REVENUE RECOGNITION

On January 1, 2018, Eastman adopted ASU 2014-09 Revenue Recognition ("ASC" 606). Under this standard, the Company recognizes revenue when performance obligations of the sale are satisfied. Eastman sells to customers through master sales agreements or standalone purchase orders. The majority of the Company's terms of sale have a single performance obligation to transfer products. Accordingly, the Company recognizes revenue when control has been transferred to the customer, generally at the time of shipment of products. Under the previous revenue recognition accounting standard, the Company recognized revenue upon the transfer of title and risk of loss, generally upon delivery of goods. For further information see Note 1, "Significant Accounting Policies".

The Company's arrangement with a customer may include the act of shipping product to customers after the performance obligation related to that product has been satisfied. The Company has elected to account for shipping and handling as activities to fulfill the promise to transfer the good and has not allocated revenue to the shipping activity. All related shipping and handling costs are recognized at the time of shipment. Further, the Company's sales arrangements may include the collection of sales and other similar taxes that are then remitted to the related taxing authority. The Company has elected to present the amounts collected for these taxes net of the related tax expense rather than presenting them as additional revenue.

The Company has elected to adopt several practical expedients as part of the adoption of ASU 2014-09 / ASC 606. The Company has elected the practical expedient to recognize the incremental cost of obtaining a sale (selling expense) as an expense when incurred given the potential amortization period for such asset is one year or less. Further, the Company has elected to use the practical expedient that allows the Company to ignore the possible existence of a significant financing component within sales arrangements where the time between cash collection and performance is less than one year. Finally, the Company has elected the practical expedient to not disclose unfulfilled obligations as customer purchase order commitments have an original expected duration of one year or less and no consideration from customers was excluded from the transaction price.

The timing of billings do not always match the timing of revenue recognition. When the Company is entitled to bill a customer in advance of the recognition of revenue, deferred revenue is recognized. When the Company is not entitled to bill a customer until a period after the related recognition of revenue, a contract asset is recognized. Contract assets represent the Company's right to consideration for completed performance obligations under a contract but which are not yet billable to a customer for consignment inventory or pursuant to certain shipping terms. Deferred revenue was not material as of January 1, 2018 or March 31, 2018. Contract assets were $42 million as of January 1, 2018 and $57 million as of March 31, 2018 and are included as a component of "Trade receivables, net of allowance for doubtful accounts" in the Unaudited Consolidated Statement of Financial Position.

The economic factors that impact the nature, amount, timing, and uncertainty of revenue and cash flows vary between the Company's business operating segments and the geographical regions in which they serve. For disaggregation of revenue by major product lines for each business operating segment, see "Business - Business Segments" in Part I, Item 1 of the Company's 2017 Annual Report on Form 10-K.

The tables below summarize the impact of adopting the new standard on first quarter 2018 financial statements:



	First Quarter 2018
(Dollars in millions, except per share amounts)	Current Standard		Change			Previous Standard
Sales	$	2,607	$	(30	)	$	2,577
Cost of sales	2,026		(13		)	2,013
Gross profit	581		(17		)	564
Earnings before interest and taxes	409		(17		)	392
Net earnings attributable to Eastman	290		(14		)	276

Basic earnings per share attributable to Eastman	$	2.03	$	(0.10	)	$	1.93
Diluted earnings per share attributable to Eastman	$	2.00	$	(0.10	)	$	1.90



	First Quarter 2018
(Dollars in millions)	Current Standard			Change			Previous Standard
Additives & Functional Products
Sales	$	939		$	3		$	942
Earnings before interest and taxes	176			(3		)	173
Advanced Materials
Sales	693			(20		)	673
Earnings before interest and taxes	135			(10		)	125
Chemical Intermediates
Sales	730			17			747
Earnings before interest and taxes	70			6			76
Fibers
Sales	245			(30		)	215
Earnings before interest and taxes	43			(10		)	33
Other
Sales	—			—			—
Earnings before interest and taxes	(15		)	—			(15		)



	As of March 31, 2018
(Dollars in millions)	Current Standard		Change			Previous Standard
Trade receivables, net of allowance for doubtful accounts	$	1,430	$	(30	)	$	1,400
Miscellaneous receivables	319		(2		)	317
Inventories	1,476		15			1,491
Total current assets	3,483		(17		)	3,466