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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC  20549
FORM 10-K

(Mark
One)
 
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2018
 
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

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Name of each exchange on which registered
Common Stock, par value $0.01 per share
 
New York Stock Exchange
1.50% Notes Due 2023
 
New York Stock Exchange
1.875% Notes Due 2026
 
New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:  None









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Yes
No
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
[X]
 
 
Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.
 
[X]
 
Yes
No
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.
[X]
 
 
Yes
No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
[X]
 
 
Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
[X]
 
 
 
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See definition of "large accelerated filer," "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [X]                               Accelerated filer [  ]
Non-accelerated filer   [   ]                              Smaller reporting company [  ]
                                                                                   Emerging growth company [ ]
 
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
 
 
 
Yes
No
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
 
[X]


The aggregate market value (based upon the $99.96 closing price on the New York Stock Exchange on June 29, 2018) of the 139,171,775 shares of common equity held by non-affiliates as of December 31, 2018 was $13,911,610,629 using beneficial ownership rules adopted pursuant to Section 13 of the Securities Exchange Act of 1934 to exclude common stock that may be deemed beneficially owned as of December 31, 2018 by Eastman Chemical Company's directors and executive officers and charitable foundation, some of whom might not be held to be affiliates upon judicial determination. A total of 139,777,332 shares of common stock of the registrant were outstanding at December 31, 2018.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's definitive Proxy Statement for the 2019 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission, are incorporated by reference in Part III, Items 10 to 14 of this Annual Report on Form 10-K (this "Annual Report") as indicated herein.


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FORWARD-LOOKING STATEMENTS

Certain statements made or incorporated by reference in this Annual Report on Form 10-K (this "Annual Report") are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act (Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities and Exchange Act of 1934, as amended). Forward-looking statements are all statements, other than statements of historical fact, that may be made by Eastman Chemical Company ("Eastman" or the "Company") from time to time. In some cases, you can identify forward-looking statements by terminology such as "anticipates", "believes", "estimates", "expects", "intends", "may", "plans", "projects", "will", "would", and similar expressions or expressions of the negative of these terms. Forward-looking statements may relate to, among other things, such matters as planned and expected capacity increases and utilization; anticipated capital spending; expected depreciation and amortization; environmental matters; exposure to, and effects of hedging of, raw material and energy prices and costs; foreign currencies and interest rates; disruption or interruption of operations and of raw material or energy supply; global and regional economic, political, and business conditions; competition; growth opportunities; supply and demand, volume, price, cost, margin and sales; pending and future legal proceedings; earnings, cash flow, dividends, stock repurchases and other expected financial results, events, and conditions; expectations, strategies, and plans for individual assets and products, businesses, and operating segments, as well as for the whole of Eastman; cash requirements and uses of available cash; financing plans and activities; pension expenses and funding; credit ratings; anticipated and other future restructuring, acquisition, divestiture, and consolidation activities; cost reduction and control efforts and targets; the timing and costs of, and benefits from, the integration of, and expected business and financial performance of, acquired businesses; strategic and technology and product innovation initiatives and development, production, commercialization and acceptance of new products, services and technologies and related costs; asset, business, and product portfolio changes; and expected tax rates and net interest costs.

Forward-looking statements are based upon certain underlying assumptions as of the date such statements were made. Such assumptions are based upon internal estimates and other analyses of current market conditions and trends, management expectations, plans, and strategies, economic conditions, and other factors. Forward-looking statements and the assumptions underlying them are necessarily subject to risks and uncertainties inherent in projecting future conditions and results. Actual results could differ materially from expectations expressed in the forward-looking statements if one or more of the underlying assumptions and expectations proves to be inaccurate or is unrealized. The most significant known factors, risks, and uncertainties that could cause actual results to differ materially from those in the forward-looking statements are identified and discussed under "Management's Discussion and Analysis of Financial Condition and Results of Operations - Risk Factors" in Part II, Item 7 of this Annual Report. Other factors, risks or uncertainties of which management is not aware, or presently deems immaterial, could also cause actual results to differ materially from those in the forward-looking statements.

The Company cautions you not to place undue reliance on forward-looking statements, which speak only as of the date such statements are made. Except as may be required by law, the Company undertakes no obligation to update or alter these forward-looking statements, whether as a result of new information, future events, or otherwise. Investors are advised, however, to consult any further public Company disclosures (such as filings with the Securities and Exchange Commission or in Company press releases) on related subjects.


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TABLE OF CONTENTS

ITEM
 
PAGE
PART I
1.
1A.
1B.
 
2.
3.
4.
PART II
5.
6.
7.
7A.
8.
9.
9A.
9B.
PART III
10.
11.
12.
13.
14.
PART IV
15.
16.
 
SIGNATURES
 

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PART I

ITEM 1.  BUSINESS
 
Page
Chemical Intermediates Segment


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CORPORATE OVERVIEW

Eastman Chemical Company ("Eastman" or the "Company") is a global advanced materials and specialty additives company that produces a broad range of products found in items people use every day. Eastman began business in 1920 for the purpose of producing chemicals for Eastman Kodak Company's photographic business and became a public company, incorporated in Delaware, on December 31, 1993. Eastman has 48 manufacturing facilities and equity interests in three manufacturing joint ventures in 14 countries that supply products to customers throughout the world. The Company's headquarters and largest manufacturing facility are located in Kingsport, Tennessee. With a robust portfolio of specialty businesses, Eastman works with customers to deliver innovative products and solutions while maintaining a commitment to safety and sustainability. Eastman's businesses are managed and reported in four operating segments: Additives & Functional Products, Advanced Materials, Chemical Intermediates, and Fibers. See "Business Segments".

In the first years as a stand-alone company, Eastman was diversified between commodity and more specialty chemical businesses. Beginning in 2004, the Company refocused its strategy and changed its businesses and portfolio of products, first by the divestiture and discontinuance of under-performing assets and commodity businesses and initiatives (including divestiture in 2004 of resins, inks, and monomers product lines, divestiture in 2006 of the polyethylene business, and divestiture from 2007 to 2010 of the polyethylene terephthalate assets and business). The Company then pursued growth through the development and acquisition of more specialty businesses and product lines by inorganic acquisition and integration (including the acquisition of Solutia, Inc. ("Solutia"), a global leader in performance materials and specialty chemicals, in 2012, and Taminco Corporation, a global specialty chemical company, in 2014) and organic development and commercialization of new and enhanced technologies and products.

Eastman currently uses an innovation-driven growth model which consists of leveraging world class scalable technology platforms, delivering differentiated application development capabilities, and relentlessly engaging the market. The Company's world class technology platforms form the foundation of sustainable growth by differentiated products through significant scale advantages in research and development ("R&D") and advantaged global market access. Differentiated application development converts market complexity into opportunities for growth and accelerates innovation by enabling a deeper understanding of the value of Eastman's products and how they perform within customers' and end-user products. Key areas of application development include thermoplastic conversion, functional films, coatings formulations, rubber additive formulations, adhesives formulations, nonwovens and textiles, and animal nutrition. The Company engages the market by working directly with customers and downstream users, targeting attractive niche markets, and leveraging disruptive macro trends such as health and wellness, natural resource efficiency, an increasing middle class in emerging economies, and feeding a growing population. Management believes that these elements of the Company's innovation-driven growth model, combined with disciplined portfolio management and balanced capital deployment, will result in consistent, sustainable earnings growth and strong cash flow.

In 2018, the Company reported sales revenue of $10.2 billion, earnings before interest and taxes ("EBIT") of $1.6 billion, and net earnings attributable to Eastman of $1.1 billion. Diluted earnings per share attributable to Eastman were $7.56. Cash provided by operating activities was $1.5 billion. Excluding non-core and unusual items, adjusted EBIT was $1.6 billion and adjusted diluted earnings per share attributable to Eastman were $8.20. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of this Annual Report on Form 10-K (this "Annual Report") for reconciliation of accounting principles generally accepted in the United States ("GAAP") to non-GAAP measures, description of excluded items, and related information. For Company sales revenue by end-market, see Exhibit 99.01 "2018 Company and Segment Revenue by End-Use Market" of this Annual Report. Approximately 60 percent of 2018 sales revenue was generated from outside the United States and Canada region. For additional information regarding sales by customer location and by segment, see Note 19, "Segment Information", to the Company's Consolidated Financial Statements in Part II, Item 8, and "Management's Discussion and Analysis of Financial Condition and Results of Operations - Summary by Operating Segment", "Sales by Customer Location", and "Risk Factors" in Part II, Item 7 of this Annual Report.

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BUSINESS STRATEGY

Eastman's objective is to be an outperforming specialty chemical company with consistent, sustainable earnings growth and strong cash flow. Integral to the Company's strategy for growth is leveraging its heritage of expertise and innovation within its cellulose and acetyl, olefins, polyester, and alkylamine chemistries. For each of these "streams", the Company has developed and acquired a combination of assets and technologies that combine scale and integration across multiple manufacturing units and sites as a competitive advantage. Management uses an innovation-driven growth model which consists of leveraging world class scalable technology platforms, delivering differentiated application development, and relentlessly engaging the market. The Company sells differentiated products into diverse markets and geographic regions and engages the market by working directly with customers and downstream users to meet their needs in existing and new niche markets. Management believes that this innovation-driven growth model will result in consistent financial results by leveraging the Company's proven technology capabilities to improve product mix, increasing emphasis on specialty businesses, and sustaining and expanding leadership in attractive niche markets. A consistent increase in earnings is expected to continue to result from both organic growth initiatives and strategic inorganic initiatives.

Innovation

Management is pursuing specific opportunities to leverage Eastman's innovation-driven growth model for continued near-term and long-term greater than end-market growth by both sustaining the Company's leadership in existing markets and expanding into new markets, including the following examples of recent innovation:
Tetrashield performance polyester resins based on proprietary monomer technology. These polyester resins provide a combination of improved performance and sustainability, particularly for the automotive coatings, industrial, and food packaging markets.
Impera high performance resins for tires. When used as additives in tire compound formulations, Impera resins enable tire manufacturers to improve the safety and handling of tires, balance tire performance and fuel economy needs, and achieve superior levels of tack for tire construction.
Aerafin polymer, developed from proprietary olefin technology. These olefin polymers enable improved processing time and other benefits including low odor, improved adhesion, exceptional peel performance, and thermal stability for adhesive applications within the hygiene market.
Care chemicals alkylamine derivatives including water treatment solutions with state-of-the-art technology enabling the efficient removal of dirt particles at a low dosage for demanding industrial and municipal applications.
Treva, a cellulose-based engineering bioplastic that offers high performance, sustainability, and design flexibility in applications that require complex and intricate designs and high safety requirements such as eyeglass frames, wearable electronics, lenses, and cosmetics.
Naia, a yarn for the apparel market developed from Eastman's proprietary cellulose ester technology.
Avra, a family of fibers for the performance apparel market developed from a combination of Eastman proprietary spinning technology and polymer chemistry enabling unique fiber capabilities of size, shape, comfort, and performance.
Vestera, a new wood pulp-based alternative for the nonwoven industry used in personal hygiene applications.
Recently introduced 72" version of automotive paint protection film marketed under established trademarks.


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Sustainability

Eastman is committed to making a positive impact on the markets, customers, communities and employees that it serves. An important element of this commitment is offering the Company’s stakeholders a dedicated approach to sustainable innovation. Management approaches sustainability as a source of competitive strength by focusing its innovation strategy on opportunities where disruptive macro trends align with the Company's differentiated technology platforms and applications development capabilities to develop innovative products that enable customers' development and sales of sustainable products. Eastman's sustainability-related growth initiatives include targeted products utilizing technology that enhances end-use product durability, material usage, recyclability, and health and safety impact characteristics to reduce unnecessary waste, pollution, and greenhouse gas emissions. Examples of Eastman's leading position in providing sustainable solutions within identified disruptive macro trends include:

Health and wellness: Tritan copolyester, Tetrashield performance polyester resins, and Vestera cellulosic fiber;
Natural resource efficiency: Saflex Q series advanced acoustic interlayers, Impera high performance resins for tires, and Treva proprietary engineering bioplastic;
Emerging middle class: Saflex and head-up display ("HUD") acoustic interlayers, Regalite hydrocarbon resins, Naia cellulosic yarn, and Avra performance fibers; and
Feeding a growing population: Eastman organic acids, Enhanz feed additive, and Banguard crop protection.

The Company leverages core competencies in polyesters, cellulose esters, thermoplastic processing, textile capability, and in-house application expertise for use in a wide range of applications to provide solutions to markets which are in search of new and improved products.

FINANCIAL STRATEGY

In its management of the Company's businesses and growth initiatives, management is committed to maintaining a strong financial position with appropriate financial flexibility and liquidity. Management believes maintaining a financial profile that supports an investment grade credit rating is important to its long-term strategic and financial flexibility. The Company employs a disciplined and balanced approach to capital allocation and deployment of cash. The priorities for uses of available cash include payment of the quarterly dividend, repayment of debt, funding targeted growth opportunities, and repurchasing shares. Management expects that the combination of continued strong cash flow generation, a strong balance sheet, and sufficient liquidity will continue to provide flexibility to pursue growth initiatives.

BUSINESS SEGMENTS

The Company's products and operations are managed and reported in four operating segments: Additives & Functional Products ("AFP"), Advanced Materials ("AM"), Chemical Intermediates ("CI"), and Fibers. This organizational structure is based on the management of the strategies, operating models, and sales channels that the various businesses employ and supports the Company's strategy of continued transformation towards a specialty portfolio of products. For segment sales revenue and earnings and segment product lines revenues, see Note 19, "Segment Information", to the Company's Consolidated Financial Statements in Part II, Item 8 and "Management's Discussion and Analysis of Financial Condition and Results of Operations - Summary by Operating Segment" in Part II, Item 7 of this Annual Report. For identification of manufacturing facilities by segment, see Item 2, "Properties" of this Annual Report.

ADDITIVES & FUNCTIONAL PRODUCTS SEGMENT

Overview

In the AFP segment, the Company manufactures chemicals for products in the transportation, consumables, building and construction, animal nutrition, crop protection, energy, personal and home care, and other markets. Key technology platforms in this segment are cellulose esters, polyester polymers, insoluble sulfur, hydrocarbon resins, alkylamine derivatives, and propylene derivatives.


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The AFP segment's sales growth is typically above annual industrial production growth due to innovation and enhanced commercial execution with sales to a robust set of end-markets. The segment is focused on producing high-value additives that provide critical functionality but which comprise a small percentage of total customer product cost. The segment principally competes on the unique performance characteristics of its products and through leveraging its strong customer base and long-standing customer relationships to promote substantial recurring business and product development. A critical element of the AFP segment's success is its close formulation collaboration with customers through advantaged application development capability.

Principal Products
Product
Description
Principal
Competitors
Key Raw
Materials
End-Use Applications
Coatings and Inks Additives
Polymers
  cellulosics
  Tetrashield
  polyesters
  polyolefins

Additives and Solvents
  Texanol
  Optifilm
  ketones
  esters
  glycol ethers
  oxo alcohols

specialty coalescents, specialty solvents, and commodity solvents
paint additives and specialty polymers
BASF SE
DowDuPont Inc.
Oxea
Celanese Corporation
Alternative Technologies



wood pulp
propane
propylene


building and construction (architectural coatings)
transportation (OEM) and refinish coatings
durable goods (wood, industrial coatings and applications)
consumables (graphic arts, inks, and packaging)





Adhesives Resins
Piccotac
Regalite
Eastotac
Eastoflex
Aerafin
hydrocarbon resins
     and rosin resins
     mainly for
     hot-melt and
     pressure sensitive
     adhesives

Exxon Mobil Corporation
Kolon Industries, Inc.
Evonik Industries
C9 resin oil
piperylene
gum rosin
propylene

consumables (resins used in hygiene and packaging adhesives)
building and construction (resins for construction adhesives and interior flooring)

Tire Additives
Crystex
insoluble sulfur
   rubber additive

Oriental Carbon & Chemicals Limited
Shikoku Chemicals Corporation

sulfur
naphthenic process oil
transportation (tire manufacturing)
other rubber products (such as hoses,
     belts, seals, and footwear)
Santoflex
antidegradant rubber additive
Jiangsu Sinorgchem Technology Co., Ltd.
Kumho Petrochemical Co., Ltd.
Lanxess AG

nitrobenzene
aniline
methyl isobutyl
     ketone

transportation (tire manufacturing)
other rubber products (such as hoses,
     belts, seals, and footwear)

Impera

performance resins
Cray Valley Hydrocarbon Specialty Chemicals
Exxon Mobil Corporation
Kolon Industries, Inc.

alpha methylstyrene
piperylene
styrene

transportation (tire manufacturing)



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Product
Description

Principal
Competitors

Key Raw
Materials

End-Use Applications
Care Chemicals
Alkylamine derivatives
Organic acids
  and derivatives
Cellulose esters


amine derivative-based building blocks for production of flocculants
intermediates for surfactants
BASF SE
DowDuPont Inc.
Huntsman Corporation

alkylamines
ammonia
alcohols
ethylene oxide


water treatment
personal and home care
pharmaceuticals

Specialty Fluids
Therminol
Turbo oils
Skydrol
SkyKleen

heat transfer and
     aviation fluids

DowDuPont Inc.
Exxon Mobil
     Corporation

benzene
phosphorous
neo-polyol esters

industrial chemicals and processing (heat transfer fluids for chemical processes)
renewable energy
commercial aviation

Animal Nutrition
Organic acids
  and derivatives
Choline chloride
Enhanz
organic acid-based solutions
BASF SE
Perstorp
Luxi Chemical Group
Feicheng Acid
     Chemicals
formic acid
ethylene oxide
propane
heavy fuel oil
gut health solutions
preservation
industrial applications

Crop Protection
Alkylamine
   derivatives
Banguard

metam-based soil fumigants
thiram and ziram-based fungicides
plant growth regulator

DowDuPont Inc.
Argo-Kanesho Co., Ltd.
Bayer
BASF SE
alkylamines
CS2
caustic soda

agriculture
crop protection

See Exhibit 99.01 for AFP segment revenue by end-use market.

Strategy

Management applies the innovation-driven growth model in the AFP segment by leveraging proprietary technologies for the continued development of innovative product offerings and focusing growth efforts on further expanding end-markets such as transportation, building and construction, consumables, industrial applications, animal nutrition, care chemicals, crop protection, and energy. Management believes that the ability to leverage the AFP segment's research, differentiated application development, and production capabilities across multiple markets uniquely positions it to meet evolving needs to improve the quality and performance of its customers' products. For example, tire performance labeling regulations in various parts of the world and competitive pressure favoring performance over cost are causing tire manufacturers to simultaneously improve conflicting tire attributes. Eastman's tire additives technology helps tire manufacturers overcome common compromises often observed between wet grip and rolling resistance. In order to address identified market needs, the Company is also developing new technologies such as polyester resins for coatings, sustainable solvents, and cellulose esters and hydrocarbon resins for tires.

Eastman's global manufacturing presence is a key element of the AFP segment's growth strategy. For example, the segment expects to capitalize on industrial growth in Asia from its manufacturing capacity expansion in Kuantan, Malaysia and cellulose ester products sourced from the Company's low-cost cellulose and acetyl manufacturing stream in North America.


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In 2018, the AFP segment:
advanced growth and innovation of Crystex insoluble sulfur rubber additives through mechanical completion of an expansion of the manufacturing facility in Kuantan, Malaysia in second quarter 2018 resulting in commercial sales beginning in first quarter 2019. This expansion is expected to allow the Company to capitalize on recent enhancements of technology by improving the Company's cost position and facilitating the introduction of new products into the tire markets; and
advanced growth of specialty ketones for low volatile organic compound ("VOC") coatings and other markets as a result of a capacity expansion at the Kingsport, Tennessee manufacturing facility which became fully operational in second quarter 2018.

The AFP segment is pursuing specific opportunities to leverage Eastman's innovation-driven growth model to create greater than end-market growth by both sustaining the Company's leadership in existing markets and expanding into new markets. Examples of recent product innovation within the AFP segment include Tetrashield performance polyester resins based on proprietary monomer technology, Impera high performance resins for tires, Aerafin polymer, developed from proprietary olefin technology, and care chemicals alkylamine derivatives including state-of-the-art water treatment solutions.
    
ADVANCED MATERIALS SEGMENT

Overview

In the AM segment, the Company produces and markets polymers, films, and plastics with differentiated performance properties for value-added end-uses in transportation, consumables, building and construction, durable goods, and health and wellness markets. Key technology platforms for this segment include cellulose esters, copolyesters, and polyvinyl butyral ("PVB") and polyester films.

Eastman's technical, application development, and market development capabilities enable the AM segment to modify its polymers, films, and plastics to control and customize their final properties for development of new applications with enhanced functionality. For example, Tritan copolyesters are a leading solution for food contact applications due to their performance and processing attributes and Bisphenol A ("BPA") free properties. The Saflex Q Series product line is a leading acoustic solution for architectural and automotive applications. The Company also maintains a leading solar control technology position in the window film market through the use of high performance sputter coatings which enhance solar heat rejection while maintaining superior optical properties. The segment principally competes on differentiated technology and application development capabilities. Management believes the AM segment's competitive advantages also include long-term customer relationships, vertical integration and scale in manufacturing, and leading market positions.


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Principal Products
Product
Description
Principal
Competitors
Key Raw
Materials
End-Use Applications
 
 
 
 
 
Specialty Plastics
Tritan
    copolyester
Eastarcopolyesters
Spectar
    copolyester
Embrace
    copolyester
Visualize
Eastman Aspira family of resins
Treva

copolyesters
cellulose esters
Covestro
Trinseo
Evonik Industries AG
Saudi Basic Industries Corporation
Mitsubishi Chemical Corporation
S.K. Chemical Industries
Sichuan Push Acetati Company Limited
Daicel Chemical Industries Ltd
paraxylene
ethylene glycol
cellulose
purified terephthalic acid

consumables (consumer packaging,
    cosmetics packaging, in-store
    fixtures and displays)
durable goods (consumer housewares
    and appliances)
health and wellness (medical)
electronics (displays)


Advanced Interlayers
Saflex
SaflexQ Series
SaflexST

PVB sheet
specialty PVB
    intermediates

Sekisui Chemical Co.,
    Ltd.
Kuraray Co., Ltd
Kingboard (Fo Gang)
    Specialty Resins
    Limited
Chang Chun
    Petrochemical Co.,
    Ltd

polyvinyl alcohol
vinyl acetate monomer
butyraldehyde
2-ethyl hexanol
 ethanol
triethylene gylcol
transportation (automotive safety glass,
     automotive acoustic glass, and
     HUD)
building and construction (PVB for
     architectural interlayers)

Performance Films
LLumar
Flexvue
SunTek
V-KOOL
Gila


window film and protective film
     products for
     aftermarket
     applied films


3M Company
Saint-Gobain S.A.
Beijing Kangde Xin
   Composite Material
   Co., Ltd
   "KDX"

polyethylene terephthalate film

transportation (automotive after-
   market window film and paint
   protection film)
building and construction (residential
     and commercial window films)
health and wellness (medical)

See Exhibit 99.01 for AM segment revenue by end-use market.

Strategy

Management applies the innovation-driven growth model in the AM segment by leveraging innovation and technology platforms into new and multi-generational products and applications, accelerating AM segment growth, and leveraging its manufacturing capacity. The segment continues to expand its portfolio of higher margin products in attractive end-markets. Through Eastman's advantaged asset position and expertise in applications development, management believes that the AM segment is well positioned for future growth. The advanced interlayers product lines, including PVB and HUD sheet interlayer products, leverage Eastman's global presence to supply industry leading innovations to automotive and architectural end-markets by collaborating with global and large regional customers. In the automotive end-market, the performance films product line has industry leading technologies, recognized brands, and what management believes is one of the largest distribution and dealer networks which, when combined, position Eastman for further growth, particularly in leading automotive markets such as North America and Asia. The segment's product portfolio is aligned with underlying energy efficiency trends in both automotive and architectural markets. Additionally, increased demand for BPA-free products has created new opportunities for various copolyester applications.

The AM segment expects to continue to improve product mix from increased sales of premium products, including Tritancopolyester, Visualize material, Saflex Q acoustic series, Saflex HUD interlayer products, LLumar, V-KOOL, and SunTek window and protective films.


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In 2018, the AM segment:
continued the growth of Tritancopolyester in the durable goods and health and wellness markets, supported by completion of an additional 60,000 metric ton expansion of Tritancopolyester capacity at the Kingsport, Tennessee manufacturing facility which became fully operational in second quarter 2018;
advanced growth and innovation of Saflex acoustic interlayers used in the transportation and building and construction markets, enabled by construction of a manufacturing facility for PVB resin at the Kuantan, Malaysia site which became fully operational in first quarter 2018;
advanced growth in the Chinese market supported by the conversion of manufacturing capacity at the Suzhou, China site from non-acoustic to acoustic interlayer production which was mechanically completed in fourth quarter 2018 and is expected to produce material qualified for commercial sales in 2019; and
strengthened growth in automotive window and paint protection films in North America and China through improved sales channel, marketing, and commercial execution strategies and capabilities.

The AM segment is pursuing specific opportunities to leverage Eastman's innovation-driven growth model to create greater than end-market growth by both sustaining the Company's leadership in existing markets and expanding into new markets. An example of recent product innovation within the AM segment is Treva, a cellulose-based engineering bioplastic.

CHEMICAL INTERMEDIATES SEGMENT

Overview

The CI segment leverages large scale and vertical integration from the cellulose and acetyl, olefins, and alkylamines streams to support the Company's specialty operating segments with advantaged cost positions. The CI segment sells excess intermediates beyond the Company's internal specialty needs into markets such as industrial chemicals and processing, building and construction, health and wellness, and agrochemicals. Key technology platforms include acetyls, oxos, plasticizers, polyesters, and alkylamines.

The CI segment product lines benefit from competitive cost positions primarily resulting from the use of and access to lower cost raw materials, and the Company's scale, technology, and operational excellence. Examples include coal used in the production of cellulose and acetyl stream product lines, feedstocks used in the production of olefin derivative product lines such as oxo alcohols and plasticizers, and ammonia and methanol used to manufacture methylamines. The CI segment also provides superior reliability to customers through its backward integration into readily available raw materials, such as propane, ethane, coal, and propylene. In addition to a competitive cost position, the plasticizers business expects to continue to benefit from the growth in relative use of non-phthalate rather than phthalate plasticizers in the United States, Canada, and Europe.

Several CI segment product lines are affected by cyclicality, most notably olefin and acetyl-based products. See "Eastman Chemical Company General Information - Manufacturing Streams". This cyclicality is caused by periods of supply and demand imbalance, when either incremental capacity additions are not offset by corresponding increases in demand, or when demand exceeds existing supply. While management continues to take steps to reduce the impact of the trough of these cycles, future results are expected to occasionally fluctuate due to both general economic conditions and industry supply and demand.


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Principal Products
Product
Description
Principal
Competitors
Key Raw
Materials
End-Use Applications
 
 
 
 
 
Intermediates
Oxo alcohols
  and derivatives
Acetic acid and
   derivatives
Acetic anhydride
Ethylene
Glycol ethers
Esters



Olefin derivatives, acetyl derivatives, ethylene, commodity solvents










Lyondell Bassell,
BASF SE
DowDuPont Inc.
Oxea
BP plc
Celanese Corporation
Lonza
Ineos Group Holdings S.A.
Indorama Ventures Public Company Limited



propane
ethane
propylene
coal
natural gas
paraxylene
metaxylene


industrial chemicals and processing
building and construction (paint and coating applications, construction chemicals, building materials)
pharmaceuticals and agriculture
health and wellness
packaging




Plasticizers
Eastman 168
DOP
Benzoflex
TXIB
Effusion


primary non-
     phthalate and
     phthalate
     plasticizers
     and a range of
     niche non-
     phthalate
     plasticizers



BASF SE
Exxon Mobil Corporation
LG Chem, Ltd.
Emerald Performance Materials



propane
propylene
paraxylene


building and construction (non-phthalate
    plasticizers used in interior surfaces)
consumables (food packaging, packaging
    adhesives, and glove applications)
health and wellness (medical devices)

Functional Amines
Alkylamines

methylamines
   and salts
higher amines
   and solvents

BASF SE
Chemours
U.S. Amines
Oxea

methanol
ammonia
acetone
ethanol
butanol

agrochemicals
energy
consumables
water treatment
animal nutrition
industrial intermediates
See Exhibit 99.01 for CI segment revenue by end-use market.

Strategy

To maintain and enhance its status as a low-cost producer and optimize earnings, the CI segment continuously focuses on cost control, operational efficiency, and capacity utilization. This includes focusing on products used internally by other operating segments, thereby supporting growth in specialty product lines throughout the Company. Through the CI segment, the Company has leveraged the advantage of its highly integrated manufacturing facilities. For example, the Kingsport, Tennessee manufacturing facility allows for the production of acetic anhydride and other acetyl derivatives from coal rather than natural gas or other petroleum feedstocks. At the Longview, Texas manufacturing site, Eastman uses its proprietary oxo technology in one of the world's largest single-site, oxo butyraldehyde manufacturing facilities to produce a wide range of alcohols and other derivative products utilizing local propane and ethane supplies and purchased propylene. The Pace, Florida manufacturing facility, which uses ammonia and methanol feedstocks, is the largest methylamine production site in the world. These integrated facilities, combined with large scale production processes and a continuous focus on additional process improvements, allow the CI segment product lines to remain cost competitive and, for some products, cost-advantaged as compared to competitors.

The Company reduced operating rates of the olefin cracking units at the Longview, Texas manufacturing facility to reduce the amount of excess ethylene produced and sold at lower spot prices in the merchant ethylene market over the second half of 2018. The Company took further action through completion of modifications to the site's olefin cracking units, which will allow for the introduction of refinery-grade propylene ("RGP") into the feedstock mix while also reducing the amount of other purchased feedstocks in 2019. This feedstock shift is expected to result in a significant decrease in ethylene production and excess ethylene sales, while maintaining historical levels of propylene production. Consequently, the RGP project provides the flexibility to largely remove the Company from participation in the merchant ethylene market, while retaining a cost-advantaged integrated propylene position to support specialty derivatives throughout the Company.


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FIBERS SEGMENT

Overview

In the Fibers segment, Eastman manufactures and sells Estron acetate tow and Estrobond triacetin plasticizers for use in filtration media, primarily cigarette filters; Estron natural (undyed), Chromspun solution-dyed acetate yarns, Naia cellulosic fibers and yarn for use in apparel, home furnishings, and industrial fabrics; nonwovens for use in filtration and friction media, used primarily in transportation, industrial, and agricultural markets; and cellulose acetate flake and acetyl raw materials for other acetate fiber producers. Eastman is one of the world's two largest suppliers of acetate tow and has been a market leader in the manufacture and sale of acetate tow since it began production in the early 1950s. The Company is the world's largest producer of acetate yarn and has been in this business for over 85 years.

The largest 10 Fibers segment customers accounted for approximately 70 percent of the segment's 2018 sales revenue, and include multinational as well as regional cigarette producers, fabric manufacturers, and other acetate fiber producers. 

The Company's long history and experience in fibers markets are reflected in the Fibers segment's operating expertise, both within the Company and in support of its customers' processes. The Fibers segment's knowledge of the industry and of customers' processes allows it to assist its customers in maximizing their processing efficiencies, promoting repeat sales, and developing mutually beneficial, long-term customer relationships.

The Company's fully integrated fibers manufacturing process employs unique technology that allows it to use a broad range of high-purity wood pulps for which the Company has dependable sources of supply.

Contributing to profitability in the Fibers segment is the limited number of competitors and significant barriers to entry. These barriers include, but are not limited to, high capital costs for integrated manufacturing facilities.

The Fibers segment's competitive strengths include a reputation for high-quality products, technical expertise, large scale vertically-integrated processes, reliability of supply, balanced internally produced acetate flake supply for Fibers products, a reputation for customer service excellence, and a customer base characterized by strategic long-term customer and end-user relationships. The Company continues to capitalize and build on these strengths to further improve the strategic position of its Fibers segment. In response to challenging acetate tow market conditions, including additional industry capacity and lower capacity utilization rates, the Company has taken actions expected to stabilize segment earnings including, establishing long-term acetate tow customer agreements, pursuing growth in textile and nonwoven applications, and repurposing manufacturing capacity from acetate tow to new products.


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Principal Products
Product
Description
Principal
Competitors
Key Raw
Materials
End-Use Applications
 
 
 
 
 
Acetate Tow
Estron
cellulose acetate tow
Celanese Corporation
Rhodia Acetow
Daicel Corporation
Mitsubishi Rayon Co. Ltd.
wood pulp
methanol
high sulfur coal
filtration media (primarily cigarette filters)
Acetyl Chemical Products
Estrobond
triacetin
cellulose acetate flake
acetic acid
acetic anhydride

Jiangsu Ruijia Chemistry Co., Ltd.
Polynt SpA
Daicel Corporation
Celanese Corporation
Rhodia Acetow
wood pulp
methanol
high sulfur coal
filtration media (primarily cigarette filters)

Acetate Yarn
Estron
Chromspun
Naia




natural (undyed) acetate yarn
solution dyed acetate yarn
UAB Dirbtinis Pluostas
Industrias del Acetato de Celulosa S.A.
Mitsubishi Rayon Co. Ltd.
Lenzing AG
ENKA International GmbH & Co.KG
wood pulp
methanol
high sulfur coal
consumables (apparel, home furnishings, and industrial fabrics)
health and wellness (medical tape)
Nonwovens
Nonwovens
Vestera
   Celluosic Fiber

wetlaid nonwoven media
specialty and engineered papers
cellulose acetate fiber
Hollingsworth and Vose Company
Lydall, Inc.
BorgWarner Inc.
Lenzing AG
natural and synthetic fibers
inorganic and metallic additives
resins
filtration and friction media for transportation
industrial
agriculture and mining
aerospace markets
personal hygiene
consumables

Strategy

Management applies the innovation-driven growth model in the Fibers segment by leveraging its strong customer relationships and industry knowledge to maintain a leading industry position in the global market. The segment benefits from a state-of-the-art, world class, acetate flake production facility at the Kingsport, Tennessee site, which is supplied from Eastman's vertically integrated coal gasification facility and is the largest and most integrated acetate tow site in the world. Eastman's global acetate tow capacity is approximately 150,000 metric tons, not including the Company's participation in an acetate tow joint venture manufacturing facility in China. The Company supplies 100 percent of the acetate flake raw material to the China manufacturing joint venture from the Company's manufacturing facility in Kingsport, Tennessee, which the Company recognizes in sales revenue. The Company recognizes earnings in the joint venture through its equity investment, reported in "Other (income) charges, net" in the Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings in Part II, Item 8 of this Annual Report. The Company’s focus on innovation has resulted in repurposing some of its acetate tow manufacturing capacity to textiles and nonwovens, resulting in increased capacity utilization and lower acetate tow costs.

As a result of challenging market conditions for acetate tow, the Company closed its Workington, UK acetate tow manufacturing facility in 2015. Following an increase in acetate flake capacity at the Kingsport, Tennessee site in 2015, the Fibers segment could supply all its acetate tow and yarn spinning capacity from this low-cost flake asset. In order to fully utilize the increased capacity and reduce fixed costs, in June 2016, the Company sold its 50 percent interest in Primester, which manufactures cellulose acetate at the Company's Kingsport, Tennessee site. In 2018, the Company repurposed some of its acetate tow manufacturing capacity for production of new products.


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The Company makes use of its capabilities in fibers technology to maintain a strong focus on incremental product and process improvements, with the goals of meeting customers' evolving needs and further improving the segment's manufacturing process efficiencies.

The Fibers segment R&D efforts focus on serving existing customers, leveraging proprietary cellulose ester and spinning technology for differentiated application development in new markets, optimizing asset productivity, and working with suppliers to reduce costs. For acetate tow, these efforts are assisting customers in the effective use of the segment's products and customers' product development efforts. Beyond acetate tow, management is applying the innovation-driven growth model to leverage its fibers technology and expertise to focus on innovative growth in the textiles and nonwovens markets. Examples of recent product innovation within the Fibers segment include Naia, a yarn for the apparel market developed from Eastman's proprietary cellulose ester technology, Avra, a family of performance fibers for the apparel, home furnishings and industrial fabrics markets developed from a combination of Eastman proprietary spinning technology and polymer chemistry enabling unique fiber capabilities of size, shape, comfort, and performance, and Vestera, a new wood pulp-based alternative for the nonwoven industry used in personal hygiene applications.


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EASTMAN CHEMICAL COMPANY GENERAL INFORMATION

Seasonality and Cyclicality

Eastman's earnings are typically higher in second and third quarters, and cash flows from operations are typically highest in the second half of the year due to seasonal demand based on general economic activity in the Company's key markets as described in "Business Segments". Results in the AM segment are typically weaker in fourth quarter due to seasonal downturns in key markets.

The coatings and inks additives product line of the AFP segment and the intermediates product line of the CI segment are impacted by the cyclicality of key end products and markets, while other operating segments and product lines are more sensitive to global economic conditions. Supply and demand dynamics determine profitability at different stages of business cycles and global economic conditions affect the length of each cycle.

Despite sensitivity to global economic conditions, the product portfolios of each operating segment are expected to continue to provide an overall stable foundation for earnings growth.

Sales, Marketing, and Distribution

Eastman markets and sells products primarily through a global marketing and sales organization which has a presence in the United States and approximately 30 other countries selling into more than 100 countries around the world. The Company focuses its market engagement on attractive niche markets, leveraging disruptive macro trends, and market activation throughout the value chain with both customers and downstream users. Eastman's strategy is to target industries and markets where the Company can leverage its application development expertise to develop product offerings to provide differentiated value that address current and future customer and market needs. The Company's strategic marketing approach and capabilities leverage the Company's insights about trends, markets, and customers to drive development of specialty products. Through a highly skilled and specialized sales force that is capable of providing differentiated product solutions, Eastman strives to be the preferred supplier in the Company's targeted markets.

The Company's products are also marketed through indirect channels, which include dealers and contract representatives. Sales outside the United States tend to be made more frequently through dealers and contract representatives than sales in the United States. The combination of direct and indirect sales channels, including sales online through its Customer Center website, allows Eastman to reliably serve customers throughout the world.

The Company's products are shipped to customers and to downstream users directly from Eastman manufacturing plants and distribution centers worldwide.

Sources and Availability of Raw Materials and Energy

Eastman purchases approximately 75 percent of its key raw materials and energy through different contract mechanisms, generally of one to three years in initial duration with renewal or cancellation options for each party. Most of these agreements do not require the Company to purchase materials or energy if its operations are reduced or idle. The cost of raw materials and energy is generally based on market price at the time of purchase, and Eastman uses derivative financial instruments for certain key raw materials to mitigate the impact of market price fluctuations. Key raw materials include propane, propylene, paraxylene, methanol, cellulose, fatty alcohol, polyvinyl alcohol, and a wide variety of precursors for specialty organic chemicals. Key purchased energy sources include natural gas, coal, and electricity. The Company has multiple suppliers for most key raw materials and energy and uses quality management principles, such as the establishment of long-term relationships with suppliers and ongoing performance assessments and benchmarking, as part of its supplier selection process. When appropriate, the Company purchases raw materials from a single source supplier to maximize quality and cost improvements, and has contingency plans to minimize the potential impact of any supply disruptions from single source suppliers.


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While temporary shortages of raw materials and energy may occasionally occur, these items are generally sufficiently available to cover current and projected requirements. However, their continuous availability and cost are subject to unscheduled plant interruptions occurring during periods of high demand, domestic and world market conditions, changes in government regulation, natural disasters, war or other outbreak of hostilities or terrorism or other political factors, or breakdown or degradation of transportation infrastructure. Eastman's operations or products have in the past, and may in the future, be adversely affected by these factors. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Risk Factors" in Part II, Item 7 of this Annual Report. The Company's raw material and energy costs as a percent of total cost of operations were approximately 50 percent in 2018. For additional information about raw materials, see Exhibit 99.02 "Product and Raw Material Information" of this Annual Report.

Manufacturing Streams

Integral to Eastman's strategy for growth is leveraging its heritage of expertise and innovation in cellulose and acetyl, olefins, polyester, and alkylamine chemistries in key markets, including transportation, building and construction, consumables, filtration media, and agriculture. For each of these chemistries, Eastman has developed and acquired a combination of assets and technologies that are operated within four manufacturing "streams", combining scale and integration across multiple manufacturing units and sites as a competitive advantage.

In the cellulose and acetyl stream, the Company begins with coal which is gasified with oxygen in its coal gasification facility. The resulting synthesis gas is converted into acetic acid and acetic anhydride. Cellulose derivative manufacturing at the Company begins with natural polymers, sourced from managed forests, which, when combined with acetyl and olefin chemicals, provide differentiated product lines. The major end-markets for products from the cellulose and acetyl stream include coatings, displays, thermoplastics, and filtration media.

In the olefins stream, the Company begins primarily with propane and ethane, which are "cracked" (the process whereby hydrocarbon molecules are broken down and rearranged) into ethylene and propylene in three cracking units at its site in Longview, Texas. As a result of recent modifications, these units also offer flexibility to use RGP as a diversified feedstock to minimize the impact of olefins spread volatility. The Company purchases some additional propylene to supplement cracking unit production. Propylene derivative products are used in a variety of items such as paints and coatings, automotive safety glass, and non-phthalate plasticizers. Ethylene derivative products are converted for end-uses in the food industry, health and beauty products, detergents, and automotive products.

In the polyester stream, the Company begins with paraxylene and glycol feedstocks, converting them through a series of intermediate materials to ultimately produce copolyesters. Eastman can add specialty monomers to copolyesters to provide clear, tough, chemically resistant product characteristics. As a result, the Company's copolyesters effectively compete with materials such as polycarbonate and acrylic.

In the alkylamines stream, the Company begins with ammonia and alcohol feedstocks to produce methylamines and higher alkylamines, which can then be further converted into alkylamine derivatives. The Company's alkylamines products are primarily used in agriculture, water treatment, consumables, animal nutrition, and oil and gas end-markets.

The Company leverages its expertise and innovation in cellulose and acetyl, olefins, polyester, and alkylamine chemistries and technologies, to meet demand and create new uses and opportunities for the Company's products in key markets. Through integration and optimization across these streams, the Company is able to create unique and differentiated products that have a performance advantage over competitive materials.

Employees

Eastman employs approximately 14,500 people worldwide. Approximately 10 percent of the total worldwide labor force is represented by collective labor agreements, mostly outside the United States.

Customers

Eastman has an extensive customer base and, while it is not dependent on any one customer, loss of certain top customers could adversely affect the Company until such business is replaced. The top 100 customers accounted for approximately 55 percent of the Company's 2018 sales revenue. No single customer accounted for 10 percent or more of the Company's consolidated sales revenue during 2018.


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Intellectual Property and Trademarks

While Eastman's intellectual property portfolio is an important Company asset which it expands and vigorously protects globally through a combination of patents, trademarks, copyrights, and trade secrets, neither its business as a whole nor any particular operating segment is materially dependent upon any one particular patent, trademark, copyright, or trade secret. As a producer of a broad range of advanced materials, specialty additives, chemicals, and fibers, Eastman owns over 700 active United States patents and more than 1,600 active foreign patents, expiring at various times over several years, and owns over 5,400 active worldwide trademark applications and registrations. Eastman continues to actively protect its intellectual property. As the laws of many countries do not protect intellectual property to the same extent as the laws of the United States, Eastman cannot ensure that it will be able to adequately protect its intellectual property assets outside the United States. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Risk Factors" in Part II, Item 7 of this Annual Report.

The Company pursues opportunities to license proprietary technology to third parties where it has determined competitive impact to its businesses will be minimal. These arrangements typically are structured to require payments at significant project milestones such as signing, completion of design, and start-up.

Research and Development

Management applies its innovation-driven growth model to leverage the Company's world class scalable technology platforms that provide a competitive advantage and the foundation for sustainable earnings growth. The Company's R&D strategy for sustainable growth through innovation includes multi-generational product development for specialty products, faster and more differentiated product development by leveraging global application development capabilities, and the creation of value through integration of multiple technology platforms. The Company leverages core competencies in polyesters, cellulose esters, thermoplastic processing, textile capability, and in-house application expertise for use in a wide range of applications to provide solutions to markets which are in search of new and improved products. This strategy has been accelerated by enhancements of global differentiated application development capabilities that position Eastman as a strategic element of customers’ success within attractive niche markets. See examples of recent product innovations in "Corporate Overview - Business Strategy - Innovation".

Eastman manages certain growth initiatives and costs at the corporate level, including certain R&D costs not allocated to any one operating segment. The Company uses a stage-gating process, which is a disciplined decision-making framework for evaluating targeted opportunities, with a number of projects at various stages of development. As projects meet milestones, additional amounts are spent on those projects. The Company continues to explore and invest in R&D initiatives such as high-performance materials and advanced cellulosics that are aligned with opportunities created by disruptive macro trends. See discussion of macro trends in "Corporate Overview - Business Strategy - Sustainability".

Environmental

The Company is subject to significant and complex laws, regulations, and legal requirements relating to the use, storage, handling, generation, transportation, emission, discharge, disposal, and remediation of, and exposure to, hazardous and non-hazardous substances and wastes in all of the countries in which it does business. These health, safety, and environmental considerations are a priority in the Company's planning for all existing and new products and processes. The Health, Safety, Environmental and Security Committee of Eastman's Board of Directors oversees the Company's policies and practices concerning health, safety, and the environment and its processes for complying with related laws and regulations, and monitors related matters.

The Company's policy is to operate its plants and facilities in compliance with all applicable laws and regulations such that it protects the environment and the health and safety of its employees and the public. The Company intends to continue to make expenditures for environmental protection and improvements in a timely manner consistent with its policies and with available technology. In some cases, applicable environmental regulations such as those adopted under the Clean Air Act, Resource Conservation and Recovery Act, Comprehensive Environmental Response, Compensation, and Liability Act, and related actions of regulatory agencies determine the timing and amount of environmental costs incurred by the Company. Likewise, any new legislation or regulations related to greenhouse gas emissions and energy, or the repeal of such legislation or regulations, could impact the timing and amount of environmental costs incurred by the Company.


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The Company accrues environmental costs when it is probable that the Company has incurred a liability at a contaminated site and the amount can be reasonably estimated. In some instances, the amount cannot be reasonably estimated due to insufficient information, particularly as to the nature and timing of future expenditures. In these cases, the liability is monitored until such time that sufficient information exists. With respect to a contaminated site, the amount accrued reflects liabilities expected to be paid out within approximately 30 years and 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, and chemical control regulations, and testing requirements could result in higher or lower costs.

Eastman's cash expenditures related to environmental protection and improvement were $274 million, $257 million, and $267 million, in 2018, 2017, and 2016, respectively, and include operating costs associated with environmental protection equipment and facilities, engineering costs, and construction costs. These cash expenditures include environmental capital expenditures of approximately $44 million, $38 million, and $45 million in 2018, 2017, and 2016, respectively.

The Company does not currently expect near term environmental capital expenditures arising from requirements of environmental laws and regulations to materially impact the Company's planned level of annual capital expenditures for environmental control facilities. Other matters concerning health, safety, and the environment are discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 and in Note 1, "Significant Accounting Policies"; Note 12, "Environmental Matters and Asset Retirement Obligations"; and Note 21, "Reserve Rollforwards" to the Company's consolidated financial statements in Part II, Item 8 of this Annual Report.

Backlog

As of December 31, 2018, Eastman's backlog of firm sales orders represented less than 10 percent of the Company's total consolidated revenue for the year. These orders are primarily short-term, and all orders are expected to be filled in the following year. The Company manages its inventory levels to control the backlog of products depending on customers' needs. In areas where the Company is the single source of supply, or competitive forces or customers' needs dictate, the Company may carry additional inventory to meet customer requirements.

Available Information - Securities and Exchange Commission ("SEC") Filings

Eastman makes available free of charge, in the "Investors - SEC Information" section of its Internet website (www.eastman.com), its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after electronically filing such material with, or furnishing it to, the SEC. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov.

ITEM 1A.  RISK FACTORS

For identification and discussion of the most significant risks applicable to the Company and its business, see "Management's Discussion and Analysis of Financial Condition and Results of Operations - Risk Factors" in Part II, Item 7 of this Annual Report.

ITEM 1B.  UNRESOLVED STAFF COMMENTS

None.


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EXECUTIVE OFFICERS OF THE COMPANY

Certain information about Eastman's executive officers is provided below:

Mark J. Costa, age 52, is Chief Executive Officer and Chair of the Eastman Chemical Company Board of Directors. Mr. Costa joined the Company in June 2006 as Senior Vice President, Corporate Strategy and Marketing; was appointed Executive Vice President, Polymers Business Group Head and Chief Marketing Officer in August 2008; was appointed Executive Vice President, Specialty Polymers, Coatings and Adhesives, and Chief Marketing Officer in May 2009; and became President and a member of the Board of Directors of the Company in May 2013. Prior to joining Eastman, Mr. Costa was a senior partner with Monitor Group ("Monitor"). He joined Monitor, a global management consulting firm, in 1988, and his experience included corporate and business unit strategies, asset portfolio strategies, innovation and marketing, and channel strategies across a wide range of industries. Mr. Costa was appointed Chief Executive Officer in January 2014 and was named Board Chair effective July 2014.

Curtis E. Espeland, age 54, is Executive Vice President and Chief Financial Officer. Mr. Espeland joined Eastman in 1996, and has served in various financial management positions of increasing responsibility, including Director of Internal Auditing; Director of Finance, Asia Pacific; Director of Corporate Planning and Forecasting; Vice President and Controller; Vice President, Finance, Eastman Division; Vice President, Finance, Polymers; and Senior Vice President and Chief Financial Officer from 2008 until December 2013. He served as the Company's Chief Accounting Officer from December 2002 to 2008. Prior to joining Eastman, Mr. Espeland was an audit and business advisory manager with Arthur Andersen LLP in the United States, Eastern Europe, and Australia. Mr. Espeland was appointed to his current position effective January 2014.

Brad A. Lich, age 51, is Executive Vice President and Chief Commercial Officer, with responsibility for the AM and Fibers segments, outside-U.S. regional business leadership, and the marketing, sales, pricing, and procurement organizations. Mr. Lich joined Eastman in 2001 as Director of Global Product Management and Marketing for the Coatings business. Other positions of increasing responsibility followed, including General Manager of Emerging Markets of the former Coatings, Adhesives, Specialty Polymers, and Inks ("CASPI") segment. In 2006, Mr. Lich became Vice President of Global Marketing with direct responsibility for company-wide global marketing functions. In 2008, Mr. Lich was appointed Vice President and General Manager of the CASPI segment, and in 2012 was appointed Vice President and General Manager of the AFP segment. In January 2014, Mr. Lich was appointed Executive Vice President, with responsibility for the AFP and AM segments and the marketing, sales, and pricing organizations. In March 2016, Mr. Lich assumed executive responsibility for outside-U.S. regional business leadership. Mr. Lich was appointed to his current position effective July 2016.

Lucian Boldea, age 47, is Executive Vice President with responsibility for the AFP and CI segments. Mr. Boldea joined Eastman in 1997 as a chemist. During his career at Eastman, he has held various positions in R&D, licensing, business management, and corporate growth platforms leadership. These positions included Technology Director for the former Performance Chemicals and Intermediates ("PCI") segment and Director of Corporate Growth Platforms. In 2015, he was appointed Group Vice President and General Manager of the AFP segment and became Senior Vice President of AFP in July 2016. Mr. Boldea was appointed to his current position effective January 2019.
 
Mark K. Cox, age 53, is Senior Vice President and Chief Manufacturing, Supply Chain, and Engineering Officer. Mr. Cox joined Eastman in 1986 and has served in a variety of management positions, including leadership roles within the business management, manufacturing, and technology areas. Additionally, he has held responsibility for Eastman's Corporate Six Sigma program. In August 2008, Mr. Cox was appointed Vice President, Chemicals and Fibers Technology. Beginning in May 2009, Mr. Cox served as Vice President, Chemicals, Fibers, and Performance Polymers Technology. He was appointed Vice President, Worldwide Engineering and Construction in August 2010, appointed Senior Vice President and Chief Manufacturing and Engineering Officer effective January 2014, and to his current position effective March 2016.
 
Stephen G. Crawford, age 54, is Senior Vice President and Chief Technology Officer, with executive responsibility for corporate innovation. Mr. Crawford joined Eastman in 1984. Since then, he has held several leadership positions of increasing responsibility in both the manufacturing and technology organizations. From 2007 until January 2014 he served as Vice President of Global R&D in the AM and AFP segments, and was appointed to his current position effective January 2014.


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David A. Golden, age 53, is Senior Vice President, Chief Legal & Sustainability Officer and Corporate Secretary. Mr. Golden has overall responsibility for Eastman's Legal, Corporate Health, Safety, Environment, Security, Product Safety and Regulatory Affairs, Sustainability, Government Relations, Community Affairs, and Public Policy and Communication functions. He also has overall responsibility for Eastman's Global Business Conduct and International Trade Compliance programs. Prior to this position, he was Vice President, Associate General Counsel, and Corporate Secretary with overall responsibility for Eastman's Legal Department. Mr. Golden joined Eastman in 1995 as an attorney and has held positions of increasing responsibility, including serving as the Director of Internal Audit from October 2005 to October 2007 and Vice President and Assistant General Counsel responsible for the Company's commercial and international law groups from 2007 to 2010. Mr. Golden was appointed Senior Vice President, Chief Legal Officer, and Corporate Secretary in January 2013 and to his current position including executive leadership of the Company's sustainability efforts in March 2016. Prior to joining Eastman, he worked as an attorney in the Atlanta office of the law firm of Hunton & Williams.

Perry Stuckey III, age 59, is Senior Vice President, Chief Human Resources Officer. Mr. Stuckey joined Eastman in 2011 as Vice President, Global Human Resources, and was responsible for Eastman's human resources strategy and services worldwide. Mr. Stuckey's work experience includes a variety of global human resource management positions in manufacturing, industrial automation, and bio-technology companies, including Hill-Rom Company, Rockwell Automation, and Monsanto Company. Mr. Stuckey was appointed to his current position in January 2013.

Damon C. Warmack, age 61, is Senior Vice President, Corporate Development. Mr. Warmack joined Eastman in 1980, working in a series of sales and product management positions. He was located in Taiwan, Hong Kong, Shanghai, and Singapore with a range of assignments including the establishment of Eastman's commercial presence in China, joint venture development and management, and serving as Vice President and Managing Director, Asia Pacific. In addition, he served as Vice President and General Manager of Resins, Inks, and Monomers, leading the restructure and divestiture of this business. Mr. Warmack then served as Vice President and General Manager of the former CASPI segment and then of the former PCI segment. More recently, he had responsibility for corporate development and strategic planning, playing a lead role in the Company's business portfolio transformation through acquisitions and divestitures, and became Senior Vice President of Corporate Development and CI in July 2016. As previously announced, Mr. Warmack is retiring mid-year 2019 and was appointed to his current position effective January 2019 until his retirement.

Scott V. King, age 50, is Vice President, Corporate Controller and Chief Accounting Officer. Since joining Eastman in 1999 as Manager, Corporate Consolidations and External Reporting, Mr. King has held various positions of increasing responsibility in the financial organization. He was first appointed Corporate Controller in August 2007 and has served as Chief Accounting Officer since September 2008. Prior to joining Eastman, Mr. King was an audit and business advisory manager with PricewaterhouseCoopers LLP.

ITEM 2.
PROPERTIES

At December 31, 2018, Eastman owned or operated 48 manufacturing facilities and had equity interests in three manufacturing joint ventures in a total of 14 countries. Utilization of these sites may vary with product mix and economic, seasonal, and other business conditions; however, none of the principal plants are substantially idle. The Company's plants, including approved expansions, generally have sufficient capacity for existing needs and expected near-term growth. These plants are generally well maintained, in good operating condition, and suitable and adequate for their use. Unless otherwise indicated, all properties are owned. Corporate headquarters are in Kingsport, Tennessee. The Company's regional headquarters are in Shanghai, China; Miami, Florida; Rotterdam, the Netherlands; Singapore; and Zug, Switzerland.


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The locations and general character of the Company's manufacturing facilities are:
 
Segment using manufacturing location
Location
Additives & Functional Products
Advanced Materials
Chemical Intermediates
Fibers
 
 
 
 
 
USA
 
 
 
 
Alvin, Texas (1)
x
 
 
 
Anniston, Alabama
x
 
 
 
Axton, Virginia
 
x
 
 
Canoga Park, California (2)
 
x
 
 
Cartersville, Georgia (1)
x
 
 
 
Chestertown, Maryland
 
 
x
 
Columbia, South Carolina (1)
 
x
 
 
Franklin, Virginia (1)
x
 
 
 
Jefferson, Pennsylvania
x
 
 
 
Kingsport, Tennessee
x
x
x
x
Lemoyne, Alabama (1)
x
 
 
 
Linden, New Jersey
x
 
 
 
Longview, Texas
x
x
x
 
Martinsville, Virginia (3)
 
x
 
 
Monongahela, Pennsylvania
x
 
 
 
Pace, Florida
x
 
x
 
Sauget, Illinois
x
 
 
 
Springfield, Massachusetts
 
x
 
 
St. Gabriel, Louisiana
x
 
x
 
Sun Prairie, Wisconsin
 
x
 
 
Texas City, Texas
 
 
x
 
Trenton, Michigan
 
x
 
 
Watertown, New York
 
 
 
x
Europe
 
 
 
 
Antwerp, Belgium (1)
x
x
 
 
Ghent, Belgium (3)
x
x
x
 
Kohtla-Järve, Estonia
x
 
x
 
Oulu, Finland (2)
x
 
 
 
Dresden, Germany
 
x
 
 
Leuna, Germany
x
 
x
 
Nienburg, Germany
x
 
 
 
Middelburg, the Netherlands
x
 
 
 
Newport, Wales
x
x
 
 
(1) 
Eastman is a guest under an operating agreement with a third party that operates its manufacturing facilities at the site.
(2) 
Eastman leases from a third party and operates the site.
(3) 
Eastman has more than one manufacturing facility at this location.


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Segment using manufacturing location
Location
Additives & Functional Products
Advanced Materials
Chemical Intermediates
Fibers
 
 
 
 
 
Asia Pacific
 
 
 
 
Nanjing, China
x
 
x
 
Suzhou, China (1)(2)(3)
x
x
 
 
Wuhan, China (4)
 
 
x
 
Yixing, China
x
 
 
 
Zibo, China (5)
x
 
x
 
Kashima, Japan
x
 
 
 
Ulsan, Korea (6)
 
 
 
x
Kuantan, Malaysia (1)
x
x
 
 
Jurong Island, Singapore (1)
x
 
x
 
Latin America
 
 
 
 
Itupeva, Brazil (7)
x
 
 
 
Mauá, Brazil
 
 
x
 
Santo Toribio, Mexico
 
x
 
 
Uruapan, Mexico
x
 
 
 
(1) 
Eastman leases from a third party and operates the site.
(2) 
Eastman has more than one manufacturing facility at this location.
(3) 
Eastman holds a 60 percent share of Solutia Therminol Co., Ltd. Suzhou in the AFP segment.
(4) 
Eastman holds a 51 percent share of Eastman Specialties Wuhan Youji Chemical Co., Ltd.
(5) 
Eastman holds a 51 percent share of Qilu Eastman Specialty Chemical, Ltd.
(6) 
Eastman holds an 80 percent share of Eastman Fibers Korea Limited.
(7) 
Eastman is a guest under an operating agreement with a third party that operates its manufacturing facilities at the site.

Eastman has 50 percent or less ownership in joint ventures that have manufacturing facilities at the following locations:
 
Segment using manufacturing location
Location
Additives & Functional Products
Advanced Materials
Chemical Intermediates
Fibers
 
 
 
 
 
Asia Pacific
 
 
 
 
Hefei, China
 
 
 
x
Nanjing, China
x
 
 
 
Shenzhen, China
 
x
 
 

Eastman has distribution facilities at all of its plant sites. In addition, the Company owns or leases approximately 200 stand-alone distribution facilities in approximately 30 countries. The Company also maintains technical service centers around the world.

A summary of properties, classified by type, is included in Note 3, "Properties and Accumulated Depreciation", to the Company's consolidated financial statements in Part II, Item 8 of this Annual Report.

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ITEM 3.
LEGAL PROCEEDINGS

General

From time to time, Eastman 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 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.

Solutia Legacy Torts Claims Litigation

Pursuant to an Amended and Restated Settlement Agreement effective February 28, 2008 between Solutia and Monsanto Company ("Monsanto") in connection with Solutia's emergence from Chapter 11 bankruptcy proceedings (the "Monsanto Settlement Agreement"), Monsanto is responsible for the defense and indemnification of Solutia against any Legacy Tort Claims (as defined in the Monsanto Settlement Agreement) and Solutia has agreed to retain responsibility for certain tort claims, if any, that may arise from Solutia's conduct after its spinoff from Pharmacia Corporation (f/k/a Monsanto), which occurred on September 1, 1997. Solutia, which became a wholly-owned subsidiary of Eastman upon Eastman's acquisition of Solutia in July 2012, has been named as a defendant in several such proceedings, and has submitted the matters to Monsanto, which was acquired by Bayer AG in June 2018, as Legacy Tort Claims. To the extent these matters are not within the meaning of Legacy Tort Claims, Solutia could potentially be liable thereunder. In connection with the completion of its acquisition of Solutia, Eastman guaranteed the obligations of Solutia and Eastman was added as an indemnified party under the Monsanto Settlement Agreement.

ITEM 4.
MINE SAFETY DISCLOSURES

Not applicable.


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PART II

ITEM 5.
MARKET FOR REGISTRANT'S COMMON STOCK, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

(a)Eastman's common stock is traded on the New York Stock Exchange (the "NYSE") under the symbol "EMN". 

As of December 31, 2018, there were 139,777,332 shares of Eastman's common stock issued and outstanding, which shares were held by 14,610 stockholders of record. These shares include 50,798 shares held by the Company's charitable foundation. 

See Part III, Item 12, "Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters -Securities Authorized for Issuance Under Equity Compensation Plans" for the information required by Item 201(d) of Regulation S-K.

(b)Not applicable.

(c)    Purchases of Equity Securities by the Issuer and Affiliated Purchasers:

In February 2018 the Board of Directors authorized the repurchase of up to $2 billion of the Company's outstanding common stock at such times, in such amounts, and on such terms, as determined by management to be in the best interests of the Company. As of December 31, 2018, a total of 2,470,755 shares have been repurchased under this authorization for a total amount of $248 million. During 2018 the Company repurchased 3,959,878 shares of common stock for a total cost of approximately $400 million (including 1,489,123 shares for a total cost of approximately $152 million under a previous $1 billion repurchase authorization). For additional information, see Note 14, "Stockholders' Equity", to the Company's consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K.
Period
Total Number
of Shares
Purchased
Average Price Paid Per Share(1)
Total Number of Shares Purchased as Part of Publicly Announced Plans
or Programs
Approximate Dollar
Value that May Yet Be Purchased Under the Plans or Programs
October 1 - 31, 2018
286,236

$
87.34

286,236

$
1.752
 billion
November 1 - 30, 2018

$


$
1.752
 billion
December 1 - 31, 2018

$


$
1.752
 billion
Total
286,236

$
87.34

286,236

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


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ITEM 6.
SELECTED FINANCIAL DATA
Statements of Earnings Data
Year Ended December 31,
(Dollars in millions, except per share amounts)
2018
 
2017
 
2016
 
2015
 
2014
Sales
$
10,151

 
$
9,549

 
$
9,008

 
$
9,648

 
$
9,527

Earnings before interest and taxes
1,552

 
1,530

 
1,389

 
1,392

 
1,177

Earnings from continuing operations
1,084

 
1,388

 
859

 
854

 
755

Earnings from discontinued operations

 

 

 

 
2

Net earnings
1,084

 
1,388

 
859

 
854

 
757

Less: Net earnings attributable to noncontrolling interest
4

 
4

 
5

 
6

 
6

Net earnings attributable to Eastman
$
1,080

 
$
1,384

 
$
854

 
$
848

 
$
751

Amounts attributable to Eastman:
 
 
 
 
 
 
 
 
 
Earnings from continuing operations, net of tax
$
1,080

 
$
1,384

 
$
854

 
$
848

 
$
749

Earnings from discontinued operations, net of tax

 

 

 

 
2

Net earnings attributable to Eastman
$
1,080

 
$
1,384

 
$
854

 
$
848

 
$
751

Basic earnings per share attributable to Eastman:
 

 
 

 
 

 
 

 
 

Earnings from continuing operations
$
7.65

 
$
9.56

 
$
5.80

 
$
5.71

 
$
5.01

Earnings from discontinued operations

 

 

 

 
0.02

Net earnings
$
7.65

 
$
9.56

 
$
5.80

 
$
5.71

 
$
5.03

Diluted earnings per share attributable to Eastman:
 

 
 

 
 

 
 

 
 

Earnings from continuing operations
$
7.56

 
$
9.47

 
$
5.75

 
$
5.66

 
$
4.95

Earnings from discontinued operations

 

 

 

 
0.02

Net earnings
$
7.56

 
$
9.47

 
$
5.75

 
$
5.66

 
$
4.97

Statements of Financial Position Data
 

 
 

 
 

 
 

 
 
Current assets
$
3,365

 
$
3,143

 
$
2,866

 
$
2,878

 
$
3,173

Net properties
5,600

 
5,607

 
5,276

 
5,130

 
5,087

Goodwill
4,467

 
4,527

 
4,461

 
4,518

 
4,486

Intangible assets, net of accumulated amortization
2,185

 
2,373

 
2,479

 
2,650

 
2,905

Total assets
15,995

 
15,999

 
15,457

 
15,580

 
16,072

Current liabilities
1,851

 
1,982

 
1,795

 
2,056

 
2,022

Long-term borrowings
5,925

 
6,147

 
6,311

 
6,577

 
7,248

Total liabilities
10,117

 
10,519

 
10,849

 
11,559

 
12,482

Total Eastman stockholders' equity
5,803

 
5,403

 
4,532

 
3,941

 
3,510

Dividends declared per share
2.30

 
2.09

 
1.89

 
1.66

 
1.45




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ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

This Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is based upon the consolidated financial statements of Eastman Chemical Company ("Eastman" or the "Company"), which have been prepared in accordance with accounting principles generally accepted ("GAAP") in the United States, and should be read in conjunction with the Company's consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K (this "Annual Report"). All references to earnings per share ("EPS") contained in this report are to diluted earnings per share unless otherwise noted. Beginning January 1, 2018, Eastman's primary measure of operating performance for all periods presented is earnings before interest and taxes ("EBIT") on a consolidated and segment basis. Previously, the Company's primary measure of operating performance was operating earnings.



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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, 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, Eastman evaluates its estimates, including those related to impairment of long-lived assets, environmental costs, pension and other postretirement benefits, litigation and contingent liabilities, and income taxes. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Management believes the critical accounting estimates described below 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.

Impairment of Long-Lived Assets

Definite-lived Assets

Properties and equipment and definite-lived intangible assets to be held and used by Eastman are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The review of properties and equipment is performed at the asset group level and the review of definite-lived intangible assets is performed at the asset level, which is the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. If the carrying amount is not considered to be recoverable, an analysis of fair value is triggered. An impairment is recognized for the excess of the carrying amount of the asset over the fair value. Fair value is the price that would be received to sell an asset in an orderly transaction between market participants. The Company's assumptions related to long-lived assets are subject to change and impairments may be required in the future. If estimates of fair value less costs to sell are revised, the carrying amount of the related asset is adjusted, resulting in a charge to earnings.

Goodwill

Eastman conducts testing of goodwill annually in the fourth quarter or more frequently when events and circumstances indicate an impairment may have occurred. The testing of goodwill is performed at the "reporting unit" level which the Company has determined to be its "components". Components are defined as an operating segment or one level below an operating segment, and in order to be a reporting unit, the component must 1) be a "business" as defined by applicable accounting standards (an integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing a return in the form of dividends, lower costs, or other economic benefits directly to the investors or other owners, members, or participants); 2) have discrete financial information available; and 3) be reviewed regularly by Company operating segment management. The Company aggregates certain components into reporting units based on economic similarities.

On October 1, 2018, management adopted Accounting Standards Update 2017-04 Intangibles - Goodwill and Other to simplify the annual goodwill impairment testing process. A reporting unit's goodwill is considered to be impaired when the reporting unit's estimated fair value is less than its carrying value. The Company uses an income approach and applies a fair value methodology based on discounted cash flows in testing the carrying value of goodwill for each reporting unit. Key assumptions and estimates used in the Company's 2018 goodwill impairment testing included projections of revenues, expenses, and cash flows determined using the Company's annual multi-year strategic plan and a market participant tax rate. The most critical assumptions are the estimated discount rate and a projected long-term growth rate. The Company believes these assumptions are consistent with those a hypothetical market participant would use given circumstances that were present at the time the estimates were made. However, actual results and amounts may be significantly different from the Company's estimates. In addition, the use of different estimates or assumptions could result in materially different determinations. In order to determine the discount rate, the Company uses a market participant weighted average cost of capital ("WACC") approach. The WACC is calculated incorporating weighted average returns on debt and equity from market participants. Therefore, changes in the market, which are beyond the control of the Company, may have an impact on future calculations of estimated fair value. For additional information, see Note 1, "Significant Accounting Policies", to the Company's consolidated financial statements in Part II, Item 8 of this Annual Report.


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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

As a result of the goodwill impairment testing performed during fourth quarter 2018, fair values were determined to substantially exceed the carrying values for each reporting unit tested with the exception of crop protection (part of the Additives & Functional Products operating segment as described in Part I, Item 1, "Business", of this Annual Report). The Company reduced the carrying value of the crop protection reporting unit to its estimated fair value through recognition of a $38 million goodwill impairment. The impairment was primarily driven by an increase in the WACC applied to the impairment analysis and the estimated impact of future regulatory changes. Two of the most critical assumptions used in the calculation of the fair value of the crop protection reporting unit are the target market long-term growth rate and the WACC. The Company performed a sensitivity analysis of both of those assumptions, assuming a one percent decrease in the expected long-term growth rate or a one percent increase in the WACC, and both scenarios independently yielded an estimated fair value for the crop protection reporting unit below carrying value. The crop protection reporting unit's goodwill after the reduction for impairment was $235 million as of December 31, 2018.

Indefinite-lived Intangible Assets

Eastman conducts testing of indefinite-lived intangible assets annually in the fourth quarter or more frequently when events and circumstances indicate an impairment may have occurred. The carrying value of an indefinite-lived intangible asset is considered to be impaired when the fair value, as established by appraisal or based on discounted future cash flows of certain related products, is less than the respective carrying value.

Indefinite-lived intangible assets, consisting primarily of various tradenames, are tested for potential impairment by comparing the estimated fair value to the carrying amount. The Company uses an income approach, specifically the relief from royalty method, to test indefinite-lived intangible assets. The estimated fair value of tradenames is determined based on an assumed royalty rate savings, discounted by the calculated market participant WACC plus a risk premium.

The Company had $539 million in indefinite-lived intangible assets at the time of impairment testing. There was no material impairment of the Company's indefinite-lived intangible assets as a result of the tests performed during fourth quarter 2018.

The Company will continue to monitor both goodwill and indefinite-lived intangible assets for any indication of triggering events which might require additional testing before the next annual impairment test.

For additional information, see Note 4, "Goodwill and Other Intangible Assets", to the Company's consolidated financial statements in Part II, Item 8 of this Annual Report.

Environmental Costs

Eastman accrues environmental remediation costs when it is probable that the Company has incurred a liability at a contaminated site and the amount can be reasonably estimated. When a single amount cannot be reasonably estimated but the cost can be estimated within a range, the Company accrues the minimum undiscounted amount. This undiscounted accrued amount reflects liabilities expected to be paid within approximately 30 years and 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, and chemical control regulations and testing requirements could result in higher or lower costs. Estimated future environmental expenditures for undiscounted remediation costs ranged from the best estimate or minimum of $271 million to the maximum of $508 million and from the best estimate or minimum of $280 million to the maximum of $483 million at December 31, 2018 and December 31, 2017, respectively. The best estimate or minimum estimated future environmental expenditures are considered to be probable and reasonably estimable and include the amounts accrued at both December 31, 2018 and December 31, 2017.


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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Company also establishes reserves for closure and post-closure costs associated with the environmental and other assets it maintains. Environmental assets include but are not limited to waste management units, such as landfills, water treatment facilities, and surface impoundments. When these types of assets are constructed or installed, a loss contingency reserve is established for the anticipated future costs associated with the retirement or closure of the asset based on its expected life and the applicable regulatory closure requirements. The Company recognizes the asset retirement obligations in the period in which they are incurred if a reasonable estimate of fair value can be made. The asset retirement obligations are discounted to expected present value and subsequently adjusted for changes in fair value. These future estimated costs are charged to earnings over the estimated useful life of the assets. If the Company changes its estimate of the environmental asset retirement obligation costs or its estimate of the useful lives of these assets, expenses charged to earnings will be impacted. For sites that have environmental asset retirement obligations, the best estimate for these asset retirement obligation costs accrued to date was $25 million and $24 million at December 31, 2018 and December 31, 2017, respectively. 

The Company's total amount reserved for environmental loss contingencies, including the remediation and closure and post-closure costs described above, was $296 million and $304 million at December 31, 2018 and December 31, 2017, respectively. This loss contingency reserve represents the best estimate or minimum for undiscounted remediation costs and the best estimate of the amount accrued to date for discounted asset retirement obligation costs. For additional information, see Note 12, "Environmental Matters and Asset Retirement Obligations", to the Company's consolidated financial statements in Part II, Item 8 of this Annual Report.

Pension and Other Postretirement Benefits

Eastman maintains defined benefit pension plans that provide eligible employees with retirement benefits. Under its other postretirement benefit plans in the U.S., Eastman provides life insurance for eligible retirees hired prior to January 1, 2007. Eastman provides a subsidy for pre-Medicare health care and dental benefits to eligible retirees hired prior to January 1, 2007 that will end on December 31, 2021. Company funding is also provided for eligible Medicare retirees hired prior to January 1, 2007 with a health reimbursement arrangement. The estimated amounts of the costs and obligations related to these benefits primarily reflect the Company's assumptions related to discount rates and expected return on plan assets. For valuing the obligations and assets of the Company's U.S. and non-U.S. defined benefit pension plans, the Company assumed weighted average discount rates of 4.29 percent and 2.35 percent, respectively, and weighted average expected returns on plan assets of 7.43 percent and 4.49 percent, respectively at December 31, 2018. The Company assumed a weighted average discount rate of 4.26 percent for its other postretirement benefit plans and an expected return on plan assets of 3.75 percent for its voluntary employees' beneficiary association retiree trust at December 31, 2018. The estimated cost of providing plan benefits also depends on demographic assumptions including retirements, mortality, turnover, and plan participation.

The Company performed a five-year experience study of the assumptions for the U.S. plans in 2017 which included a review of the mortality tables. As a result of the experience study, the Company has updated the mortality assumptions used to a modified RP-2017 table with modified MP-2017 improvement scale and no collar adjustment.

The projected benefit obligation as of December 31, 2018 and 2019 expense are affected by year-end 2018 assumptions. The following table illustrates the sensitivity to changes in the Company's long-term assumptions in the assumed discount rate and expected return on plan assets for all pension and other postretirement benefit plans. The sensitivities below are specific to the time periods noted. They also may not be additive, so the impact of changing multiple factors simultaneously cannot be calculated by combining the individual sensitivities shown.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Change in
Assumption
Impact on
2019 Pre-tax
Benefits Expense
(Excludes mark-to-market impact)
 for Pension Plans
Impact on December 31, 2018 Projected Benefit Obligation for Pension Plans
Impact on 2019 Pre-tax Benefits Expense (Excludes mark-to-market impact) for Other Postretirement Benefit Plans
Impact on December 31, 2018 Benefit Obligation for Other Postretirement Benefit Plans
U.S.
Non-U.S.
25 basis point
decrease in discount
 rate
-$2 Million
+$48 Million
+$40 Million
-$1 Million
+$15 Million
25 basis point
increase in discount
 rate
+$2 Million
-$46 Million
-$37 Million
+$1 Million
-$14 Million
25 basis point
decrease in expected return on plan assets
+$6 Million
No Impact
No Impact
<+$0.5 Million
No Impact
25 basis point
increase in expected
return on plan assets
-$6 Million
No Impact
No Impact
<-$0.5 Million

No Impact

The assumed discount rate and expected return on plan assets used to calculate the Company's pension and other postretirement benefit obligations are established each December 31. The assumed discount rate is based upon a portfolio of high-grade corporate bonds, which are used to develop a yield curve. This yield curve is applied to the expected cash flows of the pension and other postretirement benefit obligations. Because future health care benefits under the U.S. benefit plan have been fixed at a certain contribution amount, changes in the health care cost trend assumptions do not have a material impact on the results of operations. The expected return on plan assets is based upon prior performance and the long-term expected returns in the markets in which the trusts invest their funds, primarily in U.S. and non-U.S. fixed income, U.S. and non-U.S. public equity, private equity, and real estate. Moreover, the expected return on plan assets is a long-term assumption and on average is expected to approximate the actual return on plan assets. Actual returns will be subject to year-to-year variances and could vary materially from assumptions.

In 2016, the Company changed the approach used to calculate service and interest cost components of net periodic benefit costs for its significant defined benefit pension and other postretirement benefit plans. The Company elected to calculate service and interest costs by applying the specific spot rates along the yield curve to the plans' projected cash flows. The change does not affect the measurement of the total benefit obligation or the annual net periodic benefit cost or credit of the plans because the change in the service and interest costs will be offset in the mark-to-market ("MTM") actuarial gain or loss. The MTM gain or loss, as described in the next paragraph, is typically recognized in the fourth quarter of each year or in any other quarters in which an interim remeasurement is triggered. For additional information, see Note 10, "Retirement Plans", to the Company's consolidated financial statements in Part II, Item 8 of this Annual Report.

The Company uses fair value accounting for plan assets. If actual experience differs from actuarial assumptions, primarily discount rates and long-term assumptions for asset returns which were used in determining the current year expense, the difference is recognized as part of the MTM net gain or loss in fourth quarter each year, and any other quarter in which an interim remeasurement is triggered. The MTM net gain or loss applied to net earnings in 2018, 2017, and 2016 due to the actual experience versus actuarial assumptions for the defined benefit pension and other postretirement benefit plans were a net loss of $99 million, a net gain of $21 million, and a net loss of $97 million, respectively. The 2018 MTM net loss included an actuarial gain of approximately $170 million, resulting primarily from the Company's December 31, 2018 weighted-average assumed discount rate of 3.82 percent, up from the prior year, and changes in other actuarial assumptions. Overall asset values decreased approximately $270 million due to asset values depreciating in excess of the assumed weighted-average rate of return. The actual loss was approximately $80 million, or an approximately 3 percent loss, which was below the expected return of approximately $190 million, or approximately 7 percent.


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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

While changes in obligations do not correspond directly to cash funding requirements, it is an indication of the amount the Company will be required to contribute to the plans in future years. The amount and timing of such cash contributions is dependent upon interest rates, actual returns on plan assets, retirement, attrition rates of employees, and other factors. For further information regarding pension and other postretirement benefit obligations, see Note 10, "Retirement Plans", to the Company's consolidated financial statements in Part II, Item 8 of this Annual Report.

Litigation and Contingent Liabilities

From time to time, Eastman 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 handled and defended in the ordinary course of business. The Company accrues a contingent loss liability for such matters when it is probable that a liability has been incurred and the amount can be reasonably estimated. When a single amount cannot be reasonably estimated but the cost can be estimated within a range, the Company accrues the minimum amount. The Company expenses legal costs, including those expected to be incurred in connection with a loss contingency, as incurred. Based upon currently available facts, the Company believes the amounts reserved are adequate for such pending matters; however, results of operations could be adversely affected by monetary damages, costs or expenses, and charges against earnings in particular periods.

Income Taxes

Amounts of deferred tax assets and liabilities on Eastman's Consolidated Statements of Financial Position are based on temporary differences between the financial reporting and tax bases of assets and liabilities, applying enacted tax rates expected to be in effect for the year in which the differences are expected to reverse. The ability to realize deferred tax assets is evaluated through the forecasting of taxable income and domestic and foreign taxes, using historical and projected future operating results, the reversal of existing temporary differences, and the availability of tax planning opportunities. Valuation allowances are recognized to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. In the event that the actual outcome of future tax consequences differs from management estimates and assumptions, the resulting change to the provision for (benefit from) income taxes could have a material impact on the consolidated results of operations and statements of financial position. As of December 31, 2018 and 2017, valuation allowances of $466 million and $410 million, respectively, have been provided against the deferred tax assets. The Company recognizes income tax positions that are more likely than not to be realized and accrues interest related to unrecognized income tax positions, which is included as a component of the income tax provision on the balance sheet.

On December 22, 2017, the 2017 "Tax Cuts and Jobs Act" ("Tax Reform Act") was enacted. Accounting for the impacts of newly enacted tax legislation are generally required to be completed in the period of enactment. Following enactment of the Tax Reform Act, the Securities and Exchange Commission ("SEC") provided guidance for initial accounting for the Tax Reform Act in Staff Accounting Bulletin No. 118, "Income Tax Accounting Implications of the Tax Cuts and Jobs Act" ("SAB 118"). The period to finalize accounting for the Tax Reform Act is up to one year following the enactment date and SAB 118 allows companies to provide for the impact of the Tax Reform Act under three scenarios: (1) a company is complete with its accounting for certain effects of tax reform, (2) a company is able to determine a reasonable estimate for certain effects of the Tax Reform Act and records that estimate as a provisional amount, or (3) a company is not able to determine a reasonable estimate and therefore continues to apply accounting based on the provisions of the tax laws that were in effect immediately prior to tax reform being enacted. Because enactment of the Tax Reform Act was close to Eastman's year end, the Company was not able to complete the accounting for certain effects of the changes in tax law, but was able to reasonably estimate the effects and recognized those estimates as provisional amounts as of December 31, 2017.

As of December 31, 2017, management estimated a $339 million net tax benefit, primarily resulting from the Tax Reform Act and a related tax loss from outside-U.S. entity reorganizations as part of the formation of an international treasury services center. In 2018, the Company recognized an adjustment to the 2017 net tax benefit which decreased earnings by $20 million. As of December 31, 2018, the Company considers the accounting for the impacts of the Tax Reform Act under SAB 118 to be complete. As of December 31, 2018, the U.S. Department of Treasury has issued a number of proposed regulations related to implementation of the provisions of the Tax Reform Act and certain states may issue clarifying guidance regarding state income tax conformity to the current federal tax code. Finalization of these regulations in 2019 or future periods may result in changes in the period of enactment to the amounts currently reported in the Consolidated Statements of Financial Position. Any future changes in U.S. tax law may have a significant impact on the provision for income taxes in the period the change occurs. For further information, see Note 7, "Income Taxes", to the Company's consolidated financial statements in Part II, Item 8 of this Annual Report.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

NON-GAAP FINANCIAL MEASURES

Non-GAAP financial measures, and the accompanying reconciliations of the non-GAAP financial measures to the most comparable GAAP measures, are presented below in this section and in "Overview", "Results of Operations", "Summary by Operating Segment", "Liquidity, Capital Resources, and Other Financial Information", and "Outlook" in this MD&A.

Management discloses non-GAAP financial measures, and the related reconciliations to the most comparable GAAP financial measures, because it believes investors use these metrics in evaluating longer term period-over-period performance, and to allow investors to better understand and evaluate the information used by management to assess the Company's and its operating segments' performances, make resource allocation decisions, and evaluate organizational and individual performances in determining certain performance-based compensation. Non-GAAP financial measures do not have definitions under GAAP, and may be defined differently by, and not be comparable to, similarly titled measures used by other companies. As a result, management cautions investors not to place undue reliance on any non-GAAP financial measure, but to consider such measures alongside the most directly comparable GAAP financial measure.

Company Use of Non-GAAP Financial Measures

Non-Core Items and any Unusual or Non-Recurring Items Excluded from Non-GAAP Earnings

In addition to evaluating Eastman's financial condition, results of operations, liquidity, and cash flows as reported in accordance with GAAP, management also evaluates Company and operating segment performance, and makes resource allocation and performance evaluation decisions, excluding the effect of transactions, costs, and losses or gains that do not directly result from Eastman's normal, or "core", business and operations, or are otherwise of an unusual or non-recurring nature.

Non-core transactions, costs, and losses or gains relate to, among other things, cost reductions, growth and profitability improvement initiatives, and other events outside of core business operations, and have included asset impairments and restructuring charges and gains, costs of and related to acquisitions, gains and losses from and costs related to dispositions of businesses, financing transaction costs, and MTM losses or gains for pension and other postretirement benefit plans.
 
In 2018 the Company recognized unusual income from insurance in excess of costs for, and in 2017 recognized unusual net costs of, the disruption, repairs, and reconstruction of the Kingsport site's coal gasification operations area resulting from the previously reported October 4, 2017 explosion (the "coal gasification incident"). Management considers the coal gasification incident unusual because of the Company's operational and safety history and the magnitude of the unplanned disruption.

In 2018 the Company recognized unusual costs and an unusual net decrease to earnings from adjustments of the provisional net tax benefit recognized in fourth quarter 2017, resulting from tax law changes, primarily the Tax Reform Act, and related outside-U.S. entity reorganizations as part of the transition to an international treasury services center. Management considers these actions and associated costs and income unusual because of the infrequent nature of such changes in tax law and resulting actions and the significant impacts on earnings.

Because non-core, unusual, or non-recurring transactions, costs, and losses or gains may materially affect the Company's, or any particular operating segment's, financial condition or results in a specific period in which they are recognized, Eastman believes it is appropriate to evaluate both the financial measures prepared and calculated in accordance with GAAP and the related non-GAAP financial measures excluding the effect on the Company's results of these non-core, unusual, or non-recurring items. In addition to using such measures to evaluate results in a specific period, management evaluates such non-GAAP measures, and believes that investors may also evaluate such measures, because such measures may provide more complete and consistent comparisons of the Company's, and its segments', operational performance on a period-over-period historical basis and, as a result, provide a better indication of expected future trends.


35

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Adjusted Tax Rate and Provision for Income Taxes

In interim periods, Eastman discloses non-GAAP earnings with an adjusted effective tax rate and a resulting adjusted provision for income taxes using the Company's forecasted tax rate for the full year as of the end of the interim period. The adjusted effective tax rate and resulting adjusted provision for income taxes are equal to the Company's projected full year effective tax rate and provision for income taxes on earnings excluding non-core, unusual, or non-recurring items for completed periods. The adjusted effective tax rate and resulting adjusted provision for income taxes may fluctuate during the year for changes in events and circumstances that change the Company's forecasted annual effective tax rate and resulting provision for income taxes excluding non-core, unusual, or non-recurring items. Management discloses this adjusted effective tax rate, and the related reconciliation to the GAAP effective tax rate, to provide investors more complete and consistent comparisons of the Company's operational performance on a period-over-period interim basis and on the same basis as management evaluates quarterly financial results to provide a better indication of expected full year results.

Non-GAAP Cash Flow Measure

Eastman regularly evaluates and discloses to investors and securities analysts an alternative non-GAAP measure of "free cash flow", which management defines as cash provided by operating activities, less the amount of net capital expenditures (typically the GAAP measure additions to properties and equipment, and in 2018, net of proceeds from property insurance). Such net capital expenditures are generally funded from available cash and, as such, management believes they should be considered in determining free cash flow. Management believes this is an appropriate metric to assess the Company's ability to fund priorities for uses of available cash. The priorities for cash after funding operations include payment of quarterly dividends, repayment of debt, funding targeted growth opportunities, and repurchasing shares. Management believes this metric is useful to investors and securities analysts in order to provide them with information similar to that used by management in evaluating financial performance and potential future cash available for various initiatives and assessing organizational performance in determining certain performance-based compensation and because management believes investors and securities analysts often use a similar measure of free cash flow to compare the results, and value, of comparable companies. In addition, Eastman may disclose to investors and securities analysts an alternative non-GAAP measure of "free cash flow yield", which management defines as annual free cash flow divided by the Company's market capitalization. Management believes this metric is useful to investors and securities analysts in comparing cash flow generation with that of peer and other companies.

Non-GAAP Measures in this Annual Report

The following non-core items are excluded by management in its evaluation of certain earnings results in this Annual Report:

MTM pension and other postretirement benefit plans gains and losses resulting from the changes in discount rates and other actuarial assumptions and the difference between actual and expected returns on plan assets during the period;
Asset impairments and restructuring charges, net, of which asset impairments are non-cash transactions impacting profitability;
Acquisition integration and transaction costs;
Early debt extinguishment and other related costs resulting from repayment of borrowings;
Cost of disposition of claims against operations that were discontinued by Solutia, Inc. ("Solutia") prior to the Company's acquisition of Solutia in 2012;
Gain from sale of the formulated electronics cleaning solutions business, which was part of the Additives & Functional Products segment;
Gain from sale of the Company's 50 percent interest in the Primester cellulose acetate flake joint venture; and
Tax benefit associated with a previously impaired site.


36

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following unusual items are excluded by management in its evaluation of certain earnings results in this Annual Report:

Costs of, and income from insurance for, the coal gasification incident;
Costs of currency transaction and professional fees resulting from fourth quarter 2017 tax law changes and related outside-U.S. entity reorganizations; and
Estimated net tax benefit recognized in fourth quarter 2017 resulting from tax law changes, primarily the Tax Reform Act, and tax impact of related outside-U.S. entity reorganizations and related subsequent adjustments recognized in 2018.

As described above, the alternative non-GAAP measure of cash flow "free cash flow" is presented in this Annual Report.

Non-GAAP Financial Measures - Non-Core and Unusual Items Excluded from Earnings
(Dollars in millions)
2018
 
2017
 
2016
Non-core items impacting EBIT:
 
 
 
 
 
Mark-to-market pension and other postretirement benefits (gain) loss, net
$
99

 
$
(21
)
 
$
97

Asset impairments and restructuring charges, net
45

 
8

 
45

Acquisition integration and transaction costs

 

 
9

Cost of disposition of claims against discontinued Solutia operations

 
9

 
5

Gains from sale of businesses

 
(3
)
 
(17
)
Unusual items impacting EBIT:
 
 
 
 
 
Net coal gasification incident (insurance) costs
(83
)
 
112

 

Costs resulting from tax law changes and outside-U.S. entity reorganizations
20

 

 

Total non-core and unusual items impacting EBIT
81

 
105

 
139

Non-core item impacting earnings before income taxes:
 
 
 
 
 
Early debt extinguishment and other related costs
7

 

 
85

Total non-core item impacting earnings before income taxes
7

 

 
85

Less: Items impacting provision for (benefit from) income taxes:
 
 
 
 
 
Tax effect for non-core and unusual items
16

 
30

 
75

Tax benefit associated with previously impaired site

 
8

 

Estimated net tax benefit from tax law changes and tax loss from outside-U.S. entity reorganizations
(20
)
 
339

 

Total items impacting provision for (benefit from) income taxes
(4
)
 
377

 
75

Total items impacting net earnings attributable to Eastman
$
92

 
$
(272
)
 
$
149


Below is the calculation of the "Other components of post-employment (benefit) cost, net" that are not included in the above non-core item "mark-to-market pension and other postretirement benefits gain (loss), net" and that are included in the non-GAAP results.
(Dollars in millions)
2018
 
2017
 
2016
Other components of post-employment (benefit) cost, net
$
(21
)
 
$
(135
)
 
$
(3
)
Service cost
49

 
53

 
56

Net periodic benefit (credit) cost
28

 
(82
)
 
53

Less: Mark-to-market (gain) loss
99

 
(21
)
 
97

Components of post-employment (benefit) cost, net included in non-GAAP earnings measures
$
(71
)
 
$
(61
)
 
$
(44
)


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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Below is the calculation of the MTM pension and other post-retirement benefits (gain) loss disclosed above.
(Dollars in millions)
2018
 
2017
 
2016
Actual return on assets
$
(82
)
 
(3
)%
 
$
314

 
11
%
 
$
252

 
9
%
Less: expected return on assets
189

 
7
 %
 
180

 
7
%
 
176

 
7
%
Mark-to-market (loss) gain on assets
(271
)
 
 
 
134

 
 
 
76

 
 
Actuarial (loss) gain
172

 

 
(113
)
 
 
 
(173
)
 
 
Total mark-to-market (loss) gain
$
(99
)
 
 
 
$
21

 
 
 
$
(97
)
 
 

For more detail about MTM pension and other postretirement benefit plans net gains and losses, including actual and expected return on plan assets and the components of the net gain or loss, see "Critical Accounting Estimates - Pension and Other Postretirement Benefits" above and Note 10, "Retirement Plans", "Summary of Changes" - Actuarial (gain) loss, Actual return on plan assets, and Reserve for third party contributions and "Summary of Benefit Costs and Other Amounts Recognized in Other Comprehensive Income - Mark-to-market pension and other postretirement benefits (gain) loss, net" to the Company's consolidated financial statements in Part II, Item 8 of this Annual Report.

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

Gross profit,
Selling, general, and administrative ("SG&A") expenses,
Asset impairments and restructuring charges, net,
Other components of post-employment (benefit) cost, net,
Other (income) charges, net,
EBIT,
Early debt extinguishment and other related costs
Provision for (benefit from) income taxes,
Net earnings attributable to Eastman,
Diluted EPS, and
Net cash provided by operating activities.

Other Non-GAAP Financial Measures

Alternative Non-GAAP Cash Flow Measure

In addition to the non-GAAP measures presented in this Annual Report and other periodic reports, management occasionally has evaluated and disclosed to investors and securities analysts the non-GAAP measure cash provided by operating activities excluding certain non-core, unusual, or non-recurring sources or uses of cash or including cash from or used by activities that are managed as part of core business operations ("adjusted cash provided by operating activities") when analyzing, among other things, business performance, liquidity and financial position, and performance-based compensation. Management has used this non-GAAP measure in conjunction with the GAAP measure cash provided by operating activities because it believes it is a more appropriate metric to evaluate the cash flows from Eastman's core operations that are available for organic and inorganic growth initiatives and because it allows for a more consistent period-over-period presentation of such amounts. In its evaluation, management generally excludes the impact of certain non-core activities and decisions of management because such activities and decisions are not considered core, ongoing components of operations and the decisions to undertake or not to undertake such activities may be made irrespective of the cash generated from operations, and generally includes cash from or used in activities that are managed as operating activities and in business operating decisions. Management has disclosed 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.




38

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Alternative Non-GAAP Earnings Measures

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



39

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

Eastman's products and operations are managed and reported in four operating segments: Additives & Functional Products ("AFP"), Advanced Materials ("AM"), Chemical Intermediates ("CI"), and Fibers. Eastman uses an innovation-driven growth model which consists of leveraging world class scalable technology platforms, delivering differentiated application development capabilities, and relentlessly engaging the market. The Company's world class technology platforms form the foundation of sustainable growth by differentiated products through significant scale advantages in research and development ("R&D") and advantaged global market access. Differentiated application development converts market complexity into opportunities for growth and accelerates innovation by enabling a deeper understanding of the value of Eastman's products and how they perform within customers' and end-user products. Key areas of application development include thermoplastic conversion, functional films, coatings formulations, rubber additive formulations, adhesives formulations, nonwovens and textiles, and animal nutrition. The Company engages the market by working directly with customers and downstream users, targeting attractive niche markets, and leveraging disruptive macro trends such as health and wellness, natural resource efficiency, an increasing middle class in emerging economies, and feeding a growing population. Management believes that these elements of the Company's innovation-driven growth model, combined with disciplined portfolio management and balanced capital deployment, will result in consistent, sustainable earnings growth and strong cash flow.

The Company generated sales revenue of $10.2 billion and $9.5 billion for 2018 and 2017, respectively. Sales revenue increased $602 million in 2018 as a result of increases in all operating segments. EBIT was $1.6 billion and $1.5 billion in 2018 and 2017, respectively. Excluding the non-core and unusual items referenced in "Non-GAAP Financial Measures", adjusted EBIT was $1.6 billion in both 2018 and 2017. Further discussion of sales revenue and EBIT changes is presented in "Results of Operations" and "Summary by Operating Segment" in this MD&A.

Net earnings and EPS attributable to Eastman and adjusted net earnings and EPS attributable to Eastman were as follows:
 
2018
 
2017
(Dollars in millions, except diluted EPS)
 $
 
EPS
 
 $
 
EPS
Net earnings attributable to Eastman
$
1,080

 
$
7.56

 
$
1,384

 
$
9.47

 Total non-core and unusual items, net of tax(1)(2)
92

 
0.64

 
(272
)
 
(1.86
)
Net earnings attributable to Eastman excluding non-core and unusual items
$
1,172

 
$
8.20

 
$
1,112

 
$
7.61


(1)  
See "Results of Operations - Net Earnings Attributable to Eastman and Diluted Earnings per Share" for the tax effected amount of non-core and unusual items.
(2) 
Provision for income taxes for non-core and unusual items are calculated using the tax rate for the jurisdiction where the gains are taxable and the expenses are deductible.

The Company generated $1.54 billion of cash from operating activities in 2018 compared to $1.66 billion of cash generated from operating activities during 2017. Free cash flow was $1.08 billion in 2018 and $1.01 billion in 2017.

As previously reported, in fourth quarter 2017 an explosion in the Kingsport site's coal gasification area disrupted manufacturing operations, primarily for the Fibers and CI segments which are significant internal users of cellulose and acetyl stream intermediates. The incident, net of insurance, reduced 2017 earnings by $112 million and increased 2018 earnings by $83 million. The cumulative net costs of the incident were $29 million. Costs net of insurance of the disruption, repairs, and reconstruction of coal gasification operations in 2017 were recognized in "Cost of sales" and insurance net of costs in 2018 was recognized in "Cost of sales" and "Other (income) charges, net" in the Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings.


40

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

Eastman's results of operations as presented in the Company's consolidated financial statements in Part II, Item 8 of this Annual Report are summarized and analyzed below.

Sales
 
2018 Compared to 2017
 
2017 Compared to 2016
(Dollars in millions)
2018
 
2017
 
Change
 
2017
 
2016
 
Change
 Sales
$
10,151

 
$
9,549

 
6
%
 
$
9,549

 
$
9,008

 
6
%
Volume / product mix effect
 

 
 

 
2
%
 
 

 
 

 
4
%
Price effect
 

 
 

 
3
%
 
 

 
 

 
2
%
Exchange rate effect
 

 
 

 
1
%
 
 

 
 

 
%

2018 Compared to 2017

Sales revenue increased as a result of increases in all operating segments.

2017 Compared to 2016

Sales revenue increased as increases in the AFP, CI, and AM segments more than offset a decline in the Fibers
segment.

Gross Profit
 
2018 Compared to 2017
 
2017 Compared to 2016
(Dollars in millions)
2018
 
2017
 
Change
 
2017
 
2016
 
Change
Gross profit
$
2,479

 
$
2,363

 
5
 %
 
$
2,363

 
$
2,357

 
%
Net coal gasification incident (insurance) costs
(18
)
 
112

 
 
 
112

 

 
 
Gross profit excluding unusual item
$
2,461

 
$
2,475

 
(1
)%
 
$
2,475

 
$
2,357

 
5
%

2018 Compared to 2017

Gross profit included coal gasification incident insurance in excess of costs in 2018 and coal gasification incident net costs in 2017. Excluding these unusual items, gross profit decreased primarily due to raw material, energy, and distribution costs exceeding selling prices across most segments and higher growth initiative costs being partially offset by higher sales volume in the AM and AFP segments.

2017 Compared to 2016

Gross profit in 2017 included net costs resulting from the coal gasification incident. Excluding this unusual item, gross profit increased as increases in the CI, AFP, and AM segments more than offset a decrease in the Fibers segment. Gross profit in 2017 was increased by lower labor and manufacturing costs from corporate cost reduction actions.


41

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Selling, General and Administrative Expenses
 
2018 Compared to 2017
 
2017 Compared to 2016
(Dollars in millions)
2018
 
2017
 
Change
 
2017
 
2016
 
Change
Selling, general and administrative expenses
$
721

 
$
729

 
(1
)%
 
$
729

 
$
707

 
3
%
Costs resulting from tax law changes and outside-U.S. entity reorganizations
(7
)
 

 
 
 

 

 
 
Acquisition integration and transaction costs

 

 
 

 

 
(9
)
 
 
Selling, general, and administrative expenses excluding non-core and unusual items
$
714

 
$
729

 
(2
)%
 
$
729

 
$
698

 
4
%

2018 Compared to 2017

SG&A expenses in 2018 included $7 million of costs of professional fees resulting from fourth quarter 2017 tax law changes and related outside-U.S. entity reorganizations as part of the transition to an international treasury services center. Excluding this unusual item, SG&A expenses decreased primarily due to lower variable compensation costs mostly offset by higher costs of growth initiatives.

2017 Compared to 2016

SG&A expenses in 2016 included transaction costs for final resolution of the 2011 Sterling Chemicals, Inc. acquisition purchase price and integration costs for the Commonwealth business acquired in December 2014. Excluding these non-core items, SG&A expenses increased primarily due to higher performance-based variable compensation costs and strategic initiative expenditures partially offset by cost reductions resulting from corporate actions taken in 2016.

Research and Development Expenses
 
2018 Compared to 2017
 
2017 Compared to 2016
(Dollars in millions)
2018
 
2017
 
Change
 
2017
 
2016
 
Change
Research and development expenses
$
235

 
$
227

 
4
%
 
$
227

 
$
223

 
2
%

2018 Compared to 2017

R&D expenses increased primarily due to higher costs of growth initiatives.

2017 Compared to 2016

R&D expenses were slightly higher in 2017. The Company shifted R&D expenses by eliminating multiple programs and reallocating resources among the Company's operating segments. R&D investments were refocused to where disruptive macro trends create unmet needs in attractive niche markets where the Company's core technologies can deliver material solutions.


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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Asset Impairments and Restructuring Charges, Net
 
For years ended December 31,
(Dollars in millions)
2018
 
2017
 
2016
Asset impairments
$

 
$
1

 
$
12

Gain on sale of assets, net

 

 
(2
)
Intangible asset and goodwill impairments
39

 

 

Severance charges
6

 
6

 
32

Site closure and restructuring charges

 
1

 
3

Total
$
45

 
$
8

 
$
45


In 2018, asset impairments and restructuring charges, net consisted of restructuring charges of approximately $6 million for severance. As a result of the annual impairment test of goodwill the Company reduced the carrying value of the crop protection reporting unit (part of the AFP operating segment) to its estimated fair value through recognition of a $38 million goodwill impairment. The impairment was primarily driven by an increase in the WACC applied to the impairment analysis and the estimated impact of future regulatory changes. Additionally, the Company recognized an intangible asset impairment of $1 million in the AM segment.

In 2017, asset impairments and restructuring charges, net were $3 million of asset impairments and restructuring charges, including severance, in the AFP segment related to the closure of a facility in China and restructuring charges of approximately $5 million for severance.

In 2016, the Company impaired a capital project in the AFP segment that resulted in a charge of $12 million and recognized a gain of $2 million in the AFP segment for the sale of previously impaired assets at the Crystex insoluble sulfur R&D site in France. The Company recognized restructuring charges of $35 million, including severance, related to an announced plan to reduce costs primarily in 2017. Management anticipated and realized total cost savings of approximately $50 million mostly in 2017 primarily in SG&A expenses and cost of sales.

Other Components of Post-employment (Benefit) Cost, Net
 
2018 Compared to 2017
 
2017 Compared to 2016
(Dollars in millions)
2018
 
2017
 
Change
 
2017
 
2016
 
Change
Other components of post-employment (benefit) cost, net
$
(21
)
 
$
(135
)
 
(84
)%
 
$
(135
)
 
$
(3
)
 
>100%

Mark-to-market pension and other postretirement benefit gain (loss), net
(99
)
 
21

 
 
 
21

 
(97
)
 
 
Other components of post-employment (benefit) cost, net excluding non-core item
$
(120
)
 
$
(114
)
 
5
 %
 
$
(114
)
 
$
(100
)
 
14
%

For more information regarding "Other components of post-employment (benefit) cost, net" see Note 1, "Significant Accounting Policies", and Note 10, "Retirement Plans", to the Company's consolidated financial statements in Part II, Item 8 of this Annual Report.


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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Other (Income) Charges, Net
(Dollars in millions)
2018
 
2017
 
2016
Foreign exchange transaction losses (gains), net (1)
$
12

 
$
5

 
$
27

Currency transaction costs resulting from tax law changes and outside-U.S. entity reorganizations
13

 

 

(Income) loss from equity investments and other investment (gains) losses, net
(17
)
 
(12
)
 
(13
)
Coal gasification incident property insurance
(65
)
 

 

Cost of disposition of claims against discontinued Solutia operations

 
9

 
5

Gains from sale of businesses (2)

 
(3
)
 
(17
)
Other, net
4

 
5

 
(6
)
Other (income) charges, net
$
(53
)
 
$
4

 
$
(4
)
Currency transaction costs resulting from tax law changes and outside-U.S. entity reorganizations
(13
)
 

 

Coal gasification incident property insurance
65

 

 

  Cost of disposition of claims against discontinued Solutia operations

 
(9
)
 
(5
)
Gains from sale of businesses (2)

 
3

 
17

Other (income) charges, net excluding non-core items
$
(1
)
 
$
(2
)
 
$
8


(1) 
Net impact of revaluation of foreign entity assets and liabilities and effect of foreign exchange non-qualifying derivatives.
(2) 
Gains resulting from the sale of the formulated electronic cleaning solution business in the AFP segment in 2017 and the sale of the Company's interest in the Primester joint venture equity investment in the Fibers segment in 2016.

Earnings Before Interest and Taxes
 
2018 Compared to 2017
2017 Compared to 2016
(Dollars in millions)
2018
 
2017
 
Change
 
2017
 
2016
 
Change
EBIT
$
1,552

 
$
1,530

 
1
 %
 
$
1,530

 
$
1,389

 
10
%
Mark-to-market pension and other postretirement benefit (gain) loss, net
99

 
(21
)
 
 

 
(21
)
 
97

 
 

Net coal gasification incident (insurance) costs
(83
)
 
112

 
 
 
112

 

 
 
Asset impairments and restructuring charges, net
45

 
8

 
 

 
8

 
45

 
 

Costs resulting from tax law changes and outside-U.S. entity reorganizations
20

 

 
 
 

 

 
 
Acquisition integration and transaction costs

 

 
 
 

 
9

 
 
Cost of disposition of claims against discontinued Solutia operations

 
9

 
 
 
9

 
5

 
 
Gains from sale of businesses

 
(3
)
 
 
 
(3
)
 
(17
)
 
 
EBIT excluding non-core and unusual items
$
1,633

 
$
1,635

 
 %
 
$
1,635

 
$
1,528

 
7
%


44

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Net Interest Expense
 
2018 Compared to 2017
2017 Compared to 2016
(Dollars in millions)
2018
 
2017
 
Change
 
2017
 
2016
 
Change
Gross interest expense
$
242

 
$
251

 
 
 
$
251

 
$
265

 
 
Less:  Capitalized interest
4

 
7

 
 
 
7

 
7

 
 
Interest Expense
238

 
244

 
 
 
244

 
258

 
 
Less: Interest income
3

 
3

 
 
 
3

 
3

 
 
Net interest expense
$
235

 
$
241

 
(2
)%
 
$
241

 
$
255


(5
)%

2018 Compared to 2017

Net interest expense decreased $6 million primarily as a result of U.S. dollar to euro cross-currency swaps and reduced debt partly offset by increased interest rates.

2017 Compared to 2016

Net interest expense decreased $14 million primarily as a result of prior year refinancing of certain outstanding public debt and repayment of term loan borrowings in 2017.

Early Debt Extinguishment and Other Related Costs

In fourth quarter 2018, the Company sold 3.5% notes due December 2021 in the principal amount of $300 million and 4.5% notes due December 2028 in the principal amount of $500 million. Net proceeds from the notes were $789 million and were used, together with available cash, for the early and full repayment of the 5.5% notes due November 2019 ($250 million principal) and the partial redemption of the 2.7% notes due January 2020 ($550 million principal). Total consideration for these redemptions were $806 million ($800 million total principal and $6 million for the early redemption premiums) and are reported as financing activities on the Consolidated Statements of Cash Flows. The early repayment resulted in a charge of $7 million for early debt extinguishment costs which were primarily attributable to the early redemption premiums and related unamortized costs. The book value of the redeemed debt was $799 million. For additional information regarding the early debt extinguishment costs, see Note 8, "Borrowings", to the Company's consolidated financial statements in Part II, Item 8 of this Annual Report.

In fourth quarter 2016, the Company sold additional euro-denominated 1.50% notes due May 2023 in the principal amount of €200 million ($213 million) and euro-denominated 1.875% notes due November 2026 in the principal amount of €500 million ($534 million). In December 2016, the Company borrowed $300 million under a second five-year term loan agreement ("2021 Term Loan"). Proceeds from the notes and 2021 Term Loan borrowings were used for the early repayment of the 2.4% notes due June 2017 ($500 million principal) and 6.30% notes due November 2018 ($160 million principal) and partial redemptions of the 4.5% notes due January 2021 ($65 million principal), 3.6% notes due August 2022 ($150 million principal), 7 1/4% debentures due January 2024 ($47 million principal), 7 5/8% debentures due June 2024 ($11 million principal), 3.8% notes due March 2025 ($100 million principal), and 7.60% debentures due February 2027 ($28 million principal). The early repayments resulted in a charge of $76 million for early debt extinguishment costs and related derivatives and hedging items.

In second quarter 2016, the Company sold euro-denominated 1.50% notes due 2023 in the principal amount of €550 million ($614 million). Proceeds from the sale of the notes, net of transaction costs, were used for the early repayment of $500 million of 2.4% notes due June 2017 and repayment of other borrowings. The early repayment resulted in a charge of $9 million for early debt extinguishment costs primarily attributable to the early redemption premium and related unamortized costs.


45

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Provision for (Benefit from) Income Taxes
 
2018 Compared to 2017
2017 Compared to 2016
(Dollars in millions)
2018
 
2017
 
2017
 
2016
 
$
 
%
 
$
 
%
 
$
 
%
 
$
 
%
Provision for (benefit from) income taxes and effective tax rate
$
226

 
17
%
 
$
(99
)
 
(8
)%
 
$
(99
)
 
(8
)%
 
$
190

 
18
%
Tax provision for non-core and unusual items(1)
16

 
 
 
30

 
 
 
30

 


 
75

 
 
Tax benefit associated with previously impaired site

 
 
 
8

 
 
 
8

 
 
 

 
 
Estimated net tax benefit from tax law changes and tax loss from outside-U.S. entity reorganizations
(20
)
 
 
 
339

 
 
 
339

 


 

 
 
Adjusted provision for income taxes and effective tax rate
$
222

 
16
%
 
$
278

 
20%
 
$
278

 
20
 %
 
$
265

 
21
%

(1) 
Provision for income taxes for non-core and unusual items is calculated using the tax rate for the jurisdiction where the gains are taxable and the expenses are deductible.

The 2018 effective tax rate includes a $20 million increase to the provision for income taxes resulting from adjustments to the provisional net tax benefit recognized in fourth quarter 2017 resulting from tax law changes, primarily the Tax Reform Act. These adjustments related to the one-time transition tax on deferred foreign income and changes in valuation of deferred tax assets associated with tax law changes and outside-U.S. entity reorganizations as part of the formation of an international treasury services center.

The 2017 effective tax rate included a $339 million net benefit resulting from tax law changes, primarily the Tax Reform Act, and a tax loss from outside-U.S. entity reorganizations as part of the formation of an international treasury services center, a $20 million benefit due to amendments to prior years’ domestic income tax returns, and a $30 million benefit reflecting the finalization of prior years' foreign income tax returns. The 2017 effective tax rate also includes an $8 million tax benefit due to a tax ruling permitting deductibility of a liquidation loss on a previously impaired site.

The 2016 effective tax rate includes a tax benefit of $16 million related to foreign tax credits as a result of the amendment of prior year income tax returns, a $16 million one-time benefit for the restoration of tax basis for which depreciation deductions were previously limited, and a $9 million tax benefit primarily due to adjustments to the tax provision to reflect the finalization of 2014 foreign income tax returns.

For more information, see Note 7, "Income Taxes", to the Company's consolidated financial statements in Part II, Item 8 of this Annual Report.


46

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Net Earnings Attributable to Eastman and Diluted Earnings per Share
 
2018
 
2017
 
2016
(Dollars in millions, except per share amounts)
 $
 
EPS
 
 $
 
EPS
 
 $
 
EPS
Net earnings and diluted earnings per share attributable to Eastman
$
1,080

 
$
7.56

 
$
1,384

 
$
9.47

 
$
854

 
$
5.75

Non-core items, net of tax: (1)
 
 
 
 
 
 
 
 
 
 
 
Mark-to-market pension and other postretirement benefit (gain) loss, net
75

 
0.52

 
(14
)
 
(0.09
)
 
68

 
0.46

Asset impairments and restructuring charges (gain), net

43

 
0.30

 
(3
)
 
(0.02
)
 
28

 
0.19

Acquisition transaction, integration, and financing costs

 

 

 

 
5

 
0.04

Early debt extinguishment and other related costs
6

 
0.04

 

 

 
56

 
0.37

Cost of disposition of claims against discontinued Solutia operations

 

 
5

 
0.03

 
3

 
0.02

Gains from sale of businesses

 

 
(1
)
 
(0.01
)
 
(11