ITEM                                                         Page

          Critical Accounting Estimates                                21

          Strategic Actions and Related Presentation of Non-GAAP       21
        Financial Measures

          Overview                                                     22

          Results of Operations                                        24

          Summary by Operating Segment                                 28

          Summary by Customer Location                                 36

          Liquidity, Capital Resources, and Other Financial            38
        Information

          Recently Issued Accounting Standards                         41

          Outlook                                                      42

          Forward-Looking Statements and Risk Factors                  44

This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with Eastman Chemical Company's (the "Company" or "Eastman") audited consolidated financial statements, including related notes, and Management's Discussion and Analysis of Financial Condition and Results of Operations contained in the Company's 2007 Annual Report on Form 10-K, and the Company's unaudited consolidated financial statements, including related notes, included elsewhere in this report. All references to earnings per share contained in this report are diluted earnings per share unless otherwise noted.

As described below in "Strategic Actions and Related Presentation of Non-GAAP Financial Measures", the Company sold its polyethylene terephthalate ("PET") manufacturing facility in Spain in second quarter 2007 and sold its PET polymers and purified terephthalic acid ("PTA") manufacturing facilities in the Netherlands and its PET manufacturing facility in the United Kingdom and the related businesses in first quarter 2008. Because the Company has exited the PET business in the European region, results from sales of PET products manufactured at the Spain, the Netherlands, and the United Kingdom sites, including impairments and restructuring charges of those operations, and gains and losses from disposal of those assets and businesses, are presented as discontinued operations for all periods presented and are therefore not included in results from continuing operations under generally accepted accounting principles ("GAAP"). For additional information, see Note 2, "Discontinued Operations ", to the Company's unaudited consolidated financial statements in Part I, Item 1 of this quarterly report on Form 10-Q. Also in 2007, the Company sold its Mexico and Argentina PET manufacturing sites. Sales and results from these sites are not presented as discontinued operations due to the Performance Polymers segment's continuing involvement in the Latin American region including polymer intermediates sales to the divested facilities.

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CRITICAL ACCOUNTING ESTIMATES

In preparing the consolidated financial statements in conformity with GAAP in the United States, the Company's management must make decisions which impact the reported amounts and the related disclosures. Such decisions include the selection of the appropriate accounting principles to be applied and assumptions on which to base estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates its estimates, including those related to impairment of assets, environmental costs, U.S. pension and other post-employment benefits, litigation and contingent liabilities, and income taxes. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The Company's management believes the critical accounting estimates listed and described in Part II, Item 7 of the Company's 2007 Annual Report on Form 10-K are the most important to the fair presentation of the Company's financial condition and results. These estimates require management's most significant judgments in the preparation of the Company's consolidated financial statements.

STRATEGIC ACTIONS AND RELATED PRESENTATION OF NON-GAAP FINANCIAL MEASURES

During 2007 and 2008, the Company took strategic actions in its Performance Polymers segment to address its underperforming PET manufacturing facilities outside the United States. In second quarter 2007, the Company completed the sale of its PET manufacturing facility in Spain and in first quarter 2008, the Company completed the sale of its PET polymers and PTA manufacturing facilities in the Netherlands and the PET manufacturing facility in the United Kingdom and related businesses. Results from, charges related to, and gains and losses from disposal of the Spain, the Netherlands, and the United Kingdom assets and businesses are presented as discontinued operations. In fourth quarter 2007, the Company completed the sale of its Mexico and Argentina manufacturing facilities. As part of this divestiture, the Company entered into transition supply agreements for polymer intermediates. In order to provide a better understanding of the impact on Performance Polymers segment results of the divested Latin American PET assets, this Management's Discussion and Analysis includes certain financial measures with and without sales and operating results in Latin America from PET manufacturing facilities and related businesses in Mexico and Argentina and with and without contract polymer intermediates sales.

In fourth quarter 2006, the Company sold its polyethylene ("PE") and EpoleneTM polymer businesses and related assets of the Performance Polymers and Coatings, Adhesives, Specialty Polymers, and Inks ("CASPI") segments. As part of the PE divestiture, the Company entered into a transition supply agreement for contract ethylene sales, from which sales revenue and operating earnings are included in the Performance Chemicals and Intermediates ("PCI") segment results in 2008 and 2007.

Also in fourth quarter 2006, the Company made strategic decisions relating to the scheduled shutdown of cracking units in Longview, Texas and a planned shutdown of higher cost PET assets in Columbia, South Carolina. Accelerated depreciation costs resulting from these decisions were $3 million and $9 million in third quarter 2008 and third quarter 2007, respectively, and $8 million and $37 million in first nine months 2008 and first nine months 2007, respectively. For more information on accelerated depreciation costs, see "Gross Profit" in the "Results of Operations" section of this Management's Discussion and Analysis.

This Management's Discussion and Analysis includes the following non-GAAP financial measures and accompanying reconciliations to the most directly comparable GAAP financial measures:
· Company sales and segment sales and results from continuing operations excluding sales revenue and results from continuing operations from sales in Latin America of PET products manufactured at the divested Mexico and Argentina PET manufacturing sites;

· Company and segment sales excluding contract ethylene sales under a transition agreement related to the divestiture of the PE product lines;

· Company and segment sales excluding contract polymer intermediates sales under a transition supply agreement related to the divestiture of the PET manufacturing facilities and related businesses in Mexico and Argentina;

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· Company and segment gross profit, operating earnings and earnings from continuing operations excluding accelerated depreciation costs and asset impairments and restructuring charges; and

· Company earnings from continuing operations excluding net deferred tax benefits related to the previous divestiture of businesses.

Eastman's management believes that contract ethylene sales under the transition agreement related to the divestiture of the PE product lines and the contract polymer intermediates sales under the transition supply agreement related to the divestiture of the PET manufacturing facilities and related businesses in Mexico and Argentina do not reflect the continuing and expected future business of the PCI and Performance Polymers segments. In addition, for evaluation and analysis of ongoing business results and of the impact on the Company and segments of strategic decisions and actions to reduce costs and to improve the profitability of the Company, management believes that Company and segment earnings from continuing operations should be considered both with and without accelerated depreciation costs, asset impairments and restructuring charges, and deferred tax benefits related to the previous divestiture of businesses, and that Company and segment sales and results from continuing operations should be considered both with and without sales revenue and results from continuing operations from sales in Latin America of PET products manufactured at the divested Mexico and Argentina manufacturing facilities. Management believes that investors can better evaluate and analyze historical and future business trends if they also consider the reported Company and segment results, respectively, without the identified items. Management utilizes Company and segment results including and excluding the identified items in the measures it uses to evaluate business performance and in determining certain performance-based compensation. These measures, excluding the identified items, are not recognized in accordance with GAAP and should not be viewed as alternatives to the GAAP measures of performance.

OVERVIEW

The Company generated sales revenue of $1.8 billion for third quarter 2008 and $1.7 billion for third quarter 2007. Excluding the results of contract ethylene sales, contract polymer intermediates sales, and sales from divested PET facilities in Mexico and Argentina, sales revenue increased by 12 percent. The Company generated sales revenue of $5.4 billion for first nine months 2008 compared to $5.1 billion for first nine months 2007. Excluding the results of contract ethylene sales, contract polymer intermediates sales, and sales from divested PET facilities in Mexico and Argentina, sales revenue increased by 10 percent. Sales revenue increases for both third quarter and first nine months 2008 compared to comparable periods 2007 were due to increased selling prices in response to higher raw material and energy costs more than offsetting lower sales volume.

Operating earnings were $174 million in third quarter 2008 compared to $46 million in third quarter 2007. Excluding accelerated depreciation costs and asset impairments and restructuring charges from both third quarter 2008 and 2007, operating earnings were $179 million in third quarter 2008 compared with $169 million in third quarter 2007. Operating earnings were $514 million in first nine months 2008 compared to $360 million in first nine months 2007. Excluding accelerated depreciation costs and asset impairments and restructuring charges from first nine months 2008, operating earnings were $544 million in first nine months 2008 compared with $513 million in first nine months 2007. The Company's broad base of businesses continues to have strong results, despite increasing and volatile raw material and energy costs. The Performance Polymers segment had significant improvement due primarily to improved operation of the South Carolina PET facility based on the IntegRexTM technology.

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Primarily as a result of strategic actions related to the Performance Polymers and PCI segments, operating earnings in third quarter 2008 were negatively impacted by $3 million of accelerated depreciation costs and $2 million in asset impairments and restructuring charges. Operating earnings in third quarter 2007 were negatively impacted by $9 million of accelerated depreciation costs and $114 million in asset impairments and restructuring charges. Operating earnings in first nine months 2008 were negatively impacted by $8 million of accelerated depreciation costs and $22 million in asset impairments and restructuring charges. Operating earnings in first nine months 2007 were negatively impacted by $37 million of accelerated depreciation costs and $116 million in asset impairments and restructuring charges. Asset impairments and restructuring charges for both third quarter and first nine months 2007 were primarily related to the divestiture of the Company's Mexico and Argentina PET manufacturing sites.

Earnings from continuing operations increased by $75 million for third quarter 2008 as compared to third quarter 2007. Excluding accelerated depreciation costs and asset impairments and restructuring charges, net, earnings from continuing operations were $102 million and $107 million, respectively. Earnings from continuing operations increased by $110 million for first nine months 2008 compared to first nine months 2007. Excluding accelerated depreciation costs, asset impairments and restructuring charges, net, and net deferred tax benefits related to the previous divestiture of businesses, earnings from continuing operations were $338 million and $322 million, respectively. Earnings from continuing operations for first nine months 2008 compared to first nine months 2007 included a reduction in the provision for income taxes resulting from an estimated benefit from a federal gasification investment tax credit associated with the Company's expected capital spending in 2008 on the Beaumont, Texas industrial gasification project.

The Company generated $293 million in cash from operating activities during first nine months 2008 compared to $411 million generated by operating activities in first nine months 2007. The difference was primarily due to a greater increase in working capital largely resulting from an increase in inventory attributable to higher raw material costs, which was partially offset by lower pension contributions. In first nine months 2007, the Company contributed $100 million to its U.S. defined benefit pension plan and does not plan to make any contributions in 2008. In first nine months 2008, the Company received proceeds from sales of assets and investments of $333 million, repurchased shares totaling $501 million, and repaid $175 million of borrowings.

The Company believes that cash balances, cash flows from operations, and external sources of liquidity will be available and sufficient to meet foreseeable cash flow requirements. As of September 30, 2008, the Company had $337 million of cash and cash equivalents and an undrawn $700 million committed revolving credit facility. The revolving credit facility (the "Credit Facility") is available through 2013, is supported by a diverse group of banks, and can be drawn for general corporate purposes. The Company is currently in compliance with all covenants under the Credit Facility. In addition, there are no material debt maturities until 2012. The Company believes the combination of cash from operations, manageable leverage, and committed external sources of liquidity provides a solid financial foundation that positions it well in the current volatile economic and financial environments.

In addition to the completion of the sale of its PET polymers and PTA manufacturing facilities in the Netherlands and the PET manufacturing facility in the United Kingdom in first quarter 2008, Eastman continued to progress on its overall growth objectives including the industrial gasification project in the U.S. Gulf Coast and actions to improve the performance of its Performance Polymers segment including the transformation at the South Carolina facility. In June 2008, the Company acquired the remaining ownership interest in TX Energy, LLC ("TX Energy") for approximately $35 million. With this acquisition, the Company became the sole owner and developer of the industrial gasification facility in Beaumont, Texas. Additionally in June 2008, the Company sold its ownership interest in the St. James Parish, Louisiana industrial gasification project for approximately $11 million and will no longer participate in the project.

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


RESULTS OF OPERATIONS

                            Third Quarter
                                                                                                                      Exchange
(Dollars in                                                                                          Product            Rate
millions)         2008          2007          Change        Volume Effect        Price Effect       Mix Effect         Effect

Sales           $   1,819     $   1,692              8 %                (8 ) %              14 %              1 %              1 %

Sales from
Mexico and
Argentina PET
manufacturing
facilities
(1)                    --            90
Sales -
contract
polymer
intermediates
sales (2)              35            --
Sales -
contract
ethylene
sales (3)              89            84
Sales -
excluding
listed items        1,695         1,518             12 %                (3 ) %              14 %             -- %              1 %






                          First Nine Months
                                                                                                                       Exchange
(Dollars in                                                                                           Product            Rate
millions)         2008          2007          Change        Volume Effect        Price Effect       Mix Effect          Effect

Sales           $   5,380     $   5,093              6 %                (8 ) %              11 %               2 %              1 %

Sales from
Mexico and
Argentina PET
manufacturing
facilities
(1)                    --           325
Sales -
contract
polymer
intermediates
sales (2)             117            --
Sales -
contract
ethylene
sales (3)             283           228
Sales -
excluding
listed items        4,980         4,540             10 %                (4 ) %              11 %               2 %              1 %

(1) Sales revenue for 2007 include sales revenue from PET manufacturing facilities and related businesses in Cosoleacaque, Mexico and Zarate, Argentina divested in fourth quarter 2007.

(2) Included in 2008 sales revenue are contract polymer intermediates sales under the transition supply agreement related to the divestiture of the PET manufacturing facilities and related businesses in Mexico and Argentina in fourth quarter 2007.

(3) Included in 2008 and 2007 sales revenue are contract ethylene sales under the transition supply agreement related to the divestiture of the PE businesses.

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Sales revenue in third quarter and first nine months 2008 compared to third quarter and first nine months 2007 increased $127 million and $287 million, respectively. Excluding the results of contract ethylene sales, contract polymer intermediates sales, and sales from divested Mexico and Argentina PET manufacturing facilities, sales revenue increased $177 million and $440 million for third quarter and first nine months 2008 compared to third quarter and first nine months 2007, respectively. The increases were primarily due to higher selling prices in all segments in response to higher raw material and energy costs partially offset by lower sales volume. Lower sales volume for the Performance Polymers, CASPI, and PCI segments was partially offset by higher sales volume in the Specialty Plastics ("SP") segment.

                                     Third Quarter                              First Nine Months
(Dollars in millions)     2008          2007          Change           2008           2007          Change

Gross Profit            $     322     $     307               5 %   $      980      $     902               9 %
As a percentage of
sales                          18 %          18 %                           18 %           18 %

Accelerated
depreciation costs
included in cost of
goods sold                      3             9                              8             37

Gross Profit
excluding accelerated
depreciation costs            325           316               3 %          988            939               5 %
As a percentage of
sales                          18 %          19 %                           18 %           18 %

Gross profit for third quarter 2008 increased $15 million compared to third quarter 2007, primarily in the PCI, Performance Polymers, and CASPI segments partially offset by the SP segment, as higher selling prices were partially offset by higher raw material and energy costs. Third quarter 2008 and 2007 included accelerated depreciation costs of $3 million and $9 million, respectively, resulting from the previously reported shutdowns of the cracking units in Longview, Texas and of higher cost PET polymer assets in Columbia, South Carolina. The Company's third quarter 2008 raw material and energy costs increased by approximately $225 million compared with third quarter 2007.

Gross profit for first nine months 2008 increased $78 million compared to first nine months 2007, primarily in the Performance Polymers, PCI, and Fibers segments partially offset by the SP segment, as higher selling prices were partially offset by higher raw material and energy costs. First nine months 2008 and 2007 included accelerated depreciation costs of $8 million and $37 million, respectively, resulting from the previously reported shutdowns of the cracking units in Longview, Texas and of higher cost PET polymer assets in Columbia, South Carolina. The Company's first nine months 2008 raw material and energy costs increased by approximately $575 million compared with first nine months 2007.

                                    Third Quarter                               First Nine Months
(Dollars in millions)     2008          2007          Change           2008           2007          Change

Selling, General and
Administrative
Expenses                $     107     $     104              3  %   $      324      $     311               4 %
Research and
Development Expenses           39            43             (9 )%          120            115               4 %
                        $     146     $     147             (1 )%   $      444      $     426               4 %
As a percentage of
sales                           8 %           9 %                            8 %            8 %

Selling, general and administrative ("SG&A") expenses for third quarter 2008 increased compared to third quarter 2007 primarily due to higher compensation expense in third quarter 2008. SG&A costs for first nine months 2008 increased compared to first nine months 2007 primarily due to higher compensation expense and higher expenses related to corporate initiatives.

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Research and development ("R&D") expenses decreased $4 million in third quarter 2008 compared to third quarter 2007 primarily due to higher pre-commercialization expenses for Eastman TritanTM copolyester in the SP segment in third quarter 2007. R&D expenses increased $5 million in first nine months 2008 compared to first nine months 2007 primarily due to higher expenses related to corporate initiatives.

Asset Impairments and Restructuring Charges, Net

Asset impairments and restructuring charges, net, totaled $2 million and $22
million for third quarter and first nine months 2008, respectively, compared to
$114 million and $116 million for third quarter and first nine months 2007,
respectively. For more information regarding asset impairments and restructuring
charges, net see the CASPI, PCI, Performance Polymers, and SP segment
discussions and Note 8, "Asset Impairments and Restructuring Charges, Net" to
the Company's unaudited consolidated financial statements.

Operating Earnings
                                   Third Quarter                         First Nine Months
(Dollars in millions)      2008          2007       Change       2008          2007          Change

Operating earnings       $     174     $      46     >100 %   $      514     $     360              43 %
Accelerated
depreciation costs
included in cost of
goods sold                       3             9                       8            37
Asset impairments and
restructuring charges,
net                              2           114                      22           116
Operating earnings
excluding accelerated
depreciation costs and
asset impairments and
restructuring charges,
net                      $     179     $     169        6 %   $      544     $     513               6 %



Interest Expense, Net

                                    Third Quarter                    First Nine Months
(Dollars in millions)        2008      2007       Change        2008        2007      Change

Gross interest costs         $  26     $  30                   $   80       $  86
Less: Capitalized interest       3         3                        7           8
Interest expense                23        27          (15 )%       73          78          (6 ) %
Interest income                  4        11                       20          31
Interest expense, net        $  19     $  16           19 %    $   53       $  47          13 %

Gross interest costs for third quarter and first nine months 2008 were lower compared to third quarter and first nine months 2007 due to lower average interest rates and lower average borrowings. Interest income for third quarter and first nine months 2008 was lower compared to third quarter and first nine months 2007 due to lower cash balances and lower average interest rates.

For 2008, the Company expects net interest expense to increase compared with 2007 primarily due to lower interest income, driven by lower average cash balances and lower average interest rates.

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


Other (Income) Charges, Net
. . .