Eastman(EMN) - 2022 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the company's unaudited financial statements and management's analysis of performance Item 1. Financial Statements The company presents unaudited consolidated statements of earnings, financial position, and cash flows Consolidated Statements of Earnings (Unaudited) | (In millions, except per share) | Second Quarter 2022 | Second Quarter 2021 | First Six Months 2022 | First Six Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Sales | $2,784 | $2,653 | $5,498 | $5,062 | | Gross profit | $670 | $681 | $1,220 | $1,279 | | Earnings (loss) before interest and taxes | $426 | $(56) | $759 | $333 | | Net earnings (loss) attributable to Eastman | $256 | $(146) | $491 | $128 | | Diluted earnings (loss) per share | $2.03 | $(1.07) | $3.82 | $0.93 | Consolidated Statements of Financial Position (Unaudited) | (In millions) | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total current assets | $4,003 | $4,646 | | Total assets | $14,875 | $15,519 | | Total current liabilities | $3,148 | $2,971 | | Total liabilities | $9,468 | $9,731 | | Total Eastman stockholders' equity | $5,323 | $5,704 | Consolidated Statements of Cash Flows (Unaudited) | (In millions) | First Six Months 2022 | First Six Months 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $262 | $642 | | Net cash provided by (used in) investing activities | $756 | $(277) | | Net cash used in financing activities | $(1,010) | $(315) | | Net change in cash and cash equivalents | $(3) | $45 | Note 2. Divestitures The company details the financial impact of selling its adhesives resins and rubber additives businesses - On April 1, 2022, the company completed the sale of its adhesives resins business for total estimated consideration of $957 million, resulting in a $5 million gain[37][38] - The company previously completed the sale of its rubber additives business on November 1, 2021, for an estimated consideration of $687 million, which resulted in a $552 million loss[33][34] Note 6. Borrowings This note outlines changes in total borrowings, recent debt refinancing, and available credit facilities - Total borrowings decreased to $4.99 billion at June 30, 2022, from $5.16 billion at December 31, 2021[50] - In Q2 2022, the company borrowed $500 million under a new five-year term loan agreement and used the proceeds along with available cash to repay $550 million of its 3.6% notes due August 2022[52] - The company has a $1.50 billion revolving credit facility expiring in December 2026, with no outstanding borrowings as of June 30, 2022[51] Note 12. Stockholders' Equity This note details the company's share repurchase programs and cash dividend declarations - In Q2 2022, the company entered into a $500 million accelerated share repurchase (ASR) program; for the first six months of 2022, total share repurchases amounted to $752 million[118][132] - Cash dividends declared were $0.76 per share in Q2 2022, up from $0.69 per share in Q2 2021[131] Note 17. Segment and Regional Sales Information This note provides a breakdown of sales and EBIT by operating segment and customer location Sales by Segment (First Six Months) | (In millions) | H1 2022 | H1 2021 | | :--- | :--- | :--- | | Additives & Functional Products | $1,640 | $1,264 | | Advanced Materials | $1,583 | $1,485 | | Chemical Intermediates | $1,660 | $1,341 | | Fibers | $455 | $440 | EBIT by Segment (First Six Months) | (In millions) | H1 2022 | H1 2021 | | :--- | :--- | :--- | | Additives & Functional Products | $293 | $216 | | Advanced Materials | $202 | $296 | | Chemical Intermediates | $288 | $206 | | Fibers | $61 | $82 | Sales by Customer Location (First Six Months) | (In millions) | H1 2022 | H1 2021 | | :--- | :--- | :--- | | United States and Canada | $2,502 | $2,201 | | Europe, Middle East, and Africa | $1,426 | $1,344 | | Asia Pacific | $1,250 | $1,219 | | Latin America | $320 | $298 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q2 2022 performance drivers, segment results, liquidity, and the full-year outlook Overview This section reviews key financial results and operational events for the second quarter of 2022 - Q2 2022 sales revenue increased to $2.8 billion from $2.7 billion in Q2 2021, driven by higher selling prices which were partially offset by lower sales volume[182] - Adjusted EBIT increased to $469 million in Q2 2022 from $454 million in Q2 2021, as higher selling prices more than offset increased raw material, energy, and distribution costs[182] - A steam line failure incident on January 31, 2022, at the Kingsport site impacted operations, primarily affecting the Advanced Materials (AM) and Fibers segments; incremental costs, net of insurance, were $17 million in Q2 and $42 million in H1 2022[183][184] Results of Operations This section analyzes the key drivers of change in sales revenue and profitability Sales Revenue Change Analysis (Q2 2022 vs Q2 2021) | (In millions) | Change | % Change | | :--- | :--- | :--- | | Total Sales Change | $131 | 5% | | Volume / product mix effect | $53 | 2% | | Price effect | $405 | 15% | | Exchange rate effect | $(57) | (2)% | | Divested business effect | $(270) | (10)% | - Adjusted gross profit (excluding non-core and unusual items) increased 1% in Q2 2022 YoY, as higher selling prices were largely offset by increased costs[197] - Adjusted SG&A expenses decreased 9% in Q2 2022 YoY, primarily due to lower variable compensation costs[198] Summary by Operating Segment This section details the financial performance and key drivers for each of the company's operating segments - Additives & Functional Products (AFP): Q2 2022 sales grew 27% YoY to $835 million, driven by a 20% price increase and 11% volume/mix growth; Adjusted EBIT rose 33% to $148 million due to higher sales volume and pricing power[224][226] - Advanced Materials (AM): Q2 2022 sales increased 10% YoY to $846 million, mainly from a 13% price increase; Adjusted EBIT grew 3% to $158 million, as higher pricing and lower manufacturing costs offset higher raw material/energy costs[230][232] - Chemical Intermediates (CI): Q2 2022 sales rose 17% YoY to $861 million, driven by a 19% price increase due to higher input costs and constrained markets; Adjusted EBIT increased 8% to $155 million as higher selling prices offset cost inflation[237][239] - Fibers: Q2 2022 sales increased 9% YoY to $242 million, with a 12% price increase offsetting a 2% volume decline; EBIT was flat at $37 million, as higher pricing was offset by lower volume and higher manufacturing costs from the steam line incident and Russia/Ukraine conflict[240][241] Liquidity and Other Financial Information This section discusses cash flow, debt management, capital expenditures, and off-balance sheet arrangements - Cash from operations for H1 2022 was $262 million, a decrease of $380 million from H1 2021, due to higher working capital needs and lower net earnings (excluding divestiture gains/losses)[255] - The company utilizes an off-balance sheet accounts receivable factoring program, selling $637 million in receivables in Q2 2022, up from $298 million in Q2 2021[262] - Net debt decreased to $4.54 billion at June 30, 2022, from $4.70 billion at year-end 2021[271] - Capital expenditures for H1 2022 were $247 million, with the full-year 2022 forecast at approximately $700 million, primarily for growth initiatives like the methanolysis recycling facility[272] Outlook The company provides its financial forecast for the full year 2022 and discusses key macroeconomic uncertainties 2022 Full-Year Outlook | Metric | Forecast | | :--- | :--- | | Adjusted EPS | $9.50 - $10.00 | | Operating Cash Flow | ~$1.5 billion | | Capital Expenditures | ~$700 million | | Share Repurchases | > $1 billion | - The company expects earnings to be negatively impacted by moderated demand in durables and building/construction, slower auto market recovery, high energy costs, and a strong U.S. dollar[280] - Key macroeconomic uncertainties include high global inflation, the Russia/Ukraine conflict, COVID-related lockdowns in China, and global supply chain constraints[281] Quantitative and Qualitative Disclosures About Market Risk The company outlines its exposure to market risks and its corresponding hedging strategies - A 10% adverse change in the U.S. dollar against hedged foreign currencies would result in a potential loss of $58 million in the fair value of derivative instruments[313] - A 10% fluctuation in the euro exchange rate would impact the value of designated net investments by $191 million, but this is generally offset by corresponding changes in euro-denominated borrowings and swaps designated as hedges[314] Controls and Procedures Management confirms the effectiveness of disclosure controls and procedures as of the quarter-end - The CEO and CFO concluded that as of June 30, 2022, the company's disclosure controls and procedures were effective at a reasonable assurance level[316] - There were no material changes in the company's internal control over financial reporting during Q2 2022[317] PART II. OTHER INFORMATION This section covers legal proceedings, risk factors, share repurchases, and filed exhibits Item 1. Legal Proceedings The company discloses ongoing legal matters, including a potential environmental penalty and legacy tort claims - The company faces a potential civil penalty exceeding $1 million from the EPA and PADEP for alleged environmental violations at its former Jefferson Hills, PA facility, with liability retained after the facility's sale[320] - Through its acquisition of Solutia, Eastman is named in legacy tort claims, but these are largely indemnified by Monsanto (Bayer AG) under a settlement agreement[321] Item 1A. Risk Factors The company highlights material risks related to economic conditions, supply chain, global operations, and regulations - Key risks include uncertain global economic conditions, volatility in raw material and energy costs, and supply chain disruptions, particularly those exacerbated by the COVID-19 pandemic and geopolitical conflicts[288][290][291] - Substantial global operations expose the company to risks from trade policy changes, tariffs, currency fluctuations, and differing legal and regulatory environments[295][296] - Operating risks include manufacturing disruptions from equipment failure, natural disasters, and cybersecurity attacks; growth initiatives, including acquisitions and circular economy projects, face execution and financial return risks[297][301][303] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details Q2 2022 share repurchase activities and remaining authorization Issuer Purchases of Equity Securities (Q2 2022) | Period | Total Shares Purchased | Average Price Paid Per Share | Approx. Dollar Value Remaining Under Program | | :--- | :--- | :--- | :--- | | April 1-30, 2022 | 1,834,664 | $109.01 | $2.667 billion | | May 1-31, 2022 | 4,283,370 | $105.63 | $2.215 billion | | June 1-30, 2022 | — | $— | $2.215 billion | | Total | 6,118,034 | $106.65 | $2.215 billion | - The company initiated a $500 million Accelerated Share Repurchase (ASR) program in Q2 2022, with final settlement expected in Q3 2022[326] Item 6. Exhibits This section lists all exhibits filed with the report, including governance documents and certifications - The Exhibit Index lists key corporate governance documents, financing agreements, and required SEC certifications[332]