Important disclosures appear on the last page of this report.

Krause Fund Research Materials | Spring 2016 Materials Recommendation: SELL Analysts

Company Overview Eastman Chemical (EMN) is a diversified chemical company with a strong hold on the global market share. Eastman manufactures and sells intermediary products as well as final market chemical products. The diverse company has five company segments: additives & functional products, adhesives & plasticizers, advanced materials, fibers, and specialty fluids & intermediaries. Some specific products Eastman produces are tire coatings, amines for crop protection, adhesive resins, specialty plastics, performance films, acetate products, chemical intermediates, and functional amines. Eastman Chemical is a leader in sustainability shown by the 2016 Partner of the Year award given to Eastman by the U.S. Environmental Protection Agency (EPA). For the fiscal years ended 12/3/15, total revenues rose 0.99% to $9.648 million16. Stock Performance Highlights 52-week High $83.90 52-week Low $56.03 Beta Value 1.55 Average Daily Volume l.407 m Share Highlights Market Capitalization $10.95 b Shares Outstanding 147.94 m Book Value per share $2.79 EPS (as of 12/31/2015) $5.66 P/E Ratio 13.08 Dividend Yield 2.55% Dividend Payout Ratio 22.80% Company Performance Highlights ROA 3.69% ROE 22.44% Sales $9.65 b Financial Ratios Current Ratio 1.40 Debt to Equity 175.8

Eastman Chemical (NYSE: EMN)

April 19, 2016

Current Price $76.72 Target Price $63-73

Investment Thesis • Eastman Chemical has a strong global presence, using the innovative products to attract emerging markets.

• Even though Eastman Chemical is global, their revenues are largely dependent from the United States (43.7% of sales) which may cause turbulence in future earnings if the U.S. economy drops

• Eastman Chemical has effectively expanded into key geographical areas while gaining market share by aggressively completing mergers and acquisitions

• The company’s segments are going through innovative change, focusing more towards specialty chemicals due to higher demand and profit margin

• Eastman Chemical has a D/E ratio of 175.80 making it the most leveraged among competitors. If the recent acquisitions completed do not lead to profits in the near term EMN will face negative earnings

• The benefit of low oil prices has been offset by the pressure of incoming competitors. EMN will have to continue to lower selling prices One Year Stock Performance (as of April 19, 2016)

Jack Warning Jack-warning@uiowa.edu

Tom Murray Thomas-p-murray@uiowa.edu

Jace Hepker Jace-hepker@uiowa.edu

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Executive Summary At the present time, we are giving Eastman Chemical Company a SELL rating. Eastman Chemicals, along with the entire Chemical sector, has continuously underperformed the S&P 500 throughout the past 5+ years. Eastman has recently made efforts to expand and innovate through acquiring new companies and creating more efficient inputs to cut costs, however, we believe the pressure of the economy, supply surplus, and diminishing demand for some of Eastman’s products does not fit a profitable short or long-term investment horizon. We also believe that the weakening foreign economies, specifically Asian Pacific, are a large driver behind the decrease in revenues leading to Eastman’s lower guidance for 2016. Overall, we recommend selling Eastman Chemical Company and allocating the investment to a more opportunity to compete with the market.

Economic Outlook To predict the movement of the economy, we have come up with five indicators. These indicators include: interest rates, oil and energy prices, construction spending, exchange rates, and government regulation.

Interest Rates

Interest rates play a major role in the direction of the economy and lower rates are typically positive for the overall stock market. Currently, the Fed’s influence on interest rates has been positive for the EMN and the economy, however, our long-term view differs greatly.

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The average 10 Year Real Interest Rate is 1.46% and as of April 15th the current rate is a mere 0.20%2. In the short term we assume that the Fed will continue to be hesitant towards raising rates due to the uncertainty about global growth, which will also have coincided with the yield curve rising back near 10-year average levels. In the long term we believe markets will stabilize allowing interest rates to rise, in turn negatively impacting EMN. Eastman’s Debt to Equity ratio is 175.80 compared to the industry average of 60.3 3. On top of being heavily leveraged, EMN’s growth strategy includes large acquisitions such as the recent Tamico deal in December of 2014, which increased EMN’s debt by 1 billion 4. Continuing this growth strategy will

further increase EMN’s debt load and may negatively affect earnings with the large increase in interest expense.

Oil and Energy Prices The recent lack of demand and excess supply of oil has led oil prices (WTI) to decrease by 35.29% over the past year as of April 18th, 20165. Lower oil prices often indicate a drop in global economic activity and negatively impact companies in the materials sector due to uncertainty.

The above chart shows the correlation between EMN and crude prices over the past 12 months. EMN saw a decrease or partial decrease in revenue across all segments due to lower raw material and energy costs exceeding lower selling prices by an undisclosed total amount6. EMN uses a hedging strategy to decrease volatility among input costs; however, the hedges only partially offset the lost revenue. In the short term (6-12mo) we believe crude will trade in the $38-$50 per barrel range. In the long term (2-3yrs) we believe global economic activity will pick up and global oil producers will come to an agreement to reduce supply allowing crude to rise further toward $55-$70 a barrel. The rise of oil prices will positively affect EMN by allowing them to reach profitable selling prices despite higher energy costs as opposed to reducing selling prices to match competitors in times of cheap resources.

Exchange Rates Companies with a large international presence face the daily risk of fluctuating currencies. Any assets held overseas must be reported in U.S. dollars (for U.S. based companies) despite overseas assets being denominated in local currencies. This can cause a company to lose or save millions in potential profits. The strong U.S. dollar has negatively impacted EMN because more than 50%

Current 6mo 1yr 2-3yr

Fed Funds Rate 0.25-0.50% 0.50-0.75% 0.75-1.50% 1.5-3.0%

Source: Yahoo Finance

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of its locations (sales, manufacturing, and technical services) operate internationally. As of April 20th, 2014 the USD has strengthened against every major currency including the EUR (18.09%), JPY (6.26%), and GBP (14.95%)7. When EMN reports its financials the assets from international countries must be converted into the more expensive USD, which leaves the company with an unfavorable shift in foreign currency exchange rates. In a 6-12mo horizon we believe the USD will remain strong compared to major currencies such as the Euro and Japanese Yen. In 2-3yrs we see the dollar devaluing as China and other global markets stabilize. Our given forecast would positively affect EMN and the company will most likely see profits from foreign exchange rates rather than large costs such as the $8 million loss in 20158.

Producer Price Index The PPI shows trends within the manufacturing industries and commodities markets. It is a measure of average prices producers are receiving for their goods and services, which in turn can help predict the CPI and inflation. In times of global turmoil the PPI will illustrate a negative M/M or Y/Y change in the PPI. As of April 4th, 2016 the PPI-FD missed the consensus range of 0.0%-0.4% with an actual change of -0.1%, which is also the Y/Y change9. The recent increase in oil prices has positively affected the PPI however slow global economic activity has offset those affects. The majority of EMN’s manufacturing and production consists of raw materials and commodities so tracking the PPI allows investors to predict how much selling power EMN has over their finished or intermediate goods.

Government Regulation Government Regulation has a huge impact on how companies in the Materials sector operate. The availability of raw materials is subject to the country’s government regulation in which it operates. In times of imbalance such as the excess oil supply, government regulation can interfere with a company’s normal operations by forcing a reduction or increase in output. Times of war, hostilities, terrorism, breakdown or the degradation of transportation infrastructure also lead to an interference with operations8. Chemical companies are subject to very close regulation because they are one of the largest targets for terrorist attacks. An attack could either supply chemicals to terrorist for later weapon usage or lead to a chemical spill possibly affecting the surrounding population

EMN also focuses highly on environmental regulations. The EPA has made EMN and other chemical companies liable for any such clean up costs where pollution may occur, which could drastically affect a company’s appearance and stock price in the event of a chemical spill. Estimated future environment remediation costs ranged from $308 to $516 million to be paid over 30 years8. However, in relation to energy consumption, the EPA has recognized EMN as the Energy Star Partner of the Year in Sustained Excellence for the fifth year in a row.

Capital Markets Outlook

In the short-term, we feel that the materials market will underperform due to a strong U.S. dollar hurting exports. Additionally, with China’s currency weakening, the demand for raw materials will decrease accompanied by an already lingering surplus. With suppressed commodities prices, and lower sales prices due to the strong dollar, we believe the biggest challenge faced in the long-term will be how and when these commodities prices will rise. However, an area of interest for investment is in chemical companies. Chemical companies have the opportunity to benefit given the low energy prices that they use in the firm's products20. Other than chemical companies, we do not find strong interest in any other sub sector at this time since the low commodity prices create trouble for growth in the firms.

Industry Analysis

Industry Overview Companies operating in the Diversified Chemicals market produce a variety of chemical products and industrial gases. These companies are involved in 2 or

Source: Yahoo Finance

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more of the following categories of the Chemical Industry: Commodity Chemicals, Fertilizers and Agricultural Chemicals, Industrial Gasses, or Specialty Chemicals10. The majority of these products are used as raw materials by manufacturing companies and reach end markets such as automotive, residential, and commercial construction11.

Developments and Industry Trends The broader Chemicals industry has been down -16.24% over the past year compared to the S&P 500’s -9.89%21. Key indicators of the Diversified Chemicals industry are geographic regions, strength of economy, manufacturing economy, and input costs. Operating throughout different regions domestically and internationally provides a diversified stream of income. Diversified Chemicals have less pricing power than Specialty Chemicals because they are they are dependent upon the demand of commodities11. The industry will correlate strongly with U.S. and emerging markets, both of which have been on a downward trend. We believe that developing markets pose huge opportunity for rapid expansion partly due to the mature automotive and housing industry in the United States. China is the largest consumer of commodities, however, with suppressed demand from China, we have seen commodity prices drop significantly over the past year, directly affecting the revenues of companies within the industry. U.S. data has shown an increase in construction spending, both residential and non-residential, in 2015, and we see this continuing into 2016 while interest rates remain relatively low. In the near-term, we believe emerging markets will continue to grow at a slow pace, but we expect it to regain steam in late 2017 as China plans to turn Beijing into a mega city with the population near the size of Japan13, thus pushing up demand of commodities.

Porter’s Five Forces11

1) Threat of New Entrants: Due to the high government regulations and plethora of patents, the threat for new entrants is low. Also, the current focus of research new entrants requires specialized knowledge forcing the entrants to spend a lot of time researching and developing products. This large amount of time required gives a supple amount of time for companies to prepare. Along the same lines the research and development requires a large

capital requirement forcing new entrants to borrow heavily. With the current threat of increasing interest rates borrowing becomes more expensive, making an entrance less probable.

2) Supplier Power: Suppliers in the diversified chemicals industry has moderate to high power. The producers have limited substitutes so a sudden drop of material or change in price could be drastic. Also, since many competitors in the industry need unique products, suppliers with unique products could change the costs causing a large drop in margin.

3) Threat of Substitutes: The threat of substitutes in this industry is fairly low. The demand of specific chemical products is not going to change because the chemical products are input/intermediary products in many other companies’ products. Also when a new chemical comes out, the industry already recognizes the product and adapts to make changes.

4) Buyer Power: The buying power that the diversified chemical industry has is moderate. The industry’s chemicals are needed inputs for many industries making demand steady. But, the industry is mostly dependent on long term contracts, preventing the companies to adjust returns dependent on the growth of the economy. There are also multiple customers in this industry, not just one, providing power to the companies for the plenty selling opportunities.

5) Industry Rivalry: The diversified chemicals rivalry is very high due to the similarity of competitive products. In order to gain a competitive advantage, the companies within the sector need to gain as much market share as possible. But, most companies are already global therefore causing expansion to become more difficult. The main driver of rivalry is the domestic consumption of the products. The lower the price the higher the demand.

Best Positioned Competitors

Firms that are largely diversified have the biggest advantage – oil being a big input on some chemicals. Some diversified chemical companies are hurting by the crash of crude oil but special Chemicals and agricultural Chemicals are performance driven and specific to customer specifications so they have the opportunity to become the price maker rather than depending on

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commodity prices. Many diversified chemicals counter by having commodity related operations along with special chemical operations.11

Firms that are changing to innovative solutions rather than discoveries are becoming leaders of the industry. Since global expansion is widely used already, firms that are not global are followers and need to expand in order to gain market share. Firms that have more focus on environmental sustainability products are leaders given the mega trend14. Also, expanding facilities and the acquiring of other companies improve the market share of producers (leaders).

Company Analysis Eastman Chemical Company is a chemical company that produces a diverse range of materials, chemicals, and fibers that are used in a variety of ways. Eastman is a global company that has 51 manufacturing sites, several sales offices, and is headquartered in Kingsport, Tennessee8. The company structure consists of 5 business segments:

Business Segments

Additives & Functional Products (AFP)

The AFP segment of Eastman has continuously innovated the production of coatings, tires, consumables, animal nutrition, crop protection, and energy8. AFP sales in 2015 were $2.4 billion claiming 25% of Eastman’s total revenues8. The AFP segment of Eastman is highly dependent on the level of overall demand within the economy. The AFP segment has been consistently growing in the positive direction with

a momentous future outlook due to manufacturing expansion in Malaysia that focuses heavily with AFP segment chemicals.

Adhesives & Plasticizers (AP) Different than the AFP segment, the AP segment focuses more on intermediary chemicals for business to business relationships. Some products within the AP segment include Piccotac, Regalite, Eastotac, Eastoflex, Eastman 168, Eastman DOP, Benzoflex, Eastman TXIB, and Effusion8. With these intermediary chemical products, the AP segment relies heavily with previous customer relationships. The AP segment in 2015 brought in $1.2 billion in revenues, representing 12% of Eastman’s sales8. In the future, it seems Eastman will expand its manufacturing capacity due to the increasing demand of Eastman’s intermediary chemicals.

Advanced Materials (AM)

One of three leading revenue segments, the AM segment is competitive even with the strong market presence Eastman has with its products. The AM segment contains polymers, specialty plastics, interlayers, and performance films. These products brought in $2.4 billion in sales revenue in 2015 (25% of total sales)8. However, causing an opportunity for higher profits, Eastman plans to step away from low profit margin products in the upcoming years7. The increase in demand for BPA-free products has encouraged Eastman to pursue this route even further. Given the uncertain economic strength of the economy, this strategic move for the AM segment will bring in sufficient higher volatility for the years to come.

Source: Eastman 2015 10K

Source: Eastman 2015 10K

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Fibers (F) Eastman, in the Fibers segment, manufactures chemicals for cigarette filters, apparel, home furnishings, and industrial fabrics. Throughout the world, Eastman is the largest producer and market leader for chemical products Acetate Tow, Acetate Yarn, and Acetyl. Eastman’s leading Acetate production has brought in $1.2 billion in sales revenue for 2015 (13% of total sales)8. The Fibers segment, that’s been in business for 75 years demonstrates a strong, competitive advantage Eastman has with Acetate chemicals. However, Acetate chemicals is dependent on general market health and specifically the growth of China’s economy16. With a volatile U.S market and weakened China economy, Acetate chemicals have faced tough market conditions. With the struggling economy and weak demand in the Europe, Eastman was forced to shut down one of their Acetate factories in the United Kingdom7.

Specialty Fluids & Intermediates (SFI)

The SFI segment has been successful due to the competitive cost structure of its products. The SFI segment is able to sell at competitive prices due to its access to lower costs of raw materials (mostly natural gas). The products within the SFI segment includes oxo alcohols, acetic acid, ethylene, polymers, alkylamines, Therminol, Eastman Turbo Oils, Skydrol, and Eastman SkyKleen16. SFI is a very cyclical segment due to supply and demand imbalances. However, SFI historically still tends to be one of the top revenue producers for Eastman; in 2015 SFI brought in $2.4 billion (25% of total sales)8. Eastman has shown an increase in focus to expand the SFI segment by expanding manufacturing facilities in Newport, Wales. Overall, Eastman’s plans for a potential of higher profits with the increase in demand due to Eastman’s recent shift in specialty fluids focus excites our investment recommendation.

Corporate Strategy Eastman is a company that strives for a global presence, high sustainability standards, and synergistic growth through mergers & acquisitions.

Global Presence It is evident that Eastman will continue to grow outside of the United States, further diversifying their risk. In fact, Eastman has 51 manufacturing sites and 15 joint ventures15 across the world, showing a strong foothold in the competitive, global chemical market. We believe that Eastman’s strong, global presence is a strong

competitive advantage compared to other competing firms. Here is a picture demonstrating the real estate Eastman owns throughout the world:

Sustainability Eastman has appealed to its customers with its strong sustainability record. With the current sustainable mega trend and government regulations hitting the chemical companies, Eastman effectively acts on this short term competitive advantage through its eco-friendly products and operations. Eastman’s priority with sustainability has been rewarded with Eastman receiving the Energy Star Partner of the Year – Sustained Excellence Award for the 4th consecutive year (awarded by the Environmental Protection Agency)17. In order to achieve stronger profits and larger global market share, Eastman has to continue to manage a sustainable practice.

Mergers & Acquisitions Eastman constantly looks for profitable, cost reducing opportunities to acquire or merge with a company with significant market share. With the 2012 acquisition of Solutia and the 2014 acquisition of Taminco, Eastman shows a persistence to acquire more market share through M&A activity8. With the strategy to expand into other facilities, Eastman has been able to reduce its costs. We believe Eastman will continue to be searching for the next M&A within the next five years in order to gain more market share until reaching their CV year.

Life Cycle Eastman Chemicals is a very cyclical company. Eastman tends to see higher profits and earnings in the second and third quarters due to the higher economic activity. The overall company is in the market development or growth stage of their life cycle. This can be shown due

Source: Eastman.com

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to the recent acquisitions of Taminco in 2014 (a global specialty company), and Solutia in 2012 (a global leader in performance materials and specialty chemicals)8. We believe that growth is crucial for Eastman to compete with its large cap competitors; however, we do not see these acquisitions producing a valuable return on investment until much further down the road. Eastman’s cash flow and income statement show a large negative cash flow from investing activities and a large increase in long-term debt in compared to recent years8. This worries us due to Eastman’s large debt to equity ratio of 1.75 compared to competitors whom average at 1.1420. With excess cash on hand, they decided to take on more debt rather than stabilize and reduce their debt to equity. With the economic instability this is an issue for our recommendation.

Products Lines and Markets

The above chart demonstrates the end markets for the products in relation to the revenue of 2015. Please note that there are many sub products within each product line. Eastman is in a marketing growth strategy. The importance of this stage is that Eastman is always expanding segments, which is good for long-term growth and stability; however, they are operating under large R&D costs along with increasing debt. der large R&D costs along with increasing debt.

Eastman’s Recent Earnings and Guidance16

Eastman’s 2015 fourth quarter earnings report did not show a positive outlook. Earnings per share for the 4th quarter in 2015 were $1.59, down from $1.64 per share in the 2014 4th quarter. Although Eastman did top the analyst estimate of $1.55 the year drop is not a good

sign given a decent year-end financial environment. Eastman’s revenues of $2,225 million missed the estimate and fell by 5% year over year. This was due to the lower selling prices and large acquisitions of Taminco and Commonwealth Laminating & Coating Inc. Regarding the segments, AFP rose 11%, A&P fell 13%, AM rose 4%, Fibers fell 15%, and SFI fell 17%. With mixed signals many analysts rate Eastman as a hold. The analysts expect Eastman to continue seeing challenges in 2016 and even 2017 with the struggling global economy. The weakening currencies and crude oil slump further demonstrates a struggling outlook for Eastman.

Production and Distribution Eastman focuses primarily on creating efficiencies in the production process. This has led to a large reduction in cost and Eastman winning the 2015 Energy Star Partner of the Year – Sustained Excellence award17. Because of the current high market focus with production efficiency relating to technology, Eastman has spent sufficient capital on research and development in order to take a competitive advantage in production efficiency. Also, Eastman has distribution facilities at all of their plant sites. Away from their plants, Eastman owns or leases 200 distribution facilities. These facilities are significantly located in the US but also in 30 other countries12.

Competition Eastman’s direct competitors are mostly private companies. Many public competitors deal with inputs involving air gas, which is not directly related to Eastman’s operations. Many competitors have operations in the same regions as Eastman. For example, most competitors have headquarters in the U.S., offices across the globe, and production sites in the Midwest and across the globe. As stated in the production section, Eastman differentiates itself by utilizing low cost production. In its competitive environment, many companies receive similar prices for raw materials (commodities) so they do not have to compete much over input prices. The growth outlook for competitors is similar to Eastman; Asia will be the focus on many of the competitors’ expansion plans.

Research and Development8

Eastman is faced with a strong growth initiative faced by the chemicals market. Initiative towards new products, more sustainable products, and most importantly more efficient production technology has

Source: 2015 Eastman Annual Report

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separated the winners and the losers with the chemical competitors. With technology in the chemical industry exponentially improving, Eastman is placing high focus in developing their internal technological operations to improve productivity and processes. In 2015 Eastman spent $251 million, a $24 million increase (11%) from 2014’s R&D expense of $227 million. Other competitors like Celanese Corporation (CE) increased their research and development expenditures by 28% therefore shows the significant surge in research expenditures for chemical companies. Eastman looks to continue a large growth in R&D to stay competitive and grow its business.

Foreign Sales Eastman’s sales significantly rely on the United States. Here is a chart depicting the global sales picture8:

Comparing the sales from 2014 to 20158: Sales in the US and Canada fell by 0.78% Sales in Asia Pacific fell by 9% Sales in Europe, Middle East, and Africa

increased by 13.6% Sales in Latin America increased by 6.05%

This shows a mixed growth in sales, but the decrease in Asia Pacific sales worries our team. As a whole, sales were greatly affected by the lower selling prices of Eastman’s products resulting from low cost inputs of raw material and energy costs. Although North America is where the majority of sales reside, Asia Pacific is where Eastman’s growth should reside. So despite turbulence among Asia Pacific economies, decreasing sales is a red flag for our investment team.

Government Regulation There are new regulations on tire manufacturers to create more fuel efficient tires. This regulation has helped Eastman because the additives that Eastman manufactures improve fuel efficiency on the tires. Also, the regulations on supply of raw materials and energy greatly impact the volatility of Eastman’s profits. Regarding the sustainability trend, a committee under the Board of Directors is in charge of the sustainability and eco-friendly process of production, waste, and storage. Eastman has won numerous sustainability awards resulting in a positive image for investors.

Personnel and Key Management The Chairman and CEO of Eastman Chemical company is Mark J. Costa, age 4919. Mr. Costa has been the CEO since only 2014 due to the previous CEO retiring. Costa was Eastman’s Senior VP of Strategy, Marketing and Business Development and was also in control of the Specialty Chemical division before his time as CEO. Mr. Costa has a total calculated compensation of almost $9.877 million and he has already exercised $4 million worth of options19. Our team’s opinion on Mark J. Costa is positive due to Costa’s consistent compensation with company performance and re-engineering the growth initiative. Although he has already exercised his stock options we believe Costa will be a long-term CEO providing Eastman with stable leadership and better opportunity to grow.

Major Stock Holders20

Eastman does not consist of insiders owning a large share of the company. According to Yahoo Finance, the % of shares held by all insiders and 5% owners is 1% of the total shares. This can raise some question on the executives’ confidence of the company. The vast majority of major stock holders belong to institutions whom claim 88% of the stock. There is no indication that the company will buy back its stock any time soon.

Source: 2015 Eastman Annual Report

Source: Yahoo Finance

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Catalysts for Growth/Change

The catalyst for Eastman Chemical’s growth will be economic expansion among the U.S. and emerging markets. Urbanization in under developed countries will spike demand among the inputs Eastman produces leading to increased sales in Asia Pacific, Latin America, and Europe/Africa. Another catalyst is production efficiency. Eastman is already the leader in production efficiency and with the rise of technology Eastman will potentially discover better solutions and mixes to further increase productivity. This is a huge competitive advantage for Eastman because the price of commodities is volatile and all competitors are dependent upon supply and demand. A catalyst for market share growth is the rise of environmental sustainability. It has been an increasing mega trend (slowed down by extremely cheap energy currently) and many businesses are partnering with companies that have sustainability efforts in place, such as Eastman Chemicals does.

Investment S.W.O.T. Analysis19

Strengths: Eastman has a strong diversification of products. Their diverse product lines provide solutions for diverse markets, resulting in a safe revenue stream incase demand for one line weakens. Along with their products, Eastman has many joint ventures in many parts of the globe enhancing their portfolio further. Eastman also has a leading market presence for a wide variety of their chemicals (fibers specifically). Eastman’s large market presence brings them a strong competitive advantage.

Weaknesses: Eastman’s biggest weakness is their largely dependent revenue stream coming from the United States (43.7% of revenues). Although they do have significant presence in other regions, the heavy dependence on the US economy can affect the firm’s revenues greatly.

Opportunities: Eastman has a strong focus on gaining more strategic acquisitions providing them more room to grow. Also, there is a mega-trend currently that favors Eastman’s specialty chemicals market. By 2019 the US specialty chemicals market is forecasted to be around $243.4 billion (a 16.8% increase from 2014). Threats: The specialty chemicals market is becoming increasingly competitive. BASF and Dow Chemical

Company are growing at a fast rate compared to Eastman. Also, since Eastman relies heavily on the demand of a strong financial market, the volatility with the current market can drastically affect the revenue stream. Lastly, with the eco-friendly mega-trend, government regulations can easily threaten the operations of Eastman.

Key Investment Positives19

Global sales of chemicals have doubled over the past decade – due to emerging markets (mostly China)

Exponential growth in technology will bring more solutions to problems – 95% of companies surveyed saw huge technological advances in the next 3 years

Huge period of change – from discovery to solutions for problems (restructuring business models)

Positive construction outlook Key Investment Negatives19

Uncertain GDP growth and shifting market dynamics offer challenges

Low oil prices will continue to hurt the chemical companies

Some companies are over invested in specialty chemicals

A lot of competition for high growth economies make it hard to gain customers

Valuation Summary

Valuation Summary After in-depth research on Eastman Chemical, our investment team has issued a SELL recommendation with the belief that the stock price should be significantly lower than the current price. We have determined the intrinsic stock value using the discounted cash flow (DCF) model, economic profit (EP) model, dividend discount (DDM) model, relative valuation P/E, and the relative valuation growth P/E. Our model estimates the intrinsic value as of April 19th, 2016.

DCF and EP Valuation Models Our DCF and EP valuation models gave us an adjusted price as of today at $69.38. With the current price of the stock at $76.72 our models show an overpriced stock.

DDM Model On the other hand, the DDM model gave us a target price at $87.05 showing that the stock is undervalued, however, we do not believe the DDM model portrays an accurate price on our stock. We believe the dividends within our scope will not be as high as forecasted due to

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turbulence in the economy. Our overall prediction that Eastman will face volatility will lead to slower growth of dividends if even any growth. Overall, we believe that the DDM valuation is not accurate due to Eastman’s dividend growth.

Relative P/E Ratios Valuation Our relative P/E model gave us an intrinsic value of $99.19, signaling the stock to be undervalued. We believe the model did not compute a reasonable price and that is because our EPS is forecasted much lower than the other competitors. Overall, we believe the DCF and EP valuation model is our most accurate and represented model for Eastman Chemical. While taking in all the models, we have come up with a target range of $63-$73.

Important Disclaimer This report was created by students enrolled in the Security Analysis (6F:112) class at the University of Iowa. The report was originally created to offer an internal investment recommendation for the University of Iowa Krause Fund and its advisory board. The report also provides potential employers and other interested parties an example of the students’ skills, knowledge and abilities. Members of the Krause Fund are not registered investment advisors, brokers or officially licensed financial professionals. The investment advice contained in this report does not represent an offer or solicitation to buy or sell any of the securities mentioned. Unless otherwise noted, facts and figures included in this report are from publicly available sources. This report is not a complete compilation of data, and its accuracy is not guaranteed. From time to time, the University of Iowa, its faculty, staff, students, or the Krause Fund may hold a financial interest in the companies mentioned in this report.

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14. "Green Industry Analysis 2016 - Cost & Trends." Franchise Help. Accessed February 9, 2016. https://www.franchisehelp.com/industry-reports/green-industry-report/.

15. "Eastman Chemical Company Profile." Eastman Chemical Company. Accessed February 15, 2016. http://www.eastman.com/Company/About_Eastman/Pages/Profile.aspx.

16. http://www.eastman.com/Company/News_Center/2016/Pages/Eastman-Announces-Fourth-Quarter-and-Full-Year-2015-Financial-Results.aspx

17. EMN 2015 Annual Report 18. http://www.bloomberg.com/research/stoc

ks/people/person.asp?personId=27483882&privcapId=109103

19. http://finance.yahoo.com/q/mh;_ylt=AwrC0CY2YRZXRHgApPSTmYlQ;_ylu=X3oDMTEyNWhqNHRhBGNvbG8DYmYxBHBvcwMyBHZ0aWQDVklEMDZfMQRzZWMDc2M-?s=EMN+Major+Holders

20. "Eastman Chemical Company." MarketLine Advantage. September 3, 2015. Accessed February 17, 2016. http://advantage.marketline.com.proxy.lib.uiowa.edu/Product?pid=2A933CB2-040F-47E6-9836-F6D69CBB45CE.

Eastman Chemical CompanyRevenue Decomposition

Fiscal Years Ending Dec. 31 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025ESegmented Net Sales Additives & Functional Products 1,719$ 1,821$ 2,368$ 2332 2402 2499 2511 2536 2676 2796 2922 3027 3125

% Growth 29.05% 5.93% 30.04% -1.50% 3.00% 4.00% 0.50% 1.00% 5.50% 4.50% 4.50% 3.60% 3.23%Volume 4 18 4Price 387 102 547Manufacturing Locations 16 22 22 22 23 23 23 23 23 23 23 23 23

Adhesives & Plasticizers 1,326$ 1,363$ 1,214$ 1190 1261 1356 1458 1562 1644 1725 1816 1876 1938% Growth -7.40% 2.79% -10.93% -2.00% 6.00% 7.50% 7.55% 7.10% 5.25% 4.95% 5.30% 3.30% 3.27%Volume 13 37 8Price 106 37 149Manufacturing Locations 14 14 14 14 15 15 15 15 15 15 15 15 15

Advanced Materials 2,349$ 2,378$ 2,414$ 2480 2701 2915 3121 3324 3507 3693 3893 4029 4163% Growth 38.67% 1.23% 1.51% 2.75% 8.90% 7.90% 7.10% 6.50% 5.50% 5.30% 5.40% 3.50% 3.34%Volume 4 82 67Price 655 29 36Manufacturing Locations 17 18 17 17 17 17 17 17 17 17 17 17 17

Fibers 1,441$ 1,457$ 1,219$ 1195 1266 1349 1446 1550 1615 1683 1763 1839 1899% Growth 9.58% 1.11% -16.33% -2.00% 6.00% 6.50% 7.20% 7.20% 4.20% 4.20% 4.80% 4.30% 3.26%Volume 11 91 5Price 126 16 238Manufacturing Locations 4 4 3 3 3 3 3 3 3 3 3 3 3

Specialty Fluids & Intermediates 2,497$ 2,490$ 2,388$ 2531 2691 2882 3109 3364 3634 3917 4215 4393 4567% Growth 7.72% -0.28% -4.10% 6.00% 6.30% 7.10% 7.90% 8.20% 8.00% 7.80% 7.60% 4.24% 3.95%Volume 14 356 23Price 179 7 102Manufacturing Locations 9 15 16 16 16 16 16 16 16 16 16 16 16

Total Sales 9,332$ 9,509$ 9,603$ 9,728$ 10,322$ 10,999$ 11,646$ 12,336$ 13,075$ 13,814$ 14,609$ 15,165$ 15,692$ Total Change in Growth (%) 15.34% 1.90% 0.99% 1.31% 6.10% 6.56% 5.88% 5.93% 5.99% 5.65% 5.76% 3.81% 3.48%

% of TotalAdditives & Functional Products 18.42% 19.15% 24.66% 23.98% 23.28% 22.72% 21.56% 20.56% 20.46% 20.24% 20.00% 19.96% 19.91%Adhesives & Plasticizers 14.21% 14.33% 12.64% 12.23% 12.22% 12.33% 12.52% 12.66% 12.57% 12.49% 12.43% 12.37% 12.35%Advanced Materials 25.17% 25.01% 25.14% 25.50% 26.17% 26.50% 26.80% 26.95% 26.82% 26.73% 26.64% 26.57% 26.53%Fibers 15.44% 15.32% 12.69% 12.28% 12.27% 12.26% 12.41% 12.56% 12.35% 12.18% 12.07% 12.13% 12.10%Specialty Fluids & Intermediates 26.76% 26.19% 24.87% 26.02% 26.07% 26.20% 26.70% 27.27% 27.79% 28.36% 28.85% 28.97% 29.10%Total 100% 100% 100% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

Eastman Chemical Company (NYSE:EMN)

Income Statement (numbers in millions)

Fiscal Years Ending Dec. 31 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E

Sales 9,350.0 9,527.0 9,648.0 9,774 10,370 11,051 11,700 12,394 13,136 13,878 14,677 15,236 15,765Cost of sales -6,141.0 -6,856.0 -6,497.0 (6,646) (7,052) (7,514) (7,956) (8,428) (8,933) (9,437) (9,981) (10,360) (10,721)Less: Depreciation and ammortization -433.0 -450.0 -571.0 (533) (565) (602) (638) (675) (716) (756) (800) (830) (859)Gross profit 2,776.0 2,221.0 2,580.0 2,595 2,753 2,934 3,106 3,291 3,488 3,685 3,897 4,045 4,186Selling, general and administrative expense -645.0 -755.0 -762.0 (733) (778) (829) (878) (930) (985) (1,041) (1,101) (1,143) (1,182)Research and development expenses -193.0 -227.0 -251.0 (206) (219) (233) (247) (261) (277) (293) (309) (321) (332)Asset impairments and restructuring charges / gains, net -76.0 -77.0 -183.0 (98) (104) (111) (117) (124) (131) (139) (147) (152) (158)Other operating income 0.0 0.0 0.0 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00EBIT (Operating Income) 1,862.0 1,162.0 1,384.0 1,558 1,653 1,762 1,865 1,976 2,094 2,213 2,340 2,429 2,513Net interest expense -180.0 -187.0 -263.0 (332) (337) (351) (369) (387) (405) (425) (446) (469) (493)Early debt extinguishment costs 0.0 0.0 0.0 0 0 0 0 0 0 0 0 0 0Other charges / income, net -3.0 15.0 8.0 3 3 3 3 3 3 3 3 3 3Earnings from continuing operations before income taxes 1,679.0 990.0 1,129.0 1,230 1,319 1,414 1,500 1,593 1,693 1,791 1,897 1,963 2,024Provision for income taxes -507.0 -235.0 -275.0 (323) (347) (372) (395) (419) (445) (471) (499) (516) (532)Earnings from continuing operations 1,172.0 755.0 854.0 906 972 1,042 1,105 1,174 1,247 1,320 1,398 1,447 1,491Earnings from discontinued operations, net of tax 0.0 2.0 0.0 0 0 0 0 0 0 0 0 0 0Gain from disposal of discontinued operations, net of tax 0.0 0.0 0.0 0 0 0 0 0 0 0 0 0 0Net earnings 1,172.0 757.0 854.0 906 972 1,042 1,105 1,174 1,247 1,320 1,398 1,447 1,491 Less: Net income related to non-controlling interest -7.0 -6.0 -6.0 (5) (5) (5) (5) (5) (5) (5) (5) (5) (5)Net income 1,165.0 751.0 848.0 901 967 1,037 1,100 1,169 1,242 1,315 1,393 1,442 1,486

Earnings Per Share (EPS) EPS (basic) 7.57 5.03 5.71 6.17 6.78 7.43 8.05 8.73 9.45 10.17 10.96 11.51 12.04 Total Shares Outstanding 152 149 148 144 141 138 135 133 130 128 126 124 123 Dividends per Share 1.25 1.45 1.66 1.85 2.03 2.23 2.42 2.62 2.83 3.05 3.29 3.45 3.61

Eastman Chemical CompanyBalance Sheet (numbers in millions)(2015 data unfinished)Fiscal Years Ending Dec. 31 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025EAssets Current Assets Cash and cash equivalents 237.00 214.00 293.00 72.61 389.12 831.47 1,387.00 1,786.92 2,216.98 2,685.74 3,189.43 3,725.51 4,238.74 Trade receivables, net 880.00 936.00 792.00 635.31 674.06 718.30 760.52 805.62 853.85 902.10 954.03 990.33 1,024.76 Miscellaneous receivables 208.00 264.00 246.00 293.22 311.10 331.52 351.01 371.82 394.08 416.35 440.32 457.07 472.96 Inventories 1,264.00 1,509.00 1,479.00 1,759.33 1,762.92 1,768.11 1,638.04 1,673.20 1,707.70 1,734.81 1,761.28 1,752.12 1,734.20 Other current assets 251.00 250.00 68.00 195.48 207.40 221.01 234.01 247.88 262.72 277.57 293.55 304.72 315.31 Total current assets 2,840.00 3,173.00 2,878.00 2,956 3,345 3,870 4,371 4,885 5,435 6,017 6,639 7,230 7,786 Properties Properties and equipment at cost 9,958.00 11,026.00 11,234.00 12,020.38 12,861.81 13,762.13 14,725.48 15,756.27 16,859.20 18,039.35 19,302.10 20,653.25 22,098.98 Less: Accumulated depreciation -5,668.00 -5,939.00 -6,104.00 -6,424.69 -6,794.82 -7,217.65 -7,690.23 -8,213.83 -8,790.03 -9,417.86 -10,099.51 -10,821.06 -11,580.18 Net properties 4,290.00 5,087.00 5,130.00 5,595.69 6,066.99 6,544.49 7,035.25 7,542.43 8,069.18 8,621.49 9,202.60 9,832.19 10,518.80 Goodwill 2,637.00 4,486.00 4,518.00 4,518.00 4,518.00 4,518.00 4,518.00 4,518.00 4,518.00 4,518.00 4,518.00 4,518.00 4,518.00 Intangible assets, net of accumulated amortization 1,781.00 2,905.00 2,650.00 2,438.00 2,242.96 2,063.52 1,898.44 1,746.57 1,606.84 1,478.29 1,360.03 1,251.23 1,151.13 Other noncurrent assets 297.00 421.00 435.00 351.60 351.60 351.60 351.60 351.60 351.60 351.60 351.60 351.60 351.60 Total assets 11,845.00 16,072.00 15,611.00 15,859.26 16,524.15 17,348.03 18,173.87 19,044.05 19,980.95 20,985.96 22,070.83 23,182.78 24,325.51

Liabilities and Stockholders' Equity Current liabilities Payables and other current liabilities 1,470.00 1,721.00 1,625.00 1,759.33 1,866.62 1,989.13 1,989.05 1,983.06 1,970.42 1,942.99 1,908.05 1,828.30 1,734.20 Borrowings due within one year 0.00 301.00 431.00 250.00 257.50 265.23 273.18 281.38 289.82 298.51 307.47 316.69 326.19

Total current liabilities 1,470.00 2,022.00 2,056.00 2,009.33 2,124.12 2,254.35 2,262.23 2,264.43 2,260.24 2,241.50 2,215.52 2,144.99 2,060.40 Long-term borrowings 4,254.00 7,248.00 6,608.00 6,712.73 6,819.48 7,105.38 7,459.65 7,814.76 8,188.94 8,591.81 9,023.96 9,490.46 9,968.59 Deferred income tax liabilities 496.00 946.00 928.00 937.28 946.65 956.12 965.68 975.34 985.09 994.94 1,004.89 1,014.94 1,025.09 Post-employment obligations 1,297.00 1,498.00 1,297.00 1,232.15 1,170.54 1,112.02 1,056.41 1,003.59 953.41 905.74 860.46 817.43 776.56 Other long-term liabilities 453.00 768.00 701.00 463.60 454.20 460.60 475.54 488.78 501.88 515.58 529.98 545.39 560.53

Total liabilities 7,970.00 12,482.00 11,590.00 11,355.09 11,515.00 11,888.47 12,219.52 12,546.91 12,889.56 13,249.58 13,634.81 14,013.22 14,391.17 Stockholders' equity Common stock/Additional paid-in-capital 1,780.00 1,819.00 1,865.00 1,886.20 1,907.41 1,928.61 1,949.82 1,971.02 1,992.23 2,013.43 2,034.63 2,055.84 2,077.04 Retained Earnings 4,012.00 4,545.00 5,146.00 5,780.15 6,460.64 7,189.85 7,963.43 8,785.02 9,658.07 10,581.86 11,560.28 12,572.62 13,616.19 Accumulated other comprehensive income (loss) 171.00 -277.00 -390.00 -262.19 -158.90 -158.90 -158.90 -158.90 -158.90 -158.90 -158.90 -158.90 -158.90

Total stockholders' equity before treasury stock 5,963.00 6,087.00 6,621.00 7,404.17 8,209.15 8,959.56 9,754.35 10,597.14 11,491.39 12,436.39 13,436.02 14,469.56 15,534.33 Less: Treasury stock -2,167.00 -2,577.00 -2,680.00 -2,980.00 -3,280.00 -3,580.00 -3,880.00 -4,180.00 -4,480.00 -4,780.00 -5,080.00 -5,380.00 -5,680.00 Total stockholders' equity 3,796.00 3,510.00 3,941.00 4,424.17 4,929.15 5,379.56 5,874.35 6,417.14 7,011.39 7,656.39 8,356.02 9,089.56 9,854.33 Noncontrolling interest 79.00 80.00 80.00 80.00 80.00 80.00 80.00 80.00 80.00 80.00 80.00 80.00 80.00Total equity 3,875.00 3,590.00 4,021.00 4,504.17 5,009.15 5,459.56 5,954.35 6,497.14 7,091.39 7,736.39 8,436.02 9,169.56 9,934.33Total liabilities and stockholders' equity 11,845.00 16,072.00 15,611.00 15,859.26 16,524.15 17,348.03 18,173.87 19,044.05 19,980.95 20,985.96 22,070.83 23,182.78 24,325.51

Eastman Chemical Company

Cash Flow Statement (numbers in millions)

Fiscal Years Ending Dec. 31 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Operating activities Net earnings / loss 409.0 300.0 346.0 136.0 427.0 647.0 444.0 1,172.0 757.0 854.0

Adjustments to reconcile net earnings / loss to net cash provided by / used in operating activities Depreciation and amortization 308.0 327.0 267.0 274.0 280.0 273.0 360.0 433.0 450.0 571.0 Asset impairment charges 62.0 138.0 1.0 179.0 8.0 0.0 46.0 28.0 52.0 107.0 Gain on sale of assets -74.0 -8.0 -14.0 0.0 0.0 -70.0 0.0 0.0 -5.0 0.0 Early debt extinguishment costs 0.0 0.0 0.0 0.0 115.0 0.0 0.0 0.0 0.0 0.0 Provision for deferred income taxes 7.0 -9.0 -71.0 185.0 47.0 -22.0 48.0 331.0 99.0 107.0 Mark-to-market (gain) loss on pension and other postretirement benefit plans 0.0 0.0 0.0 0.0 0.0 147.0 247.0 -383.0 304.0 115.0Changes in operating assets and liabilities, net of effect of acquisitions and divestitures Increase (decrease) in trade receivables -82.0 -28.0 261.0 2.0 -358.0 -73.0 48.0 -38.0 19.0 114.0 Increase (decrease) in inventories -99.0 66.0 -95.0 100.0 -160.0 -156.0 38.0 -6.0 -61.0 -26.0 Increase (decrease) in trade payables 53.0 48.0 -211.0 16.0 152.0 -51.0 10.0 -2.0 -30.0 -102.0 Increase (decrease) in liabilities for employee benefit/incentive pay -44.0 -55.0 7.0 -149.0 0.0 0.0 0.0 0.0 0.0 0.0 Pension and other postretirement contributions (in excess of) less than expenses 0.0 0.0 0.0 0.0 12.0 -103.0 -97.0 -149.0 -165.0 -259.0 Variable compensation (in excess of) less than expenses 0.0 0.0 0.0 0.0 37.0 15.0 26.0 82.0 27.0 71.0 Other items, net 69.0 -47.0 162.0 15.0 15.0 18.0 -42.0 -171.0 -39.0 60.0 Net cash provided by operating activities 609.0 732.0 653.0 758.0 575.0 625.0 1,128.0 1,297.0 1,408.0 1,612.0Investing activities Additions to properties and equipment -389.0 -518.0 -634.0 -310.0 -243.0 -457.0 -465.0 -483.0 -593.0 -652.0 Proceeds from redemption of short-term time deposits 0.0 0.0 0.0 0.0 0.0 0.0 200.0 0.0 0.0 0.0 Proceeds from sale of assets and investments 322.0 202.0 337.0 30.0 13.0 651.0 7.0 31.0 13.0 4.0 Acquistitions and investments in joint ventures, net of cash acquired 0.0 -40.0 -38.0 -68.0 -190.0 -156.0 -2,669.0 0.0 -3,509.0 -45.0 Additions to short-term time deposits 0.0 0.0 0.0 0.0 0.0 -200.0 0.0 0.0 0.0 0.0 Other items, net -27.0 21.0 -41.0 -21.0 -22.0 20.0 -35.0 -5.0 -2.0 0.0 Net cash used in investing activities -94.0 -335.0 -376.0 -369.0 -442.0 -142.0 -2,962.0 -457.0 -4,091.0 -693.0Financing activities Net increase in commerical paper and other borrowings -50.0 -5.0 -7.0 3.0 2.0 1.0 -1.0 425.0 -190.0 195.0 Proceeds from borrowings 0.0 0.0 0.0 248.0 496.0 -36.0 3,511.0 150.0 3,565.0 250.0 Repayment of borrowings 0.0 -17.0 -175.0 -101.0 -620.0 -2.0 -1,866.0 -1,105.0 -125.0 -950.0 Dividends paid to stockholders -144.0 -147.0 -135.0 -128.0 -127.0 -136.0 -192.0 -140.0 -210.0 -238.0 Treasury stock purchases 0.0 -382.0 -501.0 -21.0 -280.0 -316.0 0.0 -238.0 -410.0 -103.0 Proceeds from stock options exercises and other items, net 93.0 103.0 39.0 17.0 118.0 66.0 52.0 49.0 34.0 14.0 Net cash provided by financing activities -101.0 -448.0 -779.0 18.0 -411.0 -423.0 1,504.0 -859.0 2,664.0 -832.0Effect of exchange rate changes on cash and cash equivalents 1.0 0.0 1.0 -1.0 1.0 1.0 2.0 7.0 -4.0 -8.0 Net change in cash and cash equivalents 415.0 -51.0 -501.0 406.0 -277.0 61.0 -328.0 -12.0 -23.0 79.0Cash and cash equivalents at beginning of period 524.0 939.0 888.0 387.0 793.0 516.0 577.0 249.0 237.0 214.0Cash and cash equivalents at end of period 939.0 888.0 387.0 793.0 516.0 577.0 249.0 237.0 214.0 293.0

Eastman Chemical CompanyCommon Size Income Statement

Fiscal Years Ending Dec. 31 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025ESales 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

Cost of sales -65.68% -71.96% -67.34% -68.00% -68.00% -68.00% -68.00% -68.00% -68.00% -68.00% -68.00% -68.00% -68.00%Gross profit 34.32% 28.04% 32.66% 32.00% 32.00% 32.00% 32.00% 32.00% 32.00% 32.00% 32.00% 32.00% 32.00%Selling, general and administrative expense -6.90% -7.92% -7.90% -7.50% -7.50% -7.50% -7.50% -7.50% -7.50% -7.50% -7.50% -7.50% -7.50%Research and development expenses -2.06% -2.38% -2.60% -2.11% -2.11% -2.11% -2.11% -2.11% -2.11% -2.11% -2.11% -2.11% -2.11%Asset impairments and restructuring charges / gains, net -0.81% -0.81% -1.90% -1.00% -1.00% -1.00% -1.00% -1.00% -1.00% -1.00% -1.00% -1.00% -1.00%Other operating income 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%EBIT (Operating Income) 24.55% 16.92% 20.26% 21.39% 21.39% 21.39% 21.39% 21.39% 21.39% 21.39% 21.39% 21.39% 21.39%Net interest expense -1.93% -1.96% -2.73% -3.40% -3.25% -3.18% -3.15% -3.12% -3.08% -3.06% -3.04% -3.08% -3.13%Early debt extinguishment costs 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Other charges / income, net -0.03% 0.16% 0.08% 0.03% 0.03% 0.03% 0.03% 0.03% 0.03% 0.02% 0.02% 0.02% 0.02%Earnings from continuing operations before income taxes 22.59% 15.11% 17.62% 18.03% 18.17% 18.24% 18.27% 18.30% 18.33% 18.35% 18.37% 18.33% 18.29%Provision for income taxes -5.42% -2.47% -2.85% -3.31% -3.35% -3.37% -3.37% -3.38% -3.39% -3.39% -3.40% -3.39% -3.38%Earnings from continuing operations 17.17% 12.65% 14.77% 14.72% 14.83% 14.88% 14.90% 14.92% 14.95% 14.96% 14.97% 14.94% 14.91%Earnings from discontinued operations, net of tax 0.00% 0.02% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Gain from disposal of discontinued operations, net of tax 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Net earnings 17.17% 12.67% 14.77% 14.72% 14.83% 14.88% 14.90% 14.92% 14.95% 14.96% 14.97% 14.94% 14.91% Less: Net income related to non-controlling interest -0.07% -0.06% -0.06% -0.05% -0.05% -0.04% -0.04% -0.04% -0.04% -0.03% -0.03% -0.03% -0.03%Net income 17.09% 12.61% 14.71% 14.67% 14.78% 14.83% 14.85% 14.88% 14.91% 14.92% 14.94% 14.91% 14.88%

Eastman Chemical CompanyCommon Size Balance Sheet

Fiscal Years Ending Dec. 31 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025EAssets Current Assets Cash and cash equivalents 2.53% 2.25% 3.04% 0.74% 3.75% 7.52% 11.85% 14.42% 16.88% 19.35% 21.73% 24.45% 26.89% Trade receivables, net 9.41% 9.82% 8.21% 6.50% 6.50% 6.50% 6.50% 6.50% 6.50% 6.50% 6.50% 6.50% 6.50% Miscellaneous receivables 2.22% 2.77% 2.55% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% Inventories 13.52% 15.84% 15.33% 18.00% 17.00% 16.00% 14.00% 13.50% 13.00% 12.50% 12.00% 11.50% 11.00% Other current assets 2.68% 2.62% 0.70% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% Total current assets 30.37% 33.31% 29.83% 30.24% 32.25% 35.02% 37.35% 39.42% 41.38% 43.35% 45.23% 47.45% 49.39% Properties Properties and equipment at cost 106.50% 115.73% 116.44% 122.98% 124.03% 124.54% 125.86% 127.13% 128.34% 129.98% 131.51% 135.56% 140.17% Less: Accumulated depreciation -60.62% -62.34% -63.27% -65.73% -65.52% -65.31% -65.73% -66.27% -66.91% -67.86% -68.81% -71.02% -73.45% Net properties 45.88% 53.40% 53.17% 57.25% 58.50% 59.22% 60.13% 60.85% 61.43% 62.12% 62.70% 64.53% 66.72% Goodwill 28.20% 47.09% 46.83% 46.22% 43.57% 40.88% 38.61% 36.45% 34.39% 32.55% 30.78% 29.65% 28.66% Intangible assets, net of accumulated amortization 19.05% 30.49% 27.47% 24.94% 21.63% 18.67% 16.23% 14.09% 12.23% 10.65% 9.27% 8.21% 7.30% Other noncurrent assets 3.18% 4.42% 4.51% 3.60% 3.39% 3.18% 3.01% 2.84% 2.68% 2.53% 2.40% 2.31% 2.23% Total assets 126.68% 168.70% 161.81% 162.26% 159.34% 156.99% 155.33% 153.65% 152.11% 151.21% 150.37% 152.16% 154.30%

Liabilities and Stockholders' Equity Current liabilities Payables and other current liabilities 15.72% 18.06% 16.84% 18.00% 18.00% 18.00% 17.00% 16.00% 15.00% 14.00% 13.00% 12.00% 11.00% Borrowings due within one year 0.00% 3.16% 4.47% 2.56% 2.48% 2.40% 2.33% 2.27% 2.21% 2.15% 2.09% 2.08% 2.07% Total current liabilities 15.72% 21.22% 21.31% 20.56% 20.48% 20.40% 19.33% 18.27% 17.21% 16.15% 15.09% 14.08% 13.07% Long-term borrowings 45.50% 76.08% 68.49% 68.68% 65.76% 64.30% 63.76% 63.05% 62.34% 61.91% 61.48% 62.29% 63.23% Deferred income tax liabilities 5.30% 9.93% 9.62% 9.59% 9.13% 8.65% 8.25% 7.87% 7.50% 7.17% 6.85% 6.66% 6.50% Post-employment obligations 13.87% 15.72% 13.44% 12.61% 11.29% 10.06% 9.03% 8.10% 7.26% 6.53% 5.86% 5.37% 4.93% Other long-term liabilities 4.84% 8.06% 7.27% 4.74% 4.38% 4.17% 4.06% 3.94% 3.82% 3.71% 3.61% 3.58% 3.56% Total liabilities 85.24% 131.02% 120.13% 116.18% 111.04% 107.58% 104.44% 101.23% 98.12% 95.47% 92.90% 91.98% 91.28% Stockholders' equity Common stock 19.04% 19.09% 19.33% 19.30% 18.39% 17.45% 16.66% 15.90% 15.17% 14.51% 13.86% 13.49% 13.17% Retained Earnings 42.91% 47.71% 53.34% 59.14% 62.30% 65.06% 68.06% 70.88% 73.52% 76.25% 78.76% 82.52% 86.37% Accumulated other comprehensive income (loss) 1.83% -2.91% -4.04% -2.68% -1.53% -1.44% -1.36% -1.28% -1.21% -1.14% -1.08% -1.04% -1.01%

Total stockholders' equity before treasury stock 63.78% 63.89% 68.63% 75.75% 79.16% 81.08% 83.37% 85.50% 87.48% 89.61% 91.54% 94.97% 98.53% Less: Treasury stock -23.18% -27.05% -27.78% -30.49% -31.63% -32.40% -33.16% -33.73% -34.10% -34.44% -34.61% -35.31% -36.03% Total stockholders' equity 40.60% 36.84% 40.85% 45.26% 47.53% 48.68% 50.21% 51.78% 53.37% 55.17% 56.93% 59.66% 62.51% Noncontrolling interest 0.84% 0.84% 0.83% 0.82% 0.77% 0.72% 0.68% 0.65% 0.61% 0.58% 0.55% 0.53% 0.51% Total equity 41.44% 37.68% 41.68% 46.08% 48.30% 49.40% 50.89% 52.42% 53.98% 55.74% 57.48% 60.18% 63.01% Total liabilities and stockholders' equity 126.68% 168.70% 161.81% 162.26% 159.34% 156.99% 155.33% 153.65% 152.11% 151.21% 150.37% 152.16% 154.30%

Eastman Chemical CompanyWeighted Average Cost of Capital (WACC) Estimation 7.37%

Capital Asset Pricing Model Market Values WeightsRisk Free (30yr) 2.61% Equity 11,336,300,640$ 61.65%Risk Premium 4.57% Preferred -$ 0%Beta 1.55 Debt 7,050,381,571$ 38.35%

Cost of Equity 9.69% Total 18,386,682,211$ 100%Cost of Debt 4.95%

*Beta is 3yr monthly EMN 30yr BBB, Baa2Issued 5/15/2014

Price $76.72

Eastman Chemical CompanyValue Driver Estimation

Fiscal Years Ending Dec. 31 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025EMarginal Tax Rate: 33.47% 24.65% 26.31% 26.31% 26.31% 26.31% 26.31% 26.31% 26.31% 26.31% 26.31% 26.31% 26.31%

NOPLATEBITA:Sales 9,350 9,527 9,648 9,774 10,370 11,051 11,700 12,394 13,136 13,878 14,677 15,236 15,765

Less: Cost of Goods Sold (6,141) (6,856) (6,497) (6,646) (7,052) (7,514) (7,956) (8,428) (8,933) (9,437) (9,981) (10,360) (10,721)Less: Selling, General, and Administrative Expenses (645) (755) (762) (733) (778) (829) (878) (930) (985) (1,041) (1,101) (1,143) (1,182)Less: Depreciation (433) (450) (571) (533) (565) (602) (638) (675) (716) (756) (800) (830) (859)Less: R&D Expenses (193) (227) (251) (206) (219) (233) (247) (261) (277) (293) (309) (321) (332)Plus: Implied interest of operating leases 11 12 11 11 11 11 11 11 11 11 11 11 11

EBITA: 1,938 1,239 1,567 1,656 1,757 1,872 1,982 2,100 2,226 2,351 2,487 2,581 2,671 Less: Adjusted Taxes

Income Tax Provision 507 235 275 323 347 372 395 419 445 471 499 516 532Plus: Tax shield on assets and impairments 25 19 48 26 27 29 31 33 35 37 39 40 41Plus: Tax shield on interest expense 60 46 69 87 89 92 97 102 107 112 117 123 130Plus: Tax Shield on Implied interest of operating leases 4 3 3 3 3 3 3 3 3 3 3 3 3 Less: Tax on non-operating income 1 -4 -2 -1 -1 -1 -1 -1 -1 -1 -1 -1 -1

Total Adjusted Taxes 597 299 393 439 465 496 524 555 588 622 657 682 706 Plus: Change in Deferred Taxes

Change in Deferred Taxes 314 450 (18) 9 9 9 10 10 10 10 10 10 10 NOPLAT: 1,655 1,390 1,156 1,227 1,301 1,386 1,467 1,554 1,647 1,740 1,839 1,909 1,976

Invested CapitalNet Operating Working Capital:

Current Assets:Normal Cash (2.5% of sales) 237 214 293 254 270 287 293 310 328 347 367 381 394

Trade receivables, net 880 936 792 635 674 718 761 806 854 902 954 990 1,025 Miscellaneous receivables 208 264 246 293 311 332 351 372 394 416 440 457 473 Inventories 1,264 1,509 1,479 1,759 1,763 1,768 1,638 1,673 1,708 1,735 1,761 1,752 1,734 Other current assets 251 250 68 195 207 221 234 248 263 278 294 305 315Total current assets 2,840 3,173 2,878 3,137 3,225 3,326 3,276 3,408 3,547 3,678 3,816 3,885 3,941 Current liabilities Payables and other current liabilities 1,470.00 1,721.00 1,625.00 1,759.33 1,866.62 1,989.13 1,989.05 1,983.06 1,970.42 1,942.99 1,908.05 1,828.30 1,734.20Total current liabilities 1,470.00 1,721.00 1,625.00 1,759.33 1,866.62 1,989.13 1,989.05 1,983.06 1,970.42 1,942.99 1,908.05 1,828.30 1,734.20Net Operating Working Capital 1,370 1,452 1,253 1,378 1,358 1,337 1,287 1,425 1,576 1,735 1,908 2,057 2,207

Plus: PPE, net 4,290 5,087 5,130 5,596 6,067 6,544 7,035 7,542 8,069 8,621 9,203 9,832 10,519 Plus: Non-Goodwill Intangible Assets 4,918 6,499 5,963 5,746 5,939 6,286 6,621 6,984 7,394 7,846 8,350 8,833 9,289 Plus: PV of operating leases 176 259 230 210 210 210 210 210 210 210 210 210 210

Invested Capital 10,578 13,038 12,346 12,929 13,574 14,377 15,153 16,161 17,249 18,412 19,671 20,931 22,224

NOPLAT 1,655 1,390 1,156 1,227 1,301 1,386 1,467 1,554 1,647 1,740 1,839 1,909 1,976 Beginning Invested Capital 8,966 10,578 13,038 12,346 12,929 13,574 14,377 15,153 16,161 17,249 18,412 19,671 20,931

ROIC 18.45% 13.14% 8.86% 9.94% 10.06% 10.21% 10.21% 10.26% 10.19% 10.09% 9.99% 9.71% 9.44%

NOPLAT 1,655 1,390 1,156 1,227 1,301 1,386 1,467 1,554 1,647 1,740 1,839 1,909 1,976 Change in Invested Capital 1,612 2,460 (692) 583 645 803 776 1,008 1,088 1,163 1,258 1,261 1,293

FCF 43 (1,070) 1,848 643 656 584 692 546 559 576 581 649 682

Beginning Invested Capital 8,966 10,578 13,038 12,346 12,929 13,574 14,377 15,153 16,161 17,249 18,412 19,671 20,931 ROIC 18.45% 13.14% 8.86% 9.94% 10.06% 10.21% 10.21% 10.26% 10.19% 10.09% 9.99% 9.71% 9.44%

EP 993.36 609.53 194.34 316.18 347.69 385.18 407.19 436.71 455.08 467.63 481.67 458.73 431.99

Eastman Chemical CompanyDiscounted Cash Flow (DCF) and Economic Profit (EP) Valuation Models

Key Inputs: CV Growth 3.48% Assuming Terminal growth starts yr 2025 CV ROIC 9.44% WACC 7.37% Cost of Equity 9.69%

Fiscal Years Ending Dec. 31 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025CVDCF Model

Free Cash Flows 643 656 584 692 546 559 576 581 649 682Continuing Value (CV) 32014CF to Discount 643 656 584 692 546 559 576 581 649 32014Periods to Discount 1 2 3 4 5 6 7 8 9 9PV of Operating Assets 599 569 471 520 382 365 350 329 342 16875

Value of Operating Assets 20803Add: Excess Cash 0Add: Other Non Current Assets 435Less: Total Debt 11355Less: PV of Operating Leases 210Less: PV of ESOP 68

Value of Equity 9606Shares Outstanding 148Target Price (Intrinsic Value) 65.01$

Fraction of Year Elapsed 0.301Adjusted Stock Price as of Today 66.31$

Fiscal Years Ending 12 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025CVEP ModelBeginning Invested Capital 12346

Economic Profit 316 348 385 407 437 455 468 482 459 432Continuing Value (CV) 11083EP to Discount 316 348 385 407 437 455 468 482 459 11083Periods to Discount 1 2 3 4 5 6 7 8 9 9PV of Operating Assets 294 302 311 306 306 297 284 273 242 5842

Value of Operating Assets 20803Add: Excess Cash 0Add: Other Non Current Assets 435Less: Total Debt 11355Less: PV of Operating Leases 210Less: PV of ESOP 68

Value of Equity 9606Shares Outstanding 148Target Price (Intrinsic Value) 65.01$

Fraction of Year Elapsed 0.301Adjusted Stock Price as of Today 66.31$

Today 4/19/2016Next FYE 12/31/2016Last FYE 12/31/2015Days in FY 366 Days to FYE 110 Elapsed Fraction 0.301

Eastman Chemical CompanyDividend Discount Model (DDM) or Fundamental P/E Valuation Model

Fiscal Years Ending Dec. 31 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E

EPS 6.17$ 6.78$ 7.43$ 8.05$ 8.73$ 9.45$ 10.17$ 10.96$ 11.51$ 12.04$

Key Assumptions CV growth 4.57% CV ROE 15.08% Cost of Equity 9.69%

Dividend Yield 2.51%

Future Cash Flows P/E Multiple (CV Year) 13.61 EPS (CV Year) 12.04$ Future Stock Price 163.77$ Dividends Per Share 1.85 2.03 2.23 2.42 2.62 2.83 3.05 3.29 3.45 3.61

Periods to Discount 1 2 3 4 5 6 7 8 9 9 Future Cash Flows

Discounted Cash Flows 1.69$ 1.69$ 1.69$ 1.67$ 1.65$ 1.63$ 1.60$ 1.57$ 1.50$ 70.49

Intrinsic Value 85.17$ Fraction of Year Elapsed 0.3005Adjusted Stock Price as of Today 87.05$

Eastman Chemical CompanyRelative Valuation Models

EPS EPS Est. 5yrTicker Company Price 2016E 2017E P/E 16 P/E 17 EPS gr. PEG 16 PEG 17CE Celanese Corporation $69.86 $6.33 $6.97 11.0 10.0 7.44 1.48 1.35 DOW Dow Chemical Company $52.54 $3.44 $3.86 15.3 13.6 7.82 1.95 1.74 DD Dupont $64.70 $3.03 $3.51 21.4 18.4 9.41 2.27 1.96 PX Praxaire, Inc. $116.12 $5.54 $6.08 21.0 19.1 6.75 3.11 2.83 ASH Ashland, Inc. $113.09 $7.14 $7.99 15.8 14.2 11.39 1.39 1.24 APD Airproducts and Chemicals, Inc $146.47 $7.41 $8.11 19.8 18.1 10.05 1.97 1.80

Average 17.4 15.6 2.0 1.8

EMN Eastman Chemical Company $76.72 $5.71 $6.78 18.0 18.0 8.85 2.0 2.0

Implied Value: Relative P/E (EPS16) $ 99.19 Relative P/E (EPS17) 105.57$ PEG Ratio (EPS16) 102.51$ PEG Ratio (EPS17) 109.24$

Eastman Chemical CompanyKey Management Ratios

Fiscal Years Ending Dec. 31 Formula 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E

Liquidity RatiosCurrent Ratio Current Assets/Current Liabilities 1.93 1.57 1.40 1.47 1.57 1.72 1.93 2.16 2.40 2.68 3.00 3.37 3.78Quick Ratio (Current Assets-Inventories)/Current Liabilit 0.76 0.57 0.53 0.35 0.50 0.69 0.95 1.14 1.36 1.60 1.87 2.20 2.55Cash Ratio (Cash Equivalents+Cash)/Current Liabilities 0.16 0.11 0.14 0.04 0.18 0.37 0.61 0.79 0.98 1.20 1.44 1.74 2.06

Activity or Asset-Management RatiosReceivables T/O Sales/Average Accounts Receivables 10.63 10.18 12.18 15.38 15.38 15.38 15.38 15.38 15.38 15.38 15.38 15.38 15.38Inventory T/O Cost of Goods Sold/Inventories 4.86 4.54 4.39 3.78 4.00 4.25 4.86 5.04 5.23 5.44 5.67 5.91 6.18Total Asset T/O Sales/Total Assets 0.79 0.59 0.62 0.62 0.63 0.64 0.64 0.65 0.66 0.66 0.67 0.66 0.65

Financial Leverage RatiosDebt/Equity Total Debt/Total Equity 1.10 2.10 1.75 1.55 1.41 1.35 1.30 1.25 1.20 1.15 1.11 1.07 1.04Interest Coverage EBIT/Interest Expense 10.34 6.21 5.26 4.69 4.90 5.01 5.06 5.11 5.17 5.21 5.24 5.17 5.10

Profitability RatiosGross Margin (Revenue-Cost of Goods Sold)/Revenue 30% 23% 27% 27% 27% 27% 27% 27% 27% 27% 27% 27% 27%Operating Margin Operating Income/Net Sales 20% 12% 14% 16% 16% 16% 16% 16% 16% 16% 16% 16% 16%FCF Margin FCF/Net Sales 0% -11% 19% 7% 6% 5% 6% 4% 4% 4% 4% 4% 4%ROA Net Income/Average Total Assets 8% 4% 4% 4% 4% 4% 4% 4% 4% 4% 4% 4% 4%ROE Net Income/Average Total Equity 31% 21% 22% 20% 20% 19% 19% 18% 18% 17% 17% 16% 15%

Payout Policy RatiosDividend payout ratio Dividends/Net Income 16% 29% 29% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30%Retention ratio (Net Income-Dividends)/Net Income 84% 71% 71% 70% 70% 70% 70% 70% 70% 70% 70% 70% 70%

Sensitivity Analysis

Beta MRP66.31$ 4.20% 4.30% 4.40% 4.57% 4.50% 4.60% 66.31$ 6.00% 6.40% 6.80% 7.30% 7.70% 8.10%8.60% 82.1937 77.5949 73.2333 73.2333 69.0911 65.1524 2.40% 66.293 66.2995 66.3058 66.30581 66.3195 66.32538.80% 82.1937 77.5949 73.2333 73.2333 69.0911 65.1524 2.60% 66.293 66.2995 66.3058 66.30581 66.3195 66.32539.00% 82.1937 77.5949 73.2333 73.2333 69.0911 65.1524 2.80% 66.293 66.2995 66.3058 66.30581 66.3195 66.32539.20% 82.1937 77.5949 73.2333 73.2333 69.0911 65.1524 3.00% 66.293 66.2995 66.3058 66.30581 66.3195 66.3253

CV ROIC 9.44% 82.1937 77.5949 73.2333 73.2333 69.0911 65.1524 MRP 3.47% 66.293 66.2995 66.3058 66.30581 66.3195 66.32539.60% 82.1937 77.5949 73.2333 73.2333 69.0911 65.1524 3.60% 66.293 66.2995 66.3058 66.30581 66.3195 66.32539.80% 82.1937 77.5949 73.2333 73.2333 69.0911 65.1524 3.80% 66.293 66.2995 66.3058 66.30581 66.3195 66.3253

10.00% 82.1937 77.5949 73.2333 73.2333 69.0911 65.1524 4.00% 66.293 66.2995 66.3058 66.30581 66.3195 66.325310.20% 82.1937 77.5949 73.2333 73.2333 69.0911 65.1524 4.20% 66.293 66.2995 66.3058 66.30581 66.3195 66.325310.40% 82.1937 77.5949 73.2333 73.2333 69.0911 65.1524 4.40% 66.293 66.2995 66.3058 66.30581 66.3195 66.3253

WACC Capital Expenditure66.31$ 6.00% 6.50% 7.00% 7.30% 7.70% 8.10% 66.31$ 300 400 500 583 600 700 8002.40% 66.293 66.3011 66.3089 66.3135 66.3195 66.3253 5.60% 66.31 66.31 66.31 66.31 66.31 66.31 66.312.60% 66.293 66.3011 66.3089 66.3135 66.3195 66.3253 5.70% 66.31 66.31 66.31 66.31 66.31 66.31 66.312.80% 66.293 66.3011 66.3089 66.3135 66.3195 66.3253 5.80% 66.31 66.31 66.31 66.31 66.31 66.31 66.318.00% 66.293 66.3011 66.3089 66.3135 66.3195 66.3253 5.90% 66.31 66.31 66.31 66.31 66.31 66.31 66.31

CV Growth 3.47% 66.293 66.3011 66.3089 66.3135 66.3195 66.3253 Growth of PPE 7.00% 66.31 66.31 66.31 66.31 66.31 66.31 66.313.40% 66.293 66.3011 66.3089 66.3135 66.3195 66.3253 6.10% 66.31 66.31 66.31 66.31 66.31 66.31 66.313.60% 66.293 66.3011 66.3089 66.3135 66.3195 66.3253 6.20% 66.31 66.31 66.31 66.31 66.31 66.31 66.313.80% 66.293 66.3011 66.3089 66.3135 66.3195 66.3253 6.30% 66.31 66.31 66.31 66.31 66.31 66.31 66.314.00% 66.293 66.3011 66.3089 66.3135 66.3195 66.3253 6.40% 66.31 66.31 66.31 66.31 66.31 66.31 66.314.20% 66.293 66.3011 66.3089 66.3135 66.3195 66.3253 6.50% 66.31 66.31 66.31 66.31 66.31 66.31 66.31

Beta66.31$ 0.8 1.2 1.4 1.6 1.8 2.13.80% 350.491 172.398 128.009 96.3669 72.6868 46.58624.00% 321.258 156.566 115.187 85.6121 63.4363 38.95224.20% 295.633 142.519 103.777 76.021 55.1741 32.12224.40% 272.987 129.971 93.5577 67.4155 47.7507 25.9761

MRP 4.57% 272.987 129.971 93.5577 67.4155 47.7507 25.97614.80% 234.773 108.509 76.021 52.6129 34.9592 15.36215.00% 218.506 99.2625 68.4425 46.2024 29.4106 10.74565.20% 203.776 90.8312 61.5206 40.3401 24.3316 6.504145.40% 190.375 83.1129 55.1741 34.9592 19.665 2.532775.60% 178.131 76.021 49.3344 30.0027 15.3621 -0.65795

VALUATION OF OPTIONS GRANTED IN ESOP

Ticker Symbol EMNCurrent Stock Price $76.72Risk Free Rate 1.32%Current Dividend Yield 2.46%Annualized St. Dev. of Stock Returns 38.80%

Average Average B-S ValueRange of Number Exercise Remaining Option of OptionsOutstanding Options of Shares Price Life (yrs) Price GrantedRange 1 272,100 27.00 3.70 45.59$ 12,403,891$ Range 2 211,700 32.00 1.20 43.15$ 9,135,216$ Range 3 868,000 39.00 5.30 37.05$ 32,162,596$ Range 4 1,082,800 76.00 8.40 25.04$ 27,117,952$ Total 2,434,600 53.51$ 6.14 38.91$ 80,819,655$

Effects of ESOP Exercise and Share Repurchases on Common Stock Balance Sheet Account and Number of Shares Outstanding

Number of Options Outstanding (shares): 2,434,600Average Time to Maturity (years): 6.14Expected Annual Number of Options Exercised: 396,295

Current Average Strike Price: 53.51$ Cost of Equity: 7.30%Current Stock Price: $76.72

2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025EIncrease in Shares Outstanding: 396,295 396,295 396,295 396,295 396,295 396,295 396,295 396,295 396,295 396,295Average Strike Price: 53.51$ 53.51$ 53.51$ 53.51$ 53.51$ 53.51$ 53.51$ 53.51$ 53.51$ 53.51$ Increase in Common Stock Account: 21,204,191 21,204,191 21,204,191 21,204,191 21,204,191 21,204,191 21,204,191 21,204,191 21,204,191 21,204,191

Change in Treasury Stock 300,000,000 300,000,000 300,000,000 300,000,000 300,000,000 300,000,000 300,000,000 300,000,000 300,000,000 300,000,000Expected Price of Repurchased Shares: 76.72$ 82.32$ 88.33$ 94.78$ 101.70$ 109.13$ 117.09$ 125.64$ 134.82$ 144.66$ Number of Shares Repurchased: 3,910,323 3,644,247 3,396,275 3,165,177 2,949,803 2,749,085 2,562,025 2,387,693 2,225,223 2,073,808

Shares Outstanding (beginning of the year) 147,762,000 144,247,972 141,000,020 138,000,040 135,231,158 132,677,650 130,324,859 128,159,130 126,167,732 124,338,804Plus: Shares Issued Through ESOP 396,295 396,295 396,295 396,295 396,295 396,295 396,295 396,295 396,295 396,295Less: Shares Repurchased in Treasury 3,910,323 3,644,247 3,396,275 3,165,177 2,949,803 2,749,085 2,562,025 2,387,693 2,225,223 2,073,808 Shares Outstanding (end of the year) 144,247,972 141,000,020 138,000,040 135,231,158 132,677,650 130,324,859 128,159,130 126,167,732 124,338,804 122,661,291

Present Value of Operating Lease Obligations (2015) Present Value of Operating Lease Obligations (2014) Present Value of Operating Lease Obligations (2013) Present Value of Operating Lease Obligations (2012)

Operating Operating Operating OperatingFiscal Years Ending Dec. 31 Leases Fiscal Years Ending Dec. 31 Leases Fiscal Years Ending Leases #REF! Leases2016 63 2015 71 2014 44 2013 472017 50 2016 57 2015 38 2014 342018 38 2017 43 2016 35 2015 272019 28 2018 32 2017 24 2016 232020 22 2019 21 2018 15 2017 21Thereafter 72 Thereafter 85 Thereafter 54 Thereafter 55Total Minimum Payments 273 Total Minimum Payments 309 Total Minimum Payments 210 Total Minimum Payments 207Less: Interest 43 Less: Interest 50 Less: Interest 34 Less: Interest 33PV of Minimum Payments 230 PV of Minimum Payments 259 PV of Minimum Payments 176 PV of Minimum Payments 174

Capitalization of Operating Leases Capitalization of Operating Leases Capitalization of Operating Leases Capitalization of Operating Leases

Pre-Tax Cost of Debt 4.95% Pre-Tax Cost of Debt 4.95% Pre-Tax Cost of Debt 4.95% Pre-Tax Cost of Debt 4.95%Number Years Implied by Year 6 Payment 3.3 Number Years Implied by Year 6 Payment 4.0 Number Years Implied by Year 6 Payment 3.6 Number Years Implied by Year 6 Payment 2.6

Lease PV Lease Lease PV Lease Lease PV Lease Lease PV LeaseYear Commitment Payment Year Commitment Payment Year Commitment Payment Year Commitment Payment1 63 60.0 1 71 67.7 1 44 41.9 1 47 44.82 50 45.4 2 57 51.8 2 38 34.5 2 34 30.93 38 32.9 3 43 37.2 3 35 30.3 3 27 23.44 28 23.1 4 32 26.4 4 24 19.8 4 23 19.05 22 17.3 5 21 16.5 5 15 11.8 5 21 16.56 & beyond 22 51.1 6 & beyond 21 59.2 6 & beyond 15 38.0 6 & beyond 21 39.6PV of Minimum Payments 229.7 PV of Minimum Payments 258.7 PV of Minimum Payments 176.3 PV of Minimum Payments 174.1