# Dear Fellow Stockholders

_Source: `DeepSeekOCR_Ardian_pruned_1k/basic-materials-specialty-chemicals/NYSE_EMN_2017/NYSE_EMN_2017.mmd` · pages 2-8_

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Dear Fellow Stockholders,

The year 2017 will certainly stand out in the memory of anyone who has a connection to Eastman. For the Eastman team, it was a year of achievement, strength, and perseverance to overcome extraordinary challenges. And most certainly, 2017 was a year where we made remarkable progress on our growth journey.

Our commitment to an innovation-driven growth model—based on our world-class technologies, relentless market engagement, and differentiated application development—is resulting in substantial organic growth. By capitalizing on the product portfolios in our unique specialty businesses and leveraging the advantages of our significant scale and deep integration, we are well positioned to deliver strong, sustainable growth by creating our own growth in both core and new markets. At the heart of our success is a consistent commitment to building key capabilities in an already world-class team, which will deliver growth that makes Eastman a thriving company now and for future generations.

We will be driving hard to deliver a strong 2018, and I am confident that the capability of the Eastman team in executing our winning strategy—an innovation-led, customer-focused strategy—will get us there.

## 2017: Growth. Success. Perseverance.

In 2017, the Eastman team faced operational challenges presented by extraordinary events, including two hurricanes and a serious incident in the coal gasification operations at our Kingsport site. Under extreme circumstances, the team came together and delivered solid returns. In a year of accomplishments, here are just a few of the highlights:

We grew adjusted earnings per share 13 percent and generated $1 billion of free cash flow, enabling us to make smart capital investments to increase manufacturing capacity for specialty products and build capabilities in growth areas.

Our two specialty segments, Advanced Materials and Additives & Functional Products, together delivered greater than 7 percent volume growth. That's more than double their underlying markets.

We made great progress stabilizing Fibers, with multiyear supply arrangements with two-thirds of acetate tow customers and second-half 2017 operating earnings more than 9 percent higher than the first half of 2017.
We generated over $300 million of new business revenue and achieved the highest rate of new product commercialization from our innovation growth portfolio in the nearly 100-year history of the company.

We returned almost $650 million to stockholders through share repurchases and dividends. Demonstrating its confidence in our present and future earnings, our Board increased the quarterly cash dividend 10 percent. This marks the eighth straight year of increases, during which time we have more than doubled the dividend rate.

Throughout our company, the Eastman team recognizes that we have a responsibility and an obligation beyond bottom-line financial performance—a mindset that is throughout Eastman and contributes to our overall performance excellence. Some of the 2017 highlights are:

For the second year in a row, Eastman was named among the JUST 100 Most Just Companies in America according to Forbes and JUST Capital. This distinction recognizes us as one of America's top corporate citizens on issues such as worker pay and treatment, job creation, healthy products and communities, and environmental impact.

Attesting to our culture of integrity is the 2017 World's Most Ethical Company \( ^{®} \)  award, which we received from the Ethisphere Institute for the fourth year in a row.

We received the Environmental Protection Agency's ENERGY STAR \( ^{®} \)  Partner of the Year–Sustained Excellence Award. This is the sixth consecutive year Eastman has received this honor for continued leadership and superior energy efficiency, and we remain the only company in the chemical industry to receive the Sustained Excellence Award or be named Partner of the Year more than once.

Eastman earned the 2017 Military Friendly \( ^{®} \)  Employer designation by Victory Media, a recognition for our exceptionally strong hiring programs and meaningful jobs for transitioning military service members, veterans, and their spouses. Building on this, Eastman launched EVETS in 2017, a new Eastman Resource Group (ERG) that was created to help ensure that military veterans are fully engaged and their unique skills are highly integrated and valued. This is the fourth ERG Eastman has created to support inclusion and diversity at Eastman. The other three are Catalysts (women), Connect (African-American and Black), and Equality (LGBT).

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Those are just some of the highlights that illustrate our most significant advantage: people and culture. The strength of our culture was tested in many ways last year, most significantly by the explosions in our Kingsport coal gasification operations. In those initial moments, our men and women followed established safety procedures, relied on their training, and exercised good judgment. We are extraordinarily grateful that, in doing so, no one was seriously injured and there was no harm to the environment. It was a very sobering reminder of why we train and invest in safety. In the aftermath of this incident, we have learned a great deal and are rededicating our efforts to pursue excellence in process safety and a zero-incident culture.

Due to the dedication and ingenuity of our teams, the world-class expertise that enabled us to navigate through complex repairs and choices, and the unique advantages of our scale and integration, we safely and efficiently repaired the facility in a time frame that seemed ambitious to everyone but us. Amazingly, our coal gasification facility was mechanically complete in December, and we resumed normal operations in mid-January.

Eastman has operated coal gasification safely and expertly for three decades. We are confident that we identified the issues that led to the incident and have made the necessary changes so this never happens again. In the end, there was no disruption in supply to our specialty derivatives customers—many of which have expressed appreciation for our reliability in even the most extreme circumstances.

## 2018 Focus

As our innovation strategy kicks into a higher gear and runs smoother than ever, we are in an advantaged position to succeed as the global economy heats up and consumer demand rises. We plan to protect our existing business, win new business, and continue to build our impressive record of earnings and cash flow. In 2018, we will:

» Continue to accelerate growth through new commercialization that improves our product mix and shifts our overall portfolio closer to specialty. We expect revenue growth from specialty products to be two times underlying markets.

» Continue to invest our capital selectively with targeted return-on-invested capital of 10 to 15 percent.

» Continue to manage and reduce our costs with diligence so that our variable margin growth goes to the bottom line.
» Continue to generate cash that rewards investors. We expect to generate approximately \(3.5 billion in free cash flow from 2018 to 2020. In a demonstration of its confidence in our ability to do this, our Board recently approved the repurchase of another \)2 billion of Eastman common stock.

Earlier this year, members of the Executive Team and I had the honor of representing the global Eastman team to investors at our 2018 Innovation Day. We have historically called these events Investor Day, but this year, we wanted to put innovation front and center—just as it is in our strategy.

During the event, we laid out the Eastman innovation journey, drilling down into some of the success stories that illustrate a strategy that is winning now and, I believe with utmost confidence, will win even bigger in the future.

This is a compelling story because we have a unique growth model. It starts with our world-class technologies that are absolutely second to none. But frankly, world-class technologies on their own are not enough anymore. The materials industry is intensely competitive, and we must stay ahead by producing differentiated, premium products and services. And we are doing just that.

We have also increased our focus on relentlessly engaging the market. We have made significant investments in our sales and marketing capabilities to better understand the markets in which we compete and anticipate the unmet needs requiring a material solution. Our goal is to be the first choice when customers need an innovative solution to help them win in the market.

The other part of our growth triad is application development—where our experts understand not only our own materials and technologies but also the customer's materials and technologies—so we can tune our materials in a way that delivers a unique end-use product.

This model has proven successful for Eastman in the past, such as with Eastman Tritan™ copolyester, and it continues to, as demonstrated by these exciting innovations:

## Saflex \( ^{®} \)  VIEW ST

Head-up displays (HUD) are no longer only in luxury vehicles, but the technology has been plagued by a phenomenon called "ghosting." That is the word used for a distorted image some drivers see when using HUD because not all drivers are the same height and not all windshields are shaped the same, creating different sight lines and angles. In September 2017, Eastman introduced the new Saflex View ST innovation that helps correct ghosting. Drivers see a clearer projection of data on their windshield, an invaluable safety advantage in a market that is growing rapidly.

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## Eastman Impera \( ^{™} \)  performance resins

For the last decade, the global automotive industry has been setting new standards for fuel efficiency in their fleets and public concerns have continued to increase. Original equipment manufacturers find themselves caught between those two drivers, and they have faced a long-standing conundrum of trading off between tire rolling resistance, wet grip, and wear. They adopted a new solution—hydrocarbon resins—where they do not have to surrender any of those attributes for the sake of another. Our strong technology position, combined with application development, enabled Additives & Functional Products to launch Impera tire additive performance resins, which deliver the desired performance attributes and help manufacturers create brand advantage.

## Eastman Naia™ cellulosic yarn and Avra™ performance fibers

For the Fibers business, we achieved a strategic imperative—the stabilization of acetate tow. And just as importantly, we brought innovation to industries where innovation lagged. Naia cellulosic yarn and Avra performance fibers are prime examples of where we are leveraging one of the unique elements of our growth strategy: application development. We engaged downstream markets to understand and create specification demand in addition to how we already work very closely with our direct customers.

Naia leverages one of our oldest product platforms, cellulose esters. We had sold in the textile market for years, but our addressable market had been limited because of performance issues. Our application development investment in this market segment enabled us to tune our molecules in ways to co-innovate with customers and deliver new fibers in garments that perform like a synthetic, keep the comfort of a natural fiber, and are easy to care for. Naia is very sustainable, coming from chemistry where the basic raw material is derived from sustainably managed forests. We commercialized 50 new fibers in 2017 and gained more than 40 new customers.

Through the integration of our polyester technology platform with acetyls and olefins, we introduced Avra. Avra is a polyester microfiber that brings radically improved moisture management and feel to performance wear, an industry where there hasn't been a significant new material introduced in more than 20 years. Spyder Active Sports Inc., a leading skiwear and mountain-based apparel brand, chose Avra to be their next to skin fabric across multiple garment lines. In fact, Spyder base layers, powered by Avra performance fibers, are a part of the official uniform of the U.S. Ski Team. The feedback from skiers has been fantastic.

## Innovation: The core of Eastman's purpose

The Eastman innovation wave is strong and building. Through the innovations I cited and so many others, I am confident we are poised to achieve the target that is well within our grasp: To be a leading specialty materials company that is regarded as the materials innovation company.

It is that aspiration that drives me and our Eastman team every day as we work to honor your faith and investment in us. We are committed to making a difference for the owners of our company and to making a difference for the world at large.

The world is growing at a rapid pace. The rising middle class needs solutions. They need safe products. They need better products. They desire products that are good for the planet. With a growing population comes problems that must be solved and can be solved—but they are problems so complex that the solutions must come at a molecular level.

And that is where Eastman comes in. We are uniquely suited to make a material difference. We can enhance the quality of life in a material way, and we see it as our company's purpose—our moral purpose—to do just that.

We are more determined than ever to fulfill that purpose—to make a material difference in the quality of life for billions of people around the world. And we are completely committed to rewarding your confidence and your investment in us by delivering the value you deserve—today, tomorrow, and years into the future.

Sincerely,

![](images/4_0.jpg)

Mark J. Costa
Board Chair and Chief Executive Officer
March 19, 2018