ITEM                                                                Page

  Critical Accounting Estimates                                       20

  Presentation of Non-GAAP Financial Measures                         20

  Overview                                                            21

  Results of Operations                                               22

  Summary by Operating Segment                                        25

  Summary by Customer Location                                        30

  Liquidity, Capital Resources, and Other Financial Information       31

  Recently Issued Accounting Standards                                34

  Outlook                                                             35

  Forward-Looking Statements and Risk Factors                         36

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 2008 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 "Presentation of Non-GAAP Financial Measures", the Company sold its polyethylene terephthalate ("PET") manufacturing facility in Spain in the 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.

CRITICAL ACCOUNTING ESTIMATES

In preparing the consolidated financial statements in conformity with GAAP, the Company's management must make decisions which impact the reported amounts and the related disclosures. Such decisions include the selection of the appropriate accounting principles to be applied and assumptions on which to base estimates and judgments that affect the reported amounts of assets, liabilities, sales revenue and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates its estimates, including those related to allowances for doubtful accounts, impairment of long-lived assets, environmental costs, pension and other post-employment benefits, litigation and contingent liabilities, 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 2008 Annual Report on Form 10-K are the most important to the fair presentation of the Company's financial condition and results. These estimates require management's most significant judgments in the preparation of the Company's consolidated financial statements.

PRESENTATION OF NON-GAAP FINANCIAL MEASURES

In first quarter 2009, the Company announced that it was taking additional actions to further reduce costs in response to the ongoing global economic recession. These actions included a reduction in force of approximately 300 employees that resulted in a restructuring charge of $26 million in the quarter.

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 from which sales revenue and operating results are included in the Performance Polymers segment results in 2008.

In fourth quarter 2006, the Company sold its polyethylene ("PE") and EpoleneTM polymer businesses and related assets of the Performance Polymers and the 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 results are included in the Performance Chemicals and Intermediates ("PCI") segment results in 2009 and 2008.

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 $2 million in first quarter 2008. 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. The non-GAAP financial measures used by the Company may not be comparable to similarly titled measures used by other companies and should not be considered in isolation or as a substitute for measures of performance or liquidity prepared in accordance with GAAP.
· Company and segment 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;

· 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 or of the Company. 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. 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 $1.1 billion and $1.7 billion for first quarter 2009 and first quarter 2008, respectively. Excluding the results of contract ethylene sales and contract polymer intermediates sales, sales revenue decreased by 30 percent. The sales revenue decrease was due to lower sales volume primarily attributed to the global recession and decreased selling prices in response to lower raw material and energy costs.

Operating earnings were $25 million in first quarter 2009 compared with $168 million in first quarter 2008. Operating earnings in first quarter 2009 were negatively impacted by a $26 million restructuring charge for a reduction in force. Operating earnings in first quarter 2008 were negatively impacted by $17 million in asset impairments and restructuring charges and $2 million of accelerated depreciation costs, primarily as a result of strategic actions in the Performance Polymers and PCI segments. Excluding these items, operating earnings were $51 million in first quarter 2009 compared with $187 million in first quarter 2008. Eastman's reduced but positive earnings reflect unprecedented weakness in demand for the Company's products attributed to the global recession. This weakness in demand caused lower sales volume and continued low capacity utilization which resulted in higher unit costs. In addition, lower selling prices were offset by lower raw material and energy costs. Operating earnings benefited from recently implemented cost reduction actions which will positively impact results throughout the year.

Earnings from continuing operations were $2 million for first quarter 2009 compared to $115 million for first quarter 2008. Excluding accelerated depreciation costs, asset impairments and restructuring charges, and net deferred tax benefits, earnings from continuing operations were $18 million and $117 million for first quarter 2009 and first quarter 2008, respectively.

The Company generated $82 million in cash from operating activities during first quarter 2009 compared to $53 million used in operating activities in first quarter 2008. The improvement was primarily due to a decrease in working capital, particularly inventories, more than offsetting significantly lower net earnings. The Company expects to generate positive free cash flow (operating cash flow less capital expenditures and dividends) in 2009, including approximately $100 million in cash from working capital, assuming continued difficult economic conditions and raw material and energy costs similar to current levels.

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. 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.

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


RESULTS OF OPERATIONS


                  First Quarter
(Dollars in                                 Volume   Price     Product      Exchange
millions)         2009     2008    Change   Effect   Effect   Mix Effect   Rate Effect

Sales          $  1,129  $ 1,727   (35) %   (25) %    (9) %        (1) %          -- %

Sales -
contract
polymer
intermediates
sales (1)            --       56
Sales -
contract
ethylene sales
(2)                  17       92
Sales -
excluding
listed items   $  1,112  $ 1,579   (30) %   (19) %    (9) %        (2) %          -- %

(1) Included in first quarter 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.

(2) Included in first quarter 2009 and 2008 sales revenue are contract ethylene sales under the transition supply agreement related to the divestiture of the PE businesses.

Sales revenue in first quarter 2009 compared to first quarter 2008 decreased $598 million. Excluding revenue from the contract ethylene and polymer intermediates sales, sales revenues decreased $467 million primarily due to lower sales volume in all segments except Performance Polymers and lower selling prices principally in the PCI and Performance Polymers segments. The lower sales volume was primarily attributed to weakened demand due to the global recession.

                                                   First Quarter
(Dollars in millions)                         2009         2008                 Change

Gross Profit                             $        179  $      337               (47) %
As a percentage of sales                         16 %        20 %

Accelerated depreciation costs included
in cost of goods sold                              --           2

Gross Profit excluding accelerated       $
depreciation costs                                179  $      339               (47) %
As a percentage of sales                         16 %        20 %

Gross profit and gross profit as a percentage of sales for first quarter 2009 decreased compared to first quarter 2008 in all segments except Fibers due to unprecedented weakness in demand for the Company's products attributed to the global recession. This weak demand caused lower sales volume and continued low capacity utilization which resulted in higher unit costs. During second quarter 2009, the Company expects to complete maintenance and capital projects for its largest cracking unit as the last step in the reconfiguration of its Longview, Texas facility. Costs related to these actions will impact the PCI and CASPI segments. First quarter 2008 included accelerated depreciation costs of $2 million resulting from the previously reported shutdown of the cracking units in Longview, Texas and of higher cost PET polymer assets in Columbia, South Carolina.

The Company's first quarter 2009 raw material and energy costs decreased approximately $150 million compared with first quarter 2008.

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


                                                First Quarter
(Dollars in millions)                           2009      2008    Change

Selling, General and Administrative Expenses $     94  $    110   (15) %
Research and Development Expenses ("R&D")          34        42   (19) %
                                             $    128  $    152   (16) %
As a percentage of sales                         11 %       9 %

Selling, general and administrative expenses for first quarter 2009 decreased compared to first quarter 2008 primarily due to lower compensation expense and lower discretionary spending related to corporate cost reduction efforts.

R&D expenses decreased $8 million in first quarter 2009 compared to first quarter 2008 primarily due to lower R&D expenses for corporate growth initiatives.

Asset Impairments and Restructuring Charges, Net

In first quarter 2009, a restructuring charge totaled $26 million for the
previously announced reduction in force of approximately 300 employees.

In first quarter 2008, asset impairments and restructuring charges totaled $17
million, primarily for severance and pension charges in the PCI segment
resulting from the decision to close a previously impaired site in the United
Kingdom.

Operating Earnings
                                                    First Quarter
(Dollars in millions)                             2009          2008         Change

Operating earnings                           $         25  $        168      (85) %
Accelerated depreciation costs included in             --             2
cost of goods sold
Asset impairments and restructuring charges,           26            17
net
Operating earnings excluding accelerated
depreciation costs and asset impairments and
restructuring charges, net                   $         51  $        187      (73) %



Interest Expense, Net

                               First Quarter
(Dollars in millions)         2009      2008     Change

Gross interest costs       $     24  $     26
Less: Capitalized interest        3         1
Interest expense                 21        25    (16) %
Interest income                   2         9
Interest expense, net      $     19  $     16     19 %

Net interest expense increased $3 million. Gross interest costs for first quarter 2009 were slightly lower compared to first quarter 2008 due to lower average interest rates and lower average borrowings. Interest income for first quarter 2009 was lower compared to first quarter 2008 due to lower average cash balances and lower average interest rates.

For 2009, the Company expects net interest expense to increase compared with 2008 primarily due to lower interest income, driven by lower average invested cash balances and lower average interest rates.

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


Other Charges (Income), Net

                                        First Quarter
(Dollars in millions)                   2009      2008

Foreign exchange transactions losses $     --  $      2
Investment losses, net                      3         1
Other, net                                  1       (4)
Other charges (income), net          $      4  $    (1)

Included in net other charges (income) are gains or losses on foreign exchange transactions, results from equity investments, gains on the sale of business venture investments, write-downs to fair value of certain technology business venture investments due to other than temporary declines in value, other non-operating income or charges related to Holston Defense Corporation, gains from the sale of non-operating assets, royalty income, certain litigation costs, fees on securitized receivables, other non-operating income, and other miscellaneous items.

Provision for Income Taxes

                              First Quarter
(Dollars in millions)         2009      2008    Change

Provision for income taxes $     --  $     38   (100) %
Effective tax rate              N/A      25 %

First quarter 2009 effective tax rate, excluding discrete items, reflects the Company's expected full year tax rate on reported operating earnings from continuing operations before income tax of approximately 32 percent. First quarter 2008 effective tax rate reflects an $8 million benefit from the reversal of a U.S. capital loss valuation allowance, a $3 million benefit from the settlement of a non-U.S. income tax audit from previously divested businesses, and a $3 million benefit from the settlement of a non-U.S. income tax audit.

Earnings from Continuing Operations
                                            First Quarter
(Dollars in millions)                       2009      2008    Change

Earnings from continuing operations      $      2  $    115   (98) %
Accelerated depreciation costs included
in cost of goods sold, net of tax              --         1
Asset impairments and restructuring
charges, net of tax                            16        12
Net deferred tax benefits related to the
previous divestiture of businesses             --      (11)
Earnings from continuing operations
excluding accelerated depreciation
costs, net of tax, asset impairments and
restructuring charges, net of tax, and
net deferred tax benefits related to the
previous divestiture of businesses       $     18  $    117   (85) %



Net Earnings
                                                             First Quarter
(Dollars in millions)                                        2009      2008    Change

Earnings from continuing operations                       $      2  $    115   (98) %
Gain from disposal of discontinued operations, net of tax       --        18
Net earnings                                              $      2  $    133   (98) %

The gain on disposal of discontinued operations, net of tax of $18 million for first quarter 2008 is from the sale of the Company's PET polymers and PTA production facilities in the Netherlands and its PET production facility in the United Kingdom and related businesses for approximately $329 million in first quarter 2008. For additional information, see Note 2 , "Discontinued Operations", to the Company's unaudited consolidated financial statements in

SUMMARY BY OPERATING SEGMENT

The Company's products and operations are managed and reported in five reportable operating segments, consisting of the CASPI segment, the Fibers segment, the PCI segment, the Performance Polymers segment, and the Specialty Plastics ("SP") segment. For additional information concerning the Company's operating businesses and products, see Note 23, "Segment Information", to the consolidated financial statements in Part II, Item 8 of the Company's 2008 Annual Report on Form 10-K.

R&D and other expenses not identifiable to an operating segment are not included in segment operating results for either of the periods presented and are shown in Note 15 , "Segment Information", to the Company's unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q, as "other" operating losses.

CASPI Segment
                                             First Quarter
                                                       $        %
(Dollars in millions)               2009     2008    Change   Change

Sales                            $    250 $    389 $  (139)   (36) %
Volume effect                                         (123)   (32) %
Price effect                                              2      1 %
Product mix effect                                     (16)    (4) %
Exchange rate effect                                    (2)    (1) %


Operating earnings                     14       59     (45)   (76) %

Asset impairments and                   7       --        7
restructuring charges, net

Operating earnings excluding
asset impairments and
restructuring charges, net             21       59     (38)   (64) %

Sales revenue decreased $139 million in first quarter 2009 compared to first quarter 2008 primarily due to lower sales volume and an unfavorable shift in product mix as customer destocking continued particularly for specialty products. The lower sales volume was due to the sharp decline in customer demand in all regions attributed to the global recession, particularly for products sold into the automotive, building and construction, and packaging markets.

Excluding the segment's portion of the severance charge for a reduction in force in first quarter 2009, operating earnings decreased $38 million for first quarter 2009 compared to first quarter 2008 due primarily to lower sales volume and lower capacity utilization causing higher unit costs and an unfavorable shift in product mix, partially offset by lower raw material and energy costs.

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



Fibers Segment
                                            First Quarter
                                                       $        %
(Dollars in millions)               2009     2008    Change   Change

Sales                            $    259 $    254 $      5      2 %
Volume effect                                          (25)   (10) %
Price effect                                             25     10 %
Product mix effect                                        5      2 %
Exchange rate effect                                     --     -- %


Operating earnings                     69       68        1      1 %

Asset impairments and                   4       --        4
restructuring charges, net

Operating earnings excluding
asset impairments and
restructuring charges, net             73       68        5      7 %

Sales revenue increased $5 million in first quarter 2009 compared to first quarter 2008 primarily due to higher selling prices and a favorable shift in product mix partially offset by lower sales volume. The higher selling prices were in response to higher raw material and energy costs. The lower sales volume was attributed to the impact of customer buying patterns for the acetyl chemicals products and the impact of the global recession on the acetate yarn products, partially offset by higher sales volume for acetate tow enabled by the capacity expansion of the Company's acetate tow plant in Workington, England, which was completed in fourth quarter 2008.

Excluding the segment's portion of the severance charge for a reduction in force in first quarter 2009, operating earnings increased $5 million for first quarter 2009 compared to first quarter 2008 primarily due to higher selling prices and a . . .