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 2020-09-30 Filed 2020-11-03
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10-K 2014-12-31 Filed 2015-02-27
10-Q 2014-09-30 Filed 2014-11-04
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10-K 2013-12-31 Filed 2014-02-28
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10-K 2012-12-31 Filed 2013-02-28
10-Q 2012-09-30 Filed 2012-10-31
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10-K 2011-12-31 Filed 2012-02-22
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10-K 2009-12-31 Filed 2010-02-24
8-K 2020-10-29
8-K 2020-08-03
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
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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-10.01 emn20200930ex1001.htm
EX-31.01 emn20200930ex3101.htm
EX-31.02 emn20200930ex3102.htm
EX-32.01 emn20200930ex3201.htm
EX-32.02 emn20200930ex3202.htm

Eastman Chemical Earnings 2020-09-30

Balance SheetIncome StatementCash Flow
2016128402012201420172020
Assets, Equity
2.72.11.61.00.5-0.12012201420172020
Rev, G Profit, Net Income
3.01.70.4-0.8-2.1-3.42012201420172020
Ops, Inv, Fin

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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 endedSeptember 30, 2020
 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 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 September 30, 2020
Common Stock, par value $0.01 per share135,467,894
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1

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TABLE OF CONTENTS
ITEM PAGE


PART I.  FINANCIAL INFORMATION

 
   
 
 
 
 
   
   
   

PART II.  OTHER INFORMATION

   

SIGNATURES

 

2

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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", 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.

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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS,
COMPREHENSIVE INCOME AND RETAINED EARNINGS
 Third QuarterFirst Nine Months
(Dollars in millions, except per share amounts)2020201920202019
Sales$2,122 $2,325 $6,287 $7,068 
Cost of sales1,621 1,751 4,838 5,331 
Gross profit501 574 1,449 1,737 
Selling, general and administrative expenses165 163 480 515 
Research and development expenses56 59 169 174 
Asset impairments and restructuring charges, net60 2 215 52 
Other components of post-employment (benefit) cost, net(30)(20)(90)(62)
Other (income) charges, net7 3 10  
Earnings before interest and taxes243 367 665 1,058 
Net interest expense52 54 159 165 
Early debt extinguishment costs1  1  
Earnings before income taxes190 313 505 893 
Provision for income taxes25 46 50 158 
Net earnings165 267 455 735 
Less: Net earnings attributable to noncontrolling interest4 1 9 2 
Net earnings attributable to Eastman$161 $266 $446 $733 
Basic earnings per share attributable to Eastman$1.19 $1.95 $3.29 $5.31 
Diluted earnings per share attributable to Eastman$1.18 $1.93 $3.27 $5.27 

Comprehensive Income  
Net earnings including noncontrolling interest$165 $267 $455 $735 
Other comprehensive income (loss), net of tax:  
Change in cumulative translation adjustment(20)23 (15)40 
Defined benefit pension and other postretirement benefit plans:  
Amortization of unrecognized prior service credits(7)(7)(21)(22)
Derivatives and hedging:  
Unrealized gain (loss) during period(13)10 (9)(2)
Reclassification adjustment for (gains) losses included in net income, net6 6 16 6 
Total other comprehensive income (loss), net of tax(34)32 (29)22 
Comprehensive income including noncontrolling interest131 299 426 757 
Less: Comprehensive income attributable to noncontrolling interest4 1 9 2 
Comprehensive income attributable to Eastman$127 $298 $417 $755 
Retained Earnings    
Retained earnings at beginning of period$8,071 $7,848 $7,965 $7,573 
Cumulative effect adjustment resulting from adoption of new accounting standards— — — (20)
Net earnings attributable to Eastman161 266 446 733 
Cash dividends declared(90)(85)(269)(257)
Retained earnings at end of period$8,142 $8,029 $8,142 $8,029 

The accompanying notes are an integral part of these consolidated financial statements.
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UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
September 30,December 31,
(Dollars in millions, except per share amounts)20202019
Assets
Current assets
Cash and cash equivalents$650 $204 
Trade receivables, net of allowance for doubtful accounts1,077 980 
Miscellaneous receivables377 395 
Inventories1,338 1,662 
Other current assets92 80 
Total current assets3,534 3,321 
Properties
Properties and equipment at cost13,332 12,904 
Less: Accumulated depreciation7,843 7,333 
Net properties5,489 5,571 
Goodwill4,443 4,431 
Intangible assets, net of accumulated amortization1,802 2,011 
Other noncurrent assets741 674 
Total assets$16,009 $16,008 
Liabilities and Stockholders' Equity
Current liabilities
Payables and other current liabilities$1,419 $1,618 
Borrowings due within one year370 171 
Total current liabilities1,789 1,789 
Long-term borrowings5,495 5,611 
Deferred income tax liabilities928 915 
Post-employment obligations939 1,016 
Other long-term liabilities702 645 
Total liabilities9,853 9,976 
Stockholders' equity
Common stock ($0.01 par value – 350,000,000 shares authorized; shares issued – 220,247,546 and 219,638,646 for 2020 and 2019, respectively)2 2 
Additional paid-in capital2,134 2,105 
Retained earnings8,142 7,965 
Accumulated other comprehensive income (loss)(243)(214)
10,035 9,858 
Less: Treasury stock at cost (84,830,450 shares for 2020 and 83,696,398 shares for 2019)3,960 3,900 
Total Eastman stockholders' equity6,075 5,958 
Noncontrolling interest81 74 
Total equity6,156 6,032 
Total liabilities and stockholders' equity$16,009 $16,008 

The accompanying notes are an integral part of these consolidated financial statements.
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UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
First Nine Months
(Dollars in millions)20202019
Operating activities
Net earnings$455 $735 
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization429 462 
Asset impairment charges145  
Early debt extinguishment costs1  
(Benefit from) provision for deferred income taxes(14)13 
Changes in operating assets and liabilities, net of effect of acquisitions and divestitures:
(Increase) decrease in trade receivables(90)(50)
(Increase) decrease in inventories316 (122)
Increase (decrease) in trade payables(213)(183)
Pension and other postretirement contributions (in excess of) less than expenses(108)(97)
Variable compensation (in excess of) less than expenses25 (15)
Other items, net103 90 
Net cash provided by operating activities1,049 833 
Investing activities
Additions to properties and equipment(278)(308)
Acquisitions, net of cash acquired (48)
Other items, net(4)(4)
Net cash used in investing activities(282)(360)
Financing activities
Net increase (decrease) in commercial paper and other borrowings14 149 
Proceeds from borrowings249 335 
Repayment of borrowings (250)(385)
Dividends paid to stockholders(269)(258)
Treasury stock purchases (60)(325)
Other items, net(6)(3)
Net cash used in financing activities(322)(487)
Effect of exchange rate changes on cash and cash equivalents1 (5)
Net change in cash and cash equivalents446 (19)
Cash and cash equivalents at beginning of period204 226 
Cash and cash equivalents at end of period$650 $207 

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

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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 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 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 unaudited 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.

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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Accounting Standards Issued But Not Adopted as of September 30, 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. 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

Since 2019, the Company has been expanding 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 amounts sold in third quarter 2020 and 2019 were $336 million and $190 million, respectively, and $1.20 billion and $460 million in first nine months 2020 and 2019, 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 sell 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 Unaudited Consolidated Statements of Financial Position and Unaudited Consolidated Statements of Cash Flows regardless of whether they are associated with a vendor who participates in the program.



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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
2.INVENTORIES
 September 30,December 31,
(Dollars in millions)20202019
Finished goods$873 $1,114 
Work in process191 220 
Raw materials and supplies510 576 
Total inventories at FIFO or average cost1,574 1,910 
Less: LIFO reserve236 248 
Total inventories$1,338 $1,662 

Inventories valued on the last-in, first-out ("LIFO") method were approximately 50 percent of total inventories at both September 30, 2020 and December 31, 2019. In third quarter 2020, a $10 million LIFO decrement was recognized due to inventory reduction actions, resulting in an increase to "Cost of sales" in the Unaudited Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings and a decrease to "Inventories" in the Unaudited Consolidated Statements of Financial Position.

3.PAYABLES AND OTHER CURRENT LIABILITIES
 September 30,December 31,
(Dollars in millions)20202019
Trade creditors$663 $890 
Accrued payroll and variable compensation188 176 
Accrued taxes90 89 
Post-employment obligations139 93 
Dividends payable to shareholders89 90 
Other250 280 
Total payables and other current liabilities$1,419 $1,618 

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

4.INCOME TAXES
 Third QuarterFirst Nine Months
(Dollars in millions)2020201920202019
$%$%$%$%
Provision for income taxes and tax rate$25 13 %$46 15 %$50 10 %$158 18 %

First nine months 2020 effective tax rate included a $19 million decrease to the provision for income taxes as a result of a decrease in unrecognized tax positions and a $7 million decrease to the provision for income taxes related to adjustments to certain prior year tax returns. Third quarter and first nine months 2019 effective tax rates included adjustments to the tax provision to reflect amendments to and finalization of prior year's income tax returns.

At September 30, 2020 and December 31, 2019, Eastman had $194 million and $202 million, respectively, in unrecognized tax benefits. At September 30, 2020, 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 $10 million to $55 million within the next 12 months.

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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
5.BORROWINGS
 September 30,December 31,
(Dollars in millions)20202019
Borrowings consisted of:
4.5% notes due January 2021 (1)
$185 $185 
3.5% notes due December 2021298 298 
3.6% notes due August 2022743 741 
1.50% notes due May 2023 (2)
876 840 
7 1/4% debentures due January 2024198 198 
7 5/8% debentures due June 202443 43 
3.8% notes due March 2025701 695 
1.875% notes due November 2026 (2)
581 556 
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 borrowings185 171 
Total borrowings5,865 5,782 
Borrowings due within one year370 171 
Long-term borrowings$5,495 $5,611 
(1)In October 2020, the Company repaid the 4.5% notes due January 2021 ($185 million principal) using available cash.
(2)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.

Loan Agreement, Credit Facility, and Commercial Paper Borrowings

In second quarter 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"). In third quarter 2020, the Term Loan was repaid using available cash. The early repayment resulted in a charge of $1 million for early debt extinguishment costs which was primarily attributable to related unamortized issuance costs.

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. In first quarter 2020, the Company borrowed a total of $400 million under the Credit Facility. In second quarter 2020, the Company repaid a total of $400 million using available cash. At September 30, 2020 and December 31, 2019, the Company had no outstanding borrowings under the Credit Facility. At September 30, 2020, the Company's commercial paper borrowings were $185 million with a weighted average interest rate of 0.35 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 Credit Facility contains customary covenants, including requirements to maintain certain financial ratios, that determine the events of default, amounts available, and terms of borrowings. In second quarter 2020, 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. The Company was in compliance with all applicable covenants at both September 30, 2020 and December 31, 2019.

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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The Company did not renew the $250 million 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, in two tranches, under the A/R Facility and repaid a total of $350 million using available cash. At December 31, 2019, the Company had no borrowings outstanding under the A/R Facility.

Fair Value of Borrowings

Eastman has classified its total borrowings at September 30, 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 September 30, 2020 and December 31, 2019, the fair value of total borrowings was $6.529 billion and $6.275 billion, respectively. The Company had no borrowings classified as Level 3 as of September 30, 2020 and December 31, 2019.

6.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 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 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.

In first, second, and third quarters 2020, Eastman entered into forward-starting interest rate swaps with a notional amount of $25 million in each period to mitigate the risk of variability in interest rates for an expected long-term debt issuance by August 2022. These swaps were designated as cash flow hedges and will be settled upon debt issuance. The total outstanding forward starting swaps as of September 30, 2020 was $75 million.

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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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 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", "Other noncurrent assets", "Payables and other current liabilities", or "Other current 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.

In September 2020, 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 €150 million ($180 million) which was scheduled to mature in January 2021. The termination resulted in a $3 million gain recognized in CTA. The related cash flows were classified as investing activities in the Unaudited Consolidated Statements of Cash Flows.

In September 2020, the Company entered into fixed-to-fixed cross-currency swaps and designated these swaps to hedge a portion of its net investment in a euro functional currency denominated subsidiary against foreign currency fluctuations. These contracts involve the exchange of fixed U.S. dollars with fixed euro interest payments periodically over the life of the contracts and an exchange of the notional amounts at maturity. The fixed-to-fixed cross-currency swaps include €152 million ($180 million) maturing December 2028.

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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Summary of Financial Position and Financial Performance of Hedging Instruments

The following table presents the notional amounts outstanding at September 30, 2020 and December 31, 2019 associated with Eastman's hedging programs.
Notional OutstandingSeptember 30, 2020December 31, 2019
Derivatives designated as cash flow hedges:
Foreign Exchange Forward and Option Contracts (in millions)
EUR/USD (in EUR)549630
Commodity Forward and Collar Contracts
Feedstock (in million barrels) 1 
Energy (in million british thermal units)22 27 
Interest rate swaps for the future issuance of debt (in millions)$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)853851
Non-derivatives designated as net investment hedges:
Foreign Currency Net Investment Hedges (in millions)
EUR/USD (in EUR)1,2441,243

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. The Company had no derivatives classified as Level 3 as of September 30, 2020 and December 31, 2019. 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 third quarter and first nine months 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.

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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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 within the Unaudited Consolidated Statements of Financial Position as of September 30, 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
September 30, 2020
Level 2
December 31, 2019
Level 2
Derivatives designated as cash flow hedges:   
Commodity contractsOther current assets$5 $ 
Commodity contractsOther noncurrent assets1  
Foreign exchange contractsOther current assets1