XML 43 R15.htm IDEA: XBRL DOCUMENT
v3.22.4

DERIVATIVE AND NON-DERIVATIVE FINANCIAL INSTRUMENTS | 12 Months Ended
--- | ---
Dec. 31, 2022
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Instruments and Hedging Activities Disclosure [Text Block] | 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. 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 AOCI located in the 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 Consolidated Statements of Cash Flows. Foreign Currency Exchange Rate Hedging Eastman manufactures and sells its products in a number of countries throughout the world and, as a result, is exposed to changes in foreign currency exchange rates. To manage the volatility relating to these exposures, the Company nets the exposures on a consolidated basis to take advantage of natural offsets. To manage the remaining exposure, the Company enters into currency option and forward cash flow hedges to hedge probable anticipated, but not yet committed, export sales and purchase transactions expected within a rolling three year period and denominated in foreign currencies (principally the euro). Additionally, the Company, from time to time, enters into forward exchange contract cash flow hedges to hedge certain firm commitments denominated in foreign currencies. In fourth quarter 2022, the Company de-designated and monetized certain forward cash flow hedges. The resulting unrealized gain of $27 million was recorded in AOCI and will be recognized in earnings in 2023 through 2025 as the underlying forecasted transactions impact earnings. Commodity Hedging Certain raw material and energy sources used by Eastman, as well as sales of certain commodity products by the Company, are subject to price volatility caused by weather, supply and demand conditions, economic variables and other unpredictable factors. This volatility is primarily related to the market pricing of benzene, ethane, ethylene, natural gas, paraxylene, and propane. In order to mitigate expected fluctuations in market prices, from time to time, the Company enters into option and forward contracts and designates these contracts as cash flow hedges. The Company currently hedges commodity price risks using derivative financial instrument transactions within a rolling three year period. The Company weights its hedge portfolio more heavily in the first year with declining coverage over the remaining periods. Interest Rate Hedging Eastman's policy is to manage interest expense using a mix of fixed and variable rate debt. To manage interest rate risk effectively, the Company, from time to time, enters into cash flow interest rate derivative instruments, primarily forward starting swaps and treasury locks, to hedge the Company's exposure to movements in interest rates prior to anticipated debt offerings. These instruments are designated as cash flow hedges. In 2022, the Company settled the notional amount of $75 million associated with the 2022 forward starting interest rate swap, resulting in a cash gain of $13 million which is included as part of operating activities in the Consolidated Statements of Cash Flows. The recognized gain from cash flow hedges of $1 million is included within "Net interest expense" on the Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings and the unrecognized gain of $12 million from cash flow hedges is included in AOCI on the Consolidated Statements of Financial Position. Fair Value Hedges Fair value hedges are defined as derivative or non-derivative instruments designated as and used to hedge the exposure to changes in the fair value of an asset or a liability or an identified portion thereof that is attributable to a particular risk. The derivative instruments that are designated and qualify as fair value hedges are reported as "Long-term borrowings" on the 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 Consolidated Statements of Cash Flows. Interest Rate Hedging Eastman's policy is to manage interest expense using a mix of fixed and variable rate debt. To manage the Company's mix of fixed and variable rate debt effectively, from time to time, the Company enters into interest rate swaps in which the Company agrees to exchange the difference between fixed and variable interest amounts calculated by reference to an agreed upon notional principal amount. These swaps are designated as hedges of the fair value of the underlying debt obligations and the interest rate differential is reflected as an adjustment to interest expense over the life of the swaps. 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 investment in certain foreign operations. The net of the change in the hedge instrument and item being hedged for qualifying net investment hedges is reported as a component of the "Cumulative Translation Adjustment" ("CTA") within AOCI located in the Consolidated Statements of Financial Position. Cash flows from the CTA component are classified as operating activities in the 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 Consolidated Statements of Cash Flows. For derivative cross-currency interest rate swap net investment hedges, gains and losses representing hedge components excluded from the assessment of effectiveness are recognized in CTA within AOCI and recognized in earnings through the periodic swap interest accruals. The cross-currency interest rate swaps designated as net investment hedges are included as part of "Other long-term liabilities", "Other noncurrent assets", "Payables and other current liabilities", or "Other current assets" within the Consolidated Statements of Financial Position. Cash flows from excluded components are classified as operating activities in the Consolidated Statements of Cash Flows. In 2022, the Company terminated fixed-to-fixed cross-currency swaps designated to hedge a portion of its net investment in a euro functional currency denominated subsidiary against foreign currency fluctuations. The notional amount terminated was €266 million ($320 million) which was scheduled to mature in August 2022. The termination resulted in a $40 million gain recognized in CTA. The related cash flows were classified as investing activities in the Consolidated Statements of Cash Flows. Summary of Financial Position and Financial Performance of Hedging Instruments The following table presents the notional amounts outstanding at December 31, 2022 and 2021 associated with Eastman's hedging programs.
Notional Outstanding | December 31, 2022 |  | December 31, 2021
Derivatives designated as cash flow hedges: |  |  |
Foreign Exchange Forward and Option Contracts (in millions) |  |  |
| EUR/USD (in EUR) | €573 |  | €429
Commodity Forward and Collar Contracts |  |  |
| Feedstock (in million barrels) | — |  |  | 1 |
| Energy (in million british thermal units) | 3 |  |  | 13 |
Interest rate swaps for the future issuance of debt (in millions) | — |  | $75
Derivatives designated as fair value hedges: |  |  |
Fixed-for-floating interest rate swaps (in millions) | $75 |  | $75
Derivatives designated as net investment hedges: |  |  |
Cross-currency interest rate swaps (in millions) |  |  |
| EUR/USD (in EUR) | €587 |  | €853
Non-derivatives designated as net investment hedges: |  |  |
Foreign Currency Net Investment Hedges (in millions) |  |  |
| EUR/USD (in EUR) | €1,247 |  | €1,246
Fair Value Measurements For additional information on fair value measurement, see Note 1, "Significant Accounting Policies". 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 the counterparties to validate the accuracy of its standard pricing models. The Company had no derivatives classified as Level 1 or Level 3 as of December 31, 2022 or December 31, 2021. Counterparties to these derivative contracts are highly rated financial institutions which the Company believes carry minimal risk of nonperformance and the Company diversifies its positions among such counterparties to reduce its exposure to counterparty risk and credit losses. The Company monitors the creditworthiness of its counterparties on an ongoing basis. The Company did not realize a credit loss during the years ended December 31, 2022 or 2021. All the Company's derivative contracts are subject to master netting arrangements, or similar agreements, which provide for the option to settle contracts on a net basis when they settle on the same day and in the same currency. In addition, these arrangements provide for a net settlement of all contracts with a given counterparty in the event that the arrangement is terminated due to the occurrence of default or a termination event. The Company does not have any cash collateral due under such agreements. The Company presents derivative contracts on a gross basis within the Consolidated Statements of Financial Position. The following table presents the financial assets and liabilities valued on a recurring and gross basis and includes where the financial assets and liabilities are located within the Consolidated Statements of Financial Position as of December 31, 2022 and 2021.
The Financial Position and Fair Value Measurements of Hedging Instruments on a Gross Basis
(Dollars in millions) |  |  |  |  |  |
Derivative Type |  | Statements of Financial Position Location |  | December 31, 2022 Level 2 |  | December 31, 2021 Level 2
Derivatives designated as cash flow hedges: |  |  |  |  |  |
Commodity contracts |  | Other current assets |  | $ | 3 |  |  | $ | 16 |
Commodity contracts |  | Other noncurrent assets |  | — |  |  | 2 |
Foreign exchange contracts |  | Other current assets |  | — |  |  | 12 |
Foreign exchange contracts |  | Other noncurrent assets |  | — |  |  | 6 |
Forward starting interest rate swap contracts |  | Other current assets |  | — |  |  | 5 |
Derivatives designated as fair value hedges: |  |  |  |  |  |
Fixed-for-floating interest rate swap |  | Other current assets |  | 1 |  |  | 1 |
Fixed-for-floating interest rate swap |  | Other noncurrent assets |  | — |  |  | 1 |
Derivatives designated as net investment hedges: |  |  |  |  |  |
Cross-currency interest rate swaps |  | Other current assets |  | — |  |  | 20 |
Cross-currency interest rate swaps |  | Other noncurrent assets |  | 72 |  |  | 35 |
Total Derivative Assets |  |  |  | $ | 76 |  |  | $ | 98 |
Derivatives designated as cash flow hedges: |  |  |  |  |  |
Commodity contracts |  | Payables and other current liabilities |  | $ | 3 |  |  | $ | 1 |
Commodity contracts |  | Other long-term liabilities |  | — |  |  | 1 |
Foreign exchange contracts |  | Payables and other current liabilities |  | 8 |  |  | 1 |
Foreign exchange contracts |  | Other long-term liabilities |  | 4 |  |  | — |
Derivatives designated as fair value hedges: |  |  |  |  |  |
Fixed-for-floating interest rate swap |  | Long-term borrowings |  | 5 |  |  | — |
Derivatives designated as net investment hedges: |  |  |  |  |  |
Cross-currency interest rate swaps |  | Other long-term liabilities |  | — |  |  | 5 |
Total Derivative Liabilities |  |  |  | $ | 20 |  |  | $ | 8 |
Total Net Derivative Assets (Liabilities) |  |  |  | $ | 56 |  |  | $ | 90 |
In addition to the fair value associated with derivative instruments designated as cash flow hedges, fair value hedges, and net investment hedges noted in the table above, the Company had a carrying value of $1.3 billion and $1.4 billion associated with non-derivative instruments designated as foreign currency net investment hedges as of December 31, 2022 and 2021, respectively. The designated foreign currency-denominated borrowings are included as part of "Long-term borrowings" within the Consolidated Statements of Financial Position. As of December 31, 2022 and 2021, the following amounts were included within the 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 Consolidated Statements of Financial Position in which the hedged item is included |  | December 31, 2022 |  | December 31, 2021 |  | December 31, 2022 |  | December 31, 2021
Borrowings due within one year |  | $ | — |  |  | $ | 697 |  |  | $ | — |  |  | $ | (2) |
Long-term borrowings |  | 79 |  |  | 76 |  |  | 5 |  |  | 1 |
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 the twelve months ended December 31, 2022, 2021, and 2020:
(Dollars in millions) |  | Change in amount of after tax gain/(loss) recognized in OCI on Derivatives |  | Pre-tax amount of gain/(loss) reclassified from AOCI into income
|  | December 31, |  | December 31,
Hedging Relationships |  | 2022 |  | 2021 |  | 2020 |  | 2022 |  | 2021 |  | 2020
Derivatives in cash flow hedging relationships: |  |  |  |  |  |  |  |  |  |  |  |
Commodity contracts |  | $ | (11) |  |  | $ | 15 |  |  | $ | 17 |  |  | $ | 36 |  |  | $ | 20 |  |  | $ | (31) |
Foreign exchange contracts |  | (2) |  |  | 39 |  |  | (36) |  |  | 45 |  |  | (7) |  |  | 9 |
Forward starting interest rate and treasury lock swap contracts |  | 10 |  |  | 9 |  |  | 8 |  |  | (6) |  |  | (9) |  |  | (9) |
Non-derivatives in net investment hedging relationships (pre-tax): |  |  |  |  |  |  |  |  |  |  |  |
Net investment hedges |  | 85 |  |  | 116 |  |  | (130) |  |  | — |  |  | — |  |  | — |
Derivatives in net investment hedging relationships (pre-tax): |  |  |  |  |  |  |  |  |  |  |  |
Cross-currency interest rate swaps |  | 63 |  |  | 74 |  |  | (88) |  |  | — |  |  | — |  |  | — |
Cross-currency interest rate swaps excluded component |  | (1) |  |  | (12) |  |  | 10 |  |  | — |  |  | — |  |  | — |
The following table presents the effect of fair value and cash flow hedge accounting on the Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings for 2022, 2021, and 2020.
Location and Amount of Gain or (Loss) Recognized in Earnings on Fair Value and Cash Flow Hedging Relationships
| Twelve Months
| 2022 |  | 2021 |  | 2020
(Dollars in millions) | Sales |  | Cost of Sales |  | Net interest expense |  | 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 Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings in which the effects of fair value or cash flow hedges are recognized
| $ | 10,580 |  |  | $ | 8,443 |  |  | $ | 182 |  |  | $ | 10,476 |  |  | $ | 7,976 |  |  | $ | 198 |  |  | $ | 8,473 |  |  | $ | 6,498 |  |  | $ | 210 |
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 |  |  |  |  | 2 |  |  |  |  |  |  | 2 |  |  |  |  |  |  | 1 |
Derivatives designated as hedging instruments |  |  |  |  | (2) |  |  |  |  |  |  | (2) |  |  |  |  |  |  | (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 |  |  |  |  | (6) |  |  |  |  |  |  | (9) |  |  |  |  |  |  | (9) |
Commodity Contracts: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Amount reclassified from AOCI into earnings |  |  | 36 |  |  |  |  |  |  | 20 |  |  |  |  |  |  | (31) |  |  |
Foreign Exchange Contracts: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Amount reclassified from AOCI into earnings | 45 |  |  |  |  |  |  | (7) |  |  |  |  |  |  | 9 |  |  |  |  |
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 the line item "Other (income) charges, net" of the Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings. The Company recognized a net loss of $11 million in 2022, no gain or loss in 2021, and a net loss of $1 million in 2020 on these derivatives. Pre-tax monetized positions and MTM gains and losses from raw materials and energy, currency, and certain interest rate hedges that were included in AOCI included gains of $134 million at December 31, 2022 and losses of $7 million at December 31, 2021. Gains in AOCI in 2022 compared to losses in 2021 are primarily as a result of an increase in foreign currency exchange rates, particularly the euro. If realized, approximately $10 million in pre-tax gains will be reclassified into earnings during the next 12 months, including foreign exchange contracts prospectively dedesignated and monetized in fourth quarter 2022.

X
- References No definition available. + Details
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI https://asc.fasb.org/topic&trid=2229140 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 40 -Section 50 -Paragraph 5 -Subparagraph (f) -URI https://asc.fasb.org/extlink&oid=126731327&loc=d3e90205-114008 + Details
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | dtr-types:textBlockItemType
Balance Type: | na
Period Type: | duration