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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 endedJune 30, 2022
 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
1.50% Notes Due 2023EMN23New 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.
ClassNumber of Shares Outstanding at June 30, 2022
Common Stock, par value $0.01 per share122,808,505
--------------------------------------------------------------------------------------------------------------------------------
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TABLE OF CONTENTS
ITEM PAGE

PART I.  FINANCIAL INFORMATION
 
   
 
 
 
 
   
   
   

PART II.  OTHER INFORMATION
   

SIGNATURES
 

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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 and 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; 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 "Management's Discussion and Analysis of Financial Condition and Results of Operations - Risk Factors" in Part I, Item 2 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.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS,
COMPREHENSIVE INCOME AND RETAINED EARNINGS
 Second QuarterFirst Six Months
(Dollars in millions, except per share amounts)2022202120222021
Sales$2,784 $2,653 $5,498 $5,062 
Cost of sales2,114 1,972 4,278 3,783 
Gross profit670 681 1,220 1,279 
Selling, general and administrative expenses185 202 381 386 
Research and development expenses67 63 132 121 
Asset impairments and restructuring charges, net19 15 21 22 
Other components of post-employment (benefit) cost, net(34)(37)(65)(73)
Other (income) charges, net14 (1)2 (5)
Net (gain) loss on divested businesses(7)495 (10)495 
Earnings (loss) before interest and taxes426 (56)759 333 
Net interest expense45 51 91 101 
Earnings (loss) before income taxes381 (107)668 232 
Provision for income taxes124 37 175 99 
Net earnings (loss)257 (144)493 133 
Less: Net earnings attributable to noncontrolling interest1 2 2 5 
Net earnings (loss) attributable to Eastman$256 $(146)$491 $128 
Basic earnings (loss) per share attributable to Eastman$2.05 $(1.07)$3.87 $0.94 
Diluted earnings (loss) per share attributable to Eastman$2.03 $(1.07)$3.82 $0.93 
Comprehensive Income  
Net earnings (loss) including noncontrolling interest$257 $(144)$493 $133 
Other comprehensive income (loss), net of tax:  
Change in cumulative translation adjustment16 9 23 11 
Defined benefit pension and other postretirement benefit plans:  
Amortization of unrecognized prior service credits(9)(7)(15)(14)
Derivatives and hedging:  
Unrealized gain (loss) during period27 4 67 29 
Reclassification adjustment for (gains) losses included in net income, net(32)9 (36)14 
Total other comprehensive income (loss), net of tax2 15 39 40 
Comprehensive income (loss) including noncontrolling interest259 (129)532 173 
Less: Comprehensive income attributable to noncontrolling interest1 2 2 5 
Comprehensive income (loss) attributable to Eastman$258 $(131)$530 $168 
Retained Earnings    
Retained earnings at beginning of period$8,694 $8,260 $8,557 $8,080 
Net earnings (loss) attributable to Eastman256 (146)491 128 
Cash dividends declared(93)(94)(191)(188)
Retained earnings at end of period$8,857 $8,020 $8,857 $8,020 

The accompanying notes are an integral part of these consolidated financial statements.
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UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
June 30,December 31,
(Dollars in millions, except per share amounts)20222021
Assets
Current assets
Cash and cash equivalents$456 $459 
Trade receivables, net of allowance for doubtful accounts1,210 1,091 
Miscellaneous receivables425 489 
Inventories1,826 1,504 
Other current assets86 96 
Assets held for sale— 1,007 
Total current assets4,003 4,646 
Properties
Properties and equipment at cost12,743 12,680 
Less: Accumulated depreciation7,784 7,684 
Net properties4,959 4,996 
Goodwill3,663 3,641 
Intangible assets, net of accumulated amortization1,248 1,362 
Other noncurrent assets1,002 874 
Total assets$14,875 $15,519 
Liabilities and Stockholders' Equity
Current liabilities
Payables and other current liabilities$2,169 $2,133 
Borrowings due within one year979 747 
Liabilities held for sale— 91 
Total current liabilities3,148 2,971 
Long-term borrowings4,012 4,412 
Deferred income tax liabilities738 810 
Post-employment obligations768 811 
Other long-term liabilities802 727 
Total liabilities9,468 9,731 
Stockholders' equity
Common stock ($0.01 par value – 350,000,000 shares authorized; shares issued – 222,316,005 and 221,809,309 for 2022 and 2021, respectively)
2 2 
Additional paid-in capital2,179 2,187 
Retained earnings8,857 8,557 
Accumulated other comprehensive income (loss)(143)(182)
10,895 10,564 
Less: Treasury stock at cost (99,558,298 and 92,892,229 shares for 2022 and 2021, respectively)
5,572 4,860 
Total Eastman stockholders' equity5,323 5,704 
Noncontrolling interest84 84 
Total equity5,407 5,788 
Total liabilities and stockholders' equity$14,875 $15,519 

The accompanying notes are an integral part of these consolidated financial statements.
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UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
First Six Months
(Dollars in millions)20222021
Operating activities
Net earnings$493 $133 
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization243 289 
Mark-to-market pension and other postretirement benefit plans (gain), net(3)— 
Asset impairment charges— 5 
Loss on sale of assets15 — 
(Gain) loss on divested business(10)495 
Benefit from deferred income taxes(81)(28)
Changes in operating assets and liabilities, net of effect of acquisitions and divestitures:
(Increase) decrease in trade receivables(163)(361)
(Increase) decrease in inventories(372)(214)
Increase (decrease) in trade payables179 306 
Pension and other postretirement contributions (in excess of) less than expenses(81)(97)
Variable compensation (in excess of) less than expenses(132)8 
Other items, net174 106 
Net cash provided by operating activities262 642 
Investing activities
Additions to properties and equipment(247)(198)
Proceeds from sale of businesses998 — 
Acquisitions, net of cash acquired(1)(63)
Additions to capitalized software(7)(12)
Other items, net13 (4)
Net cash provided by (used in) investing activities756 (277)
Financing activities
Net decrease in commercial paper and other borrowings— (25)
Proceeds from borrowings500 — 
Repayment of borrowings (550)— 
Dividends paid to stockholders(196)(188)
Treasury stock purchases (752)(140)
Proceeds from stock option exercises and other items, net(12)38 
Net cash used in financing activities(1,010)(315)
Effect of exchange rate changes on cash and cash equivalents(11)(5)
Net change in cash and cash equivalents(3)45 
Cash and cash equivalents at beginning of period459 564 
Cash and cash equivalents at end of period$456 $609 

The accompanying notes are an integral part of these consolidated financial statements.
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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Page

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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 2021 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, 2021 financial position data included herein was derived from the consolidated financial statements included in the 2021 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 for which a controlling interest is determined. Eastman accounts for other joint ventures and investments where it exercises significant influence on the equity basis. During the six months 2022, the Company contributed $24 million in a new joint venture located in Kingsport, Tennessee which will produce acetylated wood. The Company owns a 40 percent interest in the joint venture. 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 assets related to the divested rubber additives product lines and related assets and technology and the divested adhesives resins business. See Note 17, "Segment and Regional Sales Information" for more information.

Recently Adopted Accounting Standards

Accounting Standards Update ("ASU") 2021-05 Leases (Topic 842): Lessors—Certain Leases with Variable Lease Payments: On January 1, 2022, Eastman adopted this update which is a part of the Financial Accounting Standards Board's ("FASB") post-implementation review of this Topic. The update provides that lessors should classify and account for a lease with variable lease payments that do not depend on a reference index or a rate as an operating lease if both: the lease would have been classified as a sales-type lease or a direct financing lease and the lessor would have otherwise recognized a day-one loss. The adoption does not have significant impact on the Company's financial statements and related disclosures.

ASU 2021-10 Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance: On January 1, 2022, Eastman adopted prospectively this amendment which requires business entities that account for transactions with a government by applying a grant or contribution model by analogy (for example, a grant model within International Financial Reporting Standards) to provide annual disclosures about government assistance recorded during the period. The adoption does not have significant impact on the Company's financial statements and related disclosures.

Accounting Standards Issued But Not Adopted as of June 30, 2022

ASU 2021-08 Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers: The FASB issued this update in October 2021, 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 update also provides certain practical expedients for acquirers and is applicable to all contract assets and liabilities within the scope of Topic 606. The expedients are as follows: "provides relief for contracts that have been previously modified before the acquisition date" and "relief for situations in which the acquirer does not have the appropriate data or expertise to analyze the historical periods in which the contract was entered into". This guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those years. Early adoption is permitted, including adoption in an interim period. Adoption is on a prospective basis to business combinations occurring on or after the initial application and if adopted early, retrospectively to all business combinations for which the acquisition date occurs on or after the beginning of the fiscal year that includes the interim period of early application. 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.

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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
ASU 2022-01 Derivatives and Hedging (Topic 815): Fair Value Hedging—Portfolio Layer Method: The FASB issued this update in March 2022. This ASU 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 2017-123 (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. This guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those years. 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 2022-02 Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures: The FASB issued this update in March 2022. This ASU updates 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. This guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those years. 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 2022-03 Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions: The 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. The Company is continuing to assess the impact on the Company's financial statements and related disclosures.

Working Capital Management and Off Balance Sheet Arrangements

The Company has an off balance sheet, uncommitted accounts receivable factoring program under which entire invoices may be sold, without recourse, to third-party financial institutions. 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 agreements, 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 agreements 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 second quarter 2022 and 2021 were $637 million and $298 million, respectively, and $1,139 million and $587 million in first six months 2022 and 2021, respectively.

2.DIVESTITURES

Rubber Additives Divestiture

On November 1, 2021, the Company and certain of its subsidiaries completed the sale of its rubber additives (including Crystex™ insoluble sulfur and Santoflex™ antidegradants) and other product lines and related assets and technology of the global tire additives business ("rubber additives") of its Additives & Functional Products ("AFP") segment. The sale did not include the Eastman Impera™ and other performance resins product lines of the tire additives business. The Company is providing certain business transition and post-closing services to the buyer on agreed terms. The business was not reported as a discontinued operation because the sale did not have a major effect on the Company's operations and financial results.

The total estimated consideration, after estimates of contingent consideration and post-closing adjustments and ongoing agreements through October 2027, was $687 million. The additional amount of consideration of up to $75 million is to be paid based on performance of divested rubber additives through December 2023. The divestiture resulted in a $552 million loss (including cumulative translation adjustment liquidation of $23 million and certain costs to sell of $10 million).

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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The major classes of divested assets and liabilities as of the date of the divestiture were as follows:

(Dollars in millions)
Assets divested
Trade receivables, net of allowance for doubtful accounts$107 
Inventories94 
Other assets26 
Properties, net of accumulated depreciation300 
Goodwill398 
Intangible assets, net of accumulated amortization381 
Assets divested1,306 
Liabilities divested
Payables and other liabilities48 
Post-employment obligations34 
Other liabilities18 
Liabilities divested100 
Disposal group, net$1,206 

Separately, the Company recognized $3 million and $15 million of transaction costs for the divested business in first six months 2022 and twelve months 2021, respectively. Transaction costs are expensed as incurred and are included in "Selling, general and administrative expenses" ("SG&A") in the Unaudited Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings.

Adhesives Resins Divestiture

On April 1, 2022, the Company and certain of its subsidiaries completed the sale of its adhesives resins business, which includes hydrocarbon resins (including Eastman Impera™ tire resins), pure monomer resins, polyolefin polymers, rosins and dispersions, and oleochemical and fatty-acid based resins product lines ("adhesives resins"), of its AFP segment. The business was not reported as a discontinued operation because the sale did not have a major effect on the Company's operations and financial results. Included in the adhesives resins divestiture was the 50 percent interest in a joint venture that has a manufacturing facility in Nanjing, China, which produces Eastotac™ hydrocarbon tackifying resins for pressure-sensitive adhesives, caulks, and sealants.

The total estimated consideration, after estimates of post-closing adjustments, was $957 million. The divestiture resulted in a $5 million gain (including cumulative translation adjustment liquidation of $10 million and certain costs to sell of $10 million).
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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The major classes of divested assets and liabilities as of the date of the divestiture were as follows:

(Dollars in millions)
Assets divested
Trade receivables, net of allowance for doubtful accounts$129 
Inventories163 
Other assets21 
Properties, net of accumulated depreciation303 
Goodwill399 
Intangible assets, net of accumulated amortization14 
Assets divested1,029 
Liabilities divested
Payables and other liabilities86 
Deferred tax liability7 
Other liabilities4 
Liabilities divested97 
Disposal group, net$932 

The Company recognized $8 million and $3 million of transaction costs for the divested business in first six months 2022 and twelve months 2021, respectively. Transaction costs are expensed as incurred and are included in SG&A in the Unaudited Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings.

3.INVENTORIES
 June 30,December 31,
(Dollars in millions)20222021
Finished goods$1,241 $1,007 
Work in process283 273 
Raw materials and supplies692 589 
Total inventories at FIFO or average cost2,216 1,869 
Less: LIFO reserve390 365 
Total inventories$1,826 $1,504 

Inventories valued on the last-in, first-out ("LIFO") method were approximately 50 percent of total inventories at both June 30, 2022 and December 31, 2021.

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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
4.PAYABLES AND OTHER CURRENT LIABILITIES
 June 30,December 31,
(Dollars in millions)20222021
Trade creditors$1,395 $1,228 
Accrued payroll and variable compensation147 311 
Accrued taxes182 138 
Post-employment obligations66 70 
Dividends payable to stockholders96 101 
Other283 285 
Total payables and other current liabilities$2,169 $2,133 

The "Other" above consists primarily of accruals for the current portion of interest payable, operating lease liabilities, environmental liabilities, and other miscellaneous accruals.

5.INCOME TAXES
 Second QuarterFirst Six Months
(Dollars in millions)2022202120222021
$%$%$%$%
Provision for income taxes and tax rate$124 33 %$37 — %$175 26 %$99 44 %

Second quarter and first six months 2022 effective tax rates include adjustments to the provision for income taxes to reflect the tax implications of the divestiture of the adhesives resins business. Second quarter and first six months 2021 effective tax rates include a $21 million decrease to the provision for income taxes from the revaluation of deferred tax liabilities as a result of business held for sale classification of certain assets.

At June 30, 2022 and December 31, 2021, Eastman had $204 million and $200 million, respectively, in unrecognized tax benefits. At June 30, 2022, 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 $15 million within the next 12 months.

Income tax incentives, in the form of tax holidays, have been granted to the Company in certain jurisdictions to attract investment and encourage industrial development. The expiration of these tax holidays varies by country. The tax holidays are conditional on the Company meeting certain requirements, including employment and investment thresholds; determination of compliance with these conditions may be subject to challenge by tax authorities in those jurisdictions. No individual tax holiday had a material impact to the Company's earnings in second quarter or first six months 2022 or 2021.

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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
6.BORROWINGS
 June 30,December 31,
(Dollars in millions)20222021
Borrowings consisted of:
3.6% notes due August 2022$200 $747 
1.50% notes due May 2023 (1)
779 850 
7 1/4% debentures due January 2024198 198 
7 5/8% debentures due June 202443 43 
3.80% notes due March 2025695 698 
1.875% notes due November 2026 (1)
517 565 
7.60% debentures due February 2027195 195 
4.5% notes due December 2028495 494 
4.8% notes due September 2042494 494 
4.65% notes due October 2044876 875 
2022 Term loan499 — 
Total borrowings4,991 5,159 
Borrowings due within one year979 747 
Long-term borrowings$4,012 $4,412 
(1)The carrying value of the euro-denominated 1.50% notes due May 2023 and 1.875% notes due November 2026 will fluctuate 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.

Credit Facility, Term Loan, and Commercial Paper Borrowings

The Company has access to a $1.50 billion revolving credit agreement (the "Credit Facility") expiring December 2026. 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 June 30, 2022 and December 31 2021, the Company had no outstanding borrowings under the Credit Facility. At June 30, 2022 and December 31, 2021, the Company had no outstanding commercial paper borrowings.

In second quarter 2022, the Company borrowed $500 million under a five-year term loan agreement ("2022 Term Loan"). The 2022 Term Loan had a variable interest rate of 2.73% as of June 30, 2022. Borrowings under the 2022 Term Loan are subject to interest at varying spreads above quoted market rates. In second quarter 2022, $550 million principal amount of the 3.6% notes due August 2022 were repaid using proceeds from the 2022 Term Loan and available cash.

The Credit Facility and 2022 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 June 30, 2022 and December 31, 2021.

Subsequent Activity

In July 2022, the Company repaid the remaining $200 million principal amount of the 3.6% notes due August 2022 prior to maturity.

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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Fair Value of Borrowings

Eastman has classified its total borrowings at June 30, 2022 and December 31, 2021 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 2021 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, such as commercial paper and the 2022 Term Loan, equals the carrying value and is classified as Level 2. At June 30, 2022 and December 31, 2021, the fair values of total borrowings were $4.857 billion and $5.737 billion, respectively. The Company had no borrowings classified as Level 3 as of June 30, 2022 and December 31, 2021.

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 2021 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.

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.
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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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.

In second quarter 2022, the Company terminated fixed-to-fixed cross-currency swaps designated to hedge a portion of its net investment in a euro functional currency denominated subsidiary against foreign currency fluctuations. The notional amount terminated was €266 million ($320 million) which was scheduled to mature in August 2022. The termination resulted in a $40 million gain recognized in CTA. The related cash flows were classified as investing activities in the Unaudited Consolidated Statements of Cash Flows.

Summary of Financial Position and Financial Performance of Hedging Instruments

The following table presents the notional amounts outstanding at June 30, 2022 and December 31, 2021 associated with Eastman's hedging programs.
Notional OutstandingJune 30, 2022December 31, 2021
Derivatives designated as cash flow hedges:
Foreign Exchange Forward and Option Contracts (in millions)
EUR/USD (in EUR)€558€429
Commodity Forward and Collar Contracts
Feedstock (in million barrels)1 1 
Energy (in million british thermal units)5 13 
Interest rate swaps for the future issuance of debt (in millions)$75$75
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)€587€853
Non-derivatives designated as net investment hedges:
Foreign Currency Net Investment Hedges (in millions)
EUR/USD (in EUR)€1,246€1,246

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 tests a subset of its valuations against valuations received from transaction counterparties to validate the accuracy of its standard pricing models. The Company had no derivatives classified as Level 3 as of June 30, 2022 and December 31, 2021. 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 second quarter and first six months 2022 or 2021.
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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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 June 30, 2022 and December 31, 2021.

The Financial Position and Fair Value Measurements of Hedging Instruments on a Gross Basis
(Dollars in millions) 
Derivative TypeStatements of Financial
Position Classification		June 30, 2022
Level 2		December 31, 2021
Level 2
Derivatives designated as cash flow hedges:   
Commodity contractsOther current assets$16 $16 
Commodity contractsOther noncurrent assets— 2 
Foreign exchange contractsOther current assets33 12 
Foreign exchange contractsOther noncurrent assets14 6 
Forward starting interest rate swap contractsOther current assets13 5 
Derivatives designated as fair value hedges:
Fixed-for-floating interest rate swapOther current assets1 1 
Fixed-for-floating interest rate swapOther noncurrent assets— 1 
Derivatives designated as net investment hedges:
Cross-currency interest rate swapsOther current assets— 20 
Cross-currency interest rate swapsOther noncurrent assets83 35 
Total Derivative Assets$160 $98 
Derivatives designated as cash flow hedges:
Commodity contractsPayables and other current liabilities$— $1 
Commodity contractsOther long-term liabilities— 1 
Foreign exchange contractsPayables and other current liabilities— 1 
Derivatives designated as fair value hedges:
Fixed-for-floating interest rate swapLong-term borrowings3 — 
Derivatives designated as net investment hedges:
Cross-currency interest rate swapsOther long-term liabilities2 5 
Total Derivative Liabilities$5 $8 
Total Net Derivative Assets (Liabilities) $155 $90 

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 $1.3 billion at June 30, 2022 and $1.4 billion at December 31, 2021. The designated foreign currency-denominated borrowings are included as part of "Long-term borrowings" on the Unaudited Consolidated Statements of Financial Position.
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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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 2021 Annual Report on Form 10-K.

As of June 30, 2022 and December 31, 2021, 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 includedJune 30, 2022December 31, 2021June 30, 2022December 31, 2021
Borrowings due within one year (1)
$199 $697 $(1)$(2)
Long-term borrowings$72 $76 $(3)$1 
(1)Cumulative amount of fair value hedging loss adjustment remaining for hedged liabilities for which hedge accounting has been discontinued.

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 second quarter and first six months 2022 and 2021.
Change in amount of after tax gain (loss) recognized in OCI on derivativesPre-tax amount of gain (loss) reclassified from OCI into earnings
(Dollars in millions)Second QuarterFirst Six MonthsSecond QuarterFirst Six Months
Hedging Relationships20222021202220212022202120222021
Derivatives in cash flow hedging relationships:
Commodity contracts$(25)$14 $(1)$15 $34 $(5)$37 $(5)
Foreign exchange contracts16 — 22 22