three months 2012:

(Dollars in millions)	Balance at January 1, 2011		Provision/ Adjustments			Non-cash Reductions		Cash Reductions			Balance at December 31, 2011
Non-cash charges	$	--	$	(15	)	$	15	$	--		$	--
Severance costs		15		7			--		(20	)		2
Total	$	15	$	(8	)	$	15	$	(20	)	$	2
	Balance at January 1, 2012		Provision/ Adjustments			Non-cash Reductions		Cash Reductions			Balance at March 31, 2012
Non-cash charges	$	--	$	--		$	--	$	--		$	--
Severance costs		2		--			--		(1	)		1
Total	$	2	$	--		$	--	$	(1	)	$	1

21 

       

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

17.   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 first quarter 2012 and 2011, approximately $9 million and $7 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 quarter 2012 and 2011 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.

For additional information regarding share-based compensation plans and awards, see Note 20, "Share-Based Compensation Plans and Awards", to the consolidated financial statements in Part II, Item 8 of the Company's 2011 Annual Report on Form 10-K.

18.   SUPPLEMENTAL CASH FLOW INFORMATION

Included in the line item "Other items, net" of the "Cash flows from operating activities" section of the Unaudited Consolidated Statements of Cash Flows are the following changes to balance sheet line items:

(Dollars in millions)	First Three Months
	2012			2011
Current assets	$	2		$	13
Other assets		12			24
Current liabilities		(3	)		90
Long-term liabilities and equity		(25	)		(23	)
Total	$	(14	)	$	104

These 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.

19.   SEGMENT INFORMATION

The Company's products and operations are currently managed and reported in four reportable operating segments -- CASPI, Fibers, PCI, and Specialty Plastics.  For additional information concerning the Company's segments' businesses and products, see Note 22, "Segment Information" to the consolidated financial statements in Part II, Item 8 of the Company's 2011 Annual Report on Form 10-K.

Research and development ("R&D"), pension and OPEB, and other expenses not identifiable to an operating segment are not included in segment operating results for any of the periods presented and are shown in the tables below as "other" operating earnings (loss). 

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 through high performance materials, advanced cellulosics, and environmentally-friendly chemistry.  These initiatives include the completion of a demonstration facility for market testing of acetylated wood, branded as Perennial WoodTM, in second half 2011 and commercial introduction in first quarter 2012 to select markets; the initial commercial introduction of the new Eastman CerfisTM technology, with anticipation that the application will be expanded nationwide by the end of 2012; and the announcement of the new EastmanTM microfiber technology.

22 

       

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

As discussed in Note 2, "Accounting Methodology Change for Pension and Other Postretirement Benefit Plans", Eastman has elected to change its method of accounting for actuarial gains and losses for its pension and OPEB plans.  The new method recognizes actuarial gains and losses in the Company's operating results in the year in which the gains and losses occur rather than amortizing them over future periods.  Historically, total pension and OPEB costs have been allocated to each segment.  In conjunction with the change in accounting principle, the service cost, which represents the benefits earned by active employees during the period, and amortization of prior service credits will continue to be allocated to each segment.  Interest costs, expected return on assets, and the MTM adjustment for pension and OPEB plans actuarial gains and losses will be included in corporate expense and not allocated to segments.  Management believes this change in expense allocation will better reflect the operating results of each business.  The following tables show for each business segment the retrospective application of this expense allocation change for each period presented.

In first quarter 2012, the Company entered into a definitive agreement to acquire Solutia, a global leader in performance materials and specialty chemicals, which is expected to close mid-year.  Included in first quarter 2012 "other" operating loss are $9 million in transaction costs related to the pending acquisition.

	First Three Months
(Dollars in millions)	2012		2011
Sales
CASPI	$	470	$	467
Fibers		323		290
PCI		736		694
Specialty Plastics		292		307
Total Sales	$	1,821	$	1,758

	First Three Months
(Dollars in millions)	2012			2011
Operating Earnings (Loss)
CASPI	$	98		$	104
Fibers		101			86
PCI		77			94
Specialty Plastics		30			35
Total Operating Earnings by Segment		306			319
Other (1)(2)
Growth initiatives		(26	)		(14	)
Pension and OPEB costs not allocated to operating segments		(7	)		9
Transaction costs related to the pending acquisition of Solutia		(9	)		--
Total Operating Earnings	$	264		$	314

(1) Research and development, pension and OPEB, and other expenses not identifiable to an operating segment are not included in segment operating results for either of the periods presented and are shown as "other" operating earnings (loss).

(2) First quarter 2011 included a $15 million MTM gain due to an interim remeasurement of the OPEB plan obligation, triggered by the exit of employees associated with the sale of the PET business.  See Note 4, "Discontinued Operations" for additional information.

23 

       

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

	March 31,		December 31,
(Dollars in millions)	2012		2011
Assets by Segment (1)
CASPI	$	1,398	$	1,373
Fibers		932		921
PCI		1,533		1,471
Specialty Plastics		1,210		1,194
Total Assets by Segment		5,073		4,959
Corporate Assets		1,118		1,225
Total Assets	$	6,191	$	6,184

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

20.   RECENTLY ISSUED ACCOUNTING STANDARDS

In December 2011, the Financial Accounting Standards Board and International Accounting Standards Board jointly issued amended accounting guidance to enhance disclosure requirements for instruments and transactions no longer eligible for offset in the statement of financial position as well as instruments and transactions subject to an agreement similar to a master netting arrangement.  This guidance is effective for reporting periods beginning on or after January 1, 2013.  The Company has concluded that no such netting has been in effect and that the change will have no impact on the Company's financial position or results of operations.

24 

       

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

ITEM	Page
Critical Accounting Estimates	26
Presentation of Non-GAAP Financial Measures	26
Overview	27
Results of Operations	28
Summary by Operating Segment	31
Summary by Customer Location	35
Liquidity, Capital Resources, and Other Financial Information	36
Recently Issued Accounting Standards	40
2012 Outlook	40
Forward-Looking Statements and Risk Factors	41

This Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") 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 2011 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.

As previously reported, Eastman has elected to change its method of accounting for actuarial gains and losses for its pension and other postretirement benefit ("OPEB") plans to a more preferable method permitted under GAAP.  The new method recognizes actuarial gains and losses in the Company's operating results in the year in which the gains and losses occur rather than amortizing them over future periods.  Under the new method of accounting, these gains and losses are now measured annually at December 31 and recorded as a mark-to-market ("MTM") adjustment during the fourth quarter of each year.  Any interim remeasurements triggered by a curtailment, settlement, or significant plan changes will be recognized as an MTM adjustment in the quarter in which such remeasurement event occurs.  The new method has been retrospectively applied to financial results of all periods presented.  For additional information, see Note 2, "Accounting Methodology Change for Pension and Other Postretirement Benefit Plans " 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 15, "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.

25 

       

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, pension and other post-employment benefits, litigation and contingent liabilities, income taxes, and purchase accounting.  The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.  Actual results may differ from these estimates under different assumptions or conditions.  The Company's management believes the critical accounting estimates described in Part II, Item 7 of the Company's 2011 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

In addition to evaluating the Company’s financial condition, results of operations, and liquidity and cash flow as reported in accordance with GAAP, management also reviews and evaluates certain alternative financial measures not prepared in accordance with GAAP.  Non-GAAP measures do not have definitions under GAAP and may be defined differently by, and not be comparable to, similarly titled measures used by other companies.  As a result, management considers and evaluates non-GAAP measures in connection with a review of the most directly comparable measure calculated in accordance with GAAP.  Management cautions investors not to place undue reliance on such non-GAAP measures, but also to consider them with the most directly comparable GAAP measure.

This MD&A includes the following non-GAAP financial measures:

·   Company other charges (income), net, earnings from continuing operations, and diluted earnings per share excluding financing costs related to the pending acquisition of Solutia Inc. ("Solutia"), described below; and

·   Company gross profit, selling, general and  administrative ("SG&A") and research and development ("R&D") expenses, operating earnings, earnings from continuing operations, and diluted earnings per share excluding transaction costs related to the pending acquisition of Solutia and OPEB plan interim MTM gain, also described below.

In first quarter 2012, the Company recognized $9 million in transaction costs (reported as SG&A expenses) and $5 million in financing costs (reported as other charges (income), net) related to the pending acquisition of Solutia.  In first quarter 2011, the Company recognized a $15 million MTM gain under the new method of accounting for actuarial gains and losses for its pension and OPEB plans due to the interim remeasurement of the OPEB plan obligation.  The exit of employees associated with the sale of the polyethylene terephthalate ("PET") business in first quarter 2011 triggered the interim MTM remeasurement.

26 

       

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Eastman management evaluates and analyzes results and the impact on the Company of strategic decisions and actions relating to, among other things, cost reduction, growth, and profitability improvement initiatives, and other non-recurring or unusual events outside of normal business and operations, by considering Company and segment financial results and measures both including and excluding certain items. The items excluded by Eastman management in its evaluation of results do not directly arise from Eastman’s core operations, and generally are expected to be of an unusual or non-recurring nature.  Specifically, as presented in this report, Eastman has excluded financing and transaction costs related to the pending acquisition of Solutia, which are expected to be non-recurring and result from an unusual transaction, and MTM pension and OPEB plan adjustments, as these adjustments arise from a change in accounting principle on a Company-wide basis retrospectively applied to all prior periods.  Because these non-recurring or non-core costs and gains may materially affect the Company’s financial condition or results in a specific period in which they are recognized, management also evaluates, and makes resource allocation and performance evaluation decisions based on, the related non-GAAP measures excluding such items.  In addition to using such measures to evaluate results in a specific period, management believes that such measures may provide more complete and consistent comparisons of the Company’s operational performance on a period-over-period historical basis and a better indication of expected future trends.  Management discloses these non-GAAP measures, and the related reconciliations, because it believes investors use these metrics in evaluating longer-term period-over-period performance, and to allow investors to better understand and evaluate the information used by management to assess the Company’s and its segments’ operating performance, make resource allocation decisions, and evaluate organizational and individual performance in determining certain performance-based compensation.

These non-GAAP financial measures and the accompanying reconciliations to the most comparable GAAP measures are presented in "Results of Operations" in this MD&A.

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

Similarly, from time to time, Eastman discloses to investors and securities analysts a measure of free cash flow, which management develops based on the non-GAAP measure cash provided by operating activities, as adjusted, described above, less the amounts of capital expenditures and dividends, as management believes such items are generally funded from available cash and, as such, should be considered in determining free cash flow.  Eastman management believes this is the appropriate metric to use to evaluate the Company’s overall ability to generate cash to fund future operations, inorganic growth opportunities, and to service the Company’s debt obligations.  Management believes this metric is useful to investors and securities analysts in order to provide them with information similar to that used by management in evaluating potential future cash available for various initiatives and because management believes investors and securities analysts often use a similar measure of free cash flow to compare the results and value, of comparable companies.

OVERVIEW

The Company generated sales revenue of $1.8 billion in both first quarters 2012 and 2011, respectively.  The increase in sales revenue was primarily due to higher selling prices in all segments which were in response to higher raw material and energy costs.  An increase in sales volume in the Performance Chemicals and Intermediates ("PCI") segment was offset by a decrease in the Specialty Plastics segment.

27 

       

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Operating earnings were $264 million in first quarter 2012 compared with $314 million in first quarter 2011.  Operating earnings in first quarter 2012 include $9 million of transaction costs related to the pending acquisition of Solutia.  Operating earnings in first quarter 2011 include a $15 million MTM gain due to an interim remeasurement of the OPEB plan obligation under the new method of accounting for actuarial gains and losses for pension and OPEB plans, triggered by the exit of employees associated with the sale of the PET business.  Operating earnings in first quarter 2012 compared to first quarter 2011 declined in all segments except the Fibers segment.

The Company generated $19 million in cash from operating activities during first three months 2012, which included $25 million cash contributed to its U.S. defined benefit pension plans, compared to $146 million cash used in operating activities during first three months 2011, which included $100 million cash contributed to its U.S. defined benefit pension plans.  The increase in cash from operating activities was primarily due to lower working capital requirements, primarily accounts receivable and inventory, and less cash used for pension plan contributions.

In the first three months of 2012 the Company progressed on both organic (internal growth) and inorganic (external growth through joint venture and acquisition) growth initiatives including:

·   expanding PCI segment capacity to support its non-phthalate plasticizer business, including retrofitting the acquired Sterling Chemicals, Inc. ("Sterling") idled plasticizer manufacturing unit and increasing capacity of 2-ethyl hexanol ("2-EH") to support expected growth in the plasticizers, coatings, and fuel additive markets;

·   completing Specialty Plastics segment capacity expansions for cyclohexane dimethanol ("CHDM"), a monomer used in the manufacture of copolyesters, and cellulose triacetate;

·   completing the formal commercial introduction of acetylated wood, branded as Perennial WoodTM, to select markets;

·   commercial introduction of the new Eastman CerfisTM technology, with anticipation that the application will be expanded nationwide by the end of 2012; and

·   entering into a definitive agreement to acquire Solutia, a global leader in performance materials and specialty chemicals, which is expected to:

o   broaden Eastman's global presence, particularly in Asia Pacific;

o   establish a combined platform with extensive organic growth opportunities through complementary technologies and business capabilities and an overlap of key end-markets; and

o   expand Eastman's portfolio of sustainable products.

RESULTS OF OPERATIONS

		First Quarter				Volume Effect	Price Effect	Product Mix Effect	Exchange Rate Effect
(Dollars in millions)		2012		2011	Change
Sales	$	1,821	$	1,758	4 %	-- %	3 %	1 %	-- %

Sales revenue in first quarter 2012 compared to first quarter 2011 increased $63 million.  The increase was primarily due to higher selling prices in all segments in response to higher raw material and energy costs.  An increase in sales volume in the PCI segment was offset by a decrease in the Specialty Plastics segment.

28 

       

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

	First Quarter
(Dollars in millions)	2012			2011			Change
Gross Profit	$	431		$	458			(6	) %
As a percentage of sales		24	%		26	%
Mark-to-market pension and other postretirement benefit adjustments		--			(12	)
Gross Profit excluding item	$	431		$	446			(3	) %
As a percentage of sales		24	%		25	%

Gross profit and gross profit as a percentage of sales in first quarter 2012 decreased in all segments except the Fibers segment.

	First Quarter
(Dollars in millions)	2012			2011			Change
Selling, General and Administrative Expenses	$	126		$	108			17	%
Research and Development Expenses		41			36			14	%
	$	167		$	144			16	%
As a percentage of sales		9	%		8	%
Transaction costs related to the pending acquisition of Solutia		(9	)		--
Mark-to-market pension and other postretirement benefit adjustments		--			3
Selling, General, and Administrative Expenses and Research and Development Expenses excluding items	$	158		$	147			7	%
As a percentage of sales		9	%		8	%

Selling, general and administrative expenses in first quarter 2012 were higher compared to first quarter 2011 primarily due to higher costs of growth and business development initiatives, including transaction costs related to the pending acquisition of Solutia and the recent market launch of Perennial WoodTM.

R&D expenses were higher for first quarter 2012 compared to first quarter 2011 due to higher R&D expenses for growth initiatives, including Eastman CerfisTM technology and EastmanTM microfiber technology.

Operating Earnings

	First Quarter
(Dollars in millions)	2012		2011			Change
Operating earnings	$	264	$	314			(16	) %
Transaction costs related to the pending acquisition of Solutia		9		--
Mark-to-market pension and other postretirement benefit adjustments		--		(15	)
Operating earnings excluding items	$	273	$	299			(9	) %

29 

       

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Net Interest Expense

	First Quarter
(Dollars in millions)	2012		2011		Change
Gross interest costs	$	23	$	23
Less:  Capitalized interest		2		2
Interest expense		21		21		--	%
Interest income		2		2
Net interest expense	$	19	$	19		--	%

Net interest expense was unchanged for first quarter 2012 compared to first quarter 2011.

For 2012, the Company expects net interest expense to remain consistent with 2011, excluding the expected impact of the pending acquisition of Solutia.

Other Charges (Income), Net

	First Quarter
(Dollars in millions)	2012			2011
Foreign exchange transaction gains	$	(1	)	$	(1	)
Solutia financing costs		5			--
Investment (gains) losses, net		(3	)		(6	)
Other, net		--			1
Other charges (income), net	$	1		$	(6	)
Solutia financing costs		(5	)		--
Other charges (income), net excluding Solutia financing costs	$	(4	)	$	(6	)

First quarter 2012 included financing costs related to the pending acquisition of Solutia.

Provision for Income Taxes

	First Quarter
(Dollars in millions)	2012			2011
Provision for income taxes	$	85		$	100
Effective tax rate		35	%		33	%

The first quarter 2012 effective tax rate was impacted by the non-deductibility of certain transaction costs related to the pending acquisition of Solutia.  Excluding the impact of certain non-deductible transaction costs, the Company's expected full year tax rate on reported earnings from continuing operations before income tax is approximately 33 percent.

30 

       

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Earnings from Continuing Operations and Diluted Earnings per Share

	First Quarter
	2012				2011
(Dollars in millions, except diluted EPS)	$		EPS		$			EPS
Earnings from continuing operations	$	159	$	1.13	$	201		$	1.39
Solutia transaction and financing costs, net of tax		13		0.09		--			--
Mark-to-market pension and other postretirement benefit adjustments, net of tax		--		--		(10	)		(0.07	)
Earnings from continuing operations excluding items, net of tax	$	172	$	1.22	$	191		$	1.32

Net Earnings and Diluted Earnings per Share

	First Quarter
	2012						2011
(Dollars in millions, except diluted EPS)	$			EPS			$		EPS
Earnings from continuing operations	$	159		$	1.13		$	201	$	1.39
Earnings from discontinued operations, net of tax		--			--			9		0.07
Gain (loss) from disposal of discontinued operations, net of tax		(1	)		(0.01	)		30		0.20
Net earnings	$	158		$	1.12		$	240	$	1.66

SUMMARY BY OPERATING SEGMENT

The Company's products and operations are currently managed and reported in four reportable operating segments -- Soatings, Adhesives, Specialty Polymers, and Inks ("CASPI"), Fibers, PCI, and Specialty Plastics.  For additional information concerning the Company's operating businesses and products,see Note 22, "Segment Information" to the consolidated financial statements in Part II, Item 8 of the Company's 2011 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, see Note 19, "Segment Information", to the Company's unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

The Company continues to explore and invest in research and development 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.  These initiatives include the commercial introduction of acetylated wood, branded as Perennial WoodTM, to select markets in first quarter 2012 and the initial commercial introduction of the new Eastman CerfisTM technology, with anticipation that the application will be expanded nationwide by the end of 2012.  Operating losses for growth initiatives were $26 million and $14 million in first quarter 2012 and first quarter 2011, respectively.  The increased losses were primarily related to expenses from the market launch of Perennial WoodTM.

31 

       

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

As discussed in Note 2, "Accounting Methodology Change for Pension and Other Postretirement Benefit Plans", to the Company's unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q, Eastman has elected to change its method of accounting for actuarial gains and losses for its pension and OPEB plans to a more preferable method permitted under GAAP.  The new method recognizes actuarial gains and losses in the Company's operating results in the year in which the gains and losses occur rather than amortizing them over future periods.  Historically, total pension and OPEB costs have been allocated to each segment.  In conjunction with the change in accounting principle, the service cost, which represents the benefits earned by active employees during the period, and amortization of prior service credits will continue to be allocated to each segment.  Interest costs, expected return on assets, and the MTM adjustment for actuarial gains and losses are now included in corporate expense and not allocated to segments.  Management believes this change in expense allocation will better reflect the operating results of each business.  The financial information disclosed in the following tables for each business segment reflects the retrospective application of this expense allocation change on each period.  Pension not allocated to operating segments was an expense of $7 million in first quarter 2012 compared to a net gain of $9 million in first quarter 2011.  Included in first quarter 2011 was a $15 million MTM gain due to an interim remeasurement of the OPEB plan obligation, triggered by the exit of employees associated with the sale of the PET business.

In first quarter 2012, the Company entered into a definitive agreement to acquire Solutia, a global leader in performance materials and specialty chemicals, which is expected to close mid-year.  Included in first quarter 2012 "other" segment operating loss was $9 million in transaction costs related to the pending acquisition.

CASPI Segment
		First Quarter
						Change
(Dollars in millions)		2012		2011		$	%
Sales	$	470	$	467	$	3	1 %
Volume effect						(3)	(1) %
Price effect						13	3 %
Product mix effect						(6)	(1) %
Exchange rate effect						(1)	-- %
Operating earnings		98		104		(6)	(6) %

Sales revenue in first quarter 2012 compared to first quarter 2011 increased slightly primarily due to higher selling prices, which were offset by an unfavorable shift in product mix.  The higher selling prices were in response to higher raw material and energy costs.  The unfavorable shift in product mix was as a result of lower sales volume in the polymers product line.  The lower sales volume was due to particularly strong sales volume in first quarter 2011 attributed to customer pre-buying in advance of price increases.

Operating earnings decreased first quarter 2012 compared to first quarter 2011, primarily due to an unfavorable shift in product mix resulting from lower sales volume in the polymers product line.

32 

       

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Fibers Segment
		First Quarter
						Change
(Dollars in millions)		2012		2011		$	%
Sales	$	323	$	290	$	33	11 %
Volume effect						5	1 %
Price effect						17	6 %
Product mix effect						11	4 %
Exchange rate effect						--	-- %
Operating earnings		101		86		15	18 %

Sales revenue increased in first quarter 2012 compared to first quarter 2011 primarily due to higher selling prices and a favorable shift in product mix.  Selling prices increased in response to higher raw material and energy costs, particularly for wood pulp.  The favorable shift in product mix was primarily due to higher acetate tow volume in Asia Pacific attributed to customer buying patterns.

Operating earnings increased in first quarter 2012 compared to first quarter 2011 primarily due to higher selling prices and the favorable shift in product mix, which were partially offset by higher raw material and energy costs.

Growth Initiatives

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

PCI Segment
		First Quarter
						Change
(Dollars in millions)		2012		2011		$	%
Sales	$	736	$	694	$	42	6 %
Volume effect						29	4 %
Price effect						3	1 %
Product mix effect						10	1 %
Exchange rate effect						--	-- %
Operating earnings		77		94		(17)	(18) %

Sales revenue increased in first quarter 2012 compared to first quarter 2011 primarily due to higher sales volume in the U.S., mainly for acetyl products.

33 

       

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Operating earnings decreased in first quarter 2012 compared to first quarter 2011 with the decline primarily in Asia Pacific due to lower selling prices attributed to weakened market demand primarily for olefin derivatives and higher raw material and energy costs.  In addition, increased operating earnings in the U.S. primarily due to the benefit of producing versus purchasing olefins were offset by lower operating earnings in Europe attributed to weakened market demand and higher raw material and energy costs.

Growth Initiatives

In third quarter 2011, the Company acquired Sterling, a single site North American petrochemical producer.  The acquisition of Sterling will allow an idled plasticizer unit to be retrofitted to produce non-phthalate plasticizers, with the first of two phases expected to be online in the first half of 2012 and the second phase to be determined at a later date based on demand.  Also, in third quarter 2011, the Company acquired Scandiflex do Brasil S.A. Indústrias Químicas ("Scandiflex"), a manufacturer of plasticizers located in São Paulo, Brazil.  The Company also plans to increase capacity of 2-EH to support expected growth in the plasticizers, coatings, and fuel additive markets.  This capacity is expected to be operational in second quarter 2012.

To further improve its competitive cost position over purchasing olefins in the North American market, the Company restarted a previously idled cracking unit at the Longview, Texas facility in 2010.  This restart was prompted by a favorable shift in market conditions for olefins raw materials that is expected to continue over the next several years.  The Company has three operating cracking units as well as a fourth cracking unit which is currently shutdown.  The Company continues to evaluate options to further improve its olefin cost position, including a propylene purchase agreement.

Specialty Plastics Segment
		First Quarter
						Change
(Dollars in millions)		2012		2011		$	%
Sales	$	292	$	307	$	(15)	(5) %
Volume effect						(27)	(9) %
Price effect						15	5 %
Product mix effect						(3)	(1) %
Exchange rate effect						--	-- %
Operating earnings		30		35		(5)	(14) %

Sales revenue decreased in first quarter 2012 compared to first quarter 2011 primarily due to lower sales volume partially offset by higher selling prices.  The decrease in sales volume, mainly in Asia Pacific, was attributed to weakened demand for cellulosic plastics sold into the liquid crystal display ("LCD") and consumer durable goods markets.  The higher selling prices were in response to higher raw material and energy costs, particularly for paraxylene.

Operating earnings decreased in first quarter 2012 compared to first quarter 2011 primarily due to lower sales volume and resulting lower capacity utilization, and higher raw material and energy costs, which were partially offset by higher selling prices.

34 

       

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Growth Initiatives

The Company added another 30,000 metric tons of resin capacity at its facility in Kingsport, Tennessee for TritanTM copolyester polymer, which was operational in early 2012.  The Company has recently completed an expansion of its capacity for CHDM, a monomer used in the manufacture of copolyesters, in two phases with the first operational in fourth quarter 2011 and the second operational in first quarter 2012.  The Company also recently completed an expansion of its cellulose triacetate capacity, with the new capacity operational in second quarter 2012.  Eastman expects that the decrease in segment sales volume is a temporary slowdown and expects growth to resume in the long-term.

SUMMARY BY CUSTOMER LOCATION

    Sales Revenue

	First Quarter
(Dollars in millions)	2012		2011		Change			Volume Effect			Price Effect			Product Mix Effect			Exchange Rate Effect
United States and Canada	$	1,002	$	918		9	%		4	%		3	%		2	%		--	%
Asia Pacific		388		397		(2	) %		(4	) %		2	%		--	%		--	%
Europe, Middle East, and Africa		346		355		(2	) %		(5	) %		4	%		--	%		(1	) %
Latin America		85		88		(3	) %		(1	) %		2	%		(4	) %		--	%
	$	1,821	$	1,758		4	%		--	%		3	%		1	%		--	%

Sales revenue in the United States and Canada increased in first quarter 2012 compared to first quarter 2011 primarily due to higher sales volume, as higher sales volume in the PCI and CASPI segments more than offset lower sales volume in the Specialty Plastics and Fibers segments.  The economies of the United States and Canada benefited from improvements in employment, consumer confidence, and the housing and transportation markets.

Sales revenue in Asia Pacific decreased in first quarter 2012 compared to first quarter 2011 primarily due to lower sales volume.  Lower sales volume in the polymers product lines in the CASPI segment and demand for cellulosic plastics sold into the LCD and consumer durable goods markets in the Specialty Plastics segment are attributed to weakened demand in China.  This lower sales volume was partially offset by higher sales volume for the Fibers segment as it benefited from customer buying patterns for acetate tow sales.

Sales revenue in Europe, Middle East, and Africa decreased in first quarter 2012 compared to first quarter 2011 primarily due to lower sales volume more than offsetting higher selling prices in all segments.  The lower sales volume was attributed to economic uncertainty.

Sales revenue in Latin America decreased in first quarter 2012 compared to first quarter 2011 primarily due to lower olefin-derivative sales volume despite the third quarter 2011 acquisition of Scandiflex.  Lower sales volume was primarily due to less production during the capacity expansion of 2-EH.

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 2011 Annual Report on Form 10-K and "Forward-Looking Statements and Risk Factors" of this Quarterly Report on Form 10-Q.

35 

       

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

LIQUIDITY, CAPITAL RESOURCES, AND OTHER FINANCIAL INFORMATION

Cash Flows

	First Three Months
(Dollars in millions)	2012			2011
Net cash provided by (used in)
Operating activities	$	19		$	(146	)
Investing activities		(10	)		307
Financing activities		(17	)		(37	)
Effect of exchange rate changes on cash and cash equivalents		--			--
Net change in cash and cash equivalents		(8	)		124
Cash and cash equivalents at beginning of period		577			516
Cash and cash equivalents at end of period	$	569		$	640

Cash provided by operating activities increased $165 million in first quarter 2012 compared with first quarter 2011.  The increase was primarily due to lower working capital requirements, primarily accounts receivable and inventory, and lower contributions to the U.S. defined benefit pension plans ($25 million in first quarter 2012; $100 million in first quarter 2011).  The increase in accounts receivable was less in 2012 due to a lower increase in sales in first quarter 2012 as compared with first quarter 2011.  Inventories remained relatively unchanged in first quarter 2012 as compared with an increase in inventories in first quarter 2011 primarily due to higher raw material and energy costs.

Cash used in investing activities increased $317 million in first quarter 2012 compared with first quarter 2011.  The increase was primarily because of $615 million cash from the sale of the PET business in first quarter 2011 partially offset by a change in short-term time deposits.  In first quarter 2011 the Company invested $200 million in short-term time deposits having staggered maturities between three and ten months at the investment date.  In first quarter 2012 the Company received $120 million from the sale of a portion of these short-term time deposits.  Cash used for additions to properties and equipment was $90 million in first quarter 2012 and $97 million in first quarter 2011, respectively.

Cash used in financing activities decreased $20 million in first quarter 2012 compared with first quarter 2011.  The decrease was primarily due to lower share repurchases partially offset by lower proceeds from stock option exercises and financing payments related to the pending acquisition of Solutia of approximately $16 million.  The payment of dividends ($36 million in first quarter 2012 and $34 million in first quarter 2011) is also reflected in financing activities in all periods.

Excluding the expected impact of the pending acquisition of Solutia in 2012, the Company expects capital expenditures to be approximately $400 million and U.S. defined benefit pension plan funding of $100 million.  Assuming the pending acquisition of Solutia is completed in mid-2012, the priorities for uses of available cash in 2012 are expected to be payment of the quarterly cash dividend, repayment of debt, pension funding, and funding targeted growth initiatives.

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 March 31, 2012 and December 31, 2011 as follows:

	March 31,		December 31,
(Dollars in millions)	2012		2011
Cash and cash equivalents	$	569	$	577
Short-term time deposits		80		200
Total cash and cash equivalents and short-term time deposits	$	649	$	777

In addition, at March 31, 2012, the Company had access to the sources of liquidity described below.

In December 2011, the Company entered into a $750 million revolving credit agreement (the "Credit Facility") expiring December 2016.  The Credit Facility replaces, and has terms substantially similar to, the $700 million revolving credit agreement entered into in April 2006 (the "Prior Credit Facility") which was terminated concurrently with the entry into the Credit Facility.  Borrowings under the Credit Facility are subject to interest at varying spreads above quoted market rates and a commitment fee is paid on the total unused commitment.  At March 31, 2012 and at December 31, 2011, the Company had no outstanding borrowings under the Credit Facility.

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

At March 31, 2012, the Company also had a $200 million line of credit under its accounts receivable securitization agreement ("A/R Facility").  The A/R Facility was amended in April 2012 to increase the principal amount to $250 million and the term from one year to three years.  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.  At March 31, 2012 and December 31, 2011, the Company had no outstanding borrowings under the A/R Facility.

The Credit Facility and the A/R Facility contain a number of customary covenants and events of default, including the maintenance of certain financial ratios.  The Company was in compliance with all such covenants for all periods presented.  In addition, the entire amount of these facilities was available without violating applicable covenants as of March 31, 2012 and December 31, 2011.

On February 29, 2012, Eastman entered into a $1.2 billion five-year Term Loan Agreement ("Term Loan Agreement") and a $2.3 billion Bridge Loan Agreement ("Bridge Loan Agreement").  Eastman intends to use financing from the Term Loan Agreement and, in certain circumstances, the Bridge Loan Agreement, to pay, in part, the cash portion of the pending acquisition of Solutia and a portion of the fees and expenses related to the acquisition, which may include the repayment of certain outstanding borrowings of Solutia.  In addition, Eastman expects to offer new debt securities prior to or following the completion of the acquisition.  The commitments of the lenders under the Bridge Loan Agreement will be reduced on a dollar-for-dollar basis by any proceeds Eastman receives from any offering of debt securities it may undertake.  Each of the Term Loan Agreement and the Bridge Loan Agreement contains certain customary representations, warranties and covenants, including maintenance of certain financial ratios.  The Company has been in compliance with all such covenants since February 29, 2012.

For more information regarding interest rates, refer to Note 8, "Borrowings", to the Company's unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

37 

       

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

In first three months 2012, the Company made $25 million in contributions to its U.S. defined benefit pension plans.  The Company expects to make total cash contributions of $100 million to its U.S. defined benefit pension plans in 2012, of which $70 million is the minimum required cash contribution under the Employee Retirement Income Security Act of 1974, as amended, and the Internal Revenue Code of 1986, as amended.  In 2011, the Company made $102 million in contributions to its U.S. defined benefit pension plans.  Excess contributions made in 2011 and those anticipated for 2012 are made by management in order to keep the plans' funded status above 80 percent under the funding provisions of the Pension Protection Act to avoid partial benefit restrictions on accelerated forms of payment.

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.

Capital Expenditures

Capital expenditures were $90 million and $97 million in first three months 2012 and 2011 respectively.  The expenditures in first three months 2012 were primarily due to capital spending on organic growth initiatives, particularly in the PCI and the Specialty Plastics segments.  The expenditures in first three months 2011 were primarily due to capital spending on organic growth initiatives, particularly in the Specialty Plastics, CASPI, and PCI segments.  Excluding the expected impact of the pending acquisition of Solutia, the Company expects that 2012 capital spending will be approximately $400 million.

Other Commitments

At March 31, 2012, 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 had $147 million principal amount of 7% notes maturing in second quarter 2012, which were paid in April 2012.  See Note 8, "Borrowings", to the Company's unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

The Company had various purchase obligations at March 31, 2012 totaling approximately $1.5 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, see Note 11, "Commitments", to the Company's unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

In addition, the Company had other liabilities at March 31, 2012 totaling approximately $1.5 billion primarily related to pension, retiree medical, other post-employment obligations, and environmental reserves.

38 

       

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

The obligations 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 (b)
2012	$	147	$	4	$	64	$	207	$	24	$	158	$	604
2013		--		--		81		303		27		51		462
2014		--		--		81		73		17		52		223
2015		250		--		82		148		15		56		551
2016				--		74		140		14		67		295
2017 and beyond		1,194		--		454		615		37		1,080		3,380
Total	$	1,591	$	4	$	836	$	1,486	$	134	$	1,464	$	5,515

(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.

(b)   Not included in the above table is the expected payment of approximately $2.7 billion in cash in order to complete the pending Solutia acquisition or any obligations to be assumed upon completion of the pending acquisition of Solutia.

Off Balance Sheet and Other Financing Arrangements

If certain operating leases are terminated by the Company, it has guaranteed a portion of the residual value loss, if any, incurred by the lessors in disposing of the related assets.  For information on the Company's residual value guarantees, see Note 11, "Commitments", to the Company's unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

The Company has evaluated its material contractual relationships under the accounting guidance on consolidation of Variable Interest Entities ("VIEs") 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 joint venture partners, 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.  The Company's current other guarantees include guarantees relating primarily to intellectual property, environmental matters, and other indemnifications and have arisen in the normal course of business.  The ultimate effect on future financial results is not subject to reasonable estimation because considerable uncertainty exists as to the final outcome of these claims, if they were to occur.  These other guarantees have terms of between 1 and 15 years with the maximum potential future payments of approximately $80 million in the aggregate, with none of these guarantees individually significant to the Company's operating results, financial position, or liquidity.  The Company's current expectation is that future payment or performance related to the non-performance of other guarantees is considered remote.

39 

       

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

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 15, "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 March 31, 2012, a total of 4,757,639 shares of common stock have been repurchased under this authorization for a total amount of approximately $202 million.

The Company did not repurchase any shares of common stock during first quarter 2012.

Dividends

The Company declared cash dividends of $0.26 per share and $0.235 per share in first quarter 2012 and 2011, respectively.

RECENTLY ISSUED ACCOUNTING STANDARDS

In December 2011, the Financial Accounting Standards Board and International Accounting Standards Board jointly issued amended accounting guidance to enhance disclosure requirements for instruments and transactions no longer eligible for offset in the statement of financial position as well as instruments and transactions subject to an agreement similar to a master netting arrangement.  It is effective for reporting periods beginning on or after January 1, 2013.  The Company has concluded that no such netting was in effect and that the change will not have a material impact on the Company's financial position or results of operations.

2012 OUTLOOK

The Company expects to benefit from the strength of its businesses based on modest global economic growth and aided by the full year integration of 2011 acquisitions including Sterling and Scandiflex.

The Company expects less volatile market prices for raw materials and energy.

The Company expects to continue with and benefit from growth initiatives, 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 to complete the acquisition of Solutia mid-2012.  This acquisition is subject to approval by Solutia's stockholders, receipt of required regulatory approvals, and satisfaction of other customary closing conditions. 

Based upon the foregoing expectations, the Company expects full year 2012 earnings per diluted share from continuing operations to be approximately $5.30 per share, excluding acquisition-related costs and charges, asset impairments and restructuring charges, and mark-to-market pension and OPEB adjustments.

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 "2012 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; expectations regarding the completion of the pending acquisition of Solutia including our ability to achieve the expected benefits and synergies from the acquired businesses; pending and future 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 and other future restructuring, acquisition, divestiture, and consolidation activities; cost reduction and control efforts and targets; the timing of, and benefits from, the integration of and expected business and financial performance of acquired businesses; strategic initiatives and development, production, commercialization, and acceptance of new products, services and technologies and related costs; asset, business and product portfolio changes; and expected tax rates and net interest costs.

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 expectations, 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.  There also can be no assurance regarding the timing of completion of any proposed acquisitions, and the timing or actual achievement of expected benefits from, integration plans relating to, and expected synergies from, acquired businesses.  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, 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, particularly in Europe, 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.

41 

       

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

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

The Company is reliant on certain strategic raw material and energy commodities for its operations and utilizes risk management tools, including hedging, as appropriate, to mitigate short-term market fluctuations in raw material and energy costs.  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.

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 (accidental or intentional), 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, cyber attacks, 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 regarding the timing of completion of proposed acquisitions, expected benefits of proposed acquisitions, integration plans, and expected synergies therefrom.  There also can be no assurance that capital projects for growth efforts can be completed within the time or at the costs projected due, among other things, to demand for and availability of construction materials and labor and obtaining regulatory approvals and operating permits and reaching agreement on terms of key agreements and arrangements with potential suppliers and customers.  Any such delays or cost overruns or the inability to obtain such approvals or to reach such agreements on acceptable terms could negatively affect the returns from any proposed investments and projects.

42

       

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

The pending acquisition of Solutia exposes the Company to a number of risks and uncertainties, both before and after its completion, the occurrence of any of which could materially adversely affect the Company's business, financial condition, and results of operations.

In connection with Eastman's agreement to complete the pending acquisition of Solutia, and during its pendency, the Company is subject to a number of risks and uncertainties, the occurrence of any of which could have a material adverse effect on Eastman.  These risks include, but are not limited to:

·   that the parties may not be able to satisfy the conditions to the completion of the merger and that the merger may not be completed;

·   that the Company may not complete the pending acquisition of Solutia on terms contained in the merger agreement, which could impact the purchase price to be paid, assets to be acquired, covenants relating to Eastman's or Solutia's operations, or timing thereof;

·   that the Company may continue to incur significant additional costs and expend significant additional time and effort prior to the closing and if the transaction is delayed or not consummated, the Company may not be able to realize any benefit therefrom;

·   that the financing costs to complete the acquisition may be significantly higher than expected; and

·   that Solutia can require Eastman to complete the acquisition in certain situations that could result in the Company incurring significant additional costs.

In the event the Company does complete the pending acquisition of Solutia, it may become subject to a number of additional risks and uncertainties, the occurrence of any of which could have a material adverse effect on Eastman.  These risks and uncertainties include:

·   that the financial performance of the acquired businesses may be significantly worse than expected;

·   that the Company will have significant additional indebtedness as a result of the acquisition;

·   that the Company may not be able to achieve the cost, revenue, or tax synergies expected from the pending acquisition of Solutia, or that there may be delays in achieving any such synergies; and

·   that the Company may be required to expend significant additional resources in order to integrate Solutia's businesses into Eastman's.

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.

In addition to the foregoing most significant known risk factors to the Company, there may be other factors, not currently known to the Company, which could, in the future, materially adversely affect the Company, its business, financial condition, or results of operations.  The foregoing discussion of the most significant risk factors to the Company does not necessarily present them in order of importance.  This disclosure, including that under "Outlook" and "Forward-Looking Statements and Risk Factors," and other forward-looking statements and related disclosures made by the Company in this Annual 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 2011 Annual Report on Form 10-K.

ITEM 4.  CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

The Company maintains a set of disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms.  Disclosure controls and procedures include, without limitation, controls and procedures designed to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the Company's management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.  An evaluation was carried out under the supervision and with the participation of the Company's management, including the Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), of the effectiveness of the Company's disclosure controls and procedures.  Based on that evaluation, the CEO and CFO have concluded that as of March 31, 2012, the Company's disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed was accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There has been no change in the Company's internal control over financial reporting that occurred during the first quarter of 2012 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, Eastman Chemical Company ("Eastman" or the "Company") and its operations are parties to, or targets of, lawsuits, claims, investigations and proceedings, including product liability, personal injury, asbestos, patent and intellectual property, commercial, contract, environmental, antitrust, health and safety, and employment matters, which are being handled and defended in the ordinary course of business.  While the Company is unable to predict the outcome of these matters, it does not believe, based upon currently available facts, that the ultimate resolution of any such pending matters will have a material adverse effect on its overall financial condition, results of operations, or cash flows.

On February 2, 2012, a putative shareholder class and derivative action, styled Jennifer Howard v. Jeffry N. Quinn, et al., was filed against Solutia, its board of directors (the "Solutia Board") and Eastman in the Circuit Court of St. Louis County, Missouri (the "Missouri Action").  On February 7, 2012, a second putative shareholder class action, styled John C. Dewan v. Solutia Inc., was filed against Solutia, the Solutia Board, Eastman and Eastman’s subsidiary Eagle Merger Sub Corporation ("Merger Sub") in the Chancery Court of Delaware.  On February 14, 2012, two additional putative shareholder class actions, styled Joseph C. Huttemann v. Jeffry N. Quinn, et al., and David Wolfe v. Solutia Inc., et al., respectively, were filed against Solutia, the Solutia Board, Eastman and Merger Sub in the Chancery Court of Delaware (together with the putative shareholder class action filed on February 7, 2012, the "Delaware Actions").

The Missouri Action and the Delaware Actions generally allege that the Solutia Board breached its fiduciary duties to Solutia stockholders by, among other things, approving Eastman’s proposed acquisition of Solutia for allegedly inadequate consideration, following an allegedly unfair sale process, and that Eastman and Merger Sub aided and abetted the Solutia Board’s alleged breaches of fiduciary duty.  The Delaware Actions further allege that the Solutia Board breached its fiduciary duties by agreeing to terms in the Merger Agreement that favor Eastman and deter alternative bids.  The complaints in the Missouri Action and the Delaware Actions seek, among other things, an injunction against the completion of Eastman’s proposed acquisition of Solutia and attorneys’ fees and expenses incurred in connection with the action.  The complaint in the Missouri Action further seeks rescission of Eastman’s proposed acquisition of Solutia in the event it is completed, and any damages arising from the defendants’ alleged breaches.  Eastman and Merger Sub each believe that all the allegations are without merit and intend to vigorously defend themselves against the allegations in these complaints.

On February 21, 2012, the Chancery Court of Delaware entered an order consolidating the Delaware Actions (the "Consolidated Delaware Action").

On March 5, 2012, the Circuit Court of St. Louis County, Missouri entered an order staying the Missouri Action in favor of the Consolidated Delaware Action.

On March 22, 2012, plaintiffs in the Consolidated Delaware Action filed a Verified Consolidated Amended Class Action Complaint (the "Consolidated Amended Complaint"), styled In re Solutia Inc. Shareholders Litigation, which generally alleges that the Solutia Board breached its fiduciary duties to Solutia stockholders by, among other things, approving Eastman’s proposed acquisition of Solutia for allegedly inadequate consideration, following an allegedly unfair sale process, and agreeing to terms in the Merger Agreement that favor Eastman and deter alternative bids.  The Consolidated Amended Complaint also generally alleges that the Solutia Board breached its fiduciary duties to Solutia stockholders by failing to disclose in the Form S-4 registration statement filed on March 7, 2012 certain material information concerning events leading up to the announcement of the proposed acquisition and relating to the review and analysis of the transaction by Solutia management, and by the financial advisors to Solutia and the Solutia Board.  The Consolidated Amended Complaint further alleges that Eastman and Merger Sub aided and abetted the Solutia Board’s alleged breaches of fiduciary duties.  The Consolidated Amended Complaint seeks, among other things, an injunction against the completion of Eastman’s proposed acquisition of Solutia, rescission of Eastman’s proposed acquisition of Solutia in the event it is completed, any damages arising from the defendants’ alleged breaches, and costs and attorneys’ fees associated with the action.  Also on March 22, 2012, plaintiffs in the Consolidated Delaware Action filed a motion for a preliminary injunction against consummation of the merger.

45

       

On May 3, 2012, the parties to the Consolidated Delaware Action entered into a Memorandum of Understanding (the “MOU”) to provide for the settlement of all claims related to Eastman’s proposed acquisition of Solutia.  The settlement provides for, among other things, a stay of all proceedings in the Consolidated Delaware Action, including plaintiffs’ request for a preliminary injunction against consummation of Eastman’s proposed acquisition of Solutia, the inclusion of additional disclosures with respect to various aspects of Eastman’s proposed acquisition of Solutia in the proxy statement/prospectus regarding Eastman’s proposed acquisition of Solutia, and the entry of a stipulation certifying a mandatory class of all Solutia stockholders.  The settlement is subject to final documentation and court approval, and is conditioned on consummation of Eastman’s proposed acquisition of Solutia.  Under the MOU, plaintiffs’ counsel in the Consolidated Delaware Action will petition the court for an award of attorneys’ fees and expenses.  The MOU does not specify any particular fee to be awarded to plaintiffs’ counsel in the Consolidated Delaware Action, but it does require the parties to negotiate those fees and expenses in good faith.  The decision to award, or not award, the requested attorneys’ fees and expenses will be within the discretion of the Chancery Court of Delaware, and the effectiveness of the settlement is not conditioned upon the award of attorneys’ fees and expenses.  If the settlement is approved by the Chancery Court of Delaware, it will resolve and release, on behalf of the entire class of Solutia stockholders, all claims that were or could have been brought by them challenging any aspect of Eastman’s proposed acquisition of Solutia, the merger agreement, and any disclosures made in connection therewith, among other claims.

ITEM 1A.  RISK FACTORS

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

ITEM 6.  EXHIBITS

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

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SIGNATURES

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

		Eastman Chemical Company
Date:  May 10, 2012	By:	/s/ Curtis E. Espeland
		Curtis E. Espeland
		Senior Vice President and Chief Financial Officer

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	EXHIBIT INDEX	Sequential
Exhibit		Page
Number	Description	Number
2.01	Agreement and Plan of Merger, dated January 26, 2012, by and among Eastman Chemical Company, Solutia Inc. and Eagle Merger Sub Corporation (incorporated herein by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K dated January 26, 2012)
3.01	Amended and Restated Certificate of Incorporation of Eastman Chemical Company	50
3.02	Amended and Restated Bylaws of Eastman Chemical Company	57
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	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)
4.08	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)
4.09	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)
4.10	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)
4.11	Form of 4.5% Note due 2021 (incorporated herein by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K dated December 10, 2010)
10.01	April 30, 2012 Letter Amendment to $250,000,000 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, Exhibit 4.10 to the Company's Annual Report on Form 10-K for the year ended December 31, 2010, and Exhibit 4.10 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2011)	69

48 

       

	EXHIBIT INDEX	Sequential
Exhibit		Page
Number	Description	Number
10.02	Five-Year Credit Agreement, dated as of December 7, 2011 (the "New Credit Agreement"), among Eastman Chemical Company, the initial lenders named therein, and Citibank N.A., as administrative agent, Citigroup Global Markets Inc. and J.P. Morgan Securities LLC, as joint lead arrangers (incorporated herein by reference to Exhibit 10.01 to the Company's Current Report on Form 8-K dated December 6, 2011)
10.03	Five-Year Senior Term Loan Credit Agreement, dated as of February 29, 2012, by and among Eastman Chemical Company, the initial lenders named therein, Citibank, N.A., as administrative agent, Citigroup Global Markets Inc. and Barclays Capital, as joint lead arrangers, and Barclays Capital, as syndication agent (incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K dated March 6, 2012)
10.04	Senior Bridge Term Loan Credit Agreement, dated as of February 29, 2012, by and among Eastman Chemical Company, the initial lenders named therein, Citibank, N.A., as administrative agent, Citigroup Global Markets Inc. and Barclays Capital, as joint lead arrangers, Barclays Capital, as syndication agent, and Bank of America, N.A., JPMorgan Chase Bank, N.A., RBS Securities Inc. and Wells Fargo Bank, National Association, as co-arrangers (incorporated herein by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K dated March 6, 2012)
10.05	2012 Omnibus Stock Compensation Plan (incorporated herein by reference to Appendix A of the Company's 2012 Annual Meeting Proxy Statement dated March 21, 2012)
10.06	2012 Director Stock Compensation Subplan and Form of Restricted Stock Award Notice	73
10.07	Amended and Restated Eastman Executive Deferred Compensation Plan	79
12.01	Statement re: Computation of Ratios of Earnings to Fixed Charges	95
18.01	Preferability Letter of Independent Registered Public Firm	96
31.01	Rule 13a – 14(a) Certification by James P. Rogers, Chief Executive Officer, for the quarter ended March 31, 2012	97
31.02	Rule 13a – 14(a) Certification by Curtis E. Espeland, Senior Vice President and Chief Financial Officer, for the quarter ended March 31, 2012	98
32.01	Section 1350 Certification by James P. Rogers, Chief Executive Officer, for the quarter ended March 31, 2012	99
32.02	Section 1350 Certification by Curtis E. Espeland, Senior Vice President and Chief Financial Officer, for the quarter ended March 31, 2012	100
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	Presentation Linkbase Document
101.DEF	XBRL Definition Linkbase Document

49

EX-3.01

 

Exhibit 3.01

AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

OF

EASTMAN CHEMICAL COMPANY

ORIGINAL CERTIFICATE OF INCORPORATION FILED WITH SECRETARY OF STATE OF DELAWARE ON JULY 29, 1993; AMENDMENTS FILED ON DECEMBER 3, 1993 (EFFECTIVE DECEMBER 31, 1993); MAY 9, 2001 (EFFECTIVE MAY 10, 2001); MAY 6, 2010 (EFFECTIVE MAY 6, 2010); MAY 5, 2011 (EFFECTIVE MAY 5, 2011); AND MAY 3, 2012 (EFFECTIVE MAY 3, 2012)

ARTICLE I

Name

The name of the corporation is Eastman Chemical Company.

ARTICLE II

Address of Registered Office;

Name of Registered Agent

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

ARTICLE III

Purpose and Powers

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

ARTICLE IV

Capital Stock

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

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

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

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

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

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

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

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

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

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

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

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

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

Section 4.4.  Reverse/Forward Split of Common Stock.

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

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

ARTICLE V

Board of Directors

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

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

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

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(c)           exercise all such powers and do all such acts as may be exercised or done by the Corporation, subject to the provisions of the laws of the State of Delaware, this Certificate of Incorporation, and the Bylaws of the Corporation.

Section 5.2.  Number of Directors.  The number of directors constituting the Board of Directors shall be as specified in the Bylaws or fixed in the manner provided therein.

Section 5.3.  Election of Board of Directors.  Beginning at the 2012 Annual Meeting of Stockholders, the directors elected to succeed those directors whose terms expire at that meeting shall be elected to a term of office to expire at the 2013 Annual Meeting of Stockholders (with each remaining director whose term does not expire at such meeting being referred to for the remainder of such term as a “Continuing Classified Director”); at the 2013 Annual Meeting of Stockholders, the directors elected to succeed those directors whose terms expire at that meeting shall be elected to a term of office to expire at the 2014 Annual Meeting of Stockholders; and at the 2014 Annual Meeting of Stockholders, and each annual meeting of stockholders thereafter, all directors shall be elected for terms expiring at the next annual meeting of stockholders and until such director’s successor shall have been elected and qualified.

Section 5.4.  Vacancies.  Any vacancies in the Board of Directors for any reason and any newly created directorships resulting by reason of any increase in the number of directors may be filled only by the Board of Directors, acting by a majority of the remaining directors then in office, although less than a quorum, or by a sole remaining director, and any directors so appointed shall hold office until the next election of directors or, until the election of directors at the 2013 Annual Meeting of Stockholders, until the next election of the class for which such director has been chosen if such director has been appointed to serve in one of the remaining classes of directors and, in either instance, until such director’s successor is elected and qualified or earlier resigns or is removed.

Section 5.5.  Removal of Directors.  Except as may be provided in a resolution or resolutions providing for any class or series of Preferred Stock pursuant to Article IV hereof with respect to any directors elected by the holders of such class or series, any director, or the entire Board of Directors, may be removed from office at any time, with or without cause (except that Continuing Classified Directors may be removed only for cause), by the affirmative vote of the holders of a majority of the voting power of all of the shares of capital stock of the Corporation then entitled to vote generally in the election of directors, voting together as a single class.

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

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association, trust, unincorporated organization or other entity; when two or more Persons act as a partnership, limited partnership, syndicate, or other group acting in concert for the purpose of acquiring, holding, voting or disposing of securities of the Corporation, such partnership, limited partnership, syndicate or group shall also be deemed a "Person" for purposes of this Section.

ARTICLE VI

Stockholder Actions and

Meetings of Stockholders

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

ARTICLE VII

Indemnification

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

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

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

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authorized by the Board of Directors.  The right to indemnification conferred in this Article VII: (i) shall be a contract right; (ii) shall not be affected adversely to any indemnitee by any amendment of this Certificate of Incorporation with respect to any alleged action or inaction occurring prior to such amendment; and (iii) shall, subject to any requirements imposed by law and the Bylaws, include the right to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition.

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

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

ARTICLE VIII

Limitation on Liability of Directors

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

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ARTICLE IX

[Reserved.]

ARTICLE X

Amendment of Bylaws

The Board of Directors shall have power to adopt, amend, alter, change or repeal any Bylaws of the Corporation.  In addition to any requirements of the Delaware General Corporation Law (and notwithstanding the fact that a lesser percentage may be specified by the Delaware General Corporation Law), the affirmative vote of the holders of a majority of the votes cast with respect to the adoption, amendment, alteration, change or repeal of any Bylaws of the Corporation shall be required for the stockholders of the Corporation to adopt, amend, alter, change or repeal any Bylaws of the Corporation.

ARTICLE XI

Amendment of Certificate of Incorporation

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

ARTICLE XII

Severability

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

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EX-3.02

 

Exhibit 3.02

EASTMAN CHEMICAL COMPANY BYLAWS

SECTION I

Capital Stock

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

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

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

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

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

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

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SECTION II

Meetings of Stockholders

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

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

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

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

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

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

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

Section 2.6.  Organization and Procedure.  (a)  The Chairman of the Board, the Chief Executive Officer, or such other officer of the Corporation designated by a majority of the directors that the Corporation would have if there were no vacancies on the Board of Directors (the “Whole Board”), will call meetings of the stockholders to order and will act as presiding officer thereof.  Unless otherwise determined prior to the meeting by a majority of the Whole Board, the presiding officer of the meeting of the stockholders will have the right and the authority to determine and maintain the rules, regulations and procedures for the proper conduct of the meeting, including, without limitation, restricting entry to the meeting after it has commenced, maintaining order and the safety of those in attendance, opening and closing the polls for voting, dismissing business or proposals not properly submitted, limiting the time allowed for discussion of the business of the meeting, restricting the persons (other than stockholders of the Corporation or their duly appointed proxies) that may attend the meeting, and ascertaining whether any stockholder or proxy holder may be excluded from the meeting based upon any determination by the presiding officer, in his or her sole discretion, that the stockholder or proxy holder is unduly disruptive or is likely to disrupt the meeting.  The Secretary of the Corporation shall act as secretary, but in the absence of the Secretary, the presiding officer may appoint a secretary.

(b)  At an annual meeting of the stockholders, only such business will be conducted or considered as is properly brought before the meeting.  To be properly brought before an annual meeting, business must be (i) specified in the notice of meeting (or any supplement thereto) given in accordance with these bylaws, (ii) brought before the meeting by the presiding officer or by or at the direction of a majority of the Whole Board, or (iii) otherwise properly requested to be brought before the meeting by a stockholder of the Corporation in accordance with these bylaws.

(c)  At a special meeting of stockholders, only such business may be conducted or considered as is properly brought before the meeting.  To be properly brought before a special meeting, business must be (i) specified in the notice of the meeting (or any supplement thereto) given in accordance with these bylaws or (ii) brought before the meeting by the presiding officer or by or at the direction of a majority of the Whole Board.  The determination of whether any business sought to be brought before any annual or special meeting of the stockholders is properly brought before such meeting will be made by the presiding officer of the meeting.  If the presiding officer determines that any business is not properly brought before such meeting, he or she will so declare at the meeting and any such business will not be conducted or considered.

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

(b)  Only persons who are selected and recommended by the Board of Directors or the committee of the Board of Directors designated to make recommendations, or who are nominated by stockholders in accordance with the procedures set forth in this Section 2.7 (a “Stockholder Nomination”), shall be eligible for election, or qualified to serve, as directors.  Nominations of individuals for election to the Board of Directors of the Corporation at any annual meeting or any special meeting of stockholders at which directors are to be elected may be made by any stockholder of the Corporation entitled to vote for the election of directors at that meeting by compliance with the procedures set forth in this Section 2.7.  Nominations by stockholders shall be made by written notice (a "Nomination Notice"), which shall set forth (i) as to each individual nominated, (A) the name, date of birth, business address and residence address of such individual; (B) the business experience during the past five years of such nominee, including his or her principal occupations and employment during such period, the name and principal business of any corporation or other organization in which such occupations and employment were carried on, and such other information as to the nature of his or her responsibilities and level of professional competence as may be sufficient to permit assessment of his or her prior business experience; (C) whether the nominee is or has ever been at any time a director, officer or owner of 5% or more of any class of capital stock, partnership interests or other equity interest of any corporation, partnership or other entity; (D) any directorships currently held, or held within the preceding five years, by such nominee in any company with a class of securities registered pursuant to Section 12 of the Securities Exchange Act of 1934, or subject to the requirements of Section 15(d) of such Act or any company registered as an investment company under the Investment Company Act of 1940, as amended; (E) whether, in the last ten years, such nominee has been convicted in a criminal proceeding or has been subject to a judgment, order, finding or decree of any federal, state or other governmental entity, concerning any violation of federal, state or other law, or any proceeding in bankruptcy, which conviction, order, finding, decree or proceeding may be material to an evaluation of the ability or integrity of the nominee; and (F) all information relevant to a determination of the nominee's status as to "independence," including references to the criteria established by the New York Stock Exchange (or any other exchange or quotation system on which the Corporation's equity securities are then listed or quoted) and the Corporation's Corporate Governance Guidelines, in each case as in effect at the time of such Stockholder Nomination; (ii) as to the Person submitting the Nomination Notice and any Person acting in concert with such Person, (x) the name and business address of such Person, (y) the name and address of such Person as they appear on the Corporation's books (if they so appear), and (z) the class and number of shares of the Corporation that are beneficially owned by such Person; and (iii) if the Person submitting the Nomination Notice is seeking to have the nominee included as such in the Corporation’s proxy statement for the Stockholder Nomination, the information required by Rule 14a-11 under the Securities Exchange Act of 1934. A written consent to being named in a proxy statement as a nominee, and to serve as a director if elected, signed by the nominee, shall be filed with any Nomination Notice. If the presiding officer at any stockholders' meeting determines that a nomination was not made in accordance with the procedures prescribed by these Bylaws, he shall so declare to the meeting and the defective nomination shall be disregarded.

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(c)  In the case of an annual meeting of stockholders, Nomination Notices and Stockholder Proposals shall be delivered to the Secretary at the principal executive office of the Corporation no earlier than 150 days and not later than 120 days prior to the date on which the notice of the immediately preceding year's annual meeting of stockholders was first sent to the stockholders of the Corporation.  In the case of a special meeting of stockholders, Nomination Notices and Stockholder Proposals shall be delivered to the Secretary at the principal executive office of the Corporation no later than the close of business on the 15th day following the day on which notice of the date of a special meeting of stockholders was given.

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

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

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

SECTION III

Board of Directors

Section 3.1.  Number and Qualifications. The business and affairs of the Corporation shall be managed by or under the direction of its Board of Directors.  The number of directors constituting the Board of Directors shall be as authorized from time to time exclusively by a vote of a majority of the members of the Board of Directors then in office. A person who is not serving as a director shall not be eligible for nomination, appointment, or election if such person has or will have reached age 70 on the date of his or her appointment or election, and any director reaching the age of 70 during any term of office shall continue to be qualified to serve as a director only until the next annual meeting of stockholders following his or her 70th birthday; provided, however, that the Board of Directors is authorized, in circumstances it deems appropriate, to render a director then in office eligible to serve for one or more additional one year term or terms of office.

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

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

Section 3.4.  Special Meetings.  Special meetings of the full Board of Directors may be called by the Chairman of the Board, the Lead Director, or the Vice Chairman. Special meetings of the non-employee, independent directors may be called by the Lead Director. Special meetings of the Board of Directors or of the non-employee, independent directors also may be called at the request in writing of one-third of the members of the Board of Directors then in office.

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

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

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

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

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

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

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

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

SECTION IV

Chairman, Lead Director, and Committees of the Board of Directors

Section 4.1.  Chairman. The Board of Directors shall, by resolution passed by a majority of the members of the Board of Directors, designate a member of the Board of Directors to serve as Chairman. The Chairman of the Board may also be the Chief Executive Officer, or other officer of the Corporation, and shall have such powers and perform such duties as may be provided for herein, and as may be incident to the office and as may be assigned by the Board of Directors.

Section 4.2.  Lead Director.  If the Chairman is the Chief Executive Officer or other officer or employee of the Corporation or is not an independent (as determined by the Board of Directors) director, the non-employee, independent directors, by resolution passed by a majority of the non-employee, independent members of the Board of Directors, shall designate a non-employee, independent member of the Board of Directors to serve as Lead Director. The Lead Director shall have such powers and perform such duties as may be provided for herein and as may be incident to the office and as may be assigned by the non-employee, independent members of Board of Directors.

Section 4.3.  Committees. The Board of Directors shall, by resolutions passed by a majority of the members of the Board of Directors, designate members of the Board of Directors to constitute committees which shall in each case consist of such number of directors, and shall have and may execute such powers as may be determined and specified in the respective resolutions appointing them.  Any such committee may fix its rules of procedure, determine its manner of acting and the time and place, whether within or without the State of Delaware, of its meetings and specify what notice thereof, if any, shall be given, unless the Board of Directors shall otherwise by resolution provide.  Unless otherwise provided by the Board of Directors or such committee, the quorum, voting and other procedures shall be the same as those applicable to actions taken by the Board of Directors.  A majority of the members of the Board of Directors then in office shall have the power to change the membership of any such committee at any time, to fill vacancies therein and to discharge any such committee or to remove any member thereof, either with or without cause, at any time.

SECTION V

Officers

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

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

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

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

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

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

Section 5.7.  Chief Financial Officer.  The Chief Financial Officer shall act in an executive financial capacity, and assist the Chief Executive Officer in the general supervision of the Corporation’s financial policies and affairs, and shall perform all acts incident to the position of Chief Financial Officer, subject to the control of the Board of Directors.

Section 5.8.  Treasurer.  The Treasurer shall have charge of all funds of the Corporation and shall perform all acts incident to the position of Treasurer, subject to the control of the Board of Directors.

Section 5.9.  Controller.  The Controller shall serve as principal accounting officer of the Corporation, having the custody and operation of the accounting books and records of the Corporation, and shall perform all acts incident to the position of Controller, subject to the control of the Board of Directors.

Section 5.10.  Secretary.  The Secretary shall keep the minutes, and give notices, of all meetings of stockholders and directors and of such committees as directed by the Board of Directors.  The Secretary shall have charge of such books and papers as the Board of Directors may require.  The Secretary (or any Assistant Secretary) is authorized to certify copies of extracts from minutes and of documents in the Secretary’s charge and anyone may rely on such certified copies to the same effect as if such copies were originals and may rely upon any statement of fact concerning the Corporation certified by the Secretary (or any Assistant Secretary).  The Secretary shall perform all acts incident to the office of Secretary, subject to the control of the Board of Directors.

Section 5.11.  Compensation of Officers.  The officers of the Corporation shall receive such compensation for their services as the Board of Directors or the appropriate committee thereof may determine.  The Board of Directors may delegate its authority to determine compensation (other than that of the Chief Executive Officer) to designated officers of the Corporation.

Section 5.12.  Execution of Instruments.  Checks, notes, drafts, other commercial instruments, assignments, guarantees of signatures and contracts (except as otherwise provided herein or by law) shall be executed by the Chief Executive Officer or other officers or employees or agents, in any such case as the Board of Directors may direct or authorize.

Section 5.13.  Mechanical Endorsements.  The Chief Executive Officer, the Secretary, or other authorized officers may authorize any endorsement on behalf of the Corporation to be made by such mechanical means or stamps as any of such officers may deem appropriate.

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SECTION VI

Indemnification

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

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

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

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

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

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

SECTION VII

Miscellaneous

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

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

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

SECTION VIII

Amendment of Bylaws

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

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Section 8.2.  Approval of Amendments.  Notwithstanding the foregoing and anything contained in these bylaws to the contrary, these bylaws may not be amended, supplemented, or repealed by the stockholders, and no provision inconsistent in intent, operation, or effect therewith may be adopted by the stockholders, without the affirmative vote of the holders of a majority of the votes cast with respect to adoption, supplementing, or repeal of these bylaws.

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EX-10.01

Exhibit 10.01

AMENDMENT NO. 8 TO AMENDED AND RESTATED

RECEIVABLES PURCHASE AGREEMENT

This Amendment (this “Amendment”), effective as of April 30, 2012, is entered into by and among:

(a)           Eastman Chemical Financial Corporation, a Delaware corporation, as Seller and as initial Servicer (“ECFC”), and

(b)           The Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch, formerly known as The Bank of Tokyo-Mitsubishi, Ltd., New York Branch, individually as a Victory Liquidity Bank (“BTMU”), as Victory Agent (the “Victory Agent”) and as administrative agent (the “Administrative Agent”),

with respect to the Amended and Restated Receivables Purchase Agreement dated as of July 9, 2008 by and among the parties hereto (as heretofore amended, the “Existing Agreement” which, as amended hereby, is hereinafter referred to as the “Agreement”).

Unless defined elsewhere herein, capitalized terms used in this Amendment shall have the meanings assigned to such terms in the Existing Agreement.

W I T N E S S E T H :

WHEREAS, effective on the date hereof, the parties to the Existing Agreement increase the Purchase Limit under the Existing Agreement and extend the Liquidity Termination Date;

WHEREAS, concurrently with the execution of this Amendment, the parties to the Co-Agents’ Fee Letter are amending and restating the Co-Agents’ Fee Letter;

WHEREAS, effective on the date hereof, BTMU extends and increases its Commitment under the Existing Agreement; and

WHEREAS, the parties are willing to agree to such modification on the terms and subject to the conditions set forth in this Amendment;

NOW, THEREFORE, in consideration of the premises and the mutual agreements herein contained, the parties hereto hereby agree as follows:

1.Amendments to Existing Agreement.

(a)           The definition of “Co-Agents’ Fee Letter” in Exhibit I to the Existing Agreement is hereby amended and restated in its entirety to read as follows:

“Co-Agents’ Fee Letter” means that certain second amended and restated letter agreement dated as of April 30, 2012 between the Seller and BTMU, as amended, restated and/or otherwise modified from time to time.

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

“Liquidity Termination Date” means April 30, 2015.

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

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“Purchase Limit” means $250,000,000.

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

2.Representations and Warranties.

  In order to induce the other parties to agree to this Amendment, ECFC hereby represents and warrants that  (a) after giving effect to the amendments set forth in Section 1 above, the representations and warranties set forth in Section 5.1 of the Existing Agreement are true and correct in all material respects on and as of the date hereof,  and (b) no event has occurred and is continuing that constitutes a Servicer Default or Potential Servicer Default.

3.Conditions Precedent.

  This Amendment will become effective as of the date first above written upon receipt by the Administrative Agent of (a) counterparts of this Amendment, duly executed by each of the parties hereto, (b) counterparts of the Co-Agents’ Fee Letter, duly executed by ECFC and BTMU, and payment of the renewal fee referenced therein, and (c) payment of BTMU’s reasonable out of pocket expenses in connection with the preparation of the foregoing documents.

4.CHOICE OF LAW.

  THIS AMENDMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW) WITHOUT REGARD TO ANY CONFLICT OF LAW PRINCIPLES.

5.WAIVER OF JURY TRIAL.

  EACH PARTY HERETO HEREBY WAIVES TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS AMENDMENT OR THE AGREEMENT.

6.Binding Effect.

  This Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns (including any trustee in bankruptcy).  A facsimile or .pdf copy of a signed counterpart hereof shall have the same force and effect as an original.

7.Counterparts.

  This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement.

<Signature pages follow>

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

EASTMAN CHEMICAL FINANCIAL CORPORATION,

as Seller and Initial Servicer

By:                                                                

Name:

Title:

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THE BANK OF TOKYO-MITSUBISHI UFJ, LTD.,

NEW YORK BRANCH, as a Victory Liquidity Bank

By:                                                                

Name:

Title:

Commitment:  $250,000,000.00

THE BANK OF TOKYO-MITSUBISHI UFJ, LTD.,

NEW YORK BRANCH, as Victory Agent and Administrative Agent

By:                                                                

Name:

Title:

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EX-10.06

Exhibit 10.06 

EASTMAN CHEMICAL COMPANY

2012 DIRECTOR STOCK COMPENSATION SUBPLAN

(a Subplan of the 2012 Omnibus Stock Compensation Plan)

ARTICLE 1

PURPOSE

1.1.           PURPOSE. The purpose of the Plan is to attract, retain and compensate highly-qualified individuals who are not employees of Eastman Chemical Company or any of its subsidiaries or affiliates for service as members of the Board by providing them with competitive compensation and an ownership interest in the Stock of the Company.  The Company intends that the Plan will benefit the Company and its stockholders by allowing Non-Employee Directors to have a personal financial stake in the Company through an ownership interest in the Stock and will closely associate the interests of Non-Employee Directors with that of the Company’s stockholders.  The Plan replaces and supersedes the 2008 Director Long-Term Compensation Subplan of the 2007 Omnibus Long-Term Compensation Plan.

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

ARTICLE 2

DEFINITIONS

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

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

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

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

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

(e)     “Plan” means this Eastman Chemical Company 2012 Director Stock Compensation Subplan, as amended from time to time.  The Plan is a subplan of the Omnibus Plan.

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

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ARTICLE 3

ADMINISTRATION

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

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

ARTICLE 4

SHARES

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

ARTICLE 5

RESTRICTED STOCK AWARDS

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

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5.2           ANNUAL AWARD OF RESTRICTED STOCK.  Subject to share availability under the Omnibus Plan, on the date of each annual meeting of the Company’s stockholders, each Eligible Participant in service on the close of business on that date shall receive a Restricted Stock Award.  The number of shares of Restricted Stock to be awarded shall be established from time to time by the Board.  Unless and until changed by the Board, the number of shares of Restricted Stock to be awarded in each annual Restricted Stock Award for a full Plan Year shall be determined by dividing $50,000 by the Fair Market Value of one share of Stock as of the award date, and rounding up to the nearest whole share (the “Annual Restricted Stock Award”).  Such shares of Restricted Stock shall be evidenced by a written Award Notice in the form at the end of this Plan and shall be subject to such restrictions and risk of forfeiture as are described in the form of Award Notice and any other restrictions and terms determined by the Board, and shall be granted under and pursuant to the terms of the Omnibus Plan.

               5.3           VESTING.  Unless and until provided otherwise by the Board, the Initial Restricted Stock Awards and the Annual Restricted Stock Awards shall vest and all restrictions with respect thereto shall lapse only upon the earliest to occur of: (i) three (3) years from the date of grant, but only if the Non-Employee Director is still a director of the Company immediately prior to the election of directors at the annual meeting of stockholders at the end of such three-year period; (ii) the date that his or her tenure as a director of the Company terminates by reason of death, Disability, resignation effective at an annual meeting of stockholders because he or she is no longer qualified to serve as a director under Section 3.1 of the Bylaws of the Company, or for another approved reason as determined by the Committee; or (iii) the date that his or her tenure as director of the Company terminates by reason of his or her failure to be reelected as a director in an election in which he or she consented to be named as a director nominee.  If the grantee’s service as a director of the Company (whether or not in a Non-Employee Director capacity) terminates prior to the third anniversary of the date of grant other than as described in clause (ii) or (iii) of the foregoing sentence, then the grantee shall forfeit all of his or her right, title and interest in and to any unvested shares of Restricted Stock as of the date of such termination from the Board and such shares of Restricted Stock shall be reconveyed to the Company without further consideration or any act or action by the grantee.

              5.4           CHANGE IN CONTROL.

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

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

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ARTICLE 6

AMENDMENT, MODIFICATION, AND TERMINATION

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

ARTICLE 7

GENERAL PROVISIONS

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

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

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

7.4.           EFFECTIVE DATE.  The Plan was originally adopted by the Board on May 3, 2012, and became effective upon adoption of the Omnibus Plan by the Company’s stockholders on that date (the “Effective Date”).

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FORM OF NOTICE OF RESTRICTED STOCK AWARDS

UNDER THE EASTMAN CHEMICAL COMPANY

2012 DIRECTOR STOCK COMPENSATION SUBPLAN

OF THE 2012 OMNIBUS STOCK COMPENSATION PLAN

Grantee:

Number of Restricted Shares:

Date of Award:

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

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

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

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

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

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

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

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

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

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

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

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

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EX-10.07

 

Exhibit 10.07

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, and was subsequently amended and restated effective as of August 1, 2002, August 1, 2007, December 31, 2008 and August 4, 2011.  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.

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.

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

Section 1.5.     “Code” means the Internal Revenue Code of 1986, as amended.  Any reference to a specific section of the Code shall be deemed to include any successor or replacement section thereto.

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 certain administrative functions under this Plan.

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 or an Excess 401(k) Matching 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.

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Section 1.13.    “Eligible Employee” means a U.S.-based employee of the Company or any of its U.S. Subsidiaries who either:

(a)     has a “Business and Technical” salary grade classification of 49 or above, or of 105 or above, is paid on the Company’s payroll and is not party to an agreement that excludes the employee from participation in the Plan, or

(b)     has been designated by the Company’s Senior HR Executive as eligible to participate 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 and Excess 401(k) Matching 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 1.14.   “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.

Section 1.17.    “Excess 401(k) Matching Allocation” has the meaning assigned to that term in Section 2.3.

Section 1.18.    “Exchange Act” means the Securities Exchange Act of 1934, as amended.

Section 1.19.    “Final 409A Regulations” means final Treasury Regulations promulgated under Code Section 409A.

Section 1.20.    “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 1.21.    “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.

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Section 1.22.    “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 1.23.    “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 1.24.    “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 1.25.   “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 or an Excess 401(k) Matching Allocation under Section 2.3 of this Plan.

Section 1.26.    “Plan” means this amended and restated Eastman Executive Deferred Compensation Plan.

Section 1.27.    “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 1.28.    “Senior HR Executive” has the meaning assigned to that term in Section 10.1.

Section 1.29.    “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 1.30.    “Termination of Employment” means a separation from service under Code Section 409A and the Final 409A Regulations.

Section 1.31.    “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 1.32.    “U.S. Subsidiaries” means the United States subsidiaries of the Company other than those subsidiaries listed on Schedule A.

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Section 1.33.    “Valuation Date” means each business day.

Section 2.     Deferral of Compensation; Employer Allocations.

Section 2.1.     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 2.2.     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 2.3.     Excess 401(k) Matching Allocation.  For each Class Year, there shall be credited to the Account of each Eligible Employee an Excess 401(k) Matching Allocation equal in amount to (a) minus (b), where:

(a)     is the aggregate employer matching contributions that the Eligible Employee would have had contributed to his or her account under the EIP/ESOP for such Class Year if his or her Excess Compensation had been taken into account and if the provisions of Code Sections 401(k)(3), 401(m)(2) and 415 had not applied to the EIP/ESOP; and

(b)     is the aggregate employer matching contributions actually contributed to the Eligible Employee’s account under the EIP/ESOP for such Class Year.

Notwithstanding the foregoing, an Eligible Employee shall not have an Excess 401(k) Matching Allocation credited to his Account unless the Eligible Employee made the maximum deferrals under the EIP/ESOP permitted under Code Section 402(g) for such Plan Year.

Section 3.     Deferral Elections.

Section 3.1.     General.  An Eligible Employee who wishes to defer all or any portion of his or her Deferrable Amount 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.  Notwithstanding the foregoing, if the Deferrable Amount is subject to a forfeiture condition requiring the Eligible Employee to perform continuous services for a period of at least 13 months from the date the Eligible Employee obtains a legally binding right to the Deferrable Amount in order to avoid forfeiture of payment of the Deferrable Amount, the Compensation Group may permit the Eligible Employee to file a deferral election with respect to such Deferrable Amount on or before the 30th day after the Eligible Employee obtains the legally binding right to such Deferrable Amount.

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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 or Excess 401(k) Matching 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.

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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.  An Excess 401(k) Matching Allocation pursuant to Section 2.3 shall be credited to the Participant’s EDCP Account as soon as practicable following the end of the Class Year to which such Excess 401(k) Matching Allocation relates.  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.

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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.

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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 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.

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 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 8.3.     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.

(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

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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 8.4.     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 8.5.     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 8.6.     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 8.7.     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.

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(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.

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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.

90 

 

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.

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 1.13 (b), 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.

91 

 

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).

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.

92 

 

(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.

(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.

(f)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.

(g)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.

93 

 

SCHEDULE A

[intentionally blank]

94 

EX-12.01

 

Exhibit 12.01

EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES

Computation of Ratios of Earnings to Fixed Charges (1) (2)

	First Quarter
(Dollars in millions)		2012		2011
Earnings from continuing operations before income taxes	$	244	$	301
Add:
Interest expense		21		21
Appropriate portion of rental expense (3)		4		3
Amortization of capitalized interest		2		2
Earnings as adjusted	$	271	$	327
Fixed charges:
Interest expense		21		21
Appropriate portion of rental expense (3)		4		3
Capitalized interest		1		2
Total fixed charges	$	26	$	26
Ratio of earnings to fixed charges		10.4x		12.6x

(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 4, "Discontinued Operations" to the Company's consolidated financial statements in this 2012 Quarterly Report on Form 10-Q.

(2)   As previously reported on March 7, 2012, Eastman has elected to change its method of accounting for actuarial gains and losses for its pension and other postretirement benefit plans to a more preferable method permitted under accounting principles generally accepted in the United States.  The new method has been retrospectively applied to the financial results of all periods presented.  For additional information, see Note 2, "Accounting Methodology Change for Pension and Other Postretirement Benefit Plans " to the Company's consolidated financial statements in this 2012 Quarterly Report on Form 10-Q.

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

95

EX-18.01

 

Exhibit 18.01

May 10, 2012

Board of Directors of Eastman Chemical Company

200 South Wilcox Drive

Kingsport, TN 37662

Dear Directors:

We are providing this letter to you for inclusion as an exhibit to your Form 10-Q filing pursuant to Item 601 of Regulation S-K.

We have been provided a copy of the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2012.  Note 2 therein describes changes in accounting principles for pension and other postretirement benefits and inventory costing.  It should be understood that the preferability of one acceptable method of accounting over another for pension and other postretirement benefits and inventory costing has not been addressed in any authoritative accounting literature, and in expressing our concurrence below we have relied on management’s determination that these changes in accounting principles are preferable.  Based on our reading of management’s stated reasons and justification for these changes in accounting principles in the Form 10-Q, and our discussions with management as to their judgment about the relevant business planning factors relating to the changes, we concur with management that such changes represent, in the Company’s circumstances, the adoption of preferable accounting principles in conformity with Accounting Standards Codification 250, Accounting Changes and Error Corrections.

We have not audited any financial statements of the Company as of any date or for any period subsequent to December 31, 2011.  Accordingly, our comments are subject to change upon completion of an audit of the financial statements covering the period of the accounting changes.

Very truly yours,

/s/ PricewaterhouseCoopers LLP

Philadelphia, Pennsylvania

96

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:  May 10, 2012

 /s/ James P. Rogers      .

James P. Rogers

Chief Executive Officer

97

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:  May 10, 2012

  /s/ Curtis E. Espeland     .

Curtis E. Espeland

Chief Executive Officer

98

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 March 31, 2012, 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:  May 10, 2012

 /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.

99

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 March 31, 2012, 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:  May 10, 2012

 /s/ Curtis E. Espeland    .

Curtis E. Espeland

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.

100

XML

SEGMENT INFORMATION (Tables)

3 Months Ended

Mar. 31, 2012

SEGMENT INFORMATION [Abstract]

Segment Information Disclosure

	First Three Months
(Dollars in millions)	2012		2011
Sales
CASPI	$	470	$	467
Fibers		323		290
PCI		736		694
Specialty Plastics		292		307
Total Sales	$	1,821	$	1,758

	First Three Months
(Dollars in millions)	2012			2011
Operating Earnings (Loss)
CASPI	$	98		$	104
Fibers		101			86
PCI		77			94
Specialty Plastics		30			35
Total Operating Earnings by Segment		306			319
Other (1)(2)
Growth initiatives		(26	)		(14	)
Pension and OPEB costs not allocated to operating segments		(7	)		9
Transaction costs related to the pending acquisition of Solutia		(9	)		--
Total Operating Earnings	$	264		$	314

(1) Research and development, pension and OPEB, and other expenses not identifiable to an operating segment are not included in segment operating results for either of the periods presented and are shown as "other" operating earnings (loss).

(2) First quarter 2011 included a $15 million MTM gain due to an interim remeasurement of the OPEB plan obligation, triggered by the exit of employees associated with the sale of the PET business.  See Note 4, "Discontinued Operations" for additional information.

	March 31,		December 31,
(Dollars in millions)	2012		2011
Assets by Segment (1)
CASPI	$	1,398	$	1,373
Fibers		932		921
PCI		1,533		1,471
Specialty Plastics		1,210		1,194
Total Assets by Segment		5,073		4,959
Corporate Assets		1,118		1,225
Total Assets	$	6,191	$	6,184

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

XML

STOCKHOLDERS' EQUITY (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended				12 Months Ended
	Mar. 31, 2012		Mar. 31, 2011		Dec. 31, 2011		Dec. 31, 2010
Stockholders' Equity [Roll Forward]
Beginning Balance	$ 1,870
Net Earnings	158		240
Cash Dividends Declared	(36)	[1]	(34)	[1]
Other Comprehensive Income (Loss)	15		3		(56)
Share-Based Compensation Expense	7	[2]
Stock Option Exercises	7
Other	4	[3]
Stock Repurchases	0
Ending Balance	2,025				1,870
Accumulated Other Comprehensive Income Loss Net Of Tax Abstract
Cumulative Translation Adjustment	79				64		79
Unrecognized Prior Service Credits for Benefit Plans	73				78	[4]	99	[4]
Unrealized Gains (Losses) on Derivative Instruments	2				(3)		17
Unrealized Losses on Investments	(1)				(1)		(1)
Accumulated Other Comprehensive Income (Loss)	153				138		194
Cumulative Translation Adjustment	15		25		(15)
Unrecognized Prior Service Credits for Benefit Plans	(5)				(21)
Unrealized Gains (Losses) on Derivative Instruments	5		(14)		(20)
Unrealized Losses on Investments	0				0
Accumulated Other Comprehensive Income (Loss)	15		3		(56)
Common Stock [Member]
Stockholders' Equity [Roll Forward]
Beginning Balance	2	[5]
Net Earnings	0
Cash Dividends Declared	0	[1]
Other Comprehensive Income (Loss)	0
Share-Based Compensation Expense	0	[2]
Stock Option Exercises	0
Other	0	[3]
Stock Repurchases	0
Ending Balance	2
Accumulated Other Comprehensive Income Loss Net Of Tax Abstract
Accumulated Other Comprehensive Income (Loss)	0
Additional Paid In Capital [Member]
Stockholders' Equity [Roll Forward]
Beginning Balance	900
Net Earnings	0
Cash Dividends Declared	0	[1]
Other Comprehensive Income (Loss)	0
Share-Based Compensation Expense	7	[2]
Stock Option Exercises	7
Other	4	[3]
Stock Repurchases	0
Ending Balance	918
Accumulated Other Comprehensive Income Loss Net Of Tax Abstract
Accumulated Other Comprehensive Income (Loss)	0
Retained Earnings [Member]
Stockholders' Equity [Roll Forward]
Beginning Balance	2,760	[5],[6]
Net Earnings	158
Cash Dividends Declared	(36)	[1]
Other Comprehensive Income (Loss)	0
Share-Based Compensation Expense	0	[2]
Stock Option Exercises	0
Other	0	[3]
Stock Repurchases	0
Ending Balance	2,882
Accumulated Other Comprehensive Income Loss Net Of Tax Abstract
Accumulated Other Comprehensive Income (Loss)	0
Accumulated Other Comprehensive Income [Member]
Stockholders' Equity [Roll Forward]
Beginning Balance	138	[6]
Net Earnings	0
Cash Dividends Declared	0	[1]
Other Comprehensive Income (Loss)	15
Share-Based Compensation Expense	0	[2]
Stock Option Exercises	0
Other	0	[3]
Stock Repurchases	0
Ending Balance	153
Accumulated Other Comprehensive Income Loss Net Of Tax Abstract
Accumulated Other Comprehensive Income (Loss)	15
Treasury Stock [Member]
Stockholders' Equity [Roll Forward]
Beginning Balance	(1,930)
Net Earnings	0
Cash Dividends Declared	0	[1]
Other Comprehensive Income (Loss)	0
Share-Based Compensation Expense	0	[2]
Stock Option Exercises	0
Other	0	[3]
Stock Repurchases	0
Ending Balance	(1,930)
Accumulated Other Comprehensive Income Loss Net Of Tax Abstract
Accumulated Other Comprehensive Income (Loss)	$ 0

[1] Includes cash dividends declared, but unpaid.

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

[3] 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.

[4] Unrecognized Prior Service Credits for Benefit Plans have been adjusted for the change in accounting methodology for pension and OPEB plans. For additional information, see Note 2, "Accounting Methodology Change for Pension and Other Postretirement Benefit Plans".

[5] 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 15, "Earnings and Dividends Per Share".

[6] Retained Earnings and Accumulated Other Comprehensive Income (Loss) have been adjusted for the change in accounting methodology for pension and OPEB plans. For additional information, see Note 2, "Accounting Methodology Change for Pension and Other Postretirement Benefit Plans".

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DERIVATIVES Part 1 (Details)	3 Months Ended
	Mar. 31, 2012 USD ($) MMBbls MMBTU	Mar. 31, 2012 EUR (€)	Mar. 31, 2012 JPY (¥)	Dec. 31, 2011 USD ($) MMBTU MMBbls	Dec. 31, 2011 EUR (€)	Dec. 31, 2011 JPY (¥)
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.	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.	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
Cash Flow Hedges [Abstract]
Notional Amount of Foreign Exchange Forward and Option Contracts (EUR)	465,000,000	347,000,000		350,000,000	270,000,000
Notional Amount of Foreign Exchange Option Contracts (in Japanese Yen)	155,000,000		12,500,000,000	185,000,000		13,700,000,000
Nonmonetary Notional amount of Derivative Energy Contracts (in million British thermal units - mmbtu)	0	0	0	1	1	1
Nonmonetary Notional amount of Derivative Raw Material Contracts (in million barrels)	1	1	1	2	2	2
Notional Amount Interest Rate Swaps For Future Debt Issuance	$ 750,000,000			$ 200,000,000

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EARNINGS AND DIVIDENDS PER SHARE (Details) (USD $)	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011	Oct. 03, 2011
EARNINGS AND DIVIDENDS PER SHARE [Abstract]
Shares used for earnings per share calculation, Basic (in shares)	137,300,000	141,400,000
Shares used for earnings per share calculation, Diluted (in shares)	140,700,000	144,600,000
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 split.
Stock split, stock issued to stockholders of record per share held			1
Underlying options excluded from the computation of diluted earnings per share (in shares)	0	161,800
Shares repurchased (in shares)	0	1,700,000
Cash dividends declared (per share)	$ 0.26	$ 0.235

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PROVISION FOR INCOME TAXES (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
PROVISION FOR INCOME TAXES [Abstract]
Provision for income taxes from continuing operations	$ 85	$ 100
Effective tax rate (in hundredths)	35.00%	33.00%
Expected full year tax rate (in hundredths)	33.00%

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DERIVATIVES (Tables)

3 Months Ended

Mar. 31, 2012

DERIVATIVES [Abstract]

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

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	March 31, 2012		December 31, 2011
Cash Flow Hedges
Commodity contracts	Other current assets	$	--	$	1
Commodity contracts	Other noncurrent assets		--		1
Foreign exchange contracts	Other current assets		14		20
Foreign exchange contracts	Other noncurrent assets		11		12
Forward starting interest rate swap contracts	Other current assets		10		--
		$	35	$	34

(Dollars in millions)		Fair Value Measurements Significant Other Observable Inputs (Level 2)
Derivative Liabilities	Statement of Financial Position Location	March 31, 2012		December 31, 2011
Cash Flow Hedges
Commodity  contracts	Payables and other current liabilities	$	2	$	8
Commodity  contracts	Other long-term liabilities		1		--
Foreign exchange contracts	Payables and other current liabilities		4		7
Foreign exchange contracts	Other long-term liabilities		1		7
Forward starting interest rate swap contracts	Payables and other current liabilities		--		1
		$	8	$	23

Derivative Instrument Gain Loss in Statement of Financial Performance

Derivatives' Hedging Relationships

(Dollars in millions)	Amount after tax of gain/ (loss) recognized in Other Comprehensive Income on derivatives (effective portion)							Pre-tax amount of gain/(loss) reclassified from Accumulated Other Comprehensive Income into income (effective portion)
Derivatives' Cash Flow Hedging Relationships	March 31, 2012			March 31, 2011			Location of gain/(loss) reclassified from Accumulated Other Comprehensive Income into income (effective portion)	March 31, 2012		March 31, 2011
Commodity contracts	$	(7	)	$	2		Cost of sales	$	--	$	--
Foreign exchange contracts		(1	)		(16	)	Sales		8		1
Forward starting interest rate swap contracts		13			--		Interest Expense		--		--
	$	5		$	(14	)		$	8	$	1

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SHARE-BASED COMPENSATION AWARDS (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Share-based awards under employee and non-employee director compensation programs
Share-based compensation expense before tax in selling, general and administrative expenses	$ 9	$ 7
Share-based compensation net of deferred tax expense	$ 5	$ 4

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RECENTLY ISSUED ACCOUNTING STANDARDS

3 Months Ended

Mar. 31, 2012

Description Of New Accounting Pronouncements Not Yet Adopted [Abstract]

RECENTLY ISSUED ACCOUNTING STANDARDS

20.   RECENTLY ISSUED ACCOUNTING STANDARDS

In December 2011, the Financial Accounting Standards Board and International Accounting Standards Board jointly issued amended accounting guidance to enhance disclosure requirements for instruments and transactions no longer eligible for offset in the statement of financial position as well as instruments and transactions subject to an agreement similar to a master netting arrangement.  This guidance is effective for reporting periods beginning on or after January 1, 2013.  The Company has concluded that no such netting has been in effect and that the change will have no impact on the Company's financial position or results of operations.

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DERIVATIVES Part 3 (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended		12 Months Ended
	Mar. 31, 2012	Mar. 31, 2011	Dec. 31, 2011
Amount After Tax of Gain (Loss) Recognized in Other Comprehensive Income On Derivatives, Effective Portion [Abstract]
Unrealized Gains (Losses) on Derivative Instruments	$ 5	$ (14)	$ (20)
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	8	1
Hedging Summary [Abstract]
Monetized positions and mark to market in accumulated other comprehensive income before tax	(3)	(5)
Price Risk Cash Flow Hedge Unrealized Gain (Loss) to be Reclassified During Next 12 Months	21
Derivative Instruments Not Designated as Hedging Instruments, Gain (Loss), Net	(1)	(4)
Commodity Contract [Member] | Cash Flow Hedging [Member]
Amount After Tax of Gain (Loss) Recognized in Other Comprehensive Income On Derivatives, Effective Portion [Abstract]
Unrealized Gains (Losses) on Derivative Instruments	(7)	2
Commodity Contract [Member] | Cash Flow Hedging [Member] | Cost of Sales [Member]
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	0	0
Foreign Exchange Contract [Member] | Cash Flow Hedging [Member]
Amount After Tax of Gain (Loss) Recognized in Other Comprehensive Income On Derivatives, Effective Portion [Abstract]
Unrealized Gains (Losses) on Derivative Instruments	(1)	(16)
Foreign Exchange Contract [Member] | Cash Flow Hedging [Member] | Sales [Member]
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	8	1
Forward Starting Interest Rate Swap [Member] | Cash Flow Hedging [Member]
Amount After Tax of Gain (Loss) Recognized in Other Comprehensive Income On Derivatives, Effective Portion [Abstract]
Unrealized Gains (Losses) on Derivative Instruments	13	0
Forward Starting Interest Rate Swap [Member] | Cash Flow Hedging [Member] | Net Interest Expense
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	$ 0	$ 0

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ACQUISITIONS AND INVESTMENTS IN JOINT VENTURES (Details) (Eastman Chemical Company [Member], Sterling and Scandiflex Acquisitions [Member], USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2012
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-closing payment of $10 million to the previous shareholders of Scandiflex.
Acquisition, post-closure payment	10
Fair value purchase price allocation for business acquired [Abstract]
Current assets	33
Properties and equipment	129
Intangible assets	11
Other noncurrent assets	20
Goodwill	33
Current liabilities	(23)
Long-term liabilities	(70)
Total purchase price	$ 133

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ASSETS IMPAIRMENTS AND RESTRUCTURING CHARGES, NET (Tables)

3 Months Ended

Mar. 31, 2012

ASSET IMPAIRMENTS AND RESTRUCTURING CHARGES (GAINS), NET [Abstract]

Changes to restructuring reserve and related activities

The following table summarizes the changes in other asset impairments and restructuring charges and gains, the non-cash reductions attributable to asset impairments, and the cash reductions in shutdown reserves for severance costs and site closure costs paid for full year 2011 and first three months 2012:

(Dollars in millions)		Balance at January 1, 2011		Provision/ Adjustments		Non-cash Reductions		Cash Reductions		Balance at December 31, 2011
Non-cash charges	$	--	$	(15)	$	15	$	--	$	--
Severance costs		15		7		--		(20)		2
Total	$	15	$	(8)	$	15	$	(20)	$	2
		Balance at January 1, 2012		Provision/ Adjustments		Non-cash Reductions		Cash Reductions		Balance at March 31, 2012
Non-cash charges	$	--	$	--	$	--	$	--	$	--
Severance costs		2		--		--		(1)		1
Total	$	2	$	--	$	--	$	(1)	$	1

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COMMITMENTS (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2012
Purchase obligations and lease commitments [Abstract]
Purchase Obligations	$ 1,500
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	134
Percentage of Operating Lease Commitments related to machinery and equipment (in hundredths)	10.00%
Percentage of Operating Lease Commitments related to real property (in hundredths)	50.00%
Percentage of Operating Lease Commitments related to railcars (in hundredths)	40.00%
Guarantees [Abstract]
Operating Lease Residual Value Guarantees	110
Operating Lease Residual Value Guarantees Expiring in Three Years and Thereafter	$ 110

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BORROWINGS (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Dec. 31, 2011
Debt Instrument [Line Items]
Borrowings due within one year	$ (151)	$ (153)
Long-term borrowings, net of current portion	1,444	1,445
Fair Value of Borrowings [Abstract]
Long-term Borrowings, Recorded Amount	1,444	1,445
Long-term Borrowings, Fair Value	1,617	1,656
Credit Facility [Member]
Credit Facilities [Abstract]
Credit Facility, Description	In December 2011, the Company entered into a $750 million revolving credit agreement (the "Credit Facility") expiring December 2016. The Credit Facility replaces, and has terms substantially similar to, the $700 million revolving credit agreement entered into in April 2006 (the "Prior Credit Facility") which was terminated concurrently with the entry into the Credit Facility. Borrowings under the Credit Facility are subject to interest at varying spreads above quoted market rates and a commitment fee is paid on the total unused commitment. At March 31, 2012 and December 31, 2011, the Company had no outstanding borrowings under the Credit Facility.
Credit Facility, Borrowing Capacity	750	750
Credit Facility, Expiration	2016
Credit Facility Covenant Compliance	contain a number of customary covenants and events of default, including the maintenance of certain financial ratios. The Company was in compliance with all such covenants for all periods presented.
Accounts Receivable Facility [Member]
Credit Facilities [Abstract]
Credit Facility, Description	At March 31, 2012, the Company also had a $200 million line of credit under its accounts receivable securitization agreement ("A/R Facility"). 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. At March 31, 2012 and December 31, 2011, the Company had no outstanding borrowings under the A/R Facility.
Credit Facility, Borrowing Capacity	200	200
Credit Facility Covenant Compliance	contain a number of customary covenants and events of default, including the maintenance of certain financial ratios. The Company was in compliance with all such covenants for all periods presented.
Bridge Loan Agreement [Member]
Credit Facilities [Abstract]
Credit Facility, Description	On February 29, 2012, Eastman entered into a $1.2 billion five-year Term Loan Agreement ("Term Loan Agreement") and a $2.3 billion Bridge Loan Agreement ("Bridge Loan Agreement"). Eastman intends to use financing from the Term Loan Agreement and, in certain circumstances, the Bridge Loan Agreement, to pay, in part, the cash portion of the pending acquisition of Solutia and a portion of the fees and expenses related to the acquisition, which may include the repayment of certain outstanding borrowings of Solutia.
Credit Facility, Borrowing Capacity	2,300
Credit Facility Covenant Compliance	contains certain customary representations, warranties and covenants, including maintenance of certain financial ratios. The Company has been in compliance with all such covenants since February 29, 2012.
Term Loan Agreement [Member]
Credit Facilities [Abstract]
Credit Facility, Description	On February 29, 2012, Eastman entered into a $1.2 billion five-year Term Loan Agreement ("Term Loan Agreement") and a $2.3 billion Bridge Loan Agreement ("Bridge Loan Agreement"). Eastman intends to use financing from the Term Loan Agreement and, in certain circumstances, the Bridge Loan Agreement, to pay, in part, the cash portion of the pending acquisition of Solutia and a portion of the fees and expenses related to the acquisition, which may include the repayment of certain outstanding borrowings of Solutia.
Credit Facility, Borrowing Capacity	1,200
Credit Facility Covenant Compliance	contains certain customary representations, warranties and covenants, including maintenance of certain financial ratios. The Company has been in compliance with all such covenants since February 29, 2012.
7% notes due 2012 [Member]
Debt Instrument [Line Items]
Stated Interest Rate (in hundredths)	7.00%
Maturity Date	2012
Long-term Debt	147	147
3% debentures due 2015 [Member]
Debt Instrument [Line Items]
Stated Interest Rate (in hundredths)	3.00%
Maturity Date	2015
Long-term Debt	250	250
6.30% notes due 2018 [Member]
Debt Instrument [Line Items]
Stated Interest Rate (in hundredths)	6.30%
Maturity Date	2018
Long-term Debt	175	176
5.5% notes due 2019 [Member]
Debt Instrument [Line Items]
Stated Interest Rate (in hundredths)	5.50%
Maturity Date	2019
Long-term Debt	250	250
4.5% debentures due 2021 [Member]
Debt Instrument [Line Items]
Stated Interest Rate (in hundredths)	4.50%
Maturity Date	2021
Long-term Debt	250	250
7 1/4% debentures due 2024 [Member]
Debt Instrument [Line Items]
Stated Interest Rate (in hundredths)	7.25%
Maturity Date	2024
Long-term Debt	243	243
7 5/8% debentures due 2024 [Member]
Debt Instrument [Line Items]
Stated Interest Rate (in hundredths)	7.625%
Maturity Date	2024
Long-term Debt	54	54
7.60% debentures due 2027 [Member]
Debt Instrument [Line Items]
Stated Interest Rate (in hundredths)	7.60%
Maturity Date	2027
Long-term Debt	222	222
Credit Facility Borrowings [Member]
Debt Instrument [Line Items]
Long-term Debt	0	0
Other debt [Member]
Debt Instrument [Line Items]
Long-term Debt	$ 4	$ 6

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DISCONTINUED OPERATIONS

3 Months Ended

Mar. 31, 2012

DISCONTINUED OPERATIONS [Abstract]

DISCONTINUED OPERATIONS

4.   DISCONTINUED OPERATIONS

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.

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

	For three months ended March 31,
(Dollars in millions)	2012			2011
Sales	$	--		$	105
Earnings before income taxes		--			18
Earnings from discontinued operations, net of tax		--			9
Gain (loss) from disposal of discontinued operations, net of tax		(1	)		30

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DISCONTINUED OPERATIONS (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended		12 Months Ended
	Mar. 31, 2012	Mar. 31, 2011	Dec. 31, 2011	Jan. 31, 2011
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
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]
Sales	0	105
Earnings before income taxes	0	18
Earnings from discontinued operations, net of tax	0	9
Gain (loss) from disposal of discontinued operations, net of tax	$ (1)	$ 30

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INVENTORIES (Tables)

3 Months Ended

Mar. 31, 2012

INVENTORIES [Abstract]

Schedule of inventories

	March 31,			December 31,
(Dollars in millions)	2012			2011
At FIFO or average cost (approximates current cost)
Finished goods	$	745		$	777
Work in process		229			239
Raw materials and supplies		374			353
Total inventories		1,348			1,369
LIFO Reserve		(580	)		(590	)
Total inventories	$	768		$	779

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DISCONTINUED OPERATIONS (Tables)

3 Months Ended

Mar. 31, 2012

DISCONTINUED OPERATIONS [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:

	For three months ended March 31,
(Dollars in millions)	2012			2011
Sales	$	--		$	105
Earnings before income taxes		--			18
Earnings from discontinued operations, net of tax		--			9
Gain (loss) from disposal of discontinued operations, net of tax		(1	)		30

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ASSETS IMPAIRMENTS AND RESTRUCTURING CHARGES, NET (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended	12 Months Ended
	Mar. 31, 2012	Dec. 31, 2011
Restructuring Charge [Roll Forward]
Balance at Beginning of Period	$ 2	$ 15
Provision/ Adjustments	0	(8)
Non-cash Reductions	0	15
Cash Reductions	(1)	(20)
Balance at End of Period	1	2
Non-Cash Charges [Member]
Restructuring Charge [Roll Forward]
Balance at Beginning of Period	0	0
Provision/ Adjustments	0	(15)
Non-cash Reductions	0	15
Cash Reductions	0	0
Balance at End of Period	0	0
Employee Severance [Member]
Restructuring Charge [Roll Forward]
Balance at Beginning of Period	2	15
Provision/ Adjustments	0	7
Non-cash Reductions	0	0
Cash Reductions	(1)	(20)
Balance at End of Period	$ 1	$ 2

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INVENTORIES (Details) (USD $) In Millions, unless otherwise specified	Mar. 31, 2012	Dec. 31, 2011
At FIFO or average cost (approximates current cost) [Abstract]
Finished goods	$ 745	$ 777
Work in process	229	239
Raw materials and supplies	374	353
Total inventories	1,348	1,369
LIFO Reserve	(580)	(590)
Total inventories	$ 768	$ 779
Inventories valued on the LIFO method (in hundredths)	70.00%	70.00%

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PAYABLES AND OTHER CURRENT LIABILITIES (Tables)

3 Months Ended

Mar. 31, 2012

PAYABLES AND OTHER CURRENT LIABILITIES [Abstract]

Schedule of payables and other current liabilities

	March 31,		December 31,
(Dollars in millions)	2012		2011
Trade creditors	$	512	$	529
Accrued payrolls, vacation, and variable-incentive compensation		51		146
Accrued taxes		67		40
Post-employment obligations		57		58
Interest payable		26		26
Other		133		162
Total payables and other current liabilities	$	846	$	961

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PROVISION FOR INCOME TAXES (Tables)

3 Months Ended

Mar. 31, 2012

PROVISION FOR INCOME TAXES [Abstract]

Provision for income taxes

	First Quarter
(Dollars in millions)	2012			2011
Provision for income taxes	$	85		$	100
Effective tax rate		35	%		33	%

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ACQUISITIONS AND INVESTMENTS IN JOINT VENTURES

3 Months Ended

Mar. 31, 2012

ACQUISITIONS AND INVESTMENTS IN JOINT VENTURES [Abstract]

ACQUISITIONS

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 168T 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-closing payment of $10 million to the previous shareholders of Scandiflex.  Transaction costs of $4 million associated with these acquisitions were expensed as incurred and are included in the "Selling, general and administrative expenses" line item in the Unaudited Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings.  The table below shows the final fair value purchase price allocation for these acquisitions:

	Dollars in millions
Current assets	$	33
Properties and equipment		129
Intangible assets		11
Other noncurrent assets		20
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 estimated fair value of 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 acquired Dynaloy, LLC ("Dynaloy"), 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.  On November 2, 2011, the Company acquired TetraVitae Bioscience, Inc., a developer of renewable chemicals, including bio-based butanol and acetone.  Also in 2011, the Company entered into a joint venture for a 30,000 metric ton acetate tow manufacturing facility in China, that is expected to be operational in mid-2013, with investment primarily during 2011 and 2012.

Pro forma financial information for the acquisitions has not been presented due to the immaterial financial impact to the Company.

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BORROWINGS (Tables)

3 Months Ended

Mar. 31, 2012

BORROWINGS [Abstract]

Long-term Borrowings

		March 31,		December 31,
(Dollars in millions)		2012		2011
Borrowings consisted of:
7% notes due 2012	$	147	$	147
3% debentures due 2015		250		250
6.30% notes due 2018		175		176
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		4		6
Total borrowings		1,595		1,598
Borrowings due within one year		(151)		(153)
Long-term borrowings	$	1,444	$	1,445

Fair Value of Borrowings

		March 31, 2012				December 31, 2011
(Dollars in millions)		Recorded Amount		Fair Value		Recorded Amount		Fair Value
Long-term borrowings	$	1,444	$	1,617	$	1,445	$	1,656

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BASIS OF PRESENTATION (Details)	3 Months Ended
	Mar. 31, 2012	Oct. 03, 2011
Stock split dividend [Abstract]
Stock Split, description	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.
Stock split, stock issued to stockholders of record per share held (per share)		1

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ENVIRONMENTAL MATTERS (Details) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2011	Mar. 31, 2012
Environmental Matters [Abstract]
Accrual for environmental reserve	$ 39	$ 39
Portion of Environmental Reserve Related to Previously Closed, Impaired, and Divested Sites	6	6
Estimated Future Environmental Expenditures For Remediation Costs, Minimum	11	11
Estimated Future Environmental Expenditures For Remediation Costs, Maximum	29	29
Best Estimate Accrued to-date For Asset Retirement Obligation	28	28
Asset Retirement Obligation, Liabilities Acquired With Purchase of Sterling and Scandiflex	1
Accrual For Environmental Matters Sterling And Scandiflex	4
Estimated Future Environmental Expenditures For Remediation Costs for Acquired Businesses, Minimum	3
Estimated Future Environmental Expenditures For Remediation Costs for Acquired Businesses, Maximum	4
Asset Retirement Obligation, Liabilities Divested With Sale of PET Business and Related Assets	$ 3

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UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS, COMPREHENSIVE INCOME AND RETAINED EARNINGS (USD $) In Millions, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2012		Mar. 31, 2011
Unaudited Consolidated Statement of Earnings
Sales	$ 1,821		$ 1,758
Cost of sales	1,390		1,300
Gross profit	431		458
Selling, general and administrative expenses	126		108
Research and development expenses	41		36
Operating earnings	264		314
Net interest expense	19		19
Other charges (income), net	1		(6)
Earnings from continuing operations before income taxes	244		301
Provision for income taxes from continuing operations	85		100
Earnings from continuing operations	159		201
Earnings from discontinued operations, net of tax	0		9
Gain (loss) from disposal of discontinued operations, net of tax	(1)		30
Net earnings	158		240
Basic earnings per share
Earnings from continuing operations	$ 1.15		$ 1.42
Earnings from discontinued operations	$ 0.00		$ 0.28
Basic earnings per share	$ 1.15		$ 1.70
Diluted earnings per share
Earnings from continuing operations	$ 1.13		$ 1.39
Earnings (loss) from discontinued operations	$ (0.01)		$ 0.27
Diluted earnings per share	$ 1.12		$ 1.66
Comprehensive Income
Net earnings	158		240
Other comprehensive income (loss), net of tax
Change in cumulative translation adjustment	15		25
Defined benefit pension and other postretirement benefit plans [Abstract]
Amortization of unrecognized prior service credit included in net periodic costs	(5)		(8)
Derivatives and hedging [Abstract]
Unrealized gain (loss) during period	10		(13)
Reclassification adjustment for gains included in net income	(5)		(1)
Total other comprehensive income (loss), net of tax	15		3
Comprehensive income	173		243
Retained Earnings
Retained earnings at beginning of period	2,760		2,253
Net earnings	158		240
Cash dividends declared	(36)	[1]	(34)	[1]
Retained earnings at end of period	$ 2,882		$ 2,459

[1] Includes cash dividends declared, but unpaid.

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PAYABLES AND OTHER CURRENT LIABILITIES (Details) (USD $) In Millions, unless otherwise specified	Mar. 31, 2012	Dec. 31, 2011
PAYABLES AND OTHER CURRENT LIABILITIES [Abstract]
Trade creditors	$ 512	$ 529
Accrued payrolls, vacation, and variable-incentive compensation	51	146
Accrued taxes	67	40
Post-employment obligations	57	58
Interest payable	26	26
Other	133	162
Total payables and other current liabilities	$ 846	$ 961

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BASIS OF PRESENTATION

3 Months Ended

Mar. 31, 2012

BASIS OF PRESENTATION [Abstract]

BASIS OF PRESENTATION

1.   BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared by Eastman Chemical Company ("Eastman" or the "Company") in accordance and consistent with the accounting policies stated in the Company's 2011 Annual Report on Form 10-K and the change in accounting for pension and other postretirement benefit ("OPEB") plans described in Note 2, "Accounting Methodology Change for Pension and Other Postretirement Benefit Plans", and should be read in conjunction with the consolidated financial statements in Part II, Item 8 of the Company's 2011 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, sales revenue, and expenses of all majority-owned subsidiaries and joint ventures in which a controlling interest is maintained.  Eastman accounts for other joint ventures and investments where it exercises significant influence on the equity basis.  Intercompany transactions and balances are eliminated in consolidation.  Certain prior period data has been reclassified in the Consolidated Financial Statements and accompanying footnotes to conform to current period presentation.

Other comprehensive income

Beginning January 1, 2012, the Company adopted amended accounting guidance related to the presentation of other comprehensive income which became effective for reporting periods beginning after December 15, 2011.  This change has been retrospectively applied to all periods presented.

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 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.

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SEGMENT INFORMATION (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2012		Mar. 31, 2011		Dec. 31, 2011
SEGMENT INFORMATION [Abstract]
Number of reportable operating segments	4
Mark-to-market gain			$ 15
Sales [Abstract]
Sales	1,821		1,758
Operating Earnings (loss) [Abstract]
Operating Earnings (loss)	264		314
Assets by Segment [Abstract]
Assets by Segment	6,191				6,184
Growth Initiatives [Member]
Operating Earnings (loss) [Abstract]
Operating Earnings (loss)	(26)	[1]	(14)	[1]
Pension and OPEB Costs Not Allocated to Operating Segments [Member]
Operating Earnings (loss) [Abstract]
Operating Earnings (loss)	(7)	[1]	9	[1],[2]
Transaction Costs Related to Anticipated Acquisitions [Member]
Operating Earnings (loss) [Abstract]
Operating Earnings (loss)	(9)	[1]	0	[1]
All Operating Segments [Member]
Operating Earnings (loss) [Abstract]
Operating Earnings (loss)	306		319
Assets by Segment [Abstract]
Assets by Segment	5,073	[3]			4,959	[3]
CASPI [Member]
Sales [Abstract]
Sales	470		467
Operating Earnings (loss) [Abstract]
Operating Earnings (loss)	98		104
Assets by Segment [Abstract]
Assets by Segment	1,398	[3]			1,373	[3]
Fibers [Member]
Sales [Abstract]
Sales	323		290
Operating Earnings (loss) [Abstract]
Operating Earnings (loss)	101		86
Assets by Segment [Abstract]
Assets by Segment	932	[3]			921	[3]
PCI [Member]
Sales [Abstract]
Sales	736		694
Operating Earnings (loss) [Abstract]
Operating Earnings (loss)	77		94
Assets by Segment [Abstract]
Assets by Segment	1,533	[3]			1,471	[3]
Specialty Plastics [Member]
Sales [Abstract]
Sales	292		307
Operating Earnings (loss) [Abstract]
Operating Earnings (loss)	30		35
Assets by Segment [Abstract]
Assets by Segment	1,210	[3]			1,194	[3]
Corporate Assets [Member]
Assets by Segment [Abstract]
Assets by Segment	$ 1,118	[3]			$ 1,225	[3]

[1] Research and development, pension and OPEB, and other expenses not identifiable to an operating segment are not included in segment operating results for either of the periods presented and are shown as "other" operating earnings (loss).

[2] First quarter 2011 included a $15 million MTM gain due to an interim remeasurement of the OPEB plan obligation, triggered by the exit of employees associated with the sale of the PET business. See Note 4, "Discontinued Operations" for additional information.

[3] The chief operating decision maker holds segment management accountable for accounts receivable, inventory, fixed assets, goodwill, and intangible assets.

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STOCKHOLDERS' EQUITY (Tables)

3 Months Ended

Mar. 31, 2012

STOCKHOLDERS' EQUITY [Abstract]

Reconciliation of the changes in stockholders' equity

A reconciliation of the changes in stockholders' equity for first three months 2012 is provided below:

(Dollars in millions)	Common Stock at Par Value $		Paid-in Capital $		Retained Earnings $			Accumulated Other Comprehensive Income $		Treasury Stock at Cost $			Total Stockholders' Equity $
Balance at December 31, 2011 (1) (2)		2		900		2,760			138		(1,930	)		1,870
Net Earnings		--		--		158			--		--			158
Cash Dividends Declared (3)		--		--		(36	)		--		--			(36	)
Other Comprehensive Income		--		--		--			15		--			15
Share-Based Compensation Expense (4)		--		7		--			--		--			7
Stock Option Exercises		--		7		--			--		--			7
Other (5)		--		4		--			--		--			4
Stock Repurchases		--		--		--			--		--			--
Balance at March 31, 2012		2		918		2,882			153		(1,930	)		2,025

(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 15, "Earnings and Dividends Per Share".

(2)   Retained Earnings and Accumulated Other Comprehensive Income have been adjusted for the change in accounting methodology for pension and OPEB plans.  For additional information, see Note 2, "Accounting Methodology Change for Pension and Other Postretirement Benefit Plans".

(3)   Includes cash dividends declared, but unpaid.

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

(5)   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)

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX

(Dollars in millions)	Cumulative Translation Adjustment $			Unrecognized Prior Service Credits for Benefit Plans (1) $			Unrealized Gains (Losses) on Derivative Instruments $			Unrealized Losses on Investments $			Accumulated Other Comprehensive Income (Loss) $
Balance at December 31, 2010 (1)		79			99			17			(1	)		194
Period change		(15	)		(21	)		(20	)		--			(56	)
Balance at December 31, 2011 (1)		64			78			(3	)		(1	)		138
Period change		15			(5	)		5			--			15
Balance at March 31, 2012		79			73			2			(1	)		153

(1)   Unrecognized Prior Service Credits for Benefit Plans have been adjusted for the change in accounting methodology for pension and OPEB plans.  For additional information, see Note 2, "Accounting Methodology Change for Pension and Other Postretirement Benefit Plans".

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SHARE-BASED COMPENSATION AWARDS

3 Months Ended

Mar. 31, 2012

SHARE-BASED COMPENSATION AWARDS [Abstract]

SHARE-BASED COMPENSATION AWARDS

17.   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 first quarter 2012 and 2011, approximately $9 million and $7 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 quarter 2012 and 2011 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.

For additional information regarding share-based compensation plans and awards, see Note 20, "Share-Based Compensation Plans and Awards", to the consolidated financial statements in Part II, Item 8 of the Company's 2011 Annual Report on Form 10-K.

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EARNINGS AND DIVIDENDS PER SHARE (Tables)

3 Months Ended

Mar. 31, 2012

EARNINGS AND DIVIDENDS PER SHARE [Abstract]

Earnings per share, basic and diluted

	First Quarter
	2012	2011
Shares used for earnings per share calculation (in millions):
Basic	137.3	141.4
Diluted	140.7	144.6

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SEGMENT INFORMATION

3 Months Ended

Mar. 31, 2012

SEGMENT INFORMATION [Abstract]

SEGMENT INFORMATION

19.   SEGMENT INFORMATION

The Company's products and operations are currently managed and reported in four reportable operating segments -- CASPI, Fibers, PCI, and Specialty Plastics.  For additional information concerning the Company's segments' businesses and products, see Note 22, "Segment Information" to the consolidated financial statements in Part II, Item 8 of the Company's 2011 Annual Report on Form 10-K.

Research and development ("R&D"), pension and OPEB, and other expenses not identifiable to an operating segment are not included in segment operating results for any of the periods presented and are shown in the tables below as "other" operating earnings (loss). 

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 through high performance materials, advanced cellulosics, and environmentally-friendly chemistry.  These initiatives include the completion of a demonstration facility for market testing of acetylated wood, branded as Perennial WoodTM, in second half 2011 and commercial introduction in first quarter 2012 to select markets; the initial commercial introduction of the new Eastman CerfisTM technology, with anticipation that the application will be expanded nationwide by the end of 2012; and the announcement of the new EastmanTM microfiber technology.

As discussed in Note 2, "Accounting Methodology Change for Pension and Other Postretirement Benefit Plans", Eastman has elected to change its method of accounting for actuarial gains and losses for its pension and OPEB plans.  The new method recognizes actuarial gains and losses in the Company's operating results in the year in which the gains and losses occur rather than amortizing them over future periods.  Historically, total pension and OPEB costs have been allocated to each segment.  In conjunction with the change in accounting principle, the service cost, which represents the benefits earned by active employees during the period, and amortization of prior service credits will continue to be allocated to each segment.  Interest costs, expected return on assets, and the MTM adjustment for pension and OPEB plans actuarial gains and losses will be included in corporate expense and not allocated to segments.  Management believes this change in expense allocation will better reflect the operating results of each business.  The following tables show for each business segment the retrospective application of this expense allocation change for each period presented.

In first quarter 2012, the Company entered into a definitive agreement to acquire Solutia, a global leader in performance materials and specialty chemicals, which is expected to close mid-year.  Included in first quarter 2012 "other" operating loss are $9 million in transaction costs related to the pending acquisition.

	First Three Months
(Dollars in millions)	2012		2011
Sales
CASPI	$	470	$	467
Fibers		323		290
PCI		736		694
Specialty Plastics		292		307
Total Sales	$	1,821	$	1,758

	First Three Months
(Dollars in millions)	2012			2011
Operating Earnings (Loss)
CASPI	$	98		$	104
Fibers		101			86
PCI		77			94
Specialty Plastics		30			35
Total Operating Earnings by Segment		306			319
Other (1)(2)
Growth initiatives		(26	)		(14	)
Pension and OPEB costs not allocated to operating segments		(7	)		9
Transaction costs related to the pending acquisition of Solutia		(9	)		--
Total Operating Earnings	$	264		$	314

(1) Research and development, pension and OPEB, and other expenses not identifiable to an operating segment are not included in segment operating results for either of the periods presented and are shown as "other" operating earnings (loss).

(2) First quarter 2011 included a $15 million MTM gain due to an interim remeasurement of the OPEB plan obligation, triggered by the exit of employees associated with the sale of the PET business.  See Note 4, "Discontinued Operations" for additional information.

	March 31,		December 31,
(Dollars in millions)	2012		2011
Assets by Segment (1)
CASPI	$	1,398	$	1,373
Fibers		932		921
PCI		1,533		1,471
Specialty Plastics		1,210		1,194
Total Assets by Segment		5,073		4,959
Corporate Assets		1,118		1,225
Total Assets	$	6,191	$	6,184

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

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ACCOUNTING METHODOLOGY CHANGE FOR PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS

3 Months Ended

Mar. 31, 2012

ACCOUNTING METHODOLOGY CHANGE FOR PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS [Abstract]

ACCOUNTING METHODOLOGY CHANGE FOR PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS [Text Block]

2.   ACCOUNTING METHODOLOGY CHANGE FOR PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS

As previously reported on March 7, 2012, Eastman has elected to change its method of accounting for actuarial gains and losses for its pension and OPEB plans to a more preferable method permitted under GAAP.  The new method recognizes actuarial gains and losses in the Company's operating results in the year in which the gains and losses occur rather than amortizing them over future periods.  Eastman's management believes that this change in accounting will improve transparency of reporting of its operating results by recognizing the effects of economic and interest rate trends on pension and OPEB plan investments and assumptions in the year these actuarial gains and losses are incurred.  Historically, Eastman has recognized pension and OPEB actuarial gains and losses annually in its Consolidated Statements of Financial Position as Accumulated Other Comprehensive Income and Loss as a component of Stockholders' Equity, and then amortized these gains and losses each period in its Consolidated Statements of Earnings.  The expected return on assets component of Eastman's pension expense has historically been calculated using a five-year smoothing of asset gains and losses, and the gain or loss component of pension and OPEB expense has historically been based on amortization of actuarial gains and losses that exceed 10 percent of the greater of plan assets or projected benefit obligations over the average future service period of active employees.  Under the new method of accounting, these gains and losses are now measured annually at the plan's December 31 measurement date and recorded as a mark-to-market ("MTM") adjustment during the fourth quarter of each year and any quarters in which an interim remeasurement is triggered.  This methodology is preferable under GAAP since it aligns more closely with fair value principles and does not delay the recognition of gains and losses into future periods.  The new method has been retrospectively applied to the financial results of all periods presented.

Under the new method of accounting, Eastman's pension and OPEB costs consist of two elements: 1) ongoing costs recognized quarterly, which are comprised of service and interest costs, expected returns on plan assets, and amortization of prior service credits; and 2) MTM gains and losses recognized annually, in the fourth quarter of each year, resulting from changes in actuarial assumptions and the differences between actual and expected returns on plan assets and discount rates.  Any interim remeasurement triggered by a curtailment, settlement, or significant plan change is recognized as an MTM adjustment in the quarter in which such remeasurement event occurs.

Eastman's operating segment results follow internal management reporting, which is used for making operating decisions and assessing performance.  Historically, total pension and OPEB costs have been allocated to each segment.  In conjunction with the change in accounting principle, the service cost, which represents the benefits earned by active employees during the period, and amortization of prior service credits will continue to be allocated to each segment.  Interest costs, expected return on assets, and the MTM adjustment (including any interim remeasurement) for actuarial gains and losses will be included in corporate expense and not allocated to segments.  Management believes this change in expense allocation better reflects the operating results of each business.

Management has also elected to change its method of accounting for certain costs included in inventory.  Effective in first quarter 2012, the portion of pension and OPEB costs attributable to former employees (inactives) is not a component of inventoriable costs and instead is charged directly to the cost of sales line item as a period cost.  Applying this change in inventory retrospectively did not have a material impact on previously reported inventory, cost of sales, or financial results in any prior period and prior period results have not been retrospectively adjusted for this change in accounting for certain related costs included in inventory.

The cumulative effect of the change in accounting for pension and OPEB plans was a decrease in Retained Earnings as of December 31, 2011 (the most recent measurement date prior to the change) of $676 million, and an equivalent increase in Accumulated Other Comprehensive Income, leaving total stockholders' equity unchanged.  See Note 10, "Retirement Plans".

Following are the changes to financial statement line items as a result of the accounting methodology change for the periods presented in the accompanying unaudited consolidated financial statements:

Unaudited Condensed Consolidated Statement of Earnings
	Three Months Ended March 31, 2012
(Dollars in millions, except per share amounts, unaudited)	Previous Accounting Method		Effect of Accounting Change			As Reported
Cost of sales	$	1,405	$	(15	)	$	1,390
Gross profit		416		15			431
Selling, general and administrative expenses		130		(4	)		126
Operating earnings		245		19			264
Earnings from continuing operations before income taxes		225		19			244
Provision for income taxes from continuing operations		78		7			85
Earnings from continuing operations		147		12			159
Net earnings		146		12			158
Basic earnings per share
Earnings from continuing operations	$	1.06	$	0.09		$	1.15
Diluted earnings per share
Earnings from continuing operations	$	1.05	$	0.08		$	1.13
Diluted earnings per share		1.04		0.08			1.12
Comprehensive Income
Net earnings	$	146	$	12		$	158
Amortization of prior service credit included in net periodic costs (1)		8		(13	)		(5	)
Total other comprehensive income (loss), net of tax		28		(13	)		15
Comprehensive income		174		(1	)		173
Retained Earnings
Retained earnings at beginning of period	$	3,436	$	(676	)	$	2,760
Net earnings		146		12			158
Retained earnings at end of period		3,546		(664	)		2,882

(1)    Updated to reflect first quarter 2012 presentation of other comprehensive income.

Unaudited Condensed Consolidated Statement of Earnings
	Three Months Ended March 31, 2011
(Dollars in millions, except per share amounts, unaudited)	As Previously Reported (Before Accounting Change)		Effect of Accounting Change			As Adjusted (After Accounting Change)
Cost of sales	$	1,325	$	(25	)	$	1,300
Gross profit		433		25			458
Selling, general and administrative expenses		113		(5	)		108
Operating earnings		284		30			314
Earnings from continuing operations before income taxes		271		30			301
Provision for income taxes from continuing operations		89		11			100
Earnings from continuing operations		182		19			201
Earnings from discontinued operations, net of tax		8		1			9
Net earnings		220		20			240
Basic earnings per share
Earnings from continuing operations	$	1.29	$	0.13		$	1.42
Earnings from discontinued operations		0.26		0.02			0.28
Basic earnings per share	$	1.55	$	0.15		$	1.70
Diluted earnings per share
Earnings from continuing operations	$	1.26	$	0.13		$	1.39
Earnings from discontinued operations		0.26		0.01			0.27
Diluted earnings per share	$	1.52	$	0.14		$	1.66
Comprehensive Income
Net earnings	$	220	$	20		$	240
Amortization of prior service credit included in net periodic costs (1)		4		(12	)		(8	)
Total other comprehensive income (loss), net of tax		15		(12	)		3
Comprehensive income		235		8			243
Retained Earnings
Retained earnings at beginning of period	$	2,880	$	(627	)	$	2,253
Net earnings		220		20			240
Retained earnings at end of period		3,066		(607	)		2,459

(1)    Updated to reflect first quarter 2012 presentation of other comprehensive income.

Consolidated Statements of Financial Position
	March 31, 2012
(Dollars in millions, unaudited)	Previous Accounting Method			Effect of Accounting Change			As Reported
Other noncurrent assets	$	382		$	1		$	383
Post-employment obligations		1,393			2			1,395
Retained earnings		3,546			(664	)		2,882
Accumulated other comprehensive income (loss)		(510	)		663			153

	December 31, 2011
(Dollars in millions)	As Previously Reported (Before Accounting Change)			Effect of Accounting Change			As Adjusted (After Accounting Change)
Retained earnings	$	3,436		$	(676	)	$	2,760
Accumulated other comprehensive income (loss)		(538	)		676			138

Unaudited Consolidated Statements of Cash Flows
	Three Months Ended March 31, 2012
(Dollars in millions)	Previous Accounting Method			Effect of Accounting Change			As Reported
Net earnings	$	146		$	12		$	158
Provision (benefit) for deferred income taxes		6			7			13
Pension and other postretirement contributions (in excess of) less than expenses		(16	)		(11	)		(27	)
Other items, net		(6	)		(8	)		(14	)

	Three Months Ended March 31, 2011
(Dollars in millions)	As Previously Reported (Before Accounting Change)			Effect of Accounting Change			As Adjusted (After Accounting Change)
Net earnings	$	220		$	20		$	240
Provision (benefit) for deferred income taxes		(52	)		12			(40	)
Pension and other postretirement contributions (in excess of) less than expenses (1)		(88	)		(26	)		(114	)
Other items, net (1)		110			(6	)		104

(1)   Updated to reflect first quarter 2012 presentation of cash flows from operating activities.

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CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (USD $) In Millions, unless otherwise specified	Mar. 31, 2012	Dec. 31, 2011
Current assets
Cash and cash equivalents	$ 569	$ 577
Short-term time deposits	80	200
Trade receivables, net	740	632
Miscellaneous receivables	68	72
Inventories	768	779
Other current assets	39	42
Total current assets	2,264	2,302
Properties
Properties and equipment at cost	8,479	8,383
Less: Accumulated depreciation	5,343	5,276
Net properties	3,136	3,107
Goodwill	408	406
Other noncurrent assets	383	369
Total assets	6,191	6,184
Current liabilities
Payables and other current liabilities	846	961
Borrowings due within one year	151	153
Total current liabilities	997	1,114
Long-term borrowings	1,444	1,445
Deferred income tax liabilities	223	210
Post-employment obligations	1,395	1,411
Other long-term liabilities	107	134
Total liabilities	4,166	4,314
Stockholders' equity
Common stock	2	2
Additional paid-in capital	918	900
Retained earnings	2,882	2,760
Accumulated other comprehensive income	153	138
Total stockholders' equity before treasury stock	3,955	3,800
Treasury stock at cost	1,930	1,930
Total stockholders' equity	2,025	1,870
Total liabilities and stockholders' equity	$ 6,191	$ 6,184

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ENVIRONMENTAL MATTERS

3 Months Ended

Mar. 31, 2012

Environmental Matters [Abstract]

Environmental Matters

12.   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 2011 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 at both March 31, 2012 and December 31, 2011.  At both March 31, 2012 and December 31, 2011, this reserve included $6 million related to previously closed and impaired sites, as well as sites that have been divested but for which the Company retains the environmental liability related to these sites.

Estimated future environmental expenditures for remediation costs ranged from the minimum or best estimate of $11 million to the maximum of $29 million at both March 31, 2012 and December 31, 2011.  The best estimate accrued to date over the facilities' estimated useful lives for asset retirement obligation costs were $28 million at both March 31, 2012 and December 31, 2011.

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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Document and Entity Information (USD $)	3 Months Ended
	Mar. 31, 2012	Dec. 31, 2011
Document and Entity Information [Abstract]
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		$ 6,964,111,202
Entity Common Stock, Shares Outstanding	137,958,478
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q1
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2012

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LEGAL MATTERS

3 Months Ended

Mar. 31, 2012

LEGAL MATTERS [Abstract]

LEGAL MATTERS

13.   LEGAL MATTERS

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.  In addition, certain putative shareholder class and derivative action complaints have been filed against, among others, the Company in connection with Eastman's pending acquisition of Solutia.  For additional information, see Part II, Item 1, "Legal Proceedings" in this Quarterly Report on Form 10-Q.  While the Company is unable to predict the outcome of these matters, it does not believe, based upon currently available facts, that the ultimate resolution of any such pending matters will have a material adverse effect on its overall financial condition, results of operations, or cash flows.

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CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (Parenthetical) (USD $)	Mar. 31, 2012	Dec. 31, 2011
Stockholders' equity
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized (in shares)	350,000,000	350,000,000
Common stock, shares issued (in shares)	197,409,655	196,455,131
Treasury stock at cost (in shares)	59,539,633	59,539,633

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PROVISION FOR INCOME TAXES

3 Months Ended

Mar. 31, 2012

PROVISION FOR INCOME TAXES [Abstract]

PROVISION FOR INCOME TAXES

7.   PROVISION FOR INCOME TAXES

	First Quarter
(Dollars in millions)	2012			2011
Provision for income taxes	$	85		$	100
Effective tax rate		35	%		33	%

The first quarter 2012 effective tax rate was impacted by the non-deductibility of certain transaction costs related to the pending acquisition of Solutia Inc. ("Solutia").  Excluding the impact of certain non-deductible transaction costs, the Company's expected full year tax rate on reported earnings from continuing operations before income tax is approximately 33 percent.

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PAYABLES AND OTHER CURRENT LIABILITIES

3 Months Ended

Mar. 31, 2012

PAYABLES AND OTHER CURRENT LIABILITIES [Abstract]

PAYABLES AND OTHER CURRENT LIABILITIES

6.   PAYABLES AND OTHER CURRENT LIABILITIES

	March 31,		December 31,
(Dollars in millions)	2012		2011
Trade creditors	$	512	$	529
Accrued payrolls, vacation, and variable-incentive compensation		51		146
Accrued taxes		67		40
Post-employment obligations		57		58
Interest payable		26		26
Other		133		162
Total payables and other current liabilities	$	846	$	961

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

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SUPPLEMENTAL CASH FLOW INFORMATION

3 Months Ended

Mar. 31, 2012

SUPPLEMENTAL CASH FLOW INFORMATION [Abstract]

SUPPLEMENTAL CASH FLOW INFORMATION

18.   SUPPLEMENTAL CASH FLOW INFORMATION

Included in the line item "Other items, net" of the "Cash flows from operating activities" section of the Unaudited Consolidated Statements of Cash Flows are the following changes to balance sheet line items:

(Dollars in millions)	First Three Months
	2012			2011
Current assets	$	2		$	13
Other assets		12			24
Current liabilities		(3	)		90
Long-term liabilities and equity		(25	)		(23	)
Total	$	(14	)	$	104

These 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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STOCKHOLDERS' EQUITY

3 Months Ended

Mar. 31, 2012

STOCKHOLDERS' EQUITY [Abstract]

STOCKHOLDERS' EQUITY

14.   STOCKHOLDERS' EQUITY

A reconciliation of the changes in stockholders' equity for first three months 2012 is provided below:

(Dollars in millions)	Common Stock at Par Value $		Paid-in Capital $		Retained Earnings $			Accumulated Other Comprehensive Income $		Treasury Stock at Cost $			Total Stockholders' Equity $
Balance at December 31, 2011 (1) (2)		2		900		2,760			138		(1,930	)		1,870
Net Earnings		--		--		158			--		--			158
Cash Dividends Declared (3)		--		--		(36	)		--		--			(36	)
Other Comprehensive Income		--		--		--			15		--			15
Share-Based Compensation Expense (4)		--		7		--			--		--			7
Stock Option Exercises		--		7		--			--		--			7
Other (5)		--		4		--			--		--			4
Stock Repurchases		--		--		--			--		--			--
Balance at March 31, 2012		2		918		2,882			153		(1,930	)		2,025

(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 15, "Earnings and Dividends Per Share".

(2)   Retained Earnings and Accumulated Other Comprehensive Income have been adjusted for the change in accounting methodology for pension and OPEB plans.  For additional information, see Note 2, "Accounting Methodology Change for Pension and Other Postretirement Benefit Plans".

(3)   Includes cash dividends declared, but unpaid.

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

(5)   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 Prior Service Credits for Benefit Plans (1) $			Unrealized Gains (Losses) on Derivative Instruments $			Unrealized Losses on Investments $			Accumulated Other Comprehensive Income (Loss) $
Balance at December 31, 2010 (1)		79			99			17			(1	)		194
Period change		(15	)		(21	)		(20	)		--			(56	)
Balance at December 31, 2011 (1)		64			78			(3	)		(1	)		138
Period change		15			(5	)		5			--			15
Balance at March 31, 2012		79			73			2			(1	)		153

(1)   Unrecognized Prior Service Credits for Benefit Plans have been adjusted for the change in accounting methodology for pension and OPEB plans.  For additional information, see Note 2, "Accounting Methodology Change for Pension and Other Postretirement Benefit Plans".

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RETIREMENT PLANS

3 Months Ended

Mar. 31, 2012

RETIREMENT PLANS [Abstract]

RETIREMENT PLANS

10.   RETIREMENT PLANS

As discussed in Note 2, "Accounting Methodology Change for Pension and Other Postretirement Benefit Plans", effective January 1, 2012, Eastman elected to change its method of accounting for actuarial gains and losses for its pension and OPEB plans.  This accounting change has been applied retrospectively to all periods presented.

As described in more detail below, Eastman offers various postretirement benefits to its employees.

DEFINED BENEFIT 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.

In August 2011, in connection with its acquisition of Sterling, the Company assumed Sterling's U.S. defined benefit pension plan.  Prior to the acquisition, the plan had been closed to new participants and was no longer accruing additional benefits.  For more information, see Note 3, "Acquisitions and Investments in Joint Ventures".

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.

In August 2011, in connection with its acquisition of Sterling, the Company assumed Sterling's postretirement welfare plan.  For more information, see Note 3, "Acquisitions and Investments in Joint Ventures".

Costs recognized for benefits for eligible retirees hired prior to January 1, 2007 are recognized using estimated amounts, which may change as actual costs for the year are determined.  Components of net periodic benefit cost were as follows:

		First Quarter
		Pension Plans				Postretirement Welfare Plans
(Dollars in millions)		2012		2011		2012		2011
Service cost	$	12	$	12	$	2	$	2
Interest cost		21		21		11		11
Expected return on assets		(25)		(25)		--		(1)
Curtailment gain (1)		--		--		--		(7)
Amortization of:
Prior service credit		(1)		(3)		(5)		(5)
Mark-to-market gain (2)		--		--		--		(15)
Net periodic benefit cost	$	7	$	5	$	8	$	(15)

(1)   Gain for the Performance Polymers segment that was sold January 31, 2011 and is included in discontinued operations.  For more information, see Note 4, "Discontinued Operations."

(2)   Mark-to-market gain due to the interim remeasurement of the OPEB plan obligation, triggered by the exit of employees associated with the sale of the PET business.

First quarter 2012 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 $25 million and $100 million to its U.S. defined benefit pension plans in first quarter 2012 and 2011, respectively.

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BORROWINGS

3 Months Ended

Mar. 31, 2012

BORROWINGS [Abstract]

BORROWINGS

8.   BORROWINGS

	March 31,			December 31,
(Dollars in millions)	2012			2011
Borrowings consisted of:
7% notes due 2012	$	147		$	147
3% debentures due 2015		250			250
6.30% notes due 2018		175			176
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		4			6
Total borrowings		1,595			1,598
Borrowings due within one year		(151	)		(153	)
Long-term borrowings	$	1,444		$	1,445

In December 2011, the Company entered into a $750 million revolving credit agreement (the "Credit Facility") expiring December 2016.  The Credit Facility replaces, and has terms substantially similar to, the $700 million revolving credit agreement entered into in April 2006 (the "Prior Credit Facility") which was terminated concurrently with the entry into the Credit Facility.  Borrowings under the Credit Facility are subject to interest at varying spreads above quoted market rates and a commitment fee is paid on the total unused commitment.  At March 31, 2012 and December 31, 2011, the Company had no outstanding borrowings under the Credit Facility.

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

At March 31, 2012, the Company also had a $200 million line of credit under its accounts receivable securitization agreement ("A/R Facility").  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.  At March 31, 2012 and December 31, 2011, the Company had no outstanding borrowings under the A/R Facility.

The Credit Facility and the A/R Facility contain a number of customary covenants and events of default, including the maintenance of certain financial ratios.  The Company was in compliance with all such covenants for all periods presented.  In addition, the entire amount of these facilities was available without violating applicable covenants as of March 31, 2012 and December 31, 2011.

On February 29, 2012, Eastman entered into a $1.2 billion five-year Term Loan Agreement ("Term Loan Agreement") and a $2.3 billion Bridge Loan Agreement ("Bridge Loan Agreement").  Eastman intends to use financing from the Term Loan Agreement and, in certain circumstances, the Bridge Loan Agreement, to pay, in part, the cash portion of the pending acquisition of Solutia and a portion of the fees and expenses related to the acquisition, which may include the repayment of certain outstanding borrowings of Solutia.  Each of the Term Loan Agreement and the Bridge Loan Agreement contains certain customary representations, warranties and covenants, including maintenance of certain financial ratios.  The Company has been in compliance with all such covenants since February 29, 2012.

Fair Value of Borrowings

The Company has determined that its long-term borrowings at March 31, 2012 and December 31, 2011 were classified within level 1 in the fair value hierarchy as defined in the accounting policies in the Company's 2011 Annual Report on Form 10-K.  The fair value for fixed-rate borrowings is based on current market quotes.  The Company's floating-rate borrowings approximate fair value.

	March 31, 2012				December 31, 2011
(Dollars in millions)	Recorded Amount		Fair Value		Recorded Amount		Fair Value
Long-term borrowings	$	1,444	$	1,617	$	1,445	$	1,656

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DERIVATIVES

3 Months Ended

Mar. 31, 2012

DERIVATIVES [Abstract]

DERIVATIVES

9.   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 2011 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 March 31, 2012 and December 31, 2011, the Company had no fair value hedges.

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 March 31, 2012, the total notional amounts of the Company's foreign exchange forward and option contracts were €347 million (approximately $465 million equivalent) and ¥12.5 billion (approximately $155 million equivalent), and the total notional volume hedged for raw materials was approximately 1 million barrels.  Additionally, at March 31, 2012, the total notional value of interest rate swaps for the future issuance of debt ("forward starting interest rate swaps") was $750 million as the Company entered into interest rate hedges in anticipation of the acquisition of Solutia and the expected related offering of new debt securities.  The Company had no hedges for energy at March 31, 2012.

As of December 31, 2011, the total notional amounts of the Company's foreign exchange forward and option contracts were €270 million (approximately $350 million equivalent) and ¥13.7 billion (approximately $185 million equivalent), respectively, the total notional volume hedged for energy was approximately 1 million mmbtu (million british thermal units), and the total notional volume hedged for raw materials was approximately 2 million barrels.  Additionally, the total notional value of forward starting interest rate swaps was $200 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 2011 Annual Report on Form 10-K.

The Company has determined that its derivative assets and liabilities at March 31, 2012 and December 31, 2011 were classified within 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 had 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	March 31, 2012		December 31, 2011
Cash Flow Hedges
Commodity contracts	Other current assets	$	--	$	1
Commodity contracts	Other noncurrent assets		--		1
Foreign exchange contracts	Other current assets		14		20
Foreign exchange contracts	Other noncurrent assets		11		12
Forward starting interest rate swap contracts	Other current assets		10		--
		$	35	$	34

(Dollars in millions)		Fair Value Measurements Significant Other Observable Inputs (Level 2)
Derivative Liabilities	Statement of Financial Position Location	March 31, 2012		December 31, 2011
Cash Flow Hedges
Commodity  contracts	Payables and other current liabilities	$	2	$	8
Commodity  contracts	Other long-term liabilities		1		--
Foreign exchange contracts	Payables and other current liabilities		4		7
Foreign exchange contracts	Other long-term liabilities		1		7
Forward starting interest rate swap contracts	Payables and other current liabilities		--		1
		$	8	$	23

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

(Dollars in millions)	Amount after tax of gain/ (loss) recognized in Other Comprehensive Income on derivatives (effective portion)							Pre-tax amount of gain/(loss) reclassified from Accumulated Other Comprehensive Income into income (effective portion)
Derivatives' Cash Flow Hedging Relationships	March 31, 2012			March 31, 2011			Location of gain/(loss) reclassified from Accumulated Other Comprehensive Income into income (effective portion)	March 31, 2012		March 31, 2011
Commodity contracts	$	(7	)	$	2		Cost of sales	$	--	$	--
Foreign exchange contracts		(1	)		(16	)	Sales		8		1
Forward starting interest rate swap contracts		13			--		Interest Expense		--		--
	$	5		$	(14	)		$	8	$	1

For three months ended March 31, 2012 and March 31, 2011, there was no material ineffectiveness with regard to the Company's qualifying hedges.

Hedging Summary

At March 31, 2012 and 2011, 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 $3 million and $5 million in losses, respectively.    If realized, approximately $21 million in gains in first quarter 2012 will be reclassified into earnings during the next 12 months, including foreign exchange contracts monetized and prospectively dedesignated in fourth quarter 2011.  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 2012 or 2011.

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 $1 million and $4 million net losses on nonqualifying derivatives during first quarter 2012 and 2011, respectively.

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COMMITMENTS

3 Months Ended

Mar. 31, 2012

COMMITMENTS [Abstract]

COMMITMENTS

11.   COMMITMENTS

Purchase Obligations and Lease Commitments

The Company had various purchase obligations at March 31, 2012 totaling approximately $1.5 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 $134 million over a period of several years.  Of the total lease commitments, approximately 10 percent relate to machinery and equipment, including computer and communications equipment and production equipment; approximately 50 percent relate to real property, including office space, storage facilities, and land; and approximately 40 percent relate to railcars.

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 March 31, 2012totaled $110 million and consisted primarily of leases for railcars and company aircraft and will expire beginning in 2016.  Management believes, based on current facts and circumstances, that the likelihood of material residual guarantee payments is remote.

Variable Interest Entities

The Company has evaluated its material contractual relationships under accounting guidance for consolidation of Variable Interest Entities ("VIEs") 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.

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RETIREMENT PLANS (Tables)

3 Months Ended

Mar. 31, 2012

RETIREMENT PLANS [Abstract]

Components of net periodic benefit cost

Costs recognized for benefits for eligible retirees hired prior to January 1, 2007 are recognized using estimated amounts, which may change as actual costs for the year are determined.  Components of net periodic benefit cost were as follows:

		First Quarter
		Pension Plans				Postretirement Welfare Plans
(Dollars in millions)		2012		2011		2012		2011
Service cost	$	12	$	12	$	2	$	2
Interest cost		21		21		11		11
Expected return on assets		(25)		(25)		--		(1)
Curtailment gain (1)		--		--		--		(7)
Amortization of:
Prior service credit		(1)		(3)		(5)		(5)
Mark-to-market gain (2)		--		--		--		(15)
Net periodic benefit cost	$	7	$	5	$	8	$	(15)

(1)   Gain for the Performance Polymers segment that was sold January 31, 2011 and is included in discontinued operations.  For more information, see Note 4, "Discontinued Operations."

(2)   Mark-to-market gain due to the interim remeasurement of the OPEB plan obligation, triggered by the exit of employees associated with the sale of the PET business.

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RETIREMENT PLANS (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Amortization of: [Abstract]
Mark-to-market gain		$ 15
Amount of U.S. defined benefit penson plan funded by the company	25	100
Pension Plans [Member]
Components of net periodic benefit cost [Abstract]
Service cost	12	12
Interest cost	21	21
Expected return on assets	(25)	(25)
Curtailment (gain)/ loss	0	0
Amortization of: [Abstract]
Prior service credit	(1)	(3)
Mark-to-market gain	0	0
Net periodic benefit cost	7	5
Post Retirement Welfare Plans [Member]
Components of net periodic benefit cost [Abstract]
Service cost	2	2
Interest cost	11	11
Expected return on assets	0	(1)
Curtailment (gain)/ loss	0	(7)	[1]
Amortization of: [Abstract]
Prior service credit	(5)	(5)
Mark-to-market gain	0	(15)	[2]
Net periodic benefit cost	$ 8	$ (15)

[1] Gain for the Performance Polymers segment that was sold January 31, 2011 and is included in discontinued operations. For more information, see Note 4, "Discontinued Operations."

[2] Mark-to-market gain due to the interim remeasurement of the OPEB plan obligation, triggered by the exit of employees associated with the sale of the PET business.

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ASSET IMPAIRMENTS AND RESTRUCTURING CHARGES (GAINS), NET

3 Months Ended

Mar. 31, 2012

ASSET IMPAIRMENTS AND RESTRUCTURING CHARGES (GAINS), NET [Abstract]

ASSET IMPAIRMENTS AND RESTRUCTURING CHARGES (GAINS), NET

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

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

The following table summarizes the changes in other asset impairments and restructuring charges and gains, the non-cash reductions attributable to asset impairments, and the cash reductions in shutdown reserves for severance costs and site closure costs paid for full year 2011 and first three months 2012:

(Dollars in millions)		Balance at January 1, 2011		Provision/ Adjustments		Non-cash Reductions		Cash Reductions		Balance at December 31, 2011
Non-cash charges	$	--	$	(15)	$	15	$	--	$	--
Severance costs		15		7		--		(20)		2
Total	$	15	$	(8)	$	15	$	(20)	$	2
		Balance at January 1, 2012		Provision/ Adjustments		Non-cash Reductions		Cash Reductions		Balance at March 31, 2012
Non-cash charges	$	--	$	--	$	--	$	--	$	--
Severance costs		2		--		--		(1)		1
Total	$	2	$	--	$	--	$	(1)	$	1

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ACCOUNTING METHODOLOGY CHANGE FOR PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS (Tables)

3 Months Ended

Mar. 31, 2012

ACCOUNTING METHODOLOGY CHANGE FOR PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS [Abstract]

ADJUSTED STATEMENT OF EARNINGS LINE ITEMS

Following are the changes to financial statement line items as a result of the accounting methodology change for the periods presented in the accompanying unaudited consolidated financial statements:

Unaudited Condensed Consolidated Statement of Earnings
	Three Months Ended March 31, 2012
(Dollars in millions, except per share amounts, unaudited)	Previous Accounting Method		Effect of Accounting Change			As Reported
Cost of sales	$	1,405	$	(15	)	$	1,390
Gross profit		416		15			431
Selling, general and administrative expenses		130		(4	)		126
Operating earnings		245		19			264
Earnings from continuing operations before income taxes		225		19			244
Provision for income taxes from continuing operations		78		7			85
Earnings from continuing operations		147		12			159
Net earnings		146		12			158
Basic earnings per share
Earnings from continuing operations	$	1.06	$	0.09		$	1.15
Diluted earnings per share
Earnings from continuing operations	$	1.05	$	0.08		$	1.13
Diluted earnings per share		1.04		0.08			1.12
Comprehensive Income
Net earnings	$	146	$	12		$	158
Amortization of prior service credit included in net periodic costs (1)		8		(13	)		(5	)
Total other comprehensive income (loss), net of tax		28		(13	)		15
Comprehensive income		174		(1	)		173
Retained Earnings
Retained earnings at beginning of period	$	3,436	$	(676	)	$	2,760
Net earnings		146		12			158
Retained earnings at end of period		3,546		(664	)		2,882

(1)    Updated to reflect first quarter 2012 presentation of other comprehensive income.

Unaudited Condensed Consolidated Statement of Earnings
	Three Months Ended March 31, 2011
(Dollars in millions, except per share amounts, unaudited)	As Previously Reported (Before Accounting Change)		Effect of Accounting Change			As Adjusted (After Accounting Change)
Cost of sales	$	1,325	$	(25	)	$	1,300
Gross profit		433		25			458
Selling, general and administrative expenses		113		(5	)		108
Operating earnings		284		30			314
Earnings from continuing operations before income taxes		271		30			301
Provision for income taxes from continuing operations		89		11			100
Earnings from continuing operations		182		19			201
Earnings from discontinued operations, net of tax		8		1			9
Net earnings		220		20			240
Basic earnings per share
Earnings from continuing operations	$	1.29	$	0.13		$	1.42
Earnings from discontinued operations		0.26		0.02			0.28
Basic earnings per share	$	1.55	$	0.15		$	1.70
Diluted earnings per share
Earnings from continuing operations	$	1.26	$	0.13		$	1.39
Earnings from discontinued operations		0.26		0.01			0.27
Diluted earnings per share	$	1.52	$	0.14		$	1.66
Comprehensive Income
Net earnings	$	220	$	20		$	240
Amortization of prior service credit included in net periodic costs (1)		4		(12	)		(8	)
Total other comprehensive income (loss), net of tax		15		(12	)		3
Comprehensive income		235		8			243
Retained Earnings
Retained earnings at beginning of period	$	2,880	$	(627	)	$	2,253
Net earnings		220		20			240
Retained earnings at end of period		3,066		(607	)		2,459

(1)    Updated to reflect first quarter 2012 presentation of other comprehensive income.

Consolidated Statements of Financial Position
	March 31, 2012
(Dollars in millions, unaudited)	Previous Accounting Method			Effect of Accounting Change			As Reported
Other noncurrent assets	$	382		$	1		$	383
Post-employment obligations		1,393			2			1,395
Retained earnings		3,546			(664	)		2,882
Accumulated other comprehensive income (loss)		(510	)		663			153

	December 31, 2011
(Dollars in millions)	As Previously Reported (Before Accounting Change)			Effect of Accounting Change			As Adjusted (After Accounting Change)
Retained earnings	$	3,436		$	(676	)	$	2,760
Accumulated other comprehensive income (loss)		(538	)		676			138

Unaudited Consolidated Statements of Cash Flows
	Three Months Ended March 31, 2012
(Dollars in millions)	Previous Accounting Method			Effect of Accounting Change			As Reported
Net earnings	$	146		$	12		$	158
Provision (benefit) for deferred income taxes		6			7			13
Pension and other postretirement contributions (in excess of) less than expenses		(16	)		(11	)		(27	)
Other items, net		(6	)		(8	)		(14	)

	Three Months Ended March 31, 2011
(Dollars in millions)	As Previously Reported (Before Accounting Change)			Effect of Accounting Change			As Adjusted (After Accounting Change)
Net earnings	$	220		$	20		$	240
Provision (benefit) for deferred income taxes		(52	)		12			(40	)
Pension and other postretirement contributions (in excess of) less than expenses (1)		(88	)		(26	)		(114	)
Other items, net (1)		110			(6	)		104

(1)   Updated to reflect first quarter 2012 presentation of cash flows from operating activities.

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DERIVATIVES Part 2 (Details) (USD $) In Millions, unless otherwise specified	Mar. 31, 2012	Dec. 31, 2011
Derivative Assets [Abstract]
Derivative Asset, Fair Value, Gross Asset	$ 35	$ 34
Derivative Liabilities [Abstract]
Derivative Liability, Fair Value, Gross Liability	8	23
Commodity Contract [Member] | Designated as Hedging Instrument [Member] | Other Noncurrent Assets [Member]
Derivative Assets [Abstract]
Derivative Assets, Cash Flow Hedge, Fair Value	0	1
Commodity Contract [Member] | Designated as Hedging Instrument [Member] | Other Current Assets [Member]
Derivative Assets [Abstract]
Derivative Assets, Cash Flow Hedge, Fair Value	0	1
Commodity Contract [Member] | Designated as Hedging Instrument [Member] | Other Noncurrent Liabilities [Member]
Derivative Liabilities [Abstract]
Derivative Liability, Cash Flow Hedge, Fair Value	1	0
Commodity Contract [Member] | Designated as Hedging Instrument [Member] | Payables And Other Current Liabilities [Member]
Derivative Liabilities [Abstract]
Derivative Liability, Cash Flow Hedge, Fair Value	2	8
Foreign Exchange Contract [Member] | Designated as Hedging Instrument [Member] | Other Noncurrent Assets [Member]
Derivative Assets [Abstract]
Derivative Assets, Cash Flow Hedge, Fair Value	11	12
Foreign Exchange Contract [Member] | Designated as Hedging Instrument [Member] | Other Current Assets [Member]
Derivative Assets [Abstract]
Derivative Assets, Cash Flow Hedge, Fair Value	14	20
Foreign Exchange Contract [Member] | Designated as Hedging Instrument [Member] | Other Noncurrent Liabilities [Member]
Derivative Liabilities [Abstract]
Derivative Liability, Cash Flow Hedge, Fair Value	1	7
Foreign Exchange Contract [Member] | Designated as Hedging Instrument [Member] | Payables And Other Current Liabilities [Member]
Derivative Liabilities [Abstract]
Derivative Liability, Cash Flow Hedge, Fair Value	4	7
Forward Starting Interest Rate Swap [Member] | Designated as Hedging Instrument [Member] | Other Current Assets [Member]
Derivative Assets [Abstract]
Derivative Assets, Cash Flow Hedge, Fair Value	10	0
Forward Starting Interest Rate Swap [Member] | Designated as Hedging Instrument [Member] | Payables And Other Current Liabilities [Member]
Derivative Liabilities [Abstract]
Derivative Liability, Cash Flow Hedge, Fair Value	$ 0	$ 1

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ACCOUNTING METHODOLOGY CHANGE FOR PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS (Details) (USD $) In Millions, except Per Share data, unless otherwise specified	3 Months Ended				12 Months Ended
	Mar. 31, 2012		Mar. 31, 2011		Dec. 31, 2011	Dec. 31, 2010
Unaudited Consolidated Statement of Earnings
Cost of sales	$ 1,390		$ 1,300
Gross profit	431		458
Selling, general and administrative expenses	126		108
Operating earnings	264		314
Earnings from continuing operations before income taxes	244		301
Provision for income taxes from continuing operations	85		100
Earnings from continuing operations	159		201
Earnings (loss) from discontinued operations, net of tax	0		9
Gain from disposal of discontinued operations, net of tax	(1)		30
Net Earnings	158		240
Basic earnings per share
Earnings from continuing operations	$ 1.15		$ 1.42
Earnings (loss) from discontinued operations (in dollars per share)	$ 0.00		$ 0.28
Basic earnings per share	$ 1.15		$ 1.70
Diluted earnings per share
Earnings from continuing operations	$ 1.13		$ 1.39
Earnings (loss) from discontinued operations	$ (0.01)		$ 0.27
Diluted earnings per share	$ 1.12		$ 1.66
Comprehensive Income
Net Earnings	158		240
Amortization of unrecognized prior service credit included in net periodic costs	(5)		(8)
Total other comprehensive income (loss), net of tax	15		3		(56)
Comprehensive income	173		243
Retained Earnings
Retained earnings at beginning of period	2,760		2,253		2,253
Net earnings	158		240
Retained earnings at end of period	2,882		2,459		2,760
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION [Abstract]
Other noncurrent assets	383				369
Post-employment obligations	1,395				1,411
Retained earnings	2,882		2,459		2,760
Accumulated other comprehensive loss	153				138	194
CONSOLIDATED STATEMENTS OF CASH FLOWS [Abstract]
Net earnings	158		240
Provision (benefit) for deferred income taxes	13		(40)
Pension and other postretirement contributions (in excess of) less than expenses	(27)		(114)
Other items, net	(14)		104
Historical Accounting Method [Member]
Unaudited Consolidated Statement of Earnings
Cost of sales	1,405		1,325
Gross profit	416		433
Selling, general and administrative expenses	130		113
Operating earnings	245		284
Earnings from continuing operations before income taxes	225		271
Provision for income taxes from continuing operations	78		89
Earnings from continuing operations	147		182
Earnings (loss) from discontinued operations, net of tax			8
Net Earnings	146		220
Basic earnings per share
Earnings from continuing operations	$ 1.06		$ 1.29
Earnings (loss) from discontinued operations (in dollars per share)			$ 0.26
Basic earnings per share			$ 1.55
Diluted earnings per share
Earnings from continuing operations	$ 1.05		$ 1.26
Earnings (loss) from discontinued operations			$ 0.26
Diluted earnings per share	$ 1.04		$ 1.52
Comprehensive Income
Net Earnings	146		220
Amortization of unrecognized prior service credit included in net periodic costs	8	[1]	4	[1]
Total other comprehensive income (loss), net of tax	28		15
Comprehensive income	174		235
Retained Earnings
Retained earnings at beginning of period	3,436		2,880		2,880
Net earnings	146		220
Retained earnings at end of period	3,546		3,066
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION [Abstract]
Other noncurrent assets	382
Post-employment obligations	1,393
Retained earnings	3,546		3,066
Accumulated other comprehensive loss	(510)				(538)
CONSOLIDATED STATEMENTS OF CASH FLOWS [Abstract]
Net earnings	146		220
Provision (benefit) for deferred income taxes	6		(52)
Pension and other postretirement contributions (in excess of) less than expenses	(16)		(88)	[2]
Other items, net	(6)		110	[2]
Effect of Accounting Change [Member]
Unaudited Consolidated Statement of Earnings
Cost of sales	(15)		(25)
Gross profit	15		25
Selling, general and administrative expenses	(4)		(5)
Operating earnings	19		30
Earnings from continuing operations before income taxes	19		30
Provision for income taxes from continuing operations	7		11
Earnings from continuing operations	12		19
Earnings (loss) from discontinued operations, net of tax			1
Net Earnings	12		20
Basic earnings per share
Earnings from continuing operations	$ 0.09		$ 0.13
Earnings (loss) from discontinued operations (in dollars per share)			$ 0.02
Basic earnings per share			$ 0.15
Diluted earnings per share
Earnings from continuing operations	$ 0.08		$ 0.13
Earnings (loss) from discontinued operations			$ 0.01
Diluted earnings per share	$ 0.08		$ 0.14
Comprehensive Income
Net Earnings	12		20
Amortization of unrecognized prior service credit included in net periodic costs	(13)	[1]	(12)	[1]
Total other comprehensive income (loss), net of tax	(13)		(12)
Comprehensive income	(1)		8
Retained Earnings
Retained earnings at beginning of period	(676)		(627)		(627)
Net earnings	12		20
Retained earnings at end of period	(664)		(607)
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION [Abstract]
Other noncurrent assets	1
Post-employment obligations	2
Retained earnings	(664)		(607)
Accumulated other comprehensive loss	663				676
CONSOLIDATED STATEMENTS OF CASH FLOWS [Abstract]
Net earnings	12		20
Provision (benefit) for deferred income taxes	7		12
Pension and other postretirement contributions (in excess of) less than expenses	(11)		(26)	[2]
Other items, net	$ (8)		$ (6)	[2]

[1] Updated to reflect the first quarter 2012 presentation of other comprehensive income.

[2] Updated to reflect first quarter 2012 presentation of cash flows from operating activities.

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CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Cash flows from operating activities
Net earnings	$ 158	$ 240
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:
Depreciation and amortization	69	68
Gain on sale of assets	0	(52)
Provision (benefit) for deferred income taxes	13	(40)
Pension and other postretirement contributions (in excess of) less than expenses	(27)	(114)
Variable compensation (in excess of) less than expenses	(71)	(82)
Changes in operating assets and liabilities, net of effect of acquisitions and divestitures:
(Increase) decrease in trade receivables	(103)	(229)
(Increase) decrease in inventories	14	(49)
Increase (decrease) in trade payables	(20)	8
Other items, net	(14)	104
Net cash provided by (used in) operating activities	19	(146)
Cash flows from investing activities
Additions to properties and equipment	(90)	(97)
Proceeds from sale of short-term time deposits	120	0
Proceeds from sale of assets and investments	6	617
Acquisitions and investments in joint ventures	(10)	0
Additions to short-term time deposits	0	(200)
Additions to capitalized software	(1)	(2)
Other items, net	(35)	(11)
Net cash provided by (used in) investing activities	(10)	307
Cash flows from financing activities
Net increase in commercial paper, credit facility, and other borrowings	(1)	1
Dividends paid to stockholders	(36)	(34)
Treasury stock purchases	0	(74)
Proceeds from stock option exercises and other items, net	20	70
Net cash used in financing activities	(17)	(37)
Effect of exchange rate changes on cash and cash equivalents	0	0
Net change in cash and cash equivalents	(8)	124
Cash and cash equivalents at beginning of period	577	516
Cash and cash equivalents at end of period	$ 569	$ 640

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INVENTORIES

3 Months Ended

Mar. 31, 2012

INVENTORIES [Abstract]

INVENTORIES

5.   INVENTORIES

	March 31,			December 31,
(Dollars in millions)	2012			2011
At FIFO or average cost (approximates current cost)
Finished goods	$	745		$	777
Work in process		229			239
Raw materials and supplies		374			353
Total inventories		1,348			1,369
LIFO Reserve		(580	)		(590	)
Total inventories	$	768		$	779

Inventories valued on the LIFO method were approximately 70 percent of total inventories as of both March 31, 2012 and December 31, 2011.

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SUPPLEMENTAL CASH FLOW INFORMATION (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
SUPPLEMENTAL CASH FLOW INFORMATION [Abstract]
Current assets	$ 2	$ 13
Other assets	12	24
Current liabilities	(3)	90
Long-term liabilities and equity	(25)	(23)
Total	$ (14)	$ 104

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ACQUISITIONS AND INVESTMENTS IN JOINT VENTURES (Tables)

3 Months Ended

Mar. 31, 2012

ACQUISITIONS AND INVESTMENTS IN JOINT VENTURES [Abstract]

Schedule of fair value purchase price allocation for business acquired

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 168T 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-closing payment of $10 million to the previous shareholders of Scandiflex.  Transaction costs of $4 million associated with these acquisitions were expensed as incurred and are included in the "Selling, general and administrative expenses" line item in the Unaudited Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings.  The table below shows the final fair value purchase price allocation for these acquisitions:

	Dollars in millions
Current assets	$	33
Properties and equipment		129
Intangible assets		11
Other noncurrent assets		20
Goodwill		33
Current liabilities		(23	)
Long-term liabilities		(70	)
Total purchase price	$	133

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SUPPLEMENTAL CASH FLOW INFORMATION (Tables)

3 Months Ended

Mar. 31, 2012

SUPPLEMENTAL CASH FLOW INFORMATION [Abstract]

Schedule Of Cash Flow Supplemental Disclosures

Included in the line item "Other items, net" of the "Cash flows from operating activities" section of the Unaudited Consolidated Statements of Cash Flows are the following changes to balance sheet line items:

(Dollars in millions)		First Three Months
		2012		2011
Current assets	$	2	$	13
Other assets		12		24
Current liabilities		(3)		90
Long-term liabilities and equity		(25)		(23)
Total	$	(14)	$	104

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EARNINGS AND DIVIDENDS PER SHARE

3 Months Ended

Mar. 31, 2012

EARNINGS AND DIVIDENDS PER SHARE [Abstract]

EARNINGS AND DIVIDENDS PER SHARE

15.   EARNINGS AND DIVIDENDS PER SHARE

	First Quarter
	2012	2011
Shares used for earnings per share calculation (in millions):
Basic	137.3	141.4
Diluted	140.7	144.6

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 first quarter 2012, there were no outstanding options to purchase shares of common stock excluded from the computation of diluted earnings per share.  In first 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.  There were no share repurchases in first quarter 2012.  First quarter 2011 reflects the impact of share repurchases of 1.7 million shares.

The Company declared cash dividends of $0.26 and $0.235 per share in first quarter 2012 and 2011, respectively.