# Dear Fellow Eastman Stockholders

_Source: `DeepSeekOCR_Ardian_pruned_1k/basic-materials-specialty-chemicals/NYSE_EMN_2018/NYSE_EMN_2018.mmd` · pages 1-7_

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Dear Fellow Eastman Stockholders,

In 2018, we continued to make progress in our transformation to one of the world's leading innovative companies in additives and advanced materials despite significant challenges in the fourth quarter. Through the third quarter, we delivered strong variable margin growth and were on track to meet the higher end of our long-term 8–12 percent adjusted earnings per share growth projection. However, business conditions quickly deteriorated as demand weakened due to uncertainty from the U.S.-China trade dispute and a slowdown in the European economy that led to volatile raw material prices and greater than normal seasonal customer inventory destocking, negatively impacting our fourth quarter and full-year results.

## 2018 performance highlights

Despite the challenging dynamics in the last few months of 2018, I am proud of our accomplishments for the full year and am thankful to our global team for their talents and dedication.

• We grew adjusted EPS 8 percent, within our targeted long-term range of 8–12 percent.

• We delivered record sales revenue of \(10.2 billion, a 6 percent increase despite the challenging global economy.

• Our strong cash engine generated approximately $1.1 billion of free cash flow.

• We increased our growth investments by $50 million, including 10 plant startups and expansions to meet global demand for our specialty products.

• We returned $718 million to stockholders through a combination of share repurchases and an increased dividend, the ninth consecutive year we have raised our dividend.

More importantly, we continued to make great progress in building our long-term growth potential by converting top innovation programs into commercial orders that delivered $365 million in new business revenue. Here are a few examples that demonstrate our success in 2018:

## Advanced Materials:

• In Specialty Plastics, we delivered 7 percent volume growth in Eastman Tritan \( ^{™} \)  copolyester. This was underpinned by continued growth across a diverse set of end markets and double-digit growth in China.

• In Performance Films, we once again delivered double-digit volume growth in our two largest markets for window films, North America and China, due to our successful new channel strategy. We also continued to build momentum in paint protection films with the launch of two next-generation products.

• Our Advanced Interlayers business continued to benefit from our innovations in automotive applications, with our products for head-up displays growing at 25 percent in 2018. At the same time, we are building momentum in architectural applications with our channel programs and the launch of a new structural product, Saflex \( ^{™} \)  Structural PVB.

## Additives & Functional Products:

• In Animal Nutrition, we delivered strong adoption of our formulated organic acid solution.

• In Tire Additives, we continue strong growth of our Eastman Impera \( ^{™} \)  resins for improving tire performance.

• We also had strong adoption by more than 10 customers of our next-generation Crystex \( ^{™} \)  Cure Pro tire additives, the newest innovation in insoluble sulfur, which enables higher tire production efficiency.

• In Care Chemicals, we had 12 percent volume growth in our water treatment products as municipalities around the world adopt global water treatment standards.

## Fibers:

• Textiles grew approximately 30 percent, including growth in the Eastman Naia \( ^{™} \)  cellulosic yarn product line. This performance has helped stabilize the Fibers segment and has become an important and exciting part of how we are innovating solutions to address sustainability demands in apparel.

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These and many other examples give me confidence in the strength and resiliency of our portfolio and the power of our ability to create our own growth even in an uncertain business environment. We will have greater clarity as 2019 progresses and will respond accordingly to changes in the macro environment. However, from what we can see today, we expect slower economic growth with some of the challenges we faced in the fourth quarter persisting. We expect recovery throughout the year as we work through higher-cost inventory and as customer inventory destocking is expected to play itself out.

In this current environment, we continue to execute on what we can control — innovating throughout our enterprise, managing costs and allocating our strong free cash flow in a disciplined manner. We are currently on track to increase new business revenue from innovation to greater than \(400 million in 2019 and \)500 million in 2020. This year, we also plan aggressive cost management and to return cash to stockholders through continued significant share repurchases. Taken altogether, we expect adjusted earnings per share growth in 2019 to be between 6 and 10 percent and strong free cash flow of greater than $1.1 billion.

## Strategy for long-term growth

Through strategic acquisitions and divestitures for more than a decade, we have significantly reshaped our portfolio, strengthening our ability to deliver consistent results and create greater value for you, our fellow stockholders.

For the past five years, a primary focus has been to accelerate innovation across our portfolio. We have demonstrated success in delivering both returns from our acquired specialty businesses and our heritage businesses by leveraging our innovation-driven growth model. This unique model, based on our world-class technologies, relentless market engagement and differentiated application development, is central to our strategy and continues to yield compelling results that give us confidence in our ability to drive long-term growth. As we look forward to the next five years, we remain focused on building on our progress to drive results across the portfolio and differentiate our ability to sustain our margins and deliver growth above the underlying markets. In addition, we remain dedicated to disciplined portfolio management as we continue to look for attractive bolt-on acquisitions and targeted divestitures to optimize the portfolio and deliver attractive returns to stockholders.

At the heart of our innovation-driven strategy is our moral obligation of enhancing the quality of life in a material way. Across the entire portfolio, we are delivering innovations that enable lightweighting of cars, improved energy efficiency of tires, safer consumer products, reduced use of antibiotics in animals, enhanced water treatment and more. As the desire grows for products that have a sustainable life cycle, Eastman continues to build on our heritage of world-class technology platforms and product innovation to offer solutions at the molecular level. Today, more than ever, the world needs innovation, and we are excited about the possibilities we can achieve by working along the value chain, across industry sectors and with community partners to expand our efforts and make the greatest collective impact. As one example, we are pursuing innovative recycling solutions to address the growing challenges of plastic waste in our environment. We are currently engaging potential partners and are encouraged by the tremendous interest in providing real solutions to this issue.

Our efforts to find new uses for products or materials otherwise reaching end of life to advance the circular economy align with our innovation-driven growth strategy and commitment to create value through sustainability. With a strong focus on issues and opportunities within the environmental, social and governance (ESG) framework, we have established goals and strategies to address the complex problems being created by the world's changing needs and a growing population. We believe we are well positioned to be part of the solution as we continue to make progress toward our priority goals in three areas: steering a sustainable

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portfolio that addresses global macro trends and disruptions; driving resource productivity for efficiency and improvement across the organization; and doing focused good for good — corporate responsibility that does good in the world — to create shared value through strategic partnerships and social innovation. We review our goals regularly and establish targets that drive us to continually improve.

Core to achieving our goals is maintaining the trust and confidence of our stakeholders, which is one of the reasons we go beyond compliance to protect our people and the environment. We start with a zero-incident mindset that encompasses all aspects of operational excellence, including personal and process safety. This mentality also extends to how we do business, ensuring that every action we take is consistent with our core values and beliefs. I'm proud that for the sixth consecutive year, Eastman has been named one of the World's Most Ethical Companies \( ^{®} \)  by Ethisphere \( ^{®} \)  Institute, a recognition of the Eastman team's commitment to conducting business with honesty and integrity.

## Our commitment to Eastman stockholders

Even in this uncertain global business climate, we are poised to continue making progress toward our strategic transformation while delivering solid earnings growth and strong cash flow generation. We are very optimistic about our future as we find opportunity in today's challenges and have a number of factors driving growth in 2019. Our company is strong, our product portfolio is resilient, and our path forward is clear. Though it is a careful balance, we will work through these short-term dynamics without sacrificing either our performance or our long-term strategy.

Most importantly, we remain determined to make a material difference in the quality of life not only for our stakeholders but for society at large. Whether it's through the value we work hard to deliver, the safe and inclusive workplace we continually strive to strengthen, the innovative products and solutions we bring to the world, the meaningful jobs we provide or the strong relationships that we forge, we always endeavor to reward the confidence that you and others place in us.

On behalf of our global team, thank you for your continued support and your investment in Eastman.

Sincerely,

![](images/3_0.jpg)

Mark J. Costa
Board Chair and Chief Executive Officer
March 19, 2019