Eastman Chemical Co 10-Q for FY2024 Q2
Eastman Chemical Co (EMN)
10-Q
2024-07-26
For: 2024-06-30
View Original
Added on
April 08, 2026
About this 10-Q
Eastman Chemical Co filed this 10-Q on July 26, 2024, covering the quarter ended June 30, 2024 (FY2024 Q2).
Headline figures
Quarter ended June 30, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $2.36B
- up 1.7% from $2.32B a year earlier
- Net income
- $230M
- down 15.4% from net income of $272M a year earlier
- Diluted EPS
- $1.94
- down 14.5% from $2.27 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
| (Mark One) | ||||||||
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||||||
| For the quarterly period ended | ||||||||
| OR | ||||||||
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||||||
| For the transition period from ______________ to ______________ | ||||||||
Commission file number 1-12626
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of | (I.R.S. Employer | |||||||
| incorporation or organization) | Identification no.) | |||||||
| (Address of principal executive offices) | (Zip Code) | |||||||
Registrant's telephone number, including area code: (423 ) 229-2000
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| ☒ | Accelerated filer | ☐ | ||||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ||||||||||||
| Emerging growth company | ||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
| Class | Number of Shares Outstanding at June 30, 2024 | ||||
| Common Stock, par value $0.01 per share | |||||
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1
TABLE OF CONTENTS
| ITEM | PAGE | |||||||
PART I. FINANCIAL INFORMATION
PART II. OTHER INFORMATION
5. | Other Information | |||||||
SIGNATURES
2
FORWARD-LOOKING STATEMENTS
Certain statements made or incorporated by reference in this Quarterly Report are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act (Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended). Forward-looking statements are all statements, other than statements of historical fact, that may be made by Eastman Chemical Company ("Eastman" or the "Company") from time to time. In some cases, you can identify forward-looking statements by terminology such as "anticipates", "believes", "estimates", "expects", "intends", "may", "plans", "projects", "forecasts", "will", "would", "could", and similar expressions, or expressions of the negative of these terms. Forward-looking statements may relate to, among other things, such matters as planned and expected capacity increases and utilization; anticipated capital spending; expected depreciation and amortization; environmental matters and opportunities (including potential risks associated with physical and transitional impacts of climate change and related voluntary and regulatory carbon requirements); exposure to and effects of hedging raw material and energy prices and foreign currencies exchange and interest rates; disruption or interruption of operations and of raw material or energy supply; operating risks related to the Company’s information technology infrastructure, including service interruptions or data corruption as a result of cyber-based attacks; global and regional economic, political, and business conditions, including heightened inflation, capital market volatility, interest rate and currency fluctuations, and economic slowdown or recession; competition; growth opportunities; supply and demand, volume, price, cost, margin and sales; pending and future legal proceedings; earnings, cash flow, dividends, stock repurchases and other expected financial results, events, decisions, and conditions; expectations, strategies, and plans for individual assets and products, businesses, and operating segments, as well as for the whole of Eastman; cash sources and requirements and uses of available cash; financing plans and activities; pension expenses and funding; credit ratings; anticipated and other future restructuring, acquisition, divestiture, and consolidation activities; cost reduction and control efforts and targets; the timing and costs of, benefits from the integration of, and expected business and financial performance of acquired businesses, as well as the subsequent impairment assessments of acquired long-lived assets; strategic, technology, and product innovation initiatives and development, production, commercialization and acceptance of new products, services and technologies and related costs; asset, business, and product portfolio changes; and expected tax rates and interest costs.
Forward-looking statements are based upon certain underlying assumptions as of the date such statements were made. Such assumptions are based upon internal estimates and other analyses of current market conditions and trends, management expectations, plans, and strategies, economic conditions, and other factors. Forward-looking statements and the assumptions underlying them are necessarily subject to risks and uncertainties inherent in projecting future conditions and results. Actual results could differ materially from expectations expressed in the forward-looking statements if one or more of the underlying assumptions and expectations proves to be inaccurate or is unrealized. The known material factors, risks, and uncertainties that could cause actual results to differ materially from those in the forward-looking statements are identified and discussed under "Risk Factors" in Part II, Item 1A of this Quarterly Report. Other factors, risks or uncertainties of which management is not aware, or presently deems immaterial, could also cause actual results to differ materially from those in the forward-looking statements.
The Company cautions you not to place undue reliance on forward-looking statements, which speak only as of the date of this Quarterly Report. Except as may be required by law, the Company undertakes no obligation to update or alter these forward-looking statements, whether as a result of new information, future events, or otherwise. Investors are advised, however, to consult any further public Company disclosures (such as filings with the Securities and Exchange Commission, Company press releases, or pre-noticed public investor presentations) on related subjects.
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS,
COMPREHENSIVE INCOME AND RETAINED EARNINGS
| Second Quarter | First Six Months | ||||||||||||||||||||||
| (Dollars in millions, except per share amounts) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Sales | $ | $ | $ | $ | |||||||||||||||||||
| Cost of sales | |||||||||||||||||||||||
| Gross profit | |||||||||||||||||||||||
| Selling, general and administrative expenses | |||||||||||||||||||||||
| Research and development expenses | |||||||||||||||||||||||
| Asset impairments and restructuring charges, net | |||||||||||||||||||||||
| Other components of post-employment (benefit) cost, net | ( | ( | ( | ( | |||||||||||||||||||
| Other (income) charges, net | |||||||||||||||||||||||
| Earnings before interest and taxes | |||||||||||||||||||||||
| Net interest expense | |||||||||||||||||||||||
| Earnings before income taxes | |||||||||||||||||||||||
Provision for (benefit from) income taxes | ( | ||||||||||||||||||||||
| Net earnings | |||||||||||||||||||||||
| Less: Net earnings attributable to noncontrolling interest | |||||||||||||||||||||||
| Net earnings attributable to Eastman | $ | $ | $ | $ | |||||||||||||||||||
| Basic earnings per share attributable to Eastman | $ | $ | $ | $ | |||||||||||||||||||
| Diluted earnings per share attributable to Eastman | $ | $ | $ | $ | |||||||||||||||||||
| Comprehensive Income | |||||||||||||||||||||||
| Net earnings including noncontrolling interest | $ | $ | $ | $ | |||||||||||||||||||
| Other comprehensive income (loss), net of tax: | |||||||||||||||||||||||
| Change in cumulative translation adjustment | ( | ( | ( | ||||||||||||||||||||
| Defined benefit pension and other postretirement benefit plans: | |||||||||||||||||||||||
| Amortization of unrecognized prior service credits | ( | ( | ( | ( | |||||||||||||||||||
| Derivatives and hedging: | |||||||||||||||||||||||
| Unrealized gain (loss) during period | ( | ( | |||||||||||||||||||||
| Reclassification adjustment for (gains) losses included in net income, net | ( | ||||||||||||||||||||||
| Total other comprehensive income (loss), net of tax | ( | ( | |||||||||||||||||||||
| Comprehensive income including noncontrolling interest | |||||||||||||||||||||||
| Less: Comprehensive income attributable to noncontrolling interest | |||||||||||||||||||||||
| Comprehensive income attributable to Eastman | $ | $ | $ | $ | |||||||||||||||||||
| Retained Earnings | |||||||||||||||||||||||
| Retained earnings at beginning of period | $ | $ | $ | $ | |||||||||||||||||||
| Net earnings attributable to Eastman | |||||||||||||||||||||||
| Cash dividends declared | ( | ( | ( | ( | |||||||||||||||||||
| Retained earnings at end of period | $ | $ | $ | $ | |||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
4
UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
| June 30, | December 31, | ||||||||||
| (Dollars in millions, except per share amounts) | 2024 | 2023 | |||||||||
| Assets | |||||||||||
| Current assets | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Trade receivables, net of allowance for credit losses | |||||||||||
| Miscellaneous receivables | |||||||||||
| Inventories | |||||||||||
| Other current assets | |||||||||||
| Total current assets | |||||||||||
| Properties | |||||||||||
| Properties and equipment at cost | |||||||||||
| Less: Accumulated depreciation | |||||||||||
| Net properties | |||||||||||
| Goodwill | |||||||||||
| Intangible assets, net of accumulated amortization | |||||||||||
| Other noncurrent assets | |||||||||||
| Total assets | $ | $ | |||||||||
| Liabilities and Stockholders' Equity | |||||||||||
| Current liabilities | |||||||||||
| Payables and other current liabilities | $ | $ | |||||||||
| Borrowings due within one year | |||||||||||
| Total current liabilities | |||||||||||
| Long-term borrowings | |||||||||||
| Deferred income tax liabilities | |||||||||||
| Post-employment obligations | |||||||||||
| Other long-term liabilities | |||||||||||
| Total liabilities | |||||||||||
| Stockholders' equity | |||||||||||
Common stock ($ | |||||||||||
| Additional paid-in capital | |||||||||||
| Retained earnings | |||||||||||
| Accumulated other comprehensive income (loss) | ( | ( | |||||||||
Less: Treasury stock at cost ( | |||||||||||
| Total Eastman stockholders' equity | |||||||||||
| Noncontrolling interest | |||||||||||
| Total equity | |||||||||||
| Total liabilities and stockholders' equity | $ | $ | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
5
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
| First Six Months | |||||||||||
| (Dollars in millions) | 2024 | 2023 | |||||||||
| Operating activities | |||||||||||
| Net earnings | $ | $ | |||||||||
| Adjustments to reconcile net earnings to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Benefit from deferred income taxes | ( | ( | |||||||||
| Changes in operating assets and liabilities, net of effect of acquisitions and divestitures: | |||||||||||
| (Increase) decrease in trade receivables | ( | ||||||||||
| (Increase) decrease in inventories | ( | ( | |||||||||
| Increase (decrease) in trade payables | ( | ||||||||||
| Pension and other postretirement contributions (in excess of) less than expenses | ( | ( | |||||||||
| Variable compensation payments (in excess of) less than expenses | ( | ||||||||||
| Other items, net | |||||||||||
Net cash provided by operating activities | |||||||||||
| Investing activities | |||||||||||
| Additions to properties and equipment | ( | ( | |||||||||
| Proceeds from sale of businesses | |||||||||||
| Acquisition, net of cash acquired | ( | ||||||||||
| Additions to capitalized software | ( | ( | |||||||||
| Other items, net | ( | ||||||||||
Net cash used in investing activities | ( | ( | |||||||||
| Financing activities | |||||||||||
Net increase in commercial paper and other borrowings | |||||||||||
| Proceeds from borrowings | |||||||||||
| Repayment of borrowings | ( | ( | |||||||||
| Dividends paid to stockholders | ( | ( | |||||||||
| Treasury stock purchases | ( | ( | |||||||||
Other items, net | ( | ||||||||||
Net cash (used in) provided by financing activities | ( | ||||||||||
| Effect of exchange rate changes on cash and cash equivalents | ( | ||||||||||
| Net change in cash and cash equivalents | ( | ( | |||||||||
| Cash and cash equivalents at beginning of period | |||||||||||
| Cash and cash equivalents at end of period | $ | $ | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
6
| Page | ||||||||
7
1.SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared by Eastman Chemical Company ("Eastman" or the "Company") in accordance and consistent with the accounting policies stated in the Company's 2023 Annual Report on Form 10-K, and should be read in conjunction with the consolidated financial statements in Part II, Item 8 of that report, with the exception of recently adopted accounting standards noted below. The December 31, 2023 financial position data included herein was derived from the consolidated financial statements included in the 2023 Annual Report on Form 10-K but does not include all disclosures required by accounting principles generally accepted in the United States ("GAAP").
In the opinion of management, the unaudited consolidated financial statements include all normal recurring adjustments necessary for the fair presentation of the interim financial information in conformity with GAAP. These statements contain some amounts that are based upon management estimates and judgments. Future actual results could differ from such current estimates. The unaudited consolidated financial statements include assets, liabilities, revenues, and expenses of business ventures in which Eastman has a controlling interest. Eastman accounts for other joint ventures and investments where it exercises significant influence on the equity basis. Intercompany transactions and balances are eliminated in consolidation.
Recently Adopted Accounting Standards
Accounting Standards Update ("ASU") 2022-03 Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions: On January 1, 2024, Eastman adopted this update, which states that when measuring the fair value of an asset or a liability, a reporting entity should consider the characteristics of the asset or liability, including restrictions on the sale of the asset or liability, if a market participant also would take those characteristics into account. Key to that determination is the unit of account for the asset or liability being measured at fair value. The adoption did not have a significant impact on the Company's financial statements and related disclosures.
Accounting Standards Issued But Not Adopted as of June 30, 2024
ASU 2023-05 Business Combination - Joint Venture Formations (Subtopic 805-60): Recognition and Initial Measurement: The Financial Accounting Standards Board ("FASB") issued this update in August 2023, which states that a joint venture must initially measure all contributions received upon its formation at fair value, largely consistent with Topic 805, Business Combinations. The guidance is intended to reduce diversity in practice and provide users of joint venture financial statements with more decision-useful information. This ASU should be applied prospectively and is effective for all newly formed joint venture entities with a formation date on or after January 1, 2025. Early adoption is permitted, and joint ventures formed prior to the adoption date may elect to apply the new guidance retrospectively back to their original formation date. Management is currently evaluating the impact on the Company's financial statements and related disclosures.
ASU 2023-07 Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures: The FASB issued this update in November 2023, which requires enhanced disclosures regarding significant segment expenses and other segment items for public entities on both an annual and interim basis. Specifically, the update requires that entities provide, during interim periods, all disclosures related to a reportable segment's profit or loss and assets that were previously required only on an annual basis. Additionally, this guidance necessitates the disclosure of the title and position of the Chief Operating Decision Maker ("CODM"). The new guidance does not modify how a public entity identifies its operating segments, aggregates them, or applies the quantitative thresholds to determine its reportable segments. This update is effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years starting after December 15, 2024. This ASU must be applied retrospectively to all prior periods presented. Management is currently evaluating the impact on the Company's financial statements and related disclosures.
8
ASU 2023-09 Income Taxes (Topic 740): Improvements to Income Tax Disclosures: The FASB issued this update in December 2023, which modifies income tax disclosure requirements. The updated guidance requires entities to provide more detailed information including specific categories in the income tax rate reconciliation, and the breakdown of income or loss from continuing operations before income tax expense or benefit, for both domestic and foreign operations. Additionally, entities must disclose income tax expense or benefit from continuing operations, categorized by federal, state, and foreign taxes. The guidance further requires disclosure of income tax payments to various jurisdictions. This ASU is effective for fiscal periods beginning after December 15, 2024, and early adoption is permitted. This ASU should be applied on a prospective basis, although retrospective application is permitted. Management is currently evaluating the impact on the Company's financial statements and related disclosures.
Working Capital Management and Off Balance Sheet Arrangements
The Company has off balance sheet, uncommitted accounts receivable factoring programs under which entire invoices may be sold to third-party financial institutions. The vast majority of these programs are without recourse. Under these programs, the Company sells the invoices at face value, less a transaction fee, which substantially equals the carrying value and fair value with no gain or loss recognized, and no credit loss exposure is retained. Available capacity under these programs, 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. In addition, certain programs also require that the Company continue to service, administer, and collect the sold accounts receivable at market rates. The total amounts sold under the program in second quarter 2024 and 2023 were $650 million and $753 million, respectively, and $1.3 billion and $1.4 billion in first six months 2024 and 2023, respectively.
The Company works with suppliers to optimize payment terms and conditions on accounts payable to enhance timing of working capital and cash flows. Under a supplier finance program, the Company's suppliers may voluntarily sell receivables due from Eastman to a participating financial institution. Eastman's responsibility is limited to making payments on the terms originally negotiated with suppliers, regardless of whether the suppliers sell their receivables to the financial institution. The range of payment terms Eastman negotiates with suppliers are consistent, regardless of whether a supplier participates in the program. No fees are paid by Eastman for the supplier finance platform or services fees. Eastman or the financial institution may terminate the program at any time with immediate effect upon 90 days' notice. Confirmed obligations in the supplier finance program of $67 million and $69 million at June 30, 2024 and December 31, 2023, respectively, are included in "Payables and other current liabilities" on the Unaudited Consolidated Statements of Financial Position.
2.INVENTORIES
| June 30, | December 31, | ||||||||||
| (Dollars in millions) | 2024 | 2023 | |||||||||
| Finished goods | $ | $ | |||||||||
| Work in process | |||||||||||
| Raw materials and supplies | |||||||||||
| Total inventories at FIFO or average cost | |||||||||||
| Less: LIFO reserve | |||||||||||
| Total inventories | $ | $ | |||||||||
Inventories valued on the last-in, first-out ("LIFO") method were approximately 50
9
3.INCOME TAXES
| Second Quarter | First Six Months | ||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||||||||||||||||||||||
| $ | % | $ | % | $ | % | $ | % | ||||||||||||||||||||||||||||||||||||||||
Provision for (benefit from) income taxes and tax rate | $ | % | $ | ( | ( | % | $ | % | $ | % | |||||||||||||||||||||||||||||||||||||
Second quarter and first six months 2024 provision for income taxes includes a decrease due to the Company's mix of earnings, partially offset by an increase related to uncertain tax positions. Second quarter and first six months 2023 provision for income taxes includes a $51 23 million increase as a result of state guidance issued in first quarter 2023 interpreting certain provisions of the 2017 Tax Cuts and Jobs Act (the "Tax Reform Act").
At June 30, 2024 and December 31, 2023, Eastman had $345 million and $320 million, respectively, in unrecognized tax benefits. At June 30, 2024, it is reasonably possible that, as a result of the resolution of federal, state, and foreign examinations and appeals, and the expiration of various statutes of limitation, the total amounts of unrecognized tax benefits could decrease by up to $140 million within the next 12 months.
4.BORROWINGS
| June 30, | December 31, | ||||||||||
| (Dollars in millions) | 2024 | 2023 | |||||||||
| Borrowings consisted of: | |||||||||||
| $ | $ | ||||||||||
| 2024 Term Loan | |||||||||||
| 2027 Term Loan | |||||||||||
| Total borrowings | |||||||||||
| Less: Borrowings due within one year | |||||||||||
| Long-term borrowings | $ | $ | |||||||||
(1)The carrying value of the euro-denominated 1.875% notes due November 2026 fluctuates with changes in the euro to U.S. dollar exchange rate. The carrying value of this euro-denominated borrowing has been designated as a non-derivative net investment hedge of a portion of the Company's net investments in euro functional-currency denominated subsidiaries to offset foreign currency fluctuations.
(2)Net proceeds from the bond issuance were used to finance or refinance eligible green investment initiatives, which contribute to Eastman's environmental sustainability strategy (a green bond).
In second quarter 2024, the Company repaid the $43 million 7.625% debentures due June 2024. There were no debt extinguishment costs associated with the repayment. This redemption is reported under financing activities on the Unaudited Consolidated Statements of Cash Flows.
10
In first quarter 2024, the Company issued $750 million aggregate principal amount of 5.625% notes due February 2034 (the "2034 Notes"). Proceeds from the sale of the 2034 Notes, net of original issue discounts and issuance costs, were $742 million. The Company also repaid the $198 million 7.25% debentures due January 2024 during first quarter 2024. There were no debt extinguishment costs associated with the repayment. Both the proceeds from the 2034 Notes and the redemption of the debentures are reported under financing activities on the Unaudited Consolidated Statements of Cash Flows.
Credit Facility, Term Loans, and Commercial Paper Borrowings
The Company has access to a $1.50 billion revolving credit agreement (the "Credit Facility"). In February 2024, the Credit Facility was amended to extend the maturity to February 2029. All other material terms of the Credit Facility remain unchanged. 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 includes sustainability-linked pricing terms, provides available liquidity for general corporate purposes, and supports commercial paper borrowings. Commercial paper borrowings are classified as short-term. At June 30, 2024 and December 31, 2023, the Company had no no
In first quarter 2024, the Company repaid the $300 million delayed draw two-year term loan (the "2024 Term Loan"). There were no extinguishment costs associated with the repayment of this term loan. The outstanding balance on the $500 million term loan that matures in 2027 (the "2027 Term Loan") was $499 6.57 % and 6.58 %, respectively. The 2027 Term Loan is subject to interest at varying spreads above quoted market rates.
The Credit Facility and the 2027 Term Loan contain 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 applicable covenants at both June 30, 2024 and December 31, 2023.
Fair Value of Borrowings
Eastman has classified its total borrowings at June 30, 2024 and December 31, 2023 under the fair value hierarchy as defined in the accounting policies in Note 1, "Significant Accounting Policies", to the consolidated financial statements in Part II, Item 8 of the Company's 2023 Annual Report on Form 10-K. The fair value for fixed-rate debt securities is based on quoted market prices for the same or similar debt instruments and is classified as Level 2. The fair value for the 2027 Term Loan equals the carrying value and is classified as Level 2. The Company's fair value of total borrowings was $4.8 billion and $4.7 billion at June 30, 2024 and December 31, 2023, respectively. The Company had no
5.DERIVATIVE AND NON-DERIVATIVE FINANCIAL INSTRUMENTS
Overview of Hedging Programs
Eastman is exposed to market risks, such as changes in foreign currency exchange rates, raw material and energy prices, and interest rates. To mitigate these market risks and their effects on the cash flows of the underlying transactions and investments in foreign subsidiaries, the Company uses various derivative and non-derivative financial instruments, when appropriate, in accordance with the Company's hedging strategy and policies. Designation is performed on a specific exposure basis to support hedge accounting. The Company does not enter into derivative transactions for speculative purposes.
For further information on the Company's hedging programs, see Note 10, "Derivative and Non-Derivative Financial Instruments", to the consolidated financial statements in Part II, Item 8 of the Company's 2023 Annual Report on Form 10-K.
11
Cash Flow Hedges
Cash flow hedges are derivative instruments designated as and used to hedge the exposure to variability in expected future cash flows that are attributable to a particular risk. The derivative instruments that are designated and qualify as a cash flow hedge are reported on the balance sheet at fair value and the changes in fair value of these hedging instruments are offset in part or in whole by corresponding changes in the anticipated cash flows of the underlying exposures being hedged. The change in the hedge instrument is reported as a component of "Accumulated other comprehensive income (loss)" ("AOCI") on the Unaudited Consolidated Statements of Financial Position and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Cash flows from cash flow hedges are classified as operating activities in the Unaudited Consolidated Statements of Cash Flows.
Fair Value Hedges
Fair value hedges are defined as derivative or non-derivative instruments designated as and used to hedge the exposure to changes in the fair value of an asset or a liability or an identified portion thereof that is attributable to a particular risk. The derivative instruments that are designated and qualify as fair value hedges are reported as "Long-term borrowings" on the Unaudited Consolidated Statements of Financial Position at fair value and the changes in fair value of these hedging instruments are offset in part or in whole by corresponding changes in the anticipated fair value of the underlying exposures being hedged. The net of the change in the hedge instrument and item being hedged for qualifying fair value hedges is recognized in earnings in the same period or periods during which the hedged transaction affects earnings. Cash flows from fair value hedges are classified as operating activities in the Unaudited Consolidated Statements of Cash Flows.
Net Investment Hedges
Net investment hedges are defined as derivative or non-derivative instruments designated as and used to hedge the foreign currency exposure of the net investments in certain foreign operations. The net of the change in the hedge instrument and item being hedged for qualifying net investment hedges is reported as a component of the "Cumulative Translation Adjustment" ("CTA") within AOCI on the Unaudited Consolidated Statements of Financial Position. Cash flows from the CTA component are classified as operating activities in the Unaudited Consolidated Statements of Cash Flows. Recognition in earnings of amounts previously recognized in CTA is limited to circumstances such as complete or substantially complete liquidation of the net investment in the hedged foreign operation. In the event of a complete or substantially complete liquidation of the net investment, cash flows from net investment hedges are classified as investing activities in the Unaudited Consolidated Statements of Cash Flows.
For derivative cross-currency interest rate swap net investment hedges, gains and losses representing hedge components excluded from the assessment of effectiveness are recognized in CTA within AOCI and recognized in earnings through the periodic swap interest accruals. The cross-currency interest rate swaps designated as net investment hedges are included as part of "Other long-term liabilities", "Other noncurrent assets", "Payables and other current liabilities", or "Other current assets" on the Unaudited Consolidated Statements of Financial Position. Cash flows from excluded components are classified as operating activities in the Unaudited Consolidated Statements of Cash Flows.
Eastman enters into fixed-to-fixed cross-currency swaps and designates these swaps to hedge a portion of its net investment in a non-U.S. dollar functional currency denominated subsidiary against foreign currency fluctuations. These contracts involve the exchange of fixed U.S. dollars with fixed foreign currency interest payments periodically over the life of the contracts and an exchange of the notional amounts at maturity.
In first quarter 2024, in conjunction with the repayment of the 7.25% debentures due January 2024, the Company terminated fixed-to-fixed cross-currency swaps of $190 million (€165 million) maturing January 2024. The termination of the cross-currency swap resulted in a $9 million gain recognized in CTA. The related cash flows were classified as investing activities in the Unaudited Consolidated Statements of Cash Flows.
Additionally, in first quarter 2024, Eastman entered into fixed-to-fixed cross-currency swaps of $50 million (€46 million) maturing December 2028, $200 million (€184 million) maturing September 2029, and $250 million (€230 million) maturing February 2034.
12
Summary of Financial Position and Financial Performance of Hedging Instruments
The following table presents the notional amounts outstanding at June 30, 2024 and December 31, 2023 associated with Eastman's hedging programs.
| Notional Outstanding | June 30, 2024 | December 31, 2023 | |||||||||||||||
| Derivatives designated as cash flow hedges: | |||||||||||||||||
| Foreign Exchange Forward and Option Contracts (in millions) | |||||||||||||||||
| EUR/USD (in EUR) | € | € | |||||||||||||||
| Commodity Forward and Collar Contracts | |||||||||||||||||
| Energy (in million british thermal units) | |||||||||||||||||
| Derivatives designated as fair value hedges: | |||||||||||||||||
| Fixed-for-floating interest rate swaps (in millions) | $ | $ | |||||||||||||||
| Derivatives designated as net investment hedges: | |||||||||||||||||
| Cross-currency interest rate swaps (in millions) | |||||||||||||||||
| EUR/USD (in EUR) | € | € | |||||||||||||||
| JPY/USD (in JPY) | ¥ | ¥ | |||||||||||||||
| Non-derivatives designated as net investment hedges: | |||||||||||||||||
| Foreign Currency Net Investment Hedges (in millions) | |||||||||||||||||
| EUR/USD (in EUR) | € | € | |||||||||||||||
Fair Value Measurements
All the Company's derivative assets and liabilities are currently classified as Level 2. Level 2 fair value is based on estimates using standard pricing models. These standard pricing models use inputs that are derived from or corroborated by observable market data such as interest rate yield curves and currency spot and forward rates. The fair value of commodity contracts is derived using forward curves supplied by an industry recognized and unrelated third party. In addition, on an ongoing basis, the Company compares a subset of its valuations against valuations received from counterparties to validate the accuracy of its standard pricing models. The Company had no
All the Company's derivative contracts are subject to master netting arrangements, or similar agreements, which provide for the option to settle contracts on a net basis when they settle on the same day and in the same currency. In addition, these arrangements provide for a net settlement of all contracts with a given counterparty in the event that the arrangement is terminated due to the occurrence of default or a termination event. The Company does not have any cash collateral due under such agreements.
13
The Company has elected to present derivative contracts on a gross basis on the Unaudited Consolidated Statements of Financial Position. The following table presents the financial assets and liabilities valued on a recurring and gross basis and includes where the financial assets and liabilities are on the Unaudited Consolidated Statements of Financial Position as of June 30, 2024 and December 31, 2023.
| The Financial Position and Fair Value Measurements of Hedging Instruments on a Gross Basis | ||||||||||||||||||||
| (Dollars in millions) | ||||||||||||||||||||
| Derivative Type | Statements of Financial Position Classification | Level 2 | ||||||||||||||||||
| June 30, 2024 | December 31, 2023 | |||||||||||||||||||
| Derivatives designated as cash flow hedges: | ||||||||||||||||||||
| Foreign exchange contracts | Other current assets | $ | $ | |||||||||||||||||
| Foreign exchange contracts | Other noncurrent assets | |||||||||||||||||||
| Derivatives designated as fair value hedges: | ||||||||||||||||||||
| Fixed-for-floating interest rate swap | Other current assets | |||||||||||||||||||
| Derivatives designated as net investment hedges: | ||||||||||||||||||||
| Cross-currency interest rate swaps | Other current assets | |||||||||||||||||||
| Cross-currency interest rate swaps | Other noncurrent assets | |||||||||||||||||||
| Total Derivative Assets | $ | $ | ||||||||||||||||||
| Derivatives designated as cash flow hedges: | ||||||||||||||||||||
| Commodity contracts | Payables and other current liabilities | $ | $ | |||||||||||||||||
| Foreign exchange contracts | Payables and other current liabilities | |||||||||||||||||||
| Foreign exchange contracts | Other long-term liabilities | |||||||||||||||||||
| Derivatives designated as fair value hedges: | ||||||||||||||||||||
Fixed-for-floating interest rate swap | Payables and other current liabilities | |||||||||||||||||||
| Fixed-for-floating interest rate swap | Long-term borrowings | |||||||||||||||||||
| Derivatives designated as net investment hedges: | ||||||||||||||||||||
Cross-currency interest rate swaps | Payables and other current liabilities | |||||||||||||||||||
| Cross-currency interest rate swaps | Other long-term liabilities | |||||||||||||||||||
| Total Derivative Liabilities | $ | $ | ||||||||||||||||||
| Total Net Derivative Assets (Liabilities) | $ | $ | ( | |||||||||||||||||
In addition to the fair value associated with derivative instruments designated as cash flow hedges, fair value hedges, and net investment hedges, the Company had non-derivative instruments designated as foreign currency net investment hedges with a carrying value of $533 million at June 30, 2024 and $550 million at December 31, 2023. The designated foreign currency-denominated borrowings are included as part of "Borrowings due within one year" and "Long-term borrowings" on the Unaudited Consolidated Statements of Financial Position.
14
For additional fair value measurement information, see Note 1, "Significant Accounting Policies", and Note 10, "Derivative and Non-Derivative Financial Instruments", to the consolidated financial statements in Part II, Item 8 of the Company's 2023 Annual Report on Form 10-K.
As of June 30, 2024 and December 31, 2023, the following amounts were included on the Unaudited Consolidated Statements of Financial Position related to cumulative basis adjustments for fair value hedges.
| (Dollars in millions) | Carrying amount of the hedged liabilities | Cumulative amount of fair value hedging loss adjustment included in the carrying amount of the hedged liability | ||||||||||||||||||||||||
| Line item on the Unaudited Consolidated Statements of Financial Position in which the hedged item is included | June 30, 2024 | December 31, 2023 | June 30, 2024 | December 31, 2023 | ||||||||||||||||||||||
| Borrowings due within one year | $ | $ | — | $ | ( | $ | — | |||||||||||||||||||
| Long-term borrowings | — | — | ( | |||||||||||||||||||||||
The following table presents the effect of the Company's hedging instruments on "Other comprehensive income (loss), net of tax" ("OCI") and financial performance for second quarter and first six months 2024 and 2023.
| Change in amount of after tax gain (loss) recognized in OCI on derivatives | Pre-tax amount of gain (loss) reclassified from AOCI into earnings | |||||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | Second Quarter | First Six Months | Second Quarter | First Six Months | ||||||||||||||||||||||||||||||||||||||||||||||
| Hedging Relationships | 2024 | 2023 | 2024 | 2023 | 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||||||||||||||||||||||
| Derivatives in cash flow hedging relationships: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Commodity contracts | $ | $ | ( | $ | $ | ( | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||
| Foreign exchange contracts | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
| Forward starting interest rate and treasury lock swap contracts | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Non-derivatives in net investment hedging relationships (pre-tax): | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Net investment hedges | ( | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Derivatives in net investment hedging relationships (pre-tax): | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Cross-currency interest rate swaps | ( | ( | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Cross-currency interest rate swaps excluded component | ( | ( | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
15
The following table presents the effect of fair value and cash flow hedge accounting in the Unaudited Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings for second quarter and first six months 2024 and 2023.
| Location and Amount of Gain or (Loss) Recognized in Earnings from Fair Value and Cash Flow Hedging Relationships | ||||||||||||||||||||||||||||||||||||||
| Second Quarter | ||||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | |||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | Sales | Cost of Sales | Net Interest Expense | Sales | Cost of Sales | Net Interest Expense | ||||||||||||||||||||||||||||||||
| Total amounts of income and expense line items presented in the Unaudited Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings in which the effects of fair value or cash flow hedges are recognized | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
| The effects of fair value and cash flow hedging: | ||||||||||||||||||||||||||||||||||||||
| Gain or (loss) on fair value hedging relationships: | ||||||||||||||||||||||||||||||||||||||
| Interest contracts (fixed-for-floating interest rate swaps): | ||||||||||||||||||||||||||||||||||||||
| Hedged items | ||||||||||||||||||||||||||||||||||||||
| Derivatives designated as hedging instruments | ( | ( | ||||||||||||||||||||||||||||||||||||
| Gain or (loss) on cash flow hedging relationships: | ||||||||||||||||||||||||||||||||||||||
| Interest contracts (forward starting interest rate and treasury lock swap contracts): | ||||||||||||||||||||||||||||||||||||||
| Amount reclassified from AOCI into earnings | ||||||||||||||||||||||||||||||||||||||
| Commodity Contracts: | ||||||||||||||||||||||||||||||||||||||
| Amount reclassified from AOCI into earnings | ||||||||||||||||||||||||||||||||||||||
| Foreign Exchange Contracts: | ||||||||||||||||||||||||||||||||||||||
| Amount reclassified from AOCI into earnings | ||||||||||||||||||||||||||||||||||||||
| Location and Amount of Gain or (Loss) Recognized in Earnings from Fair Value and Cash Flow Hedging Relationships | ||||||||||||||||||||||||||||||||||||||
| First Six Months | ||||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | |||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | Sales | Cost of Sales | Net Interest Expense | Sales | Cost of Sales | Net Interest Expense | ||||||||||||||||||||||||||||||||
| Total amounts of income and expense line items presented in the Unaudited Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings in which the effects of fair value or cash flow hedges are recognized | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
| The effects of fair value and cash flow hedging: | ||||||||||||||||||||||||||||||||||||||
| Gain or (loss) on fair value hedging relationships: | ||||||||||||||||||||||||||||||||||||||
| Interest contracts (fixed-for-floating interest rate swaps): | ||||||||||||||||||||||||||||||||||||||
| Hedged items | ||||||||||||||||||||||||||||||||||||||
| Derivatives designated as hedging instruments | ( | ( | ||||||||||||||||||||||||||||||||||||
| Gain or (loss) on cash flow hedging relationships: | ||||||||||||||||||||||||||||||||||||||
| Interest contracts (forward starting interest rate and treasury lock swap contracts): | ||||||||||||||||||||||||||||||||||||||
| Amount reclassified from AOCI into earnings | ||||||||||||||||||||||||||||||||||||||
| Commodity Contracts: | ||||||||||||||||||||||||||||||||||||||
| Amount reclassified from AOCI into earnings | ||||||||||||||||||||||||||||||||||||||
| Foreign Exchange Contracts: | ||||||||||||||||||||||||||||||||||||||
| Amount reclassified from AOCI into earnings | ||||||||||||||||||||||||||||||||||||||
16
The Company enters into foreign exchange derivatives denominated in multiple currencies which are transacted and settled in the same quarter. These derivatives are not designated as hedges due to the short-term nature and the gains or losses on these derivatives are marked-to-market in line item "Other (income) charges, net" in the Unaudited Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings. As a result of these derivatives, the Company recognized a net gain of $2 million and a net loss of $3 million during second quarter and first six months 2024, respectively, and recognized a net loss of $1 million and $6 million during second quarter and first six months 2023, respectively.
Pre-tax monetized positions and mark-to-market gains and losses from raw materials and energy, currency, and certain interest rate hedges that were included in AOCI resulted in a net gain of $99 million and a net loss of $4 million at June 30, 2024 and December 31, 2023, respectively. Gains in AOCI increased between December 31, 2023 and June 30, 2024 primarily as a result of a decrease in euro to U.S. dollar exchange rates. If recognized, approximately $1 million in pre-tax gains as of June 30, 2024, would be reclassified into earnings during the next 12 months, including foreign exchange contracts prospectively dedesignated and monetized in fourth quarter 2022.
6.RETIREMENT PLANS
Defined Benefit Pension Plans and Other Postretirement Benefit Plans
Eastman maintains defined benefit pension plans that provide eligible employees with retirement benefits. In addition, Eastman provides life insurance for eligible retirees hired prior to January 1, 2007. Company funding is provided for eligible Medicare retirees hired prior to January 1, 2007 with a health reimbursement arrangement. Costs recognized for these benefits are estimated amounts, which may change as actual costs for the year are determined.
For additional information regarding retirement plans, see Note 11, "Retirement Plans", to the consolidated financial statements in Part II, Item 8 of the Company's 2023 Annual Report on Form 10-K.
17
Components of net periodic benefit (credit) cost were as follows:
| Second Quarter | |||||||||||||||||||||||||||||||||||
| Pension Plans | Other Postretirement Benefit Plans | ||||||||||||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||||||||||||
| (Dollars in millions) | U.S. | Non-U.S. | U.S. | Non-U.S. | |||||||||||||||||||||||||||||||
| Service cost | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Interest cost | |||||||||||||||||||||||||||||||||||
| Expected return on assets | ( | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||
| Amortization of: | |||||||||||||||||||||||||||||||||||
| Prior service credit, net | ( | ( | |||||||||||||||||||||||||||||||||
| Net periodic benefit (credit) cost | $ | $ | $ | $ | $ | $ | ( | ||||||||||||||||||||||||||||
| First Six Months | |||||||||||||||||||||||||||||||||||
| Pension Plans | Other Postretirement Benefit Plans | ||||||||||||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||||||||||||
| (Dollars in millions) | U.S. | Non-U.S. | U.S. | Non-U.S. | |||||||||||||||||||||||||||||||
| Service cost | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Interest cost | |||||||||||||||||||||||||||||||||||
| Expected return on assets | ( | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||
| Amortization of: | |||||||||||||||||||||||||||||||||||
| Prior service credit, net | ( | ( | |||||||||||||||||||||||||||||||||
| Net periodic benefit (credit) cost | $ | $ | $ | $ | $ | $ | ( | ||||||||||||||||||||||||||||
7.OTHER COMMITMENTS
Eastman has commitments consisting of debt securities, credit facilities, term loans, interest payable, purchase obligations, operating leases, and other liabilities.
In first quarter 2024, purchase obligations in the 2029 and beyond period decreased by approximately $1.5 billion as a result of exiting an agreement with a supplier after contract negotiations. Eastman had remaining debt and other commitments at June 30, 2024 totaling approximately $10.5 billion over a period of approximately 30 years.
Other than the purchase obligations discussed above, there have been no material changes to the Company's commitments from those disclosed in Note 12, "Leases and Other Commitments", to the consolidated financial statements in Part II, Item 8 of the Company's 2023 Annual Report on Form 10-K.
18
8.ENVIRONMENTAL MATTERS AND ASSET RETIREMENT OBLIGATIONS
Certain Eastman manufacturing facilities generate hazardous and nonhazardous wastes, of which the treatment, storage, transportation, and disposal are regulated by various governmental agencies. In connection with the cleanup of various hazardous waste sites, the Company, along with many other entities, has been designated a potentially responsible party ("PRP") by the U.S. Environmental Protection Agency under the Comprehensive Environmental Response, Compensation and Liability Act, which potentially subjects PRPs to joint and several liability for certain cleanup costs. In addition, the Company will incur costs for environmental remediation and closure and post-closure under the federal Resource Conservation and Recovery Act. Reserves for environmental contingencies have been established in accordance with Eastman's policies described in Note 1, "Significant Accounting Policies", to the consolidated financial statements in Part II, Item 8 of the Company's 2023 Annual Report on Form 10-K. The resolution of uncertainties related to environmental matters 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 the extended period of time that the obligations are expected to be satisfied, management does not believe that the Company's liability for these environmental matters, individually or in the aggregate, will have a material adverse effect on the Company's future overall financial position, results of operations, or cash flows.
Environmental Remediation and Environmental Asset Retirement Obligations
The Company's net environmental reserve for environmental contingencies, including remediation costs and asset retirement obligations, is included as part of "Other noncurrent assets", "Payables and other current liabilities", and "Other long-term liabilities" on the Unaudited Consolidated Statements of Financial Position as follows:
| (Dollars in millions) | June 30, 2024 | December 31, 2023 | |||||||||
| Environmental contingencies, current | $ | $ | |||||||||
| Environmental contingencies, long-term | |||||||||||
| Total | $ | $ | |||||||||
Environmental Remediation
Estimated future environmental expenditures for undiscounted remediation costs ranged from the best estimate or minimum of $257 million to the maximum of $503 million and from the best estimate or minimum of $252 million to the maximum of $497 million at June 30, 2024 and December 31, 2023, respectively. The best estimate or minimum estimated future environmental expenditures are considered to be probable and reasonably estimable.
Reserves for environmental remediation include liabilities expected to be paid within approximately 30 years . The amounts charged to pre-tax earnings for environmental remediation and related charges are recognized in "Cost of sales" and "Other (income) charges, net" in the Unaudited Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings.
Changes in the reserves for environmental remediation liabilities during first six months 2024 and full year 2023 are summarized below:
| (Dollars in millions) | Environmental Remediation Liabilities | ||||
Balance at December 31, 2022 | $ | ||||
| Changes in estimates recognized in earnings and other | |||||
| Cash reductions | ( | ||||
Balance at December 31, 2023 | |||||
| Changes in estimates recognized in earnings and other | |||||
| Cash reductions | ( | ||||
| Balance at June 30, 2024 | $ | ||||
19
Environmental Asset Retirement Obligations
An asset retirement obligation is an obligation for the retirement of a tangible long-lived asset that is incurred upon the acquisition, construction, development, or normal operation of that long-lived asset. Environmental asset retirement obligations primarily consist of closure and post-closure costs. For sites that have environmental asset retirement obligations, the best estimate recognized to date for these environmental asset retirement obligation costs were $31 million and $32 million at June 30, 2024 and December 31, 2023, respectively.
Non-Environmental Asset Retirement Obligations
The Company has contractual asset retirement obligations not associated with environmental liabilities. Eastman's non-environmental asset retirement obligations are primarily associated with the future closure of leased manufacturing assets in Pace, Florida and Oulu, Finland. These non-environmental asset retirement obligations were $53 million and $51 million at June 30, 2024 and December 31, 2023, respectively, and are included in "Other long-term liabilities" on the Unaudited Consolidated Statements of Financial Position.
9.LEGAL MATTERS
From time to time, Eastman and its operations are parties to, or targets of, lawsuits, claims, investigations and proceedings, including product liability, personal injury, asbestos, patent and intellectual property, commercial, contract, environmental, antitrust, health and safety, and employment matters, which are primarily handled and defended in the ordinary course of business. While the Company is unable to predict the outcome of these matters, it does not believe, based upon currently available facts, that the ultimate resolution of any such pending matters will have a material adverse effect on its overall financial position, results of operations, or cash flows.
20
10.STOCKHOLDERS' EQUITY
Reconciliations of the changes in stockholders' equity for second quarter 2024 and 2023 are provided below:
| (Dollars in millions, except per share amount) | Common Stock at Par Value | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Treasury Stock at Cost | Total Eastman Stockholders' Equity | Noncontrolling Interest | Total Equity | |||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2024 | $ | $ | $ | $ | ( | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||
| Net Earnings | |||||||||||||||||||||||||||||||||||||||||||||||
Cash Dividends Declared (1) ($ | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Other Comprehensive Income (Loss) | |||||||||||||||||||||||||||||||||||||||||||||||
Share-Based Compensation Expense (2) | |||||||||||||||||||||||||||||||||||||||||||||||
| Stock Option Exercises | |||||||||||||||||||||||||||||||||||||||||||||||
Other | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Share Repurchases | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2024 | $ | $ | $ | $ | ( | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||
| (Dollars in millions, except per share amount) | Common Stock at Par Value | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Treasury Stock at Cost | Total Eastman Stockholders' Equity | Noncontrolling Interest | Total Equity | |||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2023 | $ | $ | $ | $ | ( | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||
| Net Earnings | |||||||||||||||||||||||||||||||||||||||||||||||
Cash Dividends Declared (1) ($ | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Other Comprehensive Income (Loss) | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
Share-Based Compensation Expense (2) | |||||||||||||||||||||||||||||||||||||||||||||||
Other | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
Share Repurchases | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Distributions to Noncontrolling Interest | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2023 | $ | $ | $ | $ | ( | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||
(1)Cash dividends declared consists of cash dividends paid and dividends declared but unpaid.
(2)Share-based compensation expense is based on the fair value of share-based awards.
21
| (Dollars in millions, except per share amount) | Common Stock at Par Value | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Treasury Stock at Cost | Total Eastman Stockholders' Equity | Noncontrolling Interest | Total Equity | |||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | $ | ( | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||
| Net Earnings | |||||||||||||||||||||||||||||||||||||||||||||||
Cash Dividends Declared (1) ($ | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Other Comprehensive Income (Loss) | |||||||||||||||||||||||||||||||||||||||||||||||
Share-Based Compensation Expense (2) | |||||||||||||||||||||||||||||||||||||||||||||||
| Stock Option Exercises | |||||||||||||||||||||||||||||||||||||||||||||||
Other (3) | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||
| Share Repurchases | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Distributions to Noncontrolling Interest | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2024 | $ | $ | $ | $ | ( | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||
| (Dollars in millions, except per share amount) | Common Stock at Par Value | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Treasury Stock at Cost | Total Eastman Stockholders' Equity | Noncontrolling Interest | Total Equity | |||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | $ | ( | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||
| Net Earnings | |||||||||||||||||||||||||||||||||||||||||||||||
Cash Dividends Declared (1) ($ | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Other Comprehensive Income (Loss) | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
Share-Based Compensation Expense (2) | |||||||||||||||||||||||||||||||||||||||||||||||
| Stock Option Exercises | |||||||||||||||||||||||||||||||||||||||||||||||
Other (3) | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
Share Repurchases | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Distributions to Noncontrolling Interest | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2023 | $ | $ | $ | $ | ( | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||
(1)Cash dividends declared consists of cash dividends paid and dividends declared but unpaid.
(2)Share-based compensation expense is based on the fair value of share-based awards.
(3)Additional paid-in capital includes the value of shares withheld for employees' taxes on vesting of share-based compensation awards.
22
Accumulated Other Comprehensive Income (Loss), Net of Tax
| (Dollars in millions) | Cumulative Translation Adjustment | Benefit Plans Unrecognized Prior Service Credits | Unrealized Gains (Losses) on Derivative Instruments | Unrealized Losses on Investments | Accumulated Other Comprehensive Income (Loss) | ||||||||||||||||||||||||
Balance at December 31, 2022 | $ | ( | $ | $ | ( | $ | ( | $ | ( | ||||||||||||||||||||
| Period change | ( | ( | ( | ( | |||||||||||||||||||||||||
Balance at December 31, 2023 | ( | ( | ( | ( | |||||||||||||||||||||||||
| Period change | ( | ( | |||||||||||||||||||||||||||
| Balance at June 30, 2024 | $ | ( | $ | $ | ( | $ | ( | $ | ( | ||||||||||||||||||||
Amounts of other comprehensive income (loss) are presented net of applicable taxes. Eastman recognizes deferred income taxes on the CTA related to branch operations and income from other entities included in the Company's consolidated U.S. tax return. No deferred income taxes are recognized on the CTA of other subsidiaries outside the United States because the CTA is considered to be a component of indefinitely invested, unremitted earnings of these foreign subsidiaries.
Components of OCI recognized in the Unaudited Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings are presented below, before tax and net of tax effects:
| Second Quarter | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| (Dollars in millions) | Before Tax | Net of Tax | Before Tax | Net of Tax | |||||||||||||||||||
| Other comprehensive income (loss) | |||||||||||||||||||||||
| Change in cumulative translation adjustment | $ | $ | $ | ( | $ | ( | |||||||||||||||||
| Defined benefit pension and other postretirement benefit plans: | |||||||||||||||||||||||
| Amortization of unrecognized prior service credits | ( | ( | ( | ( | |||||||||||||||||||
| Derivatives and hedging: | |||||||||||||||||||||||
| Unrealized gain (loss) during period | ( | ( | |||||||||||||||||||||
| Reclassification adjustment for (gains) losses included in net income, net | |||||||||||||||||||||||
| Total other comprehensive income (loss) | $ | $ | $ | ( | $ | ( | |||||||||||||||||
| First Six Months | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| (Dollars in millions) | Before Tax | Net of Tax | Before Tax | Net of Tax | |||||||||||||||||||
| Other comprehensive income (loss) | |||||||||||||||||||||||
| Change in cumulative translation adjustment | $ | $ | ( | $ | ( | $ | ( | ||||||||||||||||
| Defined benefit pension and other postretirement benefit plans: | |||||||||||||||||||||||
| Amortization of unrecognized prior service credits | ( | ( | ( | ( | |||||||||||||||||||
| Derivatives and hedging: | |||||||||||||||||||||||
| Unrealized gain (loss) during period | ( | ( | |||||||||||||||||||||
| Reclassification adjustment for (gains) losses included in net income, net | ( | ( | |||||||||||||||||||||
| Total other comprehensive income (loss) | $ | $ | $ | ( | $ | ( | |||||||||||||||||
23
11.EARNINGS AND DIVIDENDS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share ("EPS") which are calculated using the treasury stock method:
| Second Quarter | First Six Months | ||||||||||||||||||||||
| (In millions, except per share amounts) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Numerator | |||||||||||||||||||||||
| Earnings attributable to Eastman, net of tax | $ | $ | $ | $ | |||||||||||||||||||
| Denominator | |||||||||||||||||||||||
| Weighted average shares used for basic EPS | |||||||||||||||||||||||
| Dilutive effect of stock options and other awards | |||||||||||||||||||||||
| Weighted average shares used for diluted EPS | |||||||||||||||||||||||
| (Calculated using whole dollars and shares) | |||||||||||||||||||||||
| EPS | |||||||||||||||||||||||
| Basic | $ | $ | $ | $ | |||||||||||||||||||
| Diluted | $ | $ | $ | $ | |||||||||||||||||||
Shares underlying stock options of 1,336,652 and 2,411,015 for second quarter 2024 and 2023, respectively, and 1,397,081 and 1,941,051 for first six months 2024 and 2023, respectively, were excluded from the calculations of diluted EPS because the grant date exercise price of these options was greater than the average market price of the Company's common stock and the effect of including them in the calculations of diluted EPS would have been antidilutive. The Company repurchased 1,000,005 621,711
The Company declared cash dividends of $0.81 and $0.79 per share for second quarter 2024 and 2023, respectively. The Company declared cash dividends of $1.62 and $1.58 per share for first six months 2024 and 2023, respectively.
24
12.ASSET IMPAIRMENTS AND RESTRUCTURING CHARGES, NET
| (Dollars in millions) | Second Quarter | First Six Months | |||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
Severance charges (1) | $ | $ | |||||||||||||||||||||
Site closure and other restructuring charges (2) | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
(1)Severance charges as part of fourth quarter 2022 and 2023 cost reduction initiatives reported in "Other". See Note 14, "Segment Information".
(2)First six months 2023 site closure costs related to the closure of an acetate yarn manufacturing facility in Europe in the Fibers segment. In addition, accelerated depreciation of $23 million was recognized in "Cost of sales" in the Unaudited Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings in first six months 2023 related to the closure of this facility.
Changes in Reserves
The following table summarizes the changes in asset impairments and restructuring reserves in first six months 2024 and full year 2023:
| (Dollars in millions) | Balance at January 1, 2024 | Provision/ Adjustments | Non-cash Reductions/ Additions | Cash Reductions | Balance at June 30, 2024 | ||||||||||||||||||||||||
| Severance costs | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||
(Dollars in millions) | Balance at January 1, 2023 | Provision/ Adjustments | Non-cash Reductions/ Additions | Cash Reductions | Balance at December 31, 2023 | ||||||||||||||||||||||||
| Severance costs | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||
| Other restructuring costs | ( | ||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||
Substantially all severance costs remaining as of June 30, 2024 are expected to be paid within one year.
13.SHARE-BASED COMPENSATION AWARDS
The Company utilizes share-based awards under employee and non-employee director compensation programs. These share-based awards have included restricted and unrestricted stock, restricted stock units, stock options, and performance shares. In second quarter 2024 and 2023, $14 million and $17 million, respectively, of compensation expense before tax were recognized in "Selling, general and administrative expenses" ("SG&A") in the Unaudited Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings, for all share-based awards. The impact on second quarter 2024 and 2023 net earnings of $11 million and $13 million, respectively, is net of deferred tax expense related to share-based award compensation for each period.
In first six months 2024 and 2023, $35 million and $39 million, respectively, of compensation expense before tax were recognized in SG&A in the Unaudited Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings for all share-based awards. The impact on first six months 2024 and 2023 net earnings of $26 million and $29 million, respectively, is net of deferred tax expense related to share-based award compensation for each period.
For additional information regarding share-based compensation plans and awards, see Note 18, "Share-Based Compensation Plans and Awards", to the consolidated financial statements in Part II, Item 8 of the Company's 2023 Annual Report on Form 10-K.
25
14.SEGMENT INFORMATION
Eastman's products and operations are managed and reported in four operating segments: Advanced Materials ("AM"), Additives & Functional Products ("AFP"), Chemical Intermediates ("CI"), and Fibers. The economic factors that impact the nature, amount, timing, and uncertainty of revenue and cash flows vary among the Company's operating segments and the geographical regions in which they operate. For disaggregation of revenue by major product lines and regions for each operating segment, see Note 20, "Segment and Regional Sales Information", to the consolidated financial statements in Part II, Item 8 of the Company's 2023 Annual Report on Form 10-K. For additional financial and product information for each operating segment, see Part I, Item 1, "Business - Business Segments", in the Company's 2023 Annual Report on Form 10-K.
| (Dollars in millions) | Second Quarter | First Six Months | |||||||||||||||||||||
| Sales by Segment | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Advanced Materials | $ | $ | $ | $ | |||||||||||||||||||
| Additives & Functional Products | |||||||||||||||||||||||
| Chemical Intermediates | |||||||||||||||||||||||
| Fibers | |||||||||||||||||||||||
| Total Sales by Operating Segment | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Total Sales | $ | $ | $ | $ | |||||||||||||||||||
| (Dollars in millions) | Second Quarter | First Six Months | |||||||||||||||||||||
| Earnings (Loss) Before Interest and Taxes by Segment | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Advanced Materials | $ | $ | $ | $ | |||||||||||||||||||
| Additives & Functional Products | |||||||||||||||||||||||
| Chemical Intermediates | |||||||||||||||||||||||
| Fibers | |||||||||||||||||||||||
| Total Earnings Before Interest and Taxes by Operating Segment | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Growth initiatives and businesses not allocated to operating segments | ( | ( | ( | ( | |||||||||||||||||||
| Pension and other postretirement benefits income (expense), net not allocated to operating segments | ( | ( | |||||||||||||||||||||
| Asset impairments and restructuring charges, net | ( | ( | |||||||||||||||||||||
| Steam line incident (costs) insurance proceeds, net | |||||||||||||||||||||||
| Other income (charges), net not allocated to operating segments | ( | ( | ( | ( | |||||||||||||||||||
| Total Earnings Before Interest and Taxes | $ | $ | $ | $ | |||||||||||||||||||
26
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Page
This Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is based upon the unaudited consolidated financial statements of Eastman Chemical Company ("Eastman" or the "Company"), which have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP"), and should be read in conjunction with the Company's audited consolidated financial statements, including related notes, and MD&A contained in the Company's 2023 Annual Report on Form 10-K, and the unaudited consolidated financial statements, including related notes, included in Part I, Item 1, in this Quarterly Report. All references to earnings per share ("EPS") contained in this report are diluted EPS unless otherwise noted.
27
 | ||||||||
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", and "Liquidity and Other Financial Information - Cash Flows" 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 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, closures, or shutdowns of businesses or assets, financing transaction costs, environmental and other costs related to previously divested businesses or non-operational sites and product lines, and mark-to-market losses or gains for pension and other postretirement benefit plans.
•In first quarter 2023, the Company increased the provision for state income taxes as a result of state guidance issued in first quarter 2023 related to the 2017 Tax Cuts and Jobs Act ("Tax Reform Act"). In second quarter 2023, the Company decreased the provision for state income taxes due to state tax law changes impacting credit carryforward periods that were enacted in second quarter 2023. These state tax law changes impacted provisions from prior periods related to the Tax Reform Act. As with the prior years, management considers adjustments related to the Tax Reform Act as unusual because of the infrequent nature and resulting impacts on earnings.
•In first six months 2023, the Company recognized unusual insurance proceeds, net of costs from the previously reported January 31, 2022 operational incident at its Kingsport site as a result of a steam line failure (the "steam line incident"). Management considered the steam line incident unusual because of the Company's operational and safety history and the magnitude of the unplanned disruption.
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.
28
| ||||||||
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 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 Quarterly Report
The following non-core items are excluded by management in its evaluation of certain earnings results in this Quarterly Report:
•Asset impairments and restructuring charges, net;
•Accelerated depreciation resulting from the closure of a manufacturing facility; and
•Environmental and other costs from previously divested or non-operational sites and product lines.
The following unusual items are excluded by management in its evaluation of certain earnings results in this Quarterly Report:
•Steam line incident costs (insurance proceeds), net; and
•Adjustments to the provision for state income taxes due to an adjustment of amounts recognized in prior years as a result of state guidance issued and laws enacted in 2023 related to the Tax Reform Act.
As described above, the alternative non-GAAP measure of debt, "net debt", is also presented in this Quarterly Report.
29
| ||||||||
CONDITION AND RESULTS OF OPERATIONS
Non-GAAP Financial Measures - Non-Core and Unusual Items Excluded from Earnings and Adjustments to Provision for Income Taxes
| Second Quarter | First Six Months | ||||||||||||||||||||||
| (Dollars in millions) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Non-core items impacting earnings before interest and taxes: | |||||||||||||||||||||||
| Asset impairments and restructuring charges, net | $ | — | $ | — | $ | 11 | $ | 22 | |||||||||||||||
| Accelerated depreciation | — | — | — | 23 | |||||||||||||||||||
| Environmental and other costs | 16 | 13 | 16 | 13 | |||||||||||||||||||
| Unusual item impacting earnings before interest and taxes: | |||||||||||||||||||||||
| Steam line incident costs (insurance proceeds), net | — | — | — | (8) | |||||||||||||||||||
| Total non-core and unusual items impacting earnings before interest and taxes | 16 | 13 | 27 | 50 | |||||||||||||||||||
| Less: Items impacting provision for income taxes: | |||||||||||||||||||||||
| Tax effect of non-core and unusual items | 3 | 4 | 6 | 9 | |||||||||||||||||||
| Adjustment from tax law changes | — | 23 | — | — | |||||||||||||||||||
| Interim adjustment to tax provision | (13) | 20 | (30) | 14 | |||||||||||||||||||
| Total items impacting provision for income taxes | (10) | 47 | (24) | 23 | |||||||||||||||||||
| Total items impacting net earnings attributable to Eastman | $ | 26 | $ | (34) | $ | 51 | $ | 27 | |||||||||||||||
This MD&A includes an analysis of the effect of the foregoing on the following GAAP financial measures:
•Gross profit;
•Other (income) charges, net;
•Earnings before interest and taxes ("EBIT");
•Provision for (benefit from) income taxes;
•Net earnings attributable to Eastman;
•Diluted EPS; and
•Total borrowings.
30
| ||||||||
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Eastman's products and operations are managed and reported in four operating segments: Advanced Materials ("AM"), Additives & Functional Products ("AFP"), 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. Molecular recycling technologies continue to be an area of investment focus for the Company and extends the level of differentiation afforded by our world class technology platforms. 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, textiles and nonwovens, and personal and home care formulations. 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 from operations.
Sales, EBIT, and EBIT excluding non-core and unusual items were as follows:
| Second Quarter | First Six Months | ||||||||||||||||||||||
| (Dollars in millions) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Sales | $ | 2,363 | $ | 2,324 | $ | 4,673 | $ | 4,736 | |||||||||||||||
| Earnings before interest and taxes | 337 | 323 | 600 | 569 | |||||||||||||||||||
| Earnings before interest and taxes excluding non-core and unusual items | 353 | 336 | 627 | 619 | |||||||||||||||||||
Sales revenue increased in second quarter 2024 compared to second quarter 2023 primarily due to higher sales volume, partially offset by lower selling prices. Sales revenue decreased in first six months 2024 compared to first six months 2023 primarily due to lower selling prices, mostly offset by higher sales volume. Higher sales volume was primarily attributed to the end of customer inventory destocking across most end-markets. Lower selling prices were primarily due to lower raw material and energy prices and lower distribution prices.
EBIT excluding non-core items increased in second quarter and first six months 2024 compared to second quarter and first six months 2023 primarily due to higher sales volume and lower manufacturing costs, including higher capacity utilization. These impacts were partially offset by lower selling prices, net of lower raw material and energy costs and lower distribution costs.
Discussion of sales revenue and EBIT changes is presented in "Results of Operations" and "Summary by Operating Segment" in this MD&A.
31
| ||||||||
CONDITION AND RESULTS OF OPERATIONS
Net earnings and EPS and adjusted net earnings and EPS were as follows:
| Second Quarter | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| (Dollars in millions, except EPS) | $ | EPS | $ | EPS | |||||||||||||||||||
| Net earnings attributable to Eastman | $ | 230 | $ | 1.94 | $ | 272 | $ | 2.27 | |||||||||||||||
| Total non-core and unusual items, net of tax | 13 | 0.10 | (14) | (0.11) | |||||||||||||||||||
| Interim adjustment to tax provision | 13 | 0.11 | (20) | (0.17) | |||||||||||||||||||
| Adjusted net earnings | $ | 256 | $ | 2.15 | $ | 238 | $ | 1.99 | |||||||||||||||
| First Six Months | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| (Dollars in millions, except EPS) | $ | EPS | $ | EPS | |||||||||||||||||||
| Net earnings attributable to Eastman | $ | 395 | $ | 3.33 | $ | 406 | $ | 3.39 | |||||||||||||||
| Total non-core and unusual items, net of tax | 21 | 0.17 | 41 | 0.34 | |||||||||||||||||||
| Interim adjustment to tax provision | 30 | 0.26 | (14) | (0.11) | |||||||||||||||||||
| Adjusted net earnings | $ | 446 | $ | 3.76 | $ | 433 | $ | 3.62 | |||||||||||||||
Cash provided by operating activities was $351 million in first six months 2024 and $408 million in first six months 2023.
RESULTS OF OPERATIONS
Sales
| Second Quarter | First Six Months | ||||||||||||||||||||||||||||||||||||||||||||||
| Change | Change | ||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | 2024 | 2023 | $ | % | 2024 | 2023 | $ | % | |||||||||||||||||||||||||||||||||||||||
| Sales | $ | 2,363 | $ | 2,324 | $ | 39 | 2 | % | $ | 4,673 | $ | 4,736 | $ | (63) | (1) | % | |||||||||||||||||||||||||||||||
| Volume / product mix effect | 129 | 6 | % | 218 | 5 | % | |||||||||||||||||||||||||||||||||||||||||
| Price effect | (82) | (4) | % | (270) | (6) | % | |||||||||||||||||||||||||||||||||||||||||
| Exchange rate effect | (8) | — | % | (11) | — | % | |||||||||||||||||||||||||||||||||||||||||
Sales revenue increased in second quarter 2024 compared to second quarter 2023 primarily as a result of increases in the AM and Fibers segments, partially offset by a decrease in the AFP segment. Sales revenue decreased in first six months 2024 compared to first six months 2023 as a result of decreases in the AFP and CI segments, partially offset by increases in the AM and Fibers segment. Further discussion by operating segment is presented in "Summary by Operating Segment" in this MD&A.
32
| ||||||||
CONDITION AND RESULTS OF OPERATIONS
Gross Profit
| Second Quarter | First Six Months | ||||||||||||||||||||||||||||||||||
| (Dollars in millions) | 2024 | 2023 | Change | 2024 | 2023 | Change | |||||||||||||||||||||||||||||
| Gross profit | $ | 599 | $ | 584 | 3 | % | $ | 1,131 | $ | 1,113 | 2 | % | |||||||||||||||||||||||
| Accelerated depreciation | — | — | — | 23 | |||||||||||||||||||||||||||||||
| Steam line incident costs (insurance proceeds), net | — | — | — | (8) | |||||||||||||||||||||||||||||||
| Gross profit excluding non-core and unusual items | $ | 599 | $ | 584 | 3 | % | $ | 1,131 | $ | 1,128 | — | % | |||||||||||||||||||||||
Gross profit in first six months 2023 included insurance proceeds from the steam line incident and accelerated depreciation resulting from the previously reported closure of an acetate yarn manufacturing facility in Europe in the Fibers segment. Excluding these non-core and unusual items, gross profit increased in second quarter and first six months 2024 compared to second quarter and first six months 2023 as a result of increases in the AM and Fibers segments, partially offset by decreases in the CI and AFP segments. Further discussion of sales revenue and EBIT changes is presented in "Summary by Operating Segment" in this MD&A.
Selling, General and Administrative Expenses
| Second Quarter | First Six Months | ||||||||||||||||||||||||||||||||||
| (Dollars in millions) | 2024 | 2023 | Change | 2024 | 2023 | Change | |||||||||||||||||||||||||||||
| Selling, general and administrative expenses | $ | 180 | $ | 185 | (3) | % | $ | 371 | $ | 376 | (1) | % | |||||||||||||||||||||||
Selling, general and administrative expenses decreased in second quarter 2024 compared to second quarter 2023 due to cost reduction initiatives, and decreased in first six months 2024 compared to first six months 2023 due to cost reduction initiatives, partially offset by higher variable compensation costs.
Research and Development Expenses
| Second Quarter | First Six Months | ||||||||||||||||||||||||||||||||||
| (Dollars in millions) | 2024 | 2023 | Change | 2024 | 2023 | Change | |||||||||||||||||||||||||||||
| Research and development expenses | $ | 60 | $ | 60 | — | % | $ | 119 | $ | 122 | (2) | % | |||||||||||||||||||||||
R&D expenses were unchanged in second quarter 2024 compared to second quarter 2023 and decreased in the first six months 2024 compared to first six months 2023 primarily due to targeted cost reduction initiatives.
Asset Impairments and Restructuring Charges, Net
| Second Quarter | First Six Months | ||||||||||||||||||||||
| (Dollars in millions) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Severance charges | — | — | 11 | 16 | |||||||||||||||||||
| Site closure and other restructuring charges | — | — | — | 6 | |||||||||||||||||||
| Total | $ | — | $ | — | $ | 11 | $ | 22 | |||||||||||||||
For detailed information regarding asset impairments and restructuring charges, net see Note 12, "Asset Impairments and Restructuring Charges, Net", to the unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report.
Other Components of Post-employment (Benefit) Cost, Net
| Second Quarter | First Six Months | ||||||||||||||||||||||
| (Dollars in millions) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Other components of post-employment (benefit) cost, net | $ | (4) | $ | (3) | $ | (9) | $ | (6) | |||||||||||||||
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CONDITION AND RESULTS OF OPERATIONS
For more information regarding other components of post-employment (benefit) cost, net see Note 6, "Retirement Plans", to the unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report.
Other (Income) Charges, Net
| Second Quarter | First Six Months | ||||||||||||||||||||||||||||
| (Dollars in millions) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||||
Foreign exchange transaction losses, net | $ | 4 | $ | 3 | $ | 9 | $ | 5 | |||||||||||||||||||||
| (Income) loss from equity investments and other investment (gains) losses, net | (1) | (1) | (1) | 5 | |||||||||||||||||||||||||
| Other, net | 23 | 17 | 31 | $ | 20 | ||||||||||||||||||||||||
| Other (income) charges, net | $ | 26 | $ | 19 | $ | 39 | $ | 30 | |||||||||||||||||||||
| Environmental and other costs | (16) | (13) | (16) | (13) | |||||||||||||||||||||||||
| Other (income) charges, net excluding non-core item | $ | 10 | $ | 6 | $ | 23 | $ | 17 | |||||||||||||||||||||
Other (income) charges, net in second quarter and first six months 2024 and 2023 included environmental and other costs related to previously divested businesses or non-operational sites and product lines. Excluding these non-core items, Other (income) charges, net increased in second quarter and first six months 2024 compared to second quarter and first six months 2023 primarily due to increases in foreign exchange transaction losses partially offset by valuation adjustments in equity investments. For more information regarding components of foreign exchange transaction losses, see Note 5, "Derivative and Non-Derivative Financial Instruments", to the unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report.
Earnings Before Interest and Taxes
| Second Quarter | First Six Months | ||||||||||||||||||||||||||||||||||
| (Dollars in millions) | 2024 | 2023 | Change | 2024 | 2023 | Change | |||||||||||||||||||||||||||||
| Earnings before interest and taxes | $ | 337 | $ | 323 | 4 | % | $ | 600 | $ | 569 | 5 | % | |||||||||||||||||||||||
| Asset impairments and restructuring charges, net | — | — | 11 | 22 | |||||||||||||||||||||||||||||||
| Accelerated depreciation | — | — | — | 23 | |||||||||||||||||||||||||||||||
| Steam line incident costs (insurance proceeds), net | — | — | — | (8) | |||||||||||||||||||||||||||||||
| Environmental and other costs | 16 | 13 | 16 | 13 | |||||||||||||||||||||||||||||||
| Earnings before interest and taxes excluding non-core and unusual items | $ | 353 | $ | 336 | 5 | % | $ | 627 | $ | 619 | 1 | % | |||||||||||||||||||||||
Net Interest Expense
| Second Quarter | First Six Months | ||||||||||||||||||||||||||||||||||
| (Dollars in millions) | 2024 | 2023 | Change | 2024 | 2023 | Change | |||||||||||||||||||||||||||||
| Gross interest costs | $ | 58 | $ | 61 | (5) | % | $ | 116 | $ | 119 | (3) | % | |||||||||||||||||||||||
| Less: Capitalized interest | 4 | 4 | 9 | 7 | |||||||||||||||||||||||||||||||
| Interest expense | 54 | 57 | 107 | 112 | |||||||||||||||||||||||||||||||
| Less: Interest income | 4 | 3 | 8 | 6 | |||||||||||||||||||||||||||||||
| Net interest expense | $ | 50 | $ | 54 | (7) | % | $ | 99 | $ | 106 | (7) | % | |||||||||||||||||||||||
Net interest expense decreased in second quarter and first six months 2024 compared to second quarter and first six months 2023 primarily as a result of lower total borrowings and higher interest income.
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CONDITION AND RESULTS OF OPERATIONS
Provision for (Benefit From) Income Taxes
| Second Quarter | First Six Months | ||||||||||||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | $ | % | $ | % | $ | % | $ | % | |||||||||||||||||||||||||||||||||||||||
Provision for (benefit from) income taxes and effective tax rate | $ | 56 | 20 | % | $ | (3) | (1) | % | $ | 105 | 21 | % | $ | 57 | 12 | % | |||||||||||||||||||||||||||||||
Tax provision for non-core and unusual items (1) | 3 | 4 | 6 | 9 | |||||||||||||||||||||||||||||||||||||||||||
Adjustment from tax law changes (2) | — | 23 | — | — | |||||||||||||||||||||||||||||||||||||||||||
Interim adjustment to tax provision (3) | (13) | 20 | (30) | 14 | |||||||||||||||||||||||||||||||||||||||||||
| Adjusted provision for income taxes and effective tax rate | $ | 46 | 16 | % | $ | 44 | 16 | % | $ | 81 | 16 | % | $ | 80 | 16 | % | |||||||||||||||||||||||||||||||
(1)Provision for income taxes for non-core and unusual items is calculated using the tax rate for the jurisdiction where the gains are taxable and the expenses are deductible.
(2)Second quarter and first six months 2023 included a decrease to the provision for state income taxes due to state tax law changes impacting credit carryforward periods that were enacted in second quarter 2023. These state tax law changes impacted provisions from prior periods related to the Tax Reform Act. Additionally, an increase in first six months 2023 was recognized as a result of state guidance issued in first quarter 2023 related to the Tax Reform Act.
(3)Second quarter 2024 provision for income taxes was adjusted to reflect the current forecasted full year effective tax rate. Second quarter 2023 provision for income taxes was adjusted to reflect the then current forecasted full year effective tax rate.
First Six Months (1) | |||||||||||
| 2024 | 2023 | ||||||||||
| Effective tax rate | 21 | % | 12 | % | |||||||
Tax impact of current year non-core and unusual items (2) | 1 | % | 2 | % | |||||||
| Changes in tax contingencies and valuation allowances | (1) | % | 2 | % | |||||||
| Forecasted full year impact of expected tax events | (5) | % | — | % | |||||||
| Forecasted full year adjusted effective tax rate | 16 | % | 16 | % | |||||||
(1)Effective tax rate percentages are rounded to the nearest whole percent. The forecasted full year effective tax rate is 15.5 percent in both first six months 2024 and 2023.
(2)Provision for income taxes for non-core and unusual items is calculated using the tax rate for the jurisdiction where the gains are taxable and the expenses are deductible.
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CONDITION AND RESULTS OF OPERATIONS
Net Earnings Attributable to Eastman and Diluted Earnings per Share
| Second Quarter | |||||||||||||||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||||||||||||||
| (Dollars in millions, except EPS) | $ | EPS | $ | EPS | |||||||||||||||||||||||||||||||
| Net earnings and diluted earnings per share attributable to Eastman | $ | 230 | $ | 1.94 | $ | 272 | $ | 2.27 | |||||||||||||||||||||||||||
Non-core items, net of tax: (1) | |||||||||||||||||||||||||||||||||||
| Environmental and other costs | 13 | 0.10 | 9 | 0.08 | |||||||||||||||||||||||||||||||
Unusual items, net of tax: (1) | |||||||||||||||||||||||||||||||||||
| Adjustment from tax law changes | — | — | (23) | (0.19) | |||||||||||||||||||||||||||||||
| Interim adjustment to tax provision | 13 | 0.11 | (20) | (0.17) | |||||||||||||||||||||||||||||||
| Adjusted net earnings and diluted earnings per share attributable to Eastman | $ | 256 | $ | 2.15 | $ | 238 | $ | 1.99 | |||||||||||||||||||||||||||
| First Six Months | |||||||||||||||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||||||||||||||
| (Dollars in millions, except EPS) | $ | EPS | $ | EPS | |||||||||||||||||||||||||||||||
| Net earnings and diluted earnings per share attributable to Eastman | $ | 395 | $ | 3.33 | $ | 406 | $ | 3.39 | |||||||||||||||||||||||||||
Non-core items, net of tax: (1) | |||||||||||||||||||||||||||||||||||
| Asset impairments and restructuring charges, net | 8 | 0.07 | 18 | 0.14 | |||||||||||||||||||||||||||||||
| Accelerated depreciation | — | — | 20 | 0.17 | |||||||||||||||||||||||||||||||
| Environmental and other costs | 13 | 0.10 | 9 | 0.08 | |||||||||||||||||||||||||||||||
Unusual items, net of tax: (1) | |||||||||||||||||||||||||||||||||||
| Steam line incident costs (insurance proceeds), net | — | — | (6) | (0.05) | |||||||||||||||||||||||||||||||
| Interim adjustment to tax provision | 30 | 0.26 | (14) | (0.11) | |||||||||||||||||||||||||||||||
| Adjusted net earnings and diluted earnings per share attributable to Eastman | $ | 446 | $ | 3.76 | $ | 433 | $ | 3.62 | |||||||||||||||||||||||||||
(1)Provision for income taxes for non-core and unusual items is calculated using the tax rate for the jurisdiction where the gains are taxable and the expenses are deductible.
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CONDITION AND RESULTS OF OPERATIONS
SUMMARY BY OPERATING SEGMENT
Eastman's products and operations are managed and reported in four operating segments: Advanced Materials ("AM"), Additives & Functional Products ("AFP"), Chemical Intermediates ("CI"), and Fibers. For additional financial and product information for each operating segment, see Part I, Item 1, "Business - Business Segments" and Part II, Item 8, Note 20, "Segment and Regional Sales Information", in the Company's 2023 Annual Report on Form 10-K.
Advanced Materials Segment
| Second Quarter | First Six Months | ||||||||||||||||||||||||||||||||||||||||||||||
| Change | Change | ||||||||||||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | $ | % | 2024 | 2023 | $ | % | ||||||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||||||||||||||||||||||||||
| Sales | $ | 795 | $ | 739 | $ | 56 | 8 | % | $ | 1,543 | $ | 1,481 | $ | 62 | 4 | % | |||||||||||||||||||||||||||||||
| Volume / product mix effect | 91 | 12 | % | 133 | 9 | % | |||||||||||||||||||||||||||||||||||||||||
| Price effect | (30) | (4) | % | (62) | (4) | % | |||||||||||||||||||||||||||||||||||||||||
| Exchange rate effect | (5) | — | % | (9) | (1) | % | |||||||||||||||||||||||||||||||||||||||||
| Earnings before interest and taxes | $ | 131 | $ | 99 | $ | 32 | 32 | % | $ | 235 | $ | 185 | $ | 50 | 27 | % | |||||||||||||||||||||||||||||||
Sales revenue in second quarter and first six months 2024 increased compared to second quarter and first six months 2023 primarily due to higher sales volume partially offset by lower selling prices. Higher sales volume was primarily attributed to the end of customer inventory destocking, particularly in the consumer durables and packaging end-markets, and premium interlayers product growth in the automotive end-market. Lower selling prices were primarily attributable to lower raw material and energy prices.
EBIT increased in second quarter 2024 compared to second quarter 2023 primarily due to $50 million higher sales volume and lower manufacturing costs, including higher capacity utilization, partially offset by $16 million lower selling prices, net of lower raw material and energy costs and distribution costs.
EBIT increased in first six months 2024 compared to first six months 2023 primarily due to $53 million higher sales volume and lower manufacturing costs, including higher capacity utilization, and $5 million lower raw material and energy costs and distribution costs, net of lower selling prices. These impacts were partially offset by a $9 million unfavorable shift in foreign currency exchange rates.
Additives & Functional Products Segment
| Second Quarter | First Six Months | ||||||||||||||||||||||||||||||||||||||||||||||
| Change | Change | ||||||||||||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | $ | % | 2024 | 2023 | $ | % | ||||||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||||||||||||||||||||||||||
| Sales | $ | 718 | $ | 747 | $ | (29) | (4) | % | $ | 1,422 | $ | 1,524 | $ | (102) | (7) | % | |||||||||||||||||||||||||||||||
| Volume / product mix effect | — | — | % | 14 | 1 | % | |||||||||||||||||||||||||||||||||||||||||
| Price effect | (27) | (4) | % | (116) | (8) | % | |||||||||||||||||||||||||||||||||||||||||
| Exchange rate effect | (2) | — | % | — | — | % | |||||||||||||||||||||||||||||||||||||||||
| Earnings before interest and taxes | $ | 123 | $ | 140 | $ | (17) | (12) | % | $ | 232 | $ | 264 | $ | (32) | (12) | % | |||||||||||||||||||||||||||||||
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CONDITION AND RESULTS OF OPERATIONS
Sales revenue in second quarter and first six months 2024 decreased compared to second quarter and first six months 2023 primarily due to lower selling prices. Lower selling prices were primarily attributed to lower raw material costs, including cost pass-through contracts. Sales volume was relatively unchanged as growth in the coatings additives and care additives product lines were offset by lower sales volume, primarily due to the reduction of heat transfer fluid projects.
EBIT decreased in second quarter 2024 compared to second quarter 2023 primarily due to $21 million unfavorable sales volume and product mix and $8 million lower selling prices, net of lower raw material and energy costs. These impacts were partially offset by $11 million lower manufacturing costs, including higher capacity utilization.
EBIT decreased in first six months 2024 compared to first six months 2023 primarily due to $39 million unfavorable sales volume and product mix, partially offset by $7 million lower raw material and energy costs, net of lower selling prices.
Chemical Intermediates Segment
| Second Quarter | First Six Months | ||||||||||||||||||||||||||||||||||||||||||||||
| Change | Change | ||||||||||||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | $ | % | 2024 | 2023 | $ | % | ||||||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||||||||||||||||||||||||||
| Sales | $ | 515 | $ | 514 | $ | 1 | — | % | $ | 1,038 | $ | 1,103 | $ | (65) | (6) | % | |||||||||||||||||||||||||||||||
| Volume / product mix effect | 32 | 6 | % | 44 | 4 | % | |||||||||||||||||||||||||||||||||||||||||
| Price effect | (31) | (6) | % | (109) | (10) | % | |||||||||||||||||||||||||||||||||||||||||
| Exchange rate effect | — | — | % | — | — | % | |||||||||||||||||||||||||||||||||||||||||
| Earnings before interest and taxes | $ | 22 | $ | 39 | $ | (17) | (44) | % | $ | 38 | $ | 81 | $ | (43) | (53) | % | |||||||||||||||||||||||||||||||
Sales revenue in second quarter 2024 was relatively unchanged compared to second quarter 2023 and decreased in first six months 2024 compared to first six months 2023 due to lower selling prices partially offset by higher sales volume. Lower selling prices were attributed to lower raw material and energy prices. Higher sales volume was primarily attributed to the end of customer inventory destocking.
EBIT decreased in second quarter 2024 compared to second quarter 2023 primarily due to $37 million lower selling prices, net of lower raw material and energy costs and distribution costs, partially offset by $18 million higher sales volume.
EBIT decreased in first six months 2024 compared to first six months 2023 due to $62 million lower selling prices, net of lower raw material and energy costs. These impacts were partially offset by $19 million lower manufacturing costs, including higher capacity utilization.
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CONDITION AND RESULTS OF OPERATIONS
Fibers Segment
| Second Quarter | First Six Months | ||||||||||||||||||||||||||||||||||||||||||||||
| Change | Change | ||||||||||||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | $ | % | 2024 | 2023 | $ | % | ||||||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||||||||||||||||||||||||||
| Sales | $ | 330 | $ | 323 | $ | 7 | 2 | % | $ | 661 | $ | 626 | $ | 35 | 6 | % | |||||||||||||||||||||||||||||||
| Volume / product mix effect | 2 | 1 | % | 21 | 3 | % | |||||||||||||||||||||||||||||||||||||||||
| Price effect | 6 | 1 | % | 16 | 3 | % | |||||||||||||||||||||||||||||||||||||||||
| Exchange rate effect | (1) | — | % | (2) | — | % | |||||||||||||||||||||||||||||||||||||||||
| Earnings before interest and taxes | $ | 122 | $ | 106 | $ | 16 | 15 | % | $ | 239 | $ | 171 | $ | 68 | 40 | % | |||||||||||||||||||||||||||||||
| Asset impairments and restructuring charges, net | — | — | — | — | 6 | (6) | |||||||||||||||||||||||||||||||||||||||||
| Accelerated depreciation | — | — | — | — | 23 | (23) | |||||||||||||||||||||||||||||||||||||||||
| Earnings before interest and taxes excluding non-core items | 122 | 106 | 16 | 15 | % | 239 | 200 | 39 | 20 | % | |||||||||||||||||||||||||||||||||||||
Sales revenue in second quarter and first six months 2024 increased compared to second quarter and first six months 2023 primarily due to higher selling prices in acetate tow and higher sales volume in textiles.
EBIT in first six months 2023 included asset impairments and restructuring charges and accelerated depreciation from a previously announced manufacturing facility closure. For more information regarding asset impairments and restructuring charges see Note 12, "Asset Impairments and Restructuring Charges, Net", to the unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report.
EBIT excluding non-core items increased in second quarter and first six months 2024 compared to second quarter and first six months 2023 primarily due to $10 million and $18 million, respectively, higher sales volume and lower manufacturing costs, including higher capacity utilization, and $6 million and $25 million, respectively, higher selling prices and lower raw material and energy costs.
Other
| Second Quarter | First Six Months | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||
| Sales | $ | 5 | $ | 1 | $ | 9 | $ | 2 | |||||||||||||||
| Loss before interest and taxes | |||||||||||||||||||||||
| Growth initiatives and businesses not allocated to operating segments | $ | (44) | $ | (45) | $ | (112) | $ | (96) | |||||||||||||||
| Pension and other postretirement benefits income (expense), net not allocated to operating segments | 2 | (4) | 4 | (8) | |||||||||||||||||||
| Asset impairments and restructuring charges, net | — | — | (11) | (16) | |||||||||||||||||||
| Steam line incident (costs) insurance proceeds, net | — | — | — | 8 | |||||||||||||||||||
| Other income (charges), net not allocated to operating segments | (19) | (12) | (25) | (20) | |||||||||||||||||||
| Loss before interest and taxes | $ | (61) | $ | (61) | $ | (144) | $ | (132) | |||||||||||||||
| Asset impairments and restructuring charges, net | — | — | 11 | 16 | |||||||||||||||||||
| Steam line incident costs (insurance proceeds), net | — | — | — | (8) | |||||||||||||||||||
| Environmental and other costs | 16 | 13 | 16 | 13 | |||||||||||||||||||
| Loss before interest and taxes excluding non-core and unusual items | (45) | (48) | (117) | (111) | |||||||||||||||||||
39
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CONDITION AND RESULTS OF OPERATIONS
Sales and costs related to growth initiatives, including the cellulosics biopolymer platform and circular economy, 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". First quarter 2024 also includes pre-production costs for the Kingsport methanolysis facility.
EBIT in first six months 2024 and 2023 included severance primarily in accordance with foreign regulatory requirements as a result of cost reduction initiatives in fourth quarter 2023 and 2022, respectively. Second quarter and first six months 2024 and 2023 EBIT included environmental and other costs from previously divested or non-operational sites. In addition, first six months 2023 included insurance proceeds from the steam line incident. For more information, see "Non-GAAP Financial Measures" in this MD&A. For more information regarding asset impairments and restructuring charges see Note 12, "Asset Impairments and Restructuring Charges, Net", to the unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report.
SALES BY CUSTOMER LOCATION
| Sales Revenue | ||||||||||||||||||||||||||||||||||||||||||||
| Second Quarter | First Six Months | |||||||||||||||||||||||||||||||||||||||||||
| Change | Change | |||||||||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | 2024 | 2023 | $ | % | 2024 | 2023 | $ | % | ||||||||||||||||||||||||||||||||||||
| United States and Canada | $ | 994 | $ | 1,000 | $ | (6) | (1) | % | $ | 1,963 | $ | 2,065 | $ | (102) | (5) | % | ||||||||||||||||||||||||||||
| Europe, Middle East, and Africa | 650 | 635 | 15 | 2 | % | 1,309 | 1,344 | (35) | (3) | % | ||||||||||||||||||||||||||||||||||
| Asia Pacific | 590 | 557 | 33 | 6 | % | 1,154 | 1,078 | 76 | 7 | % | ||||||||||||||||||||||||||||||||||
| Latin America | 129 | 132 | (3) | (2) | % | 247 | 249 | (2) | (1) | % | ||||||||||||||||||||||||||||||||||
Total Eastman | $ | 2,363 | $ | 2,324 | $ | 39 | 2 | % | $ | 4,673 | $ | 4,736 | $ | (63) | (1) | % | ||||||||||||||||||||||||||||
Sales revenue increased 2 percent in second quarter 2024 compared to second quarter 2023 primarily due to higher sales volume (up 6 percent), partially offset by lower selling prices (down 4 percent). Sales revenue decreased 1 percent in first six months 2024 compared to first six months 2023 primarily due to lower selling prices (down 6 percent), partially offset by higher sales volume (up 5 percent). Lower selling prices were particularly in the Europe, Middle East, and Africa region and the United States and Canada region. Higher sales volume was particularly in the Asia Pacific region and the Europe, Middle East, and Africa region, partially offset by lower sales volume in the United States and Canada region.
Further discussion by operating segment is presented in "Summary by Operating Segment" in this MD&A.
LIQUIDITY AND OTHER FINANCIAL INFORMATION
Cash Flows
Cash flows from operations, cash and cash equivalents, and other sources of liquidity are expected to be available and sufficient to meet known short and long-term 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 Part II, Item 1A of this Quarterly Report. Management believes maintaining a financial profile that supports an investment grade credit rating is important to its long-term strategy and financial flexibility.
40
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CONDITION AND RESULTS OF OPERATIONS
| First Six Months | |||||||||||
| (Dollars in millions) | 2024 | 2023 | |||||||||
| Net cash provided by (used in) | |||||||||||
| Operating activities | $ | 351 | $ | 408 | |||||||
| Investing activities | (300) | (498) | |||||||||
| Financing activities | (79) | 4 | |||||||||
| Effect of exchange rate changes on cash and cash equivalents | (6) | 3 | |||||||||
| Net change in cash and cash equivalents | (34) | (83) | |||||||||
| Cash and cash equivalents at beginning of period | 548 | 493 | |||||||||
| Cash and cash equivalents at end of period | $ | 514 | $ | 410 | |||||||
Cash provided by operating activities decreased $57 million in first six months 2024 compared to first six months 2023 primarily due to higher variable compensation payout partially offset by lower working capital.
Cash used in investing activities decreased $198 million in first six months 2024 compared to first six months 2023 primarily due to lower capital expenditures primarily for the AM segment methanolysis plastic-to-plastic molecular recycling manufacturing facilities and an acquisition in the AM segment in 2023.
Cash used in financing activities was $79 million in first six months 2024 compared to cash provided by financing activities of $4 million in first six months 2023, primarily due to higher repayment of commercial paper, net of borrowings. For additional information, see "Liquidity and Other Financial Information - Debt and Other Commitments" in this MD&A.
Working Capital Management and Off Balance Sheet Arrangements
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 operating cash flow consistent with past practices.
The Company has off balance sheet, uncommitted accounts receivable factoring programs under which entire invoices may be sold to third-party financial institutions. The vast majority of these programs are without recourse. Available capacity under these programs, 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 amounts sold in second quarter 2024 and 2023 were $650 million and $753 million, respectively, and $1.3 billion and $1.4 billion in first six months 2024 and 2023, respectively. Based on the original terms of receivables sold for certain programs and actual outstanding balance of receivables under servicing agreements, the Company estimates that $402 million and $397 million of these receivables would have been outstanding as of June 30, 2024 and December 31, 2023, respectively, had they not been sold under these factoring programs.
The Company works with suppliers to optimize payment terms and conditions on accounts payable to enhance timing of working capital and cash flows. Under a supplier finance program, the Company's suppliers may voluntarily sell receivables due from Eastman to a participating financial institution. The supplier invoices that have been confirmed as valid under the program require payment in full on the invoice due date. For additional information, see Note 1, "Significant Accounting Policies", to the unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report.
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| ||||||||
CONDITION AND RESULTS OF OPERATIONS
Debt and Other Commitments
At June 30, 2024, the Company's borrowings totaled $5.0 billion with various maturities. The Company expects to use a combination of available cash and debt proceeds to repay the $700 million principal of 3.80% notes due March 2025.
In second quarter 2024, the Company repaid the $43 million 7.625% debentures due June 2024 using available cash and debt proceeds. There were no debt extinguishment costs associated with the repayment of this debt.
In first quarter 2024, the Company repaid the $198 million 7.25% debentures due January 2024 using available cash. There were no extinguishment costs associated with the repayment. In February 2024, the Company issued $750 million aggregate principal amount of 5.625% notes due February 2034 in a registered public offering (the "2034 Notes"). Proceeds from the sale of the 2034 Notes, net of original issue discounts, and issuance costs were $742 million.
See Note 4, "Borrowings", to the unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report for additional information.
In first quarter 2024, purchase obligations in the 2029 and beyond period decreased by approximately $1.5 billion as a result of exiting an agreement with a supplier after contract negotiations. Eastman had remaining debt and other commitments at June 30, 2024 totaling approximately $10.5 billion over a period of approximately 30 years.
Other than the item discussed above, there have been no material changes to the Company's commitments from those disclosed in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Other Financial Information - Debt and Other Commitments" in Part II, Item 7 of the Company's 2023 Annual Report on Form 10-K.
Credit Facility, Term Loans, and Commercial Paper Borrowings
The Company has access to a $1.50 billion revolving credit agreement (the "Credit Facility"). In February 2024, the Credit Facility was amended to extend the maturity to February 2029. All other material terms of the Credit Facility remain unchanged. 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 includes sustainability-linked pricing terms, provides available liquidity for general corporate purposes, and supports commercial paper borrowings. At June 30, 2024 and December 31, 2023, the Company had no outstanding borrowings under the Credit Facility and no commercial paper borrowings.
In first quarter 2024, the Company repaid the $300 million two-year term loan (the "2024 Term Loan"). There were no extinguishment costs associated with the repayment. The outstanding balance on the $500 million term loan that matures in 2027 (the "2027 Term Loan") was $499 million at both June 30, 2024 and December 31, 2023, with variable interest rates of 6.57% and 6.58%, respectively. The 2027 Term Loan is subject to interest at varying spreads above quoted market rates.
The Credit Facility and the 2027 Term Loan contain 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 applicable covenants at both June 30, 2024 and December 31, 2023. The total amount of available borrowings under the Credit Facility was $1.50 billion as of June 30, 2024.
See Note 4, "Borrowings", to the unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report for additional information.
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CONDITION AND RESULTS OF OPERATIONS
Net Debt
| June 30, | December 31, | |||||||||||||||||||
| (Dollars in millions) | 2024 | 2023 | ||||||||||||||||||
| Total borrowings | $ | 5,033 | $ | 4,846 | ||||||||||||||||
| Less: Cash and cash equivalents | 514 | 548 | ||||||||||||||||||
Net debt (1) | $ | 4,519 | $ | 4,298 | ||||||||||||||||
(1)Includes non-cash decrease of $17 million in 2024 and non-cash increase of $20 million in 2023 resulting from foreign currency exchange rates.
Capital Expenditures
Capital expenditures were $300 million and $413 million in first six months 2024 and 2023, respectively. Capital expenditures in first six months 2024 were primarily for the AM segment methanolysis plastic-to-plastic molecular recycling manufacturing facilities, other targeted growth initiatives, and site modernization projects. The Company expects that 2024 capital expenditures will be between $650 million and $700 million.
Stock Repurchases
In December 2021, the Company's Board of Directors authorized the repurchase of up to $2.5 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 (the "2021 authorization"). During second quarter and first six months 2024, the Company repurchased 1,000,005 shares of common stock for $100 million. As of June 30, 2024, a total of 9,610,754 shares have been repurchased under the 2021 authorization for $885 million. Both dividends and share repurchases are key strategies employed by the Company to return value to its stockholders.
CRITICAL ACCOUNTING ESTIMATES
In preparing the consolidated financial statements in conformity with GAAP, management must make decisions which impact the reported amounts and the related disclosures. Such decisions include the selection of the appropriate accounting principles to be applied and assumptions on which to base estimates and judgments that affect the reported amounts of assets, liabilities, sales revenue and expenses, fair value of disposal groups, and related disclosure of contingent assets and liabilities. On an ongoing basis, Eastman evaluates its estimates, including those related to impairment of long-lived assets, environmental costs, pension and other postretirement benefits, litigation and contingent liabilities, and income taxes. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Management believes the critical accounting estimates described in Part II, Item 7 of the Company's 2023 Annual Report on Form 10-K are the most important to the fair presentation of the Company's financial condition and results. These estimates require management's most significant judgments in the preparation of the Company's consolidated financial statements.
RECENTLY ISSUED ACCOUNTING STANDARDS
For information regarding the impact of recently issued accounting standards, see Note 1, "Significant Accounting Policies", to the unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report.
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ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Eastman has exposure to various market risks principally due to changes in foreign currency exchange rates, the pricing of various commodities, and interest rates. In an effort to manage these risks, the Company employs various strategies, including pricing, inventory management, and hedging. The Company enters into derivative contracts which are governed by policies, procedures, and internal processes set forth by its Board of Directors.
The Company determines its exposures to market risk by utilizing sensitivity analyses, which measure the potential losses in fair value resulting from one or more selected hypothetical changes in foreign currency exchange rates, commodity prices, or interest rates. For more information regarding exposures, refer to Part II, Item 7A of the Company's 2023 Annual Report on Form 10-K.
At June 30, 2024, a 10 percent fluctuation in the euro currency rate would have had a $230 million impact on the designated net investment values in the foreign subsidiaries. As a result of the designation of the euro-denominated borrowings and designated cross-currency interest rate swaps as hedges of the net investments, foreign currency translation gains and losses on the borrowings and designated cross-currency interest rate swaps are recorded as a component of the "Change in cumulative translation adjustment" within "Other comprehensive income (loss), net of tax" in the Unaudited Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings in Part I, Item 1 of this Quarterly Report. Therefore, a foreign currency change in the designated investment values of the foreign subsidiaries will generally be offset by a foreign currency change in the carrying value of the euro-denominated borrowings or the foreign currency change in the designated cross-currency interest rate swaps.
Other than the foreign currency risk discussed above, there have been no material changes to the Company's market risks from those disclosed in Part II, Item 7A of the Company's 2023 Annual Report on Form 10-K.
ITEM 4.CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Eastman maintains a set of disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934, as amended (the "Exchange Act") is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company's management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. An evaluation was carried out under the supervision and with the participation of the Company's management, including the Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), of the effectiveness of the Company's disclosure controls and procedures. Based on that evaluation, the CEO and CFO have concluded that as of June 30, 2024, the Company's disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed was accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There has been no change in the Company's internal control over financial reporting that occurred during the second quarter of 2024 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
General
From time to time, Eastman and its operations are parties to, or targets of, lawsuits, claims, investigations and proceedings, including product liability, personal injury, asbestos, patent and intellectual property, commercial, contract, environmental, antitrust, health and safety, and employment matters, which are handled and defended in the ordinary course of business. While the Company is unable to predict the outcome of these matters, it does not believe, based upon currently available facts, that the ultimate resolution of any such pending matters will have a material adverse effect on its overall financial condition, results of operations, or cash flows. Consistent with the requirements of Regulation S-K, Item 103, the Company's threshold for disclosing any environmental legal proceeding involving a governmental authority is potential monetary sanctions that management believes will meet or exceed $1 million.
Solutia Legacy Torts Claims Litigation
Pursuant to an Amended and Restated Settlement Agreement effective February 28, 2008 between Solutia, Inc. ("Solutia") and Monsanto Company ("Monsanto") in connection with Solutia's emergence from Chapter 11 bankruptcy proceedings (the "Monsanto Settlement Agreement"), Monsanto is responsible for the defense and indemnification of Solutia against any Legacy Tort Claims (as defined in the Monsanto Settlement Agreement) and Solutia has agreed to retain responsibility for certain tort claims, if any, that may arise from Solutia's conduct after its spinoff from Pharmacia Corporation (f/k/a Monsanto), which occurred on September 1, 1997. Solutia, which became a wholly-owned subsidiary of Eastman upon Eastman's acquisition of Solutia in July 2012, has been named as a defendant in several such proceedings, and has submitted the matters to Monsanto, which was acquired by Bayer AG in June 2018, as Legacy Tort Claims. To the extent these matters are not within the meaning of Legacy Tort Claims, Solutia could potentially be liable thereunder. In connection with the completion of its acquisition of Solutia, Eastman guaranteed the obligations of Solutia and Eastman was added as an indemnified party under the Monsanto Settlement Agreement.
ITEM 1A.RISK FACTORS
For information regarding the Company's material known risk factors which could materially adversely affect the Company, its business, financial condition, or results of operations, see "Risk Factors" in Part I, Item 1A of the Company's 2023 Annual Report on Form 10-K.
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(c) Purchases of Equity Securities by the Issuer
In December 2021, the Company's Board of Directors authorized the repurchase of up to $2.5 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 (the "2021 authorization"). As of June 30, 2024, a total of 9,610,754 shares have been repurchased under the 2021 authorization for $885 million. Both dividends and share repurchases are key strategies employed by the Company to return value to its stockholders. During second quarter and first six months 2024, the Company repurchased 1,000,005 shares of common stock for $100 million. For additional information, see Note 10, "Stockholders' Equity", to the unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report.
| Period | Total Number of Shares Purchased | Average Price Paid Per Share (1) | Total Number of Shares Purchased as Part of Publicly Announced Plan or Program | Approximate Dollar Value that May Yet Be Purchased Under the Plan or Program | ||||||||||||||||||||||
| April 1-30, 2024 | — | $ | — | — | $ | 1.715 | billion | |||||||||||||||||||
| May 1-31, 2024 | 502,197 | $ | 99.56 | 502,197 | $ | 1.665 | billion | |||||||||||||||||||
| June 1-30, 2024 | 497,808 | $ | 100.44 | 497,808 | $ | 1.615 | billion | |||||||||||||||||||
| Total | 1,000,005 | $ | 100.00 | 1,000,005 | ||||||||||||||||||||||
(1)Average price paid per share reflects the weighted average purchase price paid for shares.
ITEM 5. OTHER INFORMATION
(c) Director and Officer Trading Arrangements
None of the Company's directors or officers (as defined in Rule 16a-1(f) under the Securities Exchange Act of 1934, as amended) adopted, modified, or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement (as defined in Item 408(c) of Regulation S-K) during the quarterly period covered by this report.
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ITEM 6.EXHIBITS
Exhibits filed as part of this report are listed in the Exhibit Index.
| EXHIBIT INDEX | ||||||||
| Exhibit Number | Description | |||||||
| 3.01 | ||||||||
| 3.02 | ||||||||
| 31.01 * | ||||||||
| 31.02 * | ||||||||
| 32.01 * | ||||||||
| 32.02 * | ||||||||
| 101.INS | Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) | |||||||
| 101.SCH * | Inline XBRL Taxonomy Extension Schema Document | |||||||
| 101.CAL * | Inline XBRL Taxonomy Calculation Linkbase Document | |||||||
| 101.DEF * | Inline XBRL Definition Linkbase Document | |||||||
| 101.LAB * | Inline XBRL Taxonomy Label Linkbase Document | |||||||
| 101.PRE * | Inline XBRL Presentation Linkbase Document | |||||||
| 104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) | |||||||
* Denotes exhibit filed or furnished herewith.
47
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Eastman Chemical Company | |||||||||||
| Date: | July 26, 2024 | By: | /s/ William T. McLain, Jr. | ||||||||
| William T. McLain, Jr. | |||||||||||
| Executive Vice President and Chief Financial Officer | |||||||||||
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Exhibit 31.01
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
Rule 13a - 14(a)/15d - 14(a) Certifications
I, Mark J. Costa, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of Eastman Chemical Company;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: July 26, 2024
/s/ Mark J. Costa
Mark J. Costa
Chief Executive Officer
Exhibit 31.02
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
Rule 13a - 14(a)/15d - 14(a) Certifications
I, William T. McLain, Jr., certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of Eastman Chemical Company;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: July 26, 2024
/s/ William T. McLain, Jr.
William T. McLain, Jr.
Executive Vice President and Chief Financial Officer
Exhibit 32.01
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
Section 1350 Certifications
In connection with the Quarterly Report of Eastman Chemical Company (the "Company") on Form 10-Q for the period ending June 30, 2024, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), each of the undersigned officers of the Company certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to such officer's knowledge:
1.The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
A signed original of this written statement required by Section 906 has been provided to Eastman Chemical Company and will be retained by Eastman Chemical Company and furnished to the Securities and Exchange Commission or its staff upon request.
Date: July 26, 2024
/s/ Mark J. Costa
Mark J. Costa
Chief Executive Officer
The foregoing certification is being furnished solely pursuant to 18 U.S.C. §1350 and is not being filed as part of the Report or as a separate disclosure document.
Exhibit 32.02
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
Section 1350 Certifications
In connection with the Quarterly Report of Eastman Chemical Company (the "Company") on Form 10-Q for the period ending June 30, 2024, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), each of the undersigned officers of the Company certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to such officer's knowledge:
1.The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
A signed original of this written statement required by Section 906 has been provided to Eastman Chemical Company and will be retained by Eastman Chemical Company and furnished to the Securities and Exchange Commission or its staff upon request.
Date: July 26, 2024
/s/ William T. McLain, Jr.
William T. McLain, Jr.
Executive Vice President and Chief Financial Officer
The foregoing certification is being furnished solely pursuant to 18 U.S.C. §1350 and is not being filed as part of the Report or as a separate disclosure document.