# EASTMAN CHEMICAL CO (EMN) FY 2021 MD&A

Verbatim Item 7 Management's Discussion and Analysis from EASTMAN CHEMICAL CO's 10-K for fiscal year 2021.

SEC filing source: https://www.sec.gov/Archives/edgar/data/915389/000091538922000010/emn-20211231.htm
Accession: 0000915389-22-000010
Filing date: 2022-02-25
Report date: 2021-12-31
Extracted from a later financial-section MD&A body after the formal Item 7 span was a short reference. Published MD&A gate trimmed front/tail over-capture.
Confidence: high

Company profile: /company/EMN/
All MD&A years: /company/EMN/mda/
Next year: /company/EMN/mda/fy2022/ (FY 2022)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The projected benefit obligation as of December 31, 2021 and 2022 expense are affected by year-end 2021 assumptions. The following table illustrates the sensitivity to changes in the Company's long-term assumptions in the assumed discount rate and expected return on plan assets for all pension and other postretirement benefit plans. The sensitivities below are specific to the time periods noted. They also may not be additive, so the impact of changing multiple factors simultaneously cannot be calculated by combining the individual sensitivities shown.

[[GREPCENT_TABLE]]
[["Change in Assumption","Impact on 2022 Pre-tax Benefits Expense (Excludes mark-to-market impact) for Pension Plans","Impact on December 31, 2021 Projected Benefit Obligation for Pension Plans","Impact on 2022 Pre-tax Benefits Expense (Excludes mark-to-market impact) for Other Postretirement Benefit Plans","Impact on December 31, 2021 Benefit Obligation for Other Postretirement Benefit Plans"],["U.S.","Non-U.S."],["25 basis point decrease in discount rate","$-4 Million","$+49 Million","$+42 Million","$-1 Million","$+16 Million"],["25 basis point increase in discount rate","$+2 Million","$-47 Million","$-40 Million","$+1 Million","$-15 Million"],["25 basis point decrease in expected return on plan assets","$+7 Million","No Impact","No Impact","+$0.5 Million","No Impact"],["25 basis point increase in expected return on plan assets","$-7 Million","No Impact","No Impact","-$0.5 Million","No Impact"]]
[[/GREPCENT_TABLE]]

The assumed discount rate and expected return on plan assets used to calculate the Company's pension and other postretirement benefit obligations are established each December 31. The assumed discount rate is based upon a portfolio of high-grade corporate bonds, which are used to develop a yield curve. This yield curve is applied to the expected cash flows of the pension and other postretirement benefit obligations. Because future health care benefits under the U.S. benefit plan have been fixed at a certain contribution amount, changes in the health care cost trend assumptions do not have a material impact on results of operations. The expected return on plan assets is based upon prior performance and the long-term expected returns in the markets in which the plans invest their funds, primarily in U.S. and non-U.S. fixed income securities, U.S. and non-U.S. public equity securities, private equity, and real estate. Moreover, the expected return on plan assets is a long-term assumption and on average is expected to approximate the actual return on plan assets. Actual returns will be subject to year-to-year variances and could vary materially from assumptions.

The Company calculates service and interest cost components of net periodic benefit costs for its significant defined benefit pension and other postretirement benefit plans by applying the specific spot rates along the yield curve to the plans' projected cash flows. This cost approach does not affect the measurement of the total benefit obligation or the annual net periodic benefit cost or credit of the plans because the change in the service and interest costs will be offset in the mark-to-market ("MTM") actuarial gain or loss. The MTM gain or loss, as described in the next paragraph, is typically recognized in the fourth quarter of each year or in any other quarters in which an interim remeasurement is triggered.

The Company uses fair value accounting for plan assets. If actual experience differs from actuarial assumptions, primarily discount rates and long-term assumptions for asset returns which were used in determining the current year expense, the difference is recognized as part of the MTM net gain or loss in fourth quarter each year, and any other quarter in which an interim remeasurement is triggered. See the calculation of the MTM pension and other post-retirement benefits (gain) loss table below in "NON-GAAP FINANCIAL MEASURES - Non-GAAP Financial Measures - Non-Core and Unusual Items Excluded from Earnings".

33

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

While changes in obligations do not correspond directly to cash funding requirements, it is an indication of the amount the Company will be required to contribute to the plans in future years. The amount and timing of such cash contributions is dependent upon interest rates, actual returns on plan assets, retirements, attrition rates of employees, and other factors.

For further information regarding pension and other postretirement benefit obligations, see Note 11, "Retirement Plans", to the Company's consolidated financial statements in Part II, Item 8 of this Annual Report.

Income Taxes

Amounts of deferred tax assets and liabilities on Eastman's Consolidated Statements of Financial Position are based on temporary differences between the financial reporting and tax bases of assets and liabilities, applying enacted tax rates expected to be in effect for the year in which the differences are expected to reverse. The ability to realize deferred tax assets is evaluated through the forecasting of taxable income and domestic and foreign taxes, using historical and projected future operating results, the reversal of existing temporary differences, and the availability of tax planning opportunities. Valuation allowances are recognized to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. In the event that the actual outcome of future tax consequences differs from management estimates and assumptions, the resulting change to the provision for income taxes could have a material impact on the consolidated results of operations and statements of financial position. As of December 31, 2021, valuation allowances of $339 million have been provided against the deferred tax assets.

The calculation of income tax liabilities involves uncertainties in the application of complex tax laws and regulations, which are subject to legal interpretation and management judgment. Eastman's income tax returns are regularly examined by federal, state and foreign tax authorities, and those audits may result in proposed adjustments which could result in additional income tax liabilities and income tax expense. Income tax expense could be materially impacted to the extent the Company prevails in a tax position or when the statute of limitations expires for a tax position for which a liability for unrecognized tax benefits or valuation allowances have been established, or to the extent payments are required in excess of the established liability for unrecognized tax benefits.

For further information, see Note 8, "Income Taxes", to the Company's consolidated financial statements in Part II, Item 8 of this Annual Report.

34

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

NON-GAAP FINANCIAL MEASURES

Non-GAAP financial measures, and the accompanying reconciliations of the non-GAAP financial measures to the most comparable GAAP measures, are presented below in this section and in "Overview", "Results of Operations", "Summary by Operating Segment", "Liquidity and Other Financial Information - Cash Flows", and "Outlook" in this MD&A.

Management discloses non-GAAP financial measures, and the related reconciliations to the most comparable GAAP financial measures, because it believes investors use these metrics in evaluating longer term period-over-period performance, and to allow investors to better understand and evaluate the information used by management to assess the Company's and its operating segments' performances, make resource allocation decisions, and evaluate organizational and individual performances in determining certain performance-based compensation. Non-GAAP financial measures do not have definitions under GAAP, and may be defined differently by, and not be comparable to, similarly titled measures used by other companies. As a result, management cautions investors not to place undue reliance on any non-GAAP financial measure, but to consider such measures alongside the most directly comparable GAAP financial measure.

Company Use of Non-GAAP Financial Measures

Non-Core Items and any Unusual or Non-Recurring Items Excluded from Non-GAAP Earnings

In addition to evaluating Eastman's financial condition, results of operations, liquidity, and cash flows as reported in accordance with GAAP, management also evaluates Company and operating segment performance, and makes resource allocation and performance evaluation decisions, excluding the effect of transactions, costs, and losses or gains that do not directly result from Eastman's normal, or "core", business and operations, or are otherwise of an unusual or non-recurring nature.

•Non-core transactions, costs, and losses or gains relate to, among other things, cost reductions, growth and profitability improvement initiatives, changes in businesses and assets, and other events outside of core business operations, and have included asset impairments and restructuring charges and gains, costs of and related to acquisitions, gains and losses from and costs related to dispositions, closure, or shutdowns of businesses or assets, financing transaction costs, and MTM losses or gains for pension and other postretirement benefit plans.

•In 2021 and 2019, the Company recognized an unusual net increase to earnings and an unusual net decrease to earnings, respectively, from adjustments of the net tax benefit recognized in fourth quarter 2017, resulting from tax law changes, primarily the 2017 Tax Cuts and Jobs Act (the "Tax Reform Act"), and related outside-U.S. entity reorganizations as part of the transition to an international treasury services center. Management considered these actions and associated costs and income unusual because of the infrequent nature of such changes in tax law and resulting actions and the significant impacts on earnings.

Because non-core, unusual, or non-recurring transactions, costs, and losses or gains may materially affect the Company's, or any particular operating segment's, financial condition or results in a specific period in which they are recognized, management believes it is appropriate to evaluate the financial measures prepared and calculated in accordance with both GAAP and the related non-GAAP financial measures excluding the effect on the Company's results of these non-core, unusual, or non-recurring items. In addition to using such measures to evaluate results in a specific period, management evaluates such non-GAAP measures, and believes that investors may also evaluate such measures, because such measures may provide more complete and consistent comparisons of the Company's, and its segments', operational performance on a period-over-period historical basis and, as a result, provide a better indication of expected future trends.

35

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Adjusted Tax Rate and Provision for Income Taxes

In interim periods, Eastman discloses non-GAAP earnings with an adjusted effective tax rate and a resulting adjusted provision for income taxes using the Company's forecasted tax rate for the full year as of the end of the interim period. The adjusted effective tax rate and resulting adjusted provision for income taxes are equal to the Company's projected full year effective tax rate and provision for income taxes on earnings excluding non-core, unusual, or non-recurring items for completed periods. The adjusted effective tax rate and resulting adjusted provision for income taxes may fluctuate during the year for changes in events and circumstances that change the Company's forecasted annual effective tax rate and resulting provision for income taxes excluding non-core, unusual, or non-recurring items. Management discloses this adjusted effective tax rate, and the related reconciliation to the GAAP effective tax rate, to provide investors more complete and consistent comparisons of the Company's operational performance on a period-over-period interim basis and on the same basis as management evaluates quarterly financial results to provide a better indication of expected full year results.

Non-GAAP Cash Flow Measure

Eastman regularly evaluates and discloses to investors and securities analysts an alternative non-GAAP measure of "free cash flow", which management defines as net cash provided by or used in operating activities less the amount of net capital expenditures (typically the GAAP measure additions to properties and equipment). Such net capital expenditures are generally funded from available cash and, as such, management believes they should be considered in determining free cash flow. Management believes this is an appropriate metric to assess the Company's ability to fund priorities for uses of available cash. The priorities for cash after funding operations include payment of quarterly dividends, repayment of debt, funding targeted growth opportunities, and repurchasing shares. Management believes this metric is useful to investors and securities analysts to provide them with information similar to that used by management in evaluating financial performance and potential future cash available for various initiatives and assessing organizational performance in determining certain performance-based compensation and because management believes investors and securities analysts often use a similar measure of free cash flow to compare the results, and value, of comparable companies. In addition, Eastman may disclose to investors and securities analysts an alternative non-GAAP measure of "free cash flow yield", which management defines as annual free cash flow divided by the Company's market capitalization, and "free cash flow conversion", which management defines as annual free cash flow divided by adjusted net income. Management believes these metrics are useful to investors and securities analysts in comparing cash flow generation with that of peer and other companies.

Non-GAAP Debt Measure

Eastman from time to time evaluates and discloses to investors and securities and credit analysts the non-GAAP debt measure "net debt", which management defines as total borrowings less cash and cash equivalents. Management believes this metric is useful to investors and securities and credit analysts to provide them with information similar to that used by management in evaluating the Company's overall financial position, liquidity, and leverage and because management believes investors, securities analysts, credit analysts and rating agencies, and lenders often use a similar measure to assess and compare companies' relative financial position and liquidity.

Non-GAAP Measures in this Annual Report

The following non-core items are excluded by management in its evaluation of certain earnings results in this Annual Report:

•MTM pension and other postretirement benefit plans gains and losses resulting from the changes in discount rates and other actuarial assumptions and the difference between actual and expected returns on plan assets during the period;

•Asset impairments and restructuring charges, including severance costs and site closure or shutdown charges, net, of which asset impairments are non-cash transactions impacting profitability;

•Loss on divested business and transaction costs;

•Accelerated depreciation resulting from the closure of a manufacturing facility as part of ongoing site optimization; and

•Early debt extinguishment costs.

The following unusual item is excluded by management in its evaluation of certain earnings results in this Annual Report:

•Adjustments related to the estimated net tax benefit recognized in fourth quarter 2017 resulting from tax law changes, primarily the Tax Reform Act, and tax impact of related outside-U.S. entity reorganizations.

36

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

As described above, the alternative non-GAAP measures of cash flow, "free cash flow", and of debt, "net debt", are also presented in this Annual Report.

Non-GAAP Financial Measures - Non-Core and Unusual Items Excluded from Earnings

[[GREPCENT_TABLE]]
[["(Dollars in millions)","2021","","2020","","2019"],["Non-core items impacting EBIT:"],["Mark-to-market pension and other postretirement benefits loss (gain), net","$","(267)","","","$","240","","","$","143"],["Asset impairments and restructuring charges, net","47","","","227","","","126"],["Loss on divested business and transaction costs","570","","","\u2014","","","\u2014"],["Accelerated depreciation","4","","","8","","","\u2014"],["Total non-core items impacting EBIT","354","","","475","","","269"],["Non-core item impacting earnings before income taxes:"],["Early debt extinguishment","1","","","1","","","\u2014"],["Total non-core item impacting earnings before income taxes","1","","","1","","","\u2014"],["Less: Items impacting provision for income taxes:"],["Tax effect for non-core items","(16)","","","115","","","47"],["Adjustments from tax law changes","15","","","\u2014","","","(7)"],["Total items impacting provision for income taxes","(1)","","","115","","","40"],["Total items impacting net earnings attributable to Eastman","$","356","","","$","361","","","$","229"]]
[[/GREPCENT_TABLE]]

Below is the calculation of the "Other components of post-employment (benefit) cost, net" that are not included in the above non-core item "mark-to-market pension and other postretirement benefits loss (gain), net" and that are included in the non-GAAP results.

[[GREPCENT_TABLE]]
[["(Dollars in millions)","2021","","2020","","2019"],["Other components of post-employment (benefit) cost, net","$","(412)","","","$","119","","","$","60"],["Service cost","45","","","42","","","41"],["Net periodic benefit (credit) cost","(367)","","","161","","","101"],["Less: Mark-to-market pension and other postretirement benefits loss (gain), net","(267)","","","240","","","143"],["Components of post-employment (benefit) cost, net included in non-GAAP earnings measures","$","(100)","","","$","(79)","","","$","(42)"]]
[[/GREPCENT_TABLE]]

Below is the calculation of the MTM pension and other post-retirement benefits (gain) loss disclosed above.

[[GREPCENT_TABLE]]
[["(Dollars in millions)","2021","","2020","","2019"],["Actual return and percentage of return on assets","$","278","","","10","%","","$","260","","","9","%","","$","406","","","15","%"],["Less: expected return on assets","168","","","6","%","","174","","","6","%","","165","","","6","%"],["Mark-to-market (loss) gain on assets","110","","","","","86","","","","","241"],["Actuarial (loss) gain (1)","157","","","","","(326)","","","","","(384)"],["Total mark-to-market (loss) gain","$","267","","","","","$","(240)","","","","","$","(143)"],["Global weighted-average assumed discount rate for year ended December 31:","2.52","%","","","","2.07","%","","","","2.80","%"]]
[[/GREPCENT_TABLE]]

(1)Actuarial (loss) gain resulted primarily from the change in discount rates from the prior year and changes in other actuarial assumptions.

For more detail about MTM pension and other postretirement benefit plans net gains and losses, including actual and expected return on plan assets and the components of the net gain or loss, see "Critical Accounting Estimates - Pension and Other Postretirement Benefits" above, and Note 11, "Retirement Plans", "Summary of Changes - Actuarial (gain) loss, Actual return on plan assets, and Reserve for third party contributions", and "Summary of Benefit Costs and Other Amounts Recognized in Other Comprehensive Income - Mark-to-market pension and other postretirement benefits (gain) loss, net" to the Company's consolidated financial statements in Part II, Item 8 of this Annual Report.

37

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This MD&A includes the effect of the foregoing on the following GAAP financial measures:

•Gross profit,

•Selling, general and administrative ("SG&A") expenses,

•Other components of post-employment (benefit) cost, net,

•EBIT,

•Provision for income taxes,

•Net earnings attributable to Eastman,

•Diluted EPS, and

•Net cash provided by operating activities.

Other Non-GAAP Financial Measures

Alternative Non-GAAP Cash Flow Measure

In addition to the non-GAAP measures presented in this Annual Report and other periodic reports, management occasionally has evaluated and disclosed to investors and securities analysts the non-GAAP measure cash provided by or used in operating activities excluding certain non-core, unusual, or non-recurring sources or uses of cash or including cash from or used by activities that are managed as part of core business operations ("adjusted cash provided by or used in operating activities") when analyzing, among other things, business performance, liquidity and financial position, and performance-based compensation. Management has used this non-GAAP measure in conjunction with the GAAP measure cash provided by or used in operating activities because it believes it is an appropriate metric to evaluate the cash flows from Eastman's core operations that are available for organic and inorganic growth initiatives and because it allows for a more consistent period-over-period presentation of such amounts. In its evaluation, management generally excludes the impact of certain non-core activities and decisions of management that it considers not core, ongoing components of operations and the decisions to undertake or not to undertake such activities may be made irrespective of the cash generated from operations, and generally includes cash from or used in activities that are managed as operating activities and in business operating decisions. Management has disclosed this non-GAAP measure and the related reconciliation to investors and securities analysts to allow them to better understand and evaluate the information used by management in its decision-making processes and because management believes investors and securities analysts use similar measures to assess Company performance, liquidity, and financial position over multiple periods and to compare these with other companies.

Alternative Non-GAAP Earnings Measures

From time to time, Eastman may also disclose to investors and securities analysts the non-GAAP earnings measures "Adjusted EBIT Margin", "Adjusted EBITDA", "Adjusted EBITDA Margin", "Return on Invested Capital" (or "ROIC"), and "Adjusted ROIC". Management defines Adjusted EBIT Margin as the GAAP measure EBIT adjusted to exclude the same non-core, unusual, or non-recurring items as are excluded from the Company's other non-GAAP earnings measures for the same periods divided by the GAAP measure sales revenue in the Company's Consolidated Statement of Earnings, Comprehensive Income and Retained Earnings for the same period. Adjusted EBITDA is EBITDA (net earnings before interest, taxes, depreciation and amortization) adjusted to exclude the same non-core, unusual, or non-recurring items as are excluded from the Company's other non-GAAP earnings measures for the same periods. Adjusted EBITDA Margin is Adjusted EBITDA divided by the GAAP measure sales revenue in the Company's Consolidated Statement of Earnings, Comprehensive Income and Retained Earnings for the same periods. Management defines ROIC as net earnings plus interest expense after tax divided by average total borrowings plus average stockholders' equity for the periods presented, each derived from the GAAP measures in the Company's financial statements for the periods presented. Adjusted ROIC is ROIC adjusted to exclude from net earnings the same non-core, unusual, or non-recurring items as are excluded from the Company's other non-GAAP earnings measures for the same periods. Management believes that Adjusted EBIT Margin, Adjusted EBITDA, Adjusted EBITDA Margin, ROIC, and Adjusted ROIC are useful as supplemental measures in evaluating the performance of and returns from Eastman's operating businesses, and from time to time uses such measures in internal performance calculations. Further, management understands that investors and securities analysts often use similar measures of Adjusted EBIT Margin, Adjusted EBITDA, Adjusted EBITDA Margin, ROIC, and Adjusted ROIC to compare the results, returns, and value of the Company with those of peer and other companies.

38

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

Eastman's products and operations are managed and reported in four operating segments: Additives & Functional Products ("AFP"), Advanced Materials ("AM"), Chemical Intermediates ("CI"), and Fibers. Eastman uses an innovation-driven growth model which consists of leveraging world class scalable technology platforms, delivering differentiated application development capabilities, and relentlessly engaging the market. The Company's world class technology platforms form the foundation of sustainable growth by differentiated products through significant scale advantages in research and development ("R&D") and advantaged global market access. Differentiated application development converts market complexity into opportunities for growth and accelerates innovation by enabling a deeper understanding of the value of Eastman's products and how they perform within customers' and end-user products. Key areas of application development include thermoplastic conversion, functional films, coatings formulations, nonwovens and textiles, and animal nutrition. The Company engages the market by working directly with customers and downstream users, targeting attractive niche markets, and leveraging disruptive macro trends. Management believes that these elements of the Company's innovation-driven growth model, combined with disciplined portfolio management and balanced capital deployment, will result in consistent, sustainable earnings growth and strong cash flow.

The Company generated sales revenue of $10.5 billion and $8.5 billion for 2021 and 2020, respectively. EBIT was $1.3 billion and $741 million in 2021 and 2020, respectively. Excluding the non-core items referenced in "Non-GAAP Financial Measures", adjusted EBIT was $1.6 billion and $1.2 billion in 2021 and 2020, respectively. Sales revenue increased in 2021 compared to 2020 primarily due to higher selling prices and higher sales volume. Adjusted EBIT increased in 2021 compared to 2020 primarily due to higher sales volume and favorable product mix, particularly in the AM and AFP segments, and higher selling prices more than offsetting higher raw material and energy costs in the CI segment.

In 2020, capacity utilization was substantially lower due to lower sales volume resulting from the impact of the COVID-19 coronavirus global pandemic ("COVID-19") and the Company's focus on maximizing cash generation by reducing inventories, which reduced EBIT, particularly in the AM segment. As a result, cost reduction actions, including reduced discretionary spending, deferred asset maintenance turnarounds, and adjusted operations to ensure the health and safety of employees and contractors, totaled approximately $150 million in 2020, with approximately 60 percent presented in "Cost of Sales" and approximately 40 percent in "Selling, general and administrative expenses" in the Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings. In 2021, demand across key end-markets affected by COVID-19 continued to recover, and despite the ongoing automotive original equipment manufacturer ("OEM") component shortages negatively impacting customers' demand for products in the transportation markets, especially in the AM segment, the Company had higher sales volume and favorable product mix of specialty products, which increased adjusted EBIT.

On November 1, 2021, the Company completed the sale of the rubber additives (including Crystex™ insoluble sulfur and Santoflex™ antidegradants) and other product lines and related assets and technology of the global tire additives business of its AFP segment ("rubber additives"). The sale did not include the Eastman Impera™ and other performance resins product lines of the tire additives business.

On October 28, 2021, the Company entered into a definitive agreement to sell the adhesives resins business, which includes hydrocarbon resins (including Impera™ tire resins), pure monomer resins, polyolefin polymers, rosins and dispersions, and oleochemical and fatty-acid based resins product lines, of its AFP segment ("adhesives resins") for $1 billion. The final purchase price is subject to working capital and other adjustments at closing. As of the definitive agreement date and until sale, the adhesives resins disposal group will be classified as held for sale.

For additional information on the sale of rubber additives and the pending sale of adhesives resins, see Note 2, "Divestiture and Business Held for Sale", to the Company's consolidated financial statements in Part II, Item 8 of this Annual Report.

Discussion of sales revenue and EBIT changes is presented in "Results of Operations" and "Summary by Operating Segment" in this MD&A.

39

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Net earnings and EPS and adjusted net earnings and EPS were as follows:

[[GREPCENT_TABLE]]
[["","2021","","2020"],["(Dollars in millions, except diluted EPS)","$","","EPS","","$","","EPS"],["Net earnings attributable to Eastman","$","857","","","$","6.25","","","$","478","","","$","3.50"],["Total non-core and unusual items, net of tax","356","","","2.60","","","361","","","2.65"],["Net earnings attributable to Eastman excluding non-core and unusual items","$","1,213","","","$","8.85","","","$","839","","","$","6.15"]]
[[/GREPCENT_TABLE]]

The Company generated $1.6 billion and $1.5 billion of cash from operating activities in 2021 and 2020, respectively. Free cash flow was $1.1 billion in both 2021 and 2020.

RESULTS OF OPERATIONS

Eastman's results of operations as presented in the Company's consolidated financial statements in Part II, Item 8 of this Annual Report are summarized and analyzed below.

Sales

[[GREPCENT_TABLE]]
[["","2021 Compared to 2020","","2020 Compared to 2019"],["(Dollars in millions)","2021","","2020","","Change","","2020","","2019","","Change"],["Sales","$","10,476","","","$","8,473","","","24","%","","$","8,473","","","$","9,273","","","(9)","%"],["Volume / product mix effect","","","","","8","%","","","","","","(5)","%"],["Price effect","","","","","15","%","","","","","","(4)","%"],["Exchange rate effect","","","","","1","%","","","","","","\u2014","%"]]
[[/GREPCENT_TABLE]]

2021 Compared to 2020

Sales revenue increased as a result of increases in all operating segments. Further discussion by operating segments is presented in "Summary of Operating Segment" in this MD&A.

2020 Compared to 2019

Sales revenue decreased as a result of decreases in all operating segments. Further discussion by operating segments is presented in "Summary of Operating Segment" in this MD&A.

Gross Profit

[[GREPCENT_TABLE]]
[["","2021 Compared to 2020","","2020 Compared to 2019"],["(Dollars in millions)","2021","","2020","","Change","","2020","","2019","","Change"],["Gross profit","$","2,500","","","$","1,975","","","27","%","","$","1,975","","","$","2,234","","","(12)","%"],["Accelerated depreciation","4","","","8","","","","","8","","","\u2014"],["Gross profit excluding non-core item","$","2,504","","","$","1,983","","","26","%","","$","1,983","","","$","2,234","","","(11)","%"]]
[[/GREPCENT_TABLE]]

2021 Compared to 2020

Gross profit included accelerated depreciation resulting from the closure of an advanced interlayers manufacturing facility in North America in the AM segment as part of ongoing site optimization actions. Excluding this non-core item, gross profit increased as a result of increases in all operating segments, except the Fibers segment. Further discussion of sales revenue and EBIT changes is presented in "Summary by Operating Segment" in this MD&A.

2020 Compared to 2019

Gross profit included accelerated depreciation resulting from the closure of an advanced interlayers manufacturing facility in North America in the AM segment as part of ongoing site optimization actions. Excluding this non-core item, gross profit decreased as a result of decreases in all operating segments. Further discussion of sales revenue and EBIT changes is presented in "Summary by Operating Segment" in this MD&A.

40

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Selling, General and Administrative Expenses

[[GREPCENT_TABLE]]
[["","2021 Compared to 2020","","2020 Compared to 2019"],["(Dollars in millions)","2021","","2020","","Change","","2020","","2019","","Change"],["Selling, general and administrative expenses","$","795","","","$","654","","","22","%","","$","654","","","$","691","","","(5)","%"],["Transaction costs","(18)","","","\u2014","","","","","\u2014","","","\u2014"],["Selling, general and administrative expenses excluding non-core items","$","777","","","$","654","","","19","%","","$","654","","","$","691","","","(5)","%"]]
[[/GREPCENT_TABLE]]

2021 Compared to 2020

SG&A expenses in 2021 included transaction costs for the divestiture of rubber additives and the definitive agreement to sell adhesives resins, both of the AFP segment. Excluding these non-core items, SG&A expenses increased primarily as a result of higher variable compensation costs, including for incentive compensation based on annual business performance, and higher discretionary spending corresponding to strengthened business and market conditions.

2020 Compared to 2019

SG&A expenses decreased primarily due to cost reduction actions.

Research and Development Expenses

[[GREPCENT_TABLE]]
[["","2021 Compared to 2020","","2020 Compared to 2019"],["(Dollars in millions)","2021","","2020","","Change","","2020","","2019","","Change"],["Research and development expenses","$","254","","","$","226","","","12","%","","$","226","","","$","234","","","(3)","%"]]
[[/GREPCENT_TABLE]]

2021 Compared to 2020

R&D expenses increased primarily due to higher growth initiative projects, particularly in the AM and AFP segments.

2020 Compared to 2019

R&D expenses decreased primarily due to cost reduction actions including an increased focus on project prioritization.

41

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Asset Impairments and Restructuring Charges, Net

[[GREPCENT_TABLE]]
[["","For years ended December 31,"],["(Dollars in millions)","2021","","2020","","2019"],["Tangible Asset Impairments"],["CI & AFP - Singapore (1)","$","3","","","$","\u2014","","","$","27"],["Site optimizations"],["AFP - Tire additives (2)","12","","","5","","","\u2014"],["AM - Advanced interlayers (3)","1","","","\u2014","","","\u2014"],["AM - Performance films (4)","\u2014","","","5","","","\u2014"],["AFP - Animal nutrition (5)","\u2014","","","3","","","\u2014"],["Discontinuation of growth initiatives (6)","\u2014","","","8","","","\u2014"],["","16","","","21","","","27"],["Gain on Sale of Previously Impaired Assets"],["Site optimizations"],["AFP - Animal nutrition (5)","(1)","","","\u2014","","","\u2014"],["","(1)","","","\u2014","","","\u2014"],["Intangible Asset Impairments"],["AFP - Tradenames (7)","\u2014","","","123","","","\u2014"],["AFP - Customer relationships (8)","\u2014","","","2","","","\u2014"],["AFP - Goodwill (9)","\u2014","","","\u2014","","","45"],["","\u2014","","","125","","","45"],["Severance Charges"],["Business improvement and cost reduction actions (10)","1","","","47","","","45"],["CI & AFP - Singapore (1)","\u2014","","","6","","","\u2014"],["Site optimizations"],["AFP - Tire additives (2)","\u2014","","","3","","","\u2014"],["AM - Advanced interlayers (3)","1","","","5","","","\u2014"],["AM - Performance films (4)","\u2014","","","3","","","\u2014"],["AFP - Animal nutrition (5)","\u2014","","","1","","","\u2014"],["","2","","","65","","","45"],["Other Restructuring Costs"],["Cost reduction initiatives (10)","\u2014","","","14","","","5"],["Discontinuation of growth initiatives contract termination fees (6)","\u2014","","","4","","","\u2014"],["CI & AFP - Singapore (1)","17","","","\u2014","","","\u2014"],["Site optimizations"],["AFP - Tire additives (2)","6","","","\u2014","","","\u2014"],["AM - Advanced interlayers (3)","5","","","\u2014","","","\u2014"],["AM - Performance films (4)","2","","","\u2014","","","\u2014"],["AFP - Animal nutrition (5)","\u2014","","","(2)","","","\u2014"],["AFP - Discontinued capital project (11)","\u2014","","","\u2014","","","4"],["","30","","","16","","","9"],["Total","$","47","","","$","227","","","$","126"]]
[[/GREPCENT_TABLE]]

42

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(1)Asset impairment charges in 2021 of $2 million and $1 million in the CI segment and the AFP segment, respectively, and in 2019 of $22 million and $5 million in the CI segment and the AFP segment, respectively. Severance charges in 2020 of $5 million and $1 million in the CI segment and the AFP segment, respectively, and site closure costs, including contract termination fees, in 2021 of $14 million and $3 million in the CI segment and the AFP segment, respectively, resulting from the previously disclosed plan to discontinue production of certain products at the Singapore manufacturing site. Management expected and realized annual earnings benefit from this closure of approximately $25 million beginning in 2021 within the AFP and CI segments, primarily in "Cost of sales" in the Consolidated Statements Earnings, Comprehensive Income and Retained Earnings.

(2)Asset impairment charges of $8 million in 2021 in the AFP segment for assets associated with divested rubber additives. Asset impairment charges of $4 million and site closure costs of $6 million in the AFP segment in 2021 from the previously reported closure of a tire additives manufacturing facility in Asia Pacific as part of ongoing site optimization. Fixed asset impairments and severance in 2020 in the AFP segment from the closure of a tire additives manufacturing facility in Asia Pacific as part of ongoing site optimization.

(3)Asset impairments, severance charges, and site closure costs in the Advanced Materials ("AM") segment due to the closure of an advanced interlayers manufacturing facility in North America as part of ongoing site optimization. In addition, accelerated depreciation of $4 million and $8 million was recognized in "Cost of sales" in the Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings in 2021 and 2020, respectively, related to the closure of this facility.

(4)Fixed asset impairments, severance charges, and site closure costs in the AM segment from the closure of a performance films manufacturing facility in North America as part of ongoing site optimization.

(5)Fixed asset impairments, severance charges, and other restructuring gains in 2020 in the AFP segment from the closure of an animal nutrition manufacturing facility in Asia Pacific as part of ongoing site optimization, and in 2021 a gain from the sale of the previously impaired assets.

(6)Fixed asset impairments and contract termination fees resulting from management's decision to discontinue growth initiatives for polyester based microfibers, including Avra™ performance fibers, the financial results of which were not allocated to an operating segment and reported in "Other".

(7)Intangible asset impairment charges in the AFP segment tire additives business to reduce the carrying values of the Crystex™ and Santoflex™ tradenames to the estimated fair values. The estimated fair values were determined using an income approach, specifically, the relief from royalty method, including some unobservable inputs. The impairments are primarily the result of weakened demand in transportation markets impacted by COVID-19 and increased competitive pricing pressure as a result of global capacity increases.

(8)Intangible asset impairment charge for customer relationships.

(9)Goodwill impairment charge in the AFP segment resulting from the annual impairment test.

(10)Severance and related costs as part of business improvement and cost reduction initiatives which were reported in "Other".

(11)Additional restructuring charge related to a capital project in the AFP segment that was discontinued in 2016.

Other Components of Post-employment (Benefit) Cost, Net

[[GREPCENT_TABLE]]
[["","2021 Compared to 2020","","2020 Compared to 2019"],["(Dollars in millions)","2021","","2020","","Change","","2020","","2019","","Change"],["Other components of post-employment (benefit) cost, net","$","(412)","","","$","119","","","(100%)","","$","119","","","$","60","","","98","%"],["Mark-to-market pension and other postretirement benefit gain (loss), net","267","","","(240)","","","","","(240)","","","(143)"],["Other components of post-employment (benefit) cost, net excluding non-core item","$","(145)","","","$","(121)","","","20","%","","$","(121)","","","$","(83)","","","46","%"]]
[[/GREPCENT_TABLE]]

For more information regarding "Other components of post-employment (benefit) cost, net" see Note 1, "Significant Accounting Policies", and Note 11, "Retirement Plans", to the Company's consolidated financial statements in Part II, Item 8 of this Annual Report.

Other (Income) Charges, Net

[[GREPCENT_TABLE]]
[["(Dollars in millions)","2021","","2020","","2019"],["Foreign exchange transaction losses (gains), net","$","10","","","$","16","","","$","9"],["(Income) loss from equity investments and other investment (gains) losses, net","(16)","","","(15)","","","(10)"],["Other, net","(11)","","","7","","","4"],["Other (income) charges, net","$","(17)","","","$","8","","","$","3"]]
[[/GREPCENT_TABLE]]

43

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

For more information regarding components of foreign exchange transaction losses, see Note 10, "Derivative and Non-Derivative Financial Instruments", to the Company's consolidated financial statements in Part II, Item 8 of this Annual Report.

Earnings Before Interest and Taxes

[[GREPCENT_TABLE]]
[["","2021 Compared to 2020","2020 Compared to 2019"],["(Dollars in millions)","2021","","2020","","Change","","2020","","2019","","Change"],["EBIT","$","1,281","","","$","741","","","73","%","","$","741","","","$","1,120","","","(34)","%"],["Mark-to-market pension and other postretirement benefit loss (gain), net","(267)","","","240","","","","","240","","","143"],["Asset impairments and restructuring charges, net","47","","","227","","","","","227","","","126"],["Loss on divested business and transaction costs","570","","","\u2014","","","","","\u2014","","","\u2014"],["Accelerated depreciation","4","","","8","","","","","8","","","\u2014"],["EBIT excluding non-core items","$","1,635","","","$","1,216","","","34","%","","$","1,216","","","$","1,389","","","(12)","%"]]
[[/GREPCENT_TABLE]]

Net Interest Expense

[[GREPCENT_TABLE]]
[["","2021 Compared to 2020","2020 Compared to 2019"],["(Dollars in millions)","2021","","2020","","Change","","2020","","2019","","Change"],["Gross interest expense","$","206","","","$","218","","","","","$","218","","","$","225"],["Less: Capitalized interest","5","","","4","","","","","4","","","4"],["Interest Expense","201","","","214","","","","","214","","","221"],["Less: Interest income","3","","","4","","","","","4","","","3"],["Net interest expense","$","198","","","$","210","","","(6)","%","","$","210","","","$","218","","","(4)","%"]]
[[/GREPCENT_TABLE]]

2021 Compared to 2020

Net interest expense decreased primarily as a result of lower total borrowings.

2020 Compared to 2019

Net interest expense decreased primarily as a result of prior year repayment of public debt and lower interest rates.

Early Debt Extinguishment Costs

In fourth quarter 2021, the Company amended and restated the $1.50 billion revolving credit agreement (the "Credit Facility"). This resulted in a charge of $1 million for early debt extinguishment costs which was attributable to unamortized fees.

In third quarter 2020, the Company repaid the 364-Day Term Loan Credit Agreement (the "Term Loan") using available cash. The early repayment resulted in a charge of $1 million for early debt extinguishment costs for unamortized issuance costs.

For additional information regarding the early debt extinguishment costs, see Note 9, "Borrowings", to the Company's consolidated financial statements in Part II, Item 8 of this Annual Report.

44

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Provision for Income Taxes

[[GREPCENT_TABLE]]
[["(Dollars in millions)","2021","","2020","","2019"],["","$","","%","","$","","%","","$","","%"],["Provision for income taxes and effective tax rate","$","215","","","20","%","","$","41","","","8","%","","$","140","","","16","%"],["Tax provision for non-core items (1)","(16)","","","","","115","","","","","47"],["Adjustments from tax law changes","15","","","","","\u2014","","","","","(7)"],["Adjusted provision for income taxes and effective tax rate","$","214","","","15","%","","$","156","","","16","%","","$","180","","","15","%"]]
[[/GREPCENT_TABLE]]

(1)Provision for income taxes for non-core items is calculated using the tax rate for the jurisdiction where the gains are taxable and the expenses are deductible.

The 2021 effective tax rate includes a $78 million decrease to the provision for income taxes primarily related to previously unrecognized tax positions resulting from finalization of prior years' income tax audits, partially offset by current year increases. Additionally, the 2021 effective tax rate includes impacts of the divestiture of rubber additives, including an increase to the provision for income taxes related to non-deductible losses partially offset by a decrease to the provision for income taxes from the revaluation of deferred tax liabilities.

The 2020 effective tax rate includes a $27 million decrease to the provision for income taxes as a result of a decrease in unrecognized tax positions and a $7 million decrease to the provision for income taxes related to adjustments to certain prior year tax returns.

The 2019 effective tax rate includes a $7 million increase to the provision for income taxes resulting from adjustments to the net tax benefit recognized in fourth quarter 2017 resulting from tax law changes, primarily the Tax Reform Act and from outside-U.S. entity reorganizations. The 2019 effective tax rate also includes adjustments to the tax provision to reflect finalization of prior year's income tax returns and an increase to state income taxes related to additional valuation allowance provided against state income tax credits.

For more information, see Note 8, "Income Taxes", to the Company's consolidated financial statements in Part II, Item 8 of this Annual Report.

Net Earnings Attributable to Eastman and Diluted Earnings per Share

[[GREPCENT_TABLE]]
[["","2021","","2020","","2019"],["(Dollars in millions, except per share amounts)","$","","EPS","","$","","EPS","","$","","EPS"],["Net earnings and diluted earnings per share attributable to Eastman","$","857","","","$","6.25","","","$","478","","","$","3.50","","","$","759","","","$","5.48"],["Non-core items, net of tax: (1)"],["Mark-to-market pension and other postretirement benefit loss (gain), net","(202)","","","(1.46)","","","180","","","1.32","","","109","","","0.79"],["Accelerated depreciation","3","","","0.02","","","6","","","0.05","","","\u2014","","","\u2014"],["Asset impairments and restructuring charges, net","39","","","0.28","","","174","","","1.28","","","113","","","0.81"],["Loss on divested business and transaction costs","530","","","3.86","","","\u2014","","","\u2014","","","\u2014","","","\u2014"],["Early debt extinguishment costs","1","","","0.01","","","1","","","\u2014","","","\u2014","","","\u2014"],["Unusual item, net of tax:"],["Adjustments from tax law changes","(15)","","","(0.11)","","","\u2014","","","\u2014","","","7","","","0.05"],["Adjusted net earnings and diluted earnings per share attributable to Eastman","$","1,213","","","$","8.85","","","$","839","","","$","6.15","","","$","988","","","$","7.13"]]
[[/GREPCENT_TABLE]]

(1)The provision for income taxes for non-core items is calculated using the tax rate for the jurisdiction where the gains are taxable and the expenses are deductible.

45

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

SUMMARY BY OPERATING SEGMENT

Eastman's products and operations are managed and reported in four operating segments: Additives & Functional Products ("AFP"), Advanced Materials ("AM"), Chemical Intermediates ("CI"), and Fibers. For additional financial and product information for each operating segment, see "Business - Business Segments" in Part I, Item 1 of this Annual Report and Note 20, "Segment and Regional Sales Information", to the Company's consolidated financial statements in Part II, Item 8 of this Annual Report.

[[GREPCENT_TABLE]]
[["Additives & Functional Products Segment"],["","2021 Compared to 2020","","2020 Compared to 2019"],["","","","","","","Change","","","","","","Change"],["(Dollars in millions)","","2021","","2020","","$","","%","","2020","","2019","","$","","%"],["Sales","","$","3,700","","","$","3,022","","","$","678","","","22","%","","$","3,022","","","$","3,273","","","$","(251)","","","(8)","%"],["Volume / product mix effect","","","","","","272","","","9","%","","","","","","(116)","","","(4)","%"],["Price effect","","","","","","358","","","12","%","","","","","","(145)","","","(4)","%"],["Exchange rate effect","","","","","","48","","","1","%","","","","","","10","","","\u2014","%"],["Earnings (loss) before interest and taxes","","$","(54)","","","$","312","","","$","(366)","","","(100%)","","$","312","","","$","496","","","$","(184)","","","(37)","%"],["Loss on divested business and transaction costs","","570","","","\u2014","","","570","","","","","\u2014","","","\u2014","","","\u2014"],["Asset impairments and restructuring charges, net","","21","","","136","","","(115)","","","","","136","","","54","","","82"],["EBIT excluding non-core items","","537","","","448","","","89","","","20","%","","448","","","550","","","(102)","","","(19)","%"]]
[[/GREPCENT_TABLE]]

2021 Compared to 2020

Sales revenue increased primarily due to higher selling prices and higher sales volume. Higher selling prices were primarily due to higher raw material, energy, and distribution prices. Higher sales volume was primarily due to strengthened demand and improved market conditions for coatings additives products sold in transportation, building and construction, and durable goods end-markets, resulting in a more favorable product mix.

Earnings (loss) before interest and taxes in 2021 included loss on business held for sale and related transaction costs, asset impairments, restructuring charges resulting from manufacturing facility closures, contract termination fees, and a gain on the sale of impaired assets. EBIT in 2020 included asset impairment and restructuring charges resulting from the impairment of tradenames and customer relationships, and the closure of manufacturing facilities. For more information regarding asset impairments and restructuring charges see Note 16, "Asset Impairments and Restructuring Charges, Net", to the Company's consolidated financial statements in Part II, Item 8 of this Annual Report.

Excluding these non-core items, EBIT increased primarily due to $178 million of higher sales volume. This increase was partially offset by higher raw material and energy costs and higher distribution costs offsetting higher selling prices by $95 million.

2020 Compared to 2019

Sales revenue decreased primarily due to lower selling prices and lower sales volume. Lower selling prices were due to lower raw material prices and competitive activity in animal nutrition, tire additives, and adhesives resins products. The negative impact of COVID-19 on demand resulted in lower sales volume of aviation fluids and coatings additives sold into transportation end-markets resulting in less favorable product mix.

46

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

EBIT in 2020 included asset impairment and restructuring charges resulting from the impairment of tradenames and customer relationships and the closure of manufacturing facilities. EBIT in 2019 included a goodwill impairment, an asset impairment related to discontinued production at the Singapore manufacturing site, and restructuring charges. For more information regarding asset impairments and restructuring charges see Note 16, "Asset Impairments and Restructuring Charges, Net", to the Company's consolidated financial statements in Part II, Item 8 of this Annual Report.

Excluding these non-core items, EBIT decreased primarily due to $133 million of lower sales volume and higher manufacturing costs primarily due to lower capacity utilization and reduction of inventory. These higher costs were partially offset by $41 million in cost reduction actions.

Initiatives

In 2021, the AFP segment:

•continued to advance growth and innovation of Tetrashield™ resins that enable low-volatile organic compounds ("VOC") formulations and eliminate energy intensive manufacturing steps, by working with key customers and other brands through the value chain;

•continued to expand capabilities of Eastapure™ electronic chemicals, an excellent choice for use in etching solutions for semiconductor chips and other electronic applications with extremely low metal content;

•increased capacity to produce tertiary amines at its Ghent, Belgium and Pace, Florida facilities by approximately 40 percent and 20 percent, respectively, to meet growing demand for hand sanitizers and other household cleaning products;

•completed raw material conversion project at its Oulu, Finland facility implementing more sustainable technology by switching to liquefied natural gas and improving its environmental footprint;

•introduced Fluid Genius™, a patent-pending product that equips end-users with predictive insights to optimize heat transfer fluid performance by leveraging artificial intelligence technology with Eastman expertise to monitor and maximize the life cycle of heat transfer fluids for a myriad of system applications;

•acquired 3F Food & Feed ("3F"), a manufacturer of additives for animal feed and human food which is expected to enhance continued global growth of the animal nutrition product lines;

•completed the sale of the rubber additives (including Eastman's Crystex™ insoluble sulfur and Santoflex™ antidegradants) and other product lines and related assets and technology; and

•entered into a definitive agreement to sell its adhesives resins assets and business, consisting of hydrocarbon resins (including Eastman Impera™ tire resins), pure monomer resins, polyolefin polymers, rosins and dispersions, and oleochemical and fatty-acid based resins product lines.

[[GREPCENT_TABLE]]
[["Advanced Materials Segment"],["","2021 Compared to 2020","","2020 Compared to 2019"],["","","","","","","Change","","","","","","Change"],["(Dollars in millions)","","2021","","2020","","$","","%","","2020","","2019","","$","","%"],["Sales","","$","3,027","","","$","2,524","","","$","503","","","20","%","","$","2,524","","","$","2,688","","","$","(164)","","","(6)","%"],["Volume / product mix effect","","","","","","406","","","16","%","","","","","","(101)","","","(4)","%"],["Price effect","","","","","","57","","","2","%","","","","","","(67)","","","(2)","%"],["Exchange rate effect","","","","","","40","","","2","%","","","","","","4","","","\u2014","%"],["EBIT","","$","519","","","$","427","","","$","92","","","22","%","","$","427","","","$","517","","","$","(90)","","","(17)","%"],["Asset impairments and restructuring charges, net","","9","","","13","","","(4)","","","","","13","","","1","","","12"],["Accelerated depreciation","","4","","","8","","","(4)","","","","","8","","","\u2014","","","8"],["EBIT excluding non-core items","","532","","","448","","","84","","","19","%","","448","","","518","","","(70)","","","(14)","%"]]
[[/GREPCENT_TABLE]]

47

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

2021 Compared to 2020

Sales revenue increased primarily due to higher sales volume. Demand strengthened for specialty plastics products sold into durables goods, medical, and electronics end-markets, advanced interlayers products sold into transportation end-markets, and performance films premium automotive products, resulting in a more favorable product mix.

EBIT in 2021 and 2020 included asset impairments and restructuring charges and accelerated depreciation resulting from a manufacturing facility closure. For more information regarding asset impairments and restructuring charges see Note 16, "Asset Impairments and Restructuring Charges, Net", to the Company's consolidated financial statements in Part II, Item 8 of this Annual Report.

Excluding these non-core items, EBIT increased primarily due to $307 million of higher sales volume and a favorable product mix, partially offset by higher raw material and energy costs and higher distribution costs offsetting higher selling prices by $191 million and $35 million of higher growth initiatives costs.

2020 Compared to 2019

Sales revenue decreased due to lower sales volume and lower selling prices. The negative impact of COVID-19 on demand resulted in lower sales volume of advanced interlayers products sold into transportation end-markets, partially offset by increased sales volume in the fourth quarter for consumer durables and increased sales volume of certain standard copolyester products used in applications for personal care and wellness and consumables end-markets, resulting in a less favorable product mix. Lower selling prices were primarily attributed to lower raw material prices, particularly for paraxylene used in copolyester products.

EBIT in 2020 included severance charges, accelerated depreciation, and asset impairment and restructuring charges from a manufacturing facility closure. For more information regarding asset impairments and restructuring charges see Note 16, "Asset Impairments and Restructuring Charges, Net", to the Company's consolidated financial statements in Part II, Item 8 of this Annual Report.

Excluding these non-core items, EBIT decreased primarily due to $128 million of lower sales volume and higher manufacturing costs due to lower capacity utilization and reduction of inventory. These higher costs were partially offset by $53 million in cost reduction actions and lower raw material and energy costs offsetting lower selling prices by $19 million.

Initiatives

In 2021, the AM segment:

•adopted polyester renewal technology for products in various end-markets including, Tritan™ Renew in durable goods, such as electronic devices, power tools, consumer housewares, small appliances, and eyewear, as well as Cristal™ Renew and Cristal™ One Renew in packaging;

•commercialized new products with improved recyclability including Cristal™ One and Cristal™ One Renew with adoption in cosmetic packaging end markets;

•continued circular economy advancements (including the investment in the world's largest polyester material recycling facility);

•continued the growth of Tritan™ copolyester in the durable goods and health and wellness markets, supported by continued market and application development;

•continued to expand portfolio of differentiated next generation products for both automotive and architectural interlayer films products;

•developed and launched Eastman CORE (trademark and patent pending) digital product data analytics software for accessory sales management and installation of automotive window and paint protection films products;

•developed and launched the third generation of paint protection films leveraging Eastman proprietary Tetrashield™ coating technology to enable what the Company believes is best in class aesthetics and durability in paint protection films; and

•acquired the Matrix Films performance films business expanding paint protection film pattern development capabilities, pattern database, and installation training expertise.

48

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

[[GREPCENT_TABLE]]
[["Chemical Intermediates Segment"],["","2021 Compared to 2020","","2020 Compared to 2019"],["","","","","","","Change","","","","","","Change"],["(Dollars in millions)","","2021","","2020","","$","","%","","2020","","2019","","$","","%"],["Sales","","$","2,849","","","$","2,090","","","$","759","","","36","%","","$","2,090","","","$","2,443","","","$","(353)","","","(14)","%"],["Volume / product mix effect","","","","","","(47)","","","(3)","%","","","","","","(175)","","","(7)","%"],["Price effect","","","","","","792","","","38","%","","","","","","(180)","","","(7)","%"],["Exchange rate effect","","","","","","14","","","1","%","","","","","","2","","","\u2014","%"],["EBIT","","$","445","","","$","166","","","$","279","","","168","%","","$","166","","","$","170","","","$","(4)","","","(2)","%"],["Asset impairments and restructuring charges, net","","16","","","5","","","11","","","","","5","","","22","","","(17)"],["EBIT excluding non-core item","","461","","","171","","","290","","","170","%","","171","","","192","","","(21)","","","(11)","%"]]
[[/GREPCENT_TABLE]]

2021 Compared to 2020

Sales revenue increased primarily due to higher selling prices, resulting from higher raw material, energy, and distribution prices. This increase was partially offset by lower sales volume, primarily due to the discontinued production of certain products at the Singapore manufacturing facility.

EBIT in 2021 and 2020 included restructuring charges resulting from the discontinued production of certain products. For more information regarding asset impairments and restructuring charges see Note 16, "Asset Impairments and Restructuring Charges, Net", to the Company's consolidated financial statements in Part II, Item 8 of this Annual Report.

Excluding this non-core item, EBIT increased primarily due to higher selling prices more than offsetting higher raw material and energy costs and higher distribution costs by $277 million.

2020 Compared to 2019

Sales revenue decreased primarily due to lower selling prices across the segment attributed to lower raw material prices, and lower sales volume in most product lines attributed to the negative impact of COVID-19 on demand and increased competitive pressure.

EBIT in 2020 and 2019 included restructuring charges resulting from the discontinued production of certain products. For more information regarding asset impairments and restructuring charges see Note 16, "Asset Impairments and Restructuring Charges, Net", to the Company's consolidated financial statements in Part II, Item 8 of this Annual Report.

Excluding this non-core item, EBIT decreased due to $66 million of lower sales volume and higher manufacturing costs due to lower capacity utilization, and lower selling prices partially offset by lower raw material and energy costs, totaling $17 million. The higher manufacturing costs were partially offset by $38 million of cost reduction actions and $18 million of technology licensing earnings in 2020.

Initiatives

In 2021, the CI segment:

•completed expansion of production capacity at St. Gabriel, Louisiana facility to support a strategic supply partnership;

•completed expansion of methylamines production capacity at Ghent, Belgium facility supporting market growth;

•completed closure of Singapore manufacturing site; and

•began the ethylene production to propylene capital investment which will provide low-cost propylene supply to internal derivatives and create lower volatility and improved earnings potential from enhanced operating flexibility.

49

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

[[GREPCENT_TABLE]]
[["Fibers Segment"],["","2021 Compared to 2020","","2020 Compared to 2019"],["(Dollars in millions)","","","","","Change","","","","","","Change"],["","2021","","2020","","$","","%","","2020","","2019","","$","","%"],["Sales","","$","900","","","$","837","","","$","63","","","8","%","","$","837","","","$","869","","","$","(32)","","","(4)","%"],["Volume / product mix effect","","","","","","57","","","7","%","","","","","","(18)","","","(2)","%"],["Price effect","","","","","","2","","","\u2014","%","","","","","","(14)","","","(2)","%"],["Exchange rate effect","","","","","","4","","","1","%","","","","","","\u2014","","","\u2014","%"],["EBIT","","$","142","","","$","180","","","$","(38)","","","(21)","%","","$","180","","","$","194","","","$","(14)","","","(7)","%"]]
[[/GREPCENT_TABLE]]

2021 Compared to 2020

Sales revenue increased primarily due to higher sales volume of textile products due to strengthened end-market demand attributed to continued recovery of the textiles end-market negatively impacted by COVID-19. Acetate tow sales volume was relatively unchanged.

EBIT decreased primarily due to higher raw material and energy costs and higher distribution costs, totaling $37 million.

2020 Compared to 2019

Sales revenue decreased primarily due to lower textile products sales volume attributed to the impact of COVID-19 on demand and lower acetate tow selling prices primarily due to previously negotiated multi-year contracts.

EBIT decreased primarily due to $26 million of lower sales volume and higher manufacturing costs due to lower capacity utilization and reduction of inventory. These higher costs were partially offset by $10 million in cost reduction actions.

Initiatives

In 2021, the Fibers segment:

•introduced Naia™ staple fiber for spun yarns for apparel and home textiles; and

•developed Naia™ Renew yarns and staple fibers made from approximately 40 percent recycled plastic and textiles waste, enabled by Eastman's carbon renewal technology.

50

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

[[GREPCENT_TABLE]]
[["Other"],["(Dollars in millions)","","2021","","2020","","2019"],["Loss before interest and taxes"],["Growth initiatives and businesses not allocated to operating segments","","$","(134)","","","$","(95)","","","$","(102)"],["Pension and other postretirement benefit plans income (expense), net not allocated to operating segments","","375","","","(156)","","","(97)"],["Asset impairments and restructuring charges, net","","(1)","","","(73)","","","(49)"],["Other income (charges), net not allocated to operating segments","","(11)","","","(20)","","","(9)"],["Gain (loss) before interest and taxes before non-core items","","$","229","","","$","(344)","","","$","(257)"],["Mark-to-market pension and other postretirement benefit plans loss (gain), net","","(267)","","","240","","","143"],["Asset impairments and restructuring charges, net","","1","","","73","","","49"],["Loss before interest and taxes excluding non-core items","","(37)","","","(31)","","","(65)"]]
[[/GREPCENT_TABLE]]

Costs related to growth initiatives, R&D costs, certain components of pension and other postretirement benefits, and other expenses and income not identifiable to an operating segment are not included in operating segment results for any of the periods presented and are included in "Other". In 2021, the Company recognized severance and related costs as part of business improvement and cost reduction initiatives. In 2020, the Company recognized severance and related costs as part of business improvement and cost reduction initiatives, contract termination fees, and asset impairments charges from discontinue growth initiatives. In 2019, the Company recognized severance and related restructuring costs. For more information regarding asset impairments and restructuring charges and debt extinguishment costs see Note 16, "Asset Impairments and Restructuring Charges, Net" and Note 9, "Borrowings", respectively, to the Company's consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K.

SALES BY CUSTOMER LOCATION

[[GREPCENT_TABLE]]
[["","Sales Revenue"],["","","","","","Change","","","","","Change"],["(Dollars in millions)","2021","","2020","","$","%","","2020","","2019","","$","%"],["United States and Canada","$","4,578","","","$","3,579","","","$","999","","28","%","","$","3,579","","","$","3,885","","","$","(306)","","(8)","%"],["Europe, Middle East, and Africa","2,735","","","2,299","","","436","","19","%","","2,299","","","2,544","","","(245)","","(10)","%"],["Asia Pacific","2,549","","","2,111","","","438","","21","%","","2,111","","","2,278","","","(167)","","(7)","%"],["Latin America","614","","","484","","","130","","27","%","","484","","","566","","","(82)","","(14)","%"],["Total","$","10,476","","","$","8,473","","","$","2,003","","24","%","","$","8,473","","","$","9,273","","","$","(800)","","(9)","%"]]
[[/GREPCENT_TABLE]]

2021 Compared to 2020

Sales revenue increased 24 percent due to increases in sales revenue across all regions. Higher sales revenue was primarily due to higher selling prices (up 15 percent) and higher sales volume (up 8 percent) across all regions. The most significant increase in sales revenue occurred in United States and Canada, primarily due to higher selling prices and sales volume in the CI and AFP segments. The increase in Asia Pacific was partially offset by lower sales volume in the CI segment primarily resulting from the closure of the Singapore manufacturing facility.

2020 Compared to 2019

Sales revenue decreased 9 percent due to decreases in sales revenue across all regions. Lower sales revenue was primarily due to lower sales volume (down 5 percent) and lower selling prices (down 4 percent) across all regions. The most significant decrease in sales revenue occurred in United States and Canada, primarily due to lower selling prices in all operating segments and lower sales volume in the CI and AM segments. Europe, Middle East, and Africa also had an significant decrease in sales revenue due to lower sales volume and lower selling prices in all operating segments.

See Note 20, "Segment and Regional Sales Information", to the Company's consolidated financial statements in Part II, Item 8 of this Annual Report for segment sales revenues by customer location.

51

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

LIQUIDITY AND OTHER FINANCIAL INFORMATION

Cash Flows

The Company had cash and cash equivalents as follows:

[[GREPCENT_TABLE]]
[["(Dollars in millions)","December 31,"],["","2021","","2020","","2019"],["Cash and cash equivalents","$","459","","","$","564","","","$","204"]]
[[/GREPCENT_TABLE]]

Cash flows from operations, cash and cash equivalents, and other sources of liquidity are expected to be available and sufficient to meet foreseeable cash requirements. However, the Company's cash flows from operations can be affected by numerous factors including risks associated with global operations, raw material availability and cost, demand for and pricing of Eastman's products, capacity utilization, and other factors described under "Risk Factors" in this MD&A. Management believes maintaining a financial profile that supports an investment grade credit rating is important to its long-term strategy and financial flexibility.

[[GREPCENT_TABLE]]
[["","For years ended December 31,"],["(Dollars in millions)","2021","","2020","","2019"],["Net cash provided by (used in):"],["Operating activities","$","1,619","","","$","1,455","","","$","1,504"],["Investing activities","(29)","","","(394)","","","(480)"],["Financing activities","(1,690)","","","(704)","","","(1,043)"],["Effect of exchange rate changes on cash and cash equivalents","(5)","","","3","","","(3)"],["Net change in cash and cash equivalents","(105)","","","360","","","(22)"],["Cash and cash equivalents at beginning of period","564","","","204","","","226"],["Cash and cash equivalents at end of period","$","459","","","$","564","","","$","204"]]
[[/GREPCENT_TABLE]]

2021 Compared to 2020

Cash provided by operating activities increased $164 million due to higher net earnings, partially offset by higher net working capital (trade receivables, inventories, and trade payables), as higher inventories and trade receivables more than offset higher trade payables.

Cash used in investing activities decreased $365 million due to the proceeds from the divestiture of rubber additives in the AFP segment partially offset by higher capital expenditures related to growth initiatives and acquisitions in the AFP and AM segments.

Cash used in financing activities increased $986 million primarily due to higher share repurchases.

2020 Compared to 2019

Cash provided by operating activities decreased $49 million due to lower net earnings, partially offset by lower net working capital (trade receivables, inventories, and trade payables), primarily due to a decrease in inventories.

Cash used in investing activities decreased $86 million due to lower additions to properties and equipment. Additionally, there were acquisitions in the AFP and Fibers segments in 2019.

Cash used in financing activities decreased $339 million due to lower share repurchases and lower debt repayments.

[[GREPCENT_TABLE]]
[["","For years ended December 31,"],["(Dollars in millions)","2021","","2020","","2019"],["Net cash provided by operating activities","$","1,619","","","$","1,455","","","$","1,504"],["Additions to properties and equipment","(555)","","","(383)","","","(425)"],["Free cash flow","$","1,064","","","$","1,072","","","$","1,079"]]
[[/GREPCENT_TABLE]]

52

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Working Capital Management

Eastman applies a proactive and disciplined approach to working capital management to optimize cash flow and to enable a full range of capital allocation options in support of the Company's strategy. Eastman expects to continue utilizing the programs described below to support free cash flow consistent with the Company's past practices.

The Company has an off balance sheet, uncommitted accounts receivable factoring program under which entire invoices may be sold, without recourse, to third-party financial institutions. Available capacity under these agreements, which the Company uses as a routine source of working capital funding, is dependent on the level of accounts receivable eligible to be sold and the financial institutions' willingness to purchase such receivables. The total amount of receivables sold in 2021 and 2020 were $1.2 billion and $1.5 billion, respectively. Based on the original terms of receivables sold for certain agreements and actual outstanding balance of receivables under service agreements, the Company estimates that $239 million and $150 million of these receivables would have been outstanding as of December 31, 2021 and 2020, respectively, had they not been sold under these factoring agreements.

Eastman works with suppliers to optimize payment terms and conditions on accounts payable to enhance timing of working

capital and cash flows. The Company has a voluntary supply chain finance program to provide suppliers with the opportunity to sell receivables due from Eastman to a participating financial institution. See Note 1, "Significant Accounting Policies", to the Company's consolidated financial statements in Part II, Item 8 of this Annual Report for additional information regarding both programs.

Debt and Other Commitments

[[GREPCENT_TABLE]]
[["(Dollars in millions)","","Payments Due for"],["Period","","Debt Securities","","Credit Facilities and Other","","Interest Payable","","Purchase Obligations","","Operating Leases","","Other Liabilities","","Total"],["2022","","$","747","","","$","\u2014","","","$","167","","","$","164","","","$","55","","","$","269","","","$","1,402"],["2023","","850","","","\u2014","","","154","","","156","","","44","","","77","","","1,281"],["2024","","241","","","\u2014","","","135","","","148","","","31","","","87","","","642"],["2025","","698","","","\u2014","","","117","","","124","","","24","","","81","","","1,044"],["2026","","565","","","\u2014","","","106","","","116","","","18","","","84","","","889"],["2027 and beyond","","2,058","","","\u2014","","","1,183","","","2,436","","","53","","","960","","","6,690"],["Total","","$","5,159","","","$","\u2014","","","$","1,862","","","$","3,144","","","$","225","","","$","1,558","","","$","11,948"]]
[[/GREPCENT_TABLE]]

At December 31, 2021, Eastman's borrowings totaled approximately $5.2 billion with various maturities. In fourth quarter 2021, the Company repaid the 3.5% notes due December 2021 ($300 million principal) using available cash. In fourth quarter 2020, the Company repaid the 4.5% notes due January 2021 ($185 million principal) using available cash. In second quarter 2020, the Company borrowed $250 million under a new Term Loan and in third quarter 2020, the Term Loan was repaid using available cash, For information about debt and related interest, see Note 9, "Borrowings", to the Company's consolidated financial statements in Part II, Item 8 of this Annual Report.

For information about purchase obligations and operating leases, see Note 12, "Leases and Other Commitments", to the Company's consolidated financial statements in Part II, Item 8 of this Annual Report.

Amounts in other liabilities represent the current estimated cash payments required to be made by the Company primarily for pension and other postretirement benefits, accrued compensation benefits, environmental loss contingency estimates, uncertain tax liabilities, and commodity and foreign exchange hedging in the periods indicated. Due to uncertainties in the timing of the effective settlement of tax positions with respect to taxing authorities, management is unable to determine the timing of payments related to uncertain tax liabilities and these amounts are included in the "2027 and beyond" line item.

53

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The amount and timing of pension and other postretirement benefit payments included in other liabilities is dependent upon interest rates, health care cost trends, actual returns on plan assets, retirement and attrition rates of employees, continuation or modification of the benefit plans, and other factors. Such factors can significantly impact the amount and timing of any future contributions by the Company. Excess contributions are periodically made by management in order to keep the plans' funded status above 80 percent under the funding provisions of the Pension Protection Act to avoid partial benefit restrictions on accelerated forms of payment. The Company's U.S. defined benefit pension plans are not currently under any benefit restrictions. See Note 11, "Retirement Plans", to the Company's consolidated financial statements in Part II, Item 8 of this Annual Report, for more information regarding pension and other postretirement benefit obligations.

The resolution of uncertainties related to environmental matters included in other liabilities may have a material adverse effect on the Company's consolidated results of operations in the period recognized, however, because of the availability of legal defenses, the Company's preliminary assessment of actions that may be required, and, if applicable, the expected sharing of costs, management does not believe that the Company's liability for these environmental matters, individually or in the aggregate, will be material to the Company's consolidated financial position, results of operations, or cash flows. See Note 1, "Significant Accounting Policies", to the Company's consolidated financial statements in Part II, Item 8 of this Annual Report for the Company's accounting policy for environmental costs, and see Note 13, "Environmental Matters and Asset Retirement Obligations", to the Company's consolidated financial statements in Part II, Item 8 of this Annual Report for more information regarding outstanding environmental matters and asset retirement obligations.

Credit Facility and Commercial Paper Borrowings

The Company has access to a $1.50 billion Credit Facility that was amended and restated in December 2021. The amendments include the addition of sustainability-linked pricing terms and extends the maturity to December 2026. This resulted in a charge of $1 million for early debt extinguishment costs which was attributable to unamortized fees. Borrowings under the Credit Facility are subject to interest at varying spreads above quoted market rates and a commitment fee is paid on the total unused commitment. The Credit Facility provides available liquidity for general corporate purposes and supports commercial paper borrowings. Commercial paper borrowings are classified as short-term. At December 31, 2021, the Company had no outstanding borrowings under the Credit Facility. At December 31, 2021, the Company had no outstanding commercial paper borrowings. See Note 9, "Borrowings", to the Company's consolidated financial statements in Part II, Item 8 of this Annual Report.

The Credit Facility contains customary covenants, including requirements to maintain certain financial ratios, that determine the events of default, amounts available, and terms of borrowings. The Company was in compliance with all covenants at December 31, 2021. The total amount of available borrowings under the Credit Facility was approximately $1.50 billion as of December 31, 2021.

Net Debt

[[GREPCENT_TABLE]]
[["","December 31,","","","","December 31,"],["(Dollars in millions)","2021","","","","2020"],["Total borrowings","$","5,159","","","","","$","5,618"],["Less: Cash and cash equivalents","459","","","","","564"],["Net debt (1)","$","4,700","","","","","$","5,054"]]
[[/GREPCENT_TABLE]]

(1)Includes a non-cash decrease of $113 million in 2021 and a non-cash increase of $132 million in 2020 resulting from foreign currency exchange rates.

Capital Expenditures

Capital expenditures were $555 million, $383 million, and $425 million in 2021, 2020, and 2019, respectively. Capital expenditures in 2021 were primarily for the AM segment methanolysis plastic-to-plastic molecular recycling manufacturing facility in Kingsport, Tennessee, and other targeted growth initiatives and site modernization projects.

The Company expects that 2022 capital spending will be approximately $700 million, primarily for targeted growth initiatives, including the AM segment methanolysis plastic-to-plastic molecular recycling manufacturing facility and the Tritan™ capacity expansion, both in Kingsport, Tennessee, and other targeted growth initiatives and site modernization projects.

54

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Company had capital expenditures related to environmental protection and improvement of approximately $38 million, $42 million, and $27 million in 2021, 2020, and 2019, respectively. The Company does not currently expect near term environmental capital expenditures arising from requirements of environmental laws and regulations to materially impact the Company's planned level of annual capital expenditures for environmental control facilities.

Dividends and Stock Repurchases

In February 2018, the Company's Board of Directors authorized the repurchase of up to an additional $2 billion of the Company's outstanding common stock at such times, in such amounts, and on such terms, as determined by management to be in the best interest of the Company and its stockholders. As of December 31, 2021, a total of 15,948,995 shares have been repurchased under the 2018 authorization for a total amount of $1,533 million. During 2021, the Company repurchased a total of 8,061,779 shares for a total cost of approximately $900 million, of which $400 million was repurchased under an accelerated share repurchase program ("ASR") entered into in December 2021. An additional $100 million of share repurchases under the ASR have been accounted for as a reduction to "Additional paid-in capital" in the Company's Consolidated Statements of Financial Position, as it has been paid, but shares have not yet been delivered. See Note 15, "Stockholders' Equity", to the Company's consolidated financial statements in Part II, Item 8 of this Annual Report for details of the ASR program.

In December 2021, the Company's Board of Directors authorized the additional repurchase of up to $2.5 billion of the Company's outstanding common stock at such time, in such amounts, and on such terms, as determined by management to be in the best interest of the Company and its stockholders. No shares have been repurchased under the December 2021 authorization.

The Board of Directors has declared a cash dividend of $0.76 per share during the first quarter of 2022, payable on April 1, 2022 to stockholders of record on March 15, 2022. Both dividends and share repurchases are key strategies employed by the Company to return value to its stockholders.

INFLATION

In 2021, the Company experienced rapid, broad-based inflation across its portfolio, including higher raw material and energy costs. The cost of raw materials is generally based on market prices, although derivative financial instruments are utilized, as appropriate, to mitigate short-term market price fluctuations. Management expects the volatility of raw material and energy prices and costs to continue and the Company will continue to pursue pricing and hedging strategies and ongoing cost control initiatives to offset the effects. For additional information, see "Risk Factors" in Part II, Item 7, and Note 10, "Derivative and Non-Derivative Financial Instruments", to the Company's consolidated financial statements in Part II, Item 8, of this Annual Report.

RECENTLY ISSUED ACCOUNTING STANDARDS

For information regarding the impact of recently issued accounting standards, see Note 1, "Significant Accounting Policies", to the Company's consolidated financial statements in Part II, Item 8 of this Annual Report.

55

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OUTLOOK

In 2022, management expects adjusted EPS to be between $9.50 and $10.00 and operating cash flow to be greater than $1.6 billion. These expectations assume:

•innovation and market development driving growth above underlying end-markets;

•timing of price increases in response to higher raw material, energy, and distribution prices and disciplined cost management to positively impact financial results;

•earnings to be negatively impacted by the divested rubber additives and adhesives resins product lines, continued investment in growth, and normalization of selling price/cost spreads in the Chemical Intermediates segment;

•interest expense of approximately $190 million;

•depreciation and amortization of approximately $490 million; and

•the full-year effective tax rate on adjusted earnings before income tax to be between 15 and 16 percent.

In addition, the Company expects to deploy strong operating cash flow and divestiture proceeds through the combination of bolt-on mergers and acquisitions and share repurchases, and to have capital expenditures of approximately $700 million.

The Company's 2022 financial results forecast does not include non-core, unusual, or non-recurring items. Accordingly, management is unable to reconcile projected earnings excluding non-core, unusual, or non-recurring items to projected reported GAAP earnings without unreasonable efforts.

See "Risk Factors" below.