EASTMAN CHEMICAL CO
For the period ended Dec 31, 2023. Filed Feb 14, 2024.
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FY2023 · Filed Feb 14, 2024
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Item 7. Results of Operations
RESULTS OF OPERATIONS
Eastman's results of operations as presented in the Company's consolidated financial statements in Part II, Item 8 of this Annual Report are summarized and analyzed below.
Sales
| (Dollars in millions) · 2023 · 2022 · Change | ||||
|---|---|---|---|---|
| Sales | $9,210 | $10,580 | (13)% | |
| Volume / product mix effect | (9)% | |||
| Price effect | (2)% | |||
| Exchange rate effect | —% | |||
| Divested business effect | (2)% | |||
Sales revenue decreased as a result of decreases in the CI, AFP, and AM segments, partially offset by an increase in the Fibers segment. Further discussion by operating segments is presented in "Summary of Operating Segment" in this MD&A.
Gross Profit
| (Dollars in millions) | 2023 | 2022 | Change |
|---|---|---|---|
| Gross profit | $2,061 | $2,137 | (4)% |
| Steam line incident (insurance proceeds) costs, net | (8) | 39 | |
| Accelerated depreciation | 23 | — | |
| Gross profit excluding non-core and unusual items | $2,076 | $2,176 | (5)% |
Gross profit in 2023 included insurance proceeds and in 2022 included incremental costs, net of insurance proceeds, both from the steam line incident, and 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 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
| (Dollars in millions) | 2023 | 2022 | Change |
|---|---|---|---|
| Selling, general and administrative expenses | $727 | $726 | —% |
| Transaction costs | — | (18) | |
| Selling, general and administrative expenses excluding non-core item | $727 | $708 | 3% |
SG&A expenses in 2022 included transaction costs for divested businesses. Excluding this non-core item, SG&A expense increased in 2023 compared to 2022 primarily as a result of higher variable compensation costs, partially offset by lower spend during 2023 of approximately 7 percent primarily due to cost reduction initiatives.
Research and Development Expenses
| (Dollars in millions) | 2023 | 2022 | Change |
|---|---|---|---|
| Research and development expenses | $239 | $264 | (9)% |
R&D expenses decreased in 2023 compared to 2022 primarily due to targeted cost reduction initiatives and increased focus on strategic growth programs.
Asset Impairments and Restructuring Charges, Net
| (Dollars in millions) | 2023 | 2022 |
|---|---|---|
| Net loss on sale of previously impaired assets | $— | $15 |
| Severance charges | 31 | 30 |
| Site closure and other restructuring charges | 6 | 7 |
| Total | $37 | $52 |
For detailed information regarding asset impairments and restructuring charges, net see Note 16, "Asset Impairments and Restructuring Charges, Net", to the Company's consolidated financial statements in Part II, Item 8 of this Annual Report.
Other Components of Post-employment (Benefit) Cost, Net
| (Dollars in millions) | 2023 | 2022 | Change |
|---|---|---|---|
| Other components of post-employment (benefit) cost, net | $41 | $(101) | (141)% |
| Mark-to-market pension and other postretirement benefit loss, net | (53) | (19) | |
| Other components of post-employment (benefit) cost, net excluding non-core item | $(12) | $(120) | (90)% |
For more information regarding "Other components of post-employment (benefit) cost, net" see Note 1, "Significant Accounting Policies", and Note 11, "Retirement Plans", to the Company's consolidated financial statements in Part II, Item 8 of this Annual Report.
Other (Income) Charges, Net
| (Dollars in millions) | 2023 | 2022 |
|---|---|---|
| Foreign exchange transaction losses (gains), net | $11 | $16 |
| (Income) loss from equity investments and other investment (gains) losses, net | (10) | (19) |
| Other, net | 37 | (3) |
| Other (income) charges, net | $38 | $(6) |
| Environmental and other costs | (13) | (15) |
| Adjustments to contingent considerations | — | 6 |
| Other (income) charges, net excluding non-core items | $25 | $(15) |
Other (income) charges, net in 2023 and 2022 included environmental and other costs related to previously divested businesses or non-operational sites and product lines, and 2022 included adjustments to contingent considerations. Excluding these non-core items, Other (income) charges, net increased in 2023 compared to 2022 primarily due to higher factoring fees and the 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 10, "Derivative and Non-Derivative Financial Instruments", to the Company's consolidated financial statements in Part II, Item 8 of this Annual Report.
Earnings Before Interest and Taxes
| (Dollars in millions) | 2023 | 2022 | Change |
|---|---|---|---|
| EBIT | $1,302 | $1,159 | 12% |
| Mark-to-market pension and other postretirement benefit loss, net | 53 | 19 | |
| Steam line incident (insurance proceeds) costs, net | (8) | 39 | |
| Asset impairments and restructuring charges, net | 37 | 52 | |
| Net (gain) loss on divested businesses and transaction costs | (323) | 61 | |
| Accelerated depreciation | 23 | — | |
| Environmental and other costs | 13 | 15 | |
| Adjustments to contingent considerations | — | (6) | |
| EBIT excluding non-core and unusual items | $1,097 | $1,339 | (18)% |
For more information regarding items that impact EBIT, see "Overview", and items described above in "Results of Operations".
Net Interest Expense
| (Dollars in millions) | 2023 | 2022 | Change |
|---|---|---|---|
| Gross interest expense | $243 | $197 | |
| Less: Capitalized interest | 18 | 9 | |
| Interest Expense | 225 | 188 | |
| Less: Interest income | 10 | 6 | |
| Net interest expense | $215 | $182 | 18% |
Net interest expense increased in 2023 compared to 2022 primarily as a result of higher interest rates.
Provision for Income Taxes
| (Dollars in millions) | 2023 | 2022 | ||
|---|---|---|---|---|
| $ | % | $ | % | |
| Provision for income taxes and effective tax rate | $191 | 18% | $181 | 19% |
| Tax provision for non-core and unusual items (1) | (74) | (11) | ||
| Adjusted provision for income taxes and effective tax rate | $117 | 13% | $170 | 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.
The 2023 provision for income taxes includes an increase related to uncertain tax positions, a decrease related to general business credits, and a decrease related to the foreign rate variance due to the Company's mix of earnings.
The 2022 provision for income taxes includes decreases related to general business credits and the release of a state valuation allowance, offset by the impacts of the business divestitures.
For more information, see Note 8, "Income Taxes", to the Company's consolidated financial statements in Part II, Item 8 of this Annual Report.
Net Earnings Attributable to Eastman and Diluted Earnings per Share
| 2023 | 2022 | |||
|---|---|---|---|---|
| (Dollars in millions, except per share amounts) | $ | EPS | $ | EPS |
| Net earnings and diluted earnings per share attributable to Eastman | $894 | $7.49 | $793 | $6.35 |
| Non-core items, net of tax: (1) | ||||
| Mark-to-market pension and other postretirement benefit loss, net | 39 | 0.33 | 14 | 0.12 |
| Accelerated depreciation | 20 | 0.17 | — | — |
| Asset impairments and restructuring charges, net | 32 | 0.26 | 48 | 0.39 |
| Environmental and other costs | 9 | 0.08 | 11 | 0.09 |
| Net (gain) loss on divested businesses and transaction costs | (225) | (1.88) | 93 | 0.74 |
| Adjustments to contingent considerations | — | — | (4) | (0.04) |
| Unusual items, net of tax: (1) | ||||
| Steam line incident (insurance proceeds) costs, net | (6) | (0.05) | 29 | 0.23 |
| Adjusted net earnings and diluted earnings per share attributable to Eastman | $763 | $6.40 | $984 | $7.88 |
(1)The 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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