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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 endedSeptember 30, 2023
 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

EASTMAN CHEMICAL COMPANY
(Exact name of registrant as specified in its charter)
Delaware62-1539359
(State or other jurisdiction of(I.R.S. Employer
incorporation or organization)Identification no.)
  
200 South Wilcox Drive 
KingsportTennessee37662
(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
Common Stock, par value $0.01 per share EMNNew York Stock Exchange
1.875% Notes Due 2026EMN26New York Stock Exchange

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.
Large accelerated filer☒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 September 30, 2023
Common Stock, par value $0.01 per share118,564,013
--------------------------------------------------------------------------------------------------------------------------------
1
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TABLE OF CONTENTS
ITEM PAGE

PART I.  FINANCIAL INFORMATION
 
   
 
 
 
 
   
   
   

PART II.  OTHER INFORMATION
   
5.
Other Information

SIGNATURES
 

2
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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 impacts of climate change and related voluntary and regulatory carbon requirements); exposure to and effects of hedging raw material and energy prices and costs and foreign currencies exchange and interest rates; disruption or interruption of operations and of raw material or energy supply (including as a result of cyber-attacks or other breaches of information security systems); 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
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS,
COMPREHENSIVE INCOME AND RETAINED EARNINGS
 Third QuarterFirst Nine Months
(Dollars in millions, except per share amounts)2023202220232022
Sales$2,267 $2,709 $7,003 $8,207 
Cost of sales1,783 2,168 5,406 6,446 
Gross profit484 541 1,597 1,761 
Selling, general and administrative expenses160 173 536 554 
Research and development expenses60 68 182 200 
Asset impairments and restructuring charges, net— 2 22 23 
Other components of post-employment (benefit) cost, net(2)(30)(8)(95)
Other (income) charges, net10 1 40 3 
Net (gain) loss on divested business
— 3 — (7)
Earnings before interest and taxes256 324 825 1,083 
Net interest expense57 43 163 134 
Earnings before income taxes199 281 662 949 
Provision for (benefit from) income taxes20 (20)77 155 
Net earnings179 301 585 794 
Less: Net earnings attributable to noncontrolling interest1 — 1 2 
Net earnings attributable to Eastman$178 $301 $584 $792 
Basic earnings per share attributable to Eastman$1.50 $2.48 $4.92 $6.34 
Diluted earnings per share attributable to Eastman$1.49 $2.46 $4.89 $6.26 
Comprehensive Income  
Net earnings including noncontrolling interest$179 $301 $585 $794 
Other comprehensive income (loss), net of tax:  
Change in cumulative translation adjustment(24)(19)(67)4 
Defined benefit pension and other postretirement benefit plans:  
Amortization of unrecognized prior service credits(6)(6)(16)(21)
Derivatives and hedging:  
Unrealized gain (loss) during period9 30 (3)97 
Reclassification adjustment for (gains) losses included in net income, net(2)(14)(3)(50)
Total other comprehensive income (loss), net of tax(23)(9)(89)30 
Comprehensive income including noncontrolling interest156 292 496 824 
Less: Comprehensive income attributable to noncontrolling interest1 — 1 2 
Comprehensive income attributable to Eastman$155 $292 $495 $822 
Retained Earnings    
Retained earnings at beginning of period$9,190 $8,857 $8,973 $8,557 
Net earnings attributable to Eastman178 301 584 792 
Cash dividends declared(94)(93)(283)(284)
Retained earnings at end of period$9,274 $9,065 $9,274 $9,065 

The accompanying notes are an integral part of these consolidated financial statements.
4
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UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
September 30,December 31,
(Dollars in millions, except per share amounts)20232022
Assets
Current assets
Cash and cash equivalents$439 $493 
Trade receivables, net of allowance for credit losses880 957 
Miscellaneous receivables269 320 
Inventories1,721 1,894 
Other current assets72 114 
Assets held for sale186 — 
Total current assets3,567 3,778 
Properties
Properties and equipment at cost13,382 12,942 
Less: Accumulated depreciation7,956 7,782 
Net properties5,426 5,160 
Goodwill3,643 3,664 
Intangible assets, net of accumulated amortization1,148 1,210 
Other noncurrent assets810 855 
Total assets$14,594 $14,667 
Liabilities and Stockholders' Equity
Current liabilities
Payables and other current liabilities$1,940 $2,125 
Borrowings due within one year640 1,126 
Liabilities held for sale35 — 
Total current liabilities2,615 3,251 
Long-term borrowings4,580 4,025 
Deferred income tax liabilities549 671 
Post-employment obligations611 628 
Other long-term liabilities815 856 
Total liabilities9,170 9,431 
Stockholders' equity
Common stock ($0.01 par value – 350,000,000 shares authorized; shares issued – 222,737,414 and 222,348,557 as of September 30, 2023 and December 31, 2022, respectively)
2 2 
Additional paid-in capital2,352 2,315 
Retained earnings9,274 8,973 
Accumulated other comprehensive income (loss)(294)(205)
11,334 11,085 
Less: Treasury stock at cost (104,224,199 and 103,602,488 shares as of September 30, 2023 and December 31, 2022, respectively)
5,982 5,932 
Total Eastman stockholders' equity5,352 5,153 
Noncontrolling interest72 83 
Total equity5,424 5,236 
Total liabilities and stockholders' equity$14,594 $14,667 

The accompanying notes are an integral part of these consolidated financial statements.
5
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UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
First Nine Months
(Dollars in millions)20232022
Operating activities
Net earnings$585 $794 
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization380 360 
Mark-to-market pension and other postretirement benefit plans (gain), net— (3)
Loss on sale of assets— 15 
Gain on divested business— (7)
Benefit from deferred income taxes(156)(54)
Changes in operating assets and liabilities, net of effect of acquisitions and divestitures:
(Increase) decrease in trade receivables68 (111)
(Increase) decrease in inventories147 (549)
Increase (decrease) in trade payables(363)187 
Pension and other postretirement contributions (in excess of) less than expenses(39)(115)
Variable compensation payments (in excess of) less than expenses73 (117)
Other items, net227 118 
Net cash provided by operating activities922 518 
Investing activities
Additions to properties and equipment(649)(408)
Proceeds from sale of businesses38 998 
Acquisition, net of cash acquired(74)(1)
Additions to capitalized software(4)(10)
Other items, net9 19 
Net cash (used in) provided by investing activities(680)598 
Financing activities
Net increase (decrease) in commercial paper and other borrowings73 355 
Proceeds from borrowings796 500 
Repayment of borrowings (808)(750)
Dividends paid to stockholders(282)(290)
Treasury stock purchases (50)(902)
Other items, net
(24)(11)
Net cash used in financing activities
(295)(1,098)
Effect of exchange rate changes on cash and cash equivalents(1)(16)
Net change in cash and cash equivalents(54)2 
Cash and cash equivalents at beginning of period493 459 
Cash and cash equivalents at end of period$439 $461 

The accompanying notes are an integral part of these consolidated financial statements.
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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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 2022 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, 2022 financial position data included herein was derived from the consolidated financial statements included in the 2022 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 statement 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. Certain prior period data has been reclassified in the unaudited consolidated financial statements and accompanying footnotes to conform to current period presentation, including sales revenue, earnings before interest and taxes ("EBIT"), and goodwill related to the product moves announced in first quarter 2023. See Note 4, "Goodwill", and Note 15, "Segment Information", for more information.

Recently Adopted Accounting Standards

Accounting Standards Update ("ASU") 2021-08 Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers: On January 1, 2023, Eastman adopted prospectively this update, which requires that an entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606 Revenue from Contracts with Customers, as if it had originated the contracts. The adoption did not have a significant impact on the Company's financial statements and related disclosures.

ASU 2022-01 Derivatives and Hedging (Topic 815): Fair Value Hedging—Portfolio Layer Method: On January 1, 2023, Eastman adopted this update which clarifies the guidance in Accounting Standards Codification ("ASC") 815 on fair value hedge accounting of interest rate risk for portfolios of financial assets. This ASU amends the guidance in ASU 2017-12 (released on August 28, 2017) that, among other things, established the "last-of-layer" method for making the fair value hedge accounting for these portfolios more accessible. ASU 2022-01 renames that method the "portfolio layer" method and addresses feedback from stakeholders regarding its application. The adoption did not have a significant impact on the Company's financial statements and related disclosures.

ASU 2022-02 Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures: On January 1, 2023, Eastman adopted this update which amends the requirements for accounting for credit losses under ASC 326, eliminates the accounting guidance on troubled debt restructurings for creditors in ASC 310-40, and enhances creditors' disclosure requirements related to loan refinancings and restructurings for borrowers experiencing financial difficulty. This ASU also amends the guidance on "vintage disclosures" to require disclosure of gross write-offs by year of origination. The adoption did not have a significant impact on the Company's financial statements and related disclosures.

ASU 2022-04 Liabilities - Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations: On January 1, 2023, Eastman adopted this update which requires the buyer in a supplier finance program to disclose qualitative and quantitative information about the program. Required disclosures include information about the key terms of the program, outstanding confirmed amounts as of the end of the period, a rollforward of such amounts during each annual period, and a description of where in the financial statements outstanding amounts are presented. This guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, except for the disclosure of rollforward information, which is effective for fiscal years beginning after December 15, 2023, with early adoption permitted. The adoption did not have a significant impact on the Company's financial position, results of operations, or cash flows. The required disclosures are included as part of "Working Capital Management and Off Balance Sheet Arrangements" disclosure below.

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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Accounting Standards Issued But Not Adopted as of September 30, 2023

ASU 2022-03 Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions: The Financial Accounting Standards Board ("FASB") issued this update in June 2022, 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. This guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years, with early adoption permitted. Management does not expect that changes required by the new standard will have a significant impact on the Company's financial statements and related disclosures.

ASU 2023-05 Business Combination - Joint Venture Formations (Subtopic 805-60): Recognition and Initial Measurement: The 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.

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 third quarter 2023 and 2022 were $692 million and $700 million, respectively, and $2.1 billion and $1.8 billion in first nine months 2023 and 2022, 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 $61 million and $98 million at September 30, 2023 and December 31, 2022, respectively, are included in "Payables and other current liabilities" on the Unaudited Consolidated Statements of Financial Position.

2.ASSETS HELD FOR SALE

On September 27, 2023, Eastman entered into a definitive agreement to sell its operations located in Texas City, Texas, which are reported in the Chemical Intermediates ("CI") segment ("Texas City Operations"). The sale excludes the plasticizer operations. The Company will provide certain transition and post-closing services on agreed terms.

The total sales price includes $413 million in cash at closing and an additional $38.5 million to be paid on each of the first and second anniversaries of the closing date of the transaction. The final purchase price is subject to working capital and other adjustments at closing. The entity being sold is not reported as a discontinued operation because the sale will not have a major effect on the Company's operations and financial results.
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The sale, subject to regulatory approvals and satisfaction of other customary closing conditions, is expected to be completed in fourth quarter 2023. The agreement contains customary representations, warranties, and covenants of both parties including, among other things, that Eastman conduct the site's operations in the ordinary course consistent with past practice through the date of closing.

As of the definitive agreement date and until sale, the Texas City Operations disposal group is classified as held for sale. At September 30, 2023, the carrying value was less than the estimated fair value less costs to sell, which is expected to result in a gain upon disposition.

The major classes of assets and liabilities of the Texas City Operations classified as held for sale as of September 30, 2023 were as follows:

September 30,
(Dollars in millions)2023
Assets held for sale
Trade receivables, net of allowance for doubtful accounts$4 
Inventories7 
Other assets14 
Properties, net of accumulated depreciation108 
Goodwill50 
Intangible assets, net of accumulated amortization3 
Assets held for sale186 
Liabilities held for sale
Payables and other current liabilities
11 
Other liabilities24 
Liabilities held for sale35 
Disposal group, net$151 

Long-lived assets and definite-lived intangible assets are not depreciated or amortized while classified as held for sale.

3.INVENTORIES
 September 30,December 31,
(Dollars in millions)20232022
Finished goods$1,244 $1,347 
Work in process282 297 
Raw materials and supplies658 743 
Total inventories at FIFO or average cost2,184 2,387 
Less: LIFO reserve463 493 
Total inventories$1,721 $1,894 

Inventories valued on the last-in, first-out ("LIFO") method were approximately 50 percent of total inventories at both September 30, 2023 and December 31, 2022.

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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
4.GOODWILL

As a result of product moves between the Additives & Functional Products ("AFP") segment and the CI segment that occurred in first quarter 2023, goodwill was reassigned to segments using a relative fair value allocation. In conjunction with the product moves and as required by GAAP, during first quarter 2023 Eastman performed an impairment assessment and concluded that no indication of an impairment existed. For further information on the product moves, see Note 1, "Significant Accounting Policies", and Note 15, "Segment Information".

Changes to the carrying value of goodwill follow:
(Dollars in millions)Advanced MaterialsAdditives & Functional ProductsChemical IntermediatesOtherTotal
Balance at December 31, 2022$1,296 $1,601 $757 $10 $3,664 
Adjustments to net goodwill resulting from reorganization— 569 (569)— — 
Acquisition33 — — — 33 
Held for sale
— — (50)— (50)
Currency translation adjustments(3)(1)— — (4)
Balance at September 30, 2023$1,326 $2,169 $138 $10 $3,643 

The reported balance of goodwill included accumulated impairment losses of $106 million, $12 million, and $14 million in the AFP segment, the CI segment, and other segments, respectively, at both September 30, 2023 and December 31, 2022.

5.INCOME TAXES
 Third QuarterFirst Nine Months
(Dollars in millions)2023202220232022
$%$%$%$%
Provision for (benefit from) income taxes and tax rate
$20 10 %$(20)(7)%$77 12 %$155 16 %

First nine months 2023 provision for income taxes includes a $51 million decrease due to state tax law changes that were enacted in second quarter 2023 that extend the carryforward period to utilize existing state tax credits and a $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"). Third quarter and first nine months 2022 provision for income taxes included a $32 million decrease related to the release of a state valuation allowance and a $16 million decrease from the finalization of prior year's income tax returns. Provision for income taxes was adjusted in third quarter 2022 to reflect finalization of the tax implications of the adhesives resins business divestiture, which, for first nine months 2022, was an increase of $38 million to the provision for income taxes.

At September 30, 2023 and December 31, 2022, Eastman had $241 million and $235 million, respectively, in unrecognized tax benefits. At September 30, 2023, it is expected 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 $55 million within the next 12 months.

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6.BORROWINGS
 September 30,December 31,
(Dollars in millions)20232022
Borrowings consisted of:
1.50% notes due May 2023 (1)
$— $800 
7.25% debentures due January 2024
198 198 
7.625% debentures due June 2024
43 43 
3.80% notes due March 2025
695 693 
1.875% notes due November 2026 (1)
528 530 
7.60% debentures due February 2027
196 196 
4.5% notes due December 2028
495 495 
5.75% notes due March 2033 (2)
496 — 
4.8% notes due September 2042
494 494 
4.65% notes due October 2044
877 877 
2024 Term Loan300 — 
2027 Term Loan499 499 
Commercial paper and short-term borrowings399 326 
Total borrowings5,220 5,151 
Less: Borrowings due within one year640 1,126 
Long-term borrowings$4,580 $4,025 
(1)The carrying value of the euro-denominated 1.50% notes due May 2023 and 1.875% notes due November 2026 fluctuates with changes in the euro to U.S. dollar exchange rate. The carrying value of these euro-denominated borrowings have been designated as non-derivative net investment hedges 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 will be used to finance or refinance existing and future eligible green investment initiatives, which contribute to Eastman's environmental sustainability strategy (a green bond).

In second quarter 2023, the Company repaid the 1.50% notes due May 2023, of which $808 million, including the foreign currency impact, was repaid from a combination of available cash and debt proceeds. There were no debt extinguishment costs associated with the repayment of this debt. Total consideration for this redemption is reported under financing activities on the Unaudited Consolidated Statements of Cash Flows.

In first quarter 2023, the Company issued $500 million aggregate principal amount of 5.75% notes due March 2033 in a registered public offering (the "2023 Notes"). Net proceeds from the 2023 Notes will be allocated to eligible projects to advance Eastman's sustainability goals of mitigating climate change, mainstreaming circular economy, and caring for society. Proceeds from the sale of the notes, net of original issue discounts, and issuance costs were $496 million.

Credit Facility, Term Loans, and Commercial Paper Borrowings

In first quarter 2023, the Company borrowed $300 million under a delayed draw two-year term loan (the "2024 Term Loan"), which was executed in fourth quarter 2022. As of September 30, 2023, the 2024 Term Loan balance outstanding was $300 million with a variable interest rate of 6.56%. In 2022, the Company borrowed $500 million under a five-year term loan agreement (the "2027 Term Loan"). The 2027 Term Loan balance outstanding was $499 million at both September 30, 2023 and December 31, 2022, with variable interest rates of 6.55% and 5.55%, respectively. Borrowings under the 2024 Term Loan and 2027 Term Loan are subject to interest at varying spreads above quoted market rates.

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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The Company has access to a $1.50 billion revolving credit agreement (the "Credit Facility") expiring December 2026 that was amended in first quarter 2023. The amendment replaced the London Interbank Offered Rate-based ("LIBOR") reference interest rate option with a reference interest rate option based upon Term Secured Overnight Financing Rate ("SOFR") (as defined in the Credit Facility). 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 September 30, 2023 and December 31, 2022, the Company had no outstanding borrowings under the Credit Facility. At September 30, 2023, the Company's commercial paper borrowings were $399 million with a weighted average interest rate of 5.55%. At December 31, 2022, the Company's commercial paper borrowings were $326 million with a weighted average interest rate of 4.85%.

The Credit Facility, the 2024 Term Loan, 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 September 30, 2023 and December 31, 2022.

Fair Value of Borrowings

Eastman has classified its total borrowings at September 30, 2023 and December 31, 2022 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 2022 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 Company's other borrowings, under the Term Loans and commercial paper, equals the carrying value and is classified as Level 2. The Company's fair value of total borrowings was $4.9 billion at both September 30, 2023 and December 31, 2022. The Company had no borrowings classified as Level 1 and Level 3 as of September 30, 2023 and December 31, 2022.

7.DERIVATIVE AND NON-DERIVATIVE FINANCIAL INSTRUMENTS

Overview of Hedging Programs

Eastman is exposed to market risks, such as changes in foreign currency exchange rates, commodity 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 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 2022 Annual Report on Form 10-K.

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.

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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 2023, Eastman entered into fixed-to-fixed cross-currency swaps of $300 million (€283 million) maturing March 2033 and $50 million (¥6.7 billion) maturing March 2025.

In third quarter 2023, Eastman entered into fixed-to-fixed cross-currency swaps of $375 million (€340 million) maturing March 2025 and $125 million (€113 million) maturing December 2028. Additionally, Eastman voluntarily terminated and reentered into fixed-to-fixed cross-currency swaps of $375 million (€340 million terminated; €351 million reentered) maturing March 2025, $305 million (€265 million terminated; €285 million reentered) maturing December 2028, and $50 million (¥6.7 billion terminated; ¥7.4 billion reentered) maturing March 2025.

The termination of cross-currency swaps in third quarter 2023 resulted in a $34 million gain recognized in CTA. The related cash flows were classified as investing activities in the Unaudited Consolidated Statements of Cash Flows.

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Summary of Financial Position and Financial Performance of Hedging Instruments

The following table presents the notional amounts outstanding at September 30, 2023 and December 31, 2022 associated with Eastman's hedging programs.
Notional OutstandingSeptember 30, 2023December 31, 2022
Derivatives designated as cash flow hedges:
Foreign Exchange Forward and Option Contracts (in millions)
EUR/USD (in EUR)€440€573
Commodity Forward and Collar Contracts
Energy (in million british thermal units)17 3 
Derivatives designated as fair value hedges:
Fixed-for-floating interest rate swaps (in millions)$75$75
Derivatives designated as net investment hedges:
Cross-currency interest rate swaps (in millions)
EUR/USD (in EUR)€1,354€587
JPY/USD (in JPY)¥7,385— 
Non-derivatives designated as net investment hedges:
Foreign Currency Net Investment Hedges (in millions)
EUR/USD (in EUR)€498€1,247

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 derivatives classified as Level 3 as of September 30, 2023 and December 31, 2022. Counterparties to these derivative contracts are highly rated financial institutions which the Company believes carry minimal risk of nonperformance, and the Company diversifies its positions among such counterparties to reduce its exposure to counterparty risk and credit losses. The Company monitors the creditworthiness of its counterparties on an ongoing basis. The Company did not recognize a credit loss during third quarter and first nine months 2023 or 2022.

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.

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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 September 30, 2023 and December 31, 2022.

The Financial Position and Fair Value Measurements of Hedging Instruments on a Gross Basis
(Dollars in millions) 
Derivative TypeStatements of Financial
Position Classification		Level 2
September 30, 2023December 31, 2022
Derivatives designated as cash flow hedges:   
Commodity contractsOther current assets$— $3 
Foreign exchange contractsOther current assets6 — 
Foreign exchange contractsOther noncurrent assets2 — 
Derivatives designated as fair value hedges:
Fixed-for-floating interest rate swapOther current assets— 1 
Derivatives designated as net investment hedges:
Cross-currency interest rate swapsOther current assets16 — 
Cross-currency interest rate swapsOther noncurrent assets46 72 
Total Derivative Assets$70 $76 
Derivatives designated as cash flow hedges:
Commodity contractsPayables and other current liabilities$13 $3 
Foreign exchange contractsPayables and other current liabilities2 8 
Foreign exchange contractsOther long-term liabilities— 4 
Derivatives designated as fair value hedges:
Fixed-for-floating interest rate swapLong-term borrowings4 5 
Derivatives designated as net investment hedges:
Cross-currency interest rate swapsOther long-term liabilities25 — 
Total Derivative Liabilities$44 $20 
Total Net Derivative Assets (Liabilities) $26 $56 

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 $528 million at September 30, 2023 and $1.3 billion at December 31, 2022. 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.

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 2022 Annual Report on Form 10-K.

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As of September 30, 2023 and December 31, 2022, 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 liabilitiesCumulative 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 includedSeptember 30, 2023December 31, 2022September 30, 2023December 31, 2022
Long-term borrowings$71 $70 $(4)$(5)

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 third quarter and first nine months 2023 and 2022.
Change in amount of after tax gain (loss) recognized in OCI on derivativesPre-tax amount of gain (loss) reclassified from AOCI into earnings
(Dollars in millions)Third QuarterFirst Nine MonthsThird QuarterFirst Nine Months
Hedging Relationships20232022202320222023202220232022
Derivatives in cash flow hedging relationships:
Commodity contracts$(5)$(4)$(9)$(5)$— $1 $(3)$38 
Foreign exchange contracts11 22 1 43 3 18 10 33 
Forward starting interest rate and treasury lock swap contracts1 (1)2 9 — — (2)(5)
Non-derivatives in net investment hedging relationships (pre-tax):
Net investment hedges 15 80 (8)199 — — — — 
Derivatives in net investment hedging relationships (pre-tax):
Cross-currency interest rate swaps51 39 31 114 — — — — 
Cross-currency interest rate swaps excluded component (16)(1)(33)(6)— — — — 

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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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 third quarter and first nine months 2023 and 2022.

Location and Amount of Gain or (Loss) Recognized in Earnings from Fair Value and Cash Flow Hedging Relationships
Third Quarter
20232022
(Dollars in millions)SalesCost of SalesNet Interest ExpenseSalesCost of SalesNet 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$2,267 $1,783 $57 $2,709 $2,168 $43 
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— 1 
Derivatives designated as hedging instruments— (1)
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— 1 
Foreign Exchange Contracts:
Amount reclassified from AOCI into earnings3 18 
Location and Amount of Gain or (Loss) Recognized in Earnings from Fair Value and Cash Flow Hedging Relationships
First Nine Months
20232022
(Dollars in millions)SalesCost of SalesNet Interest ExpenseSalesCost of SalesNet 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$7,003 $5,406 $163 $8,207 $6,446 $134 
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 items2 2 
Derivatives designated as hedging instruments(2)(2)
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(2)(5)
Commodity Contracts:
Amount reclassified from AOCI into earnings(3)38 
Foreign Exchange Contracts:
Amount reclassified from AOCI into earnings10 33 
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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 loss of $1 million and $7 million during third quarter and first nine months 2023, respectively, and recognized a net loss of $5 million and $11 million during third quarter and first nine months 2022.

Pre-tax monetized positions and mark-to-market ("MTM") gains and losses from raw materials and energy, currency, and certain interest rate hedges that were included in AOCI included net gains of $116 million and $134 million at September 30, 2023 and December 31, 2022, respectively. Gains in AOCI decreased between December 31, 2022 and September 30, 2023 primarily as a result of an increase in euro to U.S. dollar exchange rates. If recognized, approximately $2 million in pre-tax losses, as of September 30, 2023, would be reclassified into earnings during the next 12 months, including foreign exchange contracts prospectively dedesignated and monetized in fourth quarter 2022.

8.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 2022 Annual Report on Form 10-K.

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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Components of net periodic benefit (credit) cost were as follows:
Third Quarter
 Pension PlansOther Postretirement Benefit Plans
2023202220232022
(Dollars in millions)U.S.Non-U.S.U.S.Non-U.S.
Service cost$6 $2 $7 $2 $— $— 
Interest cost19 8 11 3 7 4 
Expected return on assets(22)(6)(32)(7)(1)(1)
Amortization of:
Prior service credit, net— — — — (7)(8)
Net periodic benefit (credit) cost$3 $4 $(14)$(2)$(1)$(5)
First Nine Months
Pension PlansOther Postretirement Benefit Plans
2023202220232022
(Dollars in millions)U.S.Non-U.S.U.S.Non-U.S.
Service cost$17 $6 $19 $9 $— $— 
Interest cost58 22 33 11 20 11 
Expected return on assets(66)(19)(96)(24)(3)(3)
Amortization of:
Prior service credit, net— — — — (20)(24)
Mark-to-market pension and other postretirement benefits (gain) loss, net (1)
— — 7 (10)— — 
Net periodic benefit (credit) cost$9 $9 $(37)$(14)$(3)$(16)
(1)     Also includes curtailment triggered by the 2022 sale of the adhesives resins business which is included in "Other components of post-employment (benefit) cost, net" on the Unaudited Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings.

In 2022, subsequent to the adhesives resins divestiture, the Company retained pension liabilities of certain plan participants. As such, the status of those participants changed in a Non-U.S. pension plan which triggered a curtailment and an interim MTM remeasurement of the impacted Non-U.S. pension plan's assets and liabilities. First nine months 2022 included a curtailment gain of $7 million, including $3 million reduction in the pension benefit obligation and $4 million of prior service credits recognized immediately, and a MTM gain of $3 million.

Settlements are triggered in a plan when distributions exceed the sum of service cost and interest cost of the respective plan. Lump sum payments from a U.S. pension plan resulted in a plan settlement in first nine months 2022. The settlement itself was not material, but it triggered an interim MTM remeasurement of the impacted U.S. pension plan's assets and liabilities resulting in a MTM loss of $7 million in first nine months 2022.

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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
9.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 2022 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)September 30, 2023December 31, 2022
Environmental contingencies, current$10 $10 
Environmental contingencies, long-term276 264 
Total$286 $274 

Environmental Remediation

Estimated future environmental expenditures for undiscounted remediation costs ranged from the best estimate or minimum of $255 million to the maximum of $499 million and from the best estimate or minimum of $245 million to the maximum of $457 million at September 30, 2023 and December 31, 2022, 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 nine months 2023 and full year 2022 are summarized below:
(Dollars in millions)Environmental Remediation Liabilities
Balance at December 31, 2021$253 
Changes in estimates recognized in earnings and other6 
Cash reductions(14)
Balance at December 31, 2022245 
Changes in estimates recognized in earnings and other19 
Cash reductions(9)
Balance at September 30, 2023$255 

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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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 $29 million at September 30, 2023 and December 31, 2022, 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 $51 million at both September 30, 2023 and December 31, 2022, and are included in "Other long-term liabilities" on the Unaudited Consolidated Statements of Financial Position.

10.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 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.

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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
11.STOCKHOLDERS' EQUITY

Reconciliations of the changes in stockholders' equity for third quarter and first nine months 2023 and 2022 are provided below:
(Dollars in millions, except per share amount)Common Stock at Par ValueAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)Treasury Stock at CostTotal Eastman Stockholders' EquityNoncontrolling InterestTotal Equity
Balance at June 30, 2023$2 $2,342 $9,190 $(271)$(5,982)$5,281 $71 $5,352 
Net Earnings— — 178 — — 178 1 179 
Cash Dividends Declared (1)
($0.79 per share)
— — (94)— — (94)— (94)
Other Comprehensive Income (Loss)— — — (23)— (23)— (23)
Share-Based Compensation Expense (2)
— 10 — — — 10 — 10 
Balance at September 30, 2023$2 $2,352 $9,274 $(294)$(5,982)$5,352 $72 $5,424 
(Dollars in millions, except per share amount)Common Stock at Par ValueAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)Treasury Stock at CostTotal Eastman Stockholders' EquityNoncontrolling InterestTotal Equity
Balance at June 30, 2022$2 $2,179 $8,857 $(143)$(5,572)$5,323 $84 $5,407 
Net Earnings— — 301 — — 301 — 301 
Cash Dividends Declared (1)
($0.76 per share)
— — (93)— — (93)— (93)
Other Comprehensive Income (Loss)— — — (9)— (9)— (9)
Share-Based Compensation Expense (2)
— 12 — — — 12 — 12 
Other— — — — — — (1)(1)
Share Repurchases (3)
— 110 — — (260)(150)— (150)
Balance at September 30, 2022$2 $2,301 $9,065 $(152)$(5,832)$5,384 $83 $5,467 
(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 settlement of shares repurchased under the second quarter 2022 accelerated share repurchase program ("2022 ASR").

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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amount)Common Stock at Par ValueAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)Treasury Stock at CostTotal Eastman Stockholders' EquityNoncontrolling InterestTotal Equity
Balance at December 31, 2022$2 $2,315 $8,973 $(205)$(5,932)$5,153 $83 $5,236 
Net Earnings— — 584 — — 584 1 585 
Cash Dividends Declared (1)
($2.37 per share)
— — (283)— — (283)— (283)
Other Comprehensive Income (Loss)— — — (89)— (89)— (89)
Share-Based Compensation Expense (2)
— 49 — — — 49 — 49 
Stock Option Exercises— 2 — — — 2 — 2 
Other (3)
— (14)— — — (14)2 (12)
Share Repurchases— — — — (50)(50)— (50)
Distributions to Noncontrolling Interest— — — — — — (14)(14)
Balance at September 30, 2023$2 $2,352 $9,274 $(294)$(5,982)$5,352 $72 $5,424 
(Dollars in millions, except per share amount)Common Stock at Par ValueAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)Treasury Stock at CostTotal Eastman Stockholders' EquityNoncontrolling InterestTotal Equity
Balance at December 31, 2021$2 $2,187 $8,557 $(182)$(4,860)$5,704 $84 $5,788 
Net Earnings— — 792 — — 792 2 794 
Cash Dividends Declared (1)
($2.28 per share)
— — (284)— — (284)— (284)
Other Comprehensive Income (Loss)— — — 30 — 30 — 30 
Share-Based Compensation Expense (2)
— 54 — — — 54 — 54 
Stock Option Exercises— 9 — — — 9 — 9 
Other (3)
— (19)— — — (19)(3)(22)
Share Repurchases (4)
— 70 — — (972)(902)— (902)
Balance at September 30, 2022$2 $2,301 $9,065 $(152)$(5,832)$5,384 $83 $5,467 
(1)Cash dividends declared consists of cash dividends paid and dividends declared but unpaid.
(2)Share-based compensation expense is based on the fair value of share-based awards.
(3)Additional paid-in capital includes value of shares withheld for employees' taxes on vesting of share-based compensation awards.
(4)Additional paid-in capital includes the net premium of final settlements for treasury shares delivered in 2022 under the 2022 ASR and the fourth quarter 2021 accelerated share repurchase program ("2021 ASR").
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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Accumulated Other Comprehensive Income (Loss), Net of Tax
(Dollars in millions)Cumulative Translation AdjustmentBenefit Plans Unrecognized Prior Service CreditsUnrealized Gains (Losses) on Derivative InstrumentsUnrealized Losses on InvestmentsAccumulated Other Comprehensive Income (Loss)
Balance at December 31, 2021$(237)$59 $(3)$(1)$(182)
Period change7 (27)(3)— (23)
Balance at December 31, 2022(230)32 (6)(1)(205)
Period change(67)(16)(6)— (89)
Balance at September 30, 2023$(297)$16 $(12)$(1)$(294)

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 other comprehensive income recognized in the Unaudited Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings are presented below, before tax and net of tax effects:
Third Quarter
20232022
(Dollars in millions)Before TaxNet of TaxBefore TaxNet of Tax
Other comprehensive income (loss)
Change in cumulative translation adjustment$4 $(24)$(19)$(19)
Defined benefit pension and other postretirement benefit plans:
Amortization of unrecognized prior service credits(7)(6)(8)(6)
Derivatives and hedging:
Unrealized gain (loss) during period12 9 40 30 
Reclassification adjustment for (gains) losses included in net income, net(3)(2)(19)(14)
Total other comprehensive income (loss)$6 $(23)$(6)$(9)
First Nine Months
20232022
(Dollars in millions)Before TaxNet of TaxBefore TaxNet of Tax
Other comprehensive income (loss)
Change in cumulative translation adjustment$(39)$(67)$4 $4 
Defined benefit pension and other postretirement benefit plans:
Amortization of unrecognized prior service credits(20)(16)(28)(21)
Derivatives and hedging:
Unrealized gain (loss) during period(4)(3)129 97 
Reclassification adjustment for (gains) losses included in net income, net(5)(3)(67)(50)
Total other comprehensive income (loss)$(68)$(89)$38 $30 

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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
12.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:
 Third QuarterFirst Nine Months
(In millions, except per share amounts)2023202220232022
Numerator
Earnings attributable to Eastman, net of tax $178 $301 $584 $792 
Denominator
Weighted average shares used for basic EPS118.5121.0118.7124.9
Dilutive effect of stock options and other awards0.51.30.81.5
Weighted average shares used for diluted EPS119.0122.3119.5126.4
(Calculated using whole dollars and shares)
EPS
Basic$1.50 $2.48 $4.92 $6.34 
Diluted$1.49 $2.46 $4.89 $6.26 

Shares underlying stock options of 1,873,472 and 1,342,328 for both third quarter and first nine months 2023 and 2022, respectively, were excluded from 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 calculation of diluted EPS would have been antidilutive. The Company repurchased 621,711 shares in first nine months 2023. No shares were repurchased in third quarter 2023. The Company repurchased 2,839,875 and 9,505,944 shares in third quarter and first nine months 2022, respectively.

The Company declared cash dividends of $0.79 and $0.76 per share for third quarter 2023 and 2022, respectively. The Company declared cash dividends of $2.37 and $2.28 per share for first nine months 2023 and 2022, respectively.

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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
13.ASSET IMPAIRMENTS AND RESTRUCTURING CHARGES, NET
(Dollars in millions)Third QuarterFirst Nine Months
2023202220232022
Net loss on sale of previously impaired assets (1)
$— $— $— $15 
Severance charges (2)(3)
— — 16 3 
Site closure and other restructuring charges (4) (5) (6)
— 2 6 5 
Total$— $2 $22 $23 

(1)First nine months 2022 includes a $16 million loss on transfer of previously impaired assets to a third party in the Advanced Materials ("AM") segment for the previously reported closure of an advanced interlayers manufacturing facility in North America, partially offset by a $1 million gain on sale of previously impaired assets reported in "Other" from the previously reported closure of a tire additives manufacturing facility in Asia Pacific.
(2)First nine months 2023 severance charges as part of fourth quarter 2022 cost reduction initiatives reported in "Other".
(3)First nine months 2022 severance charges of $2 million as part of business improvement reported in "Other" and $1 million in the AM segment from the previously reported closure of a performance films manufacturing facility in North America.
(4)First nine 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 nine months 2023 related to the closure of this facility.
(5)Site closure costs of $1 million and $3 million in third quarter and first nine months 2022, respectively, in the CI segment resulting from the closure of a Singapore manufacturing site.
(6)Site closure costs of $1 million and $2 million in third quarter and first nine months 2022, respectively, in the AM segment from the closure of an advanced interlayers manufacturing facility in North America.

Changes in Reserves

The following table summarizes the changes in asset impairments and restructuring reserves in first nine months 2023 and full year 2022:

(Dollars in millions)Balance at January 1, 2023Provision/ AdjustmentsNon-cash Reductions/
Additions		Cash ReductionsBalance at September 30, 2023
Severance costs$34 $16 $— $(34)$16 
Other restructuring costs18 6 — (23)1 
Total$52 $22 $— $(57)$17 

(Dollars in millions)		Balance at January 1, 2022Provision/ AdjustmentsNon-cash Reductions/
Additions		Cash ReductionsBalance at December 31, 2022
Severance costs$12 $31 $— $(9)$34 
Other restructuring costs5 21 1 (9)18 
Total$17 $52 $1 $(18)$52 

Substantially all severance costs remaining as of September 30, 2023 are expected to be applied to the reserves within one year.

14.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 long-term performance shares. In third quarter 2023 and 2022, $10 million and $12 million, respectively, of compensation expense before tax was 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 third quarter 2023 and 2022 net earnings of $7 million and $9 million, respectively, is net of deferred tax expense related to share-based award compensation for each period.

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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
In first nine months 2023 and 2022, $49 million and $54 million, respectively, of compensation expense before tax was 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 nine months 2023 and 2022 net earnings of $36 million and $41 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 2022 Annual Report on Form 10-K.

15.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 business operating segments and the geographical regions in which they operate. For disaggregation of revenue by major product lines and regions for each business operating segment, see Note 20, "Segment and Regional Sales Information", to the consolidated financial statements in Part II, Item 8 of the Company's 2022 Annual Report on Form 10-K. For additional financial and product information for each segment, see Part I, Item 1, "Business - Business Segments", in the Company's 2022 Annual Report on Form 10-K.

In first quarter 2023, the Company moved the functional amines product line into the AFP segment. In addition, certain organic acid products and olefin-based products moved from the AFP segment to the CI segment. These product moves are expected to increase efficiency of the Company's assets and commercial teams, and to increase portfolio transparency. The information presented below has been recast for all periods presented.
(Dollars in millions)Third QuarterFirst Nine Months
Sales by Segment2023202220232022
Advanced Materials$746 $888 $2,227 $2,471 
Additives & Functional Products (1)
670 906 2,194 2,719 
Chemical Intermediates (1)
527 665 1,630 2,152 
Fibers323 250 949 705 
Total Sales by Operating Segment2,266 2,709 7,000 8,047 
Other (2)
1 — 3 160 
Total Sales$2,267 $2,709 $7,003 $8,207 
(1)2022 is reclassified to conform to current period presentation.
(2)"Other" in first nine months 2022 is sales revenue from a previously divested business.

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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)Third QuarterFirst Nine Months
Earnings (Loss) Before Interest and Taxes by Segment2023202220232022
Advanced Materials$93 $131 $278 $333 
Additives & Functional Products (1)
105 143 369 470 
Chemical Intermediates (1)
6 68 87 322 
Fibers 109 21 280 82 
Total Earnings Before Interest and Taxes by Operating Segment313 363 1,014 1,207 
Other (2)
  
Growth initiatives and businesses not allocated to operating segments(49)(54)(145)(139)
Pension and other postretirement benefits income (expense), net not allocated to operating segments(4)22 (12)71 
Asset impairments and restructuring charges, net— — (16)(1)
Net gain (loss) on divested business and transaction costs— (7)— (8)
Steam line incident (costs) insurance proceeds, net— — 8 (42)
Other income (charges), net not allocated to operating segments(4)— (24)(5)
Total Earnings Before Interest and Taxes$256 $324 $825 $1,083 
(1)2022 is reclassified to conform to current period presentation.
(2)"Other" in first nine months 2022 includes EBIT of $6 million from a previously divested business.

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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 2022 Annual Report on Form 10-K, and the unaudited consolidated financial statements, including related notes, included elsewhere in this Quarterly Report. All references to earnings per share ("EPS") contained in this report are diluted EPS unless otherwise noted.
 
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
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 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 nine months 2023, the Company recognized unusual insurance proceeds, net of costs, and in first nine months 2022, unusual costs, net of insurance proceeds, 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.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
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;
•Mark-to-market pension and other postretirement benefit plans gains and losses resulting from the changes in discount rates and other actuarial assumptions and the difference between actual and expected returns on plan assets during the period;
•Environmental and other costs from previously divested or non-operational sites and product lines; and
•Net (gain) loss on divested business and transaction costs.

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.

As described above, the alternative non-GAAP measure of debt, "net debt", is also presented in this Quarterly Report.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Non-GAAP Financial Measures - Non-Core and Unusual Items Excluded from Earnings and Adjustments to Provision for Income Taxes
 Third QuarterFirst Nine Months
(Dollars in millions)2023202220232022
Non-core items impacting earnings before interest and taxes:
Asset impairments and restructuring charges, net$— $2 $22 $23 
Mark-to-market pension and other postretirement benefits (gain), net— — — (3)
Accelerated depreciation— — 23 — 
Environmental and other costs— — 13 15 
Net (gain) loss on divested business and transaction costs— 7 — 8 
Unusual item impacting earnings before interest and taxes:
Steam line incident costs (insurance proceeds), net— — (8)42 
Total non-core and unusual items impacting earnings before interest and taxes— 9 50 85 
Less: Items impacting provision for income taxes:
Tax effect of non-core and unusual items— 28 9 (16)
Interim adjustment to tax provision3 32 17 16 
Total items impacting provision for income taxes3 60 26 — 
Total items impacting net earnings attributable to Eastman$(3)$(51)$24 $85 

This MD&A includes an analysis of the effect of the foregoing on the following GAAP financial measures:

•Gross profit;
•Selling, general and administrative expenses ("SG&A");
•Other components of post-employment (benefit) cost, net;
•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.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
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, animal nutrition, 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:
 Third QuarterFirst Nine Months
(Dollars in millions)2023202220232022
Sales$2,267 $2,709 $7,003 $8,207 
Earnings before interest and taxes256 324 825 1,083 
Earnings before interest and taxes excluding non-core and unusual items256 333 875 1,168 

Sales revenue decreased in third quarter and first nine months 2023 compared to third quarter and first nine months 2022 primarily due to lower sales volume. Adjusted EBIT decreased in third quarter 2023 compared to third quarter 2022 primarily due to lower sales volume and higher manufacturing costs primarily due to lower capacity utilization resulting from actions to reduce inventory, higher pension expense, and an unfavorable shift in foreign currency exchanges rates. These factors were partially offset by lower raw material and energy costs and distribution costs, net of lower selling prices. Adjusted EBIT decreased in first nine months 2023 compared to first nine months 2022 primarily due to lower sales volume and higher manufacturing costs primarily due to lower capacity utilization resulting from actions to reduce inventory, higher pension expense, and an unfavorable shift in foreign currency exchanges rates. These factors were partially offset by lower raw material and energy costs and distribution costs.

Discussion of sales revenue and EBIT changes is presented in "Results of Operations" and "Summary by Operating Segment" in this MD&A.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Net earnings and EPS and adjusted net earnings and EPS were as follows:
Third Quarter
20232022
(Dollars in millions, except EPS)$EPS$EPS
Net earnings attributable to Eastman$178 $1.49 $301 $2.46 
Total non-core and unusual items, net of tax— — (19)(0.15)
Interim adjustment to tax provision(3)(0.02)(32)(0.26)
Adjusted net earnings$175 $1.47 $250 $2.05 
First Nine Months
20232022
(Dollars in millions, except EPS)
 $
EPS
 $
EPS
Net earnings attributable to Eastman$584 $4.89 $792 $6.26 
Total non-core and unusual items, net of tax41 0.34 101 0.81 
Interim adjustment to tax provision(17)(0.14)(16)(0.13)
Adjusted net earnings$608 $5.09 $877 $6.94 
Cash provided by operating activities was $922 million in first nine months 2023 and $518 million in first nine months 2022.

RESULTS OF OPERATIONS

Sales
Third QuarterFirst Nine Months
ChangeChange
(Dollars in millions)20232022 $%20232022 $%
Sales$2,267 $2,709 $(442)(16)%$7,003 $8,207 $(1,204)(15)%
Volume / product mix effect(314)(11)%(1,002)(12)%
Price effect(132)(5)%— — %
Exchange rate effect4 — %(42)(1)%
Divested business effect— — %(160)(2)%

Sales revenue decreased in third quarter and first nine months 2023 compared to third quarter and first nine months 2022 primarily as a result of decreases in the AFP, CI, and AM segments, partially offset by an increase in the Fibers segment. Further discussion by operating segment is presented in "Summary by Operating Segment" in this MD&A.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Gross Profit
 Third QuarterFirst Nine Months
(Dollars in millions)20232022Change20232022Change
Gross profit$484 $541 (11)%$1,597 $1,761 (9)%
Accelerated depreciation— — 23 — 
Steam line incident costs (insurance proceeds), net— — (8)42 
Gross profit excluding non-core and unusual items$484 $541 (11)%$1,612 $1,803 (11)%

Gross profit in first nine months 2023 and 2022 included incremental costs and insurance proceeds from the steam line incident, and first nine months 2023 included 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 decreased in third quarter and first nine months 2023 compared to third quarter and first nine months 2022 as a result of decreases in the CI, AFP, and AM segments, partially offset by an increase in the Fibers segment. Further discussion of sales revenue and EBIT changes is presented in "Summary by Operating Segment" in this MD&A.

Selling, General and Administrative Expenses
 Third QuarterFirst Nine Months
(Dollars in millions)20232022Change20232022Change
Selling, general and administrative expenses$160 $173 (8)%$536 $554 (3)%
Transaction costs— (4)— (15)
Selling, general and administrative expenses excluding non-core item$160 $169 (5)%$536 $539 (1)%

Third quarter and first nine months 2022 SG&A expenses included transaction costs for divested businesses. Excluding this non-core item, SG&A expenses decreased in third quarter and first nine months 2023 compared to third quarter and first nine months 2022 primarily as a result of lower spend in third quarter and first nine months 2023 of approximately 10 percent and 5 percent, respectively, primarily due to cost reduction initiatives. This lower spend is partially offset by higher variable compensation costs.

Research and Development Expenses
 Third QuarterFirst Nine Months
(Dollars in millions)20232022Change20232022Change
Research and development expenses$60 $68 (12)%$182 $200 (9)%

R&D expenses decreased in third quarter and first nine months 2023 compared to third quarter and first nine months 2022 primarily due to targeted cost reduction initiatives and increased focus on strategic growth programs.

Asset Impairments and Restructuring Charges, Net
Third QuarterFirst Nine Months
(Dollars in millions)2023202220232022
Net loss on sale of previously impaired assets$— $— $— $15 
Severance charges— — 16 3 
Site closure and other restructuring charges— 2 6 5 
Total$— $2 $22 $23 

For detailed information regarding asset impairments and restructuring charges, net see Note 13, "Asset Impairments and Restructuring Charges, Net", to the unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Other Components of Post-employment (Benefit) Cost, Net
 Third QuarterFirst Nine Months
(Dollars in millions)2023202220232022
Other components of post-employment (benefit) cost, net$(2)$(30)$(8)$(95)
Mark-to-market pension and other postretirement benefit gain, net— — — 3 
Other components of post-employment (benefit) cost, net excluding non-core item$(2)$(30)$(8)$(92)

Other components of post-employment (benefit) cost, net decreased in third quarter and first nine months 2023 compared to third quarter and first nine months 2022 primarily as a result of higher interest expense, attributable to higher discount rates, and lower expected return on assets, attributable to unfavorable asset returns on a lower beginning asset basis for 2023. For more information regarding other components of post-employment (benefit) cost, net see Note 8, "Retirement Plans", to the unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report.

Other (Income) Charges, Net
 Third QuarterFirst Nine Months
(Dollars in millions)2023202220232022
Foreign exchange transaction losses, net
$3 $7 $8 $15 
(Income) loss from equity investments and other investment (gains) losses, net— (2)5 (17)
Other, net7 (4)27 $5 
Other (income) charges, net$10 $1 $40 $3 
Environmental and other costs— — (13)(15)
Other (income) charges, net excluding non-core item$10 $1 $27 $(12)

Other (income) charges, net in first nine months 2023 and 2022 included environmental and other costs related to previously divested businesses or non-operational sites and product lines. Excluding this non-core item, Other (income) charges, net increased in first nine months 2023 compared to first nine months 2022 primarily due to valuation adjustments in equity investments, higher factoring fees, and absence of income from transition service agreements that ended in 2022 related to divestitures. For more information regarding components of foreign exchange transaction losses, see Note 7, "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
 Third QuarterFirst Nine Months
(Dollars in millions)20232022Change20232022Change
Earnings before interest and taxes$256 $324 (21)%$825 $1,083 (24)%
Mark-to-market pension and other postretirement benefits (gain), net— —  — (3) 
Asset impairments and restructuring charges, net— 2 22 23 
Net (gain) loss on divested business and transaction costs— 7 — 8 
Accelerated depreciation— — 23 — 
Steam line incident costs (insurance proceeds), net— — (8)42 
Environmental and other costs— — 13 15 
Earnings before interest and taxes excluding non-core and unusual items$256 $333 (23)%$875 $1,168 (25)%

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Net Interest Expense
 Third QuarterFirst Nine Months
(Dollars in millions)20232022Change20232022Change
Gross interest costs$64 $47 36 %$183 $143 28 %
Less: Capitalized interest5 2 12 6 
Interest expense59 45 171 137 
Less: Interest income2 2  8 3  
Net interest expense$57 $43 33 %$163 $134 22 %

Net interest expense increased in third quarter and first nine months 2023 compared to third quarter and first nine months 2022 primarily as a result of higher interest rates and higher total borrowings.

Provision for (Benefit from) Income Taxes
Third QuarterFirst Nine Months
2023202220232022
(Dollars in millions)$%$%$%$%
Provision for (benefit from) income taxes and effective tax rate
$20 10 %$(20)(7)%$77 12 %$155 16 %
Tax provision for non-core and unusual items (1)
— 28 9 (16)
Interim adjustment to tax provision (2)
3 32 17 16 
Adjusted provision for income taxes and effective tax rate$23 12 %$40 14 %$103 15 %$155 15 %
(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)Third quarter 2023 provision for income taxes was adjusted to reflect the current forecasted full year effective tax rate. Third quarter 2022 provision for income taxes was adjusted to reflect the then current forecasted full year effective tax rate. The adjusted provision for income taxes for first nine months 2023 and 2022 are calculated applying the forecasted full year effective tax rates as shown below.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

First Nine Months (1)
20232022
Effective tax rate12 %16 %
Tax impact of current year non-core and unusual items (2)
1 %(1)%
Changes in tax contingencies and valuation allowances1 %1 %
Forecasted full year impact of expected tax events1 %(1)%
Forecasted full year adjusted effective tax rate15 %15 %
(1)Effective tax rate percentages are rounded to the nearest whole percent. The forecasted full year effective tax rates are 14.5 percent and 15.0 percent in first nine months 2023 and 2022, respectively.
(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.

Net Earnings Attributable to Eastman and Diluted Earnings per Share
Third Quarter
20232022
(Dollars in millions, except EPS)$EPS$EPS
Net earnings and diluted earnings per share attributable to Eastman$178 $1.49 $301 $2.46 
Non-core items, net of tax: (1)
Asset impairments and restructuring charges, net— — 2 0.01 
Net (gain) loss on divested business and transaction costs— — (21)(0.16)
Interim adjustment to tax provision(3)(0.02)(32)(0.26)
Adjusted net earnings and diluted earnings per share attributable to Eastman$175 $1.47 $250 $2.05 
First Nine Months
20232022
(Dollars in millions, except EPS)$EPS$EPS
Net earnings and diluted earnings per share attributable to Eastman$584 $4.89 $792 $6.26 
Non-core items, net of tax: (1)
Mark-to-market pension and other post-employment benefits (gain), net — — (3)(0.02)
Asset impairments and restructuring charges, net18 0.14 18 0.14 
Net (gain) loss on divested business and transaction costs— — 43 0.35 
Accelerated depreciation20 0.17 — — 
Environmental and other costs9 0.08 11 0.09 
Unusual items, net of tax: (1)
Steam line incident costs (insurance proceeds), net(6)(0.05)32 0.25 
Interim adjustment to tax provision(17)(0.14)(16)(0.13)
Adjusted net earnings and diluted earnings per share attributable to Eastman$608 $5.09 $877 $6.94 
(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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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
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 2022 Annual Report on Form 10-K.
In first quarter 2023, the Company moved the functional amines product line into the AFP segment. In addition, certain organic acid products and olefin-based products moved from the AFP segment to the CI segment. These product moves are expected to increase efficiency of the Company's assets and commercial teams, and to increase portfolio transparency. The Company has recast the segment financial information for the AFP and the CI segments for each quarter from first quarter 2019 through fourth quarter 2022 to reflect the shift in products between segments. The 2022 information presented below is the recast information. For more information, refer to the Current Report on Form 8-K dated April 27, 2023.
Advanced Materials Segment
Third QuarterFirst Nine Months
Change  Change
20232022 $%20232022 $%
(Dollars in millions)
Sales$746 $888 $(142)(16)%$2,227 $2,471 $(244)(10)%
Volume / product mix effect(151)(17)%  (324)(13)%
Price effect12 1 %  111 4 %
Exchange rate effect(3)— %  (31)(1)%
Earnings before interest and taxes$93 $131 $(38)(29)%$278 $333 $(55)(17)%
Asset impairments and restructuring charges, net— 1 (1)— 19 (19)
Earnings before interest and taxes excluding non-core item93 132 (39)(30)%278 352 (74)(21)%
Sales revenue in third quarter and first nine months 2023 decreased compared to third quarter and first nine months 2022 primarily due to lower sales volume partially offset by higher selling prices. Lower sales volume was primarily driven by the specialty plastics product line due to weak demand and significant customer destocking attributed to global economic uncertainty in the consumer durables and electronics, medical, and consumables end-markets, partially offset by higher sales volume of premium products in the advanced interlayers product line due to an increase in automotive end-market demand. Higher selling prices, particularly in the advanced interlayers product line, were a result of significant levels of inflation in 2022.

Third quarter and first nine months 2022 EBIT included asset impairment and restructuring charges from a manufacturing facility closure. For more information regarding asset impairments and restructuring charges see Note 13, "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 decreased in third quarter and first nine months 2023 compared to third quarter and first nine months 2022 primarily due to $106 million and $204 million, respectively, lower sales volume and higher manufacturing costs, primarily due to lower capacity utilization. These costs were partially offset by $68 million and $124 million, respectively, higher selling prices and lower raw material and energy costs and distribution costs.

In first quarter 2023, the Company completed the acquisition of Ai-Red Technology (Dalian) Co., Ltd. ("Dalian"), a manufacturer and supplier of paint protection and window film for auto and architectural markets in the Asia Pacific region for a preliminary purchase price of approximately $75 million, net of cash acquired. The acquisition of Dalian is expected to enhance continued global growth of the AM segment performance films product line.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Additives & Functional Products Segment
Third QuarterFirst Nine Months
Change  Change
20232022 $%20232022 $%
(Dollars in millions)
Sales$670 $906 $(236)(26)%$2,194 $2,719 $(525)(19)%
Volume / product mix effect(159)(18)%  (422)(15)%
Price effect(86)(9)%  (99)(4)%
Exchange rate effect9 1 %  (4)— %
Earnings before interest and taxes$105 $143 $(38)(27)%$369 $470 $(101)(21)%

Sales revenue in third quarter and first nine months 2023 decreased compared to third quarter and first nine months 2022 primarily due to lower sales volume and lower selling prices. Lower sales volume was primarily attributable to deceleration of demand and customer destocking in the agriculture, consumables, and building and construction end-markets. Lower selling prices were primarily attributable to cost pass-through contracts.

EBIT decreased in third quarter and first nine months 2023 compared to third quarter and first nine months 2022 primarily due to $79 million and $176 million, respectively, lower sales volume and higher manufacturing costs, primarily due to lower capacity utilization. These costs were partially offset by $31 million and $77 million, respectively, lower raw material and energy costs and distribution costs, net of lower selling prices.
Chemical Intermediates Segment
Third QuarterFirst Nine Months
Change  Change
20232022 $%20232022 $%
(Dollars in millions)
Sales$527 $665 $(138)(21)%$1,630 $2,152 $(522)(24)%
Volume / product mix effect(11)(2)%  (276)(13)%
Price effect(127)(19)%  (243)(11)%
Exchange rate effect— — %  (3)— %
Earnings before interest and taxes$6 $68 $(62)(91)%$87 $322 $(235)(73)%
Asset impairments and restructuring charges, net— 1 (1)— 3 (3)
Earnings before interest and taxes excluding non-core item6 69 (63)(91)%87 325 (238)(73)%
Sales revenue in third quarter 2023 decreased compared to third quarter 2022 primarily due to lower selling prices, particularly in the olefins product line, due to competitive pressures resulting from weak end-market demand.

Sales revenue in first nine months 2023 decreased compared to first nine months 2022 primarily due to lower sales volume and lower selling prices across most product lines. Lower sales volume in the plasticizers and olefins product lines was primarily attributed to deceleration of demand and competitive pressures in the industrial chemical, building and construction and consumer durables end-markets. Lower selling prices were attributable to lower raw material prices.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

EBIT excluding non-core items decreased in third quarter and first nine months 2023 compared to third quarter and first nine months 2022 primarily due to $48 million and $158 million, respectively, lower sales volume and higher manufacturing costs primarily due to lower capacity utilization, and $5 million and $68 million, respectively, lower selling prices, net of lower raw material and energy costs and distribution costs.

In third quarter 2023, the Company entered into a definitive agreement to sell its operations located in Texas City, Texas. The sale excludes the plasticizer operations. The total sales price includes $413 million in cash at closing and an additional $38.5 million to be paid on each of the first and second anniversaries of the closing date of the transaction. The final purchase price is subject to working capital and other adjustments at closing. The sale, subject to regulatory approvals and satisfaction of other customary closing conditions, is expected to be completed in fourth quarter 2023.

Fibers Segment
Third QuarterFirst Nine Months
Change  Change
20232022 $%20232022 $%
(Dollars in millions)
Sales$323 $250 $73 29 %$949 $705 $244 35 %
Volume / product mix effect6 2 %  17 2 %
Price effect69 28 %  231 33 %
Exchange rate effect(2)(1)%  (4)— %
Earnings before interest and taxes$109 $21 $88 419 %$280 $82 $198 241 %
Asset impairments and restructuring charges, net— — — 6 — 6 
Accelerated depreciation— — — 23 — 23 
Earnings before interest and taxes excluding non-core items109 21 88 419 %309 82 227 277 %
Sales revenue in third quarter and first nine months 2023 increased compared to third quarter and first nine months 2022 primarily due to higher selling prices in acetate tow, driven by an increase in industry capacity utilization and higher raw material, energy, and distribution prices throughout 2022.

EBIT in first nine 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 13, "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 third quarter and first nine months 2023 compared to third quarter and first nine months 2022 primarily due to higher selling prices and lower raw material and energy costs and distribution costs of $86 million and $234 million, respectively.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
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Other
Third QuarterFirst Nine Months
2023202220232022
(Dollars in millions)
Sales$1 $— $3 $160 
Loss before interest and taxes
Growth initiatives and businesses not allocated to operating segments$(49)$(54)$(145)$(139)
Pension and other postretirement benefits income (expense), net not allocated to operating segments(4)22 (12)71 
Asset impairments and restructuring charges, net— — (16)(1)
Net gain (loss) on divested business and transaction costs— (7)— (8)
Steam line incident (costs) insurance proceeds, net— — 8 (42)
Other income (charges), net not allocated to operating segments(4)— (24)(5)
Loss before interest and taxes$(57)$(39)$(189)$(124)
Asset impairments and restructuring charges, net— — 16 1 
Net (gain) loss on divested business and transaction costs— 7 — 8 
Steam line incident costs (insurance proceeds), net— — (8)42 
Environmental and other costs— — 13 15 
Mark-to-market pension and other postretirement benefits (gain), net— — — (3)
Loss before interest and taxes excluding non-core and unusual items(57)(32)(168)(61)
Sales and costs related to growth initiatives, R&D expenses, 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 nine months 2022 included sales revenue and EBIT of a previously divested business, and third quarter and first nine months 2022 included a loss, net of transaction costs, on the divested business.

First nine months 2023 EBIT included severance charges as a result of cost reduction initiatives in fourth quarter 2022. First nine months 2023 and 2022 EBIT included insurance proceeds and net costs from the steam line incident, respectively, and environmental and other costs from previously divested or non-operational sites. For more information, see "Non-GAAP Financial Measures" in this MD&A. For more information regarding asset impairments and restructuring charges see Note 13, "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
 Third QuarterFirst Nine Months
ChangeChange
(Dollars in millions)20232022$%20232022 $%
United States and Canada$966 $1,202 $(236)(20)%$3,031 $3,704 $(673)(18)%
Europe, Middle East, and Africa602 680 (78)(11)%1,946 2,106 (160)(8)%
Asia Pacific576 662 (86)(13)%1,654 1,912 (258)(13)%
Latin America123 165 (42)(25)%372 485 (113)(23)%
Total Eastman
$2,267 $2,709 $(442)(16)%$7,003 $8,207 $(1,204)(15)%

Sales revenue decreased 16 percent in third quarter 2023 compared to third quarter 2022 and decreased 15 percent in first nine months 2023 compared to first nine months 2022, primarily due to lower sales volume in all regions (down 11 percent and 12 percent, respectively).
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

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 the 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.

First Nine Months
(Dollars in millions)20232022
Net cash provided by (used in)
Operating activities$922 $518 
Investing activities(680)598 
Financing activities(295)(1,098)
Effect of exchange rate changes on cash and cash equivalents(1)(16)
Net change in cash and cash equivalents(54)2 
Cash and cash equivalents at beginning of period493 459 
Cash and cash equivalents at end of period$439 $461 
 
Cash provided by operating activities increased $404 million in first nine months 2023 compared to first nine months 2022 primarily due to lower working capital, lower variable compensation payout, and lower pension and other postretirement contributions in excess of expenses, partially offset by lower net earnings.

Cash used in investing activities was $680 million in first nine months 2023 compared to cash provided by investing activities of $598 million in first nine months 2022 primarily due to proceeds from the sale of the adhesives resins business in 2022, higher capital expenditures, and an acquisition in the AM segment in 2023.

Cash used in financing activities decreased $803 million in first nine months 2023 compared to first nine months 2022, primarily due to lower treasury stock purchases partially offset by lower net proceeds from commercial paper and borrowings. For additional information, see "Liquidity and Other Financial Information - Debt and Other Commitments" in this MD&A for additional information.

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 third quarter 2023 and 2022 were $692 million and $700 million, respectively, and $2.1 billion and $1.8 billion in first nine months 2023 and 2022, 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 $418 million and $402 million of these receivables would have been outstanding as of September 30, 2023 and December 31, 2022, respectively, had they not been sold under these factoring programs.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

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.

Debt and Other Commitments

At September 30, 2023, the Company's borrowings totaled $5.2 billion with various maturities. In second quarter 2023, the Company repaid $808 million, including the foreign currency impact, of the 1.50% notes due May 2023 using a combination of available cash and debt proceeds.

In first quarter 2023, the Company borrowed $300 million under a delayed draw two-year term loan (the "2024 Term Loan"), which was executed in fourth quarter 2022. As of September 30, 2023, the 2024 Term Loan balance outstanding was $300 million with a variable interest rate of 6.56%. In first quarter 2023, the Company issued $500 million aggregate principal amount of 5.75% notes due March 2033 in a registered public offering (the "2023 Notes"). Net proceeds from the 2023 Notes will be allocated to eligible projects to advance Eastman's sustainability goals of mitigating climate change, mainstreaming circular economy, and caring for society. The Company expects attractive returns on invested capital from the sustainability projects. Proceeds from the sale of the notes, net of original issue discounts, and issuance costs were $496 million.

See Note 6, "Borrowings", to the unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report for additional information.

See "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 2022 Annual Report on Form 10-K for information on other commitments.

Credit Facility and Commercial Paper Borrowings

The Company has access to a $1.50 billion revolving credit agreement (the "Credit Facility") expiring December 2026 that was amended in March 2023. The amendment replaced the London Interbank Offered Rate-based ("LIBOR") reference interest rate option with a reference interest rate option based upon Term Secured Overnight Financing Rate ("SOFR") (as defined in the Credit Facility). 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 September 30, 2023 and December 31, 2022, the Company had no outstanding borrowings under the Credit Facility. At September 30, 2023, the Company's commercial paper borrowings were $399 million with a weighted average interest rate of 5.55%. At December 31, 2022, the Company's commercial paper borrowings were $326 million with a weighted average interest rate of 4.85%.

The Credit Facility and the term loans 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 September 30, 2023 and December 31, 2022. The total amount of available borrowings under the Credit Facility was $1.50 billion as of September 30, 2023. For additional information, see Section 5.03 of the Credit Facility filed as Exhibit 10.01 to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2023.

See Note 6, "Borrowings", to the unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report for additional information.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Net Debt
 September 30,December 31,
(Dollars in millions)20232022
Total borrowings$5,220 $5,151 
Less: Cash and cash equivalents439 493 
Net debt (1)
$4,781 $4,658 
(1)Includes non-cash decrease of $2 million and $85 million in 2023 and 2022, respectively, resulting from foreign currency exchange rates.

Capital Expenditures

Capital expenditures were $649 million and $408 million in first nine months 2023 and 2022, respectively. Capital expenditures in first nine months 2023 were primarily for the AM segment methanolysis plastic-to-plastic molecular recycling manufacturing facility in Kingsport, Tennessee, and other targeted growth initiatives and site modernization projects. The Company expects that 2023 capital expenditures will be approximately $800 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 first nine months 2023, the Company repurchased 621,711 shares of common stock for $50 million. No shares were repurchased during third quarter 2023. As of September 30, 2023, a total of 7,365,594 shares have been repurchased under the 2021 authorization for $685 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 2022 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 2022 Annual Report on Form 10-K.

There have been no material changes to the Company's market risks from those disclosed in Part II, Item 7A of the Company's 2022 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 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 Securities Exchange Act of 1934 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 September 30, 2023, 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 third quarter of 2023 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 Securities and Exchange Commission Regulation S-K, Item 103, the Company's threshold for disclosing any environmental legal proceeding involving a governmental authority (including the Jefferson Hills, Pennsylvania proceedings described below) is potential monetary sanctions that management believes will meet or exceed $1 million.

Jefferson Hills, Pennsylvania Environmental Proceeding

In September 2021, Eastman Chemical Resins, Inc. ("ECRI"), a wholly-owned subsidiary of the Company, and the Company received a proposed Consent Decree from the United States Environmental Protection Agency's Region 3 Office ("EPA") and the Pennsylvania Department of Environmental Protection ("PADEP") alleging that ECRI's Jefferson Hills, Pennsylvania manufacturing operation had violated certain federal and state environmental regulations. Even though the Company sold the Jefferson Hills facility on April 1, 2022 as part of its previously reported sale of the adhesives resins business, it retained responsibility for any civil penalty assessed by EPA and PADEP in this matter. Following receipt of the proposed Consent Decree, ECRI and Company representatives met on multiple occasions with EPA and PADEP representatives and vigorously defended against these allegations. As of third quarter 2023, this matter has been resolved. The resolution of this proceeding did not have a material impact on the Company's financial condition, results of operations, or cash flows.

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 2022 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 September 30, 2023, a total of 7,365,594 shares have been repurchased under the 2021 authorization for $685 million. Both dividends and share repurchases are key strategies employed by the Company to return value to its stockholders. During first nine months 2023, the Company repurchased 621,711 shares of common stock for $50 million. No shares were repurchased during third quarter 2023. For additional information, see Note 11, "Stockholders' Equity", to the unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report.
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) 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 NumberDescription
  
3.01
3.02
10.01 *
10.02 *
31.01 *
31.02 *
32.01 *
32.02 *
101.INSInline 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
104Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

* Denotes exhibit filed or furnished herewith.
** Management contract or compensatory plan or arrangement filed pursuant to Item 601(b) (10) (iii) of Regulations S-K.
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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:October 27, 2023By:/s/ William T. McLain, Jr.
William T. McLain, Jr.
Executive Vice President and Chief Financial Officer

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