
Table of Contents

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 ended	~~September~~June 30, ~~2021~~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)


Delaware		62-1539359
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification no.)

200 South Wilcox Drive
Kingsport	Tennessee	37662
(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

EMN

New York Stock Exchange

1.50% Notes Due 2023

EMN23

New York Stock Exchange

1.875% Notes Due 2026

EMN26

New 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.


Class			Number of Shares Outstanding at ~~September~~June 30, ~~2021~~2022
Common Stock, par value $0.01 per share			~~134,440,279~~122,808,505

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TABLE OF CONTENTS


ITEM						PAGE


			Forward-Looking Statements			3

PART I. FINANCIAL INFORMATION


1.	1.	Financial Statements		1.	Financial Statements

		Unaudited Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings	4		Unaudited Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings	4
		Unaudited Consolidated Statements of Financial Position	5		Unaudited Consolidated Statements of Financial Position	5
		Unaudited Consolidated Statements of Cash Flows	6		Unaudited Consolidated Statements of Cash Flows	6
		Notes to the Unaudited Consolidated Financial Statements	7		Notes to the Unaudited Consolidated Financial Statements	7

2.	2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	32	2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	34

3.	3.	Quantitative and Qualitative Disclosures About Market Risk	57	3.	Quantitative and Qualitative Disclosures About Market Risk	58

4.	4.	Controls and Procedures	57	4.	Controls and Procedures	58

PART II. OTHER INFORMATION

SIGNATURES


			Signatures			62


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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 ~~such statements are made.~~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


		Third Quarter				First Nine Months					Second Quarter				First Six Months
(Dollars in millions, except per share amounts)	(Dollars in millions, except per share amounts)	2021		2020		2021		2020		(Dollars in millions, except per share amounts)	2022		2021		2022		2021
Sales	Sales	$	2,720	$	2,122	$	7,782	$	6,287	Sales	$	2,784	$	2,653	$	5,498	$	5,062
Cost of sales	Cost of sales	2,058		1,621		5,841		4,838		Cost of sales	2,114		1,972		4,278		3,783
Gross profit	Gross profit	662		501		1,941		1,449		Gross profit	670		681		1,220		1,279
Selling, general and administrative expenses	Selling, general and administrative expenses	201		165		587		480		Selling, general and administrative expenses	185		202		381		386
Research and development expenses	Research and development expenses	66		56		187		169		Research and development expenses	67		63		132		121
Asset impairments and restructuring charges, net	Asset impairments and restructuring charges, net	7		60		29		215		Asset impairments and restructuring charges, net	19		15		21		22
Other components of post-employment (benefit) cost, net	Other components of post-employment (benefit) cost, net	(36)		(30)		(109)		(90)		Other components of post-employment (benefit) cost, net	(34)		(37)		(65)		(73)
Other (income) charges, net	Other (income) charges, net	(6)		7		(11)		10		Other (income) charges, net	14		(1)		2		(5)
Loss on business held for sale		60		—		555		—
Earnings before interest and taxes		370		243		703		665
Net (gain) loss on divested businesses										Net (gain) loss on divested businesses	(7)		495		(10)		495
Earnings (loss) before interest and taxes										Earnings (loss) before interest and taxes	426		(56)		759		333
Net interest expense	Net interest expense	49		52		150		159		Net interest expense	45		51		91		101
Early debt extinguishment costs		—		1		—		1
Earnings before income taxes		321		190		553		505

Earnings (loss) before income taxes										Earnings (loss) before income taxes	381		(107)		668		232
Provision for income taxes	Provision for income taxes	(33)		25		66		50		Provision for income taxes	124		37		175		99
Net earnings		354		165		487		455
Net earnings (loss)										Net earnings (loss)	257		(144)		493		133
Less: Net earnings attributable to noncontrolling interest	Less: Net earnings attributable to noncontrolling interest	3		4		8		9		Less: Net earnings attributable to noncontrolling interest	1		2		2		5
Net earnings attributable to Eastman		$	351	$	161	$	479	$	446
Net earnings (loss) attributable to Eastman										Net earnings (loss) attributable to Eastman	$	256	$	(146)	$	491	$	128

Basic earnings per share attributable to Eastman		$	2.60	$	1.19	$	3.53	$	3.29
Diluted earnings per share attributable to Eastman		$	2.57	$	1.18	$	3.49	$	3.27
Basic earnings (loss) per share attributable to Eastman										Basic earnings (loss) per share attributable to Eastman	$	2.05	$	(1.07)	$	3.87	$	0.94
Diluted earnings (loss) per share attributable to Eastman										Diluted earnings (loss) per share attributable to Eastman	$	2.03	$	(1.07)	$	3.82	$	0.93


Comprehensive Income	Comprehensive Income									Comprehensive Income
Net earnings including noncontrolling interest		$	354	$	165	$	487	$	455
Net earnings (loss) including noncontrolling interest										Net earnings (loss) including noncontrolling interest	$	257	$	(144)	$	493	$	133
Other comprehensive income (loss), net of tax:	Other comprehensive income (loss), net of tax:									Other comprehensive income (loss), net of tax:
Change in cumulative translation adjustment	Change in cumulative translation adjustment	2		(20)		13		(15)		Change in cumulative translation adjustment	16		9		23		11
Defined benefit pension and other postretirement benefit plans:	Defined benefit pension and other postretirement benefit plans:									Defined benefit pension and other postretirement benefit plans:

Amortization of unrecognized prior service credits	Amortization of unrecognized prior service credits	(7)		(7)		(21)		(21)		Amortization of unrecognized prior service credits	(9)		(7)		(15)		(14)
Derivatives and hedging:	Derivatives and hedging:									Derivatives and hedging:
Unrealized gain (loss) during period	Unrealized gain (loss) during period	57		(13)		86		(9)		Unrealized gain (loss) during period	27		4		67		29
Reclassification adjustment for (gains) losses included in net income, net	Reclassification adjustment for (gains) losses included in net income, net	(4)		6		10		16		Reclassification adjustment for (gains) losses included in net income, net	(32)		9		(36)		14
Total other comprehensive income (loss), net of tax	Total other comprehensive income (loss), net of tax	48		(34)		88		(29)		Total other comprehensive income (loss), net of tax	2		15		39		40
Comprehensive income including noncontrolling interest		402		131		575		426
Comprehensive income (loss) including noncontrolling interest										Comprehensive income (loss) including noncontrolling interest	259		(129)		532		173
Less: Comprehensive income attributable to noncontrolling interest	Less: Comprehensive income attributable to noncontrolling interest	3		4		8		9		Less: Comprehensive income attributable to noncontrolling interest	1		2		2		5
Comprehensive income (loss) attributable to Eastman	Comprehensive income (loss) attributable to Eastman	$	399	$	127	$	567	$	417	Comprehensive income (loss) attributable to Eastman	$	258	$	(131)	$	530	$	168
Retained Earnings	Retained Earnings									Retained Earnings
Retained earnings at beginning of period	Retained earnings at beginning of period	$	8,020	$	8,071	$	8,080	$	7,965	Retained earnings at beginning of period	$	8,694	$	8,260	$	8,557	$	8,080

Net earnings attributable to Eastman		351		161		479		446
Net earnings (loss) attributable to Eastman										Net earnings (loss) attributable to Eastman	256		(146)		491		128
Cash dividends declared	Cash dividends declared	(93)		(90)		(281)		(269)		Cash dividends declared	(93)		(94)		(191)		(188)
Retained earnings at end of period	Retained earnings at end of period	$	8,278	$	8,142	$	8,278	$	8,142	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


		September 30,		December 31,			June 30,		December 31,
(Dollars in millions, except per share amounts)	(Dollars in millions, except per share amounts)	2021		2020		(Dollars in millions, except per share amounts)	2022		2021
Assets	Assets					Assets
Current assets	Current assets					Current assets
Cash and cash equivalents	Cash and cash equivalents	$	717	$	564	Cash and cash equivalents	$	456	$	459
Trade receivables, net of allowance for doubtful accounts	Trade receivables, net of allowance for doubtful accounts	1,356		1,033		Trade receivables, net of allowance for doubtful accounts	1,210		1,091
Miscellaneous receivables	Miscellaneous receivables	351		482		Miscellaneous receivables	425		489
Inventories	Inventories	1,630		1,379		Inventories	1,826		1,504
Other current assets	Other current assets	68		83		Other current assets	86		96
Assets held for sale	Assets held for sale	753		—		Assets held for sale	—		1,007
Total current assets	Total current assets	4,875		3,541		Total current assets	4,003		4,646
Properties	Properties					Properties
Properties and equipment at cost	Properties and equipment at cost	13,138		13,531		Properties and equipment at cost	12,743		12,680
Less: Accumulated depreciation	Less: Accumulated depreciation	7,966		7,982		Less: Accumulated depreciation	7,784		7,684
Net properties	Net properties	5,172		5,549		Net properties	4,959		4,996
Goodwill	Goodwill	4,044		4,465		Goodwill	3,663		3,641
Intangible assets, net of accumulated amortization	Intangible assets, net of accumulated amortization	1,407		1,792		Intangible assets, net of accumulated amortization	1,248		1,362
Other noncurrent assets	Other noncurrent assets	761		736		Other noncurrent assets	1,002		874
Total assets	Total assets	$	16,259	$	16,083	Total assets	$	14,875	$	15,519

Liabilities and Stockholders' Equity	Liabilities and Stockholders' Equity					Liabilities and Stockholders' Equity
Current liabilities	Current liabilities					Current liabilities
Payables and other current liabilities	Payables and other current liabilities	$	1,970	$	1,689	Payables and other current liabilities	$	2,169	$	2,133
Borrowings due within one year	Borrowings due within one year	1,046		349		Borrowings due within one year	979		747
Liabilities held for sale	Liabilities held for sale	97		—		Liabilities held for sale	—		91
Total current liabilities	Total current liabilities	3,113		2,038		Total current liabilities	3,148		2,971
Long-term borrowings	Long-term borrowings	4,442		5,269		Long-term borrowings	4,012		4,412
Deferred income tax liabilities	Deferred income tax liabilities	827		848		Deferred income tax liabilities	738		810
Post-employment obligations	Post-employment obligations	1,009		1,143		Post-employment obligations	768		811
Other long-term liabilities	Other long-term liabilities	661		677		Other long-term liabilities	802		727
Total liabilities	Total liabilities	10,052		9,975		Total liabilities	9,468		9,731
Stockholders' equity	Stockholders' equity					Stockholders' equity
Common stock ($0.01 par value – 350,000,000 shares authorized; shares issued – 221,763,043 and 220,641,506 for 2021 and 2020, respectively)		2		2
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)						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 capital	Additional paid-in capital	2,275		2,174		Additional paid-in capital	2,179		2,187
Retained earnings	Retained earnings	8,278		8,080		Retained earnings	8,857		8,557
Accumulated other comprehensive income (loss)	Accumulated other comprehensive income (loss)	(185)		(273)		Accumulated other comprehensive income (loss)	(143)		(182)
		10,370		9,983			10,895		10,564
Less: Treasury stock at cost (87,373,562 shares for 2021 and 84,830,450 shares for 2020)		4,250		3,960
Less: Treasury stock at cost (99,558,298 and 92,892,229 shares for 2022 and 2021, respectively)						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' equity	Total Eastman stockholders' equity	6,120		6,023		Total Eastman stockholders' equity	5,323		5,704
Noncontrolling interest	Noncontrolling interest	87		85		Noncontrolling interest	84		84
Total equity	Total equity	6,207		6,108		Total equity	5,407		5,788
Total liabilities and stockholders' equity	Total liabilities and stockholders' equity	$	16,259	$	16,083	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 Nine Months					First Six Months
(Dollars in millions)	(Dollars in millions)	2021		2020		(Dollars in millions)	2022		2021
Operating activities	Operating activities					Operating activities
Net earnings	Net earnings	$	487	$	455	Net earnings	$	493	$	133
Adjustments to reconcile net earnings to net cash provided by operating activities:	Adjustments to reconcile net earnings to net cash provided by operating activities:					Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	416		429		Depreciation and amortization	243		289
Mark-to-market pension and other postretirement benefit plans (gain), net						Mark-to-market pension and other postretirement benefit plans (gain), net	(3)		—
Asset impairment charges						Asset impairment charges	—		5

Asset impairment charges		5		145
Early debt extinguishment costs		—		1
Loss on sale of assets						Loss on sale of assets	15		—

Loss on business held for sale		555		—
Provision for (benefit from) deferred income taxes		(66)		(14)
(Gain) loss on divested business						(Gain) loss on divested business	(10)		495
Benefit from deferred income taxes						Benefit from deferred income taxes	(81)		(28)
Changes in operating assets and liabilities, net of effect of acquisitions and divestitures:	Changes in operating assets and liabilities, net of effect of acquisitions and divestitures:					Changes in operating assets and liabilities, net of effect of acquisitions and divestitures:
(Increase) decrease in trade receivables	(Increase) decrease in trade receivables	(439)		(90)		(Increase) decrease in trade receivables	(163)		(361)
(Increase) decrease in inventories	(Increase) decrease in inventories	(369)		316		(Increase) decrease in inventories	(372)		(214)
Increase (decrease) in trade payables	Increase (decrease) in trade payables	377		(213)		Increase (decrease) in trade payables	179		306
Pension and other postretirement contributions (in excess of) less than expenses	Pension and other postretirement contributions (in excess of) less than expenses	(142)		(108)		Pension and other postretirement contributions (in excess of) less than expenses	(81)		(97)
Variable compensation (in excess of) less than expenses	Variable compensation (in excess of) less than expenses	90		25		Variable compensation (in excess of) less than expenses	(132)		8
Other items, net	Other items, net	275		103		Other items, net	174		106
Net cash provided by operating activities	Net cash provided by operating activities	1,189		1,049		Net cash provided by operating activities	262		642
Investing activities	Investing activities					Investing activities
Additions to properties and equipment	Additions to properties and equipment	(315)		(278)		Additions to properties and equipment	(247)		(198)

Proceeds from sale of businesses						Proceeds from sale of businesses	998		—
Acquisitions, net of cash acquired	Acquisitions, net of cash acquired	(111)		—		Acquisitions, net of cash acquired	(1)		(63)

Additions to capitalized software	Additions to capitalized software	(18)		—		Additions to capitalized software	(7)		(12)
Other items, net	Other items, net	(3)		(4)		Other items, net	13		(4)
Net cash used in investing activities		(447)		(282)
Net cash provided by (used in) investing activities						Net cash provided by (used in) investing activities	756		(277)
Financing activities	Financing activities					Financing activities
Net increase (decrease) in commercial paper and other borrowings		(50)		14
Net decrease in commercial paper and other borrowings						Net decrease in commercial paper and other borrowings	—		(25)
Proceeds from borrowings	Proceeds from borrowings	—		249		Proceeds from borrowings	500		—
Repayment of borrowings	Repayment of borrowings	—		(250)		Repayment of borrowings	(550)		—
Dividends paid to stockholders	Dividends paid to stockholders	(282)		(269)		Dividends paid to stockholders	(196)		(188)
Treasury stock purchases	Treasury stock purchases	(290)		(60)		Treasury stock purchases	(752)		(140)

Proceeds from stock option exercises and other items, net	Proceeds from stock option exercises and other items, net	38		(6)		Proceeds from stock option exercises and other items, net	(12)		38
Net cash used in financing activities	Net cash used in financing activities	(584)		(322)		Net cash used in financing activities	(1,010)		(315)
Effect of exchange rate changes on cash and cash equivalents	Effect of exchange rate changes on cash and cash equivalents	(5)		1		Effect of exchange rate changes on cash and cash equivalents	(11)		(5)
Net change in cash and cash equivalents	Net change in cash and cash equivalents	153		446		Net change in cash and cash equivalents	(3)		45
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	564		204		Cash and cash equivalents at beginning of period	459		564
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	717	$	650	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


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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 ~~2020~~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, ~~2020~~2021 financial position data included herein was derived from the consolidated financial statements included in the ~~2020~~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, ~~sales revenue,~~revenues, and expenses of ~~all majority-owned subsidiaries and joint~~business ventures infor which a controlling interest is ~~maintained.~~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.~~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") ~~ASU 2019-12 Income Taxes - Simplifying the Accounting for Income Taxes~~2021-05 Leases (Topic 842): Lessors—Certain Leases with Variable Lease Payments: On January 1, ~~2021,~~2022, Eastman adopted this update which is a part of the Financial Accounting Standards Board's ("FASB") initiative to reduce complexity in accounting standards. Adoption methods varied based on the specific tax items impacted. The adoption of this standard did not have a material 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: On January 1, 2021, Eastman prospectively adopted this update which provides 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. The adoption of this standard did not have an impact to the Company's financial statements and related disclosures.

~~ASU 2021-01 Reference Rate Reform (Topic 848)~~: In January 2021, the FASB issued this update to clarify that certain optional expedients and exceptions under this topic for contract modifications and hedge accounting apply to derivatives instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform (the global financial markets transition in contracts, hedging relationships, and other transactions from referencing the London Interbank Offered Rate (LIBOR) and other interbank offered rates to new reference rates). This update was effective immediately upon release. The Company has had no reference rate reform modifications to date; this update will be adopted on a prospective basis in the event of any such modifications.

~~Accounting Standards Issued But Not Adopted as of September 30, 2021~~

~~ASU 2021-05 Leases - Lessors - Certain Leases with Variable Lease Payments (Topic 842): In July 2021, this update was issued as a part of the FASB's~~ 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, ~~2021 and~~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 ~~years. Adoption can be applied on either a retrospective or prospective basis.~~year that includes the interim period of early application. Management does not expect that changes required by the new standard will ~~materially~~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 ~~third~~second quarter 2022 and 2021 ~~and 2020~~ were ~~$252~~$637 million and ~~$336~~$298 million, respectively, and ~~$839~~$1,139 million and ~~$1,204~~$587 million in first ~~nine~~six months ~~2021~~2022 and ~~2020,~~2021, respectively.

2.~~BUSINESS HELD FOR SALE~~DIVESTITURES

Rubber Additives Divestiture

On ~~June 9,~~November 1, 2021, ~~Eastman entered into a definitive agreement to sell~~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 was completed November 1, 2021.~~ The sale did not include the Eastman Impera™ and other performance resins product lines of the tire additives business. The Company ~~will provide~~is providing certain ~~rubber additives~~ business transition and post-closing services to the buyer on agreed terms. The business ~~being sold~~ was not reported as a discontinued operation because the sale ~~will~~did not have a major effect on the Company's operations and financial results.

AsThe total estimated consideration, after estimates of ~~the definitive agreement date~~contingent consideration and ~~until sale, the~~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 ~~business disposal group was classified as held for sale and was measured at its fair value less costs to sell, resulting~~through December 2023. The divestiture resulted in a ~~$555~~$552 million loss ~~on the business held for sale~~ (including ~~an estimated total purchase price, estimated working capital settlement, anticipated~~cumulative translation adjustment liquidation of ~~cumulative translation adjustment,~~$23 million and certain costs to ~~sell) in first nine months 2021. The fair value loss adjustment on the disposal group is reported as a component~~sell of ~~"Assets held for sale" in the Unaudited Consolidated Statements of Financial Position.~~

$
10 million

~~The major classes of assets and liabilities of the business classified as held for sale as of September 30, 2021 were as follows:~~


	~~September 30,~~
~~(Dollars in millions)~~	~~2021~~
~~Assets held for sale~~
~~Trade receivables, net of allowance for doubtful accounts~~	$	~~103~~
~~Inventories~~	98
~~Other assets~~	26
~~Properties, net of accumulated depreciation~~	~~304~~
~~Goodwill~~	~~399~~
~~Intangible assets, net of accumulated amortization~~	~~378~~
~~Assets held for sale~~	~~1,308~~
~~Liabilities held for sale~~
~~Payables and other liabilities~~	51
~~Post-employment obligations~~	32
~~Other liabilities~~	14
~~Liabilities held for sale~~	97
~~Disposal group, net~~	$	~~1,211~~

Long-lived assets and definite-lived intangible assets are not depreciated or amortized while classified as held for sale. Separately, the Company recognized $3 million and $8 million of transaction costs for the sale of the business in third quarter 2021 and first nine months 2021, respectively. Transaction costs are expensed as incurred and are included in the "Selling, general and administrative expenses" line item in the Unaudited Consolidated Statements of Earnings, Comprehensive Income, and Retained Earnings.


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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

~~On October 28, 2021,~~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
Inventories	94
Other assets	26
Properties, net of accumulated depreciation	300
Goodwill	398
Intangible assets, net of accumulated amortization	381
Assets divested	1,306
Liabilities divested
Payables and other liabilities	48
Post-employment obligations	34
Other liabilities	18
Liabilities divested	100
Disposal group, net	$	1,206

Separately, the Company ~~entered into a definitive agreement to sell~~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 for $1 billion. The final purchase price is subject to working capital and other adjustments at closing. As of the definitive agreement date and until sale, the adhesives resins business disposal group will be classified as held for sale.segment. The business ~~being sold will~~was not be reported as a discontinued operation because the sale ~~will~~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
Inventories	163
Other assets	21
Properties, net of accumulated depreciation	303
Goodwill	399
Intangible assets, net of accumulated amortization	14
Assets divested	1,029
Liabilities divested
Payables and other liabilities	86
Deferred tax liability	7
Other liabilities	4
Liabilities divested	97
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


		September 30,		December 31,			June 30,		December 31,
(Dollars in millions)	(Dollars in millions)	2021		2020		(Dollars in millions)	2022		2021
Finished goods	Finished goods	$	1,046	$	891	Finished goods	$	1,241	$	1,007
Work in process	Work in process	258		203		Work in process	283		273
Raw materials and supplies	Raw materials and supplies	644		511		Raw materials and supplies	692		589
Total inventories at FIFO or average cost	Total inventories at FIFO or average cost	1,948		1,605		Total inventories at FIFO or average cost	2,216		1,869
Less: LIFO reserve	Less: LIFO reserve	318		226		Less: LIFO reserve	390		365
Total inventories	Total inventories	$	1,630	$	1,379	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 ~~September~~June 30, ~~2021~~2022 and December 31, 2020. During 2020, a $13 million LIFO decrement was recognized due to inventory reduction actions, resulting in an increase to "Cost of sales" in the Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings and a decrease to "Inventories" in the Consolidated Statements of Financial Position.

4.~~PAYABLES AND OTHER CURRENT LIABILITIES~~
September 30, December 31,
(Dollars in millions) 2021 2020
Trade creditors $ 1,121 $ 799
Accrued payroll and variable compensation 282 228
Accrued taxes 128 178
Post-employment obligations 88 138
Other 351 346
Total payables and other current liabilities $ 1,970 $ 1,689

"Other" consists primarily of accruals for dividends payable to stockholders, interest payable, the current portion of operating lease liabilities, restructuring reserves, the current portion of environmental liabilities, and other miscellaneous accruals.2021.

1011


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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

4.PAYABLES AND OTHER CURRENT LIABILITIES


	June 30,		December 31,
(Dollars in millions)	2022		2021
Trade creditors	$	1,395	$	1,228
Accrued payroll and variable compensation	147		311
Accrued taxes	182		138
Post-employment obligations	66		70

Dividends payable to stockholders	96		101
Other	283		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


		Third Quarter								First Nine Months									Second Quarter								First Six Months
(Dollars in millions)	(Dollars in millions)	2021				2020				2021				2020				(Dollars in millions)	2022				2021				2022				2021
		$		%		$		%		$		%		$		%			$		%		$		%		$		%		$		%
Provision for income taxes and tax rate	Provision for income taxes and tax rate	$	(33)	(10)	%	$	25	13	%	$	66	12	%	$	50	10	%	Provision for income taxes and tax rate	$	124	33	%	$	37	—	%	$	175	26	%	$	99	44	%

~~Third~~Second quarter and first ~~nine~~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 $65 million decrease to the provision for income taxes as a result of decreases in unrecognized tax positions, a portion of which related to the 2017 Tax Cuts and Jobs Act. Additionally, first nine months 2021 effective tax rate includes a $20$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. 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 estimated adjustments to certain prior year tax returns.

At ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020~~2021, Eastman had ~~$193~~$204 million and ~~$257~~$200 million, respectively, in unrecognized tax benefits. At ~~September~~June 30, ~~2021,~~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 ~~will~~could decrease by up to ~~$20~~$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 ~~third~~second quarter or first ~~nine~~six months ~~2021~~2022 or ~~2020.~~2021.


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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

6.BORROWINGS


		September 30,		December 31,			June 30,		December 31,
(Dollars in millions)	(Dollars in millions)	2021		2020		(Dollars in millions)	2022		2021
Borrowings consisted of:	Borrowings consisted of:					Borrowings consisted of:
3.5% notes due December 2021		$	300	$	299
3.6% notes due August 2022	3.6% notes due August 2022	746		744		3.6% notes due August 2022	$	200	$	747
1.50% notes due May 2023 (1)	1.50% notes due May 2023 (1)	868		919		1.50% notes due May 2023 (1)	779		850
7 1/4% debentures due January 2024	7 1/4% debentures due January 2024	198		198		7 1/4% debentures due January 2024	198		198
7 5/8% debentures due June 2024	7 5/8% debentures due June 2024	43		43		7 5/8% debentures due June 2024	43		43
3.8% notes due March 2025		699		701
3.80% notes due March 2025						3.80% notes due March 2025	695		698
1.875% notes due November 2026 (1)	1.875% notes due November 2026 (1)	576		609		1.875% notes due November 2026 (1)	517		565
7.60% debentures due February 2027	7.60% debentures due February 2027	195		195		7.60% debentures due February 2027	195		195
4.5% notes due December 2028	4.5% notes due December 2028	494		493		4.5% notes due December 2028	495		494
4.8% notes due September 2042	4.8% notes due September 2042	494		493		4.8% notes due September 2042	494		494
4.65% notes due October 2044	4.65% notes due October 2044	875		874		4.65% notes due October 2044	876		875
Commercial paper and short-term borrowings		—		50

2022 Term loan						2022 Term loan	499		—

Total borrowings	Total borrowings	5,488		5,618		Total borrowings	4,991		5,159
Borrowings due within one year	Borrowings due within one year	1,046		349		Borrowings due within one year	979��		747
Long-term borrowings	Long-term borrowings	$	4,442	$	5,269	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.

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

~~Credit Facility 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 September 30, 2021 and December 31, 2020, the Company had no outstanding borrowings under the Credit Facility. At September 30, 2021, the Company had 0 outstanding commercial paper borrowings. At December 31, 2020, the Company's commercial paper borrowings were $50 million with a weighted average interest rate of 0.25 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 maximum debt covenants to reflect the higher cash balance to enhance liquidity due to, and the expected negative impact on operating results of, the COVID-19 coronavirus global pandemic ("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, 2021 and December 31, 2020.

Fair Value of Borrowings

Eastman has classified its total borrowings at ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020~~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 ~~2020~~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, ~~primarily~~such as commercial paper and the 2022 Term Loan, equals the carrying value and is classified as Level 2. At ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the fair values of total borrowings were ~~$6.125~~$4.857 billion and ~~$6.449~~$5.737 billion, respectively. The Company had no borrowings classified as Level 3 as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020.~~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 9,10, "Derivative and Non-Derivative Financial Instruments", to the consolidated financial statements in Part II, Item 8 of the Company's ~~2020~~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~~"Accumulated other comprehensive income (loss)" ("AOCI") ~~located in~~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.

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 notional amount of outstanding forward starting swaps as of September 30, 2021 was $75 million.


~~Table of Contents~~

~~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~~reported as "Long-term borrowings" on the ~~balance sheet~~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 inon 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" ~~within~~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 ~~September 2020,~~second quarter 2022, the Company ~~entered into~~terminated 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 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 ~~exchange~~Unaudited Consolidated Statements 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.Cash Flows.


~~Table of Contents~~

~~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~~June 30, ~~2021~~2022 and December 31, ~~2020~~2021 associated with Eastman's hedging programs.

Notional Outstanding

September 30, 2021

December 31, 2020

Notional Outstanding

June 30, 2022

December 31, 2021

Derivatives designated as cash flow hedges:

Foreign Exchange Forward and Option Contracts (in millions)

EUR/USD (in EUR)

€467

€521

EUR/USD (in EUR)

€558

€429

Commodity Forward and Collar Contracts

Feedstock (in million barrels)

—

Feedstock (in million barrels)

Energy (in million british thermal units)

Interest rate swaps for the future issuance of debt (in millions)

$75

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

Fixed-for-floating interest rate swaps (in millions)

$75

Derivatives designated as net investment hedges:

Cross-currency interest rate swaps (in millions)

EUR/USD (in EUR)

€853

EUR/USD (in EUR)

€587

€853

Non-derivatives designated as net investment hedges:

Foreign Currency Net Investment Hedges (in millions)

EUR/USD (in EUR)

€1,245

EUR/USD (in EUR)

€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 ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020.~~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 ~~third~~second quarter and first ~~nine~~six months ~~2021~~2022 or ~~2020.~~2021.


Table of Contents

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.

1416


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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The Company has elected to present derivative contracts on a gross basis ~~within~~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 ~~within~~on the Unaudited Consolidated Statements of Financial Position as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020.~~2021.


The Financial Position and Fair Value Measurements of Hedging Instruments on a Gross Basis	The Financial Position and Fair Value Measurements of Hedging Instruments on a Gross Basis						The Financial Position and Fair Value Measurements of Hedging Instruments on a Gross Basis
(Dollars in millions)	(Dollars in millions)						(Dollars in millions)
Derivative Type	Derivative Type	Statements of Financial Position Classification	September 30, 2021 Level 2		December 31, 2020 Level 2		Derivative Type	Statements of Financial Position Classification	June 30, 2022 Level 2		December 31, 2021 Level 2
Derivatives designated as cash flow hedges:	Derivatives designated as cash flow hedges:						Derivatives designated as cash flow hedges:
Commodity contracts	Commodity contracts	Other current assets	$	73	$	1	Commodity contracts	Other current assets	$	16	$	16
Commodity contracts	Commodity contracts	Other noncurrent assets	2		—		Commodity contracts	Other noncurrent assets	—		2
Foreign exchange contracts	Foreign exchange contracts	Other current assets	8		—		Foreign exchange contracts	Other current assets	33		12
Foreign exchange contracts	Foreign exchange contracts	Other noncurrent assets	5		—		Foreign exchange contracts	Other noncurrent assets	14		6
Forward starting interest rate swap contracts	Forward starting interest rate swap contracts	Other noncurrent assets	5		1		Forward starting interest rate swap contracts	Other current assets	13		5

Derivatives designated as fair value hedges:	Derivatives designated as fair value hedges:						Derivatives designated as fair value hedges:
Fixed-for-floating interest rate swap	Fixed-for-floating interest rate swap	Other current assets	—		1		Fixed-for-floating interest rate swap	Other current assets	1		1
Fixed-for-floating interest rate swap	Fixed-for-floating interest rate swap	Other noncurrent assets	2		4		Fixed-for-floating interest rate swap	Other noncurrent assets	—		1

Derivatives designated as net investment hedges:	Derivatives designated as net investment hedges:						Derivatives designated as net investment hedges:
Cross-currency interest rate swaps	Cross-currency interest rate swaps	Other current assets	16		—		Cross-currency interest rate swaps	Other current assets	—		20
Cross-currency interest rate swaps	Cross-currency interest rate swaps	Other noncurrent assets	31		40		Cross-currency interest rate swaps	Other noncurrent assets	83		35
Total Derivative Assets	Total Derivative Assets		$	142	$	47	Total Derivative Assets		$	160	$	98

Derivatives designated as cash flow hedges:	Derivatives designated as cash flow hedges:						Derivatives designated as cash flow hedges:
Commodity contracts	Commodity contracts	Payables and other current liabilities	$	—	$	6	Commodity contracts	Payables and other current liabilities	$	—	$	1

Foreign exchange contracts		Payables and other current liabilities	2		21
Commodity contracts							Commodity contracts	Other long-term liabilities	—		1
Foreign exchange contracts	Foreign exchange contracts	Other long-term liabilities	1		14		Foreign exchange contracts	Payables and other current liabilities	—		1

Derivatives designated as fair value hedges:							Derivatives designated as fair value hedges:
Fixed-for-floating interest rate swap							Fixed-for-floating interest rate swap	Long-term borrowings	3		—

Derivatives designated as net investment hedges:	Derivatives designated as net investment hedges:						Derivatives designated as net investment hedges:
Cross-currency interest rate swaps	Cross-currency interest rate swaps	Other long-term liabilities	11		51		Cross-currency interest rate swaps	Other long-term liabilities	2		5
Total Derivative Liabilities	Total Derivative Liabilities		$	14	$	92	Total Derivative Liabilities		$	5	$	8
Total Net Derivative Assets (Liabilities)	Total Net Derivative Assets (Liabilities)		$	128	$	(45)	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 ~~and $1.5 billion~~ at ~~September 30, 2021 and~~ December 31, ~~2020, respectively.~~2021. The designated foreign currency-denominated borrowings are included as part of "Long-term borrowings" ~~within~~on the Unaudited Consolidated Statements of Financial Position.

For additional fair value measurement information, see Note 1, "Significant Accounting Policies", and Note 9, "Derivative and Non-Derivative Financial Instruments", to the consolidated financial statements in Part II, Item 8 of the Company's 2020 ~~Annual Report on Form 10-K~~.

1517


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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 ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the following amounts were included inon the Unaudited Consolidated Statements of Financial Position related to cumulative basis adjustments for fair value hedges.
(Dollars in millions) Carrying amount of the hedged liabilities Cumulative amount of fair value hedging loss adjustment included in the carrying amount of the hedged liability
Line item in the Unaudited Consolidated Statements of Financial Position in which the hedged item is included September 30, 2021 December 31, 2020 September 30, 2021 December 31, 2020
Long-term borrowings (1)
$ 773 $ 772 $ (1) $ (1)


(Dollars in millions)	Carrying amount of the hedged liabilities				Cumulative 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 included	June 30, 2022		December 31, 2021		June 30, 2022		December 31, 2021
Borrowings due within one year (1)	$	199	$	697	$	(1)	$	(2)
Long-term borrowings	$	72	$	76	$	(3)	$	1

(1)~~At September 30, 2021and December 31, 2020, the cumulative~~Cumulative amount of fair value hedging loss adjustment remaining for hedged liabilities for which hedge accounting has been ~~discontinued was $3 million and $5 million, respectively.~~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 ~~third~~second quarter and first ~~nine~~six months ~~2021~~2022 and ~~2020.~~2021.


		Change in amount of after tax gain (loss) recognized in OCI on derivatives								Pre-tax amount of gain (loss) reclassified from OCI into earnings									Change in amount of after tax gain (loss) recognized in OCI on derivatives								Pre-tax amount of gain (loss) reclassified from OCI into earnings
(Dollars in millions)	(Dollars in millions)	Third Quarter				First Nine Months				Third Quarter				First Nine Months				(Dollars in millions)	Second Quarter				First Six Months				Second Quarter				First Six Months
Hedging Relationships	Hedging Relationships	2021		2020		2021		2020		2021		2020		2021		2020		Hedging Relationships	2022		2021		2022		2021		2022		2021		2022		2021
Derivatives in cash flow hedging relationships:	Derivatives in cash flow hedging relationships:																	Derivatives in cash flow hedging relationships:
Commodity contracts	Commodity contracts	$	40	$	10	$	55	$	20	$	9	$	(5)	$	4	$	(26)	Commodity contracts	$	(25)	$	14	$	(1)	$	15	$	34	$	(5)	$	37	$	(5)
Foreign exchange contracts	Foreign exchange contracts	11		(20)		33		(19)		—		—		(10)		12		Foreign exchange contracts	16		—		22		22		10		(5)		15		(10)
Forward starting interest rate and treasury lock swap contracts	Forward starting interest rate and treasury lock swap contracts	2		2		8		5		(2)		(2)		(7)		(7)		Forward starting interest rate and treasury lock swap contracts	5		(1)		10		6		(3)		(3)		(5)		(5)
Non-derivatives in net investment hedging relationships (pre-tax):	Non-derivatives in net investment hedging relationships (pre-tax):																	Non-derivatives in net investment hedging relationships (pre-tax):
Net investment hedges	Net investment hedges	36		(62)		86		(59)		—		—		—		—		Net investment hedges	87		(19)		148		50		—		—		—		—
Derivatives in net investment hedging relationships (pre-tax):	Derivatives in net investment hedging relationships (pre-tax):																	Derivatives in net investment hedging relationships (pre-tax):
Cross-currency interest rate swaps	Cross-currency interest rate swaps	23		(44)		55		(45)		—		—		—		—		Cross-currency interest rate swaps	12		(10)		35		32		—		—		—		—
Cross-currency interest rate swaps excluded component	Cross-currency interest rate swaps excluded component	(2)		(13)		(7)		25		—		—		—		—		Cross-currency interest rate swaps excluded component	5		6		(5)		(5)		—		—		—		—


~~Table of Contents~~

~~NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

The following table presents the effect of fair value and cash flow hedge accounting on the Unaudited Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings for third quarter 2021 and 2020.
Location and Amount of Gain or (Loss) Recognized in Earnings from Fair Value and Cash Flow Hedging Relationships
Third Quarter
2021 2020
(Dollars in millions) Sales Cost of Sales Net Interest Expense Sales Cost of Sales Net Interest Expense
Total amounts of income and expense line items presented in the Unaudited Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings in which the effects of fair value or cash flow hedges are recognized $ 2,720 $ 2,058 $ 49 $ 2,122 $ 1,621 $ 52
The effects of fair value and cash flow hedging:
Gain or (loss) on fair value hedging relationships:
Interest contracts (fixed-for-floating interest rate swaps):
Hedged items — —
Derivatives designated as hedging instruments — —
Gain or (loss) on cash flow hedging relationships:
Interest contracts (forward starting interest rate and treasury lock swap contracts):
Amount reclassified from AOCI into earnings (2) (2)
Commodity Contracts:
Amount reclassified from AOCI into earnings 9 (5)
Foreign Exchange Contracts:
Amount reclassified from AOCI into earnings — —

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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The following table presents the effect of fair value and cash flow hedge accounting onin the Unaudited Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings for second quarter 2022 and 2021.


Location and Amount of Gain or (Loss) Recognized in Earnings from Fair Value and Cash Flow Hedging Relationships
	Second Quarter
	2022						2021
(Dollars in millions)	Sales		Cost of Sales		Net Interest Expense		Sales		Cost of Sales		Net Interest Expense
Total amounts of income and expense line items presented in the Unaudited Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings in which the effects of fair value or cash flow hedges are recognized	$	2,784	$	2,114	$	45	$	2,653	$	1,972	$	51

The effects of fair value and cash flow hedging:
Gain or (loss) on fair value hedging relationships:
Interest contracts (fixed-for-floating interest rate swaps):
Hedged items					—						1
Derivatives designated as hedging instruments					—						(1)
Gain or (loss) on cash flow hedging relationships:
Interest contracts (forward starting interest rate and treasury lock swap contracts):
Amount reclassified from AOCI into earnings					(3)						(3)
Commodity Contracts:
Amount reclassified from AOCI into earnings			34						(5)
Foreign Exchange Contracts:
Amount reclassified from AOCI into earnings	10						(5)


Table of Contents

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The following table presents the effect of fair value and cash flow hedge accounting in the Unaudited Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings for first ~~nine~~six months ~~2021~~2022 and ~~2020.~~2021.


Location and Amount of Gain or (Loss) Recognized in Earnings from Fair Value and Cash Flow Hedging Relationships	Location and Amount of Gain or (Loss) Recognized in Earnings from Fair Value and Cash Flow Hedging Relationships													Location and Amount of Gain or (Loss) Recognized in Earnings from Fair Value and Cash Flow Hedging Relationships
		First Nine Months													First Six Months
		2021						2020							2022						2021
(Dollars in millions)	(Dollars in millions)	Sales		Cost of Sales		Net Interest Expense		Sales		Cost of Sales		Net Interest Expense		(Dollars in millions)	Sales		Cost of Sales		Net Interest Expense		Sales		Cost of Sales		Net Interest Expense
Total amounts of income and expense line items presented in the Unaudited Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings in which the effects of fair value or cash flow hedges are recognized	Total amounts of income and expense line items presented in the Unaudited Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings in which the effects of fair value or cash flow hedges are recognized	$	7,782	$	5,841	$	150	$	6,287	$	4,838	$	159	Total amounts of income and expense line items presented in the Unaudited Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings in which the effects of fair value or cash flow hedges are recognized	$	5,498	$	4,278	$	91	$	5,062	$	3,783	$	101

The effects of fair value and cash flow hedging:	The effects of fair value and cash flow hedging:													The effects of fair value and cash flow hedging:
Gain or (loss) on fair value hedging relationships:	Gain or (loss) on fair value hedging relationships:													Gain or (loss) on fair value hedging relationships:
Interest contracts (fixed-for-floating interest rate swaps):	Interest contracts (fixed-for-floating interest rate swaps):													Interest contracts (fixed-for-floating interest rate swaps):
Hedged items	Hedged items					1						1		Hedged items					1						1
Derivatives designated as hedging instruments	Derivatives designated as hedging instruments					(1)						(1)		Derivatives designated as hedging instruments					(1)						(1)
Gain or (loss) on cash flow hedging relationships:	Gain or (loss) on cash flow hedging relationships:													Gain or (loss) on cash flow hedging relationships:
Interest contracts (forward starting interest rate and treasury lock swap contracts):	Interest contracts (forward starting interest rate and treasury lock swap contracts):													Interest contracts (forward starting interest rate and treasury lock swap contracts):
Amount reclassified from AOCI into earnings	Amount reclassified from AOCI into earnings					(7)						(7)		Amount reclassified from AOCI into earnings					(5)						(5)
Commodity Contracts:	Commodity Contracts:													Commodity Contracts:
Amount reclassified from AOCI into earnings	Amount reclassified from AOCI into earnings			4						(26)				Amount reclassified from AOCI into earnings			37						(5)
Foreign Exchange Contracts:	Foreign Exchange Contracts:													Foreign Exchange Contracts:
Amount reclassified from AOCI into earnings	Amount reclassified from AOCI into earnings	(10)						12						Amount reclassified from AOCI into earnings	15						(10)

The Company enters into foreign exchange derivatives denominated in multiple currencies which are transacted and settled in the same quarter. These derivatives are not designated as hedges due to the short-term nature and the gains or losses on these derivatives are marked-to-market in line item "Other (income) charges, net" ofin the Unaudited Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings. As a result of these derivatives, the Company recognized a net ~~gain~~loss of $6 million during both second quarter and first six months 2022, and recognized a net loss of $5 million during ~~third~~second quarter 2021 and ~~a net~~no gain or loss ~~of $4 million during third quarter 2020, and recognized a net gain of $5 million~~ during first ~~nine~~six months ~~2021 and a net gain of $4 million during first nine months 2020.~~2021.

Pre-tax monetized positions and mark-to-market gains and losses from raw materials and energy, currency, and certain interest rate hedges that were included in AOCI included net gains of $223 million and net losses of ~~$8 million and $270~~$7 million at ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. ~~Losses~~Gains in AOCI ~~decreased~~increased between ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020~~2021 primarily as a result of an increase in euro to U.S. dollar exchange rates. If recognized, approximately ~~$82~~$42 million in pre-tax gains, as of ~~September~~June 30, ~~2021,~~2022, would be reclassified into earnings during the next 12 months.

8.RETIREMENT PLANS

Defined Benefit Pension Plans and Other Postretirement Benefit Plans

Eastman maintains defined benefit pension plans that provide eligible employees with retirement benefits. In addition, Eastman provides life insurance for eligible retirees hired prior to January 1, 2007. The Company ~~provides~~provided a subsidy for pre-Medicare health care and dental benefits to eligible retirees hired prior to January 1, 2007 that ~~will end~~ended on December 31, 2021. Company funding is also provided for eligible Medicare retirees hired prior to January 1, 2007 with a health reimbursement arrangement. Costs recognized for these benefits are estimated amounts, which may change as actual costs for the year are determined.

For additional information regarding retirement plans, see Note ~~10,~~11, "Retirement Plans", to the consolidated financial statements in Part II, Item 8 of the Company's ~~2020~~2021 Annual Report on Form 10-K.

1820


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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Components of net periodic benefit (credit) cost were as follows:


		Third Quarter													Second Quarter
		Pension Plans								Other Postretirement Benefit Plans					Pension Plans								Other Postretirement Benefit Plans
		2021				2020				2021		2020			2022				2021				2022		2021
(Dollars in millions)	(Dollars in millions)	U.S.		Non-U.S.		U.S.		Non-U.S.						(Dollars in millions)	U.S.		Non-U.S.		U.S.		Non-U.S.
Service cost	Service cost	$	7	$	5	$	6	$	5	$	—	$	—	Service cost	$	6	$	3	$	6	$	5	$	—	$	—
Interest cost	Interest cost	9		3		15		4		3		5		Interest cost	11		4		9		3		3		3
Expected return on assets	Expected return on assets	(31)		(9)		(34)		(9)		(1)		(2)		Expected return on assets	(32)		(8)		(31)		(10)		(1)		(1)

Amortization of:	Amortization of:													Amortization of:
Prior service credit, net	Prior service credit, net	—		(1)		—		—		(9)		(9)		Prior service credit, net	—		—		—		—		(8)		(10)

Mark-to-market pension and other postretirement benefits (gain) loss (1)														Mark-to-market pension and other postretirement benefits (gain) loss (1)	7		(10)		—		—		—		—
Net periodic benefit (credit) cost	Net periodic benefit (credit) cost	$	(15)	$	(2)	$	(13)	$	—	$	(7)	$	(6)	Net periodic benefit (credit) cost	$	(8)	$	(11)	$	(16)	$	(2)	$	(6)	$	(8)

		First Nine Months													First Six Months
		Pension Plans								Other Postretirement Benefit Plans					Pension Plans								Other Postretirement Benefit Plans
		2021				2020				2021		2020			2022				2021				2022		2021
(Dollars in millions)	(Dollars in millions)	U.S.		Non-U.S.		U.S.		Non-U.S.						(Dollars in millions)	U.S.		Non-U.S.		U.S.		Non-U.S.
Service cost	Service cost	$	20	$	14	$	19	$	13	$	—	$	—	Service cost	$	12	$	7	$	13	$	9	$	—	$	—
Interest cost	Interest cost	27		9		43		11		9		14		Interest cost	22		8		18		6		7		6
Expected return on assets	Expected return on assets	(94)		(28)		(101)		(25)		(3)		(4)		Expected return on assets	(64)		(17)		(63)		(19)		(2)		(2)

Amortization of:	Amortization of:													Amortization of:
Prior service credit, net	Prior service credit, net	—		(1)		—		—		(28)		(28)		Prior service credit, net	—		—		—		—		(16)		(19)

Mark-to-market pension and other postretirement benefits (gain) loss (1)														Mark-to-market pension and other postretirement benefits (gain) loss (1)	7		(10)		—		—		—		—
Net periodic benefit (credit) cost	Net periodic benefit (credit) cost	$	(47)	$	(6)	$	(39)	$	(1)	$	(22)	$	(18)	Net periodic benefit (credit) cost	$	(23)	$	(12)	$	(32)	$	(4)	$	(11)	$	(15)

(1) Also includes curtailment triggered by the sale of the adhesives resins business which is included in "Other components of post-employment (benefit) cost, net" on the Unaudited Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings.

Subsequent to the adhesives resins divestiture, the Company retained pension liabilities of certain plan participants while the status of the participants changed in a Non-U.S. pension plan which triggered a curtailment. The Company recognized a curtailment gain of $7 million in second quarter and first six months 2022, which also triggered an interim mark-to-market ("MTM") remeasurement of the impacted Non-U.S. pension plan's assets and liabilities that led to a gain of $3 million in second quarter and first six months 2022.

Settlements are triggered in a plan when distributions exceed the sum of service cost and interest cost of the respective plan. Lump sum payments from a U.S. pension plan resulted in a plan settlement in second quarter and first six months 2022. The settlement itself was not material, but it triggered an interim MTM remeasurement of the impacted U.S. pension plan's assets and liabilities resulting in a $7 million loss in second quarter and first six months 2022.


Table of Contents

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

9.LEASES AND OTHER COMMITMENTS

Leases

There are two types of leases: finance and operating. Both types of leases have associated right-to-use assets and lease liabilities that are valued at the present value of the lease payments and recognized on the Unaudited Consolidated Statements of Financial Position. The discount rate used in the measurement of a right-to-use asset and lease liability is the rate implicit in the lease whenever that rate is readily determinable. If the rate implicit in the lease is not readily determinable, the collateralized incremental borrowing rate is used. The Company elected the accounting policy not to apply the recognition and measurement requirements to short-term leases with a term of 12 months or less and do not include a bargain purchase option.

The Company has operating leases, as a lessee, with customary terms that do not include: significant variable lease payments; significant reasonably certain extensions or options required to be included in the lease term; restrictions; or other covenants for real property, rolling stock, and machinery and equipment. Real property leases primarily consist of office space and rolling stock leases primarily for railcars and fleet vehicles. At ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, operating right-to-use assets of ~~$184~~$209 million and ~~$185~~$216 million, respectively, are included as a part of "Other noncurrent assets" inon the Unaudited Consolidated Statements of Financial ~~Position and includes $8~~Position. The operating right-to-use assets include $3 million and $9$3 million, respectively, of assets previously classified as lease intangibles and $8$6 million and $9$5 million, respectively, of prepaid lease ~~assets, respectively.~~assets. Operating lease liabilities are included as a part of "Payables and other current liabilities" and "Other long-term liabilities" inon the Unaudited Consolidated Statements of Financial Position.


~~Table of Contents~~

~~NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

As of ~~September~~June 30, ~~2021,~~2022, reconciliation of lease payments and operating lease liabilities is provided below:


(Dollars in millions)	(Dollars in millions)	Operating lease liabilities		(Dollars in millions)	Operating Lease Liabilities
Remainder of 2021		$	16
2022		54
Remainder of 2022				Remainder of 2022	$	29
2023	2023	40		2023	50
2024	2024	25		2024	37
2025	2025	18		2025	30
2026 and beyond		46
2026				2026	21
2027 and beyond				2027 and beyond	53
Total lease payments	Total lease payments	199		Total lease payments	220
Less: amounts of lease payments representing interest	Less: amounts of lease payments representing interest	17		Less: amounts of lease payments representing interest	20
Present value of future lease payments	Present value of future lease payments	182		Present value of future lease payments	200
Less: current obligations under leases	Less: current obligations under leases	54		Less: current obligations under leases	50
Long-term lease obligations	Long-term lease obligations	$	128	Long-term lease obligations	$	150

The Company has operating leases, primarily leases for railcars, with terms that require the Company to guarantee a portion of the residual value of the leased assets upon termination of the lease that will expire beginning ~~fourth~~third quarter ~~2021.~~2023. Residual guarantee payments that become probable and estimable are recognized as rent expense over the remaining life of the applicable lease. Management's current expectation is that the likelihood of material residual guarantee payments is remote.

~~Lease costs during the period and other information is provided below:~~
Third Quarter First Nine Months
(Dollars in millions) 2021 2020 2021 2020
Lease costs:
Operating lease costs $ 18 $ 18 $ 54 $ 55
Short-term lease costs 9 9 28 28
Sublease income (1) (1) (3) (3)
Total $ 26 $ 26 $ 79 $ 80
Other operating lease information:
Cash paid for amounts included in the measurement of lease liabilities $ 17 $ 17 $ 52 $ 53
Right-to-use assets obtained in exchange for new lease liabilities $ 59 $ 10 $ 93 $ 40
Weighted-average remaining lease term, in years 6 5
Weighted-average discount rate 3.1 % 3.8 %

2022


Table of Contents

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Lease costs during the period and other information is provided below:


	Second Quarter				First Six Months
(Dollars in millions)	2022		2021		2022			2021
Lease costs:
Operating lease costs	$	16	$	18	$	34		$	36
Short-term lease costs	11		11		21			19
Sublease income	(3)		(1)		(7)			(2)
Total	$	24	$	28	$	48		$	53

Other operating lease information:
Cash paid for amounts included in the measurement of lease liabilities	$	17	$	18	$	33		$	35
Right-to-use assets obtained in exchange for new lease liabilities	$	27	$	18	$	35		$	26

Weighted-average remaining lease term, in years					6			5
Weighted-average discount rate					2.8		%	3.5		%

10.ENVIRONMENTAL MATTERS AND ASSET RETIREMENT OBLIGATIONS

Certain Eastman manufacturing facilities generate hazardous and nonhazardous wastes, of which the treatment, storage, transportation, and disposal ~~of which~~ are regulated by various governmental agencies. In connection with the cleanup of various hazardous waste sites, the Company, along with many other entities, has been designated a potentially responsible party ("PRP") by the U.S. Environmental Protection Agency under the Comprehensive Environmental Response, Compensation and Liability Act, which potentially subjects PRPs to joint and several liability for certain cleanup costs. In addition, the Company will incur costs for environmental remediation and closure and post-closure under the federal Resource Conservation and Recovery Act. Reserves for environmental contingencies have been established in accordance with Eastman's policies described in Note 1, "Significant Accounting Policies", to the consolidated financial statements in Part II, Item 8 of the Company's ~~2020~~2021 Annual Report on Form 10-K. The resolution of uncertainties related to environmental matters may have a material adverse effect on the Company's consolidated results of operations in the period recognized. However, because of the availability of legal defenses, the Company's preliminary assessment of actions that may be required, and the extended period of time that the obligations are expected to be satisfied, management does not believe that the Company's liability for these environmental matters, individually or in the aggregate, will have a material adverse effect on the Company's future overall financial position, results of operations, or cash flows. ~~The Company's net reserve for environmental contingencies was $284 million and $285 million at September 30, 2021 and December 31, 2020, respectively.~~

Environmental Remediation and Environmental Asset Retirement Obligations

The Company's net environmental reserve for environmental contingencies, including remediation costs and asset retirement obligations, is included as part of "Other noncurrent assets", "Payables and other current liabilities", and "Other long-term liabilities" inon the Unaudited Consolidated Statements of Financial Position as follows:


(Dollars in millions)	(Dollars in millions)	September 30, 2021		December 31, 2020		(Dollars in millions)	June 30, 2022		December 31, 2021
Environmental contingencies, current	Environmental contingencies, current	$	20	$	15	Environmental contingencies, current	$	10	$	20
Environmental contingencies, long-term	Environmental contingencies, long-term	264		270		Environmental contingencies, long-term	267		261
Total	Total	$	284	$	285	Total	$	277	$	281

Environmental Remediation

Estimated future environmental expenditures for undiscounted remediation costs ranged from the best estimate or minimum of ~~$256~~$249 million to the maximum of ~~$478~~$464 million and from the best estimate or minimum of ~~$257~~$253 million to the maximum of ~~$501~~$473 million at ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. The best estimate or minimum estimated future environmental expenditures are considered to be probable and reasonably estimable and include the amounts recognized at both ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020.~~

Reserves for environmental remediation include liabilities expected to be paid within approximately 30 years. The amounts charged to pre-tax earnings for environmental remediation and related charges are recognized in "Cost of sales" in the Unaudited Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings. Changes in the reserves for environmental remediation liabilities during first nine months 2021 and full year 2020 are summarized below:


~~(Dollars in millions)~~	~~Environmental Remediation Liabilities~~
~~Balance at December 31, 2019~~	$	~~260~~
~~Changes in estimates recognized in earnings and other~~	7
~~Cash reductions~~	~~(10)~~
~~Balance at December 31, 2020~~	~~257~~
~~Changes in estimates recognized in earnings and other~~	8
~~Cash reductions~~	~~(9)~~
~~Balance at September 30, 2021~~	$	~~256~~

2021.

2123


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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Reserves for environmental remediation include liabilities expected to be paid within approximately 30 years. The amounts charged to pre-tax earnings for environmental remediation and related charges are recognized in "Cost of sales" and "Other (income) charges, net" in the Unaudited Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings.

Changes in the reserves for environmental remediation liabilities during first six months 2022 and full year 2021 are summarized below:


(Dollars in millions)	Environmental Remediation Liabilities
Balance at December 31, 2020	$	257
Changes in estimates recognized in earnings and other	9
Cash reductions	(13)
Balance at December 31, 2021	253
Changes in estimates recognized in earnings and other	4
Cash reductions	(8)
Balance at June 30, 2022	$	249

Environmental Asset Retirement Obligations

An asset retirement obligation is an obligation for the retirement of a tangible long-lived asset that is incurred upon the acquisition, construction, development, or normal operation of that long-lived asset. Environmental asset retirement obligations consist of primarily closure and post-closure costs. For sites that have environmental asset retirement obligations, the best estimate recognized to date for these environmental asset retirement obligation costs was $28 million at both ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020.~~2021.

Non-Environmental Asset Retirement Obligations

The Company has contractual asset retirement obligations not associated with environmental liabilities. Eastman's non-environmental asset retirement obligations are primarily associated with the future closure of leased manufacturing assets in Pace, Florida and Oulu, Finland. These non-environmental asset retirement obligations were ~~$52 million and~~ $51 million at ~~September~~both June 30, ~~2021~~2022 and December 31, ~~2020, respectively,~~2021 and are included in "Other long-term liabilities" inon the Unaudited Consolidated Statements of Financial Position.

11.LEGAL MATTERS

2224


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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

12.STOCKHOLDERS' EQUITY

Reconciliations of the changes in stockholders' equity for ~~third~~second quarter ~~2021~~2022 and ~~2020~~2021 are provided below:


(Dollars in millions, except per share amount)	(Dollars in millions, except per share amount)	Common Stock at Par Value		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock at Cost		Total Eastman Stockholders' Equity		Noncontrolling Interest		Total Equity		(Dollars in millions, except per share amount)	Common Stock at Par Value		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock at Cost		Total Eastman Stockholders' Equity		Noncontrolling Interest		Total Equity
Balance at June 30, 2021		$	2	$	2,255	$	8,020	$	(233)	$	(4,100)	$	5,944	$	84	$	6,028
Balance at March 31, 2022																		Balance at March 31, 2022	$	2	$	2,262	$	8,694	$	(145)	$	(4,920)	$	5,893	$	84	$	5,977

Net Earnings	Net Earnings	—		—		351		—		—		351		3		354		Net Earnings	—		—		256		—		—		256		1		257
Cash Dividends Declared (1) ($0.69 per share)		—		—		(93)		—		—		(93)		—		(93)
Cash Dividends Declared (1) ($0.76 per share)																		Cash Dividends Declared (1) ($0.76 per share)	—		—		(93)		—		—		(93)		—		(93)
Other Comprehensive Income (Loss)	Other Comprehensive Income (Loss)	—		—		—		48		—		48		—		48		Other Comprehensive Income (Loss)	—		—		—		2		—		2		—		2
Share Based Compensation Expense (2)		—		20		—		—		—		20		—		20
Share-Based Compensation Expense (2)																		Share-Based Compensation Expense (2)	—		17		—		—		—		17		—		17
Stock Option Exercises	Stock Option Exercises	—		—		—		—		—		—		—		—		Stock Option Exercises	—		1		—		—		—		1		—		1

Other	Other	—		—		—		—		—		—		1		1		Other	—		(1)		—		—		—		(1)		(1)		(2)
Share Repurchase(3)	Share Repurchase(3)	—		—		—		—		(150)		(150)		—		(150)		Share Repurchase(3)	—		(100)		—		—		(652)		(752)		—		(752)
Distributions to noncontrolling interest		—		—		—		—		—		—		(1)		(1)
Balance at September 30, 2021		$	2	$	2,275	$	8,278	$	(185)	$	(4,250)	$	6,120	$	87	$	6,207

Balance at June 30, 2022																		Balance at June 30, 2022	$	2	$	2,179	$	8,857	$	(143)	$	(5,572)	$	5,323	$	84	$	5,407

(Dollars in millions, except per share amount) Common Stock at Par Value Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock at Cost Total Eastman Stockholders' Equity Noncontrolling Interest Total Equity
Balance at June 30, 2020 $ 2 $ 2,117 $ 8,071 $ (209) $ (3,960) $ 6,021 $ 77 $ 6,098
Net Earnings — — 161 — — 161 4 165
Cash Dividends Declared (1)
($0.66 per share)
— — (90) — — (90) — (90)
Other Comprehensive Income (Loss) — — — (34) — (34) — (34)
Share Based Compensation Expense (2)
— 11 — — — 11 — 11
Stock Option Exercises — 6 — — — 6 — 6
Balance at September 30, 2020 $ 2 $ 2,134 $ 8,142 $ (243) $ (3,960) $ 6,075 $ 81 $ 6,156


(Dollars in millions, except per share amount)	Common Stock at Par Value		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock at Cost		Total Eastman Stockholders' Equity		Noncontrolling Interest		Total Equity
Balance at March 31, 2021	$	2	$	2,219	$	8,260	$	(248)	$	(4,000)	$	6,233	$	86	$	6,319

Net Earnings (Loss)	—		—		(146)		—		—		(146)		2		(144)
Cash Dividends Declared (1) ($0.69 per share)	—		—		(94)		—		—		(94)		—		(94)
Other Comprehensive Income (Loss)	—		—		—		15		—		15		—		15
Share-Based Compensation Expense (2)	—		18		—		—		—		18		—		18
Stock Option Exercises	—		21		—		—		—		21		—		21

Other	—		(3)		—		—		—		(3)		—		(3)
Share Repurchase	—		—		—		—		(100)		(100)		—		(100)
Distributions to noncontrolling interest	—		—		—		—		—		—		(4)		(4)
Balance at June 30, 2021	$	2	$	2,255	$	8,020	$	(233)	$	(4,100)	$	5,944	$	84	$	6,028

(1)Cash dividends declared consists of cash dividends paid and dividends declared but unpaid.

(2)Share-based compensation expense is based on the fair value of share-based awards.

(3)Additional paid-in capital includes payment for repurchase of shares under the second quarter 2022 accelerated share repurchase program ("2022 ASR") which were settled after June 30, 2022.

2325


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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Reconciliations of the changes in stockholders' equity for first ~~nine~~six months ~~2021~~2022 and ~~2020~~2021 are provided below:


(Dollars in millions, except per share amount)	(Dollars in millions, except per share amount)	Common Stock at Par Value		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock at Cost		Total Eastman Stockholders' Equity		Noncontrolling Interest		Total Equity		(Dollars in millions, except per share amount)	Common Stock at Par Value		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock at Cost		Total Eastman Stockholders' Equity		Noncontrolling Interest		Total Equity
Balance at December 31, 2020		$	2	$	2,174	$	8,080	$	(273)	$	(3,960)	$	6,023	$	85	$	6,108
Balance at December 31, 2021																		Balance at December 31, 2021	$	2	$	2,187	$	8,557	$	(182)	$	(4,860)	$	5,704	$	84	$	5,788

Net Earnings	Net Earnings	—		—		479		—		—		479		8		487		Net Earnings	—		—		491		—		—		491		2		493
Cash Dividends Declared (1) ($2.07 per share)		—		—		(281)		—		—		(281)		—		(281)
Cash Dividends Declared (1) ($1.52 per share)																		Cash Dividends Declared (1) ($1.52 per share)	—		—		(191)		—		—		(191)		—		(191)
Other Comprehensive Income (Loss)	Other Comprehensive Income (Loss)	—		—		—		88		—		88		—		88		Other Comprehensive Income (Loss)	—		—		—		39		—		39		—		39
Share-Based Compensation Expense (2)	Share-Based Compensation Expense (2)	—		60		—		—		—		60		—		60		Share-Based Compensation Expense (2)	—		42		—		—		—		42		—		42
Stock Option Exercises	Stock Option Exercises	—		59		—		—		—		59		—		59		Stock Option Exercises	—		9		—		—		—		9		—		9

Other (3)	Other (3)	—		(18)		—		—		—		(18)		—		(18)		Other (3)	—		(19)		—		—		—		(19)		(2)		(21)
Share Repurchases(4)	Share Repurchases(4)	—		—		—		—		(290)		(290)		—		(290)		Share Repurchases(4)	—		(40)		—		—		(712)		(752)		—		(752)
Distributions to Noncontrolling Interest		—		—		—		—		—		—		(6)		(6)
Balance at September 30, 2021		$	2	$	2,275	$	8,278	$	(185)	$	(4,250)	$	6,120	$	87	$	6,207

Balance at June 30, 2022																		Balance at June 30, 2022	$	2	$	2,179	$	8,857	$	(143)	$	(5,572)	$	5,323	$	84	$	5,407


(Dollars in millions, except per share amount)	(Dollars in millions, except per share amount)	Common Stock at Par Value		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock at Cost		Total Eastman Stockholders' Equity		Noncontrolling Interest		Total Equity		(Dollars in millions, except per share amount)	Common Stock at Par Value		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock at Cost		Total Eastman Stockholders' Equity		Noncontrolling Interest		Total Equity
Balance at December 31, 2019		$	2	$	2,105	$	7,965	$	(214)	$	(3,900)	$	5,958	$	74	$	6,032
Balance at December 31, 2020																		Balance at December 31, 2020	$	2	$	2,174	$	8,080	$	(273)	$	(3,960)	$	6,023	$	85	$	6,108

Net Earnings	Net Earnings	—		—		446		—		—		446		9		455		Net Earnings	—		—		128		—		—		128		5		133
Cash Dividends Declared (1) ($1.98 per share)		—		—		(269)		—		—		(269)		—		(269)
Cash Dividends Declared (1) ($1.38 per share)																		Cash Dividends Declared (1) ($1.38 per share)	—		—		(188)		—		—		(188)		—		(188)
Other Comprehensive Income (Loss)	Other Comprehensive Income (Loss)	—		—		—		(29)		—		(29)		—		(29)		Other Comprehensive Income (Loss)	—		—		—		40		—		40		—		40
Share-Based Compensation Expense (2)	Share-Based Compensation Expense (2)	—		31		—		—		—		31		—		31		Share-Based Compensation Expense (2)	—		40		—		—		—		40		—		40
Stock Option Exercises	Stock Option Exercises	—		9		—		—		—		9		—		9		Stock Option Exercises	—		59		—		—		—		59		—		59

Other (3)	Other (3)	—		(11)		—		—		—		(11)		1		(10)		Other (3)	—		(18)		—		—		—		(18)		(1)		(19)
Share Repurchases	Share Repurchases	—		—		—		—		(60)		(60)		—		(60)		Share Repurchases	—		—		—		—		(140)		(140)		—		(140)
Distributions to Noncontrolling Interest	Distributions to Noncontrolling Interest	—		—		—		—		—		—		(3)		(3)		Distributions to Noncontrolling Interest	—		—		—		—		—		—		(5)		(5)
Balance at September 30, 2020		$	2	$	2,134	$	8,142	$	(243)	$	(3,960)	$	6,075	$	81	$	6,156
Balance at June 30, 2021																		Balance at June 30, 2021	$	2	$	2,255	$	8,020	$	(233)	$	(4,100)	$	5,944	$	84	$	6,028

(1)Cash dividends declared consists of cash dividends paid and dividends declared but unpaid.

(2)Share-based compensation expense is based on the fair value of share-based awards.

(3)Additional paid-in capital includes value of shares withheld for employees' taxes on vesting of share-based compensation awards.

(4)Additional paid-in capital includes payment for repurchase of shares under the 2022 ASR which were settled after June 30, 2022, offset by treasury shares delivered pursuant to final settlement of the 2021 accelerated share repurchase program ("2021 ASR") accounted for as a reduction of Additional paid-in capital prior to settlement.


Table of Contents

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Accumulated Other Comprehensive Income (Loss), Net of Tax


(Dollars in millions)	(Dollars in millions)	Cumulative Translation Adjustment		Benefit Plans Unrecognized Prior Service Credits		Unrealized Gains (Losses) on Derivative Instruments		Unrealized Losses on Investments		Accumulated Other Comprehensive Income (Loss)		(Dollars in millions)	Cumulative Translation Adjustment		Benefit Plans Unrecognized Prior Service Credits		Unrealized Gains (Losses) on Derivative Instruments		Unrealized Losses on Investments		Accumulated Other Comprehensive Income (Loss)
Balance at December 31, 2019		$	(264)	$	106	$	(55)	$	(1)	$	(214)
Period change		(29)		(19)		(11)		—		(59)
Balance at December 31, 2020	Balance at December 31, 2020	(293)		87		(66)		(1)		(273)		Balance at December 31, 2020	$	(293)	$	87	$	(66)	$	(1)	$	(273)
Period change	Period change	13		(21)		96		—		88		Period change	56		(28)		63		—		91
Balance at September 30, 2021		$	(280)	$	66	$	30	$	(1)	$	(185)
Balance at December 31, 2021												Balance at December 31, 2021	(237)		59		(3)		(1)		(182)
Period change												Period change	23		(15)		31		—		39
Balance at June 30, 2022												Balance at June 30, 2022	$	(214)	$	44	$	28	$	(1)	$	(143)

Amounts of other comprehensive income (loss) are presented net of applicable taxes. Eastman recognizes deferred income taxes on the CTA related to branch operations and income from other entities included in the Company's consolidated U.S. tax return. No deferred income taxes are recognized on the CTA of other subsidiaries outside the United States because the CTA is considered to be a component of indefinitely invested, unremitted earnings of these foreign subsidiaries.

Components of other comprehensive income recognized in the Unaudited Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings are presented below, before tax and net of tax effects:


		Third Quarter									Second Quarter
		2021				2020					2022				2021
(Dollars in millions)	(Dollars in millions)	Before Tax		Net of Tax		Before Tax		Net of Tax		(Dollars in millions)	Before Tax		Net of Tax		Before Tax		Net of Tax
Other comprehensive income (loss)	Other comprehensive income (loss)									Other comprehensive income (loss)
Change in cumulative translation adjustment	Change in cumulative translation adjustment	$	2	$	2	$	(20)	$	(20)	Change in cumulative translation adjustment	$	16	$	16	$	9	$	9
Defined benefit pension and other postretirement benefit plans:	Defined benefit pension and other postretirement benefit plans:									Defined benefit pension and other postretirement benefit plans:

Amortization of unrecognized prior service credits	Amortization of unrecognized prior service credits	(10)		(7)		(9)		(7)		Amortization of unrecognized prior service credits	(12)		(9)		(10)		(7)

Derivatives and hedging:	Derivatives and hedging:									Derivatives and hedging:
Unrealized gain (loss) during period	Unrealized gain (loss) during period	76		57		(17)		(13)		Unrealized gain (loss) during period	36		27		6		4
Reclassification adjustment for (gains) losses included in net income, net	Reclassification adjustment for (gains) losses included in net income, net	(6)		(4)		7		6		Reclassification adjustment for (gains) losses included in net income, net	(43)		(32)		12		9

Total other comprehensive income (loss)	Total other comprehensive income (loss)	$	62	$	48	$	(39)	$	(34)	Total other comprehensive income (loss)	$	(3)	$	2	$	17	$	15

		First Nine Months									First Six Months
		2021				2020					2022				2021
(Dollars in millions)	(Dollars in millions)	Before Tax		Net of Tax		Before Tax		Net of Tax		(Dollars in millions)	Before Tax		Net of Tax		Before Tax		Net of Tax
Other comprehensive income (loss)	Other comprehensive income (loss)									Other comprehensive income (loss)
Change in cumulative translation adjustment	Change in cumulative translation adjustment	$	13	$	13	$	(15)	$	(15)	Change in cumulative translation adjustment	$	23	$	23	$	11	$	11
Defined benefit pension and other postretirement benefit plans:	Defined benefit pension and other postretirement benefit plans:									Defined benefit pension and other postretirement benefit plans:

Amortization of unrecognized prior service credits	Amortization of unrecognized prior service credits	(29)		(21)		(28)		(21)		Amortization of unrecognized prior service credits	(20)		(15)		(19)		(14)

Derivatives and hedging:	Derivatives and hedging:									Derivatives and hedging:
Unrealized gain (loss) during period	Unrealized gain (loss) during period	115		86		(12)		(9)		Unrealized gain (loss) during period	89		67		39		29
Reclassification adjustment for (gains) losses included in net income, net	Reclassification adjustment for (gains) losses included in net income, net	13		10		21		16		Reclassification adjustment for (gains) losses included in net income, net	(48)		(36)		19		14

Total other comprehensive income (loss)	Total other comprehensive income (loss)	$	112	$	88	$	(34)	$	(29)	Total other comprehensive income (loss)	$	44	$	39	$	50	$	40

2527


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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

13.EARNINGS AND DIVIDENDS PER SHARE

The following table sets forth the computation of basic and diluted earnings per share ("EPS") which are calculated using the treasury stock method:


		Third Quarter				First Nine Months					Second Quarter				First Six Months
(In millions, except per share amounts)	(In millions, except per share amounts)	2021		2020		2021		2020		(In millions, except per share amounts)	2022		2021		2022		2021
Numerator	Numerator									Numerator
Earnings attributable to Eastman, net of tax		$	351	$	161	$	479	$	446
Earnings (loss) attributable to Eastman, net of tax										Earnings (loss) attributable to Eastman, net of tax	$	256	$	(146)	$	491	$	128

Denominator	Denominator									Denominator
Weighted average shares used for basic EPS	Weighted average shares used for basic EPS	135.3		135.3		135.8		135.5		Weighted average shares used for basic EPS	124.8		135.9		126.9		136.0
Dilutive effect of stock options and other awards(1)	Dilutive effect of stock options and other awards(1)	1.7		1.0		1.8		0.9		Dilutive effect of stock options and other awards(1)	1.6		—		1.7		1.8
Weighted average shares used for diluted EPS	Weighted average shares used for diluted EPS	137.0		136.3		137.6		136.4		Weighted average shares used for diluted EPS	126.4		135.9		128.6		137.8

(Calculated using whole dollars and shares)	(Calculated using whole dollars and shares)									(Calculated using whole dollars and shares)
EPS	EPS									EPS
Basic	Basic	$	2.60	$	1.19	$	3.53	$	3.29	Basic	$	2.05	$	(1.07)	$	3.87	$	0.94
Diluted	Diluted	$	2.57	$	1.18	$	3.49	$	3.27	Diluted	$	2.03	$	(1.07)	$	3.82	$	0.93

(1)Dilutive effect is not applicable in a period with a net loss.

Shares underlying stock options of 1,342,328 and 327,782 for second quarter 2022 and 2021, respectively, and 507,692 for first six months 2022 were excluded from ~~third quarter 2021 and 2020~~ calculations of diluted EPS ~~were 327,782 and 2,247,621, respectively,~~ because the grant date exercise price of these options was greater than the average market price of the Company's common stock and the effect of including them in the calculation of diluted EPS would have been antidilutive. ~~Third quarter 2021 reflects share repurchases of 1,354,737. There~~No shares were ~~no share repurchases in third quarter 2020.~~

~~Shares underlying stock options~~ excluded from first nine months 2021 and 2020 calculations of diluted EPS were 150,781 and 2,809,028, respectively, because the grant date exercise price of these options was greater than the average market price of the Company's common stock and the effect of including them in the calculation of diluted EPS ~~would have been antidilutive. First nine~~for first six months ~~2021~~2021. There were 6,118,034 and ~~2020 reflect~~6,666,069 share repurchases ~~of 2,543,112~~in second quarter and ~~1,134,052,~~first six months 2022, respectively. There were 833,580 and 1,188,375 share repurchases in second quarter and first six months 2021, respectively.

The Company declared cash dividends of ~~$0.69~~$0.76 and ~~$0.66~~$0.69 per share for ~~third~~second quarter ~~2021~~2022 and ~~2020,~~2021, respectively, and ~~$2.07~~$1.52 and ~~$1.98~~$1.38 per share for first ~~nine~~six months ~~2021~~2022 and ~~2020,~~2021, respectively.

In December 2021, the Company's Board of Directors authorized the additional repurchase of up to $2.5 billion of the Company's outstanding common stock at such time, in such amounts, and on such terms, as determined by management to be in the best interest of the Company and its stockholders (the "2021 authorization").

In second quarter 2022, the Company entered into an accelerated share repurchase program ("2022 ASR") to purchase $500 million of the Company's common stock under the board approved authorizations. In exchange for upfront payment totaling $500 million, the financial institutions committed to deliver shares during the 2022 ASR's purchase period, which will be settled in third quarter 2022. The total number of shares ultimately delivered will be determined at the end of the applicable purchase period based on the volume-weighted average price of the Company's stock during the term of the 2022 ASR, less a discount. Approximately 80 percent of the expected shares repurchased under the 2022 ASR were delivered in second quarter 2022. Shares in the amount of 1,212,732 were delivered under the 2022 ASR subsequent to June 30, 2022.


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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

14.ASSET IMPAIRMENTS AND RESTRUCTURING CHARGES, NET

(Dollars in millions) Third Quarter First Nine Months
Tangible Asset Impairments 2021 2020 2021 2020
Site optimizations
AFP - Tire additives (1)
$ — $ — $ 4 $ 5
AM - Advanced interlayers (2)
— — 1 —
AM - Performance films (3)
— — — 4
AFP - Animal nutrition (4)
— — — 3
Discontinuation of growth initiatives (5)
— — — 8
— — 5 20
Gain on Sale of Previously Impaired Assets
Site optimizations
AFP - Animal nutrition (4)
— — (1) —
— — (1) —
Intangible Asset Impairments
AFP - Tradenames (6)
— — — 123
AFP - Customer relationships (7)
— — — 2
— — — 125
Severance Charges
Business improvement and cost reduction actions (8)
— 46 — 46
CI & AFP - Singapore (9)
— 2 — 5
Site optimizations
AM - Advanced interlayers (2)
— 3 1 3
AFP - Tire additives (1)
— 1 — 1
AM - Performance films (3)
— — — 3
AFP - Animal nutrition (4)
— — — 1
— 52 1 59
Other Restructuring Costs
Cost reduction initiatives (8)
— 7 — 7
Discontinuation of growth initiatives contract termination fees (5)
— 1 — 4
CI & AFP - Singapore (9)
3 — 16 —
Site optimizations
AM - Advanced interlayers (2)
1 — 3 —
AFP - Tire additives (1)
1 — 3 —
AM - Performance films (3)
2 — 2 —
7 8 24 11
Total $ 7 $ 60 $ 29 $ 215


(Dollars in millions)	Second Quarter				First Six Months
Tangible Asset Impairments	2022		2021		2022		2021
Site optimizations
Other - Tire additives (1)	$	—	$	4	$	—	$	4
AM - Advanced interlayers (2)	—		1		—		1
	—		5		—		5
Loss (Gain) on Sale of Previously Impaired Assets
Site optimizations
Other - Tire additives (1)	(1)		—		(1)		—
AM - Advanced interlayers (2)	16		—		16		—
AFP - Animal nutrition (3)	—		—		—		(1)
	15		—		15		(1)




Severance Charges
Business improvement and cost reduction actions (4)	2		—		2		—
Site optimizations
AM - Performance films (5)	1		—		1		—
AM - Advanced interlayers (2)	—		—		—		1


	3		—		3		1
Other Restructuring Costs

CI & AFP - Singapore (6)	1		8		2		13
Site optimizations
AM - Advanced interlayers (2)	—		2		1		2
Other - Tire additives (1)	—		—		—		2

	1		10		3		17

Total	$	19	$	15	$	21	$	22


~~Table of Contents~~

~~NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

(1)Asset impairment charges, ~~severance costs,~~gain on sale of previously impaired assets, and site closure costs in ~~the AFP segment~~"Other" from the previously reported closure of a tire additives manufacturing facility in Asia Pacific as part of ongoing site optimization.

(2)Asset impairment charges, loss on transfer of previously impaired assets to a third party, severance costs, and site closure costs in the Advanced Materials ("AM") segment due to the previously reported closure of an advanced interlayers manufacturing facility in North America as part of ongoing site optimization. In addition, accelerated depreciation of $4 million ~~in first nine months 2021 and $7 million in third quarter and first nine months 2020~~ was recognized in "Cost of sales" in the Unaudited Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings in first six months 2021 related to the closure of this facility. Management expects total charges of up to $30 million for the closure of this facility, primarily reported in "Cost of sales" and in "Asset impairments and restructuring charges, net" in the Unaudited Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings, of which $13 million was recognized in 2020.

(3)Fixed asset ~~impairment~~impairments, net in the AFP segment from the previously reported closure of an animal nutrition manufacturing facility in Asia Pacific as part of ongoing site optimization.

(4)Severance as part of business improvement which were reported in "Other".

(5)Severance charges ~~and severance costs~~ in the AM segment from the previously reported closure of a performance films manufacturing facility in North America as part of ongoing site optimization.

~~(4)~~Fixed asset impairment charges, net and severance costs in the AFP segment from the previously reported closure of an animal nutrition manufacturing facility in Asia Pacific as part of ongoing site optimization.

~~(5)Fixed asset impairment charges and contract termination fees resulting from management's decision to discontinue growth initiatives for polyester based microfibers, including Avra~~TM ~~performance fibers, the financial results of which were not allocated to an operating segment and reported in "Other".~~

(6)~~Intangible asset impairment charges in the AFP segment tire additives business to reduce the carrying values of the Crystex~~TM ~~and Santoflex~~TM tradenames to the estimated fair values. The estimated fair values were determined using an income approach, specifically, the relief from royalty method, including some unobservable inputs. The impairments were primarily the result of weakened demand in the transportation markets impacted by COVID-19 and increased competitive pricing pressure as a result of global capacity increases.

~~(7)Intangible asset impairment charge in the AFP segment for customer relationships.~~

~~(8)Severance and related costs as part of business improvement and cost reduction initiatives which were reported in "Other".~~

~~(9)~~Site closure ~~costs in third quarter 2021~~ of $1 million and $2 million for second quarter and ~~$1 million~~first six months 2022, respectively, in the Chemical Intermediates ("CI") ~~and AFP segments, respectively, and site closure costs, including~~segment, contract termination fees in both second quarter and first ~~nine~~six months 2021 of ~~$13~~$7 million and $3$1 million in the CI and AFP segments, respectively, and ~~severance charges~~site closure costs in ~~third quarter and~~ first ~~nine~~six months ~~2020~~2021 of $1$4 million and $5$1 million ~~respectively,~~ in the CI ~~segment,~~and AFP segments, respectively, resulting from ~~the previously reported plan to discontinue production~~closure of ~~certain products at~~ the Singapore manufacturing site. ~~Excluding the fixed asset impairments in 2019, restructuring charges of up to $50 million are expected for this closure, of which $6 million was recognized in 2020.~~

~~Changes in Reserves~~

The following table summarizes the changes in asset impairments and restructuring charges, the non-cash reductions attributable to asset impairments, and the cash reductions in restructuring reserves for severance costs and site closure costs paid in first nine months 2021 and full year 2020:
(Dollars in millions) Balance at January 1, 2021 Provision/ Adjustments Non-cash Reductions/
Additions Cash Reductions Balance at September 30, 2021
Non-cash charges $ — $ 5 $ (5) $ — $ —
Severance costs 65 1 — (47) 19
Other restructuring costs 14 23 — (23) 14
Total $ 79 $ 29 $ (5) $ (70) $ 33

(Dollars in millions) Balance at January 1, 2020 Provision/ Adjustments Non-cash Reductions/
Additions Cash Reductions Balance at December 31, 2020
Non-cash charges $ — $ 145 $ (145) $ — $ —
Severance costs 17 65 1 (18) 65
Other restructuring costs 11 17 — (14) 14
Total $ 28 $ 227 $ (144) $ (32) $ 79

~~Substantially all severance costs remaining are expected to be applied to the reserves within one year.~~

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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Changes in Reserves

The following table summarizes the changes in asset impairments and restructuring reserves in first six months 2022 and full year 2021:


(Dollars in millions)	Balance at January 1, 2022		Provision/ Adjustments		Non-cash Reductions/ Additions		Cash Reductions		Balance at June 30, 2022

Severance costs	$	12	$	3	$	—	$	(4)	$	11
Other restructuring costs	5		18		—		(5)		18
Total	$	17	$	21	$	—	$	(9)	$	29


(Dollars in millions)	Balance at January 1, 2021		Provision/ Adjustments		Non-cash Reductions/ Additions		Cash Reductions		Balance at December 31, 2021
Non-cash charges	$	—	$	16	$	(16)	$	—	$	—
Severance costs	65		2		(1)		(54)		12
Other restructuring costs	14		29		(9)		(29)		5
Total	$	79	$	47	$	(26)	$	(83)	$	17

Substantially all severance costs remaining are expected to be applied to the reserves within one year.

15.SHARE-BASED COMPENSATION AWARDS

The Company utilizes share-based awards under employee and non-employee director compensation programs. These share-based awards have included restricted and unrestricted stock, restricted stock units, stock options, and performance shares. In ~~third~~second quarter 2022 and 2021, ~~and 2020, $20~~$17 million and $11 million, respectively, of compensation expense before tax were recognized in "Selling, general and administrative expenses" ("SG&A") in the Unaudited Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings for all share-based awards. The impact on third quarter 2021 and 2020 net earnings of $15 million and $8 million, respectively, is net of deferred tax expense related to share-based award compensation for each period.

~~In first nine months 2021 and 2020, $60 million and $31~~$18 million, respectively, of compensation expense before tax were recognized in SG&A in the Unaudited Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings for all share-based awards. The impact on ~~first nine months~~second quarter 2022 and 2021 ~~and 2020~~ net earnings of ~~$45~~$13 million in both periods, is net of deferred tax expense related to share-based award compensation for each period.

In first six months 2022 and 2021, $42 million and ~~$23~~$40 million, respectively, of compensation expense before tax was recognized in SG&A in the Unaudited Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings for all share-based awards. The impact on first six months 2022 and 2021 net earnings of $32 million and $30 million, respectively, is net of deferred tax expense related to share-based award compensation for each period.

For additional information regarding share-based compensation plans and awards, see Note ~~17,~~18, "Share-Based Compensation Plans and Awards", to the consolidated financial statements in Part II, Item 8 of the Company's ~~2020~~2021 Annual Report on Form 10-K ~~and "Item 3 - Approval of the 2021 Omnibus Stock Compensation Plan" and "Appendix A - 2021 Omnibus Stock Compensation Plan" of the~~ ~~Definitive Proxy Statement~~ ~~for the 2021 Annual Meeting of Stockholders filed on March 25, 2021 and~~ ~~amended on April 13, 2021~~.


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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

16.SUPPLEMENTAL CASH FLOW INFORMATION

Included in the line item "Other items, net" of the "Operating activities" section of the Unaudited Consolidated Statements of Cash Flows are the following changes to Unaudited Consolidated Statements of Financial Position:


(Dollars in millions)	(Dollars in millions)	First Nine Months				(Dollars in millions)	First Six Months
		2021		2020			2022		2021
Other current assets	Other current assets	$	(4)	$	(1)	Other current assets	$	2	$	(33)
Other noncurrent assets	Other noncurrent assets	25		(9)		Other noncurrent assets	(57)		8
Payables and other current liabilities	Payables and other current liabilities	221		42		Payables and other current liabilities	179		69
Long-term liabilities and equity	Long-term liabilities and equity	33		71		Long-term liabilities and equity	50		62
Total	Total	$	275	$	103	Total	$	174	$	106

The above changes resulted primarily from accrued taxes, deferred taxes, environmental liabilities, monetized positions from raw material and energy, currency, and certain interest rate hedges, equity investment dividends, prepaid insurance, miscellaneous deferrals, value-added taxes, and other miscellaneous accruals.

17.SEGMENT AND REGIONAL SALES INFORMATION

Eastman's products and operations are managed and reported in 4 operating segments: Additives & Functional Products ("AFP"), Advanced Materials ("AM"), Chemical Intermediates ("CI"), and Fibers. The economic factors that impact the nature, amount, timing, and uncertainty of revenue and cash flows vary among the Company's business operating segments and the geographical regions in which they operate. For disaggregation of revenue by major product lines and regions for each business operating segment, see Note ~~19,~~20, "Segment and Regional Sales Information", to the consolidated financial statements in Part II, Item 8 of the Company's ~~2020~~2021 Annual Report on Form 10-K. For additional financial information for each segment, see Part I, Item 1, "Business - Business Segments", in the Company's ~~2020~~2021 Annual Report on Form 10-K.


(Dollars in millions)	Second Quarter				First Six Months
Sales by Segment	2022		2021		2022		2021
Additives & Functional Products	$	835	$	655	$	1,640	$	1,264
Advanced Materials	846		769		1,583		1,485
Chemical Intermediates	861		736		1,660		1,341
Fibers	242		223		455		440
Total Sales by Operating Segment	2,784		2,383		5,338		4,530
Other (1)	—		270		160		532
Total Sales	$	2,784	$	2,653	$	5,498	$	5,062

(1)"Other" includes sales revenue from the divested rubber additives and adhesives resins businesses previously part of the AFP segment.


Table of Contents

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


(Dollars in millions)	(Dollars in millions)	Third Quarter				First Nine Months				(Dollars in millions)	Second Quarter				First Six Months
Sales by Segment		2021		2020		2021		2020
Earnings (Loss) Before Interest and Taxes by Segment										Earnings (Loss) Before Interest and Taxes by Segment	2022		2021		2022		2021
Additives & Functional Products	Additives & Functional Products	$	997	$	742	$	2,793	$	2,249	Additives & Functional Products	$	148	$	109	$	293	$	216
Advanced Materials	Advanced Materials	770		668		2,255		1,850		Advanced Materials	141		150		202		296
Chemical Intermediates	Chemical Intermediates	731		506		2,072		1,559		Chemical Intermediates	154		137		288		206
Fibers	Fibers	222		206		662		629		Fibers	37		37		61		82

Total Sales		$	2,720	$	2,122	$	7,782	$	6,287
Total Earnings Before Interest and Taxes by Operating Segment										Total Earnings Before Interest and Taxes by Operating Segment	480		433		844		800
Other (1)										Other (1)
Growth initiatives and businesses not allocated to operating segments										Growth initiatives and businesses not allocated to operating segments	(53)		(18)		(85)		(17)
Pension and other postretirement benefits income (expense), net not allocated to operating segments										Pension and other postretirement benefits income (expense), net not allocated to operating segments	26		27		49		54
Asset impairments and restructuring charges, net										Asset impairments and restructuring charges, net	(1)		(3)		(1)		(5)
Net gain (loss) on divested businesses and transaction costs										Net gain (loss) on divested businesses and transaction costs	5		(495)		(1)		(495)
Steam line incident costs, net of insurance proceeds										Steam line incident costs, net of insurance proceeds	(17)		—		(42)		—
Other income (charges), net not allocated to operating segments										Other income (charges), net not allocated to operating segments	(14)		—		(5)		(4)
Total Earnings Before Interest and Taxes										Total Earnings Before Interest and Taxes	$	426	$	(56)	$	759	$	333

(1)"Other" includes EBIT of $6 million in first six months2022 and loss before interest and taxes of $477 million and $449 million in second quarter and first six months 2021, respectively, from the divested rubber additives and adhesives resins businesses previously part of the AFP segment.

(Dollars in millions) Third Quarter First Nine Months
Earnings (Loss) Before Interest and Taxes by Segment 2021 2020 2021 2020
Additives & Functional Products $ 91 $ 107 $ (142) $ 194
Advanced Materials 125 129 421 293
Chemical Intermediates 130 31 336 131
Fibers 32 41 114 140
Total Earnings Before Interest and Taxes by Operating Segment 378 308 729 758
Other
Growth initiatives and businesses not allocated to operating segments (34) (22) (102) (73)
Pension and other postretirement benefits income (expense), net not allocated to operating segments 27 21 81 62
Asset impairments and restructuring charges, net — (54) — (65)
Other income (charges), net not allocated to operating segments (1) (10) (5) (17)
Total Earnings Before Interest and Taxes $ 370 $ 243 $ 703 $ 665


(Dollars in millions)	(Dollars in millions)	September 30,		December 31,		(Dollars in millions)	June 30,		December 31,
Assets by Segment (1)	Assets by Segment (1)	2021		2020		Assets by Segment (1)	2022		2021
Additives & Functional Products	Additives & Functional Products	$	5,929	$	6,238	Additives & Functional Products	$	4,211	$	4,188
Advanced Materials	Advanced Materials	4,622		4,345		Advanced Materials	4,778		4,661
Chemical Intermediates	Chemical Intermediates	2,752		2,614		Chemical Intermediates	2,741		2,703
Fibers	Fibers	986		978		Fibers	1,008		972
Total Assets by Operating Segment	Total Assets by Operating Segment	14,289		14,175		Total Assets by Operating Segment	12,738		12,524
Corporate Assets		1,970		1,908
Corporate & Other Assets						Corporate & Other Assets	2,137		2,995
Total Assets	Total Assets	$	16,259	$	16,083	Total Assets	$	14,875	$	15,519

(1)Segment assets include accounts receivable, inventory, fixed assets, goodwill, and intangible assets. As disclosed in Note 1, "Significant Accounting Policies", December 31, 2021 Assets by Segment have been recast from Note 20, "Segment and Regional Sales Information", to the Company's 2021 Annual Report on Form 10-K. Prior to the recast, December 31, 2021 assets reported for the AFP segment were revised from $4,643 million to $5,195 million, and assets reported for Corporate & Other Assets were revised from $2,540 million to $1,988 million. Total assets were not impacted by the misclassification.

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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


(Dollars in millions)	(Dollars in millions)	Third Quarter				First Nine Months				(Dollars in millions)	Second Quarter				First Six Months
Sales by Customer Location	Sales by Customer Location	2021		2020		2021		2020		Sales by Customer Location	2022		2021		2022		2021
United States and Canada	United States and Canada	$	1,197	$	894	$	3,398	$	2,660	United States and Canada	$	1,304	$	1,197	$	2,502	$	2,201
Europe, Middle East, and Africa										Europe, Middle East, and Africa	681		688		1,426		1,344
Asia Pacific	Asia Pacific	658		547		1,877		1,565		Asia Pacific	638		611		1,250		1,219
Europe, Middle East, and Africa		698		556		2,042		1,713
Latin America	Latin America	167		125		465		349		Latin America	161		157		320		298
Total Sales	Total Sales	$	2,720	$	2,122	$	7,782	$	6,287	Total Sales	$	2,784	$	2,653	$	5,498	$	5,062

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ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Page

This Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is based upon the consolidated financial statements of Eastman Chemical Company ("Eastman" or the "Company"), which have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP"), and should be read in conjunction with the Company's audited consolidated financial statements, including related notes, and MD&A contained in the Company's ~~2020~~2021 Annual Report on Form 10-K, and the unaudited consolidated financial statements, including related notes, included elsewhere in this Quarterly Report on Form 10-Q. All references to earnings per share ("EPS") contained in this report are diluted EPS unless otherwise noted.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

NON-GAAP FINANCIAL MEASURES

Non-GAAP financial measures, and the accompanying reconciliations of the non-GAAP financial measures to the most comparable GAAP measures, are presented below in this section and in "Overview", "Results of Operations", "Summary by Operating Segment", "Liquidity and Other Financial Information", and "Outlook" in this MD&A.

Management discloses non-GAAP financial measures, and the related reconciliations to the most comparable GAAP financial measures, because it believes investors use these metrics in evaluating longer term period-over-period performance, and to allow investors to better understand and evaluate the information used by management to assess the Company's and its operating segments' performances, make resource allocation decisions, and evaluate organizational and individual performances in determining certain performance-based compensation. Non-GAAP financial measures do not have definitions under GAAP, and may be defined differently by, and not be comparable to, similarly titled measures used by other companies. As a result, management cautions investors not to place undue reliance on any non-GAAP financial measure, but to consider such measures alongside the most directly comparable GAAP financial measure.

Company Use of Non-GAAP Financial Measures

Non-Core Items and any Unusual or Non-Recurring Items Excluded from Non-GAAP Earnings

In addition to evaluating Eastman's financial condition, results of operations, liquidity, and cash flows as reported in accordance with GAAP, management also evaluates Company and operating segment performance, and makes resource allocation and performance evaluation decisions, excluding the effect of transactions, costs, and losses or gains that do not directly result from Eastman's normal, or "core", business and operations or are otherwise of an unusual or non-recurring nature.

•Non-core transactions, costs, and losses or gains relate to, among other things, cost reductions, growth and profitability improvement initiatives, changes in businesses and assets, and other events outside of core business operations, and have included asset impairments and restructuring charges and gains, costs of and related to acquisitions, gains and losses from and costs related to dispositions, closure, or shutdowns of businesses or assets, financing transaction costs, environmental costs related to previously divested businesses or non-operational sites and product lines; and mark-to-market losses or gains for pension and other postretirement benefit plans.

•In ~~third~~second quarter and first ~~nine~~six months ~~2021,~~2022, the Company ~~decreased the provision for income taxes due to adjustment~~recognized unusual costs, net of ~~the amount recognized in prior years resulting~~insurance proceeds, from the ~~2017 Tax Cuts and Jobs Act. See Note 5, "Income Taxes", for additional information. As with~~previously reported January 31, 2022 operational incident at its Kingsport site as a result of a steam line failure (the "steam line incident"). Management considered the ~~prior years' item to which this relates, management considers this decrease~~operational incident unusual because of the ~~infrequent nature~~Company's operational and safety history and the magnitude of the ~~underlying change in tax law and resulting impacts on earnings.~~unplanned disruption.

Because non-core, unusual, or non-recurring transactions, costs, and losses or gains may materially affect the Company's, or any particular operating segment's, financial condition or results in a specific period in which they are recognized, management believes it is appropriate to evaluate both the financial measures prepared and calculated in accordance with GAAP and the related non-GAAP financial measures excluding the effect on the Company's results of these non-core, unusual, or non-recurring items. In addition to using such measures to evaluate results in a specific period, management evaluates such non-GAAP measures, and believes that investors may also evaluate such measures, because such measures may provide more complete and consistent comparisons of the Company's and its segments' operational performance on a period-over-period historical basis and, as a result, provide a better indication of expected future trends.

Adjusted Tax Rate and Provision for Income Taxes

In interim periods, Eastman discloses non-GAAP earnings with an adjusted effective tax rate and a resulting adjusted provision for income taxes using the Company's forecasted tax rate for the full year as of the end of the interim period. The adjusted effective tax rate and resulting adjusted provision for income taxes are equal to the Company's projected full year effective tax rate and provision for income taxes on earnings excluding non-core, unusual, or non-recurring items for completed periods. The adjusted effective tax rate and resulting adjusted provision for income taxes may fluctuate during the year for changes in events and circumstances that change the Company's forecasted annual effective tax rate and resulting provision for income taxes excluding non-core, unusual, or non-recurring items. Management discloses this adjusted effective tax rate, and the related reconciliation to the GAAP effective tax rate, to provide investors more complete and consistent comparisons of the Company's operational performance on a period-over-period interim basis and on the same basis as management evaluates quarterly financial results to provide a better indication of expected full year results.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Non-GAAP Debt Measure

Eastman from time to time evaluates and discloses to investors and securities and credit analysts the non-GAAP debt measure "net debt", which management defines as total borrowings less cash and cash equivalents. Management believes this metric is useful to investors and securities and credit analysts to provide them with information similar to that used by management in evaluating the Company's overall financial position, liquidity, and leverage and because management believes investors, securities analysts, credit analysts and rating agencies, and lenders often use a similar measure to assess and compare companies' relative financial position and liquidity.

Non-GAAP Measures in this Quarterly Report

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

•Asset impairments and restructuring charges, net;

•Mark-to-market pension and other postretirement benefit plans gains and losses resulting from the changes in discount rates and other actuarial assumptions and the difference between actual and expected returns on plan assets during the period;

•Environmental and other costs from previously divested or non-operational sites and product lines;

•Gains and losses, net on divested businesses and transaction costs; and

•Accelerated depreciation resulting from the closure of a manufacturing facility as part of ongoing site optimization.

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

•Steam line incident costs, net of insurance proceeds.

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

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


	Second Quarter				First Six Months
(Dollars in millions)	2022		2021		2022		2021
Non-core items impacting earnings before interest and taxes:
Asset impairments and restructuring charges, net	$	19	$	15	$	21	$	22
Mark-to-market pension and other postretirement benefits (gain), net	(3)		—		(3)		—

Environmental and other costs	15		—		15		—
Net (gain) loss on divested businesses and transaction costs	(5)		495		1		495

Accelerated depreciation	—		—		—		4
Unusual item impacting earnings before interest and taxes:
Steam line incident costs, net of insurance proceeds	17		—		42		—

Total non-core and unusual items impacting earnings before interest and taxes	43		510		76		521



Less: Items impacting provision for income taxes:
Tax effect of non-core and unusual items	(49)		33		(44)		35


Interim adjustment to tax provision	(10)		(8)		(16)		(18)
Total items impacting provision for income taxes	(59)		25		(60)		17
Total items impacting net earnings attributable to Eastman	$	102	$	485	$	136	$	504


Table of Contents

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

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

•Gross profit,

•Selling, general and administrative costs ("SG&A"),

•Other components of post-employment (benefit) cost, net,

•Other (income) charges, net,

•Earnings before interest and taxes ("EBIT"),

•Provision for income taxes,

•Net earnings attributable to Eastman,

•Diluted EPS, and

•Total borrowings.

Other Non-GAAP Financial Measures

Alternative Non-GAAP Cash Flow Measures

In addition to the non-GAAP measures presented in this Quarterly Report and other periodic reports, management occasionally has evaluated and disclosed to investors and securities analysts the non-GAAP measure cash provided by or used in operating activities excluding certain non-core, unusual, or non-recurring sources or uses of cash or including cash from or used by activities that are managed as part of core business operations ("adjusted cash provided by or used in operating activities") when analyzing, among other things, business performance, liquidity and financial position, and performance-based compensation. Management has used this non-GAAP measure in conjunction with the GAAP measure cash provided by or used in operating activities because it believes it is an appropriate metric to evaluate the cash flows from Eastman's core operations that are available for organic and inorganic growth initiatives and because it allows for a more consistent period-over-period presentation of such amounts. In its evaluation, management generally excludes the impact of certain non-core and unusual activities and decisions of management that it considers non-core, ongoing components of operations and the decisions to undertake or not to undertake such activities may be made irrespective of the cash generated from operations, and generally includes cash from or used in activities that are managed as operating activities and in business operating decisions. Management has disclosed this non-GAAP measure and the related reconciliation to investors and securities analysts to allow them to better understand and evaluate the information used by management in its decision-making processes and because management believes investors and securities analysts use similar measures to assess Company performance, liquidity, and financial position over multiple periods and to compare these with other companies.

From time to time, Eastman ~~regularly~~ evaluates and discloses to investors and securities analysts an alternative non-GAAP measure of "free cash flow", which management defines as net cash provided by or used in operating activities less the amount of net capital expenditures (typically the GAAP measure additions to properties and equipment). Such net capital expenditures are generally funded from available cash and, as such, management believes they should be considered in determining free cash flow. Management believes this is an appropriate metric to assess the Company's ability to fund priorities for uses of available cash. The priorities for cash after funding operations include payment of quarterly dividends, repayment of debt, funding targeted growth opportunities, and repurchasing shares. Management believes this metric is useful to investors and securities analysts to provide them with information similar to that used by management in evaluating financial performance and potential future cash available for various initiatives and assessing organizational performance in determining certain performance-based compensation, and because management believes investors and securities analysts often use a similar measure of free cash flow to compare the results, and value, of comparable companies. In addition, Eastman may disclose to investors and securities analysts an alternative non-GAAP measure of "free cash flow yield", which management defines as annual free cash flow divided by the Company's market capitalization, and "free cash flow conversion", which management defines as annual free cash flow divided by adjusted net income. Management believes this metric is useful to investors and securities analysts in comparing cash flow generation with that of peer and other companies.

~~Non-GAAP Debt Measure~~

~~Non-GAAP Measures in this Quarterly Report~~

~~The following non-core items are excluded by management in its evaluation of certain earnings results in this Quarterly Report:~~

•~~Asset impairments and restructuring charges, net,~~

•~~Preliminary loss on business held for sale and related transactions costs; and~~

•~~Accelerated depreciation resulting from the closure of a manufacturing facility as part of ongoing site optimization.~~

~~The following unusual item is excluded by management in its evaluation of certain earnings results in this Quarterly Report:~~

•~~Decrease to the provision for income taxes due to adjustment of the amount recognized in prior years resulting from the 2017 Tax Cuts and Jobs Act.~~

~~As described above, the alternative non-GAAP measures of cash flow, "free cash flow", and of debt, "net debt", are also presented in this Quarterly Report.~~


~~Table of Contents~~

~~MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL~~

~~CONDITION AND RESULTS OF OPERATIONS~~

~~Non-GAAP Financial Measures - Non-Core and Unusual Items Excluded from Earnings and Adjustments to Provision for Income Taxes~~
Third Quarter First Nine Months
(Dollars in millions) 2021 2020 2021 2020
Non-core items impacting earnings before interest and taxes:
Asset impairments and restructuring charges, net $ 7 $ 60 $ 29 $ 215
Loss on business held for sale and related transaction costs 68 — 563 —
Accelerated depreciation — 7 4 7
Total non-core items impacting earnings before interest and taxes 75 67 596 222
Non-core item impacting earnings before income taxes:
Early debt extinguishment costs — 1 — 1
Total non-core item impacting earnings before income taxes — 1 — 1
Less: Items impacting provision for income taxes:
Tax effect of non-core items 26 17 61 53
Adjustment from tax law changes 15 — 15 —
Interim adjustment to tax provision 47 (2) 29 9
Total items impacting provision for income taxes 88 15 105 62
Total items impacting net earnings attributable to Eastman $ (13) $ 53 $ 491 $ 161

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

•~~Gross profit,~~

•~~Earnings before interest and taxes ("EBIT"),~~

•~~Selling, general and administrative expenses ("SG&A"),~~

•~~Provision for income taxes,~~

•~~Net earnings attributable to Eastman,~~

•~~Diluted EPS,~~

•~~Net cash provided by operating activities, and~~

•~~Total borrowings.~~

~~Other Non-GAAP Financial Measures~~

~~Alternative Non-GAAP Cash Flow Measures~~

In addition to the non-GAAP measures presented in this Quarterly Report and other periodic reports, management occasionally has evaluated and disclosed to investors and securities analysts the non-GAAP measure cash provided by or used in operating activities excluding certain non-core, unusual, or non-recurring sources or uses of cash or including cash from or used by activities that are managed as part of core business operations ("adjusted cash provided by or used in operating activities") when analyzing, among other things, business performance, liquidity and financial position, and performance-based compensation. Management has used this non-GAAP measure in conjunction with the GAAP measure cash provided by or used in operating activities because it believes it is an appropriate metric to evaluate the cash flows from Eastman's core operations that are available for organic and inorganic growth initiatives and because it allows for a more consistent period-over-period presentation of such amounts. In its evaluation, management generally excludes the impact of certain non-core activities and decisions of management that it considers not core, ongoing components of operations and the decisions to undertake or not to undertake such activities may be made irrespective of the cash generated from operations, and generally includes cash from or used in activities that are managed as operating activities and in business operating decisions. Management has disclosed this non-GAAP measure and the related reconciliation to investors and securities analysts to allow them to better understand and evaluate the information used by management in its decision-making processes and because management believes investors and securities analysts use similar measures to assess Company performance, liquidity, and financial position over multiple periods and to compare these with other companies.

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Table of Contents

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Alternative Non-GAAP Earnings Measures

From time to time, Eastman may also disclose to investors and securities analysts the non-GAAP earnings measures ~~"EBIT~~"Adjusted EBIT Margin", "Adjusted EBITDA", ~~"EBITDA~~"Adjusted EBITDA Margin", "Return on Invested Capital" (or "ROIC"), and "Adjusted ROIC". Management defines Adjusted EBIT Margin as the GAAP measure EBIT adjusted to exclude the same non-core, unusual, or non-recurring items as are excluded from the Company's other non-GAAP earnings measures for the same periods divided by the GAAP measure sales revenue in the Company's Consolidated Statement of Earnings, Comprehensive Income and Retained Earnings for the same period. Adjusted EBITDA is EBITDA (net earnings before interest, taxes, depreciation and amortization) adjusted to exclude the same non-core, unusual, or non-recurring items as are excluded from the Company's other non-GAAP earnings measures for the same periods. Adjusted EBITDA Margin is Adjusted EBITDA divided by the GAAP measure sales revenue in the Company's Consolidated Statement of Earnings, Comprehensive Income and Retained Earnings for the same periods. Management defines ROIC as net earnings plus interest expense after tax divided by average total borrowings plus average stockholders' equity for the periods presented, each derived from the GAAP measures in the Company's financial statements for the periods presented. Adjusted ROIC is ROIC adjusted to exclude from net earnings the same non-core, unusual, or non-recurring items as are excluded from the Company's other non-GAAP earnings measures for the same periods. Management believes that Adjusted EBIT Margin, Adjusted EBITDA, Adjusted EBITDA Margin, ~~and~~ ROIC, and Adjusted ROIC are useful as supplemental measures in evaluating the performance of and returns from Eastman's operating businesses, and from time to time uses such measures in internal performance calculations. Further, management understands that investors and securities analysts often use similar measures of Adjusted EBIT Margin, Adjusted EBITDA, Adjusted EBITDA Margin, ROIC, and Adjusted ROIC to compare the results, returns, and value of the Company with those of peer and other companies.


Table of Contents

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

Eastman's products and operations are managed and reported in four operating segments: Additives & Functional Products ("AFP"), Advanced Materials ("AM"), Chemical Intermediates ("CI"), and Fibers. Eastman uses an innovation-driven growth model which consists of leveraging world class scalable technology platforms, delivering differentiated application development capabilities, and relentlessly engaging the market. The Company's world class technology platforms form the foundation of sustainable growth by differentiated products through significant scale advantages in research and development ("R&D") and advantaged global market access. Differentiated application development converts market complexity into opportunities for growth and accelerates innovation by enabling a deeper understanding of the value of Eastman's products and how they perform within customers' and end-user products. Key areas of application development include thermoplastic conversion, functional films, coatings formulations, ~~rubber additive formulations, adhesives formulations,~~ nonwovens and textiles, animal nutrition, and molecular recycling technologies. The Company engages the market by working directly with customers and downstream users, targeting attractive niche markets, and leveraging disruptive macro trends. Management believes that these elements of the Company's innovation-driven growth model, combined with disciplined portfolio management and balanced capital deployment, will result in consistent, sustainable earnings growth and strong cash flow.

The Company generated sales revenue of $2.8 billion and $2.7 billion in second quarter 2022 and ~~$2.1 billion in third quarter~~ 2021, ~~and 2020,~~ respectively, and ~~$7.8~~$5.5 billion and ~~$6.3~~$5.1 billion in first ~~nine~~six months ~~2021~~2022 and ~~2020,~~2021, respectively. EBIT was ~~$370~~$426 million in second quarter 2022 and loss before interest and taxes was $56 million in second quarter 2021. EBIT was $759 million and ~~$243 million in third quarter 2021 and 2020, respectively, and $703 million and $665~~$333 million in first ~~nine~~six months ~~2021~~2022 and ~~2020,~~2021, respectively. Excluding the non-core and unusual items identified in "Non-GAAP Financial Measures", adjusted EBIT was ~~$445~~$469 million and ~~$310~~$454 million in ~~third~~second quarter ~~2021~~2022 and ~~2020,~~2021, respectively, and ~~$1.3 billion~~$835 million and ~~$887~~$854 million in first ~~nine~~six months ~~2021~~2022 and ~~2020, respectively.~~2021. Sales revenue increased in ~~third~~second quarter and first ~~nine~~six months ~~2021~~2022 compared to ~~third~~second quarter and first ~~nine~~six months ~~2020~~2021 primarily due to higher selling prices ~~and higher~~partially offset by lower sales volume. ~~Compared~~Adjusted EBIT increased in second quarter 2022 compared to second quarter 2021 ~~sales revenue increased~~ primarily due to higher selling prices. Adjusted EBIT increased in third quarter and first nine months 2021 compared to third quarter and first nine months 2020 primarily due to higher sales volume and favorable product mix, particularly in the AM and AFP segments, and higher selling prices more than offsetting higher raw material and energy costs ~~in the CI segment. Compared to second quarter 2021, adjusted~~and higher distribution costs, partially offset by lower sales volume. Adjusted EBIT decreased in first six months 2022 compared to first six months 2021 primarily due to lower sales volume and higher manufacturing costs. This was partially offset by higher selling prices more than offsetting higher raw material and energy costs ~~offsetting~~and higher ~~selling prices in all segments, except the AFP segment, partially offset by lower planned manufacturing site maintenance costs in the AFP segment.~~distribution costs.

~~In first nine months 2020, capacity utilization was substantially lower due to lower sales volume resulting from~~On January 31, 2022, the ~~impact~~Company had an incident at its Kingsport site as a result of a steam line failure. Consistent with Eastman's safety processes, all manufacturing operations at the site were safely shut down following the incident. All impacted areas of the ~~COVID-19 coronavirus global pandemic ("COVID-19") and the Company's focus on maximizing cash generation by reducing inventories, which reduced EBIT, particularly~~manufacturing facility were operational as of March 31, 2022. The primary impacted area was specialty copolyesters in the AM segment. ~~As a result, cost reduction actions,~~The Fibers segment was also modestly impacted.

First six months 2022 includes costs associated with normal business operations, including ~~reduced discretionary spending, deferred asset maintenance turnarounds,~~labor, benefits, and ~~adjusted operations~~depreciation, which were accelerated into the first-quarter as well as incremental costs to ~~ensure the health~~repair damaged infrastructure and ~~safety~~minimize customer disruption. Incremental costs, net of ~~employees and contractors, totaled approximately $115~~insurance proceeds, of $17 million and ~~$150~~$42 million infor second quarter and first ~~nine~~six months ~~and full year 2020,~~2022, respectively, ~~with approximately 60 percent presented in "Cost~~primarily related to the repair of Sales" and approximately 40 percent in "Selling, general and administrative expenses" in the Unaudited Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings. In first nine months 2021, demand across key end-markets affected by COVID-19 continued to recover, resulting in higher sales volume and favorable product mix of specialty products, which increased adjusted EBIT. During third quarter 2021, inflation of raw material and energy costs accelerated, and automotive original equipment manufacturer ("OEM") component shortages began to negatively impact customers' demand fordamaged infrastructure were excluded from the Company's ~~products, especially in the AM segment.~~adjusted EBIT.

On November 1, 2021, the Company and certain of its subsidiaries completed the sale of the rubber additives (including Crystex™ insoluble sulfur and Santoflex™ antidegradants) and other product lines and related assets and technology of the global tire additives business of its AFP ~~segment.~~segment ("rubber additives"). The sale did not include the Eastman Impera™ tire resins and other performance resins product lines of the tire additives business.

On ~~October 28, 2021,~~April 1, 2022, the Company ~~entered into a definitive agreement to sell~~and certain of its subsidiaries completed the sale of the 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, of its AFP segment ~~for $1 billion. The final purchase price is subject to working capital and other adjustments at closing. As~~("adhesives resins").

For additional information on the sales of the ~~definitive agreement date~~rubber additives business and ~~until sale,~~ the ~~adhesives~~adhesive resins business, ~~disposal group will be classified as held for sale.~~see Note 2, "Divestitures", to the unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

~~For additional~~As of first quarter 2022, the Company reported sales revenue and EBIT for the divested businesses from the AFP segment in "Other". To maintain comparability of segment financial statement information, on the ~~sale~~Company has recast the segment financial information for the AFP segment and "Other" for each quarter from first quarter 2019 through fourth quarter 2021. The information presented below excludes the financial results of the ~~rubber additives business~~divested businesses from the AFP segment and includes the ~~pending sale~~financial results of the ~~adhesive resins business, see Note 2, "Business Held for Sale",~~divested businesses in "Other". For more information, refer to the ~~unaudited consolidated financial statements in Part I, Item 1 of this Quarterly~~Current Report on Form ~~10-Q.~~8-K dated April 18, 2022, and Part II, Item 5, "Other Information" in the Quarterly Report on Form 10-Q for first quarter 2022.

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

Net earnings (loss) and EPS and adjusted net earnings and EPS were as follows:
Third Quarter
2021 2020
(Dollars in millions, except EPS) $ EPS $ EPS
Net earnings attributable to Eastman $ 351 $ 2.57 $ 161 $ 1.18
Total non-core and unusual items, net of tax 34 0.23 51 0.37
Interim adjustment to tax provision (47) (0.34) 2 0.02
Adjusted net earnings $ 338 $ 2.46 $ 214 $ 1.57
First Nine Months
2021 2020
(Dollars in millions, except EPS)
$
EPS
$
EPS
Net earnings attributable to Eastman $ 479 $ 3.49 $ 446 $ 3.27
Total non-core and unusual items, net of tax 520 3.76 170 1.24
Interim adjustment to tax provision (29) (0.20) (9) (0.06)
Adjusted net earnings $ 970 $ 7.05 $ 607 $ 4.45


	Second Quarter
	2022				2021
(Dollars in millions, except EPS)	$		EPS		$		EPS
Net earnings (loss) attributable to Eastman	$	256	$	2.03	$	(146)	$	(1.07)
Total non-core and unusual items, net of tax	92		0.72		477		3.47
Interim adjustment to tax provision	10		0.08		8		0.06
Adjusted net earnings	$	358	$	2.83	$	339	$	2.46

	First Six Months
	2022				2021
(Dollars in millions, except EPS)	$		EPS		$		EPS
Net earnings attributable to Eastman	$	491	$	3.82	$	128	$	0.93
Total non-core and unusual items, net of tax	120		0.94		486		3.53
Interim adjustment to tax provision	16		0.12		18		0.13
Adjusted net earnings	$	627	$	4.88	$	632	$	4.59

Cash provided by operating activities was ~~$1.189 billion and $1.049 billion in first nine months 2021 and 2020, respectively. Free cash flow was $874~~$262 million and ~~$771~~$642 million in first ~~nine~~six months ~~2021~~2022 and ~~2020,~~2021, respectively.

RESULTS OF OPERATIONS

Sales


		Third Quarter								First Nine Months									Second Quarter								First Six Months
						Change								Change									Change								Change
(Dollars in millions)	(Dollars in millions)	2021		2020		$		%		2021		2020		$		%		(Dollars in millions)	2022		2021		$		%		2022		2021		$		%
Sales	Sales	$	2,720	$	2,122	$	598	28	%	$	7,782	$	6,287	$	1,495	24	%	Sales	$	2,784	$	2,653	$	131	5	%	$	5,498	$	5,062	$	436	9	%

Volume / product mix effect	Volume / product mix effect					186		9	%					609		10	%	Volume / product mix effect					53		2	%					60		1	%
Price effect	Price effect					399		19	%					776		12	%	Price effect					405		15	%					838		17	%
Exchange rate effect	Exchange rate effect					13		—	%					110		2	%	Exchange rate effect					(57)		(2)	%					(90)		(2)	%
Divested business effect (1)																		Divested business effect (1)					(270)		(10)	%					(372)		(7)	%

(1)Contribution to sales revenue of businesses divested which are not in 2022 comparable periods.

Sales revenue increased in ~~third~~second quarter and first ~~nine~~six months ~~2021~~2022 compared to ~~third~~second quarter and first ~~nine~~six months ~~2020~~2021 as a result of increases in all operating segments. Further discussion by operating segment is presented in "Summary by Operating Segment" in this MD&A.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Gross Profit


		Third Quarter						First Nine Months							Second Quarter						First Six Months
(Dollars in millions)	(Dollars in millions)	2021		2020		Change		2021		2020		Change		(Dollars in millions)	2022		2021		Change		2022		2021		Change
Gross profit	Gross profit	$	662	$	501	32	%	$	1,941	$	1,449	34	%	Gross profit	$	670	$	681	(2)	%	$	1,220	$	1,279	(5)	%

Accelerated depreciation	Accelerated depreciation	—		7				4		7				Accelerated depreciation	—		—				—		4
Gross profit excluding non-core item		$	662	$	508	30	%	$	1,945	$	1,456	34	%
Steam line incident costs, net of insurance proceeds														Steam line incident costs, net of insurance proceeds	17		—				42		—
Gross profit excluding non-core and unusual items														Gross profit excluding non-core and unusual items	$	687	$	681	1	%	$	1,262	$	1,283	(2)	%

Gross profit in ~~first nine months 2021 and in third~~second quarter and first ~~nine~~six months ~~2020~~2022 included incremental costs, net of insurance proceeds, from the steam line incident, and first six months 2021 included accelerated depreciation resulting from the previously reported closure of an advanced interlayers manufacturing facility in North America in the AM segment as part of ongoing site optimization actions. Excluding ~~this~~these non-core ~~item,~~and unusual items, gross profit increased in ~~third~~second quarter ~~and first nine months 2021~~2022 compared to ~~third~~second quarter ~~and first nine months 2020~~2021 as a result of increases in all ~~operating~~ segments except the Fibers ~~segment.~~segment, and gross profit decreased in first six months 2022 compared to first six months 2021 primarily as a result of decreases in the AM and Fibers segments partially offset by increases in the AFP and CI segments. Further discussion of sales revenue and EBIT changes is presented in "Summary by Operating Segment" in this MD&A.

Selling, General and Administrative Expenses


		Third Quarter						First Nine Months							Second Quarter						First Six Months
(Dollars in millions)	(Dollars in millions)	2021		2020		Change		2021		2020		Change		(Dollars in millions)	2022		2021		Change		2022		2021		Change
Selling, general and administrative expenses	Selling, general and administrative expenses	$	201	$	165	22	%	$	587	$	480	22	%	Selling, general and administrative expenses	$	185	$	202	(8)	%	$	381	$	386	(1)	%

Business held for sale transaction costs		(8)		—				(8)		—
Transaction costs														Transaction costs	(2)		—				(11)		—

Selling, general and administrative expenses excluding non-core item	Selling, general and administrative expenses excluding non-core item	$	193	$	165	17	%	$	579	$	480	21	%	Selling, general and administrative expenses excluding non-core item	$	183	$	202	(9)	%	$	370	$	386	(4)	%

~~Third~~Second quarter and first ~~nine~~six months ~~2021~~2022 SG&A expenses included transaction costs for the sale of the ~~AFP~~ rubber additives ~~business.~~and adhesives resins businesses. Excluding this non-core item, SG&A expenses ~~increased~~decreased in ~~third~~second quarter and first ~~nine~~six months ~~2021~~2022 compared to ~~third~~second quarter and first ~~nine~~six months ~~2020~~2021 primarily as a result of ~~higher~~lower variable compensation costs ~~including for incentive compensation based on annual business performance, and~~partially offset by higher ~~discretionary spending corresponding to strengthened business and market conditions.~~growth initiative costs.

Research and Development Expenses


		Third Quarter						First Nine Months							Second Quarter						First Six Months
(Dollars in millions)	(Dollars in millions)	2021		2020		Change		2021		2020		Change		(Dollars in millions)	2022		2021		Change		2022		2021		Change
Research and development expenses	Research and development expenses	$	66	$	56	18	%	$	187	$	169	11	%	Research and development expenses	$	67	$	63	6	%	$	132	$	121	9	%

R&D expenses increased in ~~third~~second quarter and first ~~nine~~six months ~~2021~~2022 compared to ~~third~~second quarter and first ~~nine~~six months ~~2020~~2021 primarily due to higher growth initiative project costs, ~~particularly~~primarily in the AM and AFP segments.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Asset Impairments and Restructuring Charges, Net


(Dollars in millions)	(Dollars in millions)	Third Quarter				First Nine Months				(Dollars in millions)	Second Quarter				First Six Months
Tangible Asset Impairments	Tangible Asset Impairments	2021		2020		2021		2020		Tangible Asset Impairments	2022		2021		2022		2021
Site optimizations	Site optimizations									Site optimizations
AFP - Tire additives		$	—	$	—	$	4	$	5
Other - Tire additives										Other - Tire additives	$	—	$	4	$	—	$	4
AM - Advanced interlayers	AM - Advanced interlayers	—		—		1		—		AM - Advanced interlayers	—		1		—		1
AM - Performance films		—		—		—		4
											—		5		—		5
Loss (Gain) on Sale of Previously Impaired Assets										Loss (Gain) on Sale of Previously Impaired Assets
Site optimizations										Site optimizations
Other - Tire additives										Other - Tire additives	(1)		—		(1)		—
AM - Advanced interlayers										AM - Advanced interlayers	16		—		16		—
AFP - Animal nutrition	AFP - Animal nutrition	—		—		—		3		AFP - Animal nutrition	—		—		—		(1)
Discontinuation of growth initiatives		—		—		—		8
		—		—		5		20
Gain on Sale of Previously Impaired Assets
Site optimizations
AFP - Animal nutrition		—		—		(1)		—
		—		—		(1)		—
Intangible Asset Impairments
AFP - Tradenames		—		—		—		123
AFP - Customer relationships		—		—		—		2
		—		—		—		125
Severance Charges
Business improvement and cost reduction actions		—		46		—		46
CI & AFP - Singapore		—		2		—		5
Site optimizations
AM - Advanced interlayers		—		3		1		3
AFP - Tire additives		—		1		—		1
AM - Performance films		—		—		—		3
AFP - Animal nutrition		—		—		—		1
		—		52		1		59
Other Restructuring Costs
Cost reduction initiatives		—		7		—		7
Discontinuation of growth initiatives contract termination fees		—		1		—		4
CI & AFP - Singapore		3		—		16		—
Site optimizations
AM - Advanced interlayers		1		—		3		—
AFP - Tire additives		1		—		3		—
AM - Performance films		2		—		2		—
											15		—		15		(1)

		7		8		24		11

Severance Charges										Severance Charges
Business improvement and cost reduction actions										Business improvement and cost reduction actions	2		—		2		—
Site optimizations										Site optimizations
AM - Performance films										AM - Performance films	1		—		1		—
AM - Advanced interlayers										AM - Advanced interlayers	—		—		—		1

											3		—		3		1
Other Restructuring Costs										Other Restructuring Costs

CI & AFP - Singapore										CI & AFP - Singapore	1		8		2		13
Site optimizations										Site optimizations
AM - Advanced interlayers										AM - Advanced interlayers	—		2		1		2
Other - Tire additives										Other - Tire additives	—		—		—		2

											1		10		3		17

Total	Total	$	7	$	60	$	29	$	215	Total	$	19	$	15	$	21	$	22

For detailed information regarding asset impairments and restructuring charges, net ~~and information related to future expected costs,~~ see Note 14, "Asset Impairments and Restructuring Charges, Net", to the unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

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


	Second Quarter				First Six Months
(Dollars in millions)	2022		2021		2022		2021
Other components of post-employment (benefit) cost, net	$	(34)	$	(37)	$	(65)	$	(73)
Mark-to-market pension and other postretirement benefit gain, net	3		—		3		—
Other components of post-employment (benefit) cost, net excluding non-core item	$	(31)	$	(37)	$	(62)	$	(73)

For more information regarding other components of post-employment (benefit) cost, net see Note 8, "Retirement Plans", to the unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.


Table of Contents

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Other ~~Components of Post-employment (Benefit) Cost, Net~~
Third Quarter First Nine Months
(Dollars in millions) 2021 2020 2021 2020
Other components of post-employment (benefit) cost, net $ (36) $ (30) $ (109) $ (90)

~~Other~~ (Income) Charges, Net


		Third Quarter				First Nine Months					Second Quarter				First Six Months
(Dollars in millions)	(Dollars in millions)	2021		2020		2021		2020		(Dollars in millions)	2022		2021		2022		2021
Foreign exchange transaction (gains) losses, net	Foreign exchange transaction (gains) losses, net	$	2	$	8	$	7	$	14	Foreign exchange transaction (gains) losses, net	$	7	$	1	$	8	$	5

(Income) loss from equity investments and other investment (gains) losses, net	(Income) loss from equity investments and other investment (gains) losses, net	(3)		(3)		(12)		(10)		(Income) loss from equity investments and other investment (gains) losses, net	(3)		(3)		(15)		(9)

Other, net	Other, net	(5)		2		(6)		6		Other, net	10		1		9		(1)
Other (income) charges, net	Other (income) charges, net	$	(6)	$	7	$	(11)	$	10	Other (income) charges, net	$	14	$	(1)	$	2	$	(5)
Environmental and other costs										Environmental and other costs	(15)		—		(15)		—

Other (income) charges, net excluding non-core items										Other (income) charges, net excluding non-core items	$	(1)	$	(1)	$	(13)	$	(5)

For more information regarding components of foreign exchange transaction losses, see Note 7, "Derivative and Non-Derivative Financial Instruments", to the unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Earnings (Loss) Before Interest and Taxes


		Third Quarter						First Nine Months							Second Quarter						First Six Months
(Dollars in millions)	(Dollars in millions)	2021		2020		Change		2021		2020		Change		(Dollars in millions)	2022		2021		Change		2022		2021		Change
Earnings (loss) before interest and taxes	Earnings (loss) before interest and taxes	$	370	$	243	52	%	$	703	$	665	6	%	Earnings (loss) before interest and taxes	$	426	$	(56)	>100%		$	759	$	333	>100%
Mark-to-market pension and other postretirement benefits (gain), net														Mark-to-market pension and other postretirement benefits (gain), net	(3)		—				(3)		—
Asset impairments and restructuring charges, net														Asset impairments and restructuring charges, net	19		15				21		22
Net (gain) loss on divested businesses and transaction costs														Net (gain) loss on divested businesses and transaction costs	(5)		495				1		495
Accelerated depreciation														Accelerated depreciation	—		—				—		4
Steam line incident costs, net of insurance proceeds														Steam line incident costs, net of insurance proceeds	17		—				42		—
Environmental and other costs														Environmental and other costs	15		—				15		—

Asset impairments and restructuring charges, net		7		60				29		215
Loss on business held for sale and related transaction costs		68		—				563		—
Accelerated depreciation		—		7				4		7

Earnings before interest and taxes excluding non-core items		$	445	$	310	44	%	$	1,299	$	887	46	%
Earnings before interest and taxes excluding non-core and unusual items														Earnings before interest and taxes excluding non-core and unusual items	$	469	$	454	3	%	$	835	$	854	(2)	%

Net Interest Expense


		Third Quarter						First Nine Months							Second Quarter						First Six Months
(Dollars in millions)	(Dollars in millions)	2021		2020		Change		2021		2020		Change		(Dollars in millions)	2022		2021		Change		2022		2021		Change
Gross interest costs	Gross interest costs	$	51	$	55	(7)	%	$	155	$	165	(6)	%	Gross interest costs	$	47	$	52	(10)	%	$	96	$	104	(8)	%
Less: Capitalized interest	Less: Capitalized interest	1		1				3		3				Less: Capitalized interest	2		1				4		2
Interest expense	Interest expense	50		54				152		162				Interest expense	45		51				92		102
Less: Interest income	Less: Interest income	1		2				2		3				Less: Interest income	—		—				1		1
Net interest expense	Net interest expense	$	49	$	52	(6)	%	$	150	$	159	(6)	%	Net interest expense	$	45	$	51	(12)	%	$	91	$	101	(10)	%

Net interest expense decreased in ~~third~~second quarter and first ~~nine~~six months ~~2021~~2022 compared to ~~third~~second quarter and first ~~nine~~six months ~~2020~~2021 primarily as a result of lower total borrowings.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Provision for Income Taxes


		Third Quarter								First Nine Months									Second Quarter								First Six Months
		2021				2020				2021				2020					2022				2021				2022				2021
(Dollars in millions)	(Dollars in millions)	$		%		$		%		$		%		$		%		(Dollars in millions)	$		%		$		%		$		%		$		%
Provision for income taxes and effective tax rate	Provision for income taxes and effective tax rate	$	(33)	(10)	%	$	25	13	%	$	66	12	%	$	50	10	%	Provision for income taxes and effective tax rate	$	124	33	%	$	37	—	%	$	175	26	%	$	99	44	%
Tax provision for non-core items (1)		26				17				61				53
Adjustment from tax law changes (2)		15				—				15				—
Tax provision for non-core and unusual items (1)																		Tax provision for non-core and unusual items (1)	(49)				33				(44)				35

Interim adjustment to tax provision ~~(3)~~(2)	Interim adjustment to tax provision ~~(3)~~(2)	47				(2)				29				9				Interim adjustment to tax provision ~~(3)~~(2)	(10)				(8)				(16)				(18)
Adjusted provision for income taxes and effective tax rate	Adjusted provision for income taxes and effective tax rate	$	55	14	%	$	40	16	%	$	171	15	%	$	112	16	%	Adjusted provision for income taxes and effective tax rate	$	65	16	%	$	62	16	%	$	115	16	%	$	116	16	%

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

(2)~~Decrease to the provision for income taxes due to adjustment of the amount recognized in prior years as a result of the 2017 Tax Cuts and Jobs Act.~~

~~(3)Third~~Second quarter ~~2021~~2022 provision for income taxes was adjusted to reflect the current forecasted full year effective tax rate. ~~Third~~Second quarter ~~2020~~2021 provision for income taxes was adjusted to reflect the then current forecasted full year effective tax rate. The adjusted provision for income taxes for first ~~nine~~six months ~~2021~~2022 and ~~2020~~2021 are calculated applying the forecasted full year effective tax rates as shown below.


		First Nine Months (1)					First Six Months (1)
		2021		2020			2022		2021
Effective tax rate	Effective tax rate	12	%	10	%	Effective tax rate	26	%	44	%

Tax impact of current year non-core and unusual items (2)	Tax impact of current year non-core and unusual items (2)	3	%	7	%	Tax impact of current year non-core and unusual items (2)	(6)	%	(25)	%
Changes in tax contingencies and valuation allowances		1	%	1	%

Forecasted full year impact of expected tax events	Forecasted full year impact of expected tax events	(1)	%	(2)	%	Forecasted full year impact of expected tax events	(4)	%	(3)	%

Forecasted full year adjusted effective tax rate	Forecasted full year adjusted effective tax rate	15	%	16	%	Forecasted full year adjusted effective tax rate	16	%	16	%

(1)Effective tax rate percentages are rounded to the nearest whole percent. The forecasted full year effective tax rates are ~~15.0 percent and~~ 15.5 percent for both first ~~nine~~six months ~~2021~~2022 and ~~2020, respectively.~~2021.

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

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Net Earnings (Loss) Attributable to Eastman and Diluted Earnings per Share
Third Quarter
2021 2020
(Dollars in millions, except EPS) $ EPS $ EPS
Net earnings (loss) and diluted earnings per share attributable to Eastman $ 351 $ 2.57 $ 161 $ 1.18
Non-core items, net of tax: (1)
Asset impairments and restructuring charges, net 5 0.04 45 0.33
Accelerated depreciation — — 5 0.04
Early debt extinguishment costs — — 1 —
Loss on business held for sale and related transaction costs 44 0.30 — —
Unusual items, net of tax: (1)
Adjustment from tax law changes (15) (0.11) — —
Interim adjustment to tax provision (47) (0.34) 2 0.02
Adjusted net earnings and diluted earnings per share attributable to Eastman $ 338 $ 2.46 $ 214 $ 1.57


	Second Quarter
	2022				2021
(Dollars in millions, except EPS)	$		EPS		$		EPS
Net earnings (loss) and diluted earnings per share attributable to Eastman	$	256	$	2.03	$	(146)	$	(1.07)
Non-core items, net of tax: (1)
Mark-to-market pension and other post-employment benefits (gain), net	(3)		(0.02)		—		—
Asset impairments and restructuring charges, net	15		0.12		12		0.09

Net (gain) loss on divested businesses and transaction costs	56		0.43		465		3.38

Environmental and other costs	11		0.09		—		—

Unusual item, net of tax: (1)
Steam line incident costs, net of insurance proceeds	13		0.10		—		—



Interim adjustment to tax provision	10		0.08		8		0.06
Adjusted net earnings and diluted earnings per share attributable to Eastman (2)	$	358	$	2.83	$	339	$	2.46


		First Nine Months								First Six Months
		2021				2020				2022				2021
(Dollars in millions, except EPS)	(Dollars in millions, except EPS)	$		EPS		$		EPS			(Dollars in millions, except EPS)	$		EPS		$		EPS
Net earnings and diluted earnings per share attributable to Eastman	Net earnings and diluted earnings per share attributable to Eastman	$	479	$	3.49	$	446	$	3.27		Net earnings and diluted earnings per share attributable to Eastman	$	491	$	3.82	$	128	$	0.93
Non-core items, net of tax: (1)	Non-core items, net of tax: (1)										Non-core items, net of tax: (1)
Mark-to-market pension and other post-employment benefits (gain), net											Mark-to-market pension and other post-employment benefits (gain), net	(3)		(0.02)		—		—
Asset impairments and restructuring charges, net											Asset impairments and restructuring charges, net	16		0.13		18		0.13
Net (gain) loss on divested businesses and transaction costs											Net (gain) loss on divested businesses and transaction costs	64		0.50		465		3.38
Accelerated depreciation											Accelerated depreciation	—		—		3		0.02
Environmental and other costs											Environmental and other costs	11		0.09		—		—

Asset impairments and restructuring charges, net		23		0.16		164		1.20
Loss on business held for sale and related transaction costs		509		3.69		—		—
Accelerated depreciation		3		0.02		5		0.04
Early debt extinguishment costs		—		—		1		—
Unusual items, net of tax: (1)											Unusual items, net of tax: (1)
Steam line incident costs, net of insurance proceeds											Steam line incident costs, net of insurance proceeds	32		0.24		—		—

Unusual items, net of tax: (1)

Adjustment from tax law changes		(15)		(0.11)		—		—
Interim adjustment to tax provision	Interim adjustment to tax provision	(29)		(0.20)		(9)		(0.06)			Interim adjustment to tax provision	16		0.12		18		0.13
Adjusted net earnings and diluted earnings per share attributable to Eastman	Adjusted net earnings and diluted earnings per share attributable to Eastman	$	970	$	7.05	$	607	$	4.45		Adjusted net earnings and diluted earnings per share attributable to Eastman	$	627	$	4.88	$	632	$	4.59

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

(2)Second quarter 2021 EPS calculated using diluted shares of 137.6 million.


Table of Contents

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

SUMMARY BY OPERATING SEGMENT

Eastman's products and operations are managed and reported in four operating segments: Additives & Functional Products ("AFP"), Advanced Materials ("AM"), Chemical Intermediates ("CI"), and Fibers. For additional financial and product information for each operating segment, see Part I, Item 1, "Business - Business Segments" and Part II, Item 8, Note ~~19,~~20, "Segment and Regional Sales Information", in the Company's ~~2020~~2021 Annual Report on Form 10-K. and the recasted financial information for AFP segment and "Other" in Part II, Item 5, "Other Information" of the Quarterly Report on Form 10-Q for first quarter 2022.

Additives & Functional Products Segment


		Third Quarter								First Nine Months									Second Quarter								First Six Months
						Change								Change									Change								Change
		2021		2020		$		%		2021		2020		$		%			2022		2021		$		%		2022		2021		$		%
(Dollars in millions)	(Dollars in millions)																	(Dollars in millions)
Sales	Sales	$	997	$	742	$	255	34	%	$	2,793	$	2,249	$	544	24	%	Sales	$	835	$	655	$	180	27	%	$	1,640	$	1,264	$	376	30	%

Volume / product mix effect	Volume / product mix effect					117		16	%					291		13	%	Volume / product mix effect					71		11	%					133		11	%
Price effect	Price effect					133		18	%					202		9	%	Price effect					135		20	%					285		22	%
Exchange rate effect	Exchange rate effect					5		—	%					51		2	%	Exchange rate effect					(26)		(4)	%					(42)		(3)	%

Earnings (loss) before interest and taxes		$	91	$	107	$	(16)	15	%	$	(142)	$	194	$	(336)	(173)	%
Loss on business held for sale and related transaction costs		68		—		68				563		—		563
Earnings before interest and taxes																		Earnings before interest and taxes	$	148	$	109	$	39	36	%	$	293	$	216	$	77	36	%

Asset impairments and restructuring charges, net	Asset impairments and restructuring charges, net	2		2		—				9		136		(127)				Asset impairments and restructuring charges, net	—		2		(2)				—		2		(2)

Earnings before interest and taxes excluding non-core items		161		109		52		48	%	430		330		100		30	%
Earnings before interest and taxes excluding non-core item																		Earnings before interest and taxes excluding non-core item	148		111		37		33	%	293		218		75		34	%

Sales revenue in ~~third~~second quarter and first ~~nine~~six months ~~2021~~2022 increased compared to ~~third~~second quarter and first ~~nine~~six months ~~2020~~2021 primarily due to higher ~~sales volume~~selling prices and higher ~~selling prices. Higher~~ sales volume was primarily due to strengthened demand and improved market conditions for coatings and inks additives products sold in transportation, building and construction, and durable goods end-markets, resulting in a more favorable product mix.volume. Higher selling prices were ~~primarily~~ due to strong end-market demand and higher raw material, energy, and distribution prices.

~~Third~~ Cost pass-through contracts represented approximately 40 percent of the selling price increase in both second quarter and first ~~nine~~six months 2022. Higher sales volume was due to strong underlying demand in key end-markets, including animal nutrition, personal care, building and construction, and electronics.

Second quarter and first six months 2021 ~~earnings (loss) before interest and taxes~~EBIT included ~~business held for sale loss and related transaction costs, and~~ asset impairments and restructuring charges resulting from a manufacturing facility ~~closures. Additionally, first nine months 2021 included~~closure, contract termination fees, discontinued production of certain products, and a gain on the sale of impaired assets. Third quarter 2020 loss before interest and taxes and first nine months 2020 EBIT included asset impairment and restructuring charges resulting from the impairment of tradenames and customer relationships, and the closure of manufacturing facilities. For more information regarding asset impairments and restructuring charges, see Note 14, "Asset Impairments and Restructuring Charges, Net", to the unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Excluding these non-core items, EBIT increased in ~~third~~second quarter ~~2021~~and first six months 2022 compared to ~~third~~second quarter ~~2020~~and first six months 2021 primarily due to ~~$68 million of~~ higher sales volume and ~~$17 million of~~ lower planned ~~manufacturing site~~ maintenance ~~costs. This increase was~~costs totaling $33 million and $50 million, respectively, higher selling prices were partially offset by higher raw material and energy costs, and ~~higher~~ distribution costs ~~offsetting higher selling prices~~ by ~~$25 million.~~

~~Excluding these non-core items, EBIT increased in first nine months 2021 compared to first nine months 2020 primarily due to $192~~$8 million ~~of higher sales volume. This increase was~~and $38 million, respectively, and lower variable compensation costs partially offset by higher ~~raw material~~growth initiative costs totaling $5 million in both periods. In addition, an unfavorable shift in foreign currency exchange rates was recognized in second quarter and ~~energy costs and higher distribution costs offsetting higher selling prices by $68~~first six months 2022 of $5 million and $3$8 million, ~~of higher manufacturing costs, primarily due to planned manufacturing site maintenance costs.~~respectively.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

2021 Change
Third Quarter Second Quarter $ %
(Dollars in millions)
Sales $ 997 $ 925 $ 72 8 %
Volume / product mix effect 16 2 %
Price effect 61 7 %
Exchange rate effect (5) (1) %
Earnings (loss) before interest and taxes $ 91 $ (368) $ 459 (125) %
Loss on business held for sale and related transaction costs 68 495 (427)
Asset impairments and restructuring charges, net 2 5 (3)
Earnings before interest and taxes excluding non-core items 161 132 29 22 %
Advanced Materials Segment


	Second Quarter								First Six Months
					Change								Change
	2022		2021		$		%		2022		2021		$		%
(Dollars in millions)
Sales	$	846	$	769	$	77	10	%	$	1,583	$	1,485	$	98	7	%

Volume / product mix effect					(10)		(1)	%					(48)		(3)	%
Price effect					103		13	%					170		12	%
Exchange rate effect					(16)		(2)	%					(24)		(2)	%

Earnings before interest and taxes	$	141	$	150	$	(9)	(6)	%	$	202	$	296	$	(94)	(32)	%
Asset impairments and restructuring charges, net	17		3		14				18		4		14
Accelerated depreciation	—		—		—				—		4		(4)


Earnings before interest and taxes excluding non-core items	158		153		5		3	%	220		304		(84)		(28)	%

Sales revenue in ~~third~~second quarter ~~2021~~and first six months 2022 increased compared to second quarter and first six months 2021 primarily due to higher selling prices ~~resulting from~~partially offset by lower sales volume and an unfavorable shift in foreign currency exchange rates. Higher selling prices in the specialty plastics and advanced interlayers product lines were due to higher raw material, energy, and ~~energy~~distribution prices.

~~See "Management's Discussion~~ Sales volume was relatively unchanged as underlying demand remained strong across key end-markets, including consumer durables, partially offset by logistics constraints in the specialty plastics product line and ~~Analysis of Financial Condition and Results of Operations" of~~continued weakness in the ~~Quarterly Report on Form 10-Q~~automotive end-market for second quarter 2021 for description of second quarter 2021 non-core items. Excluding these non-core items, EBIT increased in third quarter 2021 compared to second quarter 2021 primarily due to $22 million of lower planned manufacturing site maintenance costs and higher selling prices offsetting higher raw material and energy costs by $7 million.

In April 2021, the Company completed the acquisition of 3F Food & Feed ("3F"), a manufacturer of additives for animal feed and human food for a preliminary purchase price of approximately $75 million, net of cash acquired. The acquisition of 3F is expected to enhance continued global growth of the AFP segment animal nutrition product lines.

On November 1, 2021, Eastman completed the sale of the rubber additives business of the AFP segment. Sales revenue for the tire additives product lines represented 14 percent of 2020 AFP segment sales. See "Overview".

On October 28, 2021, Eastman entered into a definitive agreement to sell the adhesives resins business of the AFP segment. Sales revenue for the adhesives resins product lines represented 16 percent of 2020 AFP segment sales. See "Overview".

~~Advanced Materials Segment~~
Third Quarter First Nine Months
Change Change
2021 2020 $ % 2021 2020 $ %
(Dollars in millions)
Sales $ 770 $ 668 $ 102 15 % $ 2,255 $ 1,850 $ 405 22 %
Volume / product mix effect 66 10 % 337 18 %
Price effect 29 4 % 28 2 %
Exchange rate effect 7 1 % 40 2 %
Earnings before interest and taxes $ 125 $ 129 $ (4) (3) % $ 421 $ 293 $ 128 44 %
Asset impairments and restructuring charges, net 3 3 — 7 10 (3)
Accelerated depreciation — 7 (7) 4 7 (3)
Earnings before interest and taxes excluding non-core items 128 139 (11) (8) % 432 310 122 39 %


~~Table of Contents~~

~~MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL~~

~~CONDITION AND RESULTS OF OPERATIONS~~advanced interlayers products.

~~Sales revenue in third~~Second quarter and first ~~nine~~six months ~~2021 increased compared to third quarter~~2022 and first nine months 2020 primarily due to higher sales volume. Demand strengthened for specialty plastics products sold into durables goods, medical, and electronics end-markets, advanced interlayers products sold into transportation end-markets, and performance films premium automotive products, resulting in a more favorable product mix.

~~Third quarter and first nine months~~ 2021 EBIT included ~~asset impairments and restructuring charges resulting from a manufacturing facility closure. First nine months 2021 and first nine months 2020 EBIT included accelerated depreciation and~~ asset impairment and restructuring charges ~~respectively,~~ from a manufacturing facility ~~closure.~~closure and first six months 2021 EBIT included accelerated depreciation. For more information regarding asset impairments and restructuring charges see Note 14, "Asset Impairments and Restructuring Charges, Net", to the unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Excluding these non-core items, EBIT increased in second quarter 2022 compared to second quarter 2021 primarily due to higher sales volume and lower manufacturing costs totaling $10 million, higher selling prices more than offsetting higher raw materials and energy costs and distribution costs by $7 million, and higher growth initiative costs partially offset by lower variable compensation costs totaling $4 million. In addition, $6 million of an unfavorable shift in foreign currency exchange rates was recognized in the period.

Excluding these non-core items, EBIT decreased in ~~third quarter 2021~~first six months 2022 compared to ~~third quarter 2020~~first six months 2021 primarily due to lower sales volume and higher manufacturing costs totaling $46 million primarily as a result of the steam line incident, higher growth initiative costs partially offset by lower variable compensation costs by $17 million, and higher raw material and energy costs and higher distribution costs offsetting ~~higher~~ selling prices ~~by $54 million and $12~~totaling $5 million. In addition, $8 million of ~~higher growth initiatives project costs. These higher costs were partially offset by $50 million of higher sales volume and a favorable product mix.~~

~~Excluding these non-core items, EBIT increased~~an unfavorable shift in first nine months 2021 compared to first nine months 2020 primarily due to $234 million of higher sales volume and a favorable product mix, partially offset by higher raw material and energy costs and higher distribution costs offsetting higher selling prices by $101 million and $20 million of higher growth initiatives project costs.

2021 Change
Third Quarter Second Quarter $ %
(Dollars in millions)
Sales $ 770 $ 769 $ 1 — %
Volume / product mix effect (3) (1) %
Price effect 5 1 %
Exchange rate effect (1) — %
Earnings before interest and taxes $ 125 $ 150 $ (25) (17) %
Asset impairments and restructuring charges, net 3 3 —
Accelerated depreciation — — —
Earnings before interest and taxes excluding non-core items 128 153 (25) (16) %

~~Sales revenue~~foreign currency exchange rates was recognized in third quarter 2021 was relatively unchanged compared to second quarter 2021 as higher selling prices resulting from strong end-market demand for specialty plastics products and higher raw material prices were offset by lower sales volume of performance films premium automotive products attributed to automotive OEM component shortages negatively impacting demand for performance films and advanced interlayers products used in higher-end premium vehicles.the period.

~~See "Management's Discussion and Analysis of Financial Condition and Results of Operations" of the~~
~~Quarterly Report on Form 10-Q~~ for second quarter 2021 for description of second quarter 2021 non-core items. Excluding these non-core items, EBIT decreased in third quarter 2021 compared to second quarter 2021 primarily due to higher raw material and energy costs offsetting higher selling prices by $26 million.

In third quarter 2021, the Company acquired the Matrix Films performance films business. This acquisition expands the AM segment paint protection film pattern development capabilities, pattern database, and installation training expertise.

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Table of Contents

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Chemical Intermediates Segment


		Third Quarter								First Nine Months									Second Quarter								First Six Months
						Change								Change									Change								Change
		2021		2020		$		%		2021		2020		$		%			2022		2021		$		%		2022		2021		$		%
(Dollars in millions)	(Dollars in millions)																	(Dollars in millions)
Sales	Sales	$	731	$	506	$	225	44	%	$	2,072	$	1,559	$	513	33	%	Sales	$	861	$	736	$	125	17	%	$	1,660	$	1,341	$	319	24	%

Volume / product mix effect	Volume / product mix effect					(11)		(2)	%					(52)		(3)	%	Volume / product mix effect					(2)		—	%					1		—	%
Price effect	Price effect					235		46	%					549		35	%	Price effect					140		19	%					340		25	%
Exchange rate effect	Exchange rate effect					1		—	%					16		1	%	Exchange rate effect					(13)		(2)	%					(22)		(1)	%

Earnings before interest and taxes	Earnings before interest and taxes	$	130	$	31	$	99	319	%	$	336	$	131	$	205	156	%	Earnings before interest and taxes	$	154	$	137	$	17	12	%	$	288	$	206	$	82	40	%

Asset impairments and restructuring charges, net	Asset impairments and restructuring charges, net	2		1		1				13		4		9				Asset impairments and restructuring charges, net	1		7		(6)				2		11		(9)

Earnings before interest and taxes excluding non-core item		132		32		100		313	%	349		135		214		159	%
Earnings before interest and taxes excluding non-core items																		Earnings before interest and taxes excluding non-core items	155		144		11		8	%	290		217		73		34	%

Sales revenue in ~~third~~second quarter and first ~~nine~~six months ~~2021~~2022 increased compared to ~~third~~second quarter and first ~~nine~~six months ~~2020~~2021 primarily due to higher selling prices across the business, resulting from higher raw material, energy, and distribution ~~prices. This increase~~prices, as well as continued constrained market conditions. The impact of lower sales volume, primarily in plasticizers, was partially offset by ~~lower sales volume, primarily due~~strong demand growth in the agriculture end-market for functional amines.

Second quarter and first six months 2022 and second quarter and first six months 2021 EBIT included site closure costs resulting from the previously reported plan to ~~the discontinued~~discontinue production of certain products at the Singapore manufacturing ~~facility.~~

~~Third quarter and first nine months 2021 and third quarter and first nine months 2020 EBIT included restructuring charges resulting from the discontinued production of certain products.~~site. For more information regarding asset impairments and restructuring charges see Note 14, "Asset Impairments and Restructuring Charges, Net", to the unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Excluding ~~this~~these non-core ~~item,~~items, EBIT increased in ~~third~~second quarter ~~2021~~and first six months 2022 compared to ~~third~~second quarter ~~2020~~and first six months 2021 primarily due to higher selling prices offsetting higher raw material and energy costs, and higher distribution costs by ~~$85~~$7 million and ~~$13~~$75 million, respectively.

Fibers Segment


	Second Quarter								First Six Months
					Change								Change
	2022		2021		$		%		2022		2021		$		%
(Dollars in millions)
Sales	$	242	$	223	$	19	9	%	$	455	$	440	$	15	3	%
Volume / product mix effect					(6)		(2)	%					(26)		(6)	%
Price effect					27		12	%					43		9	%
Exchange rate effect					(2)		(1)	%					(2)		—	%

Earnings before interest and taxes	$	37	$	37	$	—	—	%	$	61	$	82	$	(21)	(26)	%

Sales revenue in second quarter and first six months 2022 increased compared to second quarter and first six months 2021 primarily due to higher selling prices across the segment, partially offset by lower sales volume in acetate tow.

EBIT was relatively unchanged in second quarter 2022 compared to second quarter 2021. Higher selling prices more than offset higher raw material and energy costs and higher distribution costs. This was offset by lower sales volume and higher manufacturing costs primarily as a result of the steam line incident and the Russia/Ukraine conflict.

EBIT decreased in first six months 2022 compared to first six months 2021 due to $33 million of lower ~~planned~~sales volume and higher manufacturing ~~site maintenance costs.~~

~~Excluding this non-core item, EBIT increased in first nine months 2021 compared to first nine months 2020~~costs primarily ~~due to~~as a result of the steam line incident and the Russia/Ukraine conflict, partially offset by higher selling prices offsetting higher raw material and energy costs, ~~by $216 million.~~

2021 Change
Third Quarter Second Quarter $ %
(Dollars in millions)
Sales $ 731 $ 736 $ (5) (1) %
Volume / product mix effect (36) (5) %
Price effect 32 4 %
Exchange rate effect (1) — %
Earnings before interest and taxes $ 130 $ 137 $ (7) (5) %
Asset impairments and restructuring charges, net 2 7 (5)
Earnings before interest and taxes excluding non-core item 132 144 (12) (8) %

Sales revenue in third quarter 2021 decreased compared to second quarter 2021 primarily due to lower sales volume, resulting from lower functional amines and olefins products sales volume. This decrease was mostly offset by higher selling prices, resulting from higher raw material and energy prices.


~~Table of Contents~~

~~MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL~~

~~CONDITION AND RESULTS OF OPERATIONS~~

~~See "Management's Discussion and Analysis of Financial Condition and Results of Operations" of the~~ ~~Quarterly Report on Form 10-Q~~ for second quarter 2021 for description of second quarter 2021 non-core item. Excluding this non-core item, EBIT decreased in third quarter 2021 compared to second quarter 2021 primarily due to $17 million of lower sales volume and higher raw material and energy costs offsetting higher selling prices by $14 million, partially offset by $14 million of lower planned manufacturing site maintenance costs.

~~Fibers Segment~~
Third Quarter First Nine Months
Change Change
2021 2020 $ % 2021 2020 $ %
(Dollars in millions)
Sales $ 222 $ 206 $ 16 8 % $ 662 $ 629 $ 33 5 %
Volume / product mix effect 14 7 % 33 5 %
Price effect 2 1 % (3) — %
Exchange rate effect — — % 3 — %
Earnings before interest and taxes $ 32 $ 41 $ (9) (22) % $ 114 $ 140 $ (26) (19) %

Sales revenue in third quarter and first nine months 2021 increased compared to third quarter and first nine months 2020 primarily due to higher sales volume of textile products due to strengthened end-market demand attributed to continued recovery of the textiles end-market negatively impacted by COVID-19. Acetate tow sales volume was relatively unchanged.

~~EBIT decreased in third quarter 2021 compared to third quarter 2020 primarily due to higher raw material and energy costs~~ and higher distribution costs ~~offsetting higher selling prices~~ by ~~$11 million, partially offset by $5 million of higher sales volume of textile products.~~

EBIT decreased in first nine months 2021 compared to first nine months 2020 primarily due to higher raw material and energy costs, higher distribution costs, and lower selling prices, totaling $23 million.

2021 Change
Third Quarter Second Quarter $ %
(Dollars in millions)
Sales $ 222 $ 223 $ (1) — %
Volume / product mix effect (4) (2) %
Price effect 3 2 %
Exchange rate effect — — %
Earnings before interest and taxes $ 32 $ 37 $ (5) (14) %

~~Sales revenue in third quarter 2021 was relatively unchanged compared to second quarter 2021 as higher selling prices of textiles products mostly offset lower acetate tow sales volume.~~

~~EBIT decreased in third quarter 2021 compared to second quarter 2021 primarily due to higher distribution costs and higher raw material and energy costs offsetting higher selling prices by $5~~$13 million.


Table of Contents

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Other


		Third Quarter				First Nine Months					Second Quarter				First Six Months
		2021		2020		2021		2020			2022		2021		2022		2021
(Dollars in millions)	(Dollars in millions)									(Dollars in millions)
Sales										Sales	$	—	$	270	$	160	$	532

Loss before interest and taxes
Earnings (loss) before interest and taxes										Earnings (loss) before interest and taxes
Growth initiatives and businesses not allocated to operating segments	Growth initiatives and businesses not allocated to operating segments	$	(34)	$	(22)	$	(102)	$	(73)	Growth initiatives and businesses not allocated to operating segments	$	(53)	$	(18)	$	(85)	$	(17)
Pension and other postretirement benefits income (expense), net not allocated to operating segments	Pension and other postretirement benefits income (expense), net not allocated to operating segments	27		21		81		62		Pension and other postretirement benefits income (expense), net not allocated to operating segments	26		27		49		54
Asset impairments and restructuring charges, net	Asset impairments and restructuring charges, net	—		(54)		—		(65)		Asset impairments and restructuring charges, net	(1)		(3)		(1)		(5)
Net gain (loss) on divested businesses and transaction costs										Net gain (loss) on divested businesses and transaction costs	5		(495)		(1)		(495)
Steam line incident costs, net of insurance proceeds										Steam line incident costs, net of insurance proceeds	(17)		—		(42)		—
Other income (charges), net not allocated to operating segments	Other income (charges), net not allocated to operating segments	(1)		(10)		(5)		(17)		Other income (charges), net not allocated to operating segments	(14)		—		(5)		(4)
Loss before interest and taxes		$	(8)	$	(65)	$	(26)	$	(93)
Earnings (loss) before interest and taxes										Earnings (loss) before interest and taxes	$	(54)	$	(489)	$	(85)	$	(467)

Asset impairments and restructuring charges, net	Asset impairments and restructuring charges, net	—		54		—		65		Asset impairments and restructuring charges, net	1		3		1		5
Net (gain) loss on divested businesses and transaction costs										Net (gain) loss on divested businesses and transaction costs	(5)		495		1		495
Steam line incident costs, net of insurance proceeds										Steam line incident costs, net of insurance proceeds	17		—		42		—
Environmental and other costs										Environmental and other costs	15		—		15		—

Loss before interest and taxes excluding non-core items		(8)		(11)		(26)		(28)
Mark-to-market pension and other postretirement benefits (gain), net										Mark-to-market pension and other postretirement benefits (gain), net	(3)		—		(3)		—
Earnings (loss) before interest and taxes excluding non-core and unusual items										Earnings (loss) before interest and taxes excluding non-core and unusual items	(29)		9		(29)		33

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 of its AFP segment. Additionally, on April 1, 2022, the Company and certain of its subsidiaries completed the sale of its adhesives resins business. The sale included hydrocarbon resins (including Eastman Impera™ tire resins), pure monomer resins, polyolefin polymers, rosins and dispersions, and oleochemical and fatty-acid based resins product lines, all of which were also previously part of the AFP segment.

Beginning January 1, 2022, sales revenue and EBIT of the divested businesses are included in "Other". To maintain comparability of segment financial statement information, the Company has recast the segment financial information for the AFP segment and "Other" for each quarter from first quarter 2019 through fourth quarter 2021. For more information, see the Current Report on Form 8-K dated April 18, 2022, and Part II, Item 5, "Other Information" of the Quarterly Report on Form 10-Q for first quarter 2022.

Costs related to growth initiatives, R&D costs, certain components of pension and other postretirement benefits, and other expenses and income not identifiable to an operating segment are not included in operating segment results for any of the periods presented and are included in "Other". ~~In third~~Second quarter and first ~~nine~~six months ~~2020,~~2022 EBIT included $17 million and $42 million, respectively, of net costs from the ~~Company recognized~~steam line incident. For more information, see "Overview" in this MD&A. Second quarter and first six months 2022 EBIT included environmental and other costs from previously divested or non-operational sites. Second quarter and first six months 2022 and 2021 EBIT included asset impairments and restructuring charges and second quarter and first six months 2021 EBIT included severance ~~and related costs~~from the previously reported closure of a tire additives manufacturing facility in Asia Pacific as part of ~~business improvement and cost reduction initiatives, contract termination fees, and asset impairments charges from discontinue growth initiatives.~~ongoing site optimization. For more information regarding asset impairments and restructuring charges see Note 14, "Asset Impairments and Restructuring Charges, Net", to the unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

~~SALES BY CUSTOMER LOCATION~~
Sales Revenue
Third Quarter First Nine Months
Change Change
(Dollars in millions) 2021 2020 $ % 2021 2020 $ %
United States and Canada $ 1,197 $ 894 $ 303 34 % $ 3,398 $ 2,660 $ 738 28 %
Asia Pacific 658 547 111 20 % 1,877 1,565 312 20 %
Europe, Middle East, and Africa 698 556 142 26 % 2,042 1,713 329 19 %
Latin America 167 125 42 34 % 465 349 116 33 %
Total Eastman Chemical Company $ 2,720 $ 2,122 $ 598 28 % $ 7,782 $ 6,287 $ 1,495 24 %

Sales revenue increased 28 percent and 24 percent, respectively in third quarter and first nine months 2021 compared to third quarter and first nine months 2020 due to increases in sales revenue across all regions. Higher sales revenue was primarily due to higher selling prices (up 19 percent and 12 percent, respectively) and higher sales volume (up 9 percent and 10 percent, respectively) across all regions. The most significant increase in sales revenue occurred in United States and Canada, primarily due to higher selling prices and sales volume in the CI and AFP segments. The increase in Asia Pacific was partially offset by lower sales volume in the CI segment primarily resulting from the previously reported discontinued production at the Singapore manufacturing facility.

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


Table of Contents

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

SALES BY CUSTOMER LOCATION


	Sales Revenue
	Second Quarter								First Six Months
					Change								Change
(Dollars in millions)	2022		2021		$		%		2022		2021		$		%
United States and Canada	$	1,304	$	1,197	$	107	9	%	$	2,502	$	2,201	$	301	14	%
Europe, Middle East, and Africa	681		688		(7)		(1)	%	1,426		1,344		82		6	%
Asia Pacific	638		611		27		4	%	1,250		1,219		31		3	%
Latin America	161		157		4		3	%	320		298		22		7	%
Total Eastman Chemical Company	$	2,784	$	2,653	$	131	5	%	$	5,498	$	5,062	$	436	8	%

Sales revenue increased 5 percent in second quarter 2022 compared to second quarter 2021 due to increases in sales revenue across all regions, except the Europe, Middle East, and Africa ("EMEA") region. Higher sales revenue was primarily due to higher selling prices (up 15 percent) partially offset by lower volume (down 8 percent, including the impact from divested businesses) across all regions. The most significant increase in sales revenue occurred in the United States and Canada, primarily due to higher selling prices and sales volume in the CI and AFP segments.

Sales revenue increased 8 percent in first six months 2022 compared to first six months 2021 due to increases in sales revenue across all regions. Higher sales revenue was primarily due to higher selling prices (up 17 percent) partially offset by lower volume (down 6 percent, including the impact from divested businesses) across all regions. The most significant increase in sales revenue occurred in the United States and Canada, primarily due higher selling prices and sales volume in the CI and AFP segments.

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

LIQUIDITY AND OTHER FINANCIAL INFORMATION

Cash Flows

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

First Nine Months
(Dollars in millions) 2021 2020
Net cash provided by (used in)
Operating activities $ 1,189 $ 1,049
Investing activities (447) (282)
Financing activities (584) (322)
Effect of exchange rate changes on cash and cash equivalents (5) 1
Net change in cash and cash equivalents 153 446
Cash and cash equivalents at beginning of period 564 204
Cash and cash equivalents at end of period $ 717 $ 650


	First Six Months
(Dollars in millions)	2022		2021
Net cash provided by (used in)
Operating activities	$	262	$	642
Investing activities	756		(277)
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 period	459		564
Cash and cash equivalents at end of period	$	456	$	609

Cash provided by operating activities ~~increased $140~~decreased $380 million in first ~~nine~~six months ~~2021~~2022 compared with first ~~nine~~six months ~~2020~~2021 due to higher variable compensation payout; higher working capital attributed to higher selling prices, higher raw material and energy costs, and increased inventory volume; and lower net earnings excluding (gain) loss on divested business.


Table of Contents

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Cash provided by investing activities was $756 million in first ~~nine~~six months 2022 compared with cash used in investing activities of $277 million in first six months 2021 primarily due to proceeds from the sale of the adhesives resins business in first six months 2022, partially offset by higher ~~increases in net working~~ capital ~~(trade receivables, inventories,~~expenditures, and ~~trade payables) primarily due to improved economic and business conditions.~~

~~Cash used in investing activities increased $165 million in first nine months 2021 compared with first nine months 2020 primarily due to acquisitions~~an acquisition in the AFP ~~and AM segments and higher capital expenditures.~~segment in first six months 2021.

Cash used in financing activities increased ~~$262~~$695 million in first ~~nine~~six months ~~2021~~2022 compared with first ~~nine~~six months ~~2020,~~2021, primarily due to higher payment for repurchase of shares resulting from the accelerated share ~~repurchases and a net decrease~~repurchase plan in ~~commercial paper borrowings.~~

First Nine Months
(Dollars in millions) 2021 2020
Net cash provided by operating activities $ 1,189 $ 1,049
Capital expenditures (315) (278)
Free cash flow $ 874 $ 771
first six months 2022.

Working Capital Management and Off Balance Sheet Arrangements

Eastman applies a proactive and disciplined approach to working capital management to optimize cash flow and to enable a full range of capital allocation options in support of the Company's strategy. Eastman expects to continue utilizing the programs described below to support ~~free~~operating cash flow consistent with past practices.

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. 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. The total amounts sold in ~~third~~second quarter 2022 and 2021 ~~and 2020~~ were ~~$252~~$637 million and ~~$336~~$298 million, respectively, and ~~$839~~$1,139 million and ~~$1,204~~$587 million in first ~~nine~~six months ~~2021~~2022 and ~~2020,~~2021, respectively. Based on the original terms of receivables sold for certain agreements and actual outstanding balance of receivables under servicing agreements, the Company estimates that ~~$146~~$412 million and ~~$150~~$239 million of these receivables would have been outstanding as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively, had they not been sold under these factoring agreements.


~~Table of Contents~~

~~MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL~~

~~CONDITION AND RESULTS OF OPERATIONS~~

Eastman 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, 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. See Note 1, "Significant Accounting Policies", to the consolidated financial statements in Part II, Item 8 of the Company's ~~2020~~2021 Annual Report on Form 10-K for additional information.

Debt and Other Commitments

At ~~September~~June 30, ~~2021,~~2022, the Company's borrowings totaled ~~$5.5~~$5.0 billion with various maturities. In second quarter 2022, the Company borrowed $500 million under the 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. Proceeds from the 2022 Term Loan were used to pay down $500 million of the 3.6% notes due August 2022. In July 2022, the Company ~~plans to repay~~repaid the ~~$300~~remaining $200 million principal amount of the 3.5% notes due December 2021 at maturity in fourth quarter of 2021 using available cash. The Company expects to use a combination of available cash and debt proceeds to repay the $750 million principal amount of 3.6% notes due August 2022 prior to maturity. ~~See Note 6, "Borrowings", to the unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information.~~

See Note 6, "Borrowings" and Note 9, "Leases and Other Commitments", to the unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for information regarding operating leases.

See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Other Financial Information - Debt and Other Commitments" in Part II, Item 7 of the Company's ~~2020~~2021 Annual Report on Form 10-K for information on other commitments.

Credit Facility and Commercial Paper Borrowings

The Company has access to a $1.50 billion revolving credit agreement (the "Credit Facility") expiring ~~October 2023.~~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 and provides available liquidity for general corporate purposes and supports commercial paper borrowings. At ~~September~~June 30, ~~2021, the Company had no outstanding borrowings under the Credit Facility. At September 30,~~2022 and December 31, 2021 the Company had no outstanding commercial paper borrowings. See Note 6, "Borrowings", to the unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

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. The Company was in compliance with all applicable covenants at both September 30, 2021 and December 31, 2020. As previously reported, in second quarter 2020 the Company amended the Credit Facility maximum debt covenants to reflect the higher cash balance to enhance liquidity due to, and the expected negative impact on operating results of, the COVID-19 pandemic and added a new restrictive covenant prohibiting stock repurchases through June 30, 2021 in the event certain financial ratios were exceeded. See the ~~Current Report on Form 8-K~~ ~~filed May 6, 2020 for additional information on the amendments to the Credit Facility. The total amount of available borrowings under the Credit Facility was $1.50 billion as of September 30, 2021.~~

~~Net Debt~~
September 30, December 31,
(Dollars in millions) 2021 2020
Total borrowings $ 5,488 $ 5,618
Less: Cash and cash equivalents 717 564
Net debt (1)
$ 4,771 $ 5,054

~~(1)Includes a non-cash decrease of $84 million in 2021 and a non-cash increase of $132 million in 2020 resulting from foreign currency exchange rates.~~


Table of Contents

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

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. The total amount of available borrowings under the Credit Facility was $1.50 billion as of June 30, 2022. For additional information, see the Section 5.03 of the Credit Facility at Exhibit 10.01 to the Company's Current Report on Form 8-K dated April 30, 2020.

See Note 6, "Borrowings", to the unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information.

Net Debt


	June 30,		December 31,
(Dollars in millions)	2022		2021
Total borrowings	$	4,991	$	5,159
Less: Cash and cash equivalents	456		459
Net debt (1)	$	4,535	$	4,700

(1)Includes non-cash decrease of $119 million in 2022 and non-cash decrease of $113 million in 2021 resulting from foreign currency exchange rates.

Capital Expenditures

Capital expenditures were ~~$315~~$247 million and ~~$278~~$198 million in first ~~nine~~six months ~~2021~~2022 and ~~2020,~~2021, respectively. Capital expenditures in first ~~nine~~six months ~~2021~~2022 were primarily for the AM segment methanolysis plastic-to-plastic molecular recycling manufacturing facility in Kingsport, Tennessee, and other targeted growth initiatives and site modernization projects. The Company expects that ~~2021~~2022 capital expenditures will be approximately ~~$550~~$700 million.

Stock Repurchases ~~and Dividends~~

In February 2018, the Company's Board of Directors authorized the repurchase of up to $2 billion of the Company's outstanding common stock at such times, in such amounts, and on such terms, as determined by management to be in the best interest of the ~~Company.~~Company and its stockholders (the "2018 authorization"). The Company completed the 2018 authorization in May 2022, acquiring a total of 19,915,370 shares. In December 2021, the Company's Board of Directors authorized the additional repurchase of up to $2.5 billion of the Company's outstanding common stock at such times, in such amounts, and on such terms, as determined by management to be in the best interest of the Company and its stockholders (the "2021 authorization"). As of June 30, 2022, a total of 2,699,693 shares have been repurchased under the 2021 authorization for a $285 million. During first ~~nine~~six months ~~2021,~~2022, the Company repurchased ~~2,543,113~~6,666,069 shares of common stock for ~~a cost of $290~~$752 million. ~~As of September 30, 2021, a total of 10,430,328 shares have been repurchased under this authorization for a total amount of $923 million.~~Both dividends and share repurchases are key strategies employed by the Company to return value to its stockholders.

In fourth quarter 2021, the Company entered into an accelerated share repurchase program ("2021 ASR") to purchase $500 million of the Company's common stock under the 2018 authorization. In exchange for upfront payment totaling $500 million, the financial institutions committed to deliver shares during the 2021 ASR's purchase period, which was settled in first quarter 2022. The total number of shares ultimately delivered was determined at the end of the applicable purchase period based on the volume-weighted average price of the Company's stock during the term of the 2021 ASR, less a discount. Approximately 80 percent of the expected shares repurchased under the 2021 ASR were delivered in fourth quarter 2021 and the remaining shares were delivered in first quarter 2022.

In second quarter 2022, the Company entered into an accelerated share repurchase program ("2022 ASR") to purchase $500 million of the Company's common stock under the board approved authorizations. In exchange for upfront payment totaling $500 million, the financial institutions committed to deliver shares during the 2022 ASR's purchase period, which will be settled in third quarter 2022. The total number of shares ultimately delivered will be determined at the end of the applicable purchase period based on the volume-weighted average price of the Company's stock during the term of the 2022 ASR, less a discount. Approximately 80 percent of the expected shares repurchased under the 2022 ASR were delivered in second quarter 2022 and the remaining shares were delivered in third quarter 2022.


Table of Contents

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

CRITICAL ACCOUNTING ESTIMATES

In preparing the consolidated financial statements in conformity with GAAP, management must make decisions which impact the reported amounts and the related disclosures. Such decisions include the selection of the appropriate accounting principles to be applied and assumptions on which to base estimates and judgments that affect the reported amounts of assets, liabilities, sales revenue and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, Eastman evaluates its estimates, including those related to impairment of long-lived assets, environmental costs, pension and other postretirement benefits, litigation and contingent liabilities, and income taxes. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Management believes the critical accounting estimates described in Part II, Item 7 of the Company's ~~2020~~2021 Annual Report on Form 10-K are the most important to the fair presentation of the Company's financial condition and results. These estimates require management's most significant judgments in the preparation of the Company's consolidated financial statements.

RECENTLY ISSUED ACCOUNTING STANDARDS

For information regarding the impact of recently issued accounting standards, see Note 1, "Significant Accounting Policies", to the unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

OUTLOOK

In 2022, management expects adjusted EPS to be between $9.50 and $10.00 and operating cash flow to be approximately $1.5 billion. For second half 2022 these expectations assume:

•innovation and market development driving growth above underlying end-markets; further progress with price increases to recover from increase of raw material, energy, and distribution costs; and continued disciplined cost management to positively impact financial results;

•commitment to investing in growth across the company, particularly in circular initiatives;

•earnings to be negatively impacted by moderated demand in select end-markets, including durables and building and construction, as well as slower recovery of the auto market; higher energy costs and certain raw material costs remaining at higher levels; and the strong U.S. dollar;

•interest expense of approximately $180 million;

•depreciation and amortization of approximately $490 million;

•the full-year effective tax rate on adjusted earnings before income taxes to be between 15 and 16 percent; and

•share repurchases to more than offset impact of divested businesses.

There are also a number of macroeconomic uncertainties, including continued high global inflation, the impact of the Russia/Ukraine conflict on global growth, COVID-related lockdowns in China, and continued global supply chain constraints.

In addition, the Company expects to deploy strong operating cash flow and divestiture proceeds through the combination of investment in organic growth through capital expenditures of approximately $700 million, bolt-on mergers and acquisitions, and share repurchases in excess of $1 billion.

The Company's 2022 financial results forecast does not include non-core, unusual, or non-recurring items. Accordingly, management is unable to reconcile projected earnings excluding non-core, unusual, or non-recurring items to projected reported GAAP earnings without unreasonable efforts.

See "Risk Factors" below.


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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

~~OUTLOOK~~

~~In 2021, management expects adjusted EPS to be between $8.80 and $9.00 and free cash flow to approach $1.1 billion. These expectations assume:~~

•~~continued economic activity recovery from the impact of COVID-19;~~

•increased sales volume, improved product mix, and above-market growth across specialty product lines due to innovation-driven growth model and continued recovery in key end-markets, offset by the impact of automotive OEM component shortages;

•~~lower costs from improved capacity utilization in 2021 due to aggressive inventory actions in 2020;~~

•~~cost structure similar to 2020 due to structural cost savings from transformation of businesses and operations;~~

•supply chain disruptions, logistics constraints and costs, and timing of price increases in response to higher raw material and energy costs and higher distribution costs to negatively impact financial results;

•~~interest expense of approximately $200 million;~~

•~~the full-year effective tax rate on adjusted earnings before income tax to be 15 percent;~~

•~~capital expenditures of approximately $550 million; and~~

•~~depreciation and amortization of approximately $540 million.~~

In addition, in 2021 the Company expects net debt reduction of approximately $300 million, share repurchases of approximately $400 million, and additional share repurchases in fourth quarter using proceeds from the tire additives divestiture.

In 2022, management expects adjusted EPS to be between $9.50 to $10.00 assuming: four percent global GDP growth; innovation enabling growth above underlying end-markets; modestly lower raw material, energy, and distribution costs; automotive OEM production modestly increasing in second half 2022; and continued supply chain disruption and logistics constraints in first half 2022.

The Company's 2021 and 2022 financial results forecasts do not include non-core, unusual, or non-recurring items. Accordingly, management is unable to reconcile projected earnings excluding non-core, unusual, or non-recurring items to projected reported GAAP earnings without unreasonable efforts.

~~See "Risk Factors" below.~~

RISK FACTORS

In addition to factors described elsewhere in this Quarterly Report, the following are the material known factors, risks, and uncertainties that could cause actual results to differ materially from those under "Outlook" and in the forward-looking statements made in this Quarterly Report and elsewhere from time to time. See "Forward-Looking Statements". The following risk factors are not necessarily presented in the order of importance. In addition, there may be other factors, not currently known to the Company, which could, in the future, materially adversely affect the Company, its business, financial condition, or results of operations. This and other related disclosures made by the Company in this Quarterly Report, and elsewhere from time to time, represents management's best judgment as of the date the information is given. The Company does not undertake responsibility for updating any of such information, whether as a result of new information, future events, or otherwise, except as required by law. Investors are advised, however, to consult any further public Company disclosures (such as in filings with the Securities and Exchange Commission, in Company press releases, or other public presentations) on related subjects.


~~Table of Contents~~

~~MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL~~

~~CONDITION AND RESULTS OF OPERATIONS~~

Risks Related to Global Economy and Industry Conditions

Continued uncertain conditions in the global economy, labor market, and ~~the~~ financial markets could negatively impact the Company.

The Company's business and operating results were impacted by the last global recession, and its related impacts, such as the credit market crisis, declining consumer and business confidence, fluctuating commodity prices, volatile exchange rates, and other challenges that impacted the global economy. Similarly, as a company which operates and sells products worldwide, uncertainty in the global economy, labor market, and ~~global~~ capital markets (including resulting from the continuing COVID-19 pandemic and subsequent changes and disruptions in business, political, and economic conditions) have impacted and may adversely impact demand for and the costs of certain Eastman products and accordingly results of operations, and may adversely impact the Company's financial condition and cash flows and ability to access the credit and capital markets under attractive rates and terms and negatively impact the Company's liquidity or ability to pursue certain growth initiatives.

Volatility in costs for strategic raw material and energy commodities or disruption in the supply and transportation of these commodities and in transportation of ~~company~~Company products could adversely impact the Company's financial results.

Eastman is reliant on certain strategic raw material and energy commodities for its operations and utilizes risk management tools, including hedging, as appropriate, to mitigate market fluctuations in raw material and energy costs. These risk mitigation measures do not eliminate all exposure to market fluctuations and may limit the Company from fully benefiting from lower raw material costs and, conversely, offset the impact of higher raw material costs. In addition, the global COVID-19 pandemic and subsequent changes and disruptions in business and economic conditions, which has adversely impacted cost and availability and transportation of commodities and transportation of Company products, natural disasters, plant interruptions, supply chain and transportation disruptions (related to the global COVID-19 pandemic and otherwise), changes in laws or regulations, levels of unemployment and inflation, higher interest rates, war or other outbreak of hostilities or terrorism (such as the ongoing Russia/Ukraine conflict), and breakdown or degradation of transportation and supply chain infrastructure used for delivery of strategic raw material and energy commodities and for transportation of Company products, could adversely impact both the cost and availability of these commodities and sales of Company products.


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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

The Company's substantial global operations subject it to risks of doing business in other countries, including U.S. and non-U.S. trade relations, which could adversely impact its business, financial condition, and results of operations.

More than half of Eastman's sales for ~~2020~~2021 were to customers outside of North America. The Company expects sales from international markets to continue to represent a significant portion of its sales. Also, a significant portion of the Company's manufacturing capacity is located outside of the United States. Accordingly, the Company's business is subject to risks related to the differing legal, political, cultural, social and regulatory requirements, and economic conditions of many jurisdictions including the unique geographic impacts of the global COVID-19 pandemic. Fluctuations in exchange rates may impact product demand and may adversely impact the profitability in U.S. dollars of products and services provided in foreign countries. In addition, the U.S. and foreign countries have imposed and may impose additional taxes or otherwise tax Eastman's foreign income (see "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Estimates - Income Taxes" in Part II, Item 7 of the Company's ~~2020~~2021 Annual Report on Form 10-K), or adopt or increase restrictions on foreign trade or investment, including currency exchange controls, tariffs or other taxes, or limitations on imports or exports (including recent and proposed changes in U.S. trade policy and resulting retaliatory actions by other countries, including China and Russia, which have recently reduced and which may increasingly reduce demand for and increase costs of impacted products or result in U.S.-based trade counterparties limiting trade with U.S.-based companies or non-U.S. customers limiting their purchases from U.S.-based companies). Certain legal and political risks are also inherent in the operation of a company with Eastman's global scope. For example, it may be more difficult for Eastman to enforce its agreements or collect receivables through foreign legal systems, and the laws of some countries may not protect the Company's intellectual property rights to the same extent as the laws of the U.S. Failure of foreign countries to have laws to protect Eastman's intellectual property rights or an inability to effectively enforce such rights in foreign countries could result in loss of valuable proprietary information. There is also risk that foreign governments may nationalize private enterprises in certain countries where Eastman operates. Social and cultural norms in certain countries may not support compliance with Eastman's corporate policies including those that require compliance with substantive laws and regulations. Also, changes in general economic and political conditions in countries where Eastman operates are a risk to the Company's financial performance. As Eastman continues to operate its business globally, its success will depend, in part, on its ability to anticipate and effectively manage and mitigate these and other related risks. There can be no assurance that the consequences of these and other factors relating to its multinational operations will not have an adverse impact on Eastman's business, financial condition, or results of operations.


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~~MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL~~

~~CONDITION AND RESULTS OF OPERATIONS~~

Risks Related to the Company's Business and Strategy

The Company's business is subject to operating risks common to chemical and specialty materials manufacturing businesses, including cybersecurity risks, any of which could disrupt manufacturing operations or related infrastructure and adversely impact results of operations.

As a global specialty materials company, Eastman's business is subject to operating risks common to chemical manufacturing, storage, handling, and transportation, including explosions, fires, inclement weather, natural disasters, mechanical failure, unscheduled downtime, transportation and supply chain interruptions, remediation, chemical spills, and discharges or releases of toxic or hazardous substances or gases. Significant limitation on the Company's ability to manufacture products due to disruption of manufacturing operations or related infrastructure could have a material adverse impact on the Company's sales revenue, costs, results of operations, credit ratings, and financial condition. Disruptions could occur due to internal factors such as computer or equipment malfunction (accidental or intentional), operator error, or process failures; or external factors such as supply chain disruption, computer or equipment malfunction at third-party service providers, natural disasters, changes in laws or regulations, war or other outbreak of hostilities or terrorism, cyber-attacks, or breakdown or degradation of transportation and supply chain infrastructure used for delivery of supplies to the Company or for delivery of products to customers. The Company has in the past experienced cyber-attacks and breaches of its computer information systems, although none of these have had a material adverse impact on the Company's operations and financial results. While the Company remains committed to managing cyber related risk, no assurances can be provided that any future disruptions due to these, or other, circumstances will not have a material impact on the Company's operations or financial results (see "Business - Eastman Chemical Company General Information - Information Security" in Part I, Item 1 of the Company's ~~2020~~2021 Annual Report on Form 10-K). Unplanned disruptions of manufacturing operations or related infrastructure could be significant in scale and could negatively impact operations, neighbors, and the environment, and could have a negative impact on the Company's results of operations. As previously reported, manufacturing operations and earnings have previously been negatively impacted by the 2017 coal gasification explosion at the Kingsport manufacturing facility and the 2018 third-party supplier operational disruptions at the Texas City and Longview, Texas manufacturing facilities.


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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Growth initiatives may not achieve desired business or financial objectives and may require significant resources in addition to or different from those available or in excess of those estimated or budgeted for such initiatives.

Eastman continues to identify and pursue growth opportunities through both organic and inorganic ~~initiatives.~~initiatives, such as Eastman's sustainable innovation initiatives which aim to develop a more "circular economy." These and other growth opportunities include development and commercialization or licensing of innovative new products and technologies and related employee leadership, expertise, skill development and retention, expansion into new markets and geographic regions, alliances, ventures, and acquisitions that complement and extend the Company's portfolio of businesses and capabilities. Such initiatives are necessarily constrained by availability and development of additional resources, including development, attraction, and retention of employee leadership, application development, and sales and marketing talent and capabilities. There can be no assurance that such innovation, development and commercialization or licensing efforts, investments, or acquisitions and alliances (including integration of acquired businesses) will receive necessary governmental or regulatory approvals, or result in financially successful commercialization of products, or acceptance by existing or new customers, or successful entry into new markets or otherwise achieve their underlying strategic business objectives or that they will be beneficial to the Company's results of operations. There also can be no assurance that capital projects for growth efforts can be completed within the time or at the costs projected due, among other things, to demand for and availability of construction materials and labor and obtaining regulatory approvals and operating permits and reaching agreement on terms of key agreements and arrangements with potential suppliers and customers. Any such delays or cost overruns or the inability to obtain such approvals or to reach such agreements on acceptable terms could negatively impact the returns from any proposed or current investments and projects.


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~~MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL~~

~~CONDITION AND RESULTS OF OPERATIONS~~

Significant acquisitions or divestitures could expose the Company to risks and uncertainties, the occurrence of any of which could materially adversely affect the Company's business, financial condition, and results of operations.

While acquisitions and divestitures have been and continue to be a part of Eastman's ~~growth~~ strategy, acquisitions of large companies and ~~businesses (such as the previous~~ acquisitions or divestitures of ~~Taminco Corporation and Solutia, Inc.)~~businesses subject the Company to a number of risks and uncertainties, the occurrence of any of which could have a material adverse effect on Eastman. These include, but are not limited to, the ~~possibilities~~possibility that the actual and projected future financial performance of the acquired or remaining business may be significantly worse than expected and that, in the case of an acquired business and as reported in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Estimates - Impairment of Long-Lived Assets - Goodwill" in Part II, Item 7 of the Company's ~~2020~~2021 Annual Report on Form 10-K, the carrying values of goodwill and certain assets from acquisitions may, as has been the case for certain acquired assets, ~~primarily in the AFP segment,~~ be impaired resulting in non-cash charges to future ~~earnings;~~earnings and, in the case of a divested business, the divestiture could reduce Eastman's revenue and, potentially, margins and increase its costs and liabilities in the form of transition costs and retained liabilities from the operations divested, including environmental liabilities; that significant additional indebtedness may constrain the Company's ability to access the credit and capital markets at attractive interest rates and favorable terms, which may negatively impact the Company's liquidity or ability to pursue certain growth initiatives; that the Company may not be able to achieve the cost, revenue, tax, or other "synergies" expected from any acquisition, or that there may be delays in achieving any such synergies; that management's time and effort may be dedicated to the integration of the new business or specific assets or product lines or separation of the divested business or specific assets or product lines resulting in a loss of focus on the successful operation of the Company's legacy businesses; and that the Company may be required to expend significant additional resources in order to integrate any acquired business or specific assets or product lines into Eastman or separate any divested business or specific assets or product lines from Eastman, or that the integration or separation efforts will not achieve the expected benefits.


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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Risks Related to Regulatory Changes and Compliance

Legislative, regulatory, or voluntary actions, including associated with physical impacts of climate change, could increase the Company's future health, safety, and environmental compliance costs.

Eastman, its facilities, and its businesses are subject to complex health, safety, and environmental laws, regulations, and related voluntary actions, both in the U.S. and internationally, which require and will continue to require significant expenditures to remain in compliance with such laws, regulations, and voluntary actions. The Company's accruals for such costs and associated liabilities are subject to changes in estimates on which the accruals are based. For example, any amount accrued for environmental matters reflects the Company's assumptions about remediation requirements at the contaminated site, the nature of the remedy, the outcome of discussions with regulatory agencies and other potentially responsible parties at multi-party sites, and the number of and financial viability of other potentially responsible parties. Changes in the estimates on which the accruals are based, unanticipated government enforcement action, or changes in health, safety, environmental, chemical control regulations and actions, and testing requirements could result in higher costs. Specifically, while the Company's sustainability and "circular economy" innovation initiatives are sources of competitive strength (see "Business - Corporate Overview - Business Strategy - Circular Economy and Sustainability" in Part I, Item 1 of the Company's 2020 ~~Annual Report on Form 10-K), future~~Future changes in legislation and regulation and related voluntary actions associated with physical impacts of climate change may increase the likelihood that the Company's manufacturing facilities will in the future be impacted by carbon requirements, regulation of greenhouse gas emissions, and energy policy, and may result in capital expenditures, increases in costs for raw materials and energy, limitations on raw material and energy source and supply choices, and other direct and indirect compliance or other costs or consequences including decreased demand for products related to carbon-based energy sources or increased demand for goods that result in lower emissions than competing products and reputational risk resulting from operations with greenhouse gas emissions. See "Business - Eastman Chemical Company General Information - Compliance With Environmental and Other Government Regulations" in Part I, Item 1 of the Company's ~~2020~~2021 Annual Report on Form 10-K.]

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ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Eastman has exposure to various market risks principally due to changes in foreign currency exchange rates, the pricing of various commodities, and interest rates. In an effort to manage these risks, the Company employs various strategies, including pricing, inventory management, and hedging. The Company enters into derivative contracts which are governed by policies, procedures, and internal processes set forth by its Board of Directors.

The Company determines its exposures to market risk by utilizing sensitivity analyses, which measure the potential losses in fair value resulting from one or more selected hypothetical changes in foreign currency exchange rates, commodity prices, or interest rates. For more information regarding exposures, refer to Part II, Item 7A of the Company's ~~2020~~2021 Annual Report on Form 10-K.

The Company is exposed to fluctuations in market prices for certain of its raw materials and energy, as well as contract sales of certain commodity products. To mitigate short-term fluctuations in market prices for certain commodities, principally propane, ethane, natural gas, paraxylene, ethylene, and benzene, as well as selling prices for ethylene, the Company enters into derivative transactions, from time to time, to hedge the cash flows related to certain sales and purchase transactions expected within a rolling three year period. At ~~September~~June 30, ~~2021 and December 31, 2020,~~2022, the market risk associated with certain cash flows under these derivative ~~contracts,~~transactions assuming ~~an instantaneous parallel shift~~a 10 percent adverse move in the U.S. dollar relative to these foreign currencies was $58 million, with an additional $6 million exposure for each additional one percentage point adverse change in those foreign currency rates. Since the Company utilizes currency-sensitive derivative instruments for hedging anticipated foreign currency transactions, a loss in fair value from those instruments is generally offset by an increase in the value of the underlying ~~commodity price of~~anticipated transactions.

At June 30, 2022, a 10 percent fluctuation in the euro currency rate would have had a $191 million impact on the designated net investment values in the foreign subsidiaries. As a result of the designation of the euro-denominated borrowings and ~~no corresponding~~designated cross-currency interest rate swaps as hedges of the net investments, foreign currency translation gains and losses on the borrowings and designated cross-currency interest rate swaps are recorded as a component of the "Change in cumulative translation adjustment" within "Other comprehensive income (loss), net of tax" in the Unaudited Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings in Part I, Item 1 of this Quarterly Report on Form 10-Q. Therefore, a foreign currency change in the ~~selling price~~designated investment values of ~~finished goods, was $20 million and $5 million, respectively, with an additional $2 million and $1 million~~the foreign subsidiaries will generally be offset by a foreign currency change in the carrying value of ~~exposure at September 30, 2021 and December 31, 2020, respectively, for each one percentage point move~~the euro-denominated borrowings or the foreign currency change in ~~closing price thereafter.~~the designated cross-currency interest rate swaps.

Other than the ~~commodity rate~~foreign currency risk ~~related to fluctuations in market prices and contract sales~~ discussed above, there have been no material changes to the Company's market risks from those disclosed in Part II, Item 7A of the Company's ~~2020~~2021 Annual Report on Form 10-K.

ITEM 4.CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Eastman maintains a set of disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the Company's management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. An evaluation was carried out under the supervision and with the participation of the Company's management, including the Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), of the effectiveness of the Company's disclosure controls and procedures. Based on that evaluation, the CEO and CFO have concluded that as of ~~September~~June 30, ~~2021,~~2022, the Company's disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed was accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There has been no change in the Company's internal control over financial reporting that occurred during the ~~third~~second quarter of ~~2021~~2022 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

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PART II.OTHER INFORMATION

ITEM 1.LEGAL PROCEEDINGS

General

From time to time, Eastman and its operations are parties to, or targets of, lawsuits, claims, investigations and proceedings, including product liability, personal injury, asbestos, patent and intellectual property, commercial, contract, environmental, antitrust, health and safety, and employment matters, which are handled and defended in the ordinary course of business. While the Company is unable to predict the outcome of these matters, it does not believe, based upon currently available facts, that the ultimate resolution of any such pending matters will have a material adverse effect on its overall financial condition, results of operations, or cash flows. Consistent with the requirements of Securities and Exchange Commission Regulation S-K, Item 103, the ~~Company’s~~Company's threshold for disclosing any environmental legal proceeding involving a governmental authority (including the Jefferson Hills, Pennsylvania proceedings described below) is potential monetary sanctions that management believes will exceed $1 million.

Jefferson Hills, Pennsylvania Environmental Proceeding

In September 2021, Eastman Chemical Resins, Inc. ("ECRI"), a wholly-owned subsidiary of the Company, and the Company received a proposed Consent Decree from the United States Environmental Protection Agency's Region 3 Office ("EPA") and the Pennsylvania Department of Environmental Protection ("PADEP") alleging that ECRI’s Jefferson Hills, Pennsylvania manufacturing operation had violated certain federal and state environmental regulations. Prior to the receipt of this proposed Consent Decree, ECRI and Company representatives met on various occasions with EPA and PADEP representatives and have determined that it is not reasonably likely that any civil penalty assessed by EPA and PADEP will be less than $1,000,000. ECRI and the Company ~~intend to~~are vigorously ~~defend~~defending against these allegations. Even though the Company sold the Jefferson Hills facility on April 1, 2022 as part of its previously reported sale of the adhesives resins business, it retained responsibility for any civil penalty assessed by EPA and PADEP in this matter.

Solutia Legacy Torts Claims Litigation

Pursuant to an Amended and Restated Settlement Agreement effective February 28, 2008 between Solutia, Inc. ("Solutia") and Monsanto Company ("Monsanto") in connection with Solutia's emergence from Chapter 11 bankruptcy proceedings (the "Monsanto Settlement Agreement"), Monsanto is responsible for the defense and indemnification of Solutia against any Legacy Tort Claims (as defined in the Monsanto Settlement Agreement) and Solutia has agreed to retain responsibility for certain tort claims, if any, that may arise from Solutia's conduct after its spinoff from Pharmacia Corporation (f/k/a Monsanto), which occurred on September 1, 1997. Solutia, which became a wholly-owned subsidiary of Eastman upon Eastman's acquisition of Solutia in July 2012, has been named as a defendant in several such proceedings, and has submitted the matters to Monsanto, which was acquired by Bayer AG in June 2018, as Legacy Tort Claims. To the extent these matters are not within the meaning of Legacy Tort Claims, Solutia could potentially be liable thereunder. In connection with the completion of its acquisition of Solutia, Eastman guaranteed the obligations of Solutia and Eastman was added as an indemnified party under the Monsanto Settlement Agreement.

ITEM 1A.RISK FACTORS

For identification and discussion of the material risks applicable to the Company and its business, see "Risk Factors" in Management's Discussion and Analysis of Financial Condition and Results of Operations in Part I, Item 2 of this Quarterly Report on Form 10-Q.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

In February 2018, the Company's Board of Directors authorized the repurchase of up to $2 billion of Company's outstanding common stock at such times, in such amounts, and on such terms, as determined by management to be in the best interest of the ~~Company. As of September 30, 2021,~~Company and its stockholders (the "2018 authorization"). The Company completed the 2018 authorization in May 2022, acquiring a total of ~~10,430,328~~19,915,370 shares. In December 2021, the Company's Board of Directors authorized the additional repurchase of up to $2.5 billion of the Company's outstanding common stock at such times, in such amounts, and on such terms, as determined by management to be in the best interest of the Company and its stockholders (the "2021 authorization"). As of June 30, 2022, a total of 2,699,693 shares have been repurchased under ~~this~~the 2021 authorization for a ~~total amount of $923~~$285 million. ~~During first nine months~~Both dividends and share repurchases are key strategies employed by the Company to return value to its stockholders.

In fourth quarter 2021, the Company entered into an accelerated share repurchase program ("2021 ASR") to purchase $500 million of the Company's common stock under the 2018 authorization. In exchange for upfront payment totaling $500 million, the financial institutions committed to deliver shares during the 2021 ASR's purchase period, which was settled in first quarter 2022. The total number of shares ultimately delivered was determined at the end of the applicable purchase period based on the volume-weighted average price of the Company's stock during the term of the 2021 ASR, less a discount. Approximately 80 percent of the expected shares repurchased ~~2,543,113~~under the 2021 ASR were delivered in fourth quarter 2021 and the remaining shares were delivered in first quarter 2022.

In second quarter 2022, the Company entered into an accelerated share repurchase program ("2022 ASR") to purchase $500 million of the Company's common stock under the board approved authorization. In exchange for upfront payment totaling $500 million, the financial institutions committed to deliver shares during the 2022 ASR's purchase period, which will be settled in third quarter 2022. The total number of shares ultimately delivered will be determined at the end of the applicable purchase period based on the volume-weighted average price of the Company's stock during the term of the 2022 ASR, less a discount. Approximately 80 percent of the expected shares repurchased under the 2022 ASR were delivered in second quarter 2022 and the remaining shares were delivered in third quarter 2022.

During first six months 2022, the Company repurchased 6,666,069 shares of common stock for ~~a cost of $290~~$752 million.

For additional information, see Note 12, "Stockholders' Equity", to the unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Period Total Number
of Shares
Purchased
Average Price Paid Per Share (1)
Total Number of Shares Purchased as Part of Publicly Announced Plan
or Program Approximate Dollar
Value that May Yet Be Purchased Under the Plan or Program
July 1-31, 2021 — $ — — $ 1.227 billion
August 1-31, 2021 664,689 $ 112.83 664,689 $ 1.152 billion
September 1-30, 2021 690,048 $ 108.69 690,048 $ 1.077 billion
Total 1,354,737 $ 110.72 1,354,737



Period	Total Number of Shares Purchased	Average Price Paid Per Share (1)		Total Number of Shares Purchased as Part of Publicly Announced Plan or Program	Approximate Dollar Value that May Yet Be Purchased Under the Plan or Program
April 1-30, 2022	1,834,664	$	109.01	1,834,664	$	2.667	billion
May 1-31, 2022	4,283,370	$	105.63	4,283,370	$	2.215	billion
June 1-30, 2022	—	$	—	—	$	2.215	billion
Total	6,118,034	$	106.65	6,118,034

(1)Average price paid per share reflects the weighted average purchase price paid for shares.


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ITEM 6.EXHIBITS

Exhibits filed as part of this report are listed in the Exhibit Index.


						EXHIBIT INDEX
Exhibit Number						Description

3.01						Amended and Restated Certificate of Incorporation of Eastman Chemical Company (incorporated herein by reference to Exhibit 3.01 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2012)

3.02						Amended and Restated Bylaws of Eastman Chemical Company (incorporated herein by reference to Exhibit 3.02 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2017)

~~4.01~~10.01						~~Form~~Term Loan Agreement dated as of ~~Eastman Chemical Company common stock certificate as amended February 1, 2001~~April 14, 2022 (incorporated herein by reference to Exhibit ~~4.01~~10.02 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, ~~2001)~~2022)

~~4.02~~						Indenture, dated as of January 10, 1994, between Eastman Chemical Company and The Bank of New York, as Trustee (incorporated herein by reference to Exhibit 4(a) to the Company's Current Report on Form 8-K dated January 10, 1994)

~~4.03~~						Indenture, dated as of June 5, 2012, between Eastman Chemical Company and Wells Fargo Bank, as Trustee (incorporated herein by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated June 5, 2012)

~~4.04~~						~~Form of 7 1/4% Debentures due January 15, 2024 (incorporated herein by reference to Exhibit 4(d) to the Company's Current Report on Form 8-K dated January 10, 1994)~~

~~4.05~~						Officers' Certificate pursuant to Sections 201 and 301 of the Indenture related to 7 5/8% Debentures due 2024 (incorporated herein by reference to Exhibit 4(a) to the Company's Current Report on Form 8-K dated June 8, 1994)

~~4.06~~						~~Form of 7 5/8% Debentures due June 15, 2024 (incorporated herein by reference to Exhibit 4(b) to the Company's Current Report on Form 8-K dated June 8, 1994)~~

~~4.07~~						~~Form of 7.60% Debentures due February 1, 2027 (incorporated herein by reference to Exhibit 4.08 to the Company's Annual Report on Form 10-K for the year ended December 31, 1996)~~

~~4.08~~						Officer's Certificate pursuant to Sections 201 and 301 of the Indenture related to 7.60% Debentures due February 1, 2027 (incorporated herein by reference to Exhibit 4.09 to the Company's Annual Report on Form 10-K for the year ended December 31, 1996)

~~4.09~~						~~Form of 3.6% Note due 2022 (incorporated herein by reference to Exhibit 4.3 to the Company's Current Report on Form 8-K dated June 5, 2012)~~

~~4.10~~						~~Form of 4.8% Note due 2042 (incorporated herein by reference to Exhibit 4.4 to the Company's Current Report on Form 8-K dated June 5, 2012)~~

~~4.11~~						~~Form of 4.65% Note due 2044 (incorporated herein by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K dated May 15, 2014)~~

~~4.12~~						~~Form of 3.80% Note due 2025 (incorporated herein by reference to Exhibit 4.18 to the Company's Annual Report on Form 10-K for the year ended December 31, 2014)~~

~~4.13~~						Form of 1.50% Note due 2023 (incorporated herein by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K dated May 26, 2016 and Exhibit 1.1 to the Company's Current Report on Form 8-K dated November 21, 2016)


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						~~EXHIBIT INDEX~~
~~Exhibit Number~~						~~Description~~
~~4.14~~						~~Form of 1.875% Note due 2026 (incorporated herein by reference to Exhibit 4.3 to the Company's Current Report on Form 8-K dated November 21, 2016)~~

~~4.15~~						~~Form of 3.5% Note due 2021 (incorporated herein by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K dated November 6, 2018)~~

~~4.16~~						~~Form of 4.5% Note due 2028 (incorporated herein by reference to Exhibit 4.3 to the Company's Current Report on Form 8-K dated November 6, 2018)~~

~~4.17~~						~~Description of Securities (incorporated herein by reference to Exhibit 4.18 to the Company's Annual Report on Form 10-K for the year ended December 31, 2019)~~

10.01 *						2021 Director Stock Compensation Subplan of the 2021 Omnibus Stock Compensation Plan and Form of Restricted Stock Award Notice (Amended August 5, 2021) **

31.01 *						Rule 13a – 14(a) Certification by Mark J. Costa, Chief Executive Officer, for the quarter ended ~~September~~June 30, ~~2021~~2022

31.02 *						Rule 13a – 14(a) Certification by William T. McLain, Jr., Senior Vice President and Chief Financial Officer, for the quarter ended ~~September~~June 30, ~~2021~~2022

32.01 *						Section 1350 Certification by Mark J. Costa, Chief Executive Officer, for the quarter ended ~~September30, 2021~~June 30, 2022

32.02 *						Section 1350 Certification by William T. McLain, Jr., Senior Vice President and Chief Financial Officer, for the quarter ended ~~September~~June 30, ~~2021~~2022

101.INS						Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)

101.SCH *						Inline XBRL Taxonomy Extension Schema Document

101.CAL *						Inline XBRL Taxonomy Calculation Linkbase Document

101.DEF *						Inline XBRL Definition Linkbase Document

101.LAB *						Inline XBRL Taxonomy Label Linkbase Document

101.PRE *						Inline XBRL Presentation Linkbase Document

104						Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

* Denotes exhibit filed or furnished herewith.

** Management contract or compensatory plan or arrangement filed pursuant to Item 601(b) (10) (iii) of Regulation S-K.


Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


			Eastman Chemical Company



Date:	~~November 1, 2021~~July 29, 2022	By:	/s/ William T. McLain, Jr.
			William T. McLain, Jr.
			Senior Vice President and Chief Financial Officer


		Page

Note 1.	Significant Accounting Policies	8
Note 2.	~~Business Held for Sale~~Divestitures	9
Note 3.	Inventories	1011
Note 4.	Payables and Other Current Liabilities	1012
Note 5.	Income Taxes	1112
Note 6.	Borrowings	1113
Note 7.	Derivative and Non-Derivative Financial Instruments	1214
Note 8.	Retirement Plans	1820
Note 9.	Leases and Other Commitments	1922
Note 10.	Environmental Matters and Asset Retirement Obligations	2123
Note 11.	Legal Matters	2224
Note 12.	Stockholders' Equity	2325
Note 13.	Earnings and Dividends Per Share	2628
Note 14.	Asset Impairments and Restructuring Charges, Net	2729
Note 15.	Share-Based Compensation Awards	2930
Note 16.	Supplemental Cash Flow Information	2931
Note 17.	Segment and Regional Sales Information	2931


1.	1.	Legal Proceedings	58	1.	Legal Proceedings	59

1A.	1A.	Risk Factors	58	1A.	Risk Factors	59

2.	2.	Unregistered Sales of Equity Securities and Use of Proceeds	59	2.	Unregistered Sales of Equity Securities and Use of Proceeds	60

6.	6.	Exhibits	60	6.	Exhibits	61


(Dollars in millions)	Balance at January 1, 2020		Provision/ Adjustments		Non-cash Reductions/ Additions		Cash Reductions		Balance at December 31, 2020
Non-cash charges	$	—	$	145	$	(145)	$	—	$	—
Severance costs	17		65		1		(18)		65
Other restructuring costs	11		17		—		(14)		14
Total	$	28	$	227	$	(144)	$	(32)	$	79