Company Quick10K Filing
Eastman Chemical
Price72.41 EPS6
Shares139 P/E13
MCap10,058 P/FCF12
Net Debt5,360 EBIT927
TEV15,418 TEV/EBIT17
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-05-11
10-K 2019-12-31 Filed 2020-02-26
10-Q 2019-09-30 Filed 2019-11-01
10-Q 2019-06-30 Filed 2019-08-06
10-Q 2019-03-31 Filed 2019-05-03
10-K 2018-12-31 Filed 2019-02-27
10-Q 2018-09-30 Filed 2018-10-29
10-Q 2018-06-30 Filed 2018-08-03
10-Q 2018-03-31 Filed 2018-05-07
10-K 2017-12-31 Filed 2018-03-01
10-Q 2017-09-30 Filed 2017-11-02
10-Q 2017-06-30 Filed 2017-08-04
10-Q 2017-03-31 Filed 2017-05-05
10-K 2016-12-31 Filed 2017-02-27
10-Q 2016-09-30 Filed 2016-11-04
10-Q 2016-06-30 Filed 2016-08-03
10-Q 2016-03-31 Filed 2016-05-05
10-K 2015-12-31 Filed 2016-02-25
10-Q 2015-09-30 Filed 2015-11-03
10-Q 2015-06-30 Filed 2015-07-30
10-Q 2015-03-31 Filed 2015-05-05
10-K 2014-12-31 Filed 2015-02-27
10-Q 2014-09-30 Filed 2014-11-04
10-Q 2014-06-30 Filed 2014-07-30
10-Q 2014-03-31 Filed 2014-04-29
10-K 2013-12-31 Filed 2014-02-28
10-Q 2013-09-30 Filed 2013-10-28
10-Q 2013-06-30 Filed 2013-08-05
10-Q 2013-03-31 Filed 2013-04-30
10-K 2012-12-31 Filed 2013-02-28
10-Q 2012-09-30 Filed 2012-10-31
10-Q 2012-06-30 Filed 2012-08-02
10-Q 2012-03-31 Filed 2012-05-10
10-K 2011-12-31 Filed 2012-02-22
10-Q 2011-09-30 Filed 2011-11-01
10-Q 2011-06-30 Filed 2011-08-02
10-Q 2011-03-31 Filed 2011-05-03
10-K 2010-12-31 Filed 2011-02-23
10-Q 2010-09-30 Filed 2010-11-01
10-Q 2010-06-30 Filed 2010-08-03
10-Q 2010-03-31 Filed 2010-04-26
10-K 2009-12-31 Filed 2010-02-24
8-K 2020-05-07
8-K 2020-04-30
8-K 2020-04-30
8-K 2020-04-09
8-K 2020-03-26
8-K 2020-02-12
8-K 2020-02-01
8-K 2020-01-30
8-K 2019-12-04
8-K 2019-11-16
8-K 2019-10-24
8-K 2019-07-25
8-K 2019-07-25
8-K 2019-05-02
8-K 2019-04-25
8-K 2019-01-31
8-K 2018-12-05
8-K 2018-11-06
8-K 2018-11-05
8-K 2018-10-30
8-K 2018-10-30
8-K 2018-10-25
8-K 2018-07-26
8-K 2018-07-01
8-K 2018-05-03
8-K 2018-04-26
8-K 2018-02-15
8-K 2018-02-01

EMN 10Q Quarterly Report

Part I. Financial Information
Part II. Other Information
Item 1. Financial Statements
Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3.Quantitative and Qualitative Disclosures About Market Risk
Item 4.Controls and Procedures
Part II.Other Information
Item 1.Legal Proceedings
Item 1A.Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6.Exhibits
EX-31.01 emn20200331ex3101.htm
EX-31.02 emn20200331ex3102.htm
EX-32.01 emn20200331ex3201.htm
EX-32.02 emn20200331ex3202.htm

Eastman Chemical Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
Assets, Equity
Rev, G Profit, Net Income
Ops, Inv, Fin

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(Mark One)
 For the quarterly period endedMarch 31, 2020
 For the transition period from ______________ to ______________

Commission file number 1-12626

(Exact name of registrant as specified in its charter)
(State or other jurisdiction of(I.R.S. Employer
incorporation or organization)Identification no.)
200 South Wilcox Drive 
(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 filerAccelerated filer
Non-accelerated filerSmaller 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 March 31, 2020
Common Stock, par value $0.01 per share135,894,258










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", 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 of, raw material and energy prices and costs; foreign currencies and interest rates; disruption or interruption of operations and of raw material or energy supply; 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 most significant known 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 such statements are made. 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.



 First Quarter
(Dollars in millions, except per share amounts)20202019
Sales$2,241  $2,380  
Cost of sales1,664  1,806  
Gross profit577  574  
Selling, general and administrative expenses160  187  
Research and development expenses61  58  
Asset impairments and restructuring charges, net14  32  
Other components of post-employment (benefit) cost, net(30) (21) 
Other (income) charges, net4  (2) 
Earnings before interest and taxes368  320  
Net interest expense52  56  
Earnings before income taxes316  264  
Provision for income taxes56  55  
Net earnings260  209  
Less: Net earnings attributable to noncontrolling interest2    
Net earnings attributable to Eastman$258  $209  
Basic earnings per share attributable to Eastman$1.90  $1.50  
Diluted earnings per share attributable to Eastman$1.89  $1.49  

Comprehensive Income
Net earnings including noncontrolling interest$260  $209  
Other comprehensive income (loss), net of tax:
Change in cumulative translation adjustment19  30  
Defined benefit pension and other postretirement benefit plans:
Amortization of unrecognized prior service credits(7) (7) 
Derivatives and hedging:
Unrealized gain (loss) during period7  10  
Reclassification adjustment for (gains) losses included in net income, net(2) (2) 
Total other comprehensive income (loss), net of tax17  31  
Comprehensive income including noncontrolling interest277  240  
Less: Comprehensive income attributable to noncontrolling interest2    
Comprehensive income attributable to Eastman$275  $240  
Retained Earnings  
Retained earnings at beginning of period$7,965  $7,573  
Cumulative effect adjustment resulting from adoption of new accounting standards  (20) 
Net earnings attributable to Eastman258  209  
Cash dividends declared(90) (87) 
Retained earnings at end of period$8,133  $7,675  

The accompanying notes are an integral part of these consolidated financial statements.

March 31,December 31,
(Dollars in millions, except per share amounts)20202019
Current assets
Cash and cash equivalents$680  $204  
Trade receivables, net of allowance for doubtful accounts1,045  980  
Miscellaneous receivables391  395  
Inventories1,659  1,662  
Other current assets76  80  
Total current assets3,851  3,321  
Properties and equipment at cost13,082  12,904  
Less: Accumulated depreciation7,584  7,333  
Net properties5,498  5,571  
Goodwill4,417  4,431  
Intangible assets, net of accumulated amortization1,962  2,011  
Other noncurrent assets737  674  
Total assets$16,465  $16,008  
Liabilities and Stockholders' Equity
Current liabilities
Payables and other current liabilities$1,420  $1,618  
Borrowings due within one year895  171  
Total current liabilities2,315  1,789  
Long-term borrowings5,399  5,611  
Deferred income tax liabilities924  915  
Post-employment obligations968  1,016  
Other long-term liabilities667  645  
Total liabilities10,273  9,976  
Stockholders' equity
Common stock ($0.01 par value – 350,000,000 shares authorized; shares issued – 220,050,159 and 219,638,646 for 2020 and 2019, respectively)2  2  
Additional paid-in capital2,109  2,105  
Retained earnings8,133  7,965  
Accumulated other comprehensive income (loss)(197) (214) 
10,047  9,858  
Less: Treasury stock at cost (84,206,699 shares for 2020 and 83,696,398 shares for 2019)3,930  3,900  
Total Eastman stockholders' equity6,117  5,958  
Noncontrolling interest75  74  
Total equity6,192  6,032  
Total liabilities and stockholders' equity$16,465  $16,008  

The accompanying notes are an integral part of these consolidated financial statements.

First Three Months
(Dollars in millions)20202019
Operating activities
Net earnings$260  $209  
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization139  155  
Asset impairment charges9    
Provision for deferred income taxes12  4  
Changes in operating assets and liabilities, net of effect of acquisitions and divestitures:
(Increase) decrease in trade receivables(72) (149) 
(Increase) decrease in inventories(18) (122) 
Increase (decrease) in trade payables(104) (42) 
Pension and other postretirement contributions (in excess of) less than expenses(52) (36) 
Variable compensation (in excess of) less than expenses(74) (77) 
Other items, net71  53  
Net cash provided by (used in) operating activities171  (5) 
Investing activities
Additions to properties and equipment(99) (106) 
Acquisitions, net of cash acquired  (19) 
Other items, net(2)   
Net cash used in investing activities(101) (125) 
Financing activities
Net increase (decrease) in commercial paper and other borrowings539  370  
Proceeds from borrowings  125  
Repayment of borrowings   (175) 
Dividends paid to stockholders(90) (87) 
Treasury stock purchases (30) (125) 
Other items, net(11) (6) 
Net cash provided by financing activities408  102  
Effect of exchange rate changes on cash and cash equivalents(2) (3) 
Net change in cash and cash equivalents476  (31) 
Cash and cash equivalents at beginning of period204  226  
Cash and cash equivalents at end of period$680  $195  

The accompanying notes are an integral part of these consolidated financial statements.







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 2019 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 the items noted below. The December 31, 2019 financial position data included herein was derived from the audited consolidated financial statements included in the 2019 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 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, sales revenue, and expenses of all majority-owned subsidiaries and joint ventures in which a controlling interest is maintained. Eastman accounts for other joint ventures and investments where it exercises significant influence on the equity basis. Intercompany transactions and balances are eliminated in consolidation. Certain prior period data has been reclassified in the consolidated financial statements and accompanying footnotes to conform to current period presentation.

Recently Adopted Accounting Standards

Accounting Standards Update ("ASU") 2016-13 Financial Instruments - Credit Losses: On January 1, 2020, Eastman adopted this standard, and related releases, under the various required transition methods. The amendments require a financial asset (including trade receivables) to be presented at the net amount expected to be collected through the use of allowances for credit losses valuation account. The income statement will reflect the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. The adoption of this standard did not result in a material impact on the Company's financial statements and related disclosures.

ASU 2018-13 Fair Value Measurement - Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement: On January 1, 2020, Eastman adopted this standard that is a part of the Financial Accounting Standards Board's ("FASB") disclosure framework project to improve the effectiveness of disclosures in the notes to financial statements. The primary changes applicable to Eastman in this update are the disclosures of fair value levels, assessment thereof, and transfers between those levels. The adoption under the various required transition methods did not impact the Company's related disclosures.

ASU 2018-18 Collaborative Arrangements - Clarifying the Interaction between Topic 808 (Collaborative Arrangements) and Topic 606 (Revenue from Contracts with Customers): On January 1, 2020, Eastman adopted this standard, retrospectively to the date of the initial application of Topic 606 on January 1, 2017, that provides clarification in regards to which contracts are accounted for under Topic 808 and Topic 606 as well as alignment of guidance between the two pronouncements. The adoption of this standard did not impact the Company's financial statements and related disclosures.

ASU 2019-01 Leases - Codification Improvements: On January 1, 2020, Eastman adopted this standard which was applied as of the adoption date and under the same transition methodology of ASU 2016-02 Lease previously adopted on January 1, 2019. The FASB issued this update in response to stakeholder inquiries regarding the new leasing standard. The adoption of this standard did not impact the Company's financial statements and related disclosures.

ASU 2020-04 Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting: Eastman adopted this standard when issued and effective on March 12, 2020. The FASB issued this update to provide optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform (the global financial markets transition in contracts, hedging relationships, and other transactions away from referencing the London Interbank Offered Rate (LIBOR) and other interbank offered rates and toward new reference rates) on financial reporting. As reference reform has not impacted Eastman as of the issuance and effective date, the adoption of this standard did not impact the Company's financial statements and related disclosures.



Accounting Standards Issued But Not Adopted as of March 31, 2020

ASU 2018-14 Retirement Benefits - Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans: In August 2018, the FASB issued this update as a part of its disclosure framework project to improve the effectiveness of disclosures in the notes to financial statements. The primary change impacting Eastman is the addition of disclosures related to significant gains and losses related to changes in the benefit obligation for the period and weighted-average interest crediting rates for cash balance plans. This standard is effective for fiscal years ending after December 15, 2020 and early adoption is permitted. Upon adoption, this update is to be applied on a retrospective basis to all periods presented. Management does not expect that changes required by the new standard will materially impact the Company's related disclosures.

ASU 2019-12 Income Taxes - Simplifying the Accounting for Income Taxes: In December 2019, the FASB issued this update as part of its initiative to reduce complexity in accounting standards which removes certain exceptions and provides simplification to specific tax items. This standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted, including adoption in any interim period for which financial statements have not yet been issued. Adoption methods vary based on the specific items impacted. Management is currently evaluating the impact on the Company's financial statements and related disclosures.

ASU 2020-01 Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic 815: In January 2020, the FASB issued a clarification that an entity should consider observable transactions that require the application or discontinuance of the equity method of accounting for the purposes of applying the measurement alternative and clarification that certain forward contracts and purchased options to purchase securities that, upon settlement, would be accounted for under the equity method of accounting. This standard is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted, including adoption in any interim period for which financial statements have not yet been issued. The update is to be applied prospectively. Management does not expect that changes required by the new standard will materially impact the Company's financial statements and related disclosures.

Working Capital Management and Off Balance Sheet Arrangements

In 2019, the Company expanded its 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 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 amount of receivables sold in first quarter 2020 and 2019 were $457 million and $101 million, respectively.

The Company works with suppliers to optimize payment terms and conditions on accounts payable to enhance timing of working capital and cash flows. As part of these efforts, in 2019, the Company introduced a voluntary supply chain finance program to provide suppliers with the opportunity to sell receivables due from Eastman to a participating financial institution. Eastman's responsibility is limited to making payments on the terms originally negotiated with suppliers, regardless of whether the suppliers sells their receivables to the financial institution. The range of payment terms Eastman negotiates with suppliers are consistent, regardless of whether a supplier participates in the program. All of Eastman's accounts payable and associated payments are reported consistently in the Company's Consolidated Statements of Financial Position and Consolidated Statements of Cash Flows regardless of whether they are associated with a vendor who participates in the program.



 March 31,December 31,
(Dollars in millions)20202019
Finished goods$1,138  $1,114  
Work in process221  220  
Raw materials and supplies548  576  
Total inventories at FIFO or average cost1,907  1,910  
Less: LIFO reserve248  248  
Total inventories$1,659  $1,662  

Inventories valued on the last-in, first-out ("LIFO") method were approximately 50 percent of total inventories at both March 31, 2020 and December 31, 2019.

 March 31,December 31,
(Dollars in millions)20202019
Trade creditors$770  $890  
Accrued payroll and variable compensation127  176  
Accrued taxes79  89  
Post-employment obligations84  93  
Dividends payable to shareholders90  90  
Other270  280  
Total payables and other current liabilities$1,420  $1,618  

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

 First Quarter
(Dollars in millions)20202019
Provision for income taxes and tax rate$56  18 %$55  21 %

First quarter 2019 effective tax rate included adjustments to the tax provision to reflect planned amendments to and expected finalization of a prior year's income tax return in a foreign jurisdiction resulting in a higher effective tax rate compared to first quarter 2020.

At March 31, 2020, Eastman had $202 million in unrecognized tax benefits. At the end of the first quarter, it is reasonably possible 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 $28 million within the next 12 months.



 March 31,December 31,
(Dollars in millions)20202019
Borrowings consisted of:
4.5% notes due January 2021$185  $185  
3.5% notes due December 2021298  298  
3.6% notes due August 2022741  741  
1.50% notes due May 2023 (1)
821  840  
7 1/4% debentures due January 2024198  198  
7 5/8% debentures due June 202443  43  
3.8% notes due March 2025700  695  
1.875% notes due November 2026 (1)
543  556  
7.60% debentures due February 2027195  195  
4.5% notes due December 2028493  493  
4.8% notes due September 2042493  493  
4.65% notes due October 2044874  874  
Commercial paper and short-term borrowings310  171  
Credit facilities borrowings400    
Total borrowings6,294  5,782  
Borrowings due within one year895  171  
Long-term borrowings$5,399  $5,611  
(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 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.

Revolving Credit Facilities and Commercial Paper Borrowings

The Company has access to a $1.50 billion revolving credit agreement (the "Credit Facility") expiring October 2023. 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 provides available liquidity for general corporate purposes and supports commercial paper borrowings. Commercial paper borrowings are classified as short-term. At March 31, 2020, the Company's borrowings under the Credit Facility were $400 million with an interest rate of 2.17 percent. At December 31, 2019, the Company had no outstanding borrowings under the Credit Facility. At March 31, 2020, the Company's commercial paper borrowings were $310 million with a weighted average interest rate of 3.13 percent. At December 31, 2019, the Company's commercial paper borrowings were $170 million with a weighted average interest rate of 2.03 percent.

The Company had access to up to $250 million under an accounts receivable securitization agreement (the "A/R Facility") which expired April 2020. Eastman Chemical Financial Corporation ("ECFC"), a subsidiary of the Company, had an agreement to sell interests in trade receivables under the A/R Facility to a third party purchaser. Third party creditors of ECFC had first priority claims on the assets of ECFC before those assets would be available to satisfy the Company's general obligations. Borrowings under the A/R Facility were subject to interest rates based on a spread over the lender's borrowing costs, and ECFC paid a fee to maintain availability of the A/R Facility. In first quarter 2020, the Company borrowed a total of $350 million under the A/R Facility and repaid a total of $350 million using available cash. At March 31, 2020 and December 31, 2019, the Company had no borrowings outstanding under the A/R Facility.

The Credit Facility and A/R Facility 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 covenants at both March 31, 2020 and December 31, 2019.



Fair Value of Borrowings

Eastman has classified its total borrowings at March 31, 2020 and December 31, 2019 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 2019 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, primarily under the Credit Facility and commercial paper, equals the carrying value and is classified as Level 2. At March 31, 2020 and December 31, 2019, the fair value of total borrowings was $6.606 billion and $6.275 billion, respectively. The Company had no borrowings classified as Level 3 as of March 31, 2020 and December 31, 2019.

Subsequent Actions

In April 2020, the Company borrowed $250 million under a new 364-Day Term Loan Credit Agreement (the "Term Loan") as a precautionary measure due to increased financial market volatility, particularly in the availability and terms of commercial paper, resulting from the COVID-19 coronavirus global pandemic ("COVID-19"). Borrowings under the Term Loan are subject to interest at varying spreads above quoted market rates depending on the Company's public debt rating and with principal and accrued interest payable April 2021. The Term Loan contains the same customary covenants and events of default, including maintenance of certain financial ratios, as the Credit Facility, with payment of customary fees.

Additionally, the Company amended the Credit Facility and the Term Loan maximum debt covenants to reflect the higher cash balance to enhance liquidity due to, and the expected negative impact on operating results of, COVID-19 and added a new restrictive covenant prohibiting stock repurchases until June 30, 2021 in the event certain financial ratios are exceeded.


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 9, "Derivative and Non-Derivative Financial Instruments", to the consolidated financial statements in Part II, Item 8 of the Company's 2019 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") located in the Unaudited Consolidated Statements of Financial Position and reclassified in 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.

In first quarter 2020, Eastman entered into a forward-starting interest rate swap with a total notional amount of $25 million to mitigate the risk of variability in interest rates for an expected long-term debt issuance by August 2022. This swap was designated as a cash flow hedge and will be settled upon debt issuance.



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 recognized 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 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 located in the Unaudited Consolidated Statements of Financial Position. Cash flows from the CTA component are classified as operating activities in the Unaudited Consolidated Statements of Cash Flows. Recognition in earnings of amounts previously recognized in CTA is limited to circumstances such as complete or substantially complete liquidation of the net investment in the hedged foreign operation. In the event of a complete or substantially complete liquidation of the net investment, cash flows from net investment hedges are classified as investing activities in the Unaudited Consolidated Statements of Cash Flows.

For derivative cross-currency interest rate swap net investment hedges, gains and losses representing hedge components excluded from the assessment of effectiveness are recognized in CTA within AOCI and recognized in earnings through the periodic swap interest accruals. The cross-currency interest rate swaps designated as net investment hedges are included as part of "Other long-term liabilities" or "Other noncurrent assets" within 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.



Summary of Financial Position and Financial Performance of Hedging Instruments

The following table presents the notional amounts outstanding at March 31, 2020 and December 31, 2019 associated with Eastman's hedging programs.
Notional OutstandingMarch 31, 2020December 31, 2019
Derivatives designated as cash flow hedges:
Foreign Exchange Forward and Option Contracts (in millions)
EUR/USD (in EUR)585630
Commodity Forward and Collar Contracts
Feedstock (in million barrels)1  1  
Energy (in million british thermal units)21  27  
Interest rate swaps for the future issuance of debt (in millions)$25  
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)851851
Non-derivatives designated as net investment hedges:
Foreign Currency Net Investment Hedges (in millions)
EUR/USD (in EUR)1,2431,243

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. 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 first quarter 2020 or 2019.

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.



The Company has elected to present derivative contracts on a gross basis within 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 located within the Unaudited Consolidated Statements of Financial Position as of March 31, 2020 and December 31, 2019.

The Financial Position and Fair Value Measurements of Hedging Instruments on a Gross Basis
(Dollars in millions) 
Derivative TypeStatements of Financial
Position Classification
March 31, 2020
Level 2
December 31, 2019
Level 2
Derivatives designated as cash flow hedges:   
Foreign exchange contractsOther current assets$18  $13  
Foreign exchange contractsOther noncurrent assets11  2  
Derivatives designated as fair value hedges:
Fixed-for-floating interest rate swapOther noncurrent assets4  1  
Derivatives designated as net investment hedges:
Cross-currency interest rate swapsOther current assets17    
Cross-currency interest rate swapsOther noncurrent assets110  68  
Total Derivative Assets$160  $84  
Derivatives designated as cash flow hedges:
Commodity contractsPayables and other current liabilities$22  $26  
Commodity contractsOther long-term liabilities1  2  
Foreign exchange contractsPayables and other current liabilities  1  
Foreign exchange contractsOther long-term liabilities  2  
Forward starting interest rate swap contractsOther long-term liabilities1    
Derivatives designated as fair value hedges:
Fixed-for-floating interest rate swapLong-term borrowings  1  
Total Derivative Liabilities$24