ITEM                                                              Page

  Critical Accounting Estimates                                     21

  Presentation of Non-GAAP Financial Measures                       21

  Overview                                                          22

  Results of Operations                                             23

  Summary by Operating Segment                                      27

  Summary by Customer Location                                      33

  Liquidity, Capital Resources, and Other Financial Information     35

  Recently Issued Accounting Standards                              38

  Outlook                                                           39

  Forward-Looking Statements and Risk Factors                       40

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 second quarter 2009, the Company recognized a $3 million reduction of the first quarter 2009 restructuring charge resulting in a net $23 million charge in first six months 2009. The charges, primarily for severance, resulted from a reduction in force.

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 $3 million and $5 million in second quarter and first six months 2008, 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. 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 $1.3 billion and $1.8 billion in second quarter 2009 and 2008, respectively. Excluding the results of contract ethylene sales and contract polymer intermediates sales, sales revenue decreased by 27 percent. The Company generated sales revenue of $2.4 billion in first six months 2009 compared to $3.6 billion in first six months 2008. Excluding the results of contract ethylene sales and contract polymer intermediates sales, sales revenue decreased by 28 percent. Sales revenue decreases for both second quarter and first six months 2009 compared to comparable 2008 periods were due to lower sales volume primarily attributed to the global recession, and lower selling prices in response to lower raw material and energy costs.

Operating earnings were $131 million in second quarter 2009 compared with $172 million in second quarter 2008. Operating earnings in second quarter 2009 were positively impacted by a $3 million reduction of the first quarter $26 million restructuring charge. Operating earnings in second quarter 2008 were negatively impacted by $3 million in asset impairments and restructuring charges and $3 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 $128 million in second quarter 2009 compared with $178 million in second quarter 2008. Operating earnings were $156 million in first six months 2009 compared with $340 million in first six months 2008. Excluding asset impairments and restructuring charges in first six months 2009 and 2008 and accelerated depreciation costs in first six months 2008, operating earnings were $179 million in first six months 2009 compared with $365 million in first six months 2008. Eastman's reduced earnings reflect continued 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. Lower selling prices were in response to lower raw material and energy costs. Second quarter and first six months 2009 operating earnings included approximately $20 million in costs related to the reconfiguration of the Longview, Texas facility. Operating earnings in second quarter and first six months 2009 benefited from cost reduction actions which will positively impact results throughout the year. First six months 2009 reflected an increase in operating earnings of $131 million in second quarter compared to $25 million in first quarter 2009. This increase was due to increased sales volume primarily attributed to stabilization in customer buying patterns in second quarter 2009.

Earnings from continuing operations were $65 million in second quarter 2009 compared to $115 million in second quarter 2008. Excluding accelerated depreciation costs, asset impairments and restructuring charges, and net deferred tax benefits, earnings from continuing operations were $63 million and $119 million in second quarter 2009 and 2008, respectively. Earnings from continuing operations were $67 million in first six months 2009 compared to $230 million in first six months 2008. Excluding accelerated depreciation costs, asset impairments and restructuring charges, and net deferred tax benefits, earnings from continuing operations were $81 million and $236 million in first six months 2009 and 2008, respectively.

The Company generated $337 million in cash from operating activities during first six months 2009 compared to $79 million in first six months 2008. The improvement was primarily due to a decrease in working capital in 2009, particularly inventories, which more than offset significantly lower net earnings. The Company expects to generate positive free cash flow (operating cash flow less capital expenditures and dividends) in excess of $200 million 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, and $100 million positive operating cash flow impact of a change in tax accounting method.

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.

RESULTS OF OPERATIONS


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

Sales           $  1,253 $  1,834   (32) %   (20) %   (12) %         -- %       -- %

Sales -
contract
polymer
intermediates
sales (1)             --       26
Sales -
contract
ethylene sales
(2)                    1      102
Sales -
excluding
listed items       1,252    1,706   (27) %   (13) %   (13) %        (1) %       -- %

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

Sales            $   2,382 $   3,561     (33) %   (22) %          (10) %        (1) %       -- %

Sales - contract
polymer
intermediates
sales (1)               --        82
Sales - contract
ethylene sales
(2)                     18       194
Sales -
excluding listed
items                2,364     3,285     (28) %   (16) %          (11) %        (1) %       -- %

(1) 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.

(2) Included in 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 second quarter and first six months 2009 compared to second quarter and first six months 2008 decreased $581 million and $1,179 million, respectively. Excluding revenue from the contract ethylene and polymer intermediates sales, sales revenues decreased $454 million and $921 million in second quarter and first six months 2009 compared to second quarter and first six months 2008, respectively. The decrease was primarily due to lower sales volume in all segments except the Perfomance Polymers segment and lower selling prices in response to lower raw material and energy costs particularly in the PCI and Performance Polymers segments. The lower sales volume was primarily attributed to weakened demand due to the global recession.

                        Second Quarter          First Six Months
(Dollars in
millions)           2009    2008    Change   2009    2008    Change

Gross Profit      $   260 $   321   (19) % $   439 $   658   (33) %
As a percentage
of sales             21 %    18 %             18 %    18 %

Accelerated
depreciation
costs included in
cost of goods
sold                   --       3               --       5

Gross profit
excluding
accelerated
depreciation
costs                 260     324   (20) %     439     663   (34) %
As a percentage
of sales             21 %    18 %             18 %    19 %

Gross profit in second quarter and first six months 2009 decreased compared to second quarter and first six months 2008 in all segments except the Fibers segment due to continued weakness in demand for the Company's products attributed to the global recession. This weak demand caused lower sales volume and continued lower capacity utilization which resulted in higher unit costs. In addition, second quarter 2009 included approximately $20 million in costs related to the reconfiguration of the Longview, Texas facility. The reconfiguration costs impacted the PCI and CASPI segments. Second quarter and first six months 2009 benefited from cost reduction actions. Second quarter and first six months 2008 included accelerated depreciation costs of $3 million and $5 million, respectively, 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 second quarter and first six months 2009 raw material and energy costs decreased by approximately $225 million and $375 million, respectively, compared with second quarter and first six months 2008.

                              Second Quarter        First Six Months
(Dollars in millions)      2009   2008   Change   2009   2008   Change

Selling, General and
Administrative Expenses  $   98 $  107    (8) % $  192 $  217   (12) %
Research and Development
Expenses                     34     39   (13) %     68     81   (16) %
                         $  132 $  146   (10) % $  260 $  298   (13) %
As a percentage of sales   11 %    8 %            11 %    8 %

Selling, general and administrative ("SG&A") expenses in second quarter 2009 and first six months 2009 decreased compared to second quarter 2008 and first six months 2008 primarily due to lower discretionary spending and compensation expense resulting from cost reduction actions.

Research and development ("R&D") expenses decreased $5 million and $13 million in second quarter 2009 compared to second quarter 2008 and first six months 2009 compared to first six months 2008, respectively. The decrease is primarily due to lower R&D expenses for corporate growth initiatives and lower discretionary spending resulting from cost reduction actions.

Asset Impairments and Restructuring Charges, Net

In second quarter 2009, there was a $3 million reduction of the first quarter 2009 restructuring charge resulting in a net $23 million charge in first six months 2009. The charges, primarily for severance, resulted from a reduction in force.

In second quarter and first six months 2008, asset impairments and restructuring charges, net totaled $3 million and $20 million, respectively, primarily for severance, pension charges, and site closure costs in the PCI segment resulting from the decision to close a previously impaired site in the United Kingdom.

For more information regarding asset impairments and restructuring charges, net see the segment discussions and Note 7, "Asset Impairments and Restructuring Charges, Net", to the Company's unaudited consolidated financial statements in

Operating Earnings

                                     Second Quarter                First Six Months
(Dollars in millions)           2009       2008     Change     2009      2008     Change

Operating earnings           $     131  $    172    (24) %  $    156  $    340    (54) %
Accelerated depreciation
costs included in cost of
goods sold                          --         3                  --         5
Asset impairments and
restructuring charges, net         (3)         3                  23        20
Operating earnings excluding
accelerated depreciation
costs and asset impairments
and restructuring charges,
net                          $     128  $    178    (28) %  $    179 $     365    (51) %



Net Interest Expense

                                Second Quarter        First Six Months
(Dollars in millions)        2009   2008   Change   2009   2008   Change

Gross interest costs       $   26 $   28          $   50 $   54
Less: Capitalized interest      4      3               7      4
Interest expense               22     25   (12) %     43     50   (14) %
Interest income                 2      7               4     16
Net interest expense       $   20 $   18     11 % $   39 $   34     15 %

Net interest expense increased $2 million and $5 million in second quarter 2009 and first six months 2009, respectively, compared to comparable 2008 periods. Gross interest costs in second quarter 2009 and first six months 2009 were lower compared to second quarter 2008 and first six months 2008 due to lower average borrowings and lower average interest rates. Interest income in second quarter and first six months 2009 was lower compared to second quarter and first six months 2008 due to lower average interest rates and lower average cash balances.

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

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


Other Charges (Income), Net

                                        Second Quarter       First Six Months
(Dollars in millions)                  2009       2008       2009        2008

Foreign exchange transaction losses $       2  $      -- $        2  $        2
Investment losses, net                      2         --          5           1
Other, net                                  1          1          2         (3)
Other charges (income), net         $       5  $       1 $        9  $       --

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

                                 Second Quarter      First Six Months
(Dollars in millions)          2009        2008             2009   2008

Provision for income taxes $       41  $       38         $   41 $   76
Effective tax rate               39 %        25 %           38 %   25 %

Second quarter and first six months 2009 effective tax rates reflect a $7 million tax charge associated with a change in accounting method for tax purposes to accelerate timing of deductions for manufacturing repairs expense. This change will result in more than a $100 million positive cash flow impact in second half 2009 consisting of lower estimated tax payments and a refund of previously paid taxes. Second quarter and first six months 2008 effective tax rates reflect an estimated benefit resulting from a gasification investment tax credit, an $8 million benefit from the reversal of a U.S. capital loss valuation allowance associated with the sale of businesses, and a $6 million benefit from the settlement of a non-U.S. income tax audit. Excluding discrete items, second quarter and first six months 2009 and 2008 effective tax rates reflect the Company's expected full year tax rate on reported earnings from continuing operations before income tax, of approximately 33 and 30 percent, respectively.

Earnings from Continuing Operations
                                          Second Quarter         First Six Months
(Dollars in millions)                    2009        2008        2009        2008

Earnings from continuing operations  $       65  $      115  $       67  $      230
Accelerated depreciation costs
included in cost of goods sold, net
of tax                                       --           2          --           3
Asset impairments and restructuring
charges, net of tax                         (2)           2          14          14
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                           $       63  $      119  $       81  $      236

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


Net Earnings
                                       Second Quarter       First Six Months
(Dollars in millions)                 2009       2008       2009        2008

Earnings from continuing
operations                         $      65  $     115 $       67  $      230
Gain from disposal of discontinued
operations, net of tax                    --         --         --          18
Net earnings                       $      65  $     115 $       67  $      248
. . .