Eastman Chemical Co: Form 10-Q for the period ended Sep 30, 2025

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 2024 Annual Report on Form 10-K, and the unaudited consolidated financial statements, including related notes, included in Part I, Item 1, in this Quarterly Report. All references to earnings per share ("EPS") contained in this report are diluted EPS unless otherwise noted.

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 the Company's core business operations, and have included asset impairments, restructuring, and other charges and gains, costs of and related to acquisitions, gains and losses from and costs related to dispositions, closures, or shutdowns of businesses or assets, financing transaction costs, environmental and other costs related to previously divested businesses or non-operational sites and product lines, and mark-to-market losses or gains for pension and other postretirement benefit plans.
• In third quarter and first nine months 2025, the Company recognized an unusual increase to the provision for income taxes resulting from the enactment of the One Big Beautiful Bill Act (the "Act"). Management considers this expense unusual because of the infrequent nature of the underlying change in tax law and the transition to the recently enacted Act and resulting impacts on earnings.

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.

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, restructuring, and other charges, net; and
• Environmental and other costs from previously divested or non-operational sites and product lines.

The following unusual items are excluded by management in its evaluation of certain earnings results in this Quarterly Report:

• Increase in the provision for income taxes resulting from tax law changes.

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

Non-GAAP Financial Measures - Non-Core Items Excluded from Earnings and Adjustments to Provision for Income Taxes

(Dollars in millions)

33

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

• Gross profit;
• Other (income) charges, net;
• Earnings before interest and taxes ("EBIT");
• Provision for income taxes;
• Net earnings attributable to Eastman;
• Diluted EPS; and
• Total borrowings.

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, scale advantage, and sustainability macrotrends form the foundation of the Company's research and development ("R&D") and innovation initiatives. 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. Eastman began operating one of the world's largest molecular recycling facilities in 2024. 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 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 items were as follows:

(Dollars in millions)

Sales revenue decreased in third quarter and first nine months 2025 compared to third quarter and first nine months 2024 due to lower sales volume primarily driven by continued weakness across key end markets.

EBIT excluding non-core items decreased in third quarter and first nine months 2025 compared to third quarter and first nine months 2024 primarily due to lower sales volume, and lower selling prices and higher raw material and energy costs, partially offset by lower manufacturing costs and lower variable compensation costs across the segments.

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

Net earnings and EPS and adjusted net earnings and EPS were as follows:

(Dollars in millions, except EPS)

Cash provided by operating activities was $468 million in first nine months 2025 and $747 million in first nine months 2024.

RESULTS OF OPERATIONS

Sales

(Dollars in millions)

Sales revenue decreased in third quarter 2025 compared to third quarter 2024 due to decreases across all segments. Sales revenue decreased in first nine months 2025 compared to first nine months 2024 primarily due to decreases in all segments except the AFP segment.

Gross Profit

(Dollars in millions)

Gross profit in third quarter and first nine months 2025 included inventory adjustments related to the decommissioning of certain assets at performance films facilities in North America. Gross profit in third quarter and first nine months 2024 included inventory adjustments related to the planned closure of a solvent-based resins production line at an advanced interlayers facility in North America. Excluding these non-core items, gross profit decreased in third quarter 2025 compared to third quarter 2024 in all segments. Gross profit decreased first nine months 2025 compared to first nine months 2024 due to decreases in the Fibers, CI, and AM segments, partially offset by increases in the AFP and Other segments. Further discussion of sales revenue and EBIT changes is presented in "Summary by Operating Segment" in this MD&A.

Selling, General and Administrative Expenses

(Dollars in millions)

Selling, general and administrative ("SG&A") expenses decreased in third quarter and first nine months 2025 compared to third quarter and first nine months 2024 primarily due to cost reduction initiatives and lower variable compensation costs.

Research and Development Expenses

(Dollars in millions)

R&D expenses decreased in third quarter 2025 compared to third quarter 2024 primarily due to targeted cost reduction initiatives across the Company. R&D expenses increased in first nine months 2025 compared to first nine months 2024 primarily due to strategic investment in innovation in first six months 2025.

Asset Impairments, Restructuring, and Other Charges, Net

(Dollars in millions)

For detailed information regarding asset impairments, restructuring, and other charges, net see Note 11, "Asset Impairments, Restructuring, and Other Charges, Net", to the unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report.

Other Components of Post-employment (Benefit) Cost, Net

(Dollars in millions)

For more information regarding other components of post-employment (benefit) cost, net see Note 6, "Retirement Plans", to the unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report.

Other (Income) Charges, Net

(Dollars in millions)

Other (income) charges, net in first nine months 2025 and 2024 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 remained unchanged in third quarter 2025 compared to third quarter 2024, and decreased in first nine months 2025 compared to first nine months 2024 primarily due to lower foreign exchange transaction losses and lower factoring fees, partially offset by losses from equity investments. For more information regarding components of foreign exchange transaction losses, see Note 5, "Derivative and Non-Derivative Financial Instruments", to the unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report.

Earnings Before Interest and Taxes

(Dollars in millions)

Net Interest Expense

(Dollars in millions)

Net interest expense increased in third quarter and first nine months 2025 compared to third quarter and first nine months 2024 due to higher borrowings, less capitalized interest, and less interest income.

Provision for Income Taxes

(Dollars in millions)

(1) Provision for income taxes for non-core items is calculated using the tax rate for the jurisdiction where the gains are taxable and the expenses are deductible.

(2) Resulting from the enactment of the One Big Beautiful Bill Act (the "Act").

(3) Third quarter 2025 provision for income taxes was adjusted to reflect the current forecasted full year effective tax rate. Third quarter 2024 provision for income taxes was adjusted to reflect the then current forecasted full year effective tax rate.

(1) Effective tax rate percentages are rounded to the nearest whole percent. The forecasted full year effective tax rates are 15.5 percent in both first nine months 2025 and 2024, respectively.

(2) Provision for income taxes for non-core items is calculated using the tax rate for the jurisdiction where the gains are taxable and the expenses are deductible.

(3) Expected future tax events may include finalization of tax returns; federal, state, and foreign examinations or the expiration of statutes of limitation; and corporate restructurings.

Net Earnings Attributable to Eastman and Diluted Earnings per Share

(Dollars in millions, except EPS)

(Dollars in millions, except EPS)

(1) Provision for income taxes for non-core items is calculated using the tax rate for the jurisdiction where the gains are taxable and the expenses are deductible.

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 2024 Annual Report on Form 10-K.

Advanced Materials Segment

(Dollars in millions)

Sales revenue decreased in third quarter and first nine months 2025 compared to third quarter and first nine months 2024 primarily due to lower sales volume resulting from continued weakness in demand in the building and construction and consumer durables end markets. Third quarter 2025 demand in specialty plastics was negatively impacted by customer caution resulting from uncertainty surrounding global trade policy.

EBIT in third quarter and first nine months 2025 included inventory adjustments, and asset impairments, restructuring, and other charges, net related to the decommissioning of certain assets at performance films facilities in North America. EBIT in third quarter and first nine months 2024 included inventory adjustments, and asset impairments, restructuring, and other charges, net related to the planned closure of a solvent-based resins production line. For more information see Note 11, "Asset Impairments, Restructuring, and Other Charges, Net", to the unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report.

EBIT decreased in third quarter and first nine months 2025 compared to third quarter and first nine months 2024 due to $83 million and $94 million, respectively, lower sales volume and higher manufacturing costs primarily due to lower capacity utilization and reduction of inventory. These unfavorable costs were partially offset by lower SG&A expenses.

Additives & Functional Products Segment

(Dollars in millions)

Sales revenue decreased in third quarter 2025 compared to third quarter 2024 primarily due to lower sales volume across the segment, partially offset by higher selling prices driven by cost-pass-through contracts.

Sales revenue increased in first nine months 2025 compared to first nine months 2024 primarily due to higher selling prices driven by cost-pass-through contracts, partially offset by lower sales volume in coatings additives product line and heat transfer fluid project fulfillments.

EBIT in first nine months 2025 included asset impairments, restructuring, and other charges, net related to the closure of a heat-transfer fluids production line at a specialty fluids and energy facility in North America. EBIT in third quarter and first nine months 2024 included inventory adjustments related to the planned closure of a solvent-based resins production line. For more information see Note 11, "Asset Impairments, Restructuring, and Other Charges, Net", to the unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report.

Excluding these non-core items, EBIT decreased in third quarter 2025 compared to third quarter 2024 due to $26 million unfavorable sales volume, mostly offset by lower manufacturing costs and lower SG&A expenses.

Excluding these non-core items, EBIT increased in first nine months 2025 compared to first nine months 2024 due to $15 million higher selling prices, net of higher raw material and energy costs, lower manufacturing costs, and lower SG&A expenses.

Chemical Intermediates Segment

(Dollars in millions)

Sales revenue decreased in third quarter 2025 compared to third quarter 2024 due to lower sales volume attributed to continued weak market demand in the industrial and building and construction end markets and lower selling prices attributed to unfavorable commodity market conditions.

Sales revenue decreased in first nine months 2025 compared to first nine months 2024 due to lower sales volume and lower selling prices primarily in the industrial end market as well as an unplanned outage during second quarter 2025 resulting in a lack of available volume.

EBIT decreased in third quarter 2025 compared to third quarter 2024 due to $47 million lower selling prices and higher raw material and energy costs, partially offset by lower SG&A expenses.

EBIT decreased in first nine months 2025 compared to first nine months 2024 primarily due to $63 million lower selling prices and higher raw material and energy costs and $33 million lower sales volume. Higher manufacturing costs were offset by lower SG&A expenses.

Fibers Segment

(Dollars in millions)

Sales revenue decreased in third quarter and first nine months 2025 compared to third quarter and first nine months 2024 primarily due to lower sales volume in the acetate tow product line attributed to destocking and industry capacity share adjustments, and lower textiles sales into China due to impacts of tariff risk on demand within the value chain.

EBIT decreased in third quarter and first nine months 2025 compared to third quarter and first nine months 2024 primarily due to $36 million and $92 million, respectively, lower sales volume. Higher raw material and energy costs and lower selling prices were partially offset by lower SG&A expenses.

Other

(Dollars in millions)

Sales and costs related to growth initiatives, including the cellulosic biopolymer and circular economy platforms, R&D costs, certain components of pension and other postretirement benefits, and other expenses and income not identifiable to an operating segment are included in "Other". First quarter 2024 also included pre-production costs for the Kingsport methanolysis facility.

Loss before interest and taxes in third quarter and first nine months 2025 and third quarter and first nine months 2024 included severance charges related to corporate cost reduction initiatives. In addition, first nine months 2025 and first nine months 2024 included environmental and other costs from previously divested or non-operational sites and product lines. First nine months 2025 and third quarter and first nine months 2024 included profitability improvement initiatives. For more information, see "Non-GAAP Financial Measures" in this MD&A. For more information regarding asset impairments, restructuring, and other charges, net, see Note 11, "Asset Impairments, Restructuring, and Other Charges, Net", to the unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report.

SALES BY CUSTOMER LOCATION

(Dollars in millions)

Sales revenue decreased 11 percent in third quarter 2025 compared to third quarter 2024. Lower sales revenue was due to lower sales volume and unfavorable product mix across all regions, as well as lower selling prices in the Asia Pacific; United States and Canada; and Latin America regions. These decreases were partially offset by favorable selling prices and foreign currency impacts in the Europe, Middle East, and Africa region.

Sales revenue decreased 5 percent in first nine months 2025 compared to first nine months 2024. Lower sales revenue was due to lower sales volume and unfavorable product mix in the Europe, Middle East, and Africa; Asia Pacific; and United States and Canada regions.

Further discussion by operating segment is presented in "Summary by Operating Segment" in this MD&A.

LIQUIDITY AND OTHER FINANCIAL INFORMATION

Cash Flows

Cash flows from operations, cash and cash equivalents, and other sources of liquidity are expected to be available and sufficient to meet known short- and long-term cash requirements. However, the Company's cash flows from operations can be affected by numerous factors, including risks associated with global operations, raw material availability and cost, demand for and pricing of Eastman's products, capacity utilization, and other factors described under "Risk Factors" in Part II, Item 1A of this Quarterly Report. Management believes maintaining a financial profile that supports an investment grade credit rating is important to its long-term strategy and financial flexibility.

(Dollars in millions)

Cash provided by operating activities decreased $279 million in first nine months 2025 compared to first nine months 2024 primarily due to lower accounts payable, lower net earnings, and higher variable compensation payout partially offset by lower inventories.

Cash used in investing activities in first nine months 2025 was relatively unchanged compared to first nine months 2024.

Cash used in financing activities increased $142 million in first nine months 2025 compared to first nine months 2024 primarily due to lower net borrowings activity partially offset by lower treasury stock repurchases. For additional information, see "Liquidity and Other Financial Information - Debt and Other Commitments" in this MD&A.

Priorities for uses of available cash include capital expenditures, payment of the quarterly dividend, net debt reduction, and share repurchases.

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 engages in off-balance sheet, uncommitted accounts receivable factoring programs as a routine part of its ordinary business operations. Through these programs, entire invoices may be sold to third-party financial institutions, the vast majority of which are without recourse. Under these agreements, 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. The total amounts sold were $696 million and $703 million in third quarter 2025 and 2024, respectively, and $2.0 billion in both first nine months 2025 and 2024. Based on the original terms of receivables sold for certain programs and actual outstanding balance of receivables under servicing agreements, the Company estimates that $385 million of these receivables would have been outstanding as of both September 30, 2025 and December 31, 2024, had they not been sold under these factoring programs.

Eastman works with suppliers to optimize payment terms and conditions on accounts payable to enhance timing of working capital and cash flows. The Company has a voluntary supplier finance program to provide suppliers with the opportunity to sell receivables due from Eastman to a participating financial institution. 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, 2025, the Company's borrowings totaled $5.1 billion with various maturities. In first quarter 2025, the Company issued an additional $250 million aggregate principal amount of the 5.0% notes due August 2029 in a registered public offering (the "2029 Notes"), which was originally issued in August 2024, resulting in an aggregate principal amount of $750 million. The net proceeds from the 2025 issuance were $246 million. The Company also repaid the $450 million 3.80% notes due March 2025. There were no debt extinguishment costs associated with the repayment of this debt.

See Note 4, "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 2024 Annual Report on Form 10-K for information on other commitments.

Credit Facility, Term Loans, and Commercial Paper Borrowings

The Company has access to a $1.50 billion revolving credit agreement (the "Credit Facility") that matures in February 2029. 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, 2025 and December 31, 2024, the Company had no outstanding borrowings under the Credit Facility. The Company's commercial paper borrowings were $290 million at September 30, 2025 with a weighted interest rate of 4.33%. The Company had no commercial paper borrowings at December 31, 2024.

In first quarter 2025, the Company repaid $100 million of the remaining $250 million five-year term loan (the "2027 Term Loan"). There were no extinguishment costs associated with the partial repayment of the loan. The outstanding balance on the 2027 Term Loan was $150 million at September 30, 2025 and $250 million at December 31, 2024, with variable interest rates of 5.54% and 5.58%, respectively. The 2027 Term Loan is subject to interest at a spread above quoted market rates.

The Credit Facility and the 2027 Term Loan contain customary covenants, including requirements to maintain certain financial ratios, that determine the events of default, amounts available, and terms of borrowings. The Company was in compliance with all applicable covenants at both September 30, 2025 and December 31, 2024. The total amount of available borrowings under the Credit Facility was $1.50 billion as of September 30, 2025.

See Note 4, "Borrowings", to the unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report for additional information.

Net Debt

(Dollars in millions)

(1) Includes non-cash increase of $68 million in 2025 and non-cash decrease of $32 million in 2024 resulting from foreign currency exchange rates.

Capital Expenditures

Capital expenditures were $434 million and $420 million in first nine months 2025 and 2024, respectively. Capital expenditures in first nine months 2025 were primarily for the AM segment methanolysis plastic-to-plastic molecular recycling manufacturing facilities, other targeted growth initiatives, and site modernization projects. The Company expects that 2025 capital expenditures will be approximately $550 million, primarily for targeted growth initiatives, including the AM segment methanolysis plastic-to-plastic molecular recycling manufacturing facilities, and site modernization projects.

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"). As of September 30, 2025, a total of 13,032,926 shares have been repurchased under the 2021 authorization for $1.2 billion. Both dividends and share repurchases are key strategies employed by the Company to return value to its stockholders. The Company repurchased 776,977 shares of common stock during third quarter 2025 for $50 million, and repurchased 1,420,768 shares of common stock during first nine months 2025 for $100 million.

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 2024 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.

Impairment of Long-Lived Assets

Goodwill

Goodwill is an asset determined as the residual of the purchase price over the fair value of identified assets and liabilities acquired in a business combination. As of September 30, 2025, the goodwill balance as reported on the Unaudited Consolidated Statements of Financial Position is $3.7 billion. Eastman conducts testing of goodwill for impairment annually in the fourth quarter or more frequently when events and circumstances indicate an impairment may have occurred. As a result of the impact of forecasted decreases in revenue and earnings, the Company considered whether these conditions indicated that it was more likely than not that goodwill was impaired for each of its reporting units during third quarter 2025. Management does not believe it is more likely than not that goodwill was impaired for each of its reporting units as of September 30, 2025. However, the performance films reporting unit (part of the AM operating segment as described in Part I, Item 1, "Business", of the Company's 2024 Annual Report on Form 10-K), which has a goodwill balance of $811 million at September 30, 2025, has experienced near-term declines in revenue and earnings as a result of the combination of weakness in the macro environment, historically low automotive builds, and the impact of global trade. Additional declines in the market conditions or forecasted revenue and earnings or changes in other assumptions used to estimate fair value of the performance films reporting unit could result in an impairment of goodwill.

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.

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 2024 Annual Report on Form 10-K.

At September 30, 2025, the market risk associated with certain cash flows under foreign currency derivative transactions assuming a 10 percent adverse move in the U.S. dollar relative to these foreign currencies was $50 million, with an additional $5 million exposure for each additional one percentage point adverse change in those foreign currency rates. Since the Company utilizes currency-sensitive derivative instruments for hedging anticipated foreign currency transactions, a loss in fair value from those instruments is generally offset by an increase in the value of the underlying anticipated transactions.

At September 30, 2025, a 10 percent fluctuation in the euro currency rate would have had an impact of $229 million on the designated net investment values in the foreign subsidiaries. As a result of the designation of the euro-denominated borrowings and designated cross-currency interest rate swaps as hedges of the net investments, foreign currency translation gains and losses on the borrowings and designated cross-currency interest rate swaps are recorded as a component of the "Change in cumulative translation adjustment" within "Other comprehensive income (loss), net of tax" in the Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings in Part I, Item 1 of this Quarterly Report. Therefore, a foreign currency change in the designated investment values of the foreign subsidiaries will generally be offset by a foreign currency change in the carrying value of the euro-denominated borrowings or the foreign currency change in the designated cross-currency interest rate swaps.

Other than the foreign currency risk discussed above, there have been no material changes to the Company's market risks from those disclosed in Part II, Item 7A of the Company's 2024 Annual Report on Form 10-K.

Disclosure Controls and Procedures

Eastman maintains a set of disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company's management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. An evaluation was carried out under the supervision and with the participation of the Company's management, including the Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), of the effectiveness of the Company's disclosure controls and procedures. Based on that evaluation, the CEO and CFO have concluded that as of September 30, 2025, 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 third quarter 2025 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

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 2024 Annual Report on Form 10-K.