Eastman(EMN) - 2024 Q2 - Quarterly Report

FORM 10-Q General Information Provides foundational details for Eastman Chemical Company's Form 10-Q filing, including registrant identification and compliance status Registrant Information Details Eastman Chemical Company's Form 10-Q filing, including name, state, IRS EIN, and SEC compliance - Eastman Chemical Company (Delaware, 62-1539359) filed its Quarterly Report on Form 10-Q for the period ended June 30, 2024, confirming compliance with Section 13 or 15(d) of the Securities Exchange Act of 1934[24][33] Filing Status Eastman is a 'Large accelerated filer', not a shell, smaller reporting, or emerging growth company, indicating its reporting obligations - Eastman is a 'Large accelerated filer' and not a shell company, smaller reporting company, or emerging growth company[28][34][37] Common Stock and Notes Information Details Eastman's common stock and notes registered on NYSE, including common shares outstanding as of June 30, 2024 Registered Securities | Title of each class | Trading Symbol(s) | Name of each exchange on which registered | |:--------------------------------|:------------------|:------------------------------------------| | Common Stock, par value $0.01 per share | EMN | New York Stock Exchange | | 1.875% Notes Due 2026 | EMN26 | New York Stock Exchange | - As of June 30, 2024, there were 116,860,402 shares of Common Stock, par value $0.01 per share, outstanding[37] Forward-Looking Statements Warns against undue reliance on forward-looking statements, subject to risks that could cause actual results to differ materially - Forward-looking statements are subject to risks and uncertainties, and actual results may differ materially from expectations[30][42][65] - Key areas covered by forward-looking statements include planned capacity, capital spending, environmental matters, hedging strategies, global economic conditions, competition, growth opportunities, and financial results[42] PART I. FINANCIAL INFORMATION Presents Eastman Chemical Company's unaudited consolidated financial statements and management's discussion and analysis ITEM 1. FINANCIAL STATEMENTS Presents Eastman's unaudited consolidated financial statements, including earnings, financial position, cash flows, and detailed notes Unaudited Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings Reports Q2 2024 sales of $2,363 million (up 2%) and net earnings of $230 million (down 15%), with 6M 2024 sales of $4,673 million (down 1%) and net earnings of $395 million (down 3%) Consolidated Statements of Earnings (Q2 2024 vs. Q2 2023) | Metric | Q2 2024 ($M) | Q2 2023 ($M) | Change (%) | |:-------------------------------------------|:-------------|:-------------|:-----------| | Sales | 2,363 | 2,324 | 2% | | Cost of sales | 1,764 | 1,740 | | | Gross profit | 599 | 584 | | | Selling, general and administrative expenses | 180 | 185 | (3%) | | Research and development expenses | 60 | 60 | 0% | | Other (income) charges, net | 26 | 19 | | | Earnings before interest and taxes | 337 | 323 | | | Net interest expense | 50 | 54 | | | Provision for (benefit from) income taxes | 56 | (3) | | | Net earnings attributable to Eastman | 230 | 272 | (15%) | | Basic earnings per share attributable to Eastman | 1.96 | 2.28 | (14%) | | Diluted earnings per share attributable to Eastman | 1.94 | 2.27 | (14%) | Consolidated Statements of Earnings (First Six Months 2024 vs. 2023) | Metric | 6M 2024 ($M) | 6M 2023 ($M) | Change (%) | |:-------------------------------------------|:-------------|:-------------|:-----------| | Sales | 4,673 | 4,736 | (1%) | | Cost of sales | 3,542 | 3,623 | | | Gross profit | 1,131 | 1,113 | | | Selling, general and administrative expenses | 371 | 376 | (1%) | | Research and development expenses | 119 | 122 | (2%) | | Other (income) charges, net | 39 | 30 | | | Earnings before interest and taxes | 600 | 569 | | | Net interest expense | 99 | 106 | | | Provision for (benefit from) income taxes | 105 | 57 | | | Net earnings attributable to Eastman | 395 | 406 | (3%) | | Basic earnings per share attributable to Eastman | 3.37 | 3.41 | (1%) | | Diluted earnings per share attributable to Eastman | 3.33 | 3.39 | (2%) | Unaudited Consolidated Statements of Financial Position Total assets reached $14,945 million at June 30, 2024, with liabilities at $9,246 million and total equity at $5,699 million Consolidated Statements of Financial Position (June 30, 2024 vs. Dec 31, 2023) | Metric | June 30, 2024 ($M) | Dec 31, 2023 ($M) | |:-------------------------------------------|:-------------------|:------------------| | Assets | | | | Cash and cash equivalents | 514 | 548 | | Trade receivables, net | 957 | 826 | | Inventories | 1,900 | 1,683 | | Total current assets | 3,842 | 3,481 | | Net properties | 5,529 | 5,548 | | Goodwill | 3,641 | 3,646 | | Intangible assets, net | 1,086 | 1,138 | | Total assets | 14,945 | 14,633 | | Liabilities | | | | Payables and other current liabilities | 2,044 | 2,035 | | Borrowings due within one year | 697 | 541 | | Total current liabilities | 2,741 | 2,576 | | Long-term borrowings | 4,336 | 4,305 | | Total liabilities | 9,246 | 9,103 | | Equity | | | | Total Eastman stockholders' equity | 5,627 | 5,458 | | Total equity | 5,699 | 5,530 | Unaudited Consolidated Statements of Cash Flows Net cash from operations was $351 million in 6M 2024, with $300 million used in investing and $79 million used in financing activities Consolidated Statements of Cash Flows (First Six Months 2024 vs. 2023) | Metric | 6M 2024 ($M) | 6M 2023 ($M) | |:-------------------------------------------|:-------------|:-------------| | Net cash provided by operating activities | 351 | 408 | | Net cash used in investing activities | (300) | (498) | | Net cash (used in) provided by financing activities | (79) | 4 | | Net change in cash and cash equivalents | (34) | (83) | | Cash and cash equivalents at end of period | 514 | 410 | Notes to the Unaudited Consolidated Financial Statements Provides detailed disclosures for financial statements, covering accounting policies, inventories, taxes, borrowings, derivatives, and segment information - Unaudited consolidated financial statements are prepared in accordance with GAAP and include all normal recurring adjustments for fair presentation[73][101] Note 1. Significant Accounting Policies Outlines basis of presentation, GAAP adherence, and details recently adopted and issued accounting standards and their potential impact Basis of Presentation Statements conform to GAAP, incorporate management estimates, and consolidate entities where Eastman holds a controlling interest - Statements include all normal recurring adjustments necessary for fair presentation in conformity with GAAP, based on management estimates and judgments[73] - Consolidated statements include entities where Eastman has a controlling interest, with intercompany transactions eliminated[73] Recently Adopted Accounting Standards Eastman adopted ASU 2022-03 on January 1, 2024, with no significant impact on financial statements - Eastman adopted ASU 2022-03 (Fair Value Measurement) on January 1, 2024, which did not have a significant impact on financial statements[102] Accounting Standards Issued But Not Adopted as of June 30, 2024 Eastman evaluates ASU 2023-05 and ASU 2023-09, effective in 2025, for potential impacts on joint venture and income tax disclosures - Management is evaluating the impact of ASU 2023-05 (Joint Venture Formations), effective January 1, 2025, which requires initial measurement of contributions at fair value[55] - Management is evaluating the impact of ASU 2023-09 (Income Tax Disclosures), effective for fiscal periods beginning after December 15, 2024, which mandates more detailed income tax information[56][103] Note 2. Inventories Total inventories increased to $1,900 million at June 30, 2024, with approximately 50% valued using the LIFO method Total Inventories | (Dollars in millions) | June 30, 2024 | Dec 31, 2023 | |:--------------------------------|:--------------|:-------------| | Finished goods | $1,352 | $1,193 | | Work in process | 298 | 293 | | Raw materials and supplies | 671 | 618 | | Total inventories at FIFO or average cost | 2,321 | 2,104 | | Less: LIFO reserve | 421 | 421 | | Total inventories | $1,900 | $1,683 | - Inventories valued on the LIFO method constituted approximately 50% of total inventories at both June 30, 2024, and December 31, 2023[78] Note 3. Income Taxes Q2 2024 income tax provision was $56 million (20% rate), 6M 2024 was $105 million (21% rate), with $345 million in unrecognized tax benefits Provision for Income Taxes and Tax Rate | (Dollars in millions) | Q2 2024 ($) | Q2 2024 (%) | Q2 2023 ($) | Q2 2023 (%) | 6M 2024 ($) | 6M 2024 (%) | 6M 2023 ($) | 6M 2023 (%) | |:----------------------|:------------|:------------|:------------|:------------|:------------|:------------|:------------|:------------| | Provision for (benefit from) income taxes and tax rate | $56 | 20% | $(3) | (1)% | $105 | 21% | $57 | 12% | - Unrecognized tax benefits were $345 million at June 30, 2024, with a potential decrease of up to $140 million within the next 12 months due to resolutions of examinations and expiration of statutes of limitation[81] - Q2 and 6M 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. Q2 and 6M 2023 included a $51 million decrease due to state tax law changes and a $23 million increase from state guidance related to the 2017 Tax Cuts and Jobs Act[109] Note 4. Borrowings Total borrowings reached $5,033 million at June 30, 2024, following new note issuance and debenture repayments, with the credit facility extended Total Borrowings | (Dollars in millions) | June 30, 2024 | Dec 31, 2023 | |:---------------------------------------|:--------------|:-------------| | 7.25% debentures due January 2024 | $— | $198 | | 7.625% debentures due June 2024 | — | 43 | | 3.80% notes due March 2025 | 697 | 696 | | 1.875% notes due November 2026 | 533 | 550 | | 5.625% notes due February 2034 | 743 | — | | Total borrowings | 5,033 | 4,846 | | Less: Borrowings due within one year | 697 | 541 | | Long-term borrowings | $4,336 | $4,305 | - In Q1 2024, the Company issued $750 million of 5.625% notes due February 2034 and repaid $198 million of 7.25% debentures due January 2024[84] - In Q2 2024, the Company repaid $43 million of 7.625% debentures due June 2024[82] Credit Facility, Term Loans, and Commercial Paper Borrowings Revolving credit facility extended to 2029 with no outstanding balance; 2024 Term Loan repaid, 2027 Term Loan balance at $499 million - The $1.50 billion revolving credit agreement was amended to extend maturity to February 2029, with no outstanding borrowings at June 30, 2024, or December 31, 2023[85] - The $300 million 2024 Term Loan was repaid in Q1 2024. The 2027 Term Loan had an outstanding balance of $499 million at June 30, 2024, and December 31, 2023[114] - The Company was in compliance with all applicable covenants for the Credit Facility and 2027 Term Loan at both June 30, 2024, and December 31, 2023[86] Fair Value of Borrowings Fair value of total borrowings was $4.8 billion at June 30, 2024, with all fixed-rate debt and 2027 Term Loan classified as Level 2 - Fair value of total borrowings was $4.8 billion at June 30, 2024, and $4.7 billion at December 31, 2023[87] - Fixed-rate debt securities and the 2027 Term Loan are classified as Level 2 in the fair value hierarchy, based on quoted market prices or carrying value[87] Note 5. Derivative and Non-Derivative Financial Instruments Eastman uses derivatives to mitigate market risks from currency, commodity, and interest rate fluctuations, designated as cash flow, fair value, or net investment hedges - Eastman uses derivative and non-derivative financial instruments to mitigate market risks (foreign currency, raw material/energy prices, interest rates) and does not enter into derivative transactions for speculative purposes[116] Overview of Hedging Programs Eastman employs cash flow, fair value, and net investment hedging programs to manage market risks and offset financial variability - Cash flow hedges are derivative instruments used to hedge variability in expected future cash flows, with changes in fair value reported in AOCI and reclassified into earnings[89] - Fair value hedges are used to hedge changes in the fair value of assets or liabilities, with changes in fair value of hedging instruments and hedged items recognized in earnings[90] - Net investment hedges are used to hedge foreign currency exposure of net investments in foreign operations, with changes reported in CTA within AOCI[91] Summary of Financial Position and Financial Performance of Hedging Instruments Notional amounts for hedging programs at June 30, 2024, included €399 million in FX forwards and €1,648 million in cross-currency swaps Notional Amounts Outstanding for Hedging Programs | Hedging Program Type | Notional Outstanding June 30, 2024 | Notional Outstanding Dec 31, 2023 | |:----------------------------------------------------|:-----------------------------------|:----------------------------------| | Foreign Exchange Forward and Option Contracts (EUR/USD) | €399 million | €405 million | | Commodity Forward and Collar Contracts (Energy) | 15 million british thermal units | 11 million british thermal units | | Fixed-for-floating interest rate swaps | $75 million | $75 million | | Cross-currency interest rate swaps (EUR/USD) | €1,648 million | €1,354 million | | Cross-currency interest rate swaps (JPY/USD) | ¥7,385 million | ¥7,385 million | | Non-derivatives designated as net investment hedges (EUR/USD) | €498 million | €498 million | - In Q1 2024, Eastman terminated $190 million (€165 million) fixed-to-fixed cross-currency swaps, resulting in a $9 million gain recognized in CTA[92] - In Q1 2024, Eastman entered into new fixed-to-fixed cross-currency swaps totaling $500 million (€460 million equivalent) across various maturities[152] Fair Value Measurements All derivative assets and liabilities are Level 2 in the fair value hierarchy, with no Level 3 derivatives or credit losses recognized - All derivative assets and liabilities are classified as Level 2, with fair values based on standard pricing models using observable market data[125] - The Company had no derivatives classified as Level 3 as of June 30, 2024, and December 31, 2023[125] - No credit losses were recognized during second quarter and first six months 2024 or 2023[125] The Financial Position and Fair Value Measurements of Hedging Instruments on a Gross Basis Derivative assets increased to $53 million and liabilities decreased to $39 million at June 30, 2024, resulting in $14 million net derivative assets Derivative Assets and Liabilities (Gross Basis) | Derivative Type | Statements of Financial Position Classification | June 30, 2024 ($M) | Dec 31, 2023 ($M) | |:-----------------------------------------------|:------------------------------------------------|:-------------------|:------------------| | Derivative Assets | | | | | Foreign exchange contracts | Other current assets | $4 | $— | | Foreign exchange contracts | Other noncurrent assets | 1 | — | | Fixed-for-floating interest rate swap | Other current assets | 1 | 1 | | Cross-currency interest rate swaps | Other current assets | 15 | 8 | | Cross-currency interest rate swaps | Other noncurrent assets | 32 | 18 | | Total Derivative Assets | | $53 | $27 | | Derivative Liabilities | | | | | Commodity contracts | Payables and other current liabilities | $2 | $19 | | Foreign exchange contracts | Payables and other current liabilities | 1 | 8 | | Foreign exchange contracts | Other long-term liabilities | — | 2 | | Fixed-for-floating interest rate swap | Payables and other current liabilities | 2 | — | | Fixed-for-floating interest rate swap | Long-term borrowings | — | 3 | | Cross-currency interest rate swaps | Payables and other current liabilities | 4 | — | | Cross-currency interest rate swaps | Other long-term liabilities | 30 | 61 | | Total Derivative Liabilities | | $39 | $93 | | Total Net Derivative Assets (Liabilities) | | $14 | $(66) | Note 6. Retirement Plans Eastman maintains defined benefit and postretirement plans; 6M 2024 net periodic benefit cost was $0 million for U.S. pension and $2 million for Non-U.S. pension - Eastman maintains defined benefit pension plans and provides life insurance and health reimbursement arrangements for eligible retirees[163] Components of Net Periodic Benefit (Credit) Cost (First Six Months) | (Dollars in millions) | U.S. Pension Plans 2024 | Non-U.S. Pension Plans 2024 | Other Postretirement Benefit Plans 2024 | |:-----------------------------------|:------------------------|:----------------------------|:----------------------------------------| | Service cost | $11 | $4 | $— | | Interest cost | 37 | 12 | 12 | | Expected return on assets | (48) | (14) | (3) | | Amortization of prior service credit, net | — | — | (5) | | Net periodic benefit (credit) cost | $— | $2 | $4 | Note 7. Other Commitments Total remaining debt and commitments were approximately $10.5 billion at June 30, 2024, with purchase obligations decreasing by $1.5 billion - Eastman had remaining debt and other commitments totaling approximately $10.5 billion over a period of approximately 30 years at June 30, 2024[137] - Purchase obligations in the 2029 and beyond period decreased by approximately $1.5 billion in Q1 2024 due to exiting a supplier agreement[137] Note 8. Environmental Matters and Asset Retirement Obligations Environmental remediation liabilities were $257 million at June 30, 2024, with non-environmental asset retirement obligations at $53 million - Reserves for environmental remediation liabilities were $257 million at June 30, 2024, up from $252 million at December 31, 2023[143][169] - Estimated future environmental expenditures for undiscounted remediation costs ranged from $257 million (best estimate) to $503 million (maximum) at June 30, 2024[169] - Non-environmental asset retirement obligations were $53 million at June 30, 2024, primarily for leased manufacturing assets in Pace, Florida, and Oulu, Finland[182] Environmental Remediation and Environmental Asset Retirement Obligations Eastman has environmental remediation liabilities and asset retirement obligations, with the best estimate for the latter at $31 million - Reserves for environmental remediation include liabilities expected to be paid within approximately 30 years, recognized in 'Cost of sales' and 'Other (income) charges, net'[142] - The best estimate for environmental asset retirement obligation costs was $31 million at June 30, 2024, down from $32 million at December 31, 2023[12] Note 9. Legal Matters Eastman is involved in various lawsuits, including product liability and environmental matters, with no anticipated material adverse financial effect - Eastman is party to various lawsuits and proceedings, including product liability, environmental, and intellectual property matters[13] - Management does not believe that the ultimate resolution of pending legal matters will have a material adverse effect on the company's overall financial position, results of operations, or cash flows[13] Note 10. Stockholders' Equity Total stockholders' equity increased to $5,627 million at June 30, 2024, driven by net earnings and comprehensive income, offset by dividends and repurchases Changes in Stockholders' Equity (First Six Months 2024) | (Dollars in millions) | Common Stock at Par Value | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Treasury Stock at Cost | Total Eastman Stockholders' Equity | |:------------------------------------------|:--------------------------|:---------------------------|:------------------|:----------------------------------------------|:-----------------------|:-----------------------------------| | Balance at December 31, 2023 | $2 | $2,368 | $9,490 | $(319) | $(6,083) | $5,458 | | Net Earnings | — | — | 395 | — | — | 395 | | Cash Dividends Declared ($1.62 per share) | — | — | (191) | — | — | (191) | | Other Comprehensive Income (Loss) | — | — | — | 17 | — | 17 | | Share-Based Compensation Expense | — | 35 | — | — | — | 35 | | Stock Option Exercises | — | 22 | — | — | — | 22 | | Share Repurchases | — | — | — | — | (100) | (100) | | Balance at June 30, 2024 | $2 | $2,417 | $9,694 | $(302) | $(6,184) | $5,627 | - Accumulated other comprehensive income (loss) improved to $(302) million at June 30, 2024, from $(319) million at December 31, 2023[47][151] Note 11. Earnings and Dividends Per Share Q2 2024 diluted EPS was $1.94, 6M 2024 diluted EPS was $3.33, with cash dividends declared at $0.81 per share for Q2 Earnings Per Share (EPS) | EPS Type | Q2 2024 | Q2 2023 | 6M 2024 | 6M 2023 | |:---------|:--------|:--------|:--------|:--------| | Basic | $1.96 | $2.28 | $3.37 | $3.41 | | Diluted | $1.94 | $2.27 | $3.33 | $3.39 | - Cash dividends declared were $0.81 per share for Q2 2024 (up from $0.79 in Q2 2023) and $1.62 per share for 6M 2024 (up from $1.58 in 6M 2023)[22] - Shares underlying stock options of 1,336,652 (Q2 2024) and 1,397,081 (6M 2024) were excluded from diluted EPS calculations due to being antidilutive[179] Note 12. Asset Impairments and Restructuring Charges, Net 6M 2024 asset impairments and restructuring charges, net, totaled $11 million, consisting solely of severance charges, a decrease from prior year Asset Impairments and Restructuring Charges, Net | (Dollars in millions) | Q2 2024 | Q2 2023 | 6M 2024 | 6M 2023 | |:-----------------------------------|:--------|:--------|:--------|:--------| | Severance charges | $— | $— | $11 | $16 | | Site closure and other restructuring charges | — | — | — | 6 | | Total | $— | $— | $11 | $22 | - Substantially all severance costs remaining as of June 30, 2024 ($18 million), are expected to be paid within one year[219] Note 13. Share-Based Compensation Awards Share-based compensation expense before tax was $14 million in Q2 2024 and $35 million in 6M 2024, recognized in SG&A - Share-based compensation expense before tax was $14 million in Q2 2024 (vs. $17 million in Q2 2023) and $35 million in 6M 2024 (vs. $39 million in 6M 2023)[220][221] - The impact on net earnings was $11 million for Q2 2024 and $26 million for 6M 2024, net of deferred tax expense[220][221] Note 14. Segment Information Eastman operates four segments: AM, AFP, CI, and Fibers, with Q2 2024 total sales of $2,358 million and EBIT of $398 million Sales by Segment | (Dollars in millions) | Q2 2024 | Q2 2023 | 6M 2024 | 6M 2023 | |:----------------------------------|:--------|:--------|:--------|:--------| | Advanced Materials | $795 | $739 | $1,543 | $1,481 | | Additives & Functional Products | 718 | 747 | 1,422 | 1,524 | | Chemical Intermediates | 515 | 514 | 1,038 | 1,103 | | Fibers | 330 | 323 | 661 | 626 | | Total Sales by Operating Segment | 2,358 | 2,323 | 4,664 | 4,734 | Earnings Before Interest and Taxes (EBIT) by Segment | (Dollars in millions) | Q2 2024 | Q2 2023 | 6M 2024 | 6M 2023 | |:----------------------------------|:--------|:--------|:--------|:--------| | Advanced Materials | $131 | $99 | $235 | $185 |\ | Additives & Functional Products | 123 | 140 | 232 | 264 | | Chemical Intermediates | 22 | 39 | 38 | 81 | | Fibers | 122 | 106 | 239 | 171 | | Total EBIT by Operating Segment | 398 | 384 | 744 | 701 | ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management discusses Eastman's financial condition, operations, liquidity, and cash flows, including business strategy, segment analysis, and critical accounting estimates Non-GAAP Financial Measures Management uses non-GAAP measures to evaluate performance, excluding non-core, unusual, or non-recurring items for consistent operational comparison - Non-GAAP measures are used to evaluate longer-term period-over-period performance and provide a better understanding of management's assessment of the Company's performance[233] - Non-core items excluded from non-GAAP earnings include asset impairments, restructuring charges, acquisition/disposition costs, environmental costs from divested businesses, and mark-to-market pension adjustments[235][244] - Unusual items excluded include steam line incident costs (insurance proceeds) and adjustments to state income tax provisions related to the Tax Reform Act[236][237][245] Overview Eastman's innovation-driven growth model spans four segments; Q2 2024 sales increased 2% due to volume, and adjusted EBIT also rose - Eastman's innovation-driven growth model leverages world-class scalable technology platforms, differentiated application development, and market engagement[254] Sales and EBIT (Q2 & 6M 2024 vs. 2023) | (Dollars in millions) | Q2 2024 | Q2 2023 | 6M 2024 | 6M 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 Q2 2024 primarily due to higher sales volume, partially offset by lower selling prices. Sales revenue decreased in 6M 2024 primarily due to lower selling prices, mostly offset by higher sales volume[255] - EBIT excluding non-core items increased in Q2 and 6M 2024 primarily due to higher sales volume and lower manufacturing costs, partially offset by lower selling prices (net of lower raw material/energy costs and distribution costs)[256] Results of Operations Q2 2024 net earnings were $230 million (diluted EPS $1.94), with 6M 2024 net earnings at $395 million (diluted EPS $3.33), reflecting varied sales and expense changes Net Earnings and EPS (GAAP & Adjusted) | (Dollars in millions, except EPS) | Q2 2024 ($) | Q2 2024 (EPS) | Q2 2023 ($) | Q2 2023 (EPS) | 6M 2024 ($) | 6M 2024 (EPS) | 6M 2023 ($) | 6M 2023 (EPS) | |:----------------------------------|:------------|:--------------|:------------|:--------------|:------------|:--------------|:------------|:--------------| | Net earnings attributable to Eastman | $230 | $1.94 | $272 | $2.27 | $395 | $3.33 | $406 | $3.39 | | Adjusted net earnings | $256 | $2.15 | $238 | $1.99 | $446 | $3.76 | $433 | $3.62 | Sales Revenue Change Analysis | (Dollars in millions) | Q2 2024 Sales | Q2 2023 Sales | Q2 Change ($) | Q2 Change (%) | 6M 2024 Sales | 6M 2023 Sales | 6M Change ($) | 6M Change (%) | |:----------------------------|:--------------|:--------------|:--------------|:--------------|:--------------|:--------------|:--------------|:--------------| | 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) | 0% | | | (11) | 0% | - Gross profit (excluding non-core/unusual items) increased in Q2 and 6M 2024 due to increases in AM and Fibers segments, partially offset by CI and AFP segments[265] - Selling, general and administrative expenses decreased in Q2 and 6M 2024 due to cost reduction initiatives[266] - Net interest expense decreased in Q2 and 6M 2024 primarily due to lower total borrowings and higher interest income[276] Summary by Operating Segment Operating segments showed varied performance: AM and Fibers saw increased sales and EBIT, while AFP and CI experienced declines due to pricing and volume Advanced Materials Segment AM segment sales increased 8% to $795 million in Q2 2024, with EBIT up 32% to $131 million, driven by higher volume and lower manufacturing costs Advanced Materials Segment Performance | (Dollars in millions) | Q2 2024 | Q2 2023 | Q2 Change (%) | 6M 2024 | 6M 2023 | 6M Change (%) | |:----------------------|:--------|:--------|:--------------|:--------|:--------|:--------------| | Sales | $795 | $739 | 8% | $1,543 | $1,481 | 4% | | EBIT | $131 | $99 | 32% | $235 | $185 | 27% | - Higher sales volume in Q2 and 6M 2024 was attributed to the end of customer inventory destocking, particularly in consumer durables and packaging, and premium interlayers product growth in automotive[291] - EBIT increase in Q2 2024 was primarily due to $50 million higher sales volume and lower manufacturing costs, partially offset by $16 million lower selling prices (net of lower raw material/energy costs and distribution costs)[292] Additives & Functional Products Segment AFP segment sales decreased 4% to $718 million in Q2 2024, with EBIT down 12% to $123 million, primarily due to lower selling prices and unfavorable volume Additives & Functional Products Segment Performance | (Dollars in millions) | Q2 2024 | Q2 2023 | Q2 Change (%) | 6M 2024 | 6M 2023 | 6M Change (%) | |:----------------------|:--------|:--------|:--------------|:--------|:--------|:--------------| | Sales | $718 | $747 | (4)% | $1,422 | $1,524 | (7)% | | EBIT | $123 | $140 | (12)% | $232 | $264 | (12)% | - Lower selling prices were primarily attributed to lower raw material costs, including cost pass-through contracts[298] - EBIT decrease in Q2 2024 was primarily due to $21 million unfavorable sales volume and product mix and $8 million lower selling prices (net of lower raw material/energy costs), partially offset by $11 million lower manufacturing costs[299] Chemical Intermediates Segment CI segment sales were flat at $515 million in Q2 2024, but EBIT decreased 44% to $22 million, mainly due to lower selling prices Chemical Intermediates Segment Performance | (Dollars in millions) | Q2 2024 | Q2 2023 | Q2 Change (%) | 6M 2024 | 6M 2023 | 6M Change (%) | |:----------------------|:--------|:--------|:--------------|:--------|:--------|:--------------| | Sales | $515 | $514 | 0% | $1,038 | $1,103 | (6)% | | EBIT | $22 | $39 | (44)% | $38 | $81 | (53)% | - Lower selling prices were attributed to lower raw material and energy prices, while higher sales volume was due to the end of customer inventory destocking[301] - EBIT decrease in Q2 2024 was primarily due to $37 million lower selling prices (net of lower raw material/energy costs and distribution costs), partially offset by $18 million higher sales volume[308] Fibers Segment Fibers segment sales increased 2% to $330 million in Q2 2024, with adjusted EBIT up 15% to $122 million, driven by higher prices and volume Fibers Segment Performance (Excluding Non-Core Items) | (Dollars in millions) | Q2 2024 | Q2 2023 | Q2 Change (%) | 6M 2024 | 6M 2023 | 6M Change (%) | |:----------------------|:--------|:--------|:--------------|:--------|:--------|:--------------| | Sales | $330 | $323 | 2% | $661 | $626 | 6% | | EBIT | $122 | $106 | 15% | $239 | $171 | 40% | | EBIT excluding non-core items | 122 | 106 | 15% | 239 | 200 | 20% | - Sales revenue increased in Q2 and 6M 2024 primarily due to higher selling prices in acetate tow and higher sales volume in textiles[304] - EBIT excluding non-core items increased due to higher sales volume, lower manufacturing costs, and higher selling prices (net of lower raw material/energy costs)[305] Other (Growth initiatives, unallocated costs) The 'Other' category, including growth initiatives and unallocated costs, reported a $61 million loss before interest and taxes in Q2 2024 Other - Loss Before Interest and Taxes (Excluding Non-Core and Unusual Items) | (Dollars in millions) | Q2 2024 | Q2 2023 | 6M 2024 | 6M 2023 | |:----------------------------------------------------------|:--------|:--------|:--------|:--------| | Loss before interest and taxes | $(61) | $(61) | $(144) | $(132) | | Loss before interest and taxes excluding non-core and unusual items | $(45) | $(48) | $(117) | $(111) | - This category includes costs related to growth initiatives (e.g., cellulosics biopolymer platform, circular economy), R&D, certain postretirement benefits, and other unallocated expenses[314] - EBIT in 6M 2024 and 2023 included severance from cost reduction initiatives and environmental/other costs from previously divested or non-operational sites[315] Sales by Customer Location Q2 2024 sales increased 2% due to volume, while 6M 2024 sales decreased 1% due to price, with Asia Pacific showing strong growth Sales by Customer Location | (Dollars in millions) | Q2 2024 | Q2 2023 | Q2 Change ($) | Q2 Change (%) | 6M 2024 | 6M 2023 | 6M Change ($) | 6M Change (%) | |:--------------------------------|:--------|:--------|:--------------|:--------------|:--------|:--------|:--------------|:--------------| | 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)% | - Lower selling prices were particularly noted in Europe, Middle East, and Africa and the United States and Canada regions[316] - Higher sales volume was particularly in the Asia Pacific and Europe, Middle East, and Africa regions, partially offset by lower sales volume in the United States and Canada region[316] Liquidity and Other Financial Information Eastman maintains strong liquidity with $5.0 billion in total borrowings and $4.5 billion net debt at June 30, 2024, supported by cash flows and credit facilities - Management believes maintaining an investment grade credit rating is important for long-term strategy and financial flexibility[318] - Eastman applies a proactive and disciplined approach to working capital management to optimize cash flow[325] Cash Flows Net cash from operations decreased to $351 million in 6M 2024, while cash used in investing activities decreased to $300 million Net Cash Provided by (Used in) Activities | (Dollars in millions) | 6M 2024 | 6M 2023 | |:-------------------------------------------|:--------|:--------| | 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 end of period | $514 | $410 | - Cash provided by operating activities decreased primarily due to higher variable compensation payout partially offset by lower working capital[322] - Cash used in investing activities decreased primarily due to lower capital expenditures for AM segment methanolysis facilities and a 2023 acquisition[323] Working Capital Management and Off Balance Sheet Arrangements Eastman uses accounts receivable factoring, selling $650 million in Q2 2024, and has a supplier finance program with $67 million in confirmed obligations - Total amounts sold under accounts receivable factoring programs were $650 million in Q2 2024 (down from $753 million in Q2 2023) and $1.3 billion in 6M 2024 (down from $1.4 billion in 6M 2023)[326] - Confirmed obligations in the supplier finance program were $67 million at June 30, 2024 (down from $69 million at Dec 31, 2023), included in 'Payables and other current liabilities'[106] Debt and Other Commitments Total borrowings were $5.0 billion at June 30, 2024, with plans to repay $700 million in notes due March 2025, following Q1 2024 issuance and repayments - Total borrowings were $5.0 billion at June 30, 2024, with $700 million of 3.80% notes due March 2025 expected to be repaid using available cash and debt proceeds[331] - In Q1 2024, $750 million of 5.625% notes due February 2034 were issued, and $198 million of 7.25% debentures due January 2024 were repaid[332] - Purchase obligations in the 2029 and beyond period decreased by approximately $1.5 billion in Q1 2024 due to exiting a supplier agreement[333] Credit Facility, Term Loans, and Commercial Paper Borrowings Revolving credit facility extended to 2029 with no outstanding balance; 2024 Term Loan repaid, 2027 Term Loan balance at $499 million, with covenant compliance - The $1.50 billion revolving credit agreement was extended to February 2029, with no outstanding borrowings at June 30, 2024[335] - The $300 million 2024 Term Loan was repaid in Q1 2024. The 2027 Term Loan had an outstanding balance of $499 million at June 30, 2024[336] - The Company was in compliance with all applicable covenants for the Credit Facility and 2027 Term Loan at June 30, 2024[337] Net Debt Net debt increased to $4,519 million at June 30, 2024, including a $17 million non-cash decrease from foreign currency exchange rates Net Debt | (Dollars in millions) | June 30, 2024 | Dec 31, 2023 | |:----------------------|:--------------|:-------------| | Total borrowings | $5,033 | $4,846 | | Less: Cash and cash equivalents | 514 | 548 | | Net debt | $4,519 | $4,298 | - Net debt includes a non-cash decrease of $17 million in 2024 resulting from foreign currency exchange rates[342] Capital Expenditures Capital expenditures were $300 million in 6M 2024, primarily for AM segment facilities and growth initiatives, with 2024 projections between $650 million and $700 million - Capital expenditures were $300 million in 6M 2024 (down from $413 million in 6M 2023)[343] - Expenditures primarily for AM segment methanolysis plastic-to-plastic molecular recycling manufacturing facilities, other targeted growth initiatives, and site modernization projects[343] - The Company expects 2024 capital expenditures to be between $650 million and $700 million[343] Stock Repurchases Eastman repurchased 1,000,005 shares for $100 million in Q2 and 6M 2024 under a $2.5 billion authorization, with $1.615 billion remaining - The Board authorized the repurchase of up to $2.5 billion of common stock in December 2021[344] - In Q2 and 6M 2024, the Company repurchased 1,000,005 shares of common stock for $100 million[344][196][197] - As of June 30, 2024, 9,610,754 shares have been repurchased for $885 million under the 2021 authorization[344][196] Critical Accounting Estimates Critical accounting estimates, requiring significant judgment, include asset impairment, environmental costs, pension benefits, litigation, and income taxes, with actual results potentially differing from assumptions - Critical accounting estimates include impairment of long-lived assets, environmental costs, pension and other postretirement benefits, litigation and contingent liabilities, and income taxes[345] - Estimates are based on historical experience and reasonable assumptions, but actual results may differ under different conditions[345] Recently Issued Accounting Standards Details on recently issued accounting standards are provided in Note 1, 'Significant Accounting Policies' - Details on recently issued accounting standards are available in Note 1, 'Significant Accounting Policies'[346] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Eastman manages market risks from foreign currency, commodity prices, and interest rates through hedging, with a 10% euro fluctuation impacting net investment values by $230 million - Eastman is exposed to market risks from foreign currency exchange rates, commodity prices, and interest rates, managed through pricing, inventory management, and hedging[206] - A 10% fluctuation in the euro currency rate would have a $230 million impact on designated net investment values in foreign subsidiaries, generally offset by foreign currency changes in euro-denominated borrowings or cross-currency interest rate swaps[208] - No material changes to market risks were reported from those disclosed in the 2023 Annual Report on Form 10-K, other than the foreign currency risk discussed[209] ITEM 4. CONTROLS AND PROCEDURES Eastman's disclosure controls and procedures were effective as of June 30, 2024, with no material changes in internal control over financial reporting during Q2 2024 - As of June 30, 2024, the Company's disclosure controls and procedures were effective to provide reasonable assurance that required information was accumulated and communicated to management[210] - No material changes in internal control over financial reporting occurred during Q2 2024[211] ITEM 1A. RISK FACTORS Refers to material known risk factors detailed in the 2023 Annual Report on Form 10-K that could adversely affect Eastman's business - For information regarding material known risk factors, refer to 'Risk Factors' in Part I, Item 1A of the Company's 2023 Annual Report on Form 10-K[216] PART II. OTHER INFORMATION Provides additional information including legal proceedings, equity security sales, other disclosures, and exhibits ITEM 1. LEGAL PROCEEDINGS Eastman is involved in various legal proceedings, including product liability and environmental matters, with no anticipated material adverse financial effect - Eastman is party to various lawsuits and proceedings, including product liability, personal injury, asbestos, patent, environmental, and employment matters[214] - Management does not believe that the ultimate resolution of pending legal matters will have a material adverse effect on the company's overall financial condition, results of operations, or cash flows[214] Solutia Legacy Torts Claims Litigation Eastman's subsidiary Solutia is involved in Legacy Tort Claims, with Monsanto (Bayer AG) responsible for defense and indemnification - Monsanto Company (acquired by Bayer AG) is responsible for the defense and indemnification of Solutia against Legacy Tort Claims[215] - Eastman guaranteed Solutia's obligations and was added as an indemnified party under the Monsanto Settlement Agreement upon acquisition of Solutia in July 2012[215] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS Eastman repurchased 1,000,005 shares for $100 million in Q2 and 6M 2024 under a $2.5 billion authorization, with $1.615 billion remaining - The Board authorized the repurchase of up to $2.5 billion of common stock in December 2021[196] - During Q2 and 6M 2024, the Company repurchased 1,000,005 shares of common stock for $100 million[196][197] - As of June 30, 2024, $1.615 billion remained under the 2021 authorization[197] ITEM 5. OTHER INFORMATION Confirms no directors or officers adopted, modified, or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during Q2 2024 - No directors or officers adopted, modified, or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during Q2 2024[198] ITEM 6. EXHIBITS Lists all exhibits filed with the report, including organizational documents, CEO/CFO certifications, and Inline XBRL documents - Exhibits include Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws, Rule 13a-14(a) Certifications by CEO and CFO, Section 1350 Certifications by CEO and CFO, and various Inline XBRL documents[201] SIGNATURES The report is signed by William T. McLain, Jr., EVP and CFO, on behalf of Eastman Chemical Company as of July 26, 2024 - The report was signed by William T. McLain, Jr., Executive Vice President and Chief Financial Officer, on July 26, 2024[193]