Derivatives used in Net Investment Hedge, Increase (Decrease), Gross of Tax



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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  
For derivative cross-currency interest rate swap net investment hedges, gains and losses representing hedge components excluded from the assessment of effectiveness are recognized in CTA within AOCI and recognized in earnings through the periodic swap interest accruals. The cross-currency interest rate swaps designated as net investment hedges are included as part of "Other long-term liabilities", "Other noncurrent assets", "Payables and other current liabilities", or "Other current assets" on the Unaudited Consolidated Statements of Financial Position. Cash flows from excluded components are classified as operating activities in the Unaudited Consolidated Statements of Cash Flows.  
In second quarter 2022, the Company terminated fixed-to-fixed cross-currency swaps designated to hedge a portion of its net investment in a euro functional currency denominated subsidiary against foreign currency fluctuations. The notional amount terminated was €266 million ($320 million) which was scheduled to mature in August 2022. The termination resulted in a $40 million gain recognized in CTA. The related cash flows were classified as investing activities in the Unaudited Consolidated Statements of Cash Flows.  
Summary of Financial Position and Financial Performance of Hedging Instruments  
The following table presents the notional amounts outstanding at June 30, 2022 and December 31, 2021 associated with Eastman's hedging programs.

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| Notional Outstanding |  | June 30, 2022 |  | December 31, 2021 |
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| Derivatives designated as cash flow hedges: |  |  |  |  |
| Foreign Exchange Forward and Option Contracts (in millions) |  |  |  |  |
|  | EUR/USD (in EUR) |  | €558 |  | €429 |
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| Commodity Forward and Collar Contracts |  |  |  |  |
|  | Feedstock (in million barrels) |  | 1  |  |  | 1  |  |
|  | Energy (in million british thermal units) |  | 5  |  |  | 13  |  |
| Interest rate swaps for the future issuance of debt (in millions) |  | $75 |  | $75 |
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| Derivatives designated as fair value hedges: |  |  |  |  |
| Fixed-for-floating interest rate swaps (in millions) |  | $75 |  | $75 |
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| Derivatives designated as net investment hedges: |  |  |  |  |
| Cross-currency interest rate swaps (in millions) |  |  |  |  |
|  | EUR/USD (in EUR) |  | €587 |  | €853 |
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| Non-derivatives designated as net investment hedges: |  |  |  |  |
| Foreign Currency Net Investment Hedges (in millions) |  |  |  |  |
|  | EUR/USD (in EUR) |  | €1,246 |  | €1,246 |

  
Fair Value Measurements  
All the Company's derivative assets and liabilities are currently classified as Level 2. Level 2 fair value is based on estimates using standard pricing models. These standard pricing models use inputs that are derived from or corroborated by observable market data such as interest rate yield curves and currency spot and forward rates. The fair value of commodity contracts is derived using forward curves supplied by an industry recognized and unrelated third party. In addition, on an ongoing basis, the Company tests a subset of its valuations against valuations received from transaction counterparties to validate the accuracy of its standard pricing models. The Company had no derivatives classified as Level 3 as of June 30, 2022 and December 31, 2021. Counterparties to these derivative contracts are highly rated financial institutions which the Company believes carry minimal risk of nonperformance, and the Company diversifies its positions among such counterparties to reduce its exposure to counterparty risk and credit losses. The Company monitors the creditworthiness of its counterparties on an ongoing basis. The Company did not recognize a credit loss during second quarter and first six months 2022 or 2021.15
