~~ITEM 1. BUSINESS~~

	Ø	Acetate Tow
	Eastman manufactures acetate tow under the EstronTM trademark according to a wide variety of customer specifications, primarily for use in the manufacture of cigarette filters. Acetate tow is the largest sales product of the Fibers segment. Worldwide demand for acetate tow is expected to increase by one to two percent per year over the next several years. Demand growth within Asia, mostly China, one of the largest and fastest growing markets, primarily influences this expected global increase.

~~Eastman manufactures acetate tow under the Estron~~TM trademark according to a wide variety of customer specifications, primarily for use in the manufacture of cigarette filters. Acetate tow is the largest sales product of the Fibers segment. Worldwide demand for acetate tow is expected to increase by one to two percent per year through 2012, with higher growth rates in Asia.

	Ø	Acetate Yarn
	The Company manufactures acetate filament yarn under the EstronTM and ChromspunTM trademarks in a wide variety of specifications. EstronTM acetate yarn is available in bright and dull luster and is suitable for subsequent dyeing in the fabric form. ChromspunTM acetate yarn is solution-dyed in the manufacturing process and is available in more than 100 colors.

~~The Company manufactures acetate filament yarn under the Estron~~TM ~~and Chromspun~~TM ~~trademarks in a wide variety of specifications. Estron~~TM ~~acetate yarn is available in bright and dull luster and is suitable for subsequent dyeing in the fabric form. Chromspun~~TM ~~acetate yarn is solution-dyed in the manufacturing process and is available in more than 100 colors.~~

	Ø	Acetyl Chemical Products
	The Fibers segment's acetyl chemical products are sold primarily to other acetate fiber market producers and include cellulose diacetate flake, acetic acid, and acetic anhydride. Each is used as a raw material for the production of cellulose acetate fibers. The Fibers segment also markets acetyl-based triacetin plasticizers under the EstrobondTM trademark, generally for use by cigarette manufacturers as a bonding agent in cigarette filters.

The Fibers segment's acetyl chemical products are sold primarily to other acetate fiber market producers and include cellulose diacetate flake, acetic acid, and acetic anhydride. Each is used as a raw material for the production of cellulose acetate fibers. The Fibers segment also markets acetyl-based triacetin plasticizers under the EstrobondTM ~~trademark, generally for use by cigarette manufacturers as a bonding agent in cigarette filters.~~

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·	Strategy and Innovation

Ø

Growth

In the Fibers segment, Eastman is leveraging its strong customer relationships and knowledge of the industry to identify growth options. These growth options are enabled by its excess acetate flake capacity at the Kingsport, Tennessee site. In ~~December~~ 2008, Eastman expanded its Workington, England plant to support customer demand in the ~~Company announced an alliance with SK to form~~region. In 2010 production began at a ~~company to acquire and operate a cellulose~~new acetate tow ~~manufacturing~~ facility ~~and related business, with the~~in Ulsan, South Korea to support customer demand in Asia. With this new facility Eastman’s total global acetate tow capacity is approximately 210,000 metric tons. The Company continues to ~~be constructed by SK in Korea. Eastman will have controlling ownership~~pursue growth opportunities, particularly in the business. Construction of the Korean facility began in first quarter 2009, and the facility is expected to be operational in first quarter 2010 and fully integrated into the Fibers segment's production and sales processes in 2011. Annual capacity at the Korean facility is expected to be approximately 27,000 metric tons, and Eastman's total worldwide capacity for acetate tow will exceed 200,000 metric tons, an increase of approximately 15 percent. The net impact of the added Korean facility on global capacity is estimated to be an increase of approximately two percent versus 2008 industry capacity levels.Asia Pacific region.

Ø

Continue to Capitalize on Fibers Technology Expertise

The Fibers segment intends to continue to make 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 improving the segment's manufacturing process efficiencies.

Ø

Maintain Cost-Effective Operations and Consistent Cash Flows and Earnings

The Fibers segment intends to continue to operate in a cost effective manner, capitalizing on its technology, scale and vertical integration, and to make further productivity and efficiency improvements through continued investments in ~~research and development.~~R&D.

Ø

Research and Development

The Company's Fibers segment ~~research and development~~R&D efforts focus on process and product improvements, as well as cost reduction, with the objectives of increasing sales and reducing costs. The Fibers segment also conducts research to assist acetate tow customers in the effective use of the segment's products and in the customers' product development efforts.

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·	~~Customers and Markets~~

·Customers and Markets

The customer base in the Fibers segment is relatively concentrated, consisting of approximately 150 ~~companies~~customers in the tobacco, textile, and acetate fibers industries. Eastman's Fibers segment customers are located in all regions of the world. The largest 1217 customers within the Fibers segment include multinational as well as regional cigarette producers, fabric manufacturers, and other acetate fiber producers. These ~~largest 12~~top 17 customers accounted for about 80 percent of the segment's total sales revenue in ~~2009.~~2010. Sales prices for a significant portion of the Fibers segment's products are typically negotiated on an annual basis. The segment maintains a strong position in acetate tow exports to ~~China, one of the largest and fastest growing markets in the world.~~China.

·	~~Competition~~

·Competition

Eastman is the second largest acetate tow manufacturer in the world. Competitors in the fibers market for acetate tow include Celanese Corporation ("Celanese"), Daicel Chemical Industries Ltd ("Daicel"), Mitsubishi Rayon Co., Ltd. ("Mitsubishi Rayon"), and Rhodia ~~S.A.. In the acetate tow market, two major competitors, Celanese and Daicel, have joint venture capacity in China.~~S.A.

In the segment's acetate yarn business, major competitors include Industrias del Acetato de Celulosa S.A. ("INACSA"), UAB Korelita, and Mitsubishi ~~Rayon, and UAB Korelita.~~Rayon. Eastman is the world leader in acetate yarn production and the only acetate yarn producer in the U.S. and Canada. The physical properties of acetate yarn make it desirable for use in textile products such as suit linings, women's apparel, medical tape, drapery, ribbons and other specialty fabrics. However, over the past 20 years, demand for acetate yarn has been adversely affected by the substitution of lower cost polyester and rayon yarns. Accordingly, worldwide demand for acetate yarn is expected to continue to decrease as mills substitute these cheaper yarns for acetate yarn. Eastman, however, remains uniquely positioned because iti t is the only integrated producer of acetate yarn.

As described above under "Fibers Segment – Overview", the principal methods of competition include maintaining the Company's large-scale vertically integrated manufacturing process from coal-based acetyl raw materials, reliability of supply, product quality, and sustaining long-term customer relationships.

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PCI SEGMENT

·

Overview

The ~~Company's~~ PCI segment ~~manufactures~~leverages large scale and vertical integration from the acetyl and olefins streams to manufacture diversified products that are sold externally as well as used internally byfor other ~~segments.~~segments of the company. The PCI ~~segment's earnings are highly dependent on how the Company chooses~~segment has leading market positions in many of its core products and believes it is well-positioned in key markets for most of its major products, including both acetyl products and olefin derivatives, due to ~~optimize the acetyl~~its competitive cost position and ~~olefins streams.~~supply reliability versus competitors. In ~~2009,~~2010 the PCI segment had sales revenue of ~~$1.3~~$2.1 billion, ~~representing 26~~36 percent of ~~Eastman's~~the Company's total sales.

~~Many~~The segment's competitive cost position is primarily due to lower cost raw materials, such as coal which is used in the production of acetyl stream products and olefins which are used in the production of olefin derivative products. To further improve its competitive cost position over purchasing olefins in the North American market, the Company restarted a previously idled cracking unit at the Longview, Texas facility in 2010. This restart was prompted by a favorable shift in market conditions for olefin raw materials that is expected to continue over the next several years. The Company has three operating cracking units, including the unit restarted in 2010. The Company will continue to evaluate changes in raw materials costs along with olefin derivative volume demand to determine the best use for these assets. Some of the segment's products are affected by the olefins cycle. See "Corporate Overview – Manufacturing Streams" earlier in this "Part 1I – Item 1. Business." This cyclicality is caused by periods of supply and demand imbalance, either when incremental capacity additions are not offset by corresponding increases in demand, or when demand exceeds existing supply. Demand, in turn, is based on general economic conditions, raw material and energy costs, and other factors beyond the Company's control. ~~Future~~While the segment has taken steps to reduce the impact of the trough of the olefins cycle, future PCI segment results ~~will~~are expected to continue to fluctuate from period to period due to these changing economic conditions.

There are four cracking units located at the Company's Longview, Texas facility. In 2007, the three oldest cracking units were identified for a staged phase-out. Eastman shut down the first of the three units in fourth quarter 2007 and idled the second cracking unit in December 2008. The timing of the permanent shut down of the second and third cracking units including the idled cracker is dependent on feedstock and olefin market conditions. With the divestiture of the Company's polyethylene business in 2006, the Company has experienced excess ethylene capacity and has reconfigured its cracker position to enhance its long-term olefin production to better match the Company's feedstock requirements.

Approximately 7570 percent of the ~~Company's~~segment’s olefin derivatives are made from propylene and sold in the U.S. and Canadian market. The PCI segment believes it is well-positioned in the U.S. and Canadian market for most of its major products, including both acetyl products and olefin derivatives, due to its competitive delivered cost position and supply reliability versus competitors.

propylene.

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·

·Products

The PCI segment offers over ~~135~~195 products that include intermediates based on oxo and acetyl chemistries and performance chemicals. The PCI segment's ~~2009~~2010 sales revenue was approximately 5065 percent from olefin-based and 3520 percent from acetyl-based chemistries, and 15 percent from ~~other.~~other chemicals. Approximately 65 percent of the PCI segment's sales revenue is generated in the U.S. and Canada, a region in which the Company has a leading market share position for most of its key oxo and acetyl products. Sales in all regions are generated through a mix of the Company's direct sales force and a network of distributors. The Company's PCI segment is the largest marketer of acetic anhydride in the United States, an intermediate that is a critical component of analgesics, laundry care products, and ~~nutritional~~nutri tional supplements, and is the only U.S. producer of acetaldehyde, a key intermediate in the production of agricultural and other specialty products. Eastman believes that it manufactures one of the world's broadest ranges of products derived from oxo ~~aldehydes.~~aldehydes and holds a leading North American market position in the majority of these products. The PCI segment's other intermediate products include ~~plasticizers~~glycols and ~~glycols.~~polymer intermediates. Many of the intermediates products in the PCI segment are priced based on supply and demand of substitute and competing products. In order to maintain a competitive position, the Company strives to operate with a low cost manufacturing base.

The PCI segment also manufactures performance chemicals and complex organic molecules such as plasticizers, diketene derivatives, specialty ketones, and specialty anhydrides for medical, pharmaceutical, fiber, and food and beverage ingredients, which are typically used in specialty market applications. ~~These~~The acquisition of Genovique Specialties Corporation ("Genovique") added new plasticizers to the Company's existing portfolio, and Eastman believes it has the broadest product line of non-phthalate plasticizers in the world. The PCI segment’s specialty products are typically priced based on value added rather than supply and demand factors.

·	14 ·Strategy and Innovation

To build on and maintain its status as a low cost producer, the PCI segment continuously focuses on cost control, operational efficiency, and capacity utilization to maximize earnings. The shutdown of the first of the three cracking units in Longview, Texas, as part of the staged phase-out of our oldest crackers, with the continued shutdown dependent on feedstock and olefins market conditions, has been part of the initiative to increase operational efficiency. Through the PCI segment, the Company maximizes the advantage of its highly integrated and world-scale manufacturing facilities. For example, the Kingsport, Tennessee manufacturing facility allows the PCI segment to produce acetic anhydride and other acetyl derivatives from coal rather than natural gas or other petroleum feedstocks. At the Longview, Texas manufacturing facility, Eastman's PCI segment uses its proprietary oxo-technology in the world's largest single-site, oxo aldehyde manufacturing facility to produce a wide range of alcohols, esters, and other derivative products utilizing local propane and ethane supplies, asa s well as purchased propylene. These integrated facilities, combined with large scale production processes and a continuous focus on additional process improvements, allow the PCI segment to remain cost competitive with, and for some products cost-advantaged over, its competitors.

The PCI segment selectively focuses on continuing to develop and access markets with high-growth potential for the Company's chemicals. One such market is for flexible plastic products used in sensitive applications such as toys, child care articles, medical packaging and devices, and food contact. Eastman 168TM plasticizer ~~provides an~~and Genovique specialty plasticizers provide effective, ~~alternative~~sustainable alternatives to ortho-phthalate plasticizers traditionally used in these and other applications. ~~Eastman 168~~TM ~~plasticizer allows~~These plasticizers allow manufacturers to meet the challenging requirements of changing government regulations and consumer preferences without sacrificing production efficiency or product performance. The acquisition of Genovique in 2010 added to the Company's portfolio of non-phthalate plasticizers that serve high growth markets.

The Company engages in ~~customer-focused research and development~~R&D initiatives in order to develop new PCI products and find additional applications for existing ~~products.~~products and to lower its costs. The Company ~~also evaluates~~is evaluating licensing opportunities for acetic acid and oxo derivatives on a selective basis, and has licensed technology to produce acetyl products to Saudi International Petrochemical Company ("SIPCHEM") in Saudi Arabia and to Chang Chun Petrochemical Company ("Chang Chun") in Taiwan in 2005 and 2007, respectively. All SIPCHEM ~~started operations in 2009 at its plant based on this technology~~licensing agreement revenue has been received, and ~~Chang Chun is in the process of building its plant. In first half of 2010,~~ the Company ~~expects~~has the continuing right to ~~achieve~~purchase the ~~final milestones associated with the SIPCHEM agreement and to recognize the remaining revenue related to the license. The Company will also purchase~~ acetic anhydride from the SIPCHEM manufacturing facility. The Chang Chun manufacturing plant is expected to be operational in the second half of 2011.

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·	Customers and Markets

The PCI segment's products are used in a variety of markets and end uses, including ~~agrochemical,~~agriculture, transportation, beverages, nutrition, pharmaceuticals, coatings, flooring, medical devices, toys, ~~photographic and imaging,~~adhesives, sealants, household products, polymers, textiles, and industrials. Because of its cost position, reliability, and service, the Company has been able to establish and maintain long-term arrangements and relationships with PCI customers. Product-specific olefin derivative market conditions vary based upon prevailing supply and demand conditions. An important trend for the PCI segment's business is a tendency toward regionalization of key markets due to increased transportation costs and local supply in developing ~~geographies~~regions from new capacities. The PCI segment benefits from this trend primarily in the U.S. and ~~Canada, but may lose export volume to other markets as this trend continues.~~Canada. The anhydride purchased from the new SIPCHEM facility will give increased access to the Asian market for PCI products. Additionally, the PCI segment is engaged in continuous efforts to optimize product and customer mix. Approximately 80 percent of the PCI segment's sales revenue in ~~2009~~2010 was from ~~112 out~~135 of approximately ~~900~~1,100 customers worldwide.

·	Competition

Historically, there have been significant barriers to entry for potential competitors in the PCI segment's major product lines, including acetic acid and acetic anhydride, primarily due to the ~~fact that the~~ relevant technology ~~has~~having been held by a small number of companies. As this technology has become more readily available, competition from multinational chemical manufacturers has intensified. Eastman competes with these and other producers primarily based on price, as products are generally interchangeable, but also on technology, marketing, and services. Eastman's major competitors in this segment include large, multinational companies such as BASF, Celanese, Dow, and Exxon Mobil Corporation. While some competitors in PCI's product markets may have greater financial resources than Eastman, the Company believes it maintains a strong competitive position due to the combination of its scale of operations, breadth of product line, level of integration, and technology leadership.

~~PERFORMANCE POLYMERS SEGMENT~~

·	~~Overview~~

In 2009, the Performance Polymers segment had sales revenue of $719 million, representing 14 percent of the Company's total sales. The segment is comprised primarily of the Company's PET product lines, and also includes various polymer intermediates.

In 2008, the Company completed strategic actions intended to improve the operating results of the Performance Polymers segment. The Company shut down 300,000 metric tons of higher cost assets in 2008 after having shut down 100,000 metric tons of higher cost PET assets during 2007, some of which were converted to Specialty Plastics production. In fourth quarter 2008, the Company also completed a debottleneck of its IntegRexTM ~~technology facility in South Carolina, bringing its IntegRex~~TM capacity to 525,000 metric tons. Operational difficulties following this debottleneck persisted throughout 2009. These operational difficulties resulted in additional costs as well as negative impact on sales revenue through an unfavorable shift in customer and market mix contributing to an operating loss for the year. The Company completed a shutdown of the facility in fourth quarter 2009 to correct these problems. In first quarter 2010, the IntegRexTM~~-based facility located in Columbia, South Carolina is demonstrating the capability to produce improved quality ParaStar~~ TM PET products at the facility's nameplate capacity of 525,000 metric tons. The Company expects smaller Performance Polymers segment losses in 2010 based on this improved operational performance and the resulting capability for a more profitable mix of product sales.

The Company's PET product pricing and profitability have historically been most affected by raw material costs and industry capacity utilization. PET global supply has exceeded demand since 1997 as a result of capacity being introduced into the market at a rate exceeding that of demand growth. While the global demand for PET continues to increase steadily, the Company sells PET primarily in the North American Free Trade Agreement ("NAFTA") region, which is projected to have lower Gross Domestic Product ("GDP") and PET demand growth than the overall global PET market. Excess Asian PET capacity and related exports are expected to continue to have an adverse impact on PET pricing and profitability worldwide, particularly in the NAFTA region. In addition, a significant capacity expansion by a competitor in late 2009 is expected to contribute to a continued challenging business environment and negatively impact PET profitability in the NAFTA region.

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·	~~Products~~

PET is used in beverage and food packaging and other applications such as personal care and cosmetics packaging, health care and pharmaceutical uses, household products, carpet fibers, and industrial packaging applications. PET offers fast and easy processing, superb clarity and color consistency, durability and strength, impact and chemical resistance, and high heat stability. Packages made from PET are characterized by their light weight, gloss, high strength, durability, clarity, low cost, safety, and recyclability.

·	~~Strategy and Innovation~~

Ø

~~Operational Efficiency~~

The Performance Polymers segment focuses on improving its performance by directing its research and development efforts to lowering its manufacturing costs through technology innovations and process improvement. These efforts resulted in the development of IntegRexTM ~~technology, a lower cost PTA and PET manufacturing process that provides manufacturing and capital cost savings compared to conventional technologies.~~

Ø

~~Licensing~~

As a strategic initiative to create and capture additional value from the IntegRex™ technology, the Company is actively pursuing a licensing program. IntegRex™ technology provides significant capital and operating cost benefits relative to conventional PTA and PET technologies. The Company is offering licensees use of its Eastman-owned patents and expertise in the design, construction, and operation of a full range of production facilities, including IntegRex™ PTA, IntegRex™ PET, or integrated configurations of the two processes. Also, as the Company improves the IntegRex™ technology for its own use, it expects it may offer these enhancements to its licensees.

·	~~Customers and Markets~~

Approximately 20 customers within the Performance Polymers segment accounted for more than 80 percent of the segment's total sales revenue from continuing operations in 2009. The segment serves PET customers in the NAFTA region who are primarily PET container producers for large volume beverage markets such as carbonated soft drinks, water, and juice, with strong participation in custom areas such as food, liquor, sport and fruit beverages, health and beauty aids, and household products. PET is a preferred material for recyclable, single-serve containers and as a substitute for glass and aluminum packaging. PET market volume growth rates in the NAFTA region are projected to be below GDP in the region for the next several years due to reduced consumption of carbonated soft drinks and continued light weighting of bottles, while new capacity has been added by a competitor in the U.S. Although near-term growth in demand is uncertain, the Company projects the demand in the NAFTA region for PET to grow by approximately two to three percent annually on a long-term basis.

·	~~Competition~~

The Company's PET product lines compete to a large degree on price in a capital intensive industry. Profitability is dependent on attaining low cost positions through technology innovation, manufacturing scale, capacity utilization, access to reliable and competitive utilities, energy and raw materials, and efficient manufacturing and distribution processes.

~~The Company's PET production is vertically integrated back to the raw material paraxylene. This gives Eastman a cost advantage and reliable intermediate supply.~~

As a result of recent strategic actions, the Performance Polymers segment competes primarily in the NAFTA region. Major competitors in the NAFTA region for the Performance Polymers segment include DAK Americas LLC, Indorama Group, Invista, Mossi & Ghisolfi Group, Nan Ya Plastics Corporation, and Wellman Inc., as well as Asian PET exporters. Comprised of many competitors, imports hold approximately 15 percent market share in the NAFTA region and are expected to continue to have an adverse impact on PET pricing and profitability due to the large excess capacity in Asia. In 2010, a major competitor is bringing additional capacity to the market from an expansion in late 2009, resulting in further stress on pricing and profitability.

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SPECIALTY PLASTICS SEGMENT

·

Overview

In the Specialty Plastics segment, the Company produces and markets specialized copolyesters and cellulosic plastics that possess differentiated performance properties for value-added end uses. In ~~2009,~~2010, the Specialty Plastics segment had sales revenue of ~~$749 million,~~$1.0 billion, approximately 1518 percent of Eastman's total sales.

Eastman has the ability within its Specialty Plastics segment to modify its polymers and plastics to control and customize their final properties, creating numerous opportunities for new application development, including the expertise to develop new materials and new applications starting from the molecular level in the research laboratory to the final designed application. Recent industry trends in various markets have renewed customers' interest in some of the unique attributes offered by Eastman materials. Such trends include, but are not limited to, interest in ~~halogen-free and bisphenol A ("BPA")-free plastics, as well as~~ plastics that have superior chemical and mechanical properties to withstand increasing demands in specific ~~applications.~~applications, as well as halogen-free and bisphenol A ("BPA")-free plastics. The addition of the Eastman Tritan™ family of products significantly enhances the segment's ability to customize copolyesters and cellulosic plastics for new markets and applications. In addition, the Specialty Plastics segment has a long history of manufacturing excellence with strong process improvement programs providing continuing cost reduction.

·

·Products

The Specialty Plastics segment consists of two primary product ~~lines,~~lines: specialty copolyesters and cellulosics. Eastman estimates that the market growth for copolyesters will continue to be higher than general domestic economic growth due to ongoing specialty copolyester material innovations and displacement opportunities. Eastman believes that cellulosic materials will grow at or above the rate of the domestic economy in general, ~~with the~~driven by strong demand in the LCD market, and increased demand for ~~cellulose esters in liquid crystal displays more than offsetting~~cellulosics driven by the ~~decline in legacy photographic markets.~~sustainability profile of these bio-derived materials and their performance as engineered thermoplastics. For both specialty copolyesters and cellulosic plastics, the Specialty Plastics segment benefits from integration into the Company's polyester and acetyls streams. The ~~Specialty~~Speci alty Plastics segment's specialty copolyesters are currently produced in Kingsport, Tennessee; Columbia, South Carolina; and Kuantan, Malaysia. The cellulosic products are produced in Kingsport, Tennessee.

Ø	Specialty Copolyesters

Eastman's specialty copolyesters accounted for approximately 80 percent of the Specialty Plastics segment's ~~2009~~2010 sales revenue. Eastman's specialty copolyesters, which generally are based on Eastman's production of ~~cyclohexane dimethanol ("CHDM") modified polymers,~~CHDM, typically fill a market position between polycarbonates and acrylics. Polycarbonates traditionally have offered some superior performance characteristics, while acrylics have been less expensive. Specialty copolyesters combine superior performance with competitive pricing and are being substituted for both polycarbonates and acrylics in some applications.

The Specialty Plastics segment continues to develop new applications for its core copolyesters to meet growing demand for more environmentally-friendly and sustainable copolyester products. ~~During 2009, Eastman commercialized a new copolyester for~~Additionally, the ~~personal care packaging~~ segment ~~which now represents the clearest copolyester with the highest chemical resistance used in this application. The segment also experienced~~has had significant growth in sales of copolyesters for clear handleware applications, where Eastman's materials offer a unique merchandising solution. ~~Through~~By broadening its Embrace™ family of products, Eastman has continued to ~~see~~have growth in sales of shrink ~~packaging in Embace LV™ as well as Embrace HY™.~~packaging. The family of ~~offerings in the~~ shrink ~~segment~~packaging offerings has made Eastman the leading provider of resins for ~~full body~~full-body shrink labels. Eastman's newest copolyester, Tritan™, enables the Company to move to higher value applications by adding high temperature resistance to the other properties of copolyesters, including ~~toughness,~~tou ghness, chemical resistance, and excellent processability.

16

Ø	Cellulosic Plastics

Cellulosics and cellulosic plastics accounted for approximately 20 percent of the Specialty Plastics segment's ~~2009~~2010 sales revenue. ~~Sold under the Tenite~~TM ~~brand, these products are known~~Market demand for ~~their excellent balance of properties, including toughness, hardness, strength, surface gloss, clarity, chemical resistance, and warmth to the touch. This product line includes Tenite~~TM ~~acetate, Tenite~~TM ~~butyrate, and Tenite~~TM ~~propionate flake and polymers, as well as a family of colored products for each line.~~

~~In 2006, Eastman first commercialized a new~~Eastman’s family of cellulosic polymers, VisualizeTM cellulosics, for the ~~liquid crystal display ("LCD") market.~~LCD market continues to be strong. Through the development of new formulations and applications, Eastman's LCD product line has continued to benefit from demand growth in the LCD market. Eastman’s proprietary Visualize™ line of products are known for their superior optical properties and are the preferred choice for certain film structures in LCD polarizers.

16

Eastman cellulosic plastics, sold under the Tenite™ brand, are known for their excellent balance of properties, including toughness, hardness, strength, surface gloss, clarity, chemical resistance, and warmth to the touch. During 2010, Eastman entered into a joint venture with Mazzucchelli 1949 SPA in Shenzhen, China, which is expected to expand Eastman's portfolio of cellulosic plastics. The joint venture will produce compounded cellulose acetate pellets, mostly used in the production of high design injection molded articles such as ophthalmic frames or tool handles. The Mazzucchelli joint venture facility is expected to be operational by second quarter 2011.

·	Strategy and Innovation

Through Eastman's advantaged asset position and applications development innovation efforts, the segment has increased specialty copolyesters sales volume to twice U.S. gross domestic product growth over the past five years. During 2010, Eastman significantly increased its share in the shrink film market by developing new applications for its products that now include the Embrace™ family of products. The trend of influencing the purchasing decision with product design has also benefited Eastman's clear handleware solutions for large containers. Additionally, increased demand for BPA-free products has created new opportunities for various applications of legacy copolyesters.

The LCD market is a developing growth market for the Specialty Plastics segment. The Company continues to invest in the development of copolyester and cellulosic-based product solutions for this high-growth market, with the objective of being a strategic raw material supplier in the LCD market. The Company's 70 percent expansion of its Kingsport, Tennessee cellulose triacetate manufacturing capacity is expected to be operational in first quarter 2012.

The addition of Tritan™ copolyester to Eastman's Specialty Plastics product offering has created new opportunities for applications previously occupied by materials such as polycarbonate or polysulfone. During 2010, Eastman gained market acceptance for Tritan™ in certain applications such as water bottles and other consumer houseware applications through OEMs and brand owners. During 2009, Eastman completed the construction of a new monomer facility and a new polymer facility. Both were operational in first quarter 2010. The monomer facility produces a proprietary monomer required in the production of Tritan™ copolyester while the polymer facility is capable of producing 30,000 metric tons of Tritan™ polymer. Given the anticipated successful market acceptance o f Tritan™ copolyester and the projected rapid demand growth, the monomer facility was designed to be capable of supplying a second Tritan™ copolyester manufacturing facility of 30,000 metric tons per year. Based on the 2010 demand, the Company is expanding to a second full scale Tritan™ copolyester manufacturing facility which is expected to be operational in early 2012.

The Company is also expanding its capacity for CHDM, a monomer used in the manufacture of copolyester, by approximately 25 percent and expects the capacity to be operational in two phases in mid-2011 and in 2012.

The Specialty Plastics segment is focused on providing consistent profit margins and ~~generating cash which~~ the ~~Company can reinvest in the Specialty Plastics segment's business for continued growth. The~~ Company continues to leverage the advantages of being an integrated polyester manufacturer and expects to continue to pursue opportunities within the integrated polyester stream. The Company is utilizing rationalized PET assets to reduce Specialty Plastics copolyester conversion costs and expand production with larger scale assets.

Through Eastman's advantaged asset position and innovation efforts around applications development, the segment has increased specialty copolyesters sales volume to twice U.S. GDP growth over the past 5 years. During 2009, Eastman significantly increased its share in the shrink film market by developing new applications for its family of products that now include Embrace™, Embrace LV™ and Embrace HY™. The trend of influencing the purchasing decision with product design has also benefited Eastman's clear handleware solutions for large containers. Additionally, increased health concerns related to BPA have created new opportunities for various applications for legacy copolyesters. Also during 2009, Eastman developed a proprietary copolyester resin for the coating of hard surfaces. This surface offers a low VOC, paintable and highly durable alternative to current coating technologies.

The LCD market is a developing growth market for the Specialty Plastics segment. The Company continues to invest in the development of copolyester and cellulosic-based product solutions for this high-growth market, with the objective of being a strategic raw material supplier in the LCD market. The downturn which began during the fourth quarter 2008 in the LCD industry created renewed interest in solutions that provide an optimum balance between cost and performance, and Eastman's developmental product pipeline in LCDs we believe is now well positioned for anticipated growth in this market.

The addition of Tritan™ copolyester to Eastman's Specialty Plastics product offering has created new opportunities for applications previously occupied by materials such as polycarbonate or polysulfone. During 2009, Eastman has gained substantial market share in certain food contact applications such as water bottles and other consumer houseware applications through OEMs and brand owners requirement for Tritan™ copolyester properties. The construction of a new monomer facility as well as a new polymer facility was completed in 2009. Both facilities will be operational in early 2010. The monomer facility will produce a proprietary monomer required in the production of Tritan™ copolyester while the polymer facility will be capable of producing 30,000 metric tons of Tritan™ polymer. Given the successful market introduction of Tritan™ copolyester and rapid demand growth, the monomer facility was designed to be capable of supplying a second Tritan™ copolyester manufacturing facility of 30,000 metric tons per year. The timing for the construction of the second Tritan™ polyester facility is dependent on the market adoption rate for these products.

·	Customers and Markets

The customer base in the Specialty Plastics segment is broad and diverse, consisting of approximately ~~620 companies~~690 customers worldwide in a variety of industries. Approximately 80 percent of the Specialty Plastics segment's ~~2009~~2010 sales revenue was attributable to approximately 6570 customers. The Specialty Plastics segment seeks to develop mutually beneficial relationships with its customers throughout various stages of product life cycles. By doing so, it is better able to understand its customers' needs as those customers develop new products and more effectively bring new solutions to market.

17

Specialty copolyesters are sold into a wide range of markets and applications including specialty packaging (medical and electronic component trays, shrink label films, general purpose packaging, and multilayer films); in-store fixtures and displays (point of purchase displays including indoor sign and store fixtures); consumer and durable goods (appliances, housewares, toys, and sporting goods); medical goods (disposable medical devices, health care equipment and instruments, and pharmaceutical packaging); personal care and consumer packaging (food and beverage packaging and consumer packaging); photographic film, optical film, fibers/nonwovens, tapes/labels, and LCD. The ~~new~~ Tritan™ family of products is being sold into a range of markets including, but not limited to, consumer housewares, bulk water, infant care, small ~~appliances~~app liances and other consumer durables segments. Additional applications and markets are currently under development.

·	Competition

The segment principally competes by leveraging price and product performance in specific applications. ~~The customers'~~Customer product selection is typically determined on an application-by-application basis and often by OEMs rather than by resin converters. New market opportunities are coming from substitution of plastic for other materials, and displacement of other plastic resins in existing applications. While historically the Specialty Plastics segment's ability to compete was very closely tied to supply-demand balances of competing plastics, the addition of Tritan™, a material based on Eastman proprietary technology, opens new market opportunities in which Eastman expects to leverage the unique combination of properties of the new family of products. In certain cases, the Company believes that ~~Tritan™~~Trit an™ offers a unique solution by bringing properties similar to polycarbonate without containing any BPA. In food applications, the fact that copolyesters are both BPA and halogen-free makes them an attractive alternative to materials such as polycarbonate and other plastics, respectively. In addition, the combination of excellent clarity and superior processability allows for the production of unique and attractive packaging that allows brand owners to differentiate themselves on the retail shelf. Examples of such applications include, but are not limited to, shrink film made from Eastman's Embrace™ copolyester family of products, as well as clear handleware containers produced from Eastman copolyesters.

The Specialty Plastics segment believes that it maintains competitive advantages throughout the product life cycle. At product introduction, the segment's breadth of offerings combined with its ~~research and development~~R&D capabilities and customer service orientation enable it to quickly bring a wide variety of products to market. As products enter the growth phase of the life cycle, the Specialty Plastics segment is able to continue to leverage its product breadth by generating sales revenue from multiple sources, as well as retaining customers from long-term relationships. As products become more price sensitive, the Specialty Plastics segment can take advantage of Eastman's scale of operations, including conversion of rationalized PET assets and vertical integration, to maintain a superior product conversion cost position.

In recent years, the industry has been confronted by unprecedented raw material cost volatility. While raw material cost volatility is expected to continue into the future, Eastman believes that it maintains a competitive advantage from diversification of its raw materials base by using both coal for cellulosics ~~as well as~~and petrochemical-based feedstocks for copolyesters.

Eastman's primary competitors for copolyester products include Bayer AG, Dow, Evonvik Industries, Saudi Basic Industries Corporation ("SABIC"), and SK Chemical Industries. Competition for cellulosic plastics is primarily from other producers of cellulose ester polymers such as Acetati SpA and Daicel.

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REGIONAL BUSINESS OVERVIEW

Eastman operates as a global business with approximately 4550 percent of its sales and 5060 percent of its operating earnings, excluding asset impairments and restructuring charges, generated from outside of the ~~U.S.~~United States and ~~Canadian~~Canada region in ~~2009.~~2010. As the Company focuses on growth in emerging markets, ~~these percentages~~the percentage of sales and earnings from outside the United States and Canada are expected to increase. While manufacturing is centered in the U.S., the Company ~~has the ability~~is able to transport products globally to meet demand. In ~~2009,~~2010, all regions were positively affected by the recovery from the global recession, but the degree of the impact on the various regions was dependent on the mix of the Company's segments and products in ~~the~~each region. ~~Regions are classified as United States and Canada; Asia Pacific; Europe, Middle East, and Africa; and Latin America.~~ In ~~2009,~~2010, the mix of regional revenue from the segments was as ~~follows:~~f ollows:

United States and Canada Asia Pacific Europe, Middle East, and Africa Latin America
CASPI 25 % 20 % 35 % 25 %
Fibers 10 % 45 % 30 % 15 %
PCI 30 % 20 % 15 % 20 %
Performance Polymers 20 % -- % -- % 35 %
Specialty Plastics 15 % 15 % 20 % 5 %

Total 100 % 100 % 100 % 100 %

	CASPI	Fibers	PCI	Specialty Plastics	Total
United States and Canada	25 %	10 %	50 %	15 %	100 %
Asia Pacific	20 %	35 %	25 %	20 %	100 %
Europe, Middle East, and Africa	35 %	25 %	20 %	20 %	100 %
Latin America	35 %	20 %	35 %	10 %	100 %

The United States and Canada region contains the highest concentration of the Company's long-lived assets with approximately 90 percent located in the United States. ~~We believe~~Management believes that the location of these manufacturing facilities provides the Company with an advantaged ~~delivered~~ cost position for ~~our~~the Company's domestic customers, particularly for commodity and bulk products. The PCI segment accounts for approximately ~~one-third~~half of the region's revenue, as the segment is well-positioned in this region's market for most of its major products, including acetic acid and acetic ~~anhydride. As the PCI and Performance Polymers segments account for one-half of the region's revenue,~~anhydride, although the region is subject to increased variability in revenues due to the effect of raw material and energy ~~prices~~costs on ~~these segments'~~this segment’s selling prices.

~~A large percentage~~One-third of revenue in the Asia Pacific region is from acetate tow products in the Fibers ~~segment while minimal PET products in the Performance Polymers segment are sold in the region. Both factors contribute to less volatile price effect on revenue.~~segment. The region ~~consists of~~includes many emerging growth markets served by Eastman products, including specialty products in the CASPI segment and acetate tow ~~for filters,~~in the Fibers segment, particularly in China. The Company is responding to ~~the~~this growth by strengthening its position through joint ventures and acquisitions such as the ~~alliance with SK.~~recent acquisition of an acetate tow manufacturing facility in Korea.

The Europe, Middle East, and Africa region ~~benefits from~~has fewer sales from commodity product lines than any other region and therefore is less affected by economic ~~downturns~~conditions and ~~price is~~prices are less dependent on raw material costs compared to other regions. The favorable product mix is a result of a higher percentage of the region's revenue being derived from the Fibers and Specialty Plastics segments and less from the PCI and Performance Polymers segments.

The Latin America region has ~~the largest impact~~significant sales from ~~the Performance Polymers segment of all the regions. Combined with sales revenue from~~commodity product lines, particularly in the PCI ~~segment of approximately 20 percent, the region~~and CASPI segments, and is therefore subject to increased volatility in sales volume and selling prices.

~~CORPORATE~~

CORPORATE INITIATIVES

In addition to its business segments, the Company manages certain costs and initiatives at the corporate level, including certain ~~research and development ("~~R~~&D")~~&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.~~

19

~~One such corporate initiative was the Company's Beaumont, Texas industrial gasification project. In fourth quarter 2009, the Company announced the discontinuation~~opportunities, with a number of ~~this project. However, the Company continues~~projects at various stages of development. As projects meet milestones, additional investment is committed to ~~explore global industrial gasification opportunities as a long-term growth option.~~those projects. The Company ~~also~~ continues to explore and invest in R&D initiatives that are aligned with macro trends in sustainability, consumerism, and energy efficiency through high performance materials, advanced cellulosics, environmentally-friendly chemistry, and process ~~improvements.~~

improvements, including an initiative in the building and construction market.

In 2009, operating losses for corporate initiatives were $217 million, including $179 million in asset impairments related to the discontinuance of its Beaumont, Texas industrial gasification project, compared with $52 million in 2008.

~~EASTMAN~~

19

DISCONTINUED OPERATIONS

The Company completed the sale of the PET business, related assets at the Columbia, South Carolina site, and technology of its Performance Polymers segment on January 31, 2011.The PET business, assets, and technology sold were substantially all of the Performance Polymers segment. Performance Polymers segment operating results are presented as discontinued operations for all periods presented and are therefore not included in results from continuing operations under GAAP. Corporate costs which were allocated to the Performance Polymers segment have been reallocated to the remaining segments in the Company's financial statements. The total cash proceeds of the transaction were $600 million, subject to post-closing adjustment for working capital. For further information, refer to Note 2, "Discontinued Operations and Assets Held for Sale", to the Company's consolidated financial statements in Part II, Item 8 of this Annual Report.

EASTMAN CHEMICAL COMPANY GENERAL INFORMATION

Sales, Marketing, and Distribution

The Company markets and sells products primarily through a global marketing and sales organization which has a presence in the United States and in over 35 other countries selling into approximately 100 countries around the world. Eastman has a marketing and sales strategy targeting industries and applications where Eastman products and services provide differentiated value. Market, customer, application, and technical expertise are critical capabilities. Through a highly skilled and specialized sales force that is capable of providing customized business solutions for each of its ~~five~~four operating segments, Eastman is able to establish long-term customer relationships and strives to become the preferred supplier of specialty chemicals and specialty plastics worldwide.

The Company's products are also marketed through indirect channels, which include distributors and contract representatives. Non-U.S. sales tend to be made more frequently through distributors and contract representatives than U.S. sales. 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 directly from Eastman's manufacturing plants, as well as from distribution centers worldwide.

Sources and Availability of Raw Material and Energy

Eastman purchases a substantial portion, estimated to be approximately 75 percent, of its key raw materials and energy through long-term contracts, generally of three to five 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, valued at quoted market prices, to mitigate the impact of short-term market price fluctuations. Key raw materials include propane, ~~ethane,~~ paraxylene, cellulose, ethylene glycol, ~~PTA,~~ coal, ~~cellulose,~~ethane, methanol, PTA, and a wide variety of precursors for specialty organic chemicals. Key purchased ~~energy~~e nergy sources include natural gas, steam, 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 on-going performance assessment 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 developed contingency plans designed to minimize the impact of any supply disruptions from single source suppliers.

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, or due to domestic or world market and political 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 been in the past and may be in the future, at times, adversely affected by these factors. The Company's raw material and energy costs as a percent of total cost of operations were approximately 60 percent in 2010 and 2009 ~~compared to~~and 70 percent in ~~2008 and 2007.~~2008.

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Capital Expenditures

Capital expenditures were $243 million, $310 million, and $634 million in 2010, 2009, and ~~$518 million for 2009,~~ 2008, ~~and 2007,~~ respectively. ~~The decreased capital spending~~Capital expenditures in 2009 ~~was primarily due~~decreased significantly compared to 2008 as the ~~Company's~~Company deferred discretionary spending on capital projects in response to ~~the current global recession and consisted of~~a more challenging economic environment. Capital expenditures remained at a level sufficient for required maintenance and certain strategic growth initiatives ~~including~~through first nine months 2010. In fourth quarter 2010, the ~~creation of~~Company increased ~~capacity for Eastman Tritan~~TM ~~copolyester, the front-end engineering~~spending on discretionary infrastructure projects and ~~design~~certain strategic growth initiatives to $110 million for the ~~industrial gasification project, reconfiguration of~~quarter. The Company expects that 2011 capital spending will continue at the ~~Longview, Texas facility,~~fourth quarter 2010 pace and ~~expansion of~~will be approximately $450 million. The Company's capital spending in 2011 will focus on o rganic growth initiatives, particularly in the ~~Company's hydrogenated hydrocarbon resins manufacturing capacity in Middelburg, the Netherlands.~~Specialty Plastics, CASPI, and PCI segments.

Employees

Eastman employs approximately 10,000 men and women worldwide. Approximately 4four percent of the total worldwide labor force is represented by unions, 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 70 percent of the Company's ~~2009~~2010 sales revenue.

Intellectual Property and Trademarks

While the Company's intellectual property portfolio is an important Company asset which it expands and vigorously protects globally through a combination of patents that expire at various times, trademarks, copyrights, and trade secrets, neither its business as a whole nor any particular segment is materially dependent upon any one particular patent, trademark, copyright, or trade secret. As a producer of a broad and diverse portfolio of both specialty and commodity chemicals, plastics, and fibers, Eastman owns over ~~750~~550 active United States patents and more than ~~1,200~~1,100 active foreign patents, expiring at various times over several years, and also owns over ~~2,500~~2,400 active worldwide trademark applications and registrations. The Company's intellectual property relates to a wide variety of products and processes. ~~Eastman~~;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.

The Company pursues opportunities to license proprietary technology to third parties in areas where it has determined competitive impact to core 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. To date, efforts have been focused on acetyls technology in the PCI segment. The Company also is actively pursuing licensing opportunities for oxo derivatives in the PCI ~~segment~~segment.

Over 250 active United States patents and ~~its IntegRex~~TMpatent applications, more than 1,100 foreign patents applications, and approximately 100 active worldwide trademark applications and registrations were sold as part of the sale of the PET business, related assets at the Columbia, South Carolina site, and technology inof the Performance Polymers segment.

Research and Development

For 2010, 2009, and 2008, ~~and 2007,~~ Eastman's ~~research and development~~R&D expenses totaled ~~$137~~$152 million, ~~$158~~$124 million, and ~~$156~~$143 million, respectively.

21

Environmental

Eastman 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.

21

The Company's policy is to operate its plants and facilities in a manner that 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 the technology available. In some cases, applicable environmental regulations such as those adopted under the U.S. Clean Air Act and Resource Conservation and Recovery Act, and related actions of regulatory agencies, determine the timing and amount of environmental costs incurred by the Company. Likewise, when finalized, ~~proposed~~potential legislation related to ~~climate change~~greenhouse gas emissions, energy policy, and associated implementing regulations could impact the timing and amount of environmental costs ~~incurred~~incu rred by the Company.

The Company accrues environmental costs when it is probable that the Company has incurred a liability 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 data exists. With respect to a contaminated site, the amount accrued reflects the Company's assumptions about remedial requirements at the 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.

The Company's cash expenditures related to environmental protection and improvement were estimated to be ~~approximately~~$200 million, $173 million, and $218 million, in 2010, 2009, and ~~$209 million, in 2009,~~ 2008, ~~and 2007,~~ respectively. These amounts were primarily for operating costs associated with environmental protection equipment and facilities, but also included expenditures for construction and development. ~~The~~Other than potential capital expenditures at the Company's Kingsport, Tennessee facility related to regulations associated with controlling air emissions from boilers, the Company does not expect future environmental capital expenditures arising from requirements of recently promulgated environmental laws and regulations to materially increase the Company's planned level of annual capital expenditures for environmental control facilities. Pot ential capital expenditures associated with boiler air emissions remain uncertain pending adoption of final regulations, but could increase average annual environmental capital expenditures significantly over the next five years compared to recent historical levels depending on final regulation requirements and the Company's method of addressing those requirements.

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 Notes 1, "Significant Accounting Policies", ~~12,~~15, "Environmental ~~Matters"~~Matters", and 25, "Reserve ~~Rollforwards"~~Rollfowards" to the Company's consolidated financial statements in Part II, Item 8 of this Annual Report.

Backlog

On January 1, ~~2010~~2011 and ~~2009,~~2010, Eastman's backlog of firm sales orders represented less than 10 percent of the Company's total consolidated revenue for the previous 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.

22

Financial Information About Geographic Areas

For sales revenue and long-lived assets by geographic areas, see Note ~~22,~~23, "Segment ~~Information"~~Information", to the Company's consolidated financial statements in Part II, Item 8 of this Annual Report. For information about regional sales and earnings, see ~~"Regional~~"Regional Business ~~Overview"~~Overview" above in this ~~"Business"~~"Business" section of this Annual Report.

Available Information – SEC Filings ~~and Corporate Governance Materials~~

The Company makes available free of charge, through 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 Securities and Exchange Commission (the "SEC"). Once filed with the SEC, such documents may be read and/or copied at the SEC's Public Reference Room at 100 F Street N.E., Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers, including Eastman Chemical Company, that electronically file with the SEC at www.sec.gov.

22

The Company also makes available free of charge, through the "Investors – Corporate Governance" section of its Internet website (www.eastman.com), the Corporate Governance Guidelines of its Board of Directors, the charters of each of the committees of the Board, and codes of ethics and business conduct for directors, officers and employees. Such materials are also available in print upon the written request of any stockholder to Eastman Chemical Company, P.O. Box 431, Kingsport, Tennessee 37662-5280, Attention: Investor Relations.

ITEM 1A. RISK FACTORS

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

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

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EXECUTIVE OFFICERS OF THE COMPANY

Certain information about the Company's executive officers is provided below:

~~J. Brian Ferguson,~~James P. Rogers, age ~~55,~~59, is Executive Chairman of the Board. Mr. Ferguson joined the Company in 1977. He was named Vice President, Industry and Federal Affairs in 1994, became Managing Director, Greater China in 1996, was named President, Eastman Chemical Asia Pacific in 1998, became President, Polymers Group in 1999, became President, Chemicals Group in 2001, and was elected Chairman of the Board and Chief Executive Officer ~~in 2002. Mr. Ferguson was appointed to his current position in May 2009 when James P. Rogers succeeded him as Chief Executive Officer.~~

~~James P. Rogers, age 58, is Chief Executive Officer, President~~ of Eastman Chemical ~~Company, and is a member of the Board of Directors.~~Company. He served as President and ~~head of the Chemicals & Fibers Business Group at the time of his current appointment.~~Chief Executive Officer from May 2009 until January 2011. Mr. Rogers was appointed Executive Vice President of the Company and President of Eastman Division effective November 2003. Mr. Rogers joined the Company in 1999 as Senior Vice President and Chief Financial Officer and in 2002 was also appointed Chief Operations Officer of Eastman Division. Mr. Rogers served previously as Executive Vice President and Chief Financial Officer of GAF Materials Corporation ("GAF"). He also served as Executive Vice President, Finance, of International Specialty Products, Inc., which was spun off from GAF in 1997. ~~Mr. Rogers was appointed to his current position in May 2009.~~

Mark J. Costa, age ~~43,~~44, is Executive Vice President, Specialty Polymers, Coatings and Adhesives, and Chief Marketing Officer. Mr. Costa joined the Company in June 2006 as Senior Vice President, Corporate Strategy & Marketing and was appointed Executive Vice President, Polymers Business Group Head and Chief Marketing Officer in August 2008. Prior to joining Eastman, Mr. Costa was a senior partner within Monitor Group's integrated North American and global client service networks. 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, including specialty and commodity chemicals, electricity, natural gas and truck/auto ~~manufacturing.~~m anufacturing. Mr. Costa was appointed to his current position in May 2009.

Ronald C. Lindsay, age 52, is Executive Vice President, Performance Chemicals and Intermediates and Operations Support. He joined Eastman in 1980 and held a number of positions in various manufacturing and business organizations. In 2003, Mr. Lindsay was appointed Vice President and General Manager of Intermediates, in 2005 became Vice President, Performance Chemicals and Intermediates, in 2006 was appointed Senior Vice President and Chief Technology Officer, in 2008 was appointed Senior Vice President, Corporate Strategy and Regional Leadership, and in May 2009 was appointed Executive Vice President, Performance Polymers and Chemical Intermediates. He was appointed to his current position in January 2011.

Michael H.K. Chung, age 57 is Senior Vice President and Chief International Ventures Officer. Mr. Chung joined Eastman in 1976, and since that time has held various management positions, primarily in the Company's chemicals and fibers businesses. He was appointed Vice President, Fibers International Business in 2006 and in 2009, he was appointed Vice President and Managing Director, Asia Pacific Region. Mr. Chung was appointed to his current position in January 2011.

Curtis E. Espeland, age 46, is Senior Vice President and Chief Financial Officer. Mr. Espeland joined Eastman in 1996, and has served in various financial management positions of increasing responsibility, including Vice President, Finance, Polymers; Vice President, Finance, Eastman Division; Vice President and Controller; Director of Corporate Planning and Forecasting; Director of Finance, Asia Pacific; and Director of Internal Auditing. 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 in September 2008.

Richard L. Johnson, age ~~60,~~61, is Senior Vice President, Fibers and Global Supply Chain. Prior to being named to this position, Mr. Johnson was Vice President and General Manager of Fibers. Mr. Johnson joined Eastman in 1971 and held numerous positions in environmental programs, operations and manufacturing until he became Superintendent of the Cellulose Esters Division in 1991. He was named Superintendent of the Acetate Tow Division in 1993, became Vice President and General Manager of Fibers in 1996, and Group Vice President of Fibers in 2002. Mr. Johnson was named Group Vice President of Performance Chemicals, Intermediates, and Fibers in 2006. Mr. Johnson was appointed to his current position in May 2009.

Ronald C. Lindsay, age 51, is Executive Vice President, Performance Polymers and Chemical Intermediates. He joined Eastman in 1980 and held a number of positions in various manufacturing and business organizations. In 2003, Mr. Lindsay was appointed Vice President and General Manager of Intermediates, in 2005 became Vice President, Performance Chemicals, in 2006 was appointed Senior Vice President and Chief Technology Officer, and in 2008 was appointed Senior Vice President, Corporate Strategy and Regional Leadership. He was appointed to his current position in May 2009.

Curtis E. Espeland, age 45, is Senior Vice President and Chief Financial Officer. Mr. Espeland joined Eastman in 1996, and has served in various financial management positions of increasing responsibility, including Vice President, Finance, Polymers; Vice President, Finance, Eastman Division; Vice President and Controller; Director of Corporate Planning and Forecasting; Director of Finance, Asia Pacific; and Director of Internal Auditing. 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 in September 2008.

24

Theresa K. Lee, age ~~57,~~58, is Senior Vice President, Chief Legal ~~Officer~~ and ~~Corporate Secretary.~~Administrative Officer. Ms. Lee joined Eastman as a staff attorney in 1987, and has served in various legal management positions of increasing responsibility, including Assistant General Counsel for the health, safety, and environmental legal staff, Assistant General Counsel for the corporate legal staff, and Vice President, Associate General Counsel and Secretary. She became Vice President, General Counsel, and Corporate Secretary of Eastman in 2000, was appointed Senior Vice President, Chief Legal Officer and Corporate Secretary in 2002, and was appointed to her current position in ~~2002.~~January 2011.

Godefroy A.F.E. Motte, age 52, is Senior Vice President, Chief Regional and Sustainability Officer. Since joining Eastman in 1985, Mr. Motte has held leadership positions in various organizations, including sales and manufacturing and in the Company's chemicals and polymers businesses. He was appointed Vice President for the Europe, Middle East, and Asia ("EMEA") region for the Chemicals Division in 2001 and for the EMEA Polymers Business Group in April 2006. Mr. Motte was appointed to his current position in January 2011.

Greg W. Nelson, age ~~47,~~48, is Senior Vice President and Chief Technology Officer. Dr. Nelson joined Eastman in 1988 in the Research and Development organization, and served in various positions in specialty plastics technology and business organizations, including business unit manager of polymer films and coatings. In 2001, Dr. Nelson was appointed Vice President, Technology, ~~Manager for the Flexible Plastics business,~~in 2006 became Vice President, Polymers Technology, and in 2007 Vice President, Corporate Technology ~~from 2007~~ until appointed to his current position in August 2008.

Norris P. Sneed, age 54, is Senior Vice President, Manufacturing Support and Chief Administrative Officer. Mr. Sneed joined the Company as a chemical engineer at Eastman's South Carolina Operations in 1979. He has served in various management positions of increasing responsibility, including superintendent for different manufacturing and new business development departments at Eastman's Arkansas operations, assistant to the Chief Executive Officer, managing director for Eastman's Argentina operations, Vice President of Organization Effectiveness, and Senior Vice President, Human Resources, Communications and Public Affairs. Mr. Sneed was appointed to his current position in May 2009.

Scott V. King, age ~~41,~~42, is Vice President, Controller and Chief Accounting Officer. Since joining Eastman in 1999 as Manager, Corporate Consolidations and External Reporting, he has held various positions of increasing responsibility in the financial organization, and was appointed Vice President and Controller in August 2007. Prior to joining Eastman, Mr. King was an audit and business advisory manager with PricewaterhouseCoopers LLP. Mr. King was appointed to his current position in September 2008.

25

ITEM 2. PROPERTIES

~~PROPERTIES~~PART II

At December 31, 2009, Eastman operated eleven manufacturing sites in seven countries. Utilization of these facilities 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 of the properties are owned. The locations and general character of the major manufacturing facilities are:

5.	Market for Registrant's Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities	29

6.	Selected Financial Data	31

7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	33

7A.	Quantitative and Qualitative Disclosures About Market Risk	69

8.	Financial Statements and Supplementary Data	70

9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	118

9A.	Controls and Procedures	118

9B.	Other Information	119

PART III

10.	Directors, Executive Officers and Corporate Governance	120

11.	Executive Compensation	120

12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	120

13.	Certain Relationships and Related Transactions, and Director Independence	121

14.	Principal Accountant Fees and Services	121

PART IV

15.

Exhibits and Financial Statement Schedules

122

SIGNATURES

~~Segment using manufacturing facility~~

Signatures

123

4

PART I

Item	Page

ITEM 1. Business	6
Corporate Overview	6
Business Strategy	6
Manufacturing Streams	7
Cyclicality and Seasonality	9
Financial Strategy	9
Business Segments	9
CASPI Segment	9
Fibers Segment	12
PCI Segment	14
Specialty Plastics Segment	16
Regional Business Overview	19
Corporate Initiatives	19
Discontinued Operations	20
Eastman Chemical Company General Information	20

5

ITEM 1. BUSINESS

~~Location~~

CORPORATE OVERVIEW

Eastman Chemical Company ("Eastman" or the "Company") is a global chemical company which manufactures and sells a broad portfolio of chemicals, plastics, and fibers. 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, as of December 31, 1993. Eastman has sixteen manufacturing sites in nine countries that supply chemicals, plastics, and fibers products to customers throughout the world. The Company's headquarters and largest manufacturing site are located in Kingsport, Tennessee.

In 2010, the Company had sales revenue of $5.8 billion, operating earnings of $862 million, and earnings from continuing operations of $425 million. Earnings per diluted share from continuing operations were $5.75 in 2010. Included in 2010 operating earnings were asset impairments and restructuring charges of $29 million. Included in 2010 earnings from continuing operations were early debt extinguishment costs of $115 million.

The Company completed the sale of the polyethylene terephthalate ("PET") business, related assets at the Columbia, South Carolina site, and technology of its Performance Polymers segment on January 31, 2011. The PET business, assets, and technology sold were substantially all of the Performance Polymers segment. Performance Polymers segment operating results are presented as discontinued operations for all periods presented and are therefore not included in results from continuing operations under accounting principles generally accepted ("GAAP") in the United States.

The Company's products and operations are managed and reported in four operating segments: the Coatings, Adhesives, Specialty Polymers, and Inks ("CASPI") segment, the Fibers segment, the Performance Chemicals and Intermediates ("PCI") segment, and the Specialty Plastics segment. The Company manages certain costs and initiatives at the corporate level, including certain research and development ("R&D") costs not allocated to the operating segments. For additional information concerning the Company's operating segments, see Note 23 "Segment Information" to the Company's consolidated financial statements in Part II, Item 8 of this 2010 Annual Report on Form 10-K (this "Annual Report").

Business Strategy

Eastman's objective is to be an outperforming chemical company through solid financial results from its core businesses and its strategies for profitable growth. The Company's core businesses currently sell differentiated products into diverse markets and geographic regions. Management believes that the Company can increase the revenues from its core businesses with increasing profitability through a balance of new applications for existing products, development of new products, and sales growth in adjacent markets and emerging economies. These revenue and earnings increases are expected to result from organic initiatives as well as joint ventures and acquisitions.

The Company is focusing on a variety of organic growth initiatives. These growth initiatives are driven by strong demand from the Company's customers and are in attractive industries or product markets in which Eastman has a competitive advantage. These organic growth initiatives include:

·

In the Specialty Plastics segment, the monomer manufacturing facility and the first Eastman TritanTM copolyester polymer manufacturing facility in Kingsport, Tennessee commenced production in first quarter 2010. The Company is adding another 30,000 metric tons of resin capacity for TritanTM, which is expected to be operational in early 2012.

·	In the Specialty Plastics segment, the Company is expanding its capacity for cyclohexane dimethanol ("CHDM"), a monomer used in the manufacture of copolyester, and expects the capacity to be operational in two phases in mid-2011 and in 2012.

·	In the Specialty Plastics segment, the Company is expanding its cellulose triacetate capacity, with the new capacity expected to be operational in first quarter 2012.

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·

In the CASPI segment, the Company is expanding capacity for its specialty hydrocarbon resins through an additional expansion of the Company's hydrogenated hydrocarbon resins manufacturing capacity in Middelburg, the Netherlands which is expected to be completed in the second half of 2011, an additional debottleneck of the hydrogenated hydrocarbon facility in Longview, Texas, which is expected to be operational in the first half of 2011, and an expansion of the pure monomer and hydrogenated resins production capacity in Jefferson, Pennsylvania, which is expected to be operational in 2012.

·	In the PCI segment, the Company plans to increase capacity of 2-ethyl hexanol in 2012 to support expected growth in the plasticizers, coatings, and fuel additive markets.

·

The Company continues to explore and invest in R&D initiatives at a corporate level that are aligned with macro trends in sustainability, consumerism, and energy efficiency through high performance materials, advanced cellulosics, and environmentally-friendly chemistry, including an initiative in the building and construction market.

The Company benefits from advantaged feedstocks and proprietary technologies, and is focusing on sustainability as a competitive strength for growth. Eastman has developed new products and technologies that enable customers' development and sales of sustainable products, and has reduced its greenhouse gas emissions and energy consumption.

The combination of stable profits from the solid core businesses and profitable revenue growth is expected to result in continued earnings growth. This allows the Company to continue to evaluate inorganic growth, such as joint ventures and acquisitions, to enhance the Company's product portfolios and to extend into emerging markets.

Manufacturing Streams

Integral to Eastman's corporate strategy for growth is leveraging its heritage of expertise and innovation in acetyl, olefins, and polyester chemistries in key markets, including packaging, tobacco, building and construction, and consumables. For each of these chemistries, Eastman has developed a combination of assets and technologies that are operated within three manufacturing "streams".

·

In the acetyl stream, the Company begins with high sulfur coal which is then gasified in its coal gasification facility. The resulting synthesis gas is converted into a number of chemicals including methanol, methyl acetate, acetic acid, and acetic anhydride. These chemicals are used in manufacturing products throughout the Company including acetate tow, acetate yarn, and cellulose esters. The Company's ability to use coal is a competitive advantage in both raw materials and energy. The Company continues to evaluate opportunities to further leverage its gasification expertise to produce additional cost advantaged chemicals from petroleum coke or coal instead of natural gas or petroleum.

·

In the olefins stream, the Company begins primarily with propane and ethane, which are then cracked at its facility in Longview, Texas into propylene, as well as ethylene. "Cracking" is a chemical process in which gases are converted into more reactive molecules for use in the manufacturing process. The Company also purchases propylene for use at its Longview facility and its facilities outside the U.S. The propylene is used in oxo derivative products. The ethylene is used in oxo derivative products, acetaldehyde and ethylene glycol production and is also sold commercially. There are four cracking units located at the Company's Longview, Texas facility. Eastman had previously shut down the first of the three units identified for a staged phase-out and idled the second cracking unit. 0; In 2010, a decision was made to restart the idled cracking unit due to improved competitive position based on low cost feedstocks and olefin market conditions. Petrochemical business cycles are influenced by periods of over- and under-capacity. Capacity additions to steam cracker units around the world, combined with demand for light olefins, determine the operating rate and thus profitability of producing olefins. Historically, periodic additions of large blocks of capacity have caused profit margins of light olefins to expand and contract, resulting in "ethylene" or "olefins" cycles. The Company believes it is less impacted by the these cycles than it has been historically due to actions it has taken to leverage its diverse derivatives products to take advantage of regulatory trends and focus on more durable markets.

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~~Fibers~~

·

In the polyester stream, the Company begins with purchased paraxylene and produces purified terephthalic acid ("PTA") for polyesters and dimethyl terephthalate ("DMT") for copolyesters. PTA or DMT is then reacted with ethylene glycol, which the Company both makes and purchases, along with other raw materials (some of which the Company makes and are proprietary) to produce polyesters. The Company believes that this backward integration of polyester manufacturing is a competitive advantage, giving Eastman a low cost position, as well as surety of intermediate supply. In addition, Eastman can add specialty monomers to copolyesters to provide clear, tough, chemically resistant product characteristics. As a result, the Company's copolyesters can effectively compete with materials such as polycarbonate and acrylic .

The following chart shows the Company's sites at which its manufacturing streams are primarily employed.

SITE	ACETYL STREAM	POLYESTER ~~PCI~~STREAM	OLEFINS ~~Performance Polymers~~	~~Specialty Plastics~~STREAM

Kingsport, Tennessee	X	X	X
Longview, Texas	X		X
Columbia, South Carolina (1)		X
~~USA~~Kuantan, Malaysia		X
Singapore			X
Workington, United Kingdom	X
~~Jefferson, Pennsylvania~~Ulsan, South Korea	x
~~Columbia, South Carolina~~				x	x
~~Kingsport, Tennessee~~	x	x	x	x	x
~~Longview, Texas~~	x		x	x	x
~~Franklin, Virginia(1)~~	x
~~Europe~~
~~Workington, England~~		x
~~Middelburg, the Netherlands~~	x
~~Asia Pacific~~
~~Kuantan, Malaysia~~ ~~(1)~~					x
~~Jurong Island, Singapore~~ ~~(1)~~	x		x
~~Zibo City, China(2)~~	x		x
~~Latin America~~
~~Uruapan, Mexico~~	x		X

(1)	~~Indicates~~ Retained a ~~location that Eastman leases from a third party.~~portion of the manufacturing facility related to the Specialty Plastics segment subsequent to the sale of the Company's PET business and related assets.

The following chart shows significant Eastman products, markets, and end uses by segment and manufacturing stream.

~~(2)~~SEGMENT	ACETYL STREAM	POLYESTER STREAM	OLEFINS STREAM	KEY PRODUCTS, MARKETS, AND END USES
CASPI	X		X	Paints and coatings for architectural, transportation, industrial, and original equipment manufacturing ("OEM"), adhesives ingredients for tapes, labels, personal care products and building and construction uses and inks for packaging
Fibers	X			Acetate fibers for filter products and textiles
PCI	X	X	X	Intermediate chemicals for agriculture, transportation, beverages, nutrition, pharmaceuticals, coatings, medical devices, toys, adhesives, household products, polymers, textiles, consumer and industrial products, and health and wellness uses
Specialty Plastics	X	X	X	Copolyesters and cellulosics for appliances, store fixtures and displays, building and construction, electronic packaging, medical devices and packaging, graphic arts, general purpose packaging, personal care and cosmetics, food and beverage packaging, performance films, tape and labels, fibers/nonwovens, photographic and optical films, and liquid crystal displays ("LCD")

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In addition to stream integration, the Company also derives value from Eastman's cellulosics. These are natural polymers, sourced from managed forests, which when combined with the acetyl and olefin streams, provide differentiated product lines and an advantaged raw material position for Eastman.

The Company continues to leverage its heritage of expertise and innovation in acetyl, polyester, and olefins chemistries and technologies, as well as its use of cellulosics, 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.

Cyclicality and Seasonality

The commodity olefins and olefin derivatives product lines in the PCI segment and the commodity solvent product lines in the CASPI segment are impacted by the cyclicality of key products and markets, while the other segments are more sensitive to global economic conditions. Supply and demand dynamics determine profitability at different stages of cycles and global economic conditions affect the length of each cycle. Despite sensitivity to global economic conditions, many of the products in the Fibers and CASPI segments provide a stable foundation of earnings.

The Company's earnings are typically greater in the second and third quarters and cash flows from operations are greatest in fourth quarter due to seasonality. Demand for CASPI segment products is typically stronger in the second and third quarters due to the increased use of coatings products in the building and construction industries, while demand is typically weaker during the winter months because of seasonal construction downturns. The PCI segment typically has weaker fourth quarter financial results, due in part to a seasonal downturn in demand for products used in certain building and construction and agricultural markets.

Financial Strategy

In addition to managing its core business operations and growth initiatives, the Company remains committed to maintaining a strong financial position with financial flexibility and consistently solid cash flows. The Company employs a disciplined process for capital allocation and deployment of cash. The Company pursues a variety of organic growth opportunities and attractive joint ventures and acquisitions. The Company also returns cash to stockholders through dividends and from time to time by share repurchases. The Company also opportunistically increases, decreases, and restructures its debt based upon public and private debt market conditions.

BUSINESS SEGMENTS

The Company's products and operations are managed and reported in four operating segments: the CASPI segment, the Fibers segment, the PCI segment, and the Specialty Plastics segment.

CASPI SEGMENT

·

Overview

In the CASPI segment, the Company manufactures resins, specialty polymers, and solvents which are integral to the production of paints and coatings, inks, adhesives, and other formulated products. Growth in these markets in the U.S., Canada, and Europe typically approximates general economic growth due to the wide variety of end uses for these applications. Typically, growth in these markets in Asia, Eastern Europe, and Latin America continues to be higher than worldwide economic growth, driven by regional growth in these emerging economies. The CASPI segment focuses on producing intermediate chemicals rather than finished products and developing long-term, strategic relationships to achieve preferred supplier status with its customers. In 2010, the CASPI segment had sales revenue of $1.6 billio n, 27 percent of Eastman's total sales.

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The profitability of the CASPI segment is sensitive to the global economy, market trends, broader chemical cycles, particularly the olefins cycle, and foreign currency exchange rates. The CASPI segment's specialty products, which include cellulose-based specialty polymers, coalescents, and selected hydrocarbon resins, are less sensitive to the olefins cycle due to their functional performance attributes. The segment’s commodity products, which include commodity solvents and base resins, are more impacted by the olefins cycle as discussed under "Manufacturing Streams." The Company seeks to leverage its proprietary technologies, competitive cost structure, and integrated manufacturing facilities to maintain a strong competitive position throughout such cycles.

·

Products

Ø Polymers

The polymers product line consists of cellulose-based specialty polymers and olefin-based performance products. Eastman's cellulose-based specialty polymers enhance the aesthetic appeal and improve the performance of industrial and transportation coatings and inks. Olefin-based products are used as base polymers in hot-melt adhesives, paper laminating, sealants, and pressure sensitive adhesives. They are also used as elastomer extenders in sealants and waterproofing compounds for wire and cable flooding applications. The polymers product line also includes chlorinated polyolefins which promote the adherence of paints and coatings to plastic substrates. Polymers accounted for approximately 20 percent of the CASPI segment's total sales for 2010.

Ø Resins

The resins product line consists of hydrocarbon resins, rosin resins, and resin dispersions. These products are sold primarily to adhesive formulators and consumer product companies for use as raw materials essential in hot-melt and pressure sensitive adhesives and as binders in nonwoven products such as disposable diapers, feminine products, and pre-saturated wipes. Eastman offers a broad product portfolio of essential ingredients for the adhesives industry, and ranks as the second largest global tackifier supplier. In addition, Eastman is one of the largest manufacturers of hydrogenated gum rosins used in chewing gum applications. Eastman resins are also used in a wide range of applications including plastics and rubber modification and inks. Resins accounted for approximately 35 percent of the CASPI segment's total sales for 2010.

Ø Solvents

The solvents product line includes both specialty coalescents and ketones and commodity esters, glycol ethers, and alcohol solvents. Coalescents include products such as TexanolTM ester alcohol and Eastman OptifilmTM Enhancer 300 and 400, which improve film formation and durability in architectural latex paints. Ketones are used in high solids low volatile organic compound ("VOC") coatings applications. Commodity solvents, which consist of esters, glycol ethers, and alcohol solvents, are used in both paints and inks to maintain the formulation in liquid form for ease of application. Solvents accounted for approximately 45 percent of the CASPI segment's total sales for 2010.

·	Strategy and Innovation

A key element of the CASPI segment's growth strategy is the continued development of innovative product offerings, building on proprietary technologies in high-growth markets and regions to meet customers' evolving needs and improve the quality and performance of customers' end products. Management believes that its ability to leverage the CASPI segment's broad product line and Eastman's R&D capabilities make the segment uniquely capable of offering a broad array of solutions for new and emerging markets.

The Company intends to continue to leverage its resources to strengthen the CASPI segment's product innovation and product enhancement pipeline by meeting market needs and the expanded use of proprietary products and technologies. Although the CASPI segment's sales and application development are often specialized by end-use markets, developments in technology can often be successfully shared across multiple end-uses and markets.

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The Company's global manufacturing presence is a key element of the CASPI segment's growth strategy. For example, the segment is well positioned to capitalize on expected high industrial growth in China and other parts of Asia from its facilities in Singapore and near Shanghai and joint venture operations in China. The Company is committed to maintaining reliability of supply of the CASPI segment products to our strategic customers to allow Eastman to be the supplier of choice. The segment is meeting growing demand for specialty hydrocarbon resins with an additional 20 percent expansion of hydrogenated hydrocarbon resins manufacturing capacity in Middelburg, the Netherlands which is expected to be completed in the second half of 2011; an additional 10 percent debottleneck of the hydrogenated hyd rocarbon facility in Longview, Texas, which is expected to be operational in the first half of 2011; and a 40 percent expansion of the pure monomer / hydrogenated resins capacity in Jefferson, Pennsylvania, which is expected to be operational in 2012.

·	Customers and Markets

As a result of the variety of end uses for its products, the customer base for the CASPI segment is broad and diverse. This segment has approximately 770 customers around the world, while 80 percent of its sales revenue in 2010 was attributable to approximately 90 customers. The CASPI segment focuses on establishing long-term, customer service-oriented relationships with its strategic customers in order to become their preferred supplier and to leverage these relationships to pursue sales opportunities in previously underserved markets and to expand the scope of its value-added services. Growth in the U.S., Canadian, and European markets typically coincides with economic growth in general, due to the wide variety of end uses for these applications and their dependence on the economic conditions of the markets for pac kaged goods, transportation, durable goods, and housing.

The current regulatory environment, particularly in the U.S., Canada, and Europe, provides both market challenges and opportunities for the CASPI segment. Environmental regulations that impose limits on the emission of VOCs and hazardous air pollutants ("HAPs") continue to impact coatings formulations requiring compliant coatings raw materials. These regulations are in addition to the consumer market trend toward sustainability. The coatings industry is responding by promoting products and technologies designed to enable customers and end users to reduce air emissions of VOCs and HAPs in compliance with applicable regulations. A variety of Eastman's CASPI segment products are used in these coatings. Additional products are currently being developed to meet the growing demand for low VOC co atings, including the recently introduced SolusTM family of products.

·	Competition

Competition within the CASPI segment's markets varies widely depending on the specific product or product group. The Company's major competitors in the CASPI segment's markets include larger companies such as BASF SE ("BASF"), The Dow Chemical Company ("Dow"), and Exxon Mobil Corporation, which may commit greater financial and other resources to products in markets in which the CASPI segment competes than Eastman. Additionally, within each CASPI segment product market, the Company competes with other smaller, regionally focused companies that may have advantages based upon location, local market knowledge, manufacturing strength in a specific product, or other similar factors. However, Eastman does not believe that any of its competitors has the breadth of product offerings that Eastman is able to offer it s CASPI segment customers. The Company believes its competitive advantages include its level of vertical integration; breadth of product offerings, service, and technology offerings; low-cost manufacturing position; consistent product quality; security of supply; and process and market knowledge. The CASPI segment principally competes on breadth of products and through leveraging its strong customer base and long-standing customer relationships to promote substantial recurring business and product development.

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FIBERS SEGMENT

·

Overview

In the Fibers segment, Eastman manufactures and sells EstronTM acetate tow and EstrobondTM triacetin plasticizers for use primarily in the manufacture of cigarette filters; EstronTM natural and ChromspunTM solution-dyed acetate yarns for use in apparel, home furnishings and industrial fabrics; 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 ea rly 1950s. The Company is the world's largest producer of acetate yarn and has been in this business for over 75 years. The Fibers segment's manufacturing operations are primarily located at the Kingsport, Tennessee site, and also include smaller acetate tow production plants in Workington, England and Ulsan, South Korea. Eastman has recently increased its acetate tow capacity with the expansion of the Workington plant in 2008 and the start up of the Korean facility during 2010. In 2010, the Fibers segment had sales revenue of $1.1 billion, 19 percent of Eastman's total sales. The Fibers segment remains a strong and stable cash generator for the Company.

The Company's long history and experience in the 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 mutually beneficial, long-term customer relationships.

The Company's fully integrated fiber manufacturing processes from coal-based acetyl raw materials through acetate tow and yarn provide a competitive advantage over companies whose processes are dependent on petrochemicals. In addition, the Fibers segment 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. Management believes that these factors combine to make Eastman an industry leader in reliability of supply and cost position. In addition to the cost advantage of being coal-based, the Fibers segment's competitive strengths include a reputation for high-quality products, technical expertise, large scale vertically-integrated processes, reliability of supply, acetate flake supply in excess of internal needs, a reput ation for customer service excellence, and a customer base characterized by long-term customer relationships. The Company intends to continue to capitalize and build on these strengths to improve the strategic position of its Fibers segment.

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

·

Products

Ø Acetate Tow

Eastman manufactures acetate tow under the EstronTM trademark according to a wide variety of customer specifications, primarily for use in the manufacture of cigarette filters. Acetate tow is the largest sales product of the Fibers segment. Worldwide demand for acetate tow is expected to increase by one to two percent per year over the next several years. Demand growth within Asia, mostly China, one of the largest and fastest growing markets, primarily influences this expected global increase.

	Ø Acetate Yarn
	The Company manufactures acetate filament yarn under the EstronTM and ChromspunTM trademarks in a wide variety of specifications. EstronTM acetate yarn is available in bright and dull luster and is suitable for subsequent dyeing in the fabric form. ChromspunTM acetate yarn is solution-dyed in the manufacturing process and is available in more than 100 colors.

Ø Acetyl Chemical Products

The Fibers segment's acetyl chemical products are sold primarily to other acetate fiber market producers and include cellulose diacetate flake, acetic acid, and acetic anhydride. Each is used as a raw material for the production of cellulose acetate fibers. The Fibers segment also markets acetyl-based triacetin plasticizers under the EstrobondTM trademark, generally for use by cigarette manufacturers as a bonding agent in cigarette filters.

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·	Strategy and Innovation

Ø

Growth

In the Fibers segment, Eastman is leveraging its strong customer relationships and knowledge of the industry to identify growth options. These growth options are enabled by its excess acetate flake capacity at the Kingsport, Tennessee site. In 2008, Eastman expanded its Workington, England plant to support customer demand in the region. In 2010 production began at a new acetate tow facility in Ulsan, South Korea to support customer demand in Asia. With this new facility Eastman’s total global acetate tow capacity is approximately 210,000 metric tons. The Company continues to pursue growth opportunities, particularly in the Asia Pacific region.

Ø	Continue to Capitalize on Fibers Technology Expertise

The Fibers segment intends to continue to make 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 improving the segment's manufacturing process efficiencies.

Ø	Maintain Cost-Effective Operations and Consistent Cash Flows and Earnings

The Fibers segment intends to continue to operate in a cost effective manner, capitalizing on its technology, scale and vertical integration, and to make further productivity and efficiency improvements through continued investments in R&D.

Ø	Research and Development

The Company's Fibers segment R&D efforts focus on process and product improvements, as well as cost reduction, with the objectives of increasing sales and reducing costs. The Fibers segment also conducts research to assist acetate tow customers in the effective use of the segment's products and in the customers' product development efforts.

·Customers and Markets

The customer base in the Fibers segment is relatively concentrated, consisting of approximately 150 customers in the tobacco, textile, and acetate fibers industries. Eastman's Fibers segment customers are located in all regions of the world. The largest 17 customers within the Fibers segment include multinational as well as regional cigarette producers, fabric manufacturers, and other acetate fiber producers. These top 17 customers accounted for about 80 percent of the segment's total sales revenue in 2010. Sales prices for a significant portion of the Fibers segment's products are typically negotiated on an annual basis. The segment maintains a strong position in acetate tow exports to China.

·Competition

Eastman is the second largest acetate tow manufacturer in the world. Competitors in the fibers market for acetate tow include Celanese Corporation ("Celanese"), Daicel Chemical Industries Ltd ("Daicel"), Mitsubishi Rayon Co., Ltd. ("Mitsubishi Rayon"), and Rhodia S.A.

In the segment's acetate yarn business, major competitors include Industrias del Acetato de Celulosa S.A. ("INACSA"), UAB Korelita, and Mitsubishi Rayon. Eastman is the world leader in acetate yarn production and the only acetate yarn producer in the U.S. and Canada. The physical properties of acetate yarn make it desirable for use in textile products such as suit linings, women's apparel, medical tape, drapery, ribbons and other specialty fabrics. However, over the past 20 years, demand for acetate yarn has been adversely affected by the substitution of lower cost polyester and rayon yarns. Accordingly, worldwide demand for acetate yarn is expected to continue to decrease as mills substitute these cheaper yarns for acetate yarn. Eastman, however, remains uniquely positioned because i t is the only integrated producer of acetate yarn.

As described above under "Fibers Segment – Overview", the principal methods of competition include maintaining the Company's large-scale vertically integrated manufacturing process from coal-based acetyl raw materials, reliability of supply, product quality, and sustaining long-term customer relationships.

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PCI SEGMENT

·

Overview

The PCI segment leverages large scale and vertical integration from the acetyl and olefins streams to manufacture diversified products that are sold externally as well as used internally for other segments of the company. The PCI segment has leading market positions in many of its core products and believes it is well-positioned in key markets for most of its major products, including both acetyl products and olefin derivatives, due to its competitive cost position and supply reliability versus competitors. In 2010 the PCI segment had sales revenue of $2.1 billion, 36 percent of the Company's total sales.

The segment's competitive cost position is primarily due to lower cost raw materials, such as coal which is used in the production of acetyl stream products and olefins which are used in the production of olefin derivative products. To further improve its competitive cost position over purchasing olefins in the North American market, the Company restarted a previously idled cracking unit at the Longview, Texas facility in 2010. This restart was prompted by a favorable shift in market conditions for olefin raw materials that is expected to continue over the next several years. The Company has three operating cracking units, including the unit restarted in 2010. The Company will continue to evaluate changes in raw materials costs along with olefin derivative volume demand to determine the best use for these assets. Some of the segment's products are affected by the olefins cycle. See "Corporate Overview – Manufacturing Streams" earlier in this "Part I – Item 1. Business." This cyclicality is caused by periods of supply and demand imbalance, either when incremental capacity additions are not offset by corresponding increases in demand, or when demand exceeds existing supply. Demand, in turn, is based on general economic conditions, raw material and energy costs, and other factors beyond the Company's control. While the segment has taken steps to reduce the impact of the trough of the olefins cycle, future PCI segment results are expected to continue to fluctuate from period to period due to these changing economic conditions. Approximately 70 percent of the segment’s olefin derivatives are made from propylene.

·Products

The PCI segment offers over 195 products that include intermediates based on oxo and acetyl chemistries and performance chemicals. The PCI segment's 2010 sales revenue was approximately 65 percent from olefin-based and 20 percent from acetyl-based chemistries, and 15 percent from other chemicals. Approximately 65 percent of the PCI segment's sales revenue is generated in the U.S. and Canada, a region in which the Company has a leading market share position for most of its key oxo and acetyl products. Sales in all regions are generated through a mix of the Company's direct sales force and a network of distributors. The Company's PCI segment is the largest marketer of acetic anhydride in the United States, an intermediate that is a critical component of analgesics, laundry care products, and nutri tional supplements, and is the only U.S. producer of acetaldehyde, a key intermediate in the production of agricultural and other specialty products. Eastman believes that it manufactures one of the world's broadest ranges of products derived from oxo aldehydes and holds a leading North American market position in the majority of these products. The PCI segment's other intermediate products include glycols and polymer intermediates. Many of the intermediates products in the PCI segment are priced based on supply and demand of substitute and competing products. In order to maintain a competitive position, the Company strives to operate with a low cost manufacturing base.

The PCI segment also manufactures performance chemicals and complex organic molecules such as plasticizers, diketene derivatives, specialty ketones, and specialty anhydrides for medical, pharmaceutical, fiber, and food and beverage ingredients, which are typically used in specialty market applications. The acquisition of Genovique Specialties Corporation ("Genovique") added new plasticizers to the Company's existing portfolio, and Eastman believes it has the broadest product line of non-phthalate plasticizers in the world. The PCI segment’s specialty products are typically priced based on value added rather than supply and demand factors.

14

·Strategy and Innovation

To build on and maintain its status as a low cost producer, the PCI segment continuously focuses on cost control, operational efficiency, and capacity utilization to maximize earnings. Through the PCI segment, the Company maximizes the advantage of its highly integrated and world-scale manufacturing facilities. For example, the Kingsport, Tennessee manufacturing facility allows the PCI segment to produce acetic anhydride and other acetyl derivatives from coal rather than natural gas or other petroleum feedstocks. At the Longview, Texas manufacturing facility, Eastman's PCI segment uses its proprietary oxo-technology in the world's largest single-site, oxo aldehyde manufacturing facility to produce a wide range of alcohols, esters, and other derivative products utilizing local propane and ethane supplies, a s well as purchased propylene. These integrated facilities, combined with large scale production processes and a continuous focus on additional process improvements, allow the PCI segment to remain cost competitive with, and for some products cost-advantaged over, its competitors.

The PCI segment selectively focuses on continuing to develop and access markets with high-growth potential for the Company's chemicals. One such market is for flexible plastic products used in sensitive applications such as toys, child care articles, medical packaging and devices, and food contact. Eastman 168TM plasticizer and Genovique specialty plasticizers provide effective, sustainable alternatives to ortho-phthalate plasticizers traditionally used in these and other applications. These plasticizers allow manufacturers to meet the challenging requirements of changing government regulations and consumer preferences without sacrificing production efficiency or product performance. The acquisition of Genovique in 2010 added to the Company's portfolio of non-phthalate plasticizers that serve high growth markets.

The Company engages in R&D initiatives in order to develop new PCI products and find additional applications for existing products and to lower its costs. The Company is evaluating licensing opportunities for acetic acid and oxo derivatives on a selective basis, and has licensed technology to produce acetyl products to Saudi International Petrochemical Company ("SIPCHEM") in Saudi Arabia and to Chang Chun Petrochemical Company ("Chang Chun") in Taiwan in 2005 and 2007, respectively. All SIPCHEM licensing agreement revenue has been received, and the Company has the continuing right to purchase the acetic anhydride from the SIPCHEM manufacturing facility. The Chang Chun manufacturing plant is expected to be operational in the second half of 2011.

·	Customers and Markets

The PCI segment's products are used in a variety of markets and end uses, including agriculture, transportation, beverages, nutrition, pharmaceuticals, coatings, flooring, medical devices, toys, adhesives, sealants, household products, polymers, textiles, and industrials. Because of its cost position, reliability, and service, the Company has been able to establish and maintain long-term arrangements and relationships with PCI customers. Product-specific olefin derivative market conditions vary based upon prevailing supply and demand conditions. An important trend for the PCI segment's business is a tendency toward regionalization of key markets due to increased transportation costs and local supply in developing regions from new capacities. The PCI segment benefits from this trend primarily in the U.S. and Canada. The anhydride purchased from the new SIPCHEM facility will give increased access to the Asian market for PCI products. Additionally, the PCI segment is engaged in continuous efforts to optimize product and customer mix. Approximately 80 percent of the PCI segment's sales revenue in 2010 was from 135 of approximately 1,100 customers worldwide.

·	Competition

Historically, there have been significant barriers to entry for potential competitors in the PCI segment's major product lines, including acetic acid and acetic anhydride, primarily due to the relevant technology having been held by a small number of companies. As this technology has become more readily available, competition from multinational chemical manufacturers has intensified. Eastman competes with these and other producers primarily based on price, as products are generally interchangeable, but also on technology, marketing, and services. Eastman's major competitors in this segment include large, multinational companies such as BASF, Celanese, Dow, and Exxon Mobil Corporation.

15

SPECIALTY PLASTICS SEGMENT

·

Overview

In the Specialty Plastics segment, the Company produces and markets specialized copolyesters and cellulosic plastics that possess differentiated performance properties for value-added end uses. In 2010, the Specialty Plastics segment had sales revenue of $1.0 billion, approximately 18 percent of Eastman's total sales.

Eastman has the ability within its Specialty Plastics segment to modify its polymers and plastics to control and customize their final properties, creating numerous opportunities for new application development, including the expertise to develop new materials and new applications starting from the molecular level in the research laboratory to the final designed application. Recent industry trends in various markets have renewed customers' interest in some of the unique attributes offered by Eastman materials. Such trends include, but are not limited to, interest in plastics that have superior chemical and mechanical properties to withstand increasing demands in specific applications, as well as halogen-free and bisphenol A ("BPA")-free plastics. The addition of the Eastman Tritan™ family of products significantly enhances the segment's ability to customize copolyesters and cellulosic plastics for new markets and applications. In addition, the Specialty Plastics segment has a long history of manufacturing excellence with strong process improvement programs providing continuing cost reduction.

·Products

The Specialty Plastics segment consists of two primary product lines: specialty copolyesters and cellulosics. Eastman estimates that the market growth for copolyesters will continue to be higher than general domestic economic growth due to ongoing specialty copolyester material innovations and displacement opportunities. Eastman believes that cellulosic materials will grow at or above the rate of the domestic economy in general, driven by strong demand in the LCD market, and increased demand for cellulosics driven by the sustainability profile of these bio-derived materials and their performance as engineered thermoplastics. For both specialty copolyesters and cellulosic plastics, the Specialty Plastics segment benefits from integration into the Company's polyester and acetyls streams. The Speci alty Plastics segment's specialty copolyesters are currently produced in Kingsport, Tennessee; Columbia, South Carolina; and Kuantan, Malaysia. The cellulosic products are produced in Kingsport, Tennessee.

Ø	Specialty Copolyesters

Eastman's specialty copolyesters accounted for approximately 80 percent of the Specialty Plastics segment's 2010 sales revenue. Eastman's specialty copolyesters, which generally are based on Eastman's production of CHDM, typically fill a market position between polycarbonates and acrylics. Polycarbonates traditionally have offered some superior performance characteristics, while acrylics have been less expensive. Specialty copolyesters combine superior performance with competitive pricing and are being substituted for both polycarbonates and acrylics in some applications.

The Specialty Plastics segment continues to develop new applications for its core copolyesters to meet growing demand for more environmentally-friendly and sustainable copolyester products. Additionally, the segment has had significant growth in sales of copolyesters for clear handleware applications, where Eastman's materials offer a unique merchandising solution. By broadening its Embrace™ family of products, Eastman has continued to have growth in sales of shrink packaging. The family of shrink packaging offerings has made Eastman the leading provider of resins for full-body shrink labels. Eastman's newest copolyester, Tritan™, enables the Company to move to higher value applications by adding high temperature resistance to the other properties of copolyesters, including tou ghness, chemical resistance, and excellent processability.

Ø	Cellulosic Plastics

Cellulosics and cellulosic plastics accounted for approximately 20 percent of the Specialty Plastics segment's 2010 sales revenue. Market demand for Eastman’s family of cellulosic polymers, VisualizeTM cellulosics, for the LCD market continues to be strong. Through the development of new formulations and applications, Eastman's LCD product line has continued to benefit from demand growth in the LCD market. Eastman’s proprietary Visualize™ line of products are known for their superior optical properties and are the preferred choice for certain film structures in LCD polarizers.

16

Eastman ~~holds~~cellulosic plastics, sold under the Tenite™ brand, are known for their excellent balance of properties, including toughness, hardness, strength, surface gloss, clarity, chemical resistance, and warmth to the touch. During 2010, Eastman entered into a ~~51 percent share~~joint venture with Mazzucchelli 1949 SPA in Shenzhen, China, which is expected to expand Eastman's portfolio of cellulosic plastics. The joint venture will produce compounded cellulose acetate pellets, mostly used in the production of high design injection molded articles such as ophthalmic frames or tool handles. The Mazzucchelli joint venture ~~Qilu Eastman Specialty Chemical Ltd.~~facility is expected to be operational by second quarter 2011.

·	Strategy and Innovation

Through Eastman's advantaged asset position and applications development innovation efforts, the segment has increased specialty copolyesters sales volume to twice U.S. gross domestic product growth over the past five years. During 2010, Eastman significantly increased its share in the shrink film market by developing new applications for its products that now include the Embrace™ family of products. The trend of influencing the purchasing decision with product design has also benefited Eastman's clear handleware solutions for large containers. Additionally, increased demand for BPA-free products has created new opportunities for various applications of legacy copolyesters.

The LCD market is a developing growth market for the Specialty Plastics segment. The Company continues to invest in the development of copolyester and cellulosic-based product solutions for this high-growth market, with the objective of being a strategic raw material supplier in the LCD market. The Company's 70 percent expansion of its Kingsport, Tennessee cellulose triacetate manufacturing capacity is expected to be operational in first quarter 2012.

The addition of Tritan™ copolyester to Eastman's Specialty Plastics product offering has created new opportunities for applications previously occupied by materials such as polycarbonate or polysulfone. During 2010, Eastman gained market acceptance for Tritan™ in certain applications such as water bottles and other consumer houseware applications through OEMs and brand owners. During 2009, Eastman completed the construction of a new monomer facility and a new polymer facility. Both were operational in first quarter 2010. The monomer facility produces a proprietary monomer required in the production of Tritan™ copolyester while the polymer facility is capable of producing 30,000 metric tons of Tritan™ polymer. Given the anticipated successful market acceptance o f Tritan™ copolyester and the projected rapid demand growth, the monomer facility was designed to be capable of supplying a second Tritan™ copolyester manufacturing facility of 30,000 metric tons per year. Based on the 2010 demand, the Company is expanding to a second full scale Tritan™ copolyester manufacturing facility which is expected to be operational in early 2012.

The Company is also expanding its capacity for CHDM, a monomer used in the manufacture of copolyester, by approximately 25 percent and expects the capacity to be operational in two phases in mid-2011 and in 2012.

The Specialty Plastics segment is focused on providing consistent profit margins and the Company continues to leverage the advantages of being an integrated polyester manufacturer and expects to continue to pursue opportunities within the integrated polyester stream. The Company is utilizing rationalized PET assets to reduce Specialty Plastics copolyester conversion costs and expand production with larger scale assets.

·	Customers and Markets

The customer base in the Specialty Plastics segment is broad and diverse, consisting of approximately 690 customers worldwide in a variety of industries. Approximately 80 percent of the Specialty Plastics segment's 2010 sales revenue was attributable to approximately 70 customers. The Specialty Plastics segment seeks to develop mutually beneficial relationships with its customers throughout various stages of product life cycles. By doing so, it is better able to understand its customers' needs as those customers develop new products and more effectively bring new solutions to market.

17

Specialty copolyesters are sold into a wide range of markets and applications including specialty packaging (medical and electronic component trays, shrink label films, general purpose packaging, and multilayer films); in-store fixtures and displays (point of purchase displays including indoor sign and store fixtures); consumer and durable goods (appliances, housewares, toys, and sporting goods); medical goods (disposable medical devices, health care equipment and instruments, and pharmaceutical packaging); personal care and consumer packaging (food and beverage packaging and consumer packaging); photographic film, optical film, fibers/nonwovens, tapes/labels, and LCD. The Tritan™ family of products is being sold into a range of markets including, but not limited to, consumer housewares, bulk water, infant care, small app liances and other consumer durables segments. Additional applications and markets are currently under development.

·	Competition

The segment principally competes by leveraging price and product performance in specific applications. Customer product selection is typically determined on an application-by-application basis and often by OEMs rather than by resin converters. New market opportunities are coming from substitution of plastic for other materials, and displacement of other plastic resins in existing applications. While historically the Specialty Plastics segment's ability to compete was very closely tied to supply-demand balances of competing plastics, the addition of Tritan™, a material based on Eastman proprietary technology, opens new market opportunities in which Eastman expects to leverage the unique combination of properties of the new family of products. In certain cases, the Company believes that Trit an™ offers a unique solution by bringing properties similar to polycarbonate without containing any BPA. In food applications, the fact that copolyesters are both BPA and halogen-free makes them an attractive alternative to materials such as polycarbonate and other plastics, respectively. In addition, the combination of excellent clarity and superior processability allows for the production of unique and attractive packaging that allows brand owners to differentiate themselves on the retail shelf. Examples of such applications include, but are not limited to, shrink film made from Eastman's Embrace™ copolyester family of products, as well as clear handleware containers produced from Eastman copolyesters.

The Specialty Plastics segment believes that it maintains competitive advantages throughout the product life cycle. At product introduction, the segment's breadth of offerings combined with its R&D capabilities and customer service orientation enable it to quickly bring a wide variety of products to market. As products enter the growth phase of the life cycle, the Specialty Plastics segment is able to continue to leverage its product breadth by generating sales revenue from multiple sources, as well as retaining customers from long-term relationships. As products become more price sensitive, the Specialty Plastics segment can take advantage of Eastman's scale of operations, including conversion of rationalized PET assets and vertical integration, to maintain a superior product conversion cost position.

In recent years, the industry has been confronted by unprecedented raw material cost volatility. While raw material cost volatility is expected to continue into the future, Eastman believes that it maintains a competitive advantage from diversification of its raw materials base by using both coal for cellulosics and petrochemical-based feedstocks for copolyesters.

Eastman's primary competitors for copolyester products include Bayer AG, Dow, Evonvik Industries, Saudi Basic Industries Corporation ("SABIC"), and SK Chemical Industries. Competition for cellulosic plastics is primarily from other producers of cellulose ester polymers such as Acetati SpA and Daicel.

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REGIONAL BUSINESS OVERVIEW

Eastman operates as a global business with approximately 50 percent of its sales and 60 percent of its operating earnings, excluding asset impairments and restructuring charges, generated from outside the United States and Canada region in 2010. As the Company focuses on growth in emerging markets, the percentage of sales and earnings from outside the United States and Canada are expected to increase. While manufacturing is centered in the U.S., the Company is able to transport products globally to meet demand. In 2010, all regions were positively affected by the recovery from the global recession, but the degree of the impact on the various regions was dependent on the mix of the Company's segments and products in each region. In 2010, the mix of regional revenue from the segments was as f ollows:

	CASPI	Fibers	PCI	Specialty Plastics	Total
United States and Canada	25 %	10 %	50 %	15 %	100 %
Asia Pacific	20 %	35 %	25 %	20 %	100 %
Europe, Middle East, and Africa	35 %	25 %	20 %	20 %	100 %
Latin America	35 %	20 %	35 %	10 %	100 %

The United States and Canada region contains the highest concentration of the Company's long-lived assets with approximately 90 percent located in the United States. Management believes that the location of these manufacturing facilities provides the Company with an advantaged cost position for the Company's domestic customers, particularly for commodity and bulk products. The PCI segment accounts for approximately half of the region's revenue, as the segment is well-positioned in this region's market for most of its major products, including acetic acid and acetic anhydride, although the region is subject to increased variability in revenues due to the effect of raw material and energy costs on this segment’s selling prices.

One-third of revenue in the Asia Pacific region is from acetate tow products in the Fibers segment. The region includes many emerging growth markets served by Eastman products, including specialty products in the CASPI segment and acetate tow in the Fibers segment, particularly in China. The Company is responding to this growth by strengthening its position through joint ventures and acquisitions such as the recent acquisition of an acetate tow manufacturing facility in Korea.

The Europe, Middle East, and Africa region has fewer sales from commodity product lines than any other region and therefore is less affected by economic conditions and prices are less dependent on raw material costs compared to other regions.

The Latin America region has significant sales from commodity product lines, particularly in the PCI and CASPI segments, and is therefore subject to increased volatility in sales volume and selling prices.

CORPORATE INITIATIVES

In addition to its business segments, the Company manages certain costs and initiatives 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 investment is committed to those projects. The Company continues to explore and invest in R&D initiatives that are aligned with macro trends in sustainability, consumerism, and energy efficiency through high performance materials, advanced cellulosics, environmentally-friendly chemistry, and process improvements, including an initiative in the building and construction market.

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DISCONTINUED OPERATIONS

~~Eastman has a 50 percent interest~~The Company completed the sale of the PET business, related assets at the Columbia, South Carolina site, and technology of its Performance Polymers segment on January 31, 2011.The PET business, assets, and technology sold were substantially all of the Performance Polymers segment. Performance Polymers segment operating results are presented as discontinued operations for all periods presented and are therefore not included in ~~Primester, a joint venture that manufactures cellulose acetate at Eastman's Kingsport, Tennessee plant. The production of cellulose acetate is an intermediate step~~results from continuing operations under GAAP. Corporate costs which were allocated to the Performance Polymers segment have been reallocated to the remaining segments in the ~~manufacture~~Company's financial statements. The total cash proceeds of ~~acetate tow~~the transaction were $600 million, subject to post-closing adjustment for working capital. For further information, refer to Note 2, "Discontinued Operations and ~~other cellulose acetate based products. The Company also has a 50 percent interest in a manufacturing facility in Nanjing, China. The Nanjing facility produces Eastotac~~TM ~~hydrocarbon tackifying resins~~Assets Held for ~~pressure-sensitive adhesives, caulks, and sealants. Eastotac~~Sale"TM ~~hydrocarbon resins are also used to produce hot melt adhesives for packaging applications in addition to glue sticks, tapes, labels, and other adhesive applications.~~

Eastman has distribution facilities at all of its plant sites. In addition, the Company owns or leases approximately 75 stand-alone distribution facilities in the United States and 15 other countries. Corporate headquarters are in Kingsport, Tennessee. The Company's regional headquarters are in Miami, Florida; Capelle aan den Ijssel, the Netherlands; Zug, Switzerland; Singapore; and Kingsport, Tennessee. Technical service is provided to the Company's customers from technical service centers in Kingsport, Tennessee; Kirkby, England; Shanghai, China and Singapore. Customer service centers are located in Kingsport, Tennessee; Capelle aan den Ijssel, the Netherlands; Miami, Florida; and Singapore.

~~A summary of properties,~~ ~~classified by type, is included in Note 4, "Properties and Accumulated Depreciation"~~, to the Company's consolidated financial statements in Part II, Item 8 of this Annual Report.

EASTMAN CHEMICAL COMPANY GENERAL INFORMATION

Sales, Marketing, and Distribution

The Company markets and sells products primarily through a global marketing and sales organization which has a presence in the United States and in over 35 other countries selling into approximately 100 countries around the world. Eastman has a marketing and sales strategy targeting industries and applications where Eastman products and services provide differentiated value. Market, customer, application, and technical expertise are critical capabilities. Through a highly skilled and specialized sales force that is capable of providing customized business solutions for each of its four operating segments, Eastman is able to establish long-term customer relationships and strives to become the preferred supplier of specialty chemicals and specialty plastics worldwide.

The Company's products are also marketed through indirect channels, which include distributors and contract representatives. Non-U.S. sales tend to be made more frequently through distributors and contract representatives than U.S. sales. 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 directly from Eastman's manufacturing plants, as well as from distribution centers worldwide.

Sources and Availability of Raw Material and Energy

Eastman purchases a substantial portion, estimated to be approximately 75 percent, of its key raw materials and energy through long-term contracts, generally of three to five 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, valued at quoted market prices, to mitigate the impact of short-term market price fluctuations. Key raw materials include propane, paraxylene, cellulose, ethylene glycol, coal, ethane, methanol, PTA, and a wide variety of precursors for specialty organic chemicals. Key purchased e nergy sources include natural gas, steam, 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 on-going performance assessment 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 developed contingency plans designed to minimize the impact of any supply disruptions from single source suppliers.

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, or due to domestic or world market and political 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 been in the past and may be in the future, at times, adversely affected by these factors. The Company's raw material and energy costs as a percent of total cost of operations were approximately 60 percent in 2010 and 2009 and 70 percent in 2008.

2620

Capital Expenditures

Capital expenditures were $243 million, $310 million, and $634 million in 2010, 2009, and 2008, respectively. Capital expenditures in 2009 decreased significantly compared to 2008 as the Company deferred discretionary spending on capital projects in response to a more challenging economic environment. Capital expenditures remained at a level sufficient for required maintenance and certain strategic growth initiatives through first nine months 2010. In fourth quarter 2010, the Company increased spending on discretionary infrastructure projects and certain strategic growth initiatives to $110 million for the quarter. The Company expects that 2011 capital spending will continue at the fourth quarter 2010 pace and will be approximately $450 million. The Company's capital spending in 2011 will focus on o rganic growth initiatives, particularly in the Specialty Plastics, CASPI, and PCI segments.

Employees

Eastman employs approximately 10,000 men and women worldwide. Approximately four percent of the total worldwide labor force is represented by unions, 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 70 percent of the Company's 2010 sales revenue.

Intellectual Property and Trademarks

~~ITEM 3. LEGAL~~While the Company's intellectual property portfolio is an important Company asset which it expands and vigorously protects globally through a combination of patents that expire at various times, trademarks, copyrights, and trade secrets, neither its business as a whole nor any particular segment is materially dependent upon any one particular patent, trademark, copyright, or trade secret. As a producer of a broad and diverse portfolio of both specialty and commodity chemicals, plastics, and fibers, Eastman owns over 550 active United States patents and more than 1,100 active foreign patents, expiring at various times over several years, and also owns over 2,400 active worldwide trademark applications and registrations. The Company's intellectual property relates to a wide variety of products and processes. ;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.

The Company pursues opportunities to license proprietary technology to third parties in areas where it has determined competitive impact to core 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. To date, efforts have been focused on acetyls technology in the PCI segment. The Company also is actively pursuing licensing opportunities for oxo derivatives in the PCI segment.

Over 250 active United States patents and patent applications, more than 1,100 foreign patents applications, and approximately 100 active worldwide trademark applications and registrations were sold as part of the sale of the PET business, related assets at the Columbia, South Carolina site, and technology of the Performance Polymers segment.

Research and Development

For 2010, 2009, and 2008, Eastman's R&D expenses totaled $152 million, $124 million, and $143 million, respectively.

21

Environmental

Eastman 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 a manner that 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 the technology available. In some cases, applicable environmental regulations such as those adopted under the U.S. Clean Air Act and Resource Conservation and Recovery Act, and related actions of regulatory agencies, determine the timing and amount of environmental costs incurred by the Company. Likewise, when finalized, potential legislation related to greenhouse gas emissions, energy policy, and associated implementing regulations could impact the timing and amount of environmental costs incu rred by the Company.

The Company accrues environmental costs when it is probable that the Company has incurred a liability 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 data exists. With respect to a contaminated site, the amount accrued reflects the Company's assumptions about remedial requirements at the 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.

The Company's cash expenditures related to environmental protection and improvement were estimated to be $200 million, $173 million, and $218 million, in 2010, 2009, and 2008, respectively. These amounts were primarily for operating costs associated with environmental protection equipment and facilities, but also included expenditures for construction and development. Other than potential capital expenditures at the Company's Kingsport, Tennessee facility related to regulations associated with controlling air emissions from boilers, the Company does not expect future environmental capital expenditures arising from requirements of recently promulgated environmental laws and regulations to materially increase the Company's planned level of annual capital expenditures for environmental control facilities. Pot ential capital expenditures associated with boiler air emissions remain uncertain pending adoption of final regulations, but could increase average annual environmental capital expenditures significantly over the next five years compared to recent historical levels depending on final regulation requirements and the Company's method of addressing those requirements.

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 ~~PROCEEDINGS~~Notes 1, "Significant Accounting Policies", 15, "Environmental Matters", and 25, "Reserve Rollfowards" to the Company's consolidated financial statements in Part II, Item 8 of this Annual Report.

Backlog

~~General~~On January 1, 2011 and 2010, Eastman's backlog of firm sales orders represented less than 10 percent of the Company's total consolidated revenue for the previous 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.

~~From time~~

22

Financial Information About Geographic Areas

For sales revenue and long-lived assets by geographic areas, see Note 23, "Segment Information", to ~~time,~~the Company's consolidated financial statements in Part II, Item 8 of this Annual Report. For information about regional sales and earnings, see "Regional Business Overview" above in this "Business" section of this Annual Report.

Available Information – SEC Filings

The Company makes available free of charge, through 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 Securities and Exchange Commission (the "SEC").

ITEM 1A. RISK FACTORS

For identification and discussion of the most significant risks applicable to the Company and its ~~operations are parties to, or targets~~business, see Part II – Item 7 – "Management's Discussion and Analysis of ~~lawsuits, claims, investigations~~Financial Condition and ~~proceedings, including product liability, personal injury, asbestos, patent~~Results of Operations – Forward-Looking Statements and ~~intellectual property, commercial, contract, environmental, antitrust, health and safety, and employment matters, which are being handled and defended in the ordinary course~~Risk Factors" 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. However, adverse developments could negatively impact earnings or cash flows in a particular future period.this Annual Report.

~~Jefferson (Pennsylvania) Environmental Proceeding~~

ITEM 1B. UNRESOLVED STAFF COMMENTS

In December 2005, Eastman Chemical Resins, Inc., a wholly-owned subsidiary of the Company (the "ECR Subsidiary"), received a Notice of Violation ("NOV") from the United States Environmental Protection Agency's Region III Office ("EPA") alleging that the ECR Subsidiary's West Elizabeth, Jefferson Borough, Allegheny County, Pennsylvania manufacturing operation violated certain federally enforceable local air quality regulations and certain provisions in a number of air quality-related permits. In October 2006, the EPA referred the matter to the United States Department of Justice's Environmental Enforcement Section ("DOJ"). Company representatives have met with the EPA and DOJ on a number of occasions since the NOV's issuance and have determined that it is not reasonably likely that any civil penalty assessed by the EPA and DOJ will be less than $100,000. While the Company intends to vigorously defend against these allegations, this disclosure is made pursuant to Securities and Exchange Commission Regulation S-K, Item 103, Instruction 5.C., which requires disclosure of administrative proceedings commenced under environmental laws that involve governmental authorities as parties and potential monetary sanctions in excess of $100,000. The Company believes that the ultimate resolution of this proceeding will not have a material impact on the Company's financial condition, results of operations, or cash flows.

None.

~~ITEM 4.~~ ~~SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS~~

~~There were no matters submitted to a vote of the Company's stockholders during fourth quarter of 2009.~~

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EXECUTIVE OFFICERS OF THE COMPANY

Certain information about the Company's executive officers is provided below:

James P. Rogers, age 59, is Chairman of the Board and Chief Executive Officer of Eastman Chemical Company. He served as President and Chief Executive Officer from May 2009 until January 2011. Mr. Rogers was appointed Executive Vice President of the Company and President of Eastman Division effective November 2003. Mr. Rogers joined the Company in 1999 as Senior Vice President and Chief Financial Officer and in 2002 was also appointed Chief Operations Officer of Eastman Division. Mr. Rogers served previously as Executive Vice President and Chief Financial Officer of GAF Materials Corporation ("GAF"). He also served as Executive Vice President, Finance, of International Specialty Products, Inc., which was spun off from GAF in 1997.

Mark J. Costa, age 44, is Executive Vice President, Specialty Polymers, Coatings and Adhesives, and Chief Marketing Officer. Mr. Costa joined the Company in June 2006 as Senior Vice President, Corporate Strategy & Marketing and was appointed Executive Vice President, Polymers Business Group Head and Chief Marketing Officer in August 2008. Prior to joining Eastman, Mr. Costa was a senior partner within Monitor Group's integrated North American and global client service networks. 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, including specialty and commodity chemicals, electricity, natural gas and truck/auto m anufacturing. Mr. Costa was appointed to his current position in May 2009.

Ronald C. Lindsay, age 52, is Executive Vice President, Performance Chemicals and Intermediates and Operations Support. He joined Eastman in 1980 and held a number of positions in various manufacturing and business organizations. In 2003, Mr. Lindsay was appointed Vice President and General Manager of Intermediates, in 2005 became Vice President, Performance Chemicals and Intermediates, in 2006 was appointed Senior Vice President and Chief Technology Officer, in 2008 was appointed Senior Vice President, Corporate Strategy and Regional Leadership, and in May 2009 was appointed Executive Vice President, Performance Polymers and Chemical Intermediates. He was appointed to his current position in January 2011.

Michael H.K. Chung, age 57 is Senior Vice President and Chief International Ventures Officer. Mr. Chung joined Eastman in 1976, and since that time has held various management positions, primarily in the Company's chemicals and fibers businesses. He was appointed Vice President, Fibers International Business in 2006 and in 2009, he was appointed Vice President and Managing Director, Asia Pacific Region. Mr. Chung was appointed to his current position in January 2011.

Curtis E. Espeland, age 46, is Senior Vice President and Chief Financial Officer. Mr. Espeland joined Eastman in 1996, and has served in various financial management positions of increasing responsibility, including Vice President, Finance, Polymers; Vice President, Finance, Eastman Division; Vice President and Controller; Director of Corporate Planning and Forecasting; Director of Finance, Asia Pacific; and Director of Internal Auditing. 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 in September 2008.

Richard L. Johnson, age 61, is Senior Vice President, Fibers and Global Supply Chain. Prior to being named to this position, Mr. Johnson was Vice President and General Manager of Fibers. Mr. Johnson joined Eastman in 1971 and held numerous positions in environmental programs, operations and manufacturing until he became Superintendent of the Cellulose Esters Division in 1991. He was named Superintendent of the Acetate Tow Division in 1993, became Vice President and General Manager of Fibers in 1996, and Group Vice President of Fibers in 2002. Mr. Johnson was named Group Vice President of Performance Chemicals, Intermediates, and Fibers in 2006. Mr. Johnson was appointed to his current position in May 2009.

24

Theresa K. Lee, age 58, is Senior Vice President, Chief Legal and Administrative Officer. Ms. Lee joined Eastman as a staff attorney in 1987, and has served in various legal management positions of increasing responsibility, including Assistant General Counsel for the health, safety, and environmental legal staff, Assistant General Counsel for the corporate legal staff, and Vice President, Associate General Counsel and Secretary. She became Vice President, General Counsel, and Corporate Secretary of Eastman in 2000, was appointed Senior Vice President, Chief Legal Officer and Corporate Secretary in 2002, and was appointed to her current position in January 2011.

Godefroy A.F.E. Motte, age 52, is Senior Vice President, Chief Regional and Sustainability Officer. Since joining Eastman in 1985, Mr. Motte has held leadership positions in various organizations, including sales and manufacturing and in the Company's chemicals and polymers businesses. He was appointed Vice President for the Europe, Middle East, and Asia ("EMEA") region for the Chemicals Division in 2001 and for the EMEA Polymers Business Group in April 2006. Mr. Motte was appointed to his current position in January 2011.

Greg W. Nelson, age 48, is Senior Vice President and Chief Technology Officer. Dr. Nelson joined Eastman in 1988 in the Research and Development organization, and served in various positions in specialty plastics technology and business organizations, including business unit manager of polymer films and coatings. In 2001, Dr. Nelson was appointed Vice President, Technology, in 2006 became Vice President, Polymers Technology, and in 2007 Vice President, Corporate Technology until appointed to his current position in August 2008.

Scott V. King, age 42, is Vice President, Controller and Chief Accounting Officer. Since joining Eastman in 1999 as Manager, Corporate Consolidations and External Reporting, he has held various positions of increasing responsibility in the financial organization, and was appointed Vice President and Controller in August 2007. Prior to joining Eastman, Mr. King was an audit and business advisory manager with PricewaterhouseCoopers LLP. Mr. King was appointed to his current position in September 2008.

25

ITEM 2. PROPERTIES

PART II

5.	Market for Registrant's Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities	29

6.	Selected Financial Data	31

7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	33

7A.	Quantitative and Qualitative Disclosures About Market Risk	69

8.	Financial Statements and Supplementary Data	70

9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	118

9A.	Controls and Procedures	118

9B.	Other Information	119

PART III

10.	Directors, Executive Officers and Corporate Governance	120

11.	Executive Compensation	120

12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	120

13.	Certain Relationships and Related Transactions, and Director Independence	121

14.	Principal Accountant Fees and Services	121

PART IV

15.

Exhibits and Financial Statement Schedules

122

SIGNATURES

Signatures

123

4

PART I

Item	Page

ITEM 1. Business	6
Corporate Overview	6
Business Strategy	6
Manufacturing Streams	7
Cyclicality and Seasonality	9
Financial Strategy	9
Business Segments	9
CASPI Segment	9
Fibers Segment	12
PCI Segment	14
Specialty Plastics Segment	16
Regional Business Overview	19
Corporate Initiatives	19
Discontinued Operations	20
Eastman Chemical Company General Information	20

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ITEM 1. BUSINESS

CORPORATE OVERVIEW

Eastman Chemical Company ("Eastman" or the "Company") is a global chemical company which manufactures and sells a broad portfolio of chemicals, plastics, and fibers. 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, as of December 31, 1993. Eastman has sixteen manufacturing sites in nine countries that supply chemicals, plastics, and fibers products to customers throughout the world. The Company's headquarters and largest manufacturing site are located in Kingsport, Tennessee.

In 2010, the Company had sales revenue of $5.8 billion, operating earnings of $862 million, and earnings from continuing operations of $425 million. Earnings per diluted share from continuing operations were $5.75 in 2010. Included in 2010 operating earnings were asset impairments and restructuring charges of $29 million. Included in 2010 earnings from continuing operations were early debt extinguishment costs of $115 million.

The Company completed the sale of the polyethylene terephthalate ("PET") business, related assets at the Columbia, South Carolina site, and technology of its Performance Polymers segment on January 31, 2011. The PET business, assets, and technology sold were substantially all of the Performance Polymers segment. Performance Polymers segment operating results are presented as discontinued operations for all periods presented and are therefore not included in results from continuing operations under accounting principles generally accepted ("GAAP") in the United States.

The Company's products and operations are managed and reported in four operating segments: the Coatings, Adhesives, Specialty Polymers, and Inks ("CASPI") segment, the Fibers segment, the Performance Chemicals and Intermediates ("PCI") segment, and the Specialty Plastics segment. The Company manages certain costs and initiatives at the corporate level, including certain research and development ("R&D") costs not allocated to the operating segments. For additional information concerning the Company's operating segments, see Note 23 "Segment Information" to the Company's consolidated financial statements in Part II, Item 8 of this 2010 Annual Report on Form 10-K (this "Annual Report").

Business Strategy

Eastman's objective is to be an outperforming chemical company through solid financial results from its core businesses and its strategies for profitable growth. The Company's core businesses currently sell differentiated products into diverse markets and geographic regions. Management believes that the Company can increase the revenues from its core businesses with increasing profitability through a balance of new applications for existing products, development of new products, and sales growth in adjacent markets and emerging economies. These revenue and earnings increases are expected to result from organic initiatives as well as joint ventures and acquisitions.

The Company is focusing on a variety of organic growth initiatives. These growth initiatives are driven by strong demand from the Company's customers and are in attractive industries or product markets in which Eastman has a competitive advantage. These organic growth initiatives include:

·

In the Specialty Plastics segment, the monomer manufacturing facility and the first Eastman TritanTM copolyester polymer manufacturing facility in Kingsport, Tennessee commenced production in first quarter 2010. The Company is adding another 30,000 metric tons of resin capacity for TritanTM, which is expected to be operational in early 2012.

·	In the Specialty Plastics segment, the Company is expanding its capacity for cyclohexane dimethanol ("CHDM"), a monomer used in the manufacture of copolyester, and expects the capacity to be operational in two phases in mid-2011 and in 2012.

·	In the Specialty Plastics segment, the Company is expanding its cellulose triacetate capacity, with the new capacity expected to be operational in first quarter 2012.

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·

In the CASPI segment, the Company is expanding capacity for its specialty hydrocarbon resins through an additional expansion of the Company's hydrogenated hydrocarbon resins manufacturing capacity in Middelburg, the Netherlands which is expected to be completed in the second half of 2011, an additional debottleneck of the hydrogenated hydrocarbon facility in Longview, Texas, which is expected to be operational in the first half of 2011, and an expansion of the pure monomer and hydrogenated resins production capacity in Jefferson, Pennsylvania, which is expected to be operational in 2012.

·	In the PCI segment, the Company plans to increase capacity of 2-ethyl hexanol in 2012 to support expected growth in the plasticizers, coatings, and fuel additive markets.

·

The Company continues to explore and invest in R&D initiatives at a corporate level that are aligned with macro trends in sustainability, consumerism, and energy efficiency through high performance materials, advanced cellulosics, and environmentally-friendly chemistry, including an initiative in the building and construction market.

The Company benefits from advantaged feedstocks and proprietary technologies, and is focusing on sustainability as a competitive strength for growth. Eastman has developed new products and technologies that enable customers' development and sales of sustainable products, and has reduced its greenhouse gas emissions and energy consumption.

The combination of stable profits from the solid core businesses and profitable revenue growth is expected to result in continued earnings growth. This allows the Company to continue to evaluate inorganic growth, such as joint ventures and acquisitions, to enhance the Company's product portfolios and to extend into emerging markets.

Manufacturing Streams

Integral to Eastman's corporate strategy for growth is leveraging its heritage of expertise and innovation in acetyl, olefins, and polyester chemistries in key markets, including packaging, tobacco, building and construction, and consumables. For each of these chemistries, Eastman has developed a combination of assets and technologies that are operated within three manufacturing "streams".

·

In the acetyl stream, the Company begins with high sulfur coal which is then gasified in its coal gasification facility. The resulting synthesis gas is converted into a number of chemicals including methanol, methyl acetate, acetic acid, and acetic anhydride. These chemicals are used in manufacturing products throughout the Company including acetate tow, acetate yarn, and cellulose esters. The Company's ability to use coal is a competitive advantage in both raw materials and energy. The Company continues to evaluate opportunities to further leverage its gasification expertise to produce additional cost advantaged chemicals from petroleum coke or coal instead of natural gas or petroleum.

·

In the olefins stream, the Company begins primarily with propane and ethane, which are then cracked at its facility in Longview, Texas into propylene, as well as ethylene. "Cracking" is a chemical process in which gases are converted into more reactive molecules for use in the manufacturing process. The Company also purchases propylene for use at its Longview facility and its facilities outside the U.S. The propylene is used in oxo derivative products. The ethylene is used in oxo derivative products, acetaldehyde and ethylene glycol production and is also sold commercially. There are four cracking units located at the Company's Longview, Texas facility. Eastman had previously shut down the first of the three units identified for a staged phase-out and idled the second cracking unit. 0; In 2010, a decision was made to restart the idled cracking unit due to improved competitive position based on low cost feedstocks and olefin market conditions. Petrochemical business cycles are influenced by periods of over- and under-capacity. Capacity additions to steam cracker units around the world, combined with demand for light olefins, determine the operating rate and thus profitability of producing olefins. Historically, periodic additions of large blocks of capacity have caused profit margins of light olefins to expand and contract, resulting in "ethylene" or "olefins" cycles. The Company believes it is less impacted by the these cycles than it has been historically due to actions it has taken to leverage its diverse derivatives products to take advantage of regulatory trends and focus on more durable markets.

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·

In the polyester stream, the Company begins with purchased paraxylene and produces purified terephthalic acid ("PTA") for polyesters and dimethyl terephthalate ("DMT") for copolyesters. PTA or DMT is then reacted with ethylene glycol, which the Company both makes and purchases, along with other raw materials (some of which the Company makes and are proprietary) to produce polyesters. The Company believes that this backward integration of polyester manufacturing is a competitive advantage, giving Eastman a low cost position, as well as surety of intermediate supply. In addition, Eastman can add specialty monomers to copolyesters to provide clear, tough, chemically resistant product characteristics. As a result, the Company's copolyesters can effectively compete with materials such as polycarbonate and acrylic .

The following chart shows the Company's sites at which its manufacturing streams are primarily employed.

SITE	ACETYL STREAM	POLYESTER STREAM	OLEFINS STREAM

Kingsport, Tennessee	X	X	X
Longview, Texas	X		X
Columbia, South Carolina (1)		X
Kuantan, Malaysia		X
Singapore			X
Workington, United Kingdom	X
Ulsan, South Korea	X

(1)	Retained a portion of the manufacturing facility related to the Specialty Plastics segment subsequent to the sale of the Company's PET business and related assets.

The following chart shows significant Eastman products, markets, and end uses by segment and manufacturing stream.

SEGMENT	ACETYL STREAM	POLYESTER STREAM	OLEFINS STREAM	KEY PRODUCTS, MARKETS, AND END USES
CASPI	X		X	Paints and coatings for architectural, transportation, industrial, and original equipment manufacturing ("OEM"), adhesives ingredients for tapes, labels, personal care products and building and construction uses and inks for packaging
Fibers	X			Acetate fibers for filter products and textiles
PCI	X	X	X	Intermediate chemicals for agriculture, transportation, beverages, nutrition, pharmaceuticals, coatings, medical devices, toys, adhesives, household products, polymers, textiles, consumer and industrial products, and health and wellness uses
Specialty Plastics	X	X	X	Copolyesters and cellulosics for appliances, store fixtures and displays, building and construction, electronic packaging, medical devices and packaging, graphic arts, general purpose packaging, personal care and cosmetics, food and beverage packaging, performance films, tape and labels, fibers/nonwovens, photographic and optical films, and liquid crystal displays ("LCD")

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In addition to stream integration, the Company also derives value from Eastman's cellulosics. These are natural polymers, sourced from managed forests, which when combined with the acetyl and olefin streams, provide differentiated product lines and an advantaged raw material position for Eastman.

The Company continues to leverage its heritage of expertise and innovation in acetyl, polyester, and olefins chemistries and technologies, as well as its use of cellulosics, 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.

Cyclicality and Seasonality

The commodity olefins and olefin derivatives product lines in the PCI segment and the commodity solvent product lines in the CASPI segment are impacted by the cyclicality of key products and markets, while the other segments are more sensitive to global economic conditions. Supply and demand dynamics determine profitability at different stages of cycles and global economic conditions affect the length of each cycle. Despite sensitivity to global economic conditions, many of the products in the Fibers and CASPI segments provide a stable foundation of earnings.

The Company's earnings are typically greater in the second and third quarters and cash flows from operations are greatest in fourth quarter due to seasonality. Demand for CASPI segment products is typically stronger in the second and third quarters due to the increased use of coatings products in the building and construction industries, while demand is typically weaker during the winter months because of seasonal construction downturns. The PCI segment typically has weaker fourth quarter financial results, due in part to a seasonal downturn in demand for products used in certain building and construction and agricultural markets.

Financial Strategy

In addition to managing its core business operations and growth initiatives, the Company remains committed to maintaining a strong financial position with financial flexibility and consistently solid cash flows. The Company employs a disciplined process for capital allocation and deployment of cash. The Company pursues a variety of organic growth opportunities and attractive joint ventures and acquisitions. The Company also returns cash to stockholders through dividends and from time to time by share repurchases. The Company also opportunistically increases, decreases, and restructures its debt based upon public and private debt market conditions.

BUSINESS SEGMENTS

The Company's products and operations are managed and reported in four operating segments: the CASPI segment, the Fibers segment, the PCI segment, and the Specialty Plastics segment.

CASPI SEGMENT

·

Overview

In the CASPI segment, the Company manufactures resins, specialty polymers, and solvents which are integral to the production of paints and coatings, inks, adhesives, and other formulated products. Growth in these markets in the U.S., Canada, and Europe typically approximates general economic growth due to the wide variety of end uses for these applications. Typically, growth in these markets in Asia, Eastern Europe, and Latin America continues to be higher than worldwide economic growth, driven by regional growth in these emerging economies. The CASPI segment focuses on producing intermediate chemicals rather than finished products and developing long-term, strategic relationships to achieve preferred supplier status with its customers. In 2010, the CASPI segment had sales revenue of $1.6 billio n, 27 percent of Eastman's total sales.

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The profitability of the CASPI segment is sensitive to the global economy, market trends, broader chemical cycles, particularly the olefins cycle, and foreign currency exchange rates. The CASPI segment's specialty products, which include cellulose-based specialty polymers, coalescents, and selected hydrocarbon resins, are less sensitive to the olefins cycle due to their functional performance attributes. The segment’s commodity products, which include commodity solvents and base resins, are more impacted by the olefins cycle as discussed under "Manufacturing Streams." The Company seeks to leverage its proprietary technologies, competitive cost structure, and integrated manufacturing facilities to maintain a strong competitive position throughout such cycles.

·

Products

Ø Polymers

The polymers product line consists of cellulose-based specialty polymers and olefin-based performance products. Eastman's cellulose-based specialty polymers enhance the aesthetic appeal and improve the performance of industrial and transportation coatings and inks. Olefin-based products are used as base polymers in hot-melt adhesives, paper laminating, sealants, and pressure sensitive adhesives. They are also used as elastomer extenders in sealants and waterproofing compounds for wire and cable flooding applications. The polymers product line also includes chlorinated polyolefins which promote the adherence of paints and coatings to plastic substrates. Polymers accounted for approximately 20 percent of the CASPI segment's total sales for 2010.

Ø Resins

The resins product line consists of hydrocarbon resins, rosin resins, and resin dispersions. These products are sold primarily to adhesive formulators and consumer product companies for use as raw materials essential in hot-melt and pressure sensitive adhesives and as binders in nonwoven products such as disposable diapers, feminine products, and pre-saturated wipes. Eastman offers a broad product portfolio of essential ingredients for the adhesives industry, and ranks as the second largest global tackifier supplier. In addition, Eastman is one of the largest manufacturers of hydrogenated gum rosins used in chewing gum applications. Eastman resins are also used in a wide range of applications including plastics and rubber modification and inks. Resins accounted for approximately 35 percent of the CASPI segment's total sales for 2010.

Ø Solvents

The solvents product line includes both specialty coalescents and ketones and commodity esters, glycol ethers, and alcohol solvents. Coalescents include products such as TexanolTM ester alcohol and Eastman OptifilmTM Enhancer 300 and 400, which improve film formation and durability in architectural latex paints. Ketones are used in high solids low volatile organic compound ("VOC") coatings applications. Commodity solvents, which consist of esters, glycol ethers, and alcohol solvents, are used in both paints and inks to maintain the formulation in liquid form for ease of application. Solvents accounted for approximately 45 percent of the CASPI segment's total sales for 2010.

·	Strategy and Innovation

A key element of the CASPI segment's growth strategy is the continued development of innovative product offerings, building on proprietary technologies in high-growth markets and regions to meet customers' evolving needs and improve the quality and performance of customers' end products. Management believes that its ability to leverage the CASPI segment's broad product line and Eastman's R&D capabilities make the segment uniquely capable of offering a broad array of solutions for new and emerging markets.

The Company intends to continue to leverage its resources to strengthen the CASPI segment's product innovation and product enhancement pipeline by meeting market needs and the expanded use of proprietary products and technologies. Although the CASPI segment's sales and application development are often specialized by end-use markets, developments in technology can often be successfully shared across multiple end-uses and markets.

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The Company's global manufacturing presence is a key element of the CASPI segment's growth strategy. For example, the segment is well positioned to capitalize on expected high industrial growth in China and other parts of Asia from its facilities in Singapore and near Shanghai and joint venture operations in China. The Company is committed to maintaining reliability of supply of the CASPI segment products to our strategic customers to allow Eastman to be the supplier of choice. The segment is meeting growing demand for specialty hydrocarbon resins with an additional 20 percent expansion of hydrogenated hydrocarbon resins manufacturing capacity in Middelburg, the Netherlands which is expected to be completed in the second half of 2011; an additional 10 percent debottleneck of the hydrogenated hyd rocarbon facility in Longview, Texas, which is expected to be operational in the first half of 2011; and a 40 percent expansion of the pure monomer / hydrogenated resins capacity in Jefferson, Pennsylvania, which is expected to be operational in 2012.

·	Customers and Markets

As a result of the variety of end uses for its products, the customer base for the CASPI segment is broad and diverse. This segment has approximately 770 customers around the world, while 80 percent of its sales revenue in 2010 was attributable to approximately 90 customers. The CASPI segment focuses on establishing long-term, customer service-oriented relationships with its strategic customers in order to become their preferred supplier and to leverage these relationships to pursue sales opportunities in previously underserved markets and to expand the scope of its value-added services. Growth in the U.S., Canadian, and European markets typically coincides with economic growth in general, due to the wide variety of end uses for these applications and their dependence on the economic conditions of the markets for pac kaged goods, transportation, durable goods, and housing.

The current regulatory environment, particularly in the U.S., Canada, and Europe, provides both market challenges and opportunities for the CASPI segment. Environmental regulations that impose limits on the emission of VOCs and hazardous air pollutants ("HAPs") continue to impact coatings formulations requiring compliant coatings raw materials. These regulations are in addition to the consumer market trend toward sustainability. The coatings industry is responding by promoting products and technologies designed to enable customers and end users to reduce air emissions of VOCs and HAPs in compliance with applicable regulations. A variety of Eastman's CASPI segment products are used in these coatings. Additional products are currently being developed to meet the growing demand for low VOC co atings, including the recently introduced SolusTM family of products.

·	Competition

Competition within the CASPI segment's markets varies widely depending on the specific product or product group. The Company's major competitors in the CASPI segment's markets include larger companies such as BASF SE ("BASF"), The Dow Chemical Company ("Dow"), and Exxon Mobil Corporation, which may commit greater financial and other resources to products in markets in which the CASPI segment competes than Eastman. Additionally, within each CASPI segment product market, the Company competes with other smaller, regionally focused companies that may have advantages based upon location, local market knowledge, manufacturing strength in a specific product, or other similar factors. However, Eastman does not believe that any of its competitors has the breadth of product offerings that Eastman is able to offer it s CASPI segment customers. The Company believes its competitive advantages include its level of vertical integration; breadth of product offerings, service, and technology offerings; low-cost manufacturing position; consistent product quality; security of supply; and process and market knowledge. The CASPI segment principally competes on breadth of products and through leveraging its strong customer base and long-standing customer relationships to promote substantial recurring business and product development.

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FIBERS SEGMENT

·

Overview

In the Fibers segment, Eastman manufactures and sells EstronTM acetate tow and EstrobondTM triacetin plasticizers for use primarily in the manufacture of cigarette filters; EstronTM natural and ChromspunTM solution-dyed acetate yarns for use in apparel, home furnishings and industrial fabrics; 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 ea rly 1950s. The Company is the world's largest producer of acetate yarn and has been in this business for over 75 years. The Fibers segment's manufacturing operations are primarily located at the Kingsport, Tennessee site, and also include smaller acetate tow production plants in Workington, England and Ulsan, South Korea. Eastman has recently increased its acetate tow capacity with the expansion of the Workington plant in 2008 and the start up of the Korean facility during 2010. In 2010, the Fibers segment had sales revenue of $1.1 billion, 19 percent of Eastman's total sales. The Fibers segment remains a strong and stable cash generator for the Company.

The Company's long history and experience in the 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 mutually beneficial, long-term customer relationships.

The Company's fully integrated fiber manufacturing processes from coal-based acetyl raw materials through acetate tow and yarn provide a competitive advantage over companies whose processes are dependent on petrochemicals. In addition, the Fibers segment 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. Management believes that these factors combine to make Eastman an industry leader in reliability of supply and cost position. In addition to the cost advantage of being coal-based, the Fibers segment's competitive strengths include a reputation for high-quality products, technical expertise, large scale vertically-integrated processes, reliability of supply, acetate flake supply in excess of internal needs, a reput ation for customer service excellence, and a customer base characterized by long-term customer relationships. The Company intends to continue to capitalize and build on these strengths to improve the strategic position of its Fibers segment.

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

·

Products

Ø Acetate Tow

Eastman manufactures acetate tow under the EstronTM trademark according to a wide variety of customer specifications, primarily for use in the manufacture of cigarette filters. Acetate tow is the largest sales product of the Fibers segment. Worldwide demand for acetate tow is expected to increase by one to two percent per year over the next several years. Demand growth within Asia, mostly China, one of the largest and fastest growing markets, primarily influences this expected global increase.

	Ø Acetate Yarn
	The Company manufactures acetate filament yarn under the EstronTM and ChromspunTM trademarks in a wide variety of specifications. EstronTM acetate yarn is available in bright and dull luster and is suitable for subsequent dyeing in the fabric form. ChromspunTM acetate yarn is solution-dyed in the manufacturing process and is available in more than 100 colors.

Ø Acetyl Chemical Products

The Fibers segment's acetyl chemical products are sold primarily to other acetate fiber market producers and include cellulose diacetate flake, acetic acid, and acetic anhydride. Each is used as a raw material for the production of cellulose acetate fibers. The Fibers segment also markets acetyl-based triacetin plasticizers under the EstrobondTM trademark, generally for use by cigarette manufacturers as a bonding agent in cigarette filters.

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·	Strategy and Innovation

Ø

Growth

In the Fibers segment, Eastman is leveraging its strong customer relationships and knowledge of the industry to identify growth options. These growth options are enabled by its excess acetate flake capacity at the Kingsport, Tennessee site. In 2008, Eastman expanded its Workington, England plant to support customer demand in the region. In 2010 production began at a new acetate tow facility in Ulsan, South Korea to support customer demand in Asia. With this new facility Eastman’s total global acetate tow capacity is approximately 210,000 metric tons. The Company continues to pursue growth opportunities, particularly in the Asia Pacific region.

Ø	Continue to Capitalize on Fibers Technology Expertise

The Fibers segment intends to continue to make 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 improving the segment's manufacturing process efficiencies.

Ø	Maintain Cost-Effective Operations and Consistent Cash Flows and Earnings

The Fibers segment intends to continue to operate in a cost effective manner, capitalizing on its technology, scale and vertical integration, and to make further productivity and efficiency improvements through continued investments in R&D.

Ø	Research and Development

The Company's Fibers segment R&D efforts focus on process and product improvements, as well as cost reduction, with the objectives of increasing sales and reducing costs. The Fibers segment also conducts research to assist acetate tow customers in the effective use of the segment's products and in the customers' product development efforts.

·Customers and Markets

The customer base in the Fibers segment is relatively concentrated, consisting of approximately 150 customers in the tobacco, textile, and acetate fibers industries. Eastman's Fibers segment customers are located in all regions of the world. The largest 17 customers within the Fibers segment include multinational as well as regional cigarette producers, fabric manufacturers, and other acetate fiber producers. These top 17 customers accounted for about 80 percent of the segment's total sales revenue in 2010. Sales prices for a significant portion of the Fibers segment's products are typically negotiated on an annual basis. The segment maintains a strong position in acetate tow exports to China.

·Competition

Eastman is the second largest acetate tow manufacturer in the world. Competitors in the fibers market for acetate tow include Celanese Corporation ("Celanese"), Daicel Chemical Industries Ltd ("Daicel"), Mitsubishi Rayon Co., Ltd. ("Mitsubishi Rayon"), and Rhodia S.A.

In the segment's acetate yarn business, major competitors include Industrias del Acetato de Celulosa S.A. ("INACSA"), UAB Korelita, and Mitsubishi Rayon. Eastman is the world leader in acetate yarn production and the only acetate yarn producer in the U.S. and Canada. The physical properties of acetate yarn make it desirable for use in textile products such as suit linings, women's apparel, medical tape, drapery, ribbons and other specialty fabrics. However, over the past 20 years, demand for acetate yarn has been adversely affected by the substitution of lower cost polyester and rayon yarns. Accordingly, worldwide demand for acetate yarn is expected to continue to decrease as mills substitute these cheaper yarns for acetate yarn. Eastman, however, remains uniquely positioned because i t is the only integrated producer of acetate yarn.

As described above under "Fibers Segment – Overview", the principal methods of competition include maintaining the Company's large-scale vertically integrated manufacturing process from coal-based acetyl raw materials, reliability of supply, product quality, and sustaining long-term customer relationships.

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PCI SEGMENT

·

Overview

The PCI segment leverages large scale and vertical integration from the acetyl and olefins streams to manufacture diversified products that are sold externally as well as used internally for other segments of the company. The PCI segment has leading market positions in many of its core products and believes it is well-positioned in key markets for most of its major products, including both acetyl products and olefin derivatives, due to its competitive cost position and supply reliability versus competitors. In 2010 the PCI segment had sales revenue of $2.1 billion, 36 percent of the Company's total sales.

The segment's competitive cost position is primarily due to lower cost raw materials, such as coal which is used in the production of acetyl stream products and olefins which are used in the production of olefin derivative products. To further improve its competitive cost position over purchasing olefins in the North American market, the Company restarted a previously idled cracking unit at the Longview, Texas facility in 2010. This restart was prompted by a favorable shift in market conditions for olefin raw materials that is expected to continue over the next several years. The Company has three operating cracking units, including the unit restarted in 2010. The Company will continue to evaluate changes in raw materials costs along with olefin derivative volume demand to determine the best use for these assets. Some of the segment's products are affected by the olefins cycle. See "Corporate Overview – Manufacturing Streams" earlier in this "Part I – Item 1. Business." This cyclicality is caused by periods of supply and demand imbalance, either when incremental capacity additions are not offset by corresponding increases in demand, or when demand exceeds existing supply. Demand, in turn, is based on general economic conditions, raw material and energy costs, and other factors beyond the Company's control. While the segment has taken steps to reduce the impact of the trough of the olefins cycle, future PCI segment results are expected to continue to fluctuate from period to period due to these changing economic conditions. Approximately 70 percent of the segment’s olefin derivatives are made from propylene.

·Products

The PCI segment offers over 195 products that include intermediates based on oxo and acetyl chemistries and performance chemicals. The PCI segment's 2010 sales revenue was approximately 65 percent from olefin-based and 20 percent from acetyl-based chemistries, and 15 percent from other chemicals. Approximately 65 percent of the PCI segment's sales revenue is generated in the U.S. and Canada, a region in which the Company has a leading market share position for most of its key oxo and acetyl products. Sales in all regions are generated through a mix of the Company's direct sales force and a network of distributors. The Company's PCI segment is the largest marketer of acetic anhydride in the United States, an intermediate that is a critical component of analgesics, laundry care products, and nutri tional supplements, and is the only U.S. producer of acetaldehyde, a key intermediate in the production of agricultural and other specialty products. Eastman believes that it manufactures one of the world's broadest ranges of products derived from oxo aldehydes and holds a leading North American market position in the majority of these products. The PCI segment's other intermediate products include glycols and polymer intermediates. Many of the intermediates products in the PCI segment are priced based on supply and demand of substitute and competing products. In order to maintain a competitive position, the Company strives to operate with a low cost manufacturing base.

The PCI segment also manufactures performance chemicals and complex organic molecules such as plasticizers, diketene derivatives, specialty ketones, and specialty anhydrides for medical, pharmaceutical, fiber, and food and beverage ingredients, which are typically used in specialty market applications. The acquisition of Genovique Specialties Corporation ("Genovique") added new plasticizers to the Company's existing portfolio, and Eastman believes it has the broadest product line of non-phthalate plasticizers in the world. The PCI segment’s specialty products are typically priced based on value added rather than supply and demand factors.

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·Strategy and Innovation

To build on and maintain its status as a low cost producer, the PCI segment continuously focuses on cost control, operational efficiency, and capacity utilization to maximize earnings. Through the PCI segment, the Company maximizes the advantage of its highly integrated and world-scale manufacturing facilities. For example, the Kingsport, Tennessee manufacturing facility allows the PCI segment to produce acetic anhydride and other acetyl derivatives from coal rather than natural gas or other petroleum feedstocks. At the Longview, Texas manufacturing facility, Eastman's PCI segment uses its proprietary oxo-technology in the world's largest single-site, oxo aldehyde manufacturing facility to produce a wide range of alcohols, esters, and other derivative products utilizing local propane and ethane supplies, a s well as purchased propylene. These integrated facilities, combined with large scale production processes and a continuous focus on additional process improvements, allow the PCI segment to remain cost competitive with, and for some products cost-advantaged over, its competitors.

The PCI segment selectively focuses on continuing to develop and access markets with high-growth potential for the Company's chemicals. One such market is for flexible plastic products used in sensitive applications such as toys, child care articles, medical packaging and devices, and food contact. Eastman 168TM plasticizer and Genovique specialty plasticizers provide effective, sustainable alternatives to ortho-phthalate plasticizers traditionally used in these and other applications. These plasticizers allow manufacturers to meet the challenging requirements of changing government regulations and consumer preferences without sacrificing production efficiency or product performance. The acquisition of Genovique in 2010 added to the Company's portfolio of non-phthalate plasticizers that serve high growth markets.

The Company engages in R&D initiatives in order to develop new PCI products and find additional applications for existing products and to lower its costs. The Company is evaluating licensing opportunities for acetic acid and oxo derivatives on a selective basis, and has licensed technology to produce acetyl products to Saudi International Petrochemical Company ("SIPCHEM") in Saudi Arabia and to Chang Chun Petrochemical Company ("Chang Chun") in Taiwan in 2005 and 2007, respectively. All SIPCHEM licensing agreement revenue has been received, and the Company has the continuing right to purchase the acetic anhydride from the SIPCHEM manufacturing facility. The Chang Chun manufacturing plant is expected to be operational in the second half of 2011.

·	Customers and Markets

The PCI segment's products are used in a variety of markets and end uses, including agriculture, transportation, beverages, nutrition, pharmaceuticals, coatings, flooring, medical devices, toys, adhesives, sealants, household products, polymers, textiles, and industrials. Because of its cost position, reliability, and service, the Company has been able to establish and maintain long-term arrangements and relationships with PCI customers. Product-specific olefin derivative market conditions vary based upon prevailing supply and demand conditions. An important trend for the PCI segment's business is a tendency toward regionalization of key markets due to increased transportation costs and local supply in developing regions from new capacities. The PCI segment benefits from this trend primarily in the U.S. and Canada. The anhydride purchased from the new SIPCHEM facility will give increased access to the Asian market for PCI products. Additionally, the PCI segment is engaged in continuous efforts to optimize product and customer mix. Approximately 80 percent of the PCI segment's sales revenue in 2010 was from 135 of approximately 1,100 customers worldwide.

·	Competition

Historically, there have been significant barriers to entry for potential competitors in the PCI segment's major product lines, including acetic acid and acetic anhydride, primarily due to the relevant technology having been held by a small number of companies. As this technology has become more readily available, competition from multinational chemical manufacturers has intensified. Eastman competes with these and other producers primarily based on price, as products are generally interchangeable, but also on technology, marketing, and services. Eastman's major competitors in this segment include large, multinational companies such as BASF, Celanese, Dow, and Exxon Mobil Corporation.

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SPECIALTY PLASTICS SEGMENT

·

Overview

In the Specialty Plastics segment, the Company produces and markets specialized copolyesters and cellulosic plastics that possess differentiated performance properties for value-added end uses. In 2010, the Specialty Plastics segment had sales revenue of $1.0 billion, approximately 18 percent of Eastman's total sales.

Eastman has the ability within its Specialty Plastics segment to modify its polymers and plastics to control and customize their final properties, creating numerous opportunities for new application development, including the expertise to develop new materials and new applications starting from the molecular level in the research laboratory to the final designed application. Recent industry trends in various markets have renewed customers' interest in some of the unique attributes offered by Eastman materials. Such trends include, but are not limited to, interest in plastics that have superior chemical and mechanical properties to withstand increasing demands in specific applications, as well as halogen-free and bisphenol A ("BPA")-free plastics. The addition of the Eastman Tritan™ family of products significantly enhances the segment's ability to customize copolyesters and cellulosic plastics for new markets and applications. In addition, the Specialty Plastics segment has a long history of manufacturing excellence with strong process improvement programs providing continuing cost reduction.

·Products

The Specialty Plastics segment consists of two primary product lines: specialty copolyesters and cellulosics. Eastman estimates that the market growth for copolyesters will continue to be higher than general domestic economic growth due to ongoing specialty copolyester material innovations and displacement opportunities. Eastman believes that cellulosic materials will grow at or above the rate of the domestic economy in general, driven by strong demand in the LCD market, and increased demand for cellulosics driven by the sustainability profile of these bio-derived materials and their performance as engineered thermoplastics. For both specialty copolyesters and cellulosic plastics, the Specialty Plastics segment benefits from integration into the Company's polyester and acetyls streams. The Speci alty Plastics segment's specialty copolyesters are currently produced in Kingsport, Tennessee; Columbia, South Carolina; and Kuantan, Malaysia. The cellulosic products are produced in Kingsport, Tennessee.

Ø	Specialty Copolyesters

Eastman's specialty copolyesters accounted for approximately 80 percent of the Specialty Plastics segment's 2010 sales revenue. Eastman's specialty copolyesters, which generally are based on Eastman's production of CHDM, typically fill a market position between polycarbonates and acrylics. Polycarbonates traditionally have offered some superior performance characteristics, while acrylics have been less expensive. Specialty copolyesters combine superior performance with competitive pricing and are being substituted for both polycarbonates and acrylics in some applications.

The Specialty Plastics segment continues to develop new applications for its core copolyesters to meet growing demand for more environmentally-friendly and sustainable copolyester products. Additionally, the segment has had significant growth in sales of copolyesters for clear handleware applications, where Eastman's materials offer a unique merchandising solution. By broadening its Embrace™ family of products, Eastman has continued to have growth in sales of shrink packaging. The family of shrink packaging offerings has made Eastman the leading provider of resins for full-body shrink labels. Eastman's newest copolyester, Tritan™, enables the Company to move to higher value applications by adding high temperature resistance to the other properties of copolyesters, including tou ghness, chemical resistance, and excellent processability.

Ø	Cellulosic Plastics

Cellulosics and cellulosic plastics accounted for approximately 20 percent of the Specialty Plastics segment's 2010 sales revenue. Market demand for Eastman’s family of cellulosic polymers, VisualizeTM cellulosics, for the LCD market continues to be strong. Through the development of new formulations and applications, Eastman's LCD product line has continued to benefit from demand growth in the LCD market. Eastman’s proprietary Visualize™ line of products are known for their superior optical properties and are the preferred choice for certain film structures in LCD polarizers.

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Eastman cellulosic plastics, sold under the Tenite™ brand, are known for their excellent balance of properties, including toughness, hardness, strength, surface gloss, clarity, chemical resistance, and warmth to the touch. During 2010, Eastman entered into a joint venture with Mazzucchelli 1949 SPA in Shenzhen, China, which is expected to expand Eastman's portfolio of cellulosic plastics. The joint venture will produce compounded cellulose acetate pellets, mostly used in the production of high design injection molded articles such as ophthalmic frames or tool handles. The Mazzucchelli joint venture facility is expected to be operational by second quarter 2011.

·	Strategy and Innovation

Through Eastman's advantaged asset position and applications development innovation efforts, the segment has increased specialty copolyesters sales volume to twice U.S. gross domestic product growth over the past five years. During 2010, Eastman significantly increased its share in the shrink film market by developing new applications for its products that now include the Embrace™ family of products. The trend of influencing the purchasing decision with product design has also benefited Eastman's clear handleware solutions for large containers. Additionally, increased demand for BPA-free products has created new opportunities for various applications of legacy copolyesters.

The LCD market is a developing growth market for the Specialty Plastics segment. The Company continues to invest in the development of copolyester and cellulosic-based product solutions for this high-growth market, with the objective of being a strategic raw material supplier in the LCD market. The Company's 70 percent expansion of its Kingsport, Tennessee cellulose triacetate manufacturing capacity is expected to be operational in first quarter 2012.

The addition of Tritan™ copolyester to Eastman's Specialty Plastics product offering has created new opportunities for applications previously occupied by materials such as polycarbonate or polysulfone. During 2010, Eastman gained market acceptance for Tritan™ in certain applications such as water bottles and other consumer houseware applications through OEMs and brand owners. During 2009, Eastman completed the construction of a new monomer facility and a new polymer facility. Both were operational in first quarter 2010. The monomer facility produces a proprietary monomer required in the production of Tritan™ copolyester while the polymer facility is capable of producing 30,000 metric tons of Tritan™ polymer. Given the anticipated successful market acceptance o f Tritan™ copolyester and the projected rapid demand growth, the monomer facility was designed to be capable of supplying a second Tritan™ copolyester manufacturing facility of 30,000 metric tons per year. Based on the 2010 demand, the Company is expanding to a second full scale Tritan™ copolyester manufacturing facility which is expected to be operational in early 2012.

The Company is also expanding its capacity for CHDM, a monomer used in the manufacture of copolyester, by approximately 25 percent and expects the capacity to be operational in two phases in mid-2011 and in 2012.

The Specialty Plastics segment is focused on providing consistent profit margins and the Company continues to leverage the advantages of being an integrated polyester manufacturer and expects to continue to pursue opportunities within the integrated polyester stream. The Company is utilizing rationalized PET assets to reduce Specialty Plastics copolyester conversion costs and expand production with larger scale assets.

·	Customers and Markets

The customer base in the Specialty Plastics segment is broad and diverse, consisting of approximately 690 customers worldwide in a variety of industries. Approximately 80 percent of the Specialty Plastics segment's 2010 sales revenue was attributable to approximately 70 customers. The Specialty Plastics segment seeks to develop mutually beneficial relationships with its customers throughout various stages of product life cycles. By doing so, it is better able to understand its customers' needs as those customers develop new products and more effectively bring new solutions to market.

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Specialty copolyesters are sold into a wide range of markets and applications including specialty packaging (medical and electronic component trays, shrink label films, general purpose packaging, and multilayer films); in-store fixtures and displays (point of purchase displays including indoor sign and store fixtures); consumer and durable goods (appliances, housewares, toys, and sporting goods); medical goods (disposable medical devices, health care equipment and instruments, and pharmaceutical packaging); personal care and consumer packaging (food and beverage packaging and consumer packaging); photographic film, optical film, fibers/nonwovens, tapes/labels, and LCD. The Tritan™ family of products is being sold into a range of markets including, but not limited to, consumer housewares, bulk water, infant care, small app liances and other consumer durables segments. Additional applications and markets are currently under development.

·	Competition

The segment principally competes by leveraging price and product performance in specific applications. Customer product selection is typically determined on an application-by-application basis and often by OEMs rather than by resin converters. New market opportunities are coming from substitution of plastic for other materials, and displacement of other plastic resins in existing applications. While historically the Specialty Plastics segment's ability to compete was very closely tied to supply-demand balances of competing plastics, the addition of Tritan™, a material based on Eastman proprietary technology, opens new market opportunities in which Eastman expects to leverage the unique combination of properties of the new family of products. In certain cases, the Company believes that Trit an™ offers a unique solution by bringing properties similar to polycarbonate without containing any BPA. In food applications, the fact that copolyesters are both BPA and halogen-free makes them an attractive alternative to materials such as polycarbonate and other plastics, respectively. In addition, the combination of excellent clarity and superior processability allows for the production of unique and attractive packaging that allows brand owners to differentiate themselves on the retail shelf. Examples of such applications include, but are not limited to, shrink film made from Eastman's Embrace™ copolyester family of products, as well as clear handleware containers produced from Eastman copolyesters.

The Specialty Plastics segment believes that it maintains competitive advantages throughout the product life cycle. At product introduction, the segment's breadth of offerings combined with its R&D capabilities and customer service orientation enable it to quickly bring a wide variety of products to market. As products enter the growth phase of the life cycle, the Specialty Plastics segment is able to continue to leverage its product breadth by generating sales revenue from multiple sources, as well as retaining customers from long-term relationships. As products become more price sensitive, the Specialty Plastics segment can take advantage of Eastman's scale of operations, including conversion of rationalized PET assets and vertical integration, to maintain a superior product conversion cost position.

In recent years, the industry has been confronted by unprecedented raw material cost volatility. While raw material cost volatility is expected to continue into the future, Eastman believes that it maintains a competitive advantage from diversification of its raw materials base by using both coal for cellulosics and petrochemical-based feedstocks for copolyesters.

Eastman's primary competitors for copolyester products include Bayer AG, Dow, Evonvik Industries, Saudi Basic Industries Corporation ("SABIC"), and SK Chemical Industries. Competition for cellulosic plastics is primarily from other producers of cellulose ester polymers such as Acetati SpA and Daicel.

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REGIONAL BUSINESS OVERVIEW

Eastman operates as a global business with approximately 50 percent of its sales and 60 percent of its operating earnings, excluding asset impairments and restructuring charges, generated from outside the United States and Canada region in 2010. As the Company focuses on growth in emerging markets, the percentage of sales and earnings from outside the United States and Canada are expected to increase. While manufacturing is centered in the U.S., the Company is able to transport products globally to meet demand. In 2010, all regions were positively affected by the recovery from the global recession, but the degree of the impact on the various regions was dependent on the mix of the Company's segments and products in each region. In 2010, the mix of regional revenue from the segments was as f ollows:

	CASPI	Fibers	PCI	Specialty Plastics	Total
United States and Canada	25 %	10 %	50 %	15 %	100 %
Asia Pacific	20 %	35 %	25 %	20 %	100 %
Europe, Middle East, and Africa	35 %	25 %	20 %	20 %	100 %
Latin America	35 %	20 %	35 %	10 %	100 %

The United States and Canada region contains the highest concentration of the Company's long-lived assets with approximately 90 percent located in the United States. Management believes that the location of these manufacturing facilities provides the Company with an advantaged cost position for the Company's domestic customers, particularly for commodity and bulk products. The PCI segment accounts for approximately half of the region's revenue, as the segment is well-positioned in this region's market for most of its major products, including acetic acid and acetic anhydride, although the region is subject to increased variability in revenues due to the effect of raw material and energy costs on this segment’s selling prices.

One-third of revenue in the Asia Pacific region is from acetate tow products in the Fibers segment. The region includes many emerging growth markets served by Eastman products, including specialty products in the CASPI segment and acetate tow in the Fibers segment, particularly in China. The Company is responding to this growth by strengthening its position through joint ventures and acquisitions such as the recent acquisition of an acetate tow manufacturing facility in Korea.

The Europe, Middle East, and Africa region has fewer sales from commodity product lines than any other region and therefore is less affected by economic conditions and prices are less dependent on raw material costs compared to other regions.

The Latin America region has significant sales from commodity product lines, particularly in the PCI and CASPI segments, and is therefore subject to increased volatility in sales volume and selling prices.

CORPORATE INITIATIVES

In addition to its business segments, the Company manages certain costs and initiatives 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 investment is committed to those projects. The Company continues to explore and invest in R&D initiatives that are aligned with macro trends in sustainability, consumerism, and energy efficiency through high performance materials, advanced cellulosics, environmentally-friendly chemistry, and process improvements, including an initiative in the building and construction market.

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DISCONTINUED OPERATIONS

The Company completed the sale of the PET business, related assets at the Columbia, South Carolina site, and technology of its Performance Polymers segment on January 31, 2011.The PET business, assets, and technology sold were substantially all of the Performance Polymers segment. Performance Polymers segment operating results are presented as discontinued operations for all periods presented and are therefore not included in results from continuing operations under GAAP. Corporate costs which were allocated to the Performance Polymers segment have been reallocated to the remaining segments in the Company's financial statements. The total cash proceeds of the transaction were $600 million, subject to post-closing adjustment for working capital. For further information, refer to Note 2, "Discontinued Operations and Assets Held for Sale", to the Company's consolidated financial statements in Part II, Item 8 of this Annual Report.

EASTMAN CHEMICAL COMPANY GENERAL INFORMATION

Sales, Marketing, and Distribution

The Company markets and sells products primarily through a global marketing and sales organization which has a presence in the United States and in over 35 other countries selling into approximately 100 countries around the world. Eastman has a marketing and sales strategy targeting industries and applications where Eastman products and services provide differentiated value. Market, customer, application, and technical expertise are critical capabilities. Through a highly skilled and specialized sales force that is capable of providing customized business solutions for each of its four operating segments, Eastman is able to establish long-term customer relationships and strives to become the preferred supplier of specialty chemicals and specialty plastics worldwide.

The Company's products are also marketed through indirect channels, which include distributors and contract representatives. Non-U.S. sales tend to be made more frequently through distributors and contract representatives than U.S. sales. 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 directly from Eastman's manufacturing plants, as well as from distribution centers worldwide.

Sources and Availability of Raw Material and Energy

Eastman purchases a substantial portion, estimated to be approximately 75 percent, of its key raw materials and energy through long-term contracts, generally of three to five 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, valued at quoted market prices, to mitigate the impact of short-term market price fluctuations. Key raw materials include propane, paraxylene, cellulose, ethylene glycol, coal, ethane, methanol, PTA, and a wide variety of precursors for specialty organic chemicals. Key purchased e nergy sources include natural gas, steam, 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 on-going performance assessment 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 developed contingency plans designed to minimize the impact of any supply disruptions from single source suppliers.

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, or due to domestic or world market and political 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 been in the past and may be in the future, at times, adversely affected by these factors. The Company's raw material and energy costs as a percent of total cost of operations were approximately 60 percent in 2010 and 2009 and 70 percent in 2008.

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Capital Expenditures

Capital expenditures were $243 million, $310 million, and $634 million in 2010, 2009, and 2008, respectively. Capital expenditures in 2009 decreased significantly compared to 2008 as the Company deferred discretionary spending on capital projects in response to a more challenging economic environment. Capital expenditures remained at a level sufficient for required maintenance and certain strategic growth initiatives through first nine months 2010. In fourth quarter 2010, the Company increased spending on discretionary infrastructure projects and certain strategic growth initiatives to $110 million for the quarter. The Company expects that 2011 capital spending will continue at the fourth quarter 2010 pace and will be approximately $450 million. The Company's capital spending in 2011 will focus on o rganic growth initiatives, particularly in the Specialty Plastics, CASPI, and PCI segments.

Employees

Eastman employs approximately 10,000 men and women worldwide. Approximately four percent of the total worldwide labor force is represented by unions, 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 70 percent of the Company's 2010 sales revenue.

Intellectual Property and Trademarks

While the Company's intellectual property portfolio is an important Company asset which it expands and vigorously protects globally through a combination of patents that expire at various times, trademarks, copyrights, and trade secrets, neither its business as a whole nor any particular segment is materially dependent upon any one particular patent, trademark, copyright, or trade secret. As a producer of a broad and diverse portfolio of both specialty and commodity chemicals, plastics, and fibers, Eastman owns over 550 active United States patents and more than 1,100 active foreign patents, expiring at various times over several years, and also owns over 2,400 active worldwide trademark applications and registrations. The Company's intellectual property relates to a wide variety of products and processes. ;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.

The Company pursues opportunities to license proprietary technology to third parties in areas where it has determined competitive impact to core 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. To date, efforts have been focused on acetyls technology in the PCI segment. The Company also is actively pursuing licensing opportunities for oxo derivatives in the PCI segment.

Over 250 active United States patents and patent applications, more than 1,100 foreign patents applications, and approximately 100 active worldwide trademark applications and registrations were sold as part of the sale of the PET business, related assets at the Columbia, South Carolina site, and technology of the Performance Polymers segment.

Research and Development

For 2010, 2009, and 2008, Eastman's R&D expenses totaled $152 million, $124 million, and $143 million, respectively.

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Environmental

Eastman 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 a manner that 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 the technology available. In some cases, applicable environmental regulations such as those adopted under the U.S. Clean Air Act and Resource Conservation and Recovery Act, and related actions of regulatory agencies, determine the timing and amount of environmental costs incurred by the Company. Likewise, when finalized, potential legislation related to greenhouse gas emissions, energy policy, and associated implementing regulations could impact the timing and amount of environmental costs incu rred by the Company.

The Company accrues environmental costs when it is probable that the Company has incurred a liability 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 data exists. With respect to a contaminated site, the amount accrued reflects the Company's assumptions about remedial requirements at the 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.

The Company's cash expenditures related to environmental protection and improvement were estimated to be $200 million, $173 million, and $218 million, in 2010, 2009, and 2008, respectively. These amounts were primarily for operating costs associated with environmental protection equipment and facilities, but also included expenditures for construction and development. Other than potential capital expenditures at the Company's Kingsport, Tennessee facility related to regulations associated with controlling air emissions from boilers, the Company does not expect future environmental capital expenditures arising from requirements of recently promulgated environmental laws and regulations to materially increase the Company's planned level of annual capital expenditures for environmental control facilities. Pot ential capital expenditures associated with boiler air emissions remain uncertain pending adoption of final regulations, but could increase average annual environmental capital expenditures significantly over the next five years compared to recent historical levels depending on final regulation requirements and the Company's method of addressing those requirements.

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 Notes 1, "Significant Accounting Policies", 15, "Environmental Matters", and 25, "Reserve Rollfowards" to the Company's consolidated financial statements in Part II, Item 8 of this Annual Report.

Backlog

On January 1, 2011 and 2010, Eastman's backlog of firm sales orders represented less than 10 percent of the Company's total consolidated revenue for the previous 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.

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Financial Information About Geographic Areas

For sales revenue and long-lived assets by geographic areas, see Note 23, "Segment Information", to the Company's consolidated financial statements in Part II, Item 8 of this Annual Report. For information about regional sales and earnings, see "Regional Business Overview" above in this "Business" section of this Annual Report.

Available Information – SEC Filings

The Company makes available free of charge, through 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 Securities and Exchange Commission (the "SEC").

ITEM 1A. RISK FACTORS

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

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

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EXECUTIVE OFFICERS OF THE COMPANY

Certain information about the Company's executive officers is provided below:

James P. Rogers, age 59, is Chairman of the Board and Chief Executive Officer of Eastman Chemical Company. He served as President and Chief Executive Officer from May 2009 until January 2011. Mr. Rogers was appointed Executive Vice President of the Company and President of Eastman Division effective November 2003. Mr. Rogers joined the Company in 1999 as Senior Vice President and Chief Financial Officer and in 2002 was also appointed Chief Operations Officer of Eastman Division. Mr. Rogers served previously as Executive Vice President and Chief Financial Officer of GAF Materials Corporation ("GAF"). He also served as Executive Vice President, Finance, of International Specialty Products, Inc., which was spun off from GAF in 1997.

Mark J. Costa, age 44, is Executive Vice President, Specialty Polymers, Coatings and Adhesives, and Chief Marketing Officer. Mr. Costa joined the Company in June 2006 as Senior Vice President, Corporate Strategy & Marketing and was appointed Executive Vice President, Polymers Business Group Head and Chief Marketing Officer in August 2008. Prior to joining Eastman, Mr. Costa was a senior partner within Monitor Group's integrated North American and global client service networks. 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, including specialty and commodity chemicals, electricity, natural gas and truck/auto m anufacturing. Mr. Costa was appointed to his current position in May 2009.

Ronald C. Lindsay, age 52, is Executive Vice President, Performance Chemicals and Intermediates and Operations Support. He joined Eastman in 1980 and held a number of positions in various manufacturing and business organizations. In 2003, Mr. Lindsay was appointed Vice President and General Manager of Intermediates, in 2005 became Vice President, Performance Chemicals and Intermediates, in 2006 was appointed Senior Vice President and Chief Technology Officer, in 2008 was appointed Senior Vice President, Corporate Strategy and Regional Leadership, and in May 2009 was appointed Executive Vice President, Performance Polymers and Chemical Intermediates. He was appointed to his current position in January 2011.

Michael H.K. Chung, age 57 is Senior Vice President and Chief International Ventures Officer. Mr. Chung joined Eastman in 1976, and since that time has held various management positions, primarily in the Company's chemicals and fibers businesses. He was appointed Vice President, Fibers International Business in 2006 and in 2009, he was appointed Vice President and Managing Director, Asia Pacific Region. Mr. Chung was appointed to his current position in January 2011.

Curtis E. Espeland, age 46, is Senior Vice President and Chief Financial Officer. Mr. Espeland joined Eastman in 1996, and has served in various financial management positions of increasing responsibility, including Vice President, Finance, Polymers; Vice President, Finance, Eastman Division; Vice President and Controller; Director of Corporate Planning and Forecasting; Director of Finance, Asia Pacific; and Director of Internal Auditing. 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 in September 2008.

Richard L. Johnson, age 61, is Senior Vice President, Fibers and Global Supply Chain. Prior to being named to this position, Mr. Johnson was Vice President and General Manager of Fibers. Mr. Johnson joined Eastman in 1971 and held numerous positions in environmental programs, operations and manufacturing until he became Superintendent of the Cellulose Esters Division in 1991. He was named Superintendent of the Acetate Tow Division in 1993, became Vice President and General Manager of Fibers in 1996, and Group Vice President of Fibers in 2002. Mr. Johnson was named Group Vice President of Performance Chemicals, Intermediates, and Fibers in 2006. Mr. Johnson was appointed to his current position in May 2009.

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Theresa K. Lee, age 58, is Senior Vice President, Chief Legal and Administrative Officer. Ms. Lee joined Eastman as a staff attorney in 1987, and has served in various legal management positions of increasing responsibility, including Assistant General Counsel for the health, safety, and environmental legal staff, Assistant General Counsel for the corporate legal staff, and Vice President, Associate General Counsel and Secretary. She became Vice President, General Counsel, and Corporate Secretary of Eastman in 2000, was appointed Senior Vice President, Chief Legal Officer and Corporate Secretary in 2002, and was appointed to her current position in January 2011.

Godefroy A.F.E. Motte, age 52, is Senior Vice President, Chief Regional and Sustainability Officer. Since joining Eastman in 1985, Mr. Motte has held leadership positions in various organizations, including sales and manufacturing and in the Company's chemicals and polymers businesses. He was appointed Vice President for the Europe, Middle East, and Asia ("EMEA") region for the Chemicals Division in 2001 and for the EMEA Polymers Business Group in April 2006. Mr. Motte was appointed to his current position in January 2011.

Greg W. Nelson, age 48, is Senior Vice President and Chief Technology Officer. Dr. Nelson joined Eastman in 1988 in the Research and Development organization, and served in various positions in specialty plastics technology and business organizations, including business unit manager of polymer films and coatings. In 2001, Dr. Nelson was appointed Vice President, Technology, in 2006 became Vice President, Polymers Technology, and in 2007 Vice President, Corporate Technology until appointed to his current position in August 2008.

Scott V. King, age 42, is Vice President, Controller and Chief Accounting Officer. Since joining Eastman in 1999 as Manager, Corporate Consolidations and External Reporting, he has held various positions of increasing responsibility in the financial organization, and was appointed Vice President and Controller in August 2007. Prior to joining Eastman, Mr. King was an audit and business advisory manager with PricewaterhouseCoopers LLP. Mr. King was appointed to his current position in September 2008.

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ITEM 2. PROPERTIES

PROPERTIES

At December 31, 2010, Eastman operated sixteen manufacturing sites in nine countries. Utilization of these facilities 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 of the properties are owned. The locations and general character of the major manufacturing facilities are:

	Segment using manufacturing facility
Location	CASPI	Fibers	PCI	Specialty Plastics

USA
Chestertown, Maryland			x
Columbia, South Carolina (1)				x
Franklin, Virginia (2)	x
Jefferson, Pennsylvania	x
Kingsport, Tennessee	x	x	x	x
Longview, Texas	x		x	x
Europe
Workington, England		x
Middelburg, the Netherlands	x
Kohtla-Järve, Estonia			x
Asia Pacific
Jurong Island, Singapore (2)	x		x
Kuantan, Malaysia (2)				x
Tong Xiang, China	x
Ulsan, Korea		x
Wuhan, China (3)			x
Zibo City, China (4)	x		x
Latin America
Uruapan, Mexico	x

(1)	Nearly all of the manufacturing facility is included in assets held for sale at December 31, 2010 as a result of the first quarter 2011 divestiture of the Company's PET business and related assets. A portion has been retained subsequent to the sale.

(2)	Indicates a location that Eastman leases from a third party.

(3)	Eastman holds a 51 percent share in the joint venture Genovique Specialties Wuhan Youji Chemical Co., Ltd.

(4)	Eastman holds a 51 percent share in the joint venture Qilu Eastman Specialty Chemical Ltd.

Eastman has a 50 percent interest in Primester, a joint venture that manufactures cellulose acetate at Eastman's Kingsport, Tennessee plant. The production of cellulose acetate is an intermediate step in the manufacture of acetate tow and other cellulose acetate based products. The Company also has a 50 percent interest in a joint venture that has a manufacturing facility in Nanjing, China. The Nanjing facility produces EastotacTM hydrocarbon tackifying resins for pressure-sensitive adhesives, caulks, and sealants. EastotacTM hydrocarbon resins are also used to produce hot melt adhesives for packaging applications in addition to glue sticks , tapes, labels, and other adhesive applications. In November 2010, the Company entered into a joint venture with 50 percent interest for the manufacture of compounded cellulose diacetate ("CDA") in Shenzhen, China. CDA is a bio-derived material, which is used in various injection molded applications, including but not limited to ophthalmic frames, tool handles and other end use products.

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Eastman has distribution facilities at all of its plant sites. In addition, the Company owns or leases approximately 85 stand-alone distribution facilities in the United States and 16 other countries. Corporate headquarters are in Kingsport, Tennessee. The Company's regional headquarters are in Miami, Florida; Capelle aan den Ijssel, the Netherlands; Zug, Switzerland; Singapore; and Kingsport, Tennessee. Technical service is provided to the Company's customers from technical service centers in Kingsport, Tennessee; Kirkby, England; Shanghai, China; and Singapore. Customer service centers are located in Kingsport, Tennessee; Capelle aan den Ijssel, the Netherlands; Miami, Florida; and Singapore.

A summary of properties, classified by type, is included in Note 5, "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, the Company and its operations are parties to, or targets of, lawsuits, claims, investigations and proceedings, including product liability, personal injury, asbestos, patent and intellectual property, commercial, contract, environmental, antitrust, health and safety, and employment matters, which are being handled and defended in the ordinary course of business. While the Company is unable to predict the outcome of these matters, it does not believe, based upon currently available facts, that the ultimate resolution of any such pending matters will have a material adverse effect on its overall financial condition, results of operations, or cash flows. However, adverse developments could negatively impact earnings or cash flows in a particular future period.

Jefferson (Pennsylvania) Environmental Proceeding

In December 2005, Eastman Chemical Resins, Inc., a wholly-owned subsidiary of the Company (the "ECR Subsidiary"), received a Notice of Violation ("NOV") from the United States Environmental Protection Agency's Region III Office ("EPA") alleging that the ECR Subsidiary's West Elizabeth, Jefferson Borough, Allegheny County, Pennsylvania manufacturing operation violated certain federally enforceable local air quality regulations and certain provisions in a number of air quality-related permits. In October 2006, the EPA referred the matter to the United States Department of Justice's Environmental Enforcement Section ("DOJ"). Company representatives have met with the EPA and DOJ on a number of occasions since the NOV's issuance and have determined that it is not reasonably likely that any civil penalty assessed by the EP A and DOJ will be less than $100,000. While the Company intends to vigorously defend against these allegations, this disclosure is made pursuant to Securities and Exchange Commission Regulation S-K, Item 103, Instruction 5.C., which requires disclosure of administrative proceedings commenced under environmental laws that involve governmental authorities as parties and potential monetary sanctions in excess of $100,000. The Company believes that the ultimate resolution of this proceeding will not have a material impact on the Company's financial condition, results of operations, or cash flows.

28

PART II

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

(a) Eastman Chemical Company's ("Eastman" or the "Company") common stock is traded on the New York Stock Exchange ("NYSE") under the symbol "EMN". The following table presents the high and low sales prices of the common stock on the NYSE and the cash dividends per share declared by the Company's Board of Directors for each quarterly period of ~~2009~~2010 and ~~2008.~~2009.

										High		Low		Cash Dividends Declared
2010								First Quarter	$	64.67	$	55.87	$	0.44
								Second Quarter		71.95		53.25		0.44
								Third Quarter		74.85		51.10		0.44
			High		Low		Cash Dividends Declared	Fourth Quarter		84.57		73.63		0.47
2009	First Quarter	$	34.15	$	17.76	$	0.44	First Quarter	$	34.15	$	17.76	$	0.44
	Second Quarter		45.85		26.14		0.44	Second Quarter		45.85		26.14		0.44
	Third Quarter		55.88		34.57		0.44	Third Quarter		55.88		34.57		0.44
	Fourth Quarter		61.95		49.85		0.44	Fourth Quarter		61.95		49.85		0.44
2008	First Quarter	$	67.77	$	56.31	$	0.44
	Second Quarter		78.29		62.16		0.44
	Third Quarter		69.45		52.91		0.44
	Fourth Quarter		55.22		25.87		0.44

As of December 31, ~~2009,~~2010, there were ~~72,468,042~~70,748,189 shares of the Company's common stock issued and outstanding, which shares were held by ~~23,712~~22,146 stockholders of record. These shares include ~~82,674~~76,398 shares held by the Company's charitable foundation. The ~~Company~~Company's Board of Directors has declared a cash dividend of ~~$0.44~~$0.47 per share during the first quarter of ~~2010,~~2011, payable on April 1, ~~2010~~ 2011 to stockholders of record on March 15, ~~2010. Quarterly~~2011. Qua rterly dividends on common stock, if declared by the ~~Company's~~ Board of Directors, are usually paid on or about the first business day of the month following the end of each quarter. The payment of dividends is a business decision made by the Board of Directors from time to time based on the Company's earnings, financial position and prospects, and such other considerations as the Board considers relevant. Accordingly, while management currently expects that the Company will continue to pay the quarterly cash dividend, its dividend practice may change at any time.

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" of this ~~2009~~2010 Annual Report on Form 10-K ("Annual Report") for the information required by Item 201(d) of Regulation S-K.

(b) Not applicable.

2829

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

Period
Total Number
of Shares
Purchased
(1)

Average Price Paid Per Share
(2)

Total Number of Shares Purchased as Part of Publicly Announced Plans
or Programs
(3)

Approximate Dollar
Value (in Millions) that May Yet Be Purchased Under the Plans or Programs
(3)
October 1- 31, 2009 -- $ -- 0 $ 117
November 1-30, 2009 54,400 $ 59.35 54,400 $ 113
December 1-31, 2009 300,000 $ 59.01 300,000 $ 96
Total 354,400 $ 59.06 354,400 $ 96

Period	Total Number of Shares Purchased (1)		Average Price Paid Per Share (2)	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (3)		Approximate Dollar Value (in Millions) that May Yet Be Purchased Under the Plans or Programs (3)
October 1- 31, 2010	--	$	--	--	$	327
November 1-30, 2010	1,240,000	$	78.63	1,240,000	$	230
December 1-31, 2010	1,407,814	$	81.04	1,407,814	$	116
Total	2,647,814	$	79.91	2,647,814	$	116

(1)	Shares repurchased under a previously announced Company repurchase plan.

(2)	Average price paid per share reflects the weighted average purchase price paid for share repurchases.

(3)

In October 2007, the Board of Directors authorized $700 million for repurchase of the Company's outstanding common ~~shares~~stock. The Company completed the $700 million repurchase authorization in November 2010, acquiring a total of 11.2 million shares. In August 2010, the Company's Board of Directors authorized an additional repurchase of up to $300 million of the Company's outstanding common stock at such times, in such amounts, and on such terms, as determined to be in the best interests of the Company. As of December 31, ~~2009,~~2010, a total of ~~9.7~~2.3 million shares have been repurchased under this authorization for a total amount of ~~$604~~approximately $184 million. During 2010, the Company re purchased 3.8 million shares of common stock for a cost of approximately $280 million under the two repurchase authorizations. For additional information, see Note ~~14,~~17, "Stockholders' ~~Equity"~~Equity", to the Company's consolidated financial statements in Part II, Item 8 of this Annual Report.In February 2011, the Board of Directors authorized an additional repurchase of up to $300 million of the Company's outstanding common stock at such times, in such amounts, and on such terms, as determined to be in the best interests of the Company. The February 2011 authorization is in addition to the remaining amount available under the August 2010 repurchase authorization.

29 30

ITEM 6. SELECTED FINANCIAL DATA

Summary of Operating Data	Year Ended December 31,
Operating Data														Year Ended December 31,

(Dollars in millions, except per share amounts)	2009		2008		2007			2006			2005			2010		2009		2008		2007		2006

Sales	$	5,047	$	6,726	$	6,830		$	6,779		$	6,460	$	5,842	$	4,396	$	5,936	$	5,513	$	4,899
Operating earnings		317		519		504			654			740		862		345		551		683		552


Earnings from continuing operations		136		328		321			427			541		425		154		345		434		362
Earnings (loss) from discontinued operations		--		--		(10	)		(18	)		16		13		(18)		(17)		(123)		47
Gain (loss) from disposal of discontinued operations		--		18		(11	)		--			--		--		--		18		(11)		--
Net earnings	$	136	$	346	$	300		$	409		$	557	$	438	$	136	$	346	$	300	$	409

Basic earnings per share
Earnings from continuing operations	$	1.88	$	4.36	$	3.89		$	5.20		$	6.70	$	5.90	$	2.12	$	4.58	$	5.24	$	4.41
Earnings (loss) from discontinued operations		--		0.23		(0.26	)		(0.22	)		0.20		0.17		(0.24)		0.01		(1.61)		0.57
Net earnings	$	1.88	$	4.59	$	3.63		$	4.98		$	6.90	$	6.07	$	1.88	$	4.59	$	3.63	$	4.98

Diluted earnings per share
Earnings from continuing operations	$	1.85	$	4.31	$	3.84		$	5.12		$	6.61	$	5.75	$	2.09	$	4.54	$	5.18	$	4.35
Earnings (loss) from discontinued operations		--		0.24		(0.26	)		(0.21	)		0.20		0.17		(0.24)		0.01		(1.60)		0.56
Net earnings	$	1.85	$	4.55	$	3.58		$	4.91		$	6.81	$	5.92	$	1.85	$	4.55	$	3.58	$	4.91


Statement of Financial Position Data

Current assets	$	1,735	$	1,423	$	2,293		$	2,422		$	1,924	$	2,047	$	1,735	$	1,423	$	2,293	$	2,422
Net properties		3,110		3,198		2,846			3,069			3,162		3,219		3,110		3,198		2,846		3,069
Total assets		5,515		5,281		6,009			6,132			5,737		5,986		5,515		5,281		6,009		6,132
Current liabilities		800		832		1,122			1,059			1,051		1,070		800		832		1,122		1,059
Long-term borrowings		1,604		1,442		1,535			1,589			1,621		1,598		1,604		1,442		1,535		1,589
Total liabilities		4,002		3,728		3,927			4,103			4,125		4,359		4,002		3,728		3,927		4,103
Total stockholders' equity		1,513		1,553		2,082			2,029			1,612		1,627		1,513		1,553		2,082		2,029
Dividends declared per share		1.76		1.76		1.76			1.76			1.76		1.79		1.76		1.76		1.76		1.76

In fourth quarter 2009, the Company ~~announced~~discontinued its ~~decision to discontinue the~~ Beaumont, Texas industrial gasification project. This decision was based on a number of factors, including high capital costs, the current and projected reduced spread between natural gas and oil and petroleum coke prices, and continued uncertainty regarding U.S. energy and environmental public policy. For more information regarding the impact of this impairment on financial results, refer to the segment discussions of Part II, Item 7 – ~~"Management's~~"Management's Discussion and Analysis of Financial Condition and Results of ~~Operations"~~Operations" and Part II, Item 8 – "Notes to the Audited Consolidated Financial Statements" – Note 2,18, "Asset Impairments and Restructuring Charges, Net " of this Annual Report.

(Dollars in millions) 2009 2008 Change

Gross Profit $ 1,053 $ 1,126 (6 ) %
As a percentage of sales 21 % 17 %

Accelerated depreciation included in cost of sales -- 9

Gross Profit excluding accelerated depreciation costs 1,053 1,135 (7 ) %
As a percentage of sales 21 % 17 %
SUMMARY OF CONSOLIDATED RESULTS - 2010 COMPARED WITH 2009

In second quarter 2010, the Company acquired Genovique, a global producer of specialty non-phthalate plasticizers for water-based adhesives and other applications.

Earnings from Continuing Operations and Diluted Earnings per Share

45

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

~~MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL~~

~~CONDITION AND RESULTS OF OPERATIONS~~

In first quarter 2010, the Company transferred certain intermediates product lines from the Performance Polymers segment to the PCI segment to improve optimization of manufacturing assets supporting the three raw material streams that supply the Company's downstream businesses. For more information, see Exhibit 99.01 to this Annual Report.

The Company also evaluates licensing opportunities for acetic acid and oxo derivatives on a selective basis, and has licensed technology to produce acetyl products to Saudi International Petrochemical Company ("SIPCHEM") in Saudi Arabia and to Chang Chun Petrochemical Company ("Chang Chun") in Taiwan in 2005 and 2007, respectively. SIPCHEM started operations in 2009 at its plant based on this technology and Chang Chun is in the process of building its plant. In first half of 2010, the Company expects to achieve the final milestones under the SIPCHEM agreement and to recognize the remaining revenue related to the license. The Company will also purchase acetic anhydride from the SIPCHEM facility.

46

~~MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL~~

~~CONDITION AND RESULTS OF OPERATIONS~~

~~Performance Polymers Segment~~

Change
(Dollars in millions) 2009 2008 $ %

Sales $ 719 $ 1,074 $ (355 ) (33 ) %
Volume effect (137 ) (13 ) %
Price effect (233 ) (22 ) %
Product mix effect 15 2 %
Exchange rate effect -- -- %

Sales – contract polymer intermediates sales (1)
-- 138 (138 )

Sales – U.S. PET manufacturing facilities 719 936 (217 ) (23 ) %
Volume effect -- -- %
Price effect (233 ) (25 ) %
Product mix effect 16 2 %
Exchange rate effect -- -- %

Operating loss (2)
(66 ) (57 ) (9 ) (16 ) %
Operating loss - from sales from Mexico and Argentina PET manufacturing facilities (2)
-- (3 ) 3
Operating loss - U.S. PET manufacturing facilities (3)
(66 ) (54 ) (12 ) (22 ) %

Operating loss excluding certain items - U.S. PET manufacturing facilities (3)
(62 ) (29 ) (33 ) >(100 ) %

~~(1)~~

Sales revenue for 2008 includes 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)~~

~~Operating results for 2008 include an operating loss from PET manufacturing facilities and related businesses in Cosoleacaque, Mexico and Zarate, Argentina divested in fourth quarter 2007.~~

~~(3)~~

Items are accelerated depreciation costs and asset impairments and restructuring charges, net. In 2009, asset impairments and restructuring charges of $4 million consisted of the segment's portion of the severance charge for a reduction in force. In 2008, asset impairments and restructuring charges of $24 million related to restructuring at the South Carolina facility using IntegRexTM technology, the divested PET manufacturing facilities in Mexico and Argentina, and charges related to a corporate severance program, partially offset by a resolution of a contingency from the sale of the Company's PE and EpoleneTM polymer businesses divested in fourth quarter 2006. Accelerated depreciation costs of $4 million resulted from restructuring actions associated with higher cost PET polymer assets in Columbia, South Carolina.

Excluding contract polymer intermediates sales to the buyer of the divested Mexico and Argentina facilities, sales revenue for 2009 decreased $217 million compared to 2008 due to lower selling prices primarily attributed to lower raw material and energy costs.

Excluding accelerated depreciation costs and asset impairments and restructuring charges, net, operating results for 2009 for U.S. PET manufacturing facilities decreased $33 million compared to 2008 due to lower selling prices and the unfavorable impact on sales revenue and manufacturing costs due to operational challenges with the South Carolina PET manufacturing facility partially offset by lower raw material and energy costs.

47

~~MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL~~

~~CONDITION AND RESULTS OF OPERATIONS~~

~~In first quarter 2010, the IntegRex~~TM~~-based facility located in Columbia, South Carolina is demonstrating the capability to produce improved quality ParaStar~~ TM PET products at the facility's nameplate capacity of 525,000 metric tons. The Company expects smaller Performance Polymer segment losses in 2010 based on this improved operational performance and the resulting capability for a more profitable mix of product sales.

In first quarter 2010, the Company transferred certain intermediates product lines from the Performance Polymers segment to the PCI segment to improve optimization of manufacturing assets supporting the three raw material streams that supply the Company's downstream businesses. For more information, see Exhibit 99.01 to this Annual Report.

Specialty Plastics Segment											Specialty Plastics Segment
						Change											Change
(Dollars in millions)	2009		2008			$			%		(Dollars in millions)		2009		2008		$	%

Sales	$	749	$	923		$	(174	)	(19	) %	Sales	$	749	$	923	$	(174)	(19) %
Volume effect							(91	)	(10	) %
Price effect							(66	)	(7	) %
Product mix effect							(23	)	(3	) %
Exchange rate effect							6		1	%
											Volume effect						(91)	(10) %
											Price effect						(66)	(7) %
											Product mix effect						(23)	(3) %
											Exchange rate effect						6	1 %


Operating earnings		14		35			(21	)	(60	) %	Operating earnings		9		30		(21)	(70) %

Asset impairments and restructuring charges, net		4		--			4				Asset impairments and restructuring charges, net		4		--		4

Other operating income		--		(2	)		2				Other operating income		--		(2)		2

Operating earnings excluding accelerated depreciation costs, asset impairments and restructuring charges, net, and other operating income		18		33			(15	)	(45	) %
Operating earnings excluding asset impairments and restructuring charges, net and other operating income											Operating earnings excluding asset impairments and restructuring charges, net and other operating income		13		28		(15)	(54) %

(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, ~~2009~~2010
	OR
[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from ______________ to ______________

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)

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

	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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).	[X]

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]~~ [X]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. Large accelerated filer [X] Accelerated filer [ ] Non-accelerated filer [ ] Smaller reporting company [ ] (Do not check if a smaller reporting company)
	Yes	No
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).		[X]

~~ITEM~~	Page

Critical Accounting Estimates	3334

~~Strategic Actions and Related~~ Presentation of Non-GAAP Financial Measures	3638

~~2009~~2010 Overview	3839

Results of Operations
Summary of Consolidated Results – ~~2009~~2010 Compared with ~~2008~~2009	3941
Summary by Operating Segment	4344
Summary by Customer Location – ~~2009~~2010 Compared with ~~2008~~2009	49
Summary of Consolidated Results – ~~2008~~2009 Compared with ~~2007~~2008	50
Summary by Operating Segment	53
Summary by Customer Location – ~~2008~~2009 Compared with ~~2007~~2008	5958

Liquidity, Capital Resources, and Other Financial Information	6059

Environmental	6564

Inflation	66

~~Recently Issued Accounting Standards~~	6665

Outlook	6665

Forward-Looking Statements and Risk Factors	6766

1.	Business	5	Business	5

1A.	Risk Factors	23	Risk Factors	23

1B.	Unresolved Staff Comments	23	Unresolved Staff Comments	23

	Executive Officers of the Company	24	Executive Officers of the Company	24

2.	Properties	26	Properties	26

3.	Legal Proceedings	27	Legal Proceedings	28

4.	Submission of Matters to a Vote of Security Holders	27

Period	Total Number of Shares Purchased (1)		Average Price Paid Per Share (2)	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (3)		Approximate Dollar Value (in Millions) that May Yet Be Purchased Under the Plans or Programs (3)
October 1- 31, 2009	--	$	--	0	$	117
November 1-30, 2009	54,400	$	59.35	54,400	$	113
December 1-31, 2009	300,000	$	59.01	300,000	$	96
Total	354,400	$	59.06	354,400	$	96

Change in Assumption	Impact on ~~2010~~2011 Pre-tax U.S. Benefits Expense	Impact on December 31, ~~2009~~2010 Projected Benefit Obligation for U.S. Pension Plans	Impact on December 31, ~~2009~~2010 Benefit Obligation for Other U.S. Postretirement Plans

25 basis point decrease in discount rate	+$56 Million	+$4042 Million	+$2325 Million

25 basis point increase in discount rate	-$5 Million	-$3840 Million	-$2224 Million

25 basis point decrease in expected return on assets	+$3 Million	No Impact	N/A

25 basis point increase in expected return on assets	-$3 Million	No Impact	N/A

						Volume Effect	Price Effect	Product Mix Effect	Exchange Rate Effect
(Dollars in millions)		2010		2009	Change	Volume Effect	Price Effect	Product Mix Effect	Exchange Rate Effect

Sales	$	5,842	$	4,396	33 %	19 %	10 %	4 %	-- %

(Dollars in millions, except diluted EPS)	2009				2008					2010				2009
	$		EPS		$		EPS			$		EPS		$		EPS

Earnings from continuing operations	$	136	$	1.85	$	328	$	4.31	$	425	$	5.75	$	154	$	2.09
Gain from disposal of discontinued operations, net of tax		--		--		18		0.24
Earnings (loss) from discontinued operations, net of tax										13		0.17		(18)		(0.24)
Net earnings	$	136	$	1.85	$	346	$	4.55	$	438	$	5.92	$	136	$	1.85

Performance Polymers Segment
							Change
(Dollars in millions)	2008			2007			$		%

Operating loss excluding certain items (1)(2)	$	(29	)	$	(65	)	$	36	55	%
Operating loss excluding certain items - from sales from Mexico and Argentina PET manufacturing facilities (1)(3)(4)		--			(12	)		12	100	%
Operating loss excluding certain items - U.S. PET manufacturing facilities (1)(5)		(29	)		(53	)		24	45	%

(Dollars in millions)	Payments Due for
Period	Notes and Debentures		Credit Facility Borrowings and Other		Interest Payable		Purchase Obligations		Operating Leases		Other Liabilities (a)		Total

2010	$	--	$	--	$	111	$	257	$	25	$	215	$	608
2011		2		--		111		248		25		61		447
2012		152		--		106		242		17		53		570
2013		--		--		99		227		12		54		392
2014		--		--		99		33		10		56		198
2015 and beyond		1,450		--		889		85		15		997		3,436
Total	$	1,604	$	--	$	1,415	$	1,092	$	104	$	1,436	$	5,651

ITEM	Page

Management's Responsibility for Financial Statements	7271

Report of Independent Registered Public Accounting Firm	7372

Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings	7473

Consolidated Statements of Financial Position	7574

Consolidated Statements of Cash Flows	7675

Notes to the Audited Consolidated Financial Statements
Note 1. Significant Accounting Policies	7776
Note 2. Discontinued Operations and Assets Held for Sale	80
Note 3. Acquisitions	82
Note 4. Inventories	83
Note 5. Properties and Accumulated Depreciation	83
Note 6. Goodwill and Other Intangible Assets	84
Note 7. Equity Investments	84
Note 8. Payables and Other Current Liabilities	85
Note 9. Provision for Income Taxes	85
Note 10. Borrowings	89
Note 11. Early Debt Extinguishment Costs	90
Note 12. Derivatives	90
Note 13. Retirement Plans	93
Note 14. Commitments	100
Note 15. Environmental Matters	102
Note 16. Legal Matters	102
Note 17. Stockholders' Equity	103
Note 18. Asset Impairments and Restructuring Charges, Net	81105
Note ~~3. Inventories~~19. Other Operating Income	85106
Note ~~4. Properties and Accumulated Depreciation~~20. Other Charges (Income), Net	85107
Note ~~5. Goodwill and Other Intangible Assets~~	86
~~Note 6. Equity Investments~~	86
~~Note 7. Payables and Other Current Liabilities~~	87
~~Note 8. Borrowings~~	87
~~Note 9. Fair Value of Financial Instruments~~	88
~~Note 10. Retirement Plans~~	91
~~Note 11. Commitments~~	99
~~Note 12. Environmental Matters~~	~~101~~
~~Note 13. Legal Matters~~	~~101~~
~~Note 14. Stockholders' Equity~~	~~102~~
~~Note 15.~~21. Share-Based Compensation Plans and Awards	~~104~~
~~Note 16. Divestitures~~	107
Note ~~17. Discontinued Operations~~	~~107~~
~~Note 18. Other Operating Income, Net~~	~~108~~
~~Note 19. Other Charges (Income), Net~~	~~108~~
~~Note 20. Income Taxes~~	~~109~~
~~Note 21.~~22. Supplemental Cash Flow Information	~~113~~
~~Note 22. Segment Information~~	~~113~~110
Note 23. Segment Information	111
Note 24. Quarterly Sales and Earnings Data - Unaudited	~~117~~
~~Note 24. Recently Issued Accounting Standards~~	~~119~~114
Note 25. Reserve Rollforwards	~~120~~116
Note 26. Subsequent Events	117

~~/s/~~ /s/ James P. Rogers		~~/s/~~ /s/ Curtis E. Espeland
James P. Rogers		Curtis E. Espeland
~~President~~Chairman of the Board and		Senior Vice President and
Chief Executive Officer		Chief Financial Officer

February ~~24, 2010~~ 23, 2011

	For years ended December 31,
(Dollars in millions, except per share amounts)	2009			2008			2007

Sales	$	5,047		$	6,726		$	6,830
Cost of sales		3,994			5,600			5,638
Gross profit		1,053			1,126			1,192

Selling, general and administrative expenses		399			419			420
Research and development expenses		137			158			156
Asset impairments and restructuring charges, net		200			46			112
Other operating income, net		--			(16	)		--
Operating earnings		317			519			504

Net interest expense		78			70			62
Other charges (income), net		13			20			(28	)
Earnings from continuing operations before income taxes		226			429			470
Provision for income taxes from continuing operations		90			101			149
Earnings from continuing operations		136			328			321

Loss from discontinued operations, net of tax		--			--			(10	)
Gain (loss) from disposal of discontinued operations, net of tax		--			18			(11	)
Net earnings	$	136		$	346		$	300

Basic earnings per share
Earnings from continuing operations	$	1.88		$	4.36		$	3.89
Earnings (loss) from discontinued operations		--			0.23			(0.26	)
Basic earnings per share	$	1.88		$	4.59		$	3.63

Diluted earnings per share
Earnings from continuing operations	$	1.85		$	4.31		$	3.84
Earnings (loss) from discontinued operations		--			0.24			(0.26	)
Diluted earnings per share	$	1.85		$	4.55		$	3.58

Comprehensive Income
Net earnings	$	136		$	346		$	300
Other comprehensive income (loss), net of tax
Change in cumulative translation adjustment		17			(97	)		36
Change in unrecognized gains (losses) and prior service credits for benefit plans		(74	)		(232	)		106
Change in unrealized gains on derivative instruments		7			23			3
Change in unrealized gains (losses) on investments		--			(1	)		1
Total other comprehensive income (loss), net of tax		(50	)		(307	)		146
Comprehensive income	$	86		$	39		$	446

Retained Earnings
Retained earnings at beginning of period	$	2,563		$	2,349		$	2,186
Net earnings		136			346			300
Cash dividends declared		(128	)		(132	)		(145	)
Effect of adoption of accounting for uncertain income tax positions		--			--			8
Retained earnings at end of period	$	2,571		$	2,563		$	2,349

	December 31,			December 31,
(Dollars in millions, except per share amounts)	2009			2008

Assets
Current assets
Cash and cash equivalents	$	793		$	387
Trade receivables, net		277			275
Miscellaneous receivables		102			79
Inventories		531			637
Other current assets		32			45
Total current assets		1,735			1,423

Properties
Properties and equipment at cost		8,525			8,527
Less: Accumulated depreciation		5,415			5,329
Net properties		3,110			3,198

Goodwill		315			325
Other noncurrent assets		355			335
Total assets	$	5,515		$	5,281

Liabilities and Stockholders' Equity
Current liabilities
Payables and other current liabilities	$	800		$	819
Borrowings due within one year		--			13
Total current liabilities		800			832

Long-term borrowings		1,604			1,442
Deferred income tax liabilities		258			106
Post-employment obligations		1,221			1,246
Other long-term liabilities		119			102
Total liabilities		4,002			3,728

Commitments and contingencies (Note 12)

Stockholders' equity
Common stock ($0.01 par value – 350,000,000 shares authorized; shares issued – 94,775,064 and 94,495,860 for 2009 and 2008, respectively)		1			1
Additional paid-in capital		661			638
Retained earnings		2,571			2,563
Accumulated other comprehensive loss		(385	)		(335	)
		2,848			2,867
Less: Treasury stock at cost (22,389,696 shares for 2009 and 22,031,357 shares for 2008 )		1,335			1,314

Total stockholders' equity		1,513			1,553

Total liabilities and stockholders' equity	$	5,515		$	5,281

		Dollars in millions

Current assets	$	48
Properties and equipment		33
Intangible assets		59
Other noncurrent assets		2
Goodwill		63
Current liabilities		(17)
Long-term liabilities		(28)
Total purchase price	$	160

(Dollars in millions)	Balance at January 1, 2007		Provision/ Adjustments			Non-cash Reductions			Cash Reductions			Balance at December 31, 2007

Noncash charges	$	--	$	122		$	(122	)	$	--		$	--
Severance costs		34		(9	)		--			(18	)		7
Site closure and restructuring costs		14		(1	)		--			(2	)		11
Total	$	48	$	112		$	(122	)	$	(20	)	$	18

	Balance at January 1, 2008		Provision/ Adjustments			Non-cash Reductions			Cash Reductions			Balance at December 31, 2008

Noncash charges	$	--	$	2		$	(2	)	$	--		$	--
Severance costs		7		10			--			(12	)		5
Site closure and restructuring costs		11		34			--			(20	)		25
Total	$	18	$	46		$	(2	)	$	(32	)	$	30

	Balance at January 1, 2009		Provision/ Adjustments			Non-cash Reductions			Cash Reductions			Balance at December 31, 2009

Noncash charges	$	--	$	179		$	(179	)	$	--		$	--
Severance costs		5		23			--			(23	)		5
Site closure and restructuring costs		25		(2	)		--			(18	)		5
Total	$	30	$	200		$	(179	)	$	(41	)	$	10

(Dollars in millions)	CASPI Segment			Other Segments			Total				CASPI Segment		PCI Segment		Other Segments		Total

Reported balance at December 31, 2007	$	310		$	6		$	316
Additions		--			10			10
Currency translation adjustments		(1	)		--			(1	)
Reported balance at December 31, 2008	$	309		$	16		$	325		$	309	$	1	$	15	$	325
Impairment		--			(10	)		(10	)		--		--		(10)		(10)
Currency translation adjustments											--		--		--		--
Reported balance at December 31, 2009	$	309		$	6		$	315		$	309	$	1	$	5	$	315
Additions											--		63		--		63
Adjustment for asset held for sale											--		--		(1)		(1)
Currency translation adjustments											(2)		--		--		(2)
Reported balance at December 31, 2010										$	307	$	64	$	4	$	375

	December 31, 2009				December 31, 2008					December 31, 2010				December 31, 2009
(Dollars in millions)	Recorded Amount		Fair Value		Recorded Amount		Fair Value			Recorded Amount		Fair Value		Recorded Amount		Fair Value

Long-term borrowings	$	1,604	$	1,656	$	1,442	$	1,369	$	1,598	$	1,688	$	1,604	$	1,656

(Dollars in millions)		Book Value

6.30% notes due 2018	$	24
7 1/4% debentures due 2024		255
7 5/8% debentures due 2024		146
7.60% debentures due 2027		76
Total	$	501

(Dollars in millions)				Fair Value Measurements at December 31, 2009
Description	December 31, 2009			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Derivative Assets	$	52		$	--	$	52		$	--
Derivative Liabilities		(21	)		--		(21	)		--
	$	31		$	--	$	31		$	--

(Dollars in millions)	December 31, 2009
Asset Derivatives	Balance Sheet Location	Fair Value
Commodity contract	Other current assets	$	7
Foreign exchange contracts	Other current assets		14
Foreign exchange contracts	Other noncurrent assets		11
		$	32

(Dollars in millions)	December 31, 2009
Liability Derivatives	Balance Sheet Location	Fair Value
Commodity contract	Payables and other current liabilities	$	1
		$	1

(Dollars in millions)		Twelve Months 2009
Derivatives Cash Flow Hedging Relationships		Amount after tax of gain/ (loss) recognized in Other Comprehensive Income on derivatives (effective portion) December 31, 2009	Location of gain/(loss) reclassified from Accumulated Other Comprehensive Income into income (effective portion)		Pre-tax amount of gain/(loss) reclassified from Accumulated Other Comprehensive Income into income (effective portion) December 31, 2009
Commodity contract	$	9	Cost of sales	$	(6)
Foreign exchange contracts		(2)	Sales		23
	$	7		$	17

(Dollars in millions)			Amount of gain/ (loss) recognized income on Derivatives
Derivatives in Fair Value Hedging Relationships	Location of gain/(loss) recognized in Income on Derivatives		December 31, 2010		December 31, 2009

Interest rate contracts	Net interest expense	$	1	$	--
		$	1	$	--

(Dollars in millions)	��	Amount after tax of gain/ (loss) recognized in Other Comprehensive Income on derivatives (effective portion)			Location of gain/(loss) reclassified from Accumulated Other Comprehensive Income into		Pre-tax amount of gain/(loss) reclassified from Accumulated Other Comprehensive Income into income (effective portion)
Derivatives' Cash Flow Hedging Relationships		December 31, 2010		December 31, 2009	income (effective portion)		December 31, 2010		December 31, 2009
Commodity contracts	$	(3)	$	9	Cost of sales	$	1	$	(6)
Foreign exchange contracts		(9)		(2)	Sales		44		23
Forward starting interest rate swap contracts		2		--			--		--
	$	(10)	$	7		$	45	$	17

Summary Balance Sheet
		Pension Plans				Postretirement Welfare Plans
(Dollars in millions)		2010		2009		2010		2009

Change in projected benefit obligation:
Benefit obligation, beginning of year	$	1,508	$	1,423	$	777	$	746
Service cost		44		42		9		8
Interest cost		85		87		44		45
Actuarial loss		75		72		40		24
Curtailment		6		--		--		--
Plan amendments and other		--		--		--		--
Plan participants' contributions		--		--		12		12
Effect of currency exchange		(16)		17		--		--
Benefits paid		(81)		(133)		(55)		(58)
Benefit obligation, end of year	$	1,621	$	1,508	$	827	$	777

Change in plan assets:
Fair value of plan assets, beginning of year	$	1,087	$	930	$	51	$	55
Actual return on plan assets		133		76		9		13
Effect of currency exchange		(14)		14		--		--
Company contributions		53		200		39		40
Reserve for third party contributions		--		--		(4)		(11)
Plan participants' contributions		--		--		12		12
Benefits paid		(81)		(133)		(55)		(58)
Fair value of plan assets, end of year	$	1,178	$	1,087	$	52	$	51

Funded status at end of year	$	(443)	$	(421)	$	(775)	$	(726)

Amounts recognized in the Consolidated Statements of Financial Position consist of:
Other noncurrent asset	$	9	$	--	$	--	$	--
Current liability		(8)		(4)		(40)		(40)
Noncurrent liability		(444)		(417)		(735)		(686)
Net amount recognized, end of year	$	(443)	$	(421)	$	(775)	$	(726)

Amounts recognized in accumulated other comprehensive income consist of:
Net actuarial loss	$	780	$	779	$	229	$	203
Prior service credit		(36)		(54)		(125)		(148)
Accumulated other comprehensive loss	$	744	$	725	$	104	$	55

Summary of Benefit Costs and Other Amounts Recognized in Other Comprehensive Income
		Pension Plans						Postretirement Welfare Plans
(Dollars in millions)		2010		2009		2008		2010		2009		2008

Components of net periodic benefit cost:
Service cost	$	44	$	42	$	46	$	9	$	8	$	6
Interest cost		85		87		88		44		45		43
Expected return on assets		(104)		(100)		(105)		(3)		(3)		(4)
Curtailment charge (1)		4		--		9		--		--		--
Amortization of:
Prior service credit		(16)		(16)		(16)		(23)		(23)		(23)
Actuarial loss		43		32		27		13		13		10
Net periodic benefit cost	$	56	$	45	$	49	$	40	$	40	$	32

Other changes in plan assets and benefit obligations recognized in other comprehensive income:
Curtailment charge (1)	$	4	$	--	$	15
Current year actuarial loss		(52)		(96)		(395)
Current year prior service credit		--		--		16
Amortization of:
Prior service credit		(16)		(16)		(16)
Actuarial loss		43		32		27
Effect of currency exchange		2		(3)		13
Total	$	(19)	$	(83)	$	(340)

(Dollars in millions)	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Private Equity			Real Estate			Other Alternative Investments(1)			Total
Beginning balance at December 31, 2008	$	106		$	113		$	101		$	320
Return (loss) on plan assets		(9	)		(30	)		(3	)		(42	)
Purchases, sales, and settlements, net		10			9			7			26
Ending balance at December 31, 2009	$	107		$	92		$	105		$	304

	Target Allocation	Plan Assets at December 31, 2009	Plan Assets at December 31, 2008	Target Allocation	Plan Assets at December 31, 2010	Plan Assets at December 31, 2009
Asset category

Equity securities	59%	58%	50%	59 %	57 %	58 %
Debt securities	12%	7%	6%	12 %	8 %	7 %
Real estate	9%	11%	16%	9 %	11 %
Other investments(1)	20%	24%	28%	20 %	24 %
Total	100%			100 %

Summary of Benefit Costs

(Dollars in millions)	2009			2008			2007

Components of net periodic benefit cost:
Service cost	$	8		$	6		$	7
Interest cost		45			43			43
Expected return on assets		(3	)		(4	)		(3	)
Amortization of:
Prior service credit		(23	)		(23	)		(23	)
Actuarial loss		13			10			12
Net periodic benefit cost	$	40		$	32		$	36

Weighted-average assumptions used to determine end of year benefit obligations:	2009			2008			2007

Discount rate		5.76	%		6.08	%		6.19	%
Rate of compensation increase		3.50	%		3.50	%		3.75	%
Health care cost trend
Initial		8.00	%		8.00	%		9.00	%
Decreasing to ultimate trend of		5.00	%		5.00	%		5.00	%
in year		2016			2015			2012

(Dollars in millions)		Pension Plans				Postretirement Welfare Plans
		U.S.		Non U.S.
2011	$	206	$	7	$	45
2012		124		7		46
2013		130		7		47
2014		133		8		49
2015		133		8		51
2016-2020		623		50		279