EASTMAN CHEMICAL COEMN

EASTMAN CHEMICAL CO Income Taxes Disclosure

10-KFiled Feb 13, 20266 min read
INCOME TAXES
Components of earnings before income taxes and the provision for U.S. and other income taxes from operations follow:
 For years ended December 31,
(Dollars in millions)202520242023
Earnings before income taxes    
United States$(24)$147 $357 
Outside the United States592 931 730 
Total$568 $1,078 $1,087 
Provision for income taxes 
United States Federal 
Current$(146)$36 $133 
Deferred77 (80)(39)
Outside the United States
Current113 176 153 
Deferred8 41 (35)
State
Current(15)10 7 
Deferred56 (13)(28)
Total$93 $170 $191 

The following represents the deferred tax (benefit) charge recorded as a component of "Accumulated other comprehensive income (loss)" ("AOCI") in the Consolidated Statements of Financial Position:
 For years ended December 31,
(Dollars in millions)202520242023
Cumulative translation adjustment$(43)$19 $11 
Defined benefit pension and other postretirement benefit plans48 (3)(6)
Derivatives and hedging(10)11 (9)
Total$(5)$27 $(4)
Total income tax expense (benefit) included in the consolidated financial statements was composed of the following:
 For years ended December 31,
(Dollars in millions)202520242023
Earnings before income taxes$93 $170 $191 
Other comprehensive income(5)27 (4)
Total$88 $197 $187 

Differences between the provision for income taxes and income taxes computed using the U.S. Federal statutory income tax rate follow:
 For years ended December 31,
 (Dollars in millions)202520242023
$
%
Amount computed using the statutory rate$11921%$226$228
State and local tax effects, net of federal benefit (1)
6211%(21)(26)
Foreign tax effects
(31)(78)
Barbados
Effects of rates different than statutory
(6)(1)%
Other
3—%
Belgium
Effects of rates different than statutory
3—%
Income subject to cross border tax
(12)(2)%
Other51%
Luxembourg
Effects of rates different than statutory
71%
Changes in valuation allowance
81%
Foreign currency112%
Interest142%
OECD Pillar Two taxes
224%
Other
3—%
Netherlands
Interest234%
Other(3)—%
Singapore
Changes in valuation allowance
(12)(2)%
Other
(2)—%
Switzerland
Effects of rates different than statutory
(45)(8)%
Other92%
Other Foreign Jurisdictions
61%
Effects of cross border tax laws, net of credits
(5)22
Net controlled foreign corporation tested income
153%
Subpart F income
173%
Foreign entities checked into the U.S.
(10)(2)%
Tax credits
(39)(7)%(64)(81)
Changes in valuation allowances
326%
Nontaxable or nondeductible items
Interest
71%
Changes in unrecognized tax benefits
(141)(25)%40105
Divestitures——%714
Other(3)—%187
Provision for income taxes$93$170$191
Effective income tax rate16 %16 %18 %
(1)Tennessee makes up the majority of the state tax effect.
The 2025 provision for income taxes includes decreases related to changes in unrecognized tax benefits and tax credits, offset by an increase related to foreign tax effects due to the Company's mix of earnings.

The 2024 provision for income taxes includes decreases related to tax credits and foreign tax effects due to the Company's mix of earnings, offset by increases related to changes in unrecognized tax benefits.

The 2023 provision for income taxes includes decreases related to tax credits and foreign tax effects due to the Company's mix of earnings, offset by an increase related to changes in unrecognized tax benefits.

The significant components of deferred tax assets and liabilities follow:
 December 31,
(Dollars in millions)20252024
Deferred tax assets 
Post-employment obligations$67 $132 
Net operating loss carryforwards650 657 
Tax credit carryforwards360 313 
Environmental contingencies75 68 
Capitalized research and development expenses386 421 
Other224 198 
Total deferred tax assets1,762 1,789 
Less: Valuation allowance731 686 
Deferred tax assets less valuation allowance$1,031 $1,103 
Deferred tax liabilities 
Property, plant, and equipment$(1,008)$(961)
Intangible assets(240)(251)
Deferred gain(166)(166)
Other(155)(149)
Total deferred tax liabilities$(1,569)$(1,527)
Net deferred tax liabilities$(538)$(424)
As recorded in the Consolidated Statements of Financial Position: 
Other noncurrent assets$131 $109 
Deferred income tax liabilities(669)(533)
Net deferred tax liabilities$(538)$(424)

At December 31, 2025, foreign net operating loss carryforwards totaled $2.5 billion. Of this amount, $800 million will expire in 1 to 20 years and $1.7 billion of the carryforwards have no expiration date. A valuation allowance of approximately $524 million has been provided against foreign net operating loss carryforwards and other foreign deferred income tax balances.

At December 31, 2025, there were no federal net operating loss carryforwards available to offset future taxable income. At December 31, 2025, foreign tax credit carryforwards of approximately $136 million were available to reduce possible future U.S. income taxes, which expire from 2029 to 2036. A partial valuation allowance of $135 million has been established for foreign tax credit carryforwards as of December 31, 2025.

At December 31, 2025, a partial valuation allowance of $47 million has been provided against state tax credits that the Company may not be able to utilize. A partial valuation allowance of $23 million has been established for the Solutia, Inc. ("Solutia") state net operating loss carryforwards.

Valuation allowances will be retained until there is sufficient positive evidence to conclude that it is more likely than not that the deferred tax assets will be realized, or the related statute expires.
All foreign earnings, with the exception of short-term liquid assets on certain foreign subsidiaries, including basis differences, continue to be considered indefinitely reinvested. The Company has not determined the deferred tax liability associated with these unremitted earnings and basis differences, as such determination is not practicable.

Amounts due to and from tax authorities as recorded in the Consolidated Statements of Financial Position:
 December 31,
(Dollars in millions)20252024
Miscellaneous receivables$68 $73 
Payables and other current liabilities$190 $229 
Other long-term liabilities162 302 
Total income taxes payable$352 $531 

Cash paid (net of refunds) for income taxes:
 December 31,
(Dollars in millions)2025
United States$23 
Outside the United States131 
States
5 
Total income taxes paid (net of refunds)
$159 

Cash paid (net of refunds) for income taxes:
 December 31,
(Dollars in millions)2025
Barbados$11 
Belgium20 
China16 
Mexico10 
Malaysia16 
Netherlands25 
Singapore9 
United States23 
All other29 
Total income taxes paid (net of refunds)
$159 

A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:
(Dollars in millions)202520242023
Balance at January 1$321 $320 $235 
Adjustments based on tax positions related to current year13 27 33 
Adjustments based on tax positions related to prior years(123)3 68 
Lapse of statute of limitations(15)(6)(9)
Settlements(13)(23)(7)
Balance at December 31 (1)
$183 $321 $320 
(1)All of the unrecognized tax benefits as of December 31, 2025, would, if recognized, impact the Company's effective tax rate.
A reconciliation of the beginning and ending amounts of accrued interest related to unrecognized tax positions is as follows:
(Dollars in millions)202520242023
Balance at January 1$55 $39 $22 
Expense for interest, net of tax10 18 17 
Income for interest, net of tax(39)(2)— 
Balance at December 31$26 $55 $39 

Accrued penalties related to unrecognized tax positions were immaterial as of December 31, 2025, 2024, and 2023.

Eastman files federal income tax returns in the U.S. and income tax returns in various state and foreign jurisdictions. The Company is no longer subject to U.S. federal income tax examinations by tax authorities for years before 2017. With few exceptions, Eastman is no longer subject to foreign, state, and local income tax examinations by tax authorities for years before 2015. Solutia and related subsidiaries are no longer subject to state and local income tax examinations for years before 2002.

Historical Timeline

Fiscal YearFiled
2025Feb 13, 2026Showing above
2024Feb 14, 2025
2023Feb 14, 2024
2022Feb 15, 2023
2021Feb 25, 2022
2020Feb 22, 2021
2019Feb 26, 2020
2018Feb 27, 2019
2017Mar 1, 2018
2016Feb 27, 2017
2015Feb 25, 2016

About Income Taxes Disclosures

The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.

Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.

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