UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
R ☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year endedDECEMBERDecember 31, 20172023
OR
o ☐ 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: 1-1463
UNION CARBIDE CORPORATION
(Exact name of registrant as specified in its charter)
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| New York | | 13-1421730 |
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New York
State or other jurisdiction of incorporation or organization | | 13-1421730
(I.R.S. Employer Identification No.)
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7501 State Highway 185 North, Seadrift, TexasTX 77983
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 361-553-2997361-553-2769
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Sectionsection 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
o☐YesRNo
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
o☐YesRNo
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.R Yes o No
RYes☐No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).
RYeso☐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.
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Large accelerated filero | ☐ | | Accelerated filer | ☐ | | Accelerated filer o
Non-accelerated filerþ | (Do not check if a smaller reporting company)☑ | | Smaller reporting companyo | ☐ | |
| | | Emerging growth companyo | ☐ | |
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.o☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
o☐YesRNo
At February 15, 2018,January 31, 2024, 935.51 shares of common stock were outstanding, all of which were held by the registrant’s parent, The Dow Chemical Company.
The registrant meets the conditions set forth in General InstructionsInstruction I(1)(a) and (b) of Form 10-K and is therefore filing this Form with the reduced disclosure format.
DOCUMENTS INCORPORATED BY REFERENCE
None
Union Carbide Corporation
ANNUAL REPORT ON FORM 10-K
For the Fiscal Year Ended December 31, 20172023
TABLE OF CONTENTS
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| Union Carbide Corporation and Subsidiaries |
Throughout this Annual Report on Form 10-K, except as otherwise indicated by the context, the terms "Corporation" or "UCC" as used herein mean Union Carbide Corporation and its subsidiaries.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this report other than purely historical information, including estimates, projections, statements relating to business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995,federal securities laws, including Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934. Forward-looking1934, as amended. Such statements may appear throughout this report, including without limitation, the following sections: "Item 1. Business,often address expected future business and financial performance, financial condition, and other matters, and often contain words or phrases such as “anticipate,” “Management's Discussion and Analysis," and "Risk Factors." These forward-looking statements are generally identified by the words "anticipate," "believe," "estimate," "expect," "future," "intend," "may," "opportunity," "outlook," "plan," "project," "should," "strategy," "will," "would," "will“believe,” “estimate,” “expect,” “intend,” “may,” “opportunity,” “outlook,” “plan,” “project,” “seek,” “should,” “strategy,” “target,” “will,” “will be," "will” “will continue," "will” “will likely result,"” “would” and similar expressions. expressions, and variations or negatives of these words or phrases.
Forward-looking statements are based on current assumptions and expectations and assumptionsof future events that are subject to risks, uncertainties and uncertaintiesother factors that are beyond the Corporation’s control, which may cause actual results to differ materially from those projected, anticipated or implied in the forward-looking statements.statements and speak only as of the date the statements were made. These factors include, but are not limited to: sales of UCC's products; UCC's expenses, future revenues and profitability; any global and regional economic impacts of a pandemic or other public health-related risks and events on the Corporation’s business; any sanctions, export restrictions, supply chain disruptions or increased economic uncertainty related to the ongoing conflicts between Russia and Ukraine and in the Middle East; capital requirements and need for and availability of financing; unexpected barriers in the development of technology, including with respect to UCC’s contemplated capital and operating projects; significant litigation and environmental matters and related contingencies and unexpected expenses; the success of competing technologies that are or may become available; the ability to protect UCC's intellectual property in the United States and abroad; developments related to contemplated restructuring activities and proposed divestitures or acquisitions such as workforce reduction, manufacturing facility and/or asset closure and related exit and disposal activities, and the benefits and costs associated with each of the foregoing; fluctuations in energy and raw material prices; management of process safety and product stewardship; changes in public sentiment and political leadership; increased concerns about plastics in the environment and lack of a circular economy for plastics at scale; changes in consumer preferences and demand; changes in laws and regulations, political conditions or industry development; global economic and capital markets conditions, such as inflation, market uncertainty, interest and currency exchange rates, and equity and commodity prices; business or supply disruptions; security threats, such as acts of sabotage, terrorism or war, including the ongoing conflicts between Russia and Ukraine and in the Middle East; weather events and natural disasters; disruptions in the Corporation’s information technology networks and systems, including the impact of cyberattacks; and, since The Dow Chemical Company ("TDCC"), a wholly owned subsidiary of Dow Inc. (together, with TDCC and its consolidated subsidiaries, "Dow"), is the primary customer of UCC: Dow's ability to realize its commitment to carbon neutrality on the contemplated timeframe; the size of the markets for Dow’s products and services and its ability to compete in such markets; Dow's failure to develop and market new products and optimally manage product life cycles; the rate and degree of market acceptance of Dow’s products; and changes in relationships with Dow’s significant customers and suppliers.
Where, in any forward-looking statement, an expectation or belief as to future results or events is expressed, such expectation or belief is based on the current plans and expectations of management and expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the expectation or belief will result or be achieved or accomplished. A detailed discussion of principal risks and uncertainties which may cause actual results and events to differ materially from such forward-looking statements is included in the section of this Annual Report on Form 10-K titled "Risk Factors" (Part I, Item 1AFactors." These are not the only risks and uncertainties that the Corporation faces. There may be other risks and uncertainties that the Corporation is unable to identify at this time or that it does not currently expect to have a material impact on its business. If any of this Form 10-K). Union Carbidethose risks or uncertainties develops into an actual event, it could have a material adverse effect on the Corporation’s business. The Corporation undertakesassumes no obligation to update or revise publicly any forward-looking statements whether because of new information, future events, or otherwise, except as required by securities and other applicable laws.
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| Union Carbide Corporation and Subsidiaries |
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ITEM 1. BUSINESS
THE CORPORATION
Union Carbide Corporation is a chemicals and polymers company that has been a wholly owned subsidiary of The Dow Chemical Company ("Dow"TDCC") since 2001. TDCC has been a wholly owned subsidiary of Dow Inc. since 2019, and Dow Inc. operates all of its businesses through TDCC. Except as otherwise indicated by the context, the terms "Corporation" or "UCC" as used herein mean Union Carbide Corporation and its consolidated subsidiaries and references to "Dow" refer to Dow Inc., together with TDCC and its consolidated subsidiaries.
Effective August 31, 2017, pursuant to the merger of equals transaction contemplated by the Agreement and Plan of Merger, dated as of December 11, 2015, as amended on March 31, 2017, Dow and E. I. du Pont de Nemours and Company ("DuPont") each merged with subsidiaries of DowDuPont Inc. ("DowDuPont") and, as a result, Dow and DuPont became subsidiaries of DowDuPont (the "Merger"). See Note 3 to the Consolidated Financial Statements for additional information.
DowTDCC conducts its worldwide operations through principal product groups, and the Corporation'sglobal businesses. UCC's business activities comprise components of Dow's principal product groupsTDCC's global businesses rather than stand-alone operations. Because there are no separableseparate reportable business segments for UCC and no detailed business information is provided to a chief operating decision maker regarding the Corporation's stand-alone operations, the Corporation's results are reported as a single operating segment. In addition, in order to simplify the customer interface process, the Corporation sells substantially all of its products to Dow.TDCC. Products are sold to DowTDCC at market-based prices determined in accordance with the terms of Dow's intercompany pricing policies.an agreement between UCC and TDCC.
Available Information
The Corporation's annual reportsAnnual Reports on Form 10-K, quarterly reportsQuarterly Reports on Form 10-Q and current reportsCurrent Reports on Form 8-K,8‑K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, are available free of charge through the Financial Reports-SEC Filings section of the Corporation's website (www.unioncarbide.com)at www.unioncarbide.com, as soon as reasonably practicable after the reports are electronically filed or furnished with the U.S. Securities and Exchange Commission ("SEC"). The SEC maintains a website that contains these reports as well as proxy statements and other information regarding issuers that file electronically. The SEC's website is at www.sec.gov.www.sec.gov. The Corporation's website and its content are not deemed incorporated by reference into this report.
PRODUCTS
The following is a description of the Corporation's principal products:
Electrical and Telecommunications - polyolefin-based compounds for high-performance insulation, semiconductives and jacketing systems for power distribution, telecommunications, and flame-retardant wire and cable insulation. Key product lines include: REDI-LINK™ Polyethylene-Based Wire and Cable Compounds, SI-LINK™ Polyethylene-Based Low Voltage Insulation Compounds, UNIGARD™ HP High-Performance Flame-Retardant Compounds, UNIGARD™ RE Reduced Emissions Flame-Retardant Compounds, and UNIPURGE™ Purging Compounds.
Ethylene Oxide/Ethylene Glycol (“EO/EG”) - ethylene oxide, a chemical intermediate primarily used in the manufacture of monoethylene glycol (“MEG”), polyethylene glycol, glycol ethers, ethanolamines, surfactants and other performance chemicals and polymers; di- and triethylene glycol, used in a variety of applications, including boat construction, shoe manufacturing, natural gas-drying and other moisture-removing applications, and plasticizers for safety glasses; and tetraethylene glycol, used predominantly in the production of plasticizers for automotive windows. MEG is used extensively in the production of polyester fiber, resin and film, automotive antifreeze and engine coolants, and aircraft anti-icing and deicing fluids.
Hydrocarbons -ethylene and propylene; internal feedstocks that are primarily consumed by downstream businessesproduct lines to optimize integration benefits and drive low costs.
Industrial Chemicals and Polymers - broad range of products for specialty applications, including pharmaceutical, animal food supplements, personal care, industrial and household cleaning, coatings for beverage and food cans, industrial coatings and many other industrial uses. Product lines include acrolein and derivatives, glutaraldehydes, ethyleneamines, CARBOWAX™ and CARBOWAX™ SENTRY™ Polyethylene Glycols and Methoxypolyethylene Glycols, TERGITOL™ and TRITON™ Surfactants, UCAR™ Deicing Fluids, UCARTHERM™ Heat Transfer Fluids and UCON™ Fluids.
Polyethylene - includes FLEXOMER™ Polyethylene, very low-density polyethylene resins used as impact modifiers in other polymers and to produce flexible hose and tubing, frozen-food bags and stretch wrap; TUFLIN™ Linear Low Density and UNIVAL™ High Density Polyethylene resins used in high-volume applications such as housewares; milk, water, bleach and detergent bottles; grocery sacks; trash bags; packaging; and water and gas pipe.
Solvents and Intermediates - includes oxo aldehydes, acids and alcohols used as chemical intermediates and industrial solvents and in herbicides, plasticizers, paint dryers, jet-turbine lubricants, lube oil additives, and food and feed preservatives; and esters, which serve as solvents in industrial coatings and printing inks and in the manufacturing processes for pharmaceuticals and polymers.
Technology Licensing and Catalysts - includes catalysts for supply and licensing of the METEOR™ Process for EO/EG and the LP OXOOXO℠ process for oxo alcohols; and licensing of the METEOR™ Process for EO/EG and the LP OXOOXO℠ process for oxo alcohols through Dow Technology Investments LLC, a 50:50 joint venture with Dow Global Technologies LLC, a Dow subsidiary.alcohols.
Vinyl Acetate Monomer - a building block for the manufacture of a variety of polymers used in water-based emulsion paints, adhesives, paper coatings, textiles, safety glass and acrylic fibers.
Water Soluble Polymers Wire and Cable Applications - polymers used to enhance the physicalpolyolefin-based compounds for high-performance insulation, semiconductives and sensory properties of end-use products in a wide range of applications including food, paintsjacketing systems for power distribution, telecommunications, and coatings, pharmaceuticals, oilflame-retardant wire and gas, home and personal care, building and construction, and other specialty applications.cable insulation. Key product lines include POLYOX™ Water-Soluble Resins,include: REDI-LINK™ Polyethylene-Based Wire and products for hairCable Compounds, SI-LINK™ Polyethylene-Based Low Voltage Insulation Compounds, UNIGARD™ HP High-Performance Flame-Retardant Compounds, UNIGARD™ RE Reduced Emissions Flame‑Retardant Compounds, and skin manufactured by Amerchol Corporation, a wholly owned subsidiary.UNIPURGE™ Purging Compounds.
COMPETITION
The chemical industry has been historically competitive and this competitive environment is expected to continue. Large, multinational chemical firms, as well as the chemical divisions of the major national and international oil companies, provide substantial competition both in the United States and abroad.
RESEARCH AND DEVELOPMENT
The Corporation is engaged in a continuous program of basic and applied research to develop new products and processes, to improve and refine existing products and processes, and to develop new applications for existing products. Research and development expenses were $19 million in 2017, $18 million in 2016 and $20 million in 2015.
PATENTS, LICENSES AND TRADEMARKS
The Corporation continually applies for and obtains U.S. and foreign patents that relate to a wide variety of products and processes, has a substantial number of pending patent applications throughout the world and is licensed under a number of patents. At December 31, 2017,2023, the Corporation owned 12166 active U.S. patents and 597386 active foreign patents related to a wide variety of products and processes. These patents expire as follows:
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| Remaining Life of Patents Owned at Dec 31, 2023 | United States | Rest of World |
| Within 5 years | 11 | | 52 | |
| 6 to 10 years | 46 | | 286 | |
| 11 to 15 years | 8 | | 43 | |
| 16 to 20 years | 1 | | 5 | |
| Total | 66 | | 386 | |
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| Remaining Life of Patents Owned at Dec 31, 2017 | United States | Foreign |
| Within 5 years | 56 |
| 202 |
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| 6 to 10 years | 14 |
| 135 |
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| 11 to 15 years | 51 |
| 260 |
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| Total | 121 |
| 597 |
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The Corporation also has a large number of trademarks. Although the Corporation considers that its patents, licenses and trademarks in the aggregate constitute a valuable asset, it does not regard its business as being materially dependent on any single or group of related patents, licenses or trademarks.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
In 2017, the Corporation derived 23 percent of its trade sales to external customers outside the United States and had 3 percent of its property investment located outside the United States. See Note 19 to the Consolidated Financial Statements for information on sales to external customers and long-lived assets by geographic region.
PROTECTION OF THE ENVIRONMENT
Matters pertaining to the environment are discussed in Management's Discussion and Analysis of Financial Condition and Results of Operations, and Notes 1 and 1412 to the Consolidated Financial Statements.
OTHER ACTIVITIES
Divestiture
On November 1, 2015, UCC completed the sale of its assets related to the production of methylmercapto propionaldehyde ("MMP") at the St. Charles Operations site in Taft, Louisiana to MMP SCO, LLC ("Novus"), a subsidiary of Novus International, Inc., for net proceeds of $31 million. Included in the divestiture was the Corporation's MMP manufacturing facility, as well as inventory. The Corporation will continue to operate and provide services to the MMP facility under separate agreements with Novus. In addition, a pretax gain of $10 million was recorded for the sale of two related patents. See Note 4 to the Consolidated Financial Statements for additional information.
Dividends
On a quarterly basis, the Corporation's Board of Directors ("Board") reviews and determines if there will be a dividend distribution to its parent company and sole shareholder, Dow.TDCC. The Board takes into consideration the level of earnings and cash flows, among other factors, in determining the amount of the dividend distribution. The Corporation declared and paid cash dividends to TDCC of $603 million to Dow in 2017; dividends paid to Dow were $500$512 million in 2016.2023 and $1,063 million in 2022. On January 24, 2024, the Board approved a dividend to TDCC of $43 million, payable on or before March 29, 2024.
The factors described below represent the Corporation's principal risks.
CLIMATE CHANGE - RELATED RISKS
Climate Change: Climate change-related risks and uncertainties, legal or regulatory responses to climate change and a failure of TDCC's parent company, Dow Inc., to meet its climate change commitments could negatively impact the Corporation’s results of operations and/or financial condition.
UCC sells substantially all of its products to TDCC in order to simplify the worldwide customer interface process and, as a result, the Corporation is subject to many of the same global risk factors facing TDCC and its parent company, Dow, including those presented by climate change. The Corporation is subject to increasing climate-related risks and uncertainties, many of which are outside of its control. Climate change may result in more frequent and damaging severe weather and weather-related events, potential changes in precipitation patterns and extreme variability in weather patterns. These short- and long-term weather and weather-related events can disrupt the operations of the Corporation as well as those of its customers, end-use customers, partners and vendors due to damage to local infrastructure and other property damage limiting site access, and causing water scarcity and lack of access to high-quality water, among other factors. These risks and uncertainties may also directly or indirectly impact decisions to invest in the construction and/or renovation of new or existing manufacturing sites and other Corporation facilities and locations.
The transition to lower greenhouse gas emissions technology, the effects of carbon pricing and changes in public sentiment, regulations, taxes, public mandates or requirements and increases in climate-related lawsuits, insurance premiums and implementation of more robust disaster recovery and business continuity plans could increase costs to maintain or resume the Corporation’s operations, which would negatively impact the Corporation’s results of operations.
In 2020, Dow announced commitments to reduce its net annual Scope 1 and 2 CO2 equivalent emissions by an additional 5 million metric tons, or 15 percent compared with its 2020 baseline, by 2030 (the 2020 baseline represents a 15 percent reduction in greenhouse gas emissions since 2005) and its intention to be carbon neutral by 2050 (Scope 1+2+3, as defined by the Greenhouse Gas Protocol Corporate Accounting and Reporting Standard, plus product benefits). These commitments reflect Dow's current plans and targets and are not guarantees that Dow will be able to achieve them. The execution and achievement of these commitments within the currently projected costs and expected timeframes may impact the Corporation's operations and are also subject to risks and uncertainties which include, but are not limited to: advancement, availability, development and affordability of technology necessary to achieve these commitments; unforeseen design, operational and technological difficulties; availability and cost of necessary materials and components; adapting products to end-use customer preferences and end-use customer acceptance of sustainable supply chain solutions; changes in public sentiment and political leadership; and the ability of Dow and its consolidated subsidiaries to comply with changing regulations, taxes, mandates or requirements related to greenhouse gas emissions or other climate-related matters, including prescriptive reporting of climate-related matters. In addition, standards for tracking and reporting on sustainability matters have not been harmonized, continue to evolve and may change over time, which could result in significant revisions to Dow's performance metrics, commitments or reported progress in achieving such commitments. Given the focus on sustainable investing, if Dow fails to meet its climate change commitments within the committed timeframe, coupled with its significant investments to meet those commitments, and adopt policies and practices to enhance sustainability, Dow's reputation and its customer and other stakeholder relationships could be negatively impacted, reducing demand for Dow and the Corporation's products, and it may be more difficult for Dow and its consolidated subsidiaries to compete effectively or gain access to financing on acceptable terms, which could negatively impact the Corporation’s financial condition, results of operations and cash flows.
PANDEMIC - RELATED RISKS
Public Health Crisis: A public health crisis or global outbreak of disease could have a negative effect on the Corporation's manufacturing operations, supply chain and workforce, creating disruptions that could have a substantial negative impact on the Corporation’s results of operations, financial condition and cash flows.
UCC sells substantially all of its products to TDCC in order to simplify the worldwide customer interface process and, as a result, the Corporation is subject to many of the same global risk factors facing TDCC, including those that may be presented by a public health crisis. A public health crisis, including a pandemic similar in nature to coronavirus disease 2019, could impact all geographic regions where UCC's products are produced and sold. The global, regional and local spread of a public health crisis could result in, and in the past has resulted in, significant
global mitigation measures, including government-directed quarantines, social distancing and shelter-in-place mandates, travel restrictions and/or bans, mask and vaccination mandates, restrictions on large gatherings and restricted access to certain corporate facilities and manufacturing sites. Business disruptions and market volatility resulting from a public health crisis could have a substantial negative impact on the Corporation's results of operations, financial condition and cash flows. The adverse impact of a pandemic could include, and in the past has included, without limitation, a decrease in demand for certain of the Corporation's products; price declines; reduced profitability; supply chain disruptions impeding the Corporation's ability to ship and/or receive product; temporary idling or permanent closure of select manufacturing facilities and/or manufacturing assets; asset impairment charges; interruptions or limitations to manufacturing operations imposed by local, state or federal governments; reduced market liquidity and increased borrowing costs; workforce absenteeism and distraction; labor shortages; increased cybersecurity risk and data accessibility disruptions due to remote working arrangements; and workforce reductions. Additional risks may include, but are not limited to: shortages of key raw materials; additional asset impairment charges; increased obligations related to the Corporation’s pension and other postretirement benefit plans; and tax valuation allowances and may also have the effect of heightening many of the other risks described in this "Risk Factors" section.
MACROECONOMIC RISKS
Global Economic Considerations: The Corporation operates in a global, competitive environment which gives rise to operating and market risk exposure.
The Corporation sells substantially all of its products to Dow,TDCC, which operates in a competitive, global environment, and competes worldwide for sales. Increased levels of competition could result in lower prices or lower sales volume, which could have a negative impact on the Corporation's results of operations. Sales of Dow'sTDCC's products are also subject to extensive federal, state, local and foreign laws and regulations,regulations; trade agreements,agreements; import and export controls,controls; taxes; and duties and tariffs. The imposition by foreign governmentsof additional regulations, controls, taxes, and duties and tariffs or changes to bilateral and regional trade agreements could result in lower sales volume for the Corporation's products, which could negatively impact the Corporation's results of operations.
Economic conditions around the world, and in certain industries in which the Corporation doesand TDCC do business, also impact sales price and volume. As a result,volume and supply chain efficacy. For example, market uncertainty orand an economic downturn driven by inflationary pressures have recently reduced demand for the Corporation's products, resulting in decreased sales volume. Adverse economic conditions also caused supply chain constraints. These factors have had a negative impact on the Corporation's results of operations. Additionally, political tensions; war, including the ongoing conflicts in the Middle East and between Russia and Ukraine with the related sanctions and export restrictions; terrorism; epidemics; pandemics; or political instability in the geographic regions or industries in which UCC sells its products are sold could also reduce demand for these products and result in decreased sales volume or supply chain disruptions, which could have a negative impact on UCC's results of operations.
In February 2022, Russia invaded Ukraine resulting in the United States, Canada, the European Union and other countries imposing economic sanctions on Russia. Dow suspended purchases of feedstocks and energy from Russia and has significantly reduced its operations and product offerings in the country. Dow has also stopped all investments in Russia and is only supplying limited essential goods to Russia. These actions have not had and are not expected to have a material impact on the Corporation’s financial condition or results of operations. However, the fluidity and continuation of the conflict may result in additional economic sanctions and other impacts which could have a negative impact on Dow’s financial condition, results of operations and cash flows, which could also negatively impact the Corporation. These include decreased sales; supply chain and logistics disruptions; volatility in foreign exchange rates and interest rates; inflationary pressures on and availability of raw materials and energy, most notably in Europe; and heightened cybersecurity threats. Further, the intensity and duration of the conflict in the Middle East and potential expansion of the hostilities in the region are difficult to predict and could disrupt the Company's supply chain operations, which could have a negative impact on the Corporation's results of operations.
Financial Flexibility: Market conditions could reduce TDCC's financial flexibility, which could impact the financial flexibility of the Corporation.
Adverse economic conditions, such as high interest rates, could reduce TDCC's flexibility to respond to changing business and economic conditions or to fund capital expenditures or working capital needs. The economic environment could result in a contraction in the availability of credit in the marketplace and reduce sources of liquidity for TDCC and could result in higher borrowing costs. Since TDCC is a major service provider, material debtor, and the major customer of the Corporation, reduced financial flexibility for TDCC could potentially impact the financial flexibility of the Corporation.
Pension and Other Postretirement Benefits: Increased obligations and expenses related to the Corporation's defined benefit pension plans and other postretirement benefit plan could negatively impact UCC's financial condition and results of operations.
While the Corporation has frozen its defined benefit pension plans and its other postretirement benefit plan (the "plans"), the Corporation continues to sponsor the plans. The assets of the Corporation's funded plans are primarily invested in fixed income securities, equity securities of U.S. and foreign issuers and alternative investments, including investments in real estate, private equity and absolute return strategies. Changes in the market value of plan assets, investment returns, discount rates, mortality rates, regulations and health care cost trends may affect the funded status of the Corporation's plans and could cause volatility in the net periodic benefit cost, future funding requirements of the plans and the funded status of the plans. A significant increase in the Corporation's obligations or future funding requirements could have a negative impact on the Corporation's results of operations and cash flows for a particular period and on the Corporation's financial condition.
Supply/Demand Balance: Earnings generated by the Corporation vary based in part on the balance of supply relative to demand within the industry.
The balance of supply relative to demand within the industry may be significantly impacted by the addition of new capacity, especially for basic commodities where capacity is generally added in large increments as world-scale facilities are built. This may result in excess capacity which can disrupt regional industry supply and demand balances, resulting in downward pressure on prices and decreased operating rates, which could negatively impact the Corporation's results of operations.
LEGAL AND REGULATORY RISKS
Environmental Compliance: The costs of complying with evolving regulatory requirements could negatively impact the Corporation's financial results. Actual or alleged violations of environmental laws or permit requirements could result in restrictions or prohibitions on plant operations, substantial civil or criminal sanctions, as well as the assessment of strict liability and/or joint and several liability.
The Corporation is subject to extensive federal, state, local and foreign laws, regulations, rules and ordinances relating to pollution, protection of the environment, climate change, greenhouse gas emissions and the generation, storage, handling, transportation, treatment, disposal and remediation of hazardous substances and waste materials. In addition, the Corporation may have costs related to environmental remediation and restoration obligations associated with past and current sites as well as related to its past or current waste disposal practices or other hazardous materials handling. Although management will estimate and accrue liabilities for these obligations, it is reasonably possible that the Corporation’s ultimate cost with respect to these matters could be significantly higher, which could negatively impact the Corporation’s financial condition and results of operations. Costs and capital expenditures relating to environmental, health or safety matters are subject to evolving regulatory requirements and depend on the timing of the promulgation and enforcement of specific standards which impose the requirements. Moreover, changes in environmental regulations could inhibit or interrupt the Corporation's operations, or require modifications to its facilities. Accordingly, environmental, health or safety regulatory matters could result in significant unanticipated costs or liabilities. For additional information, see Part II, Item 7. Other Matters, Environmental Matters in Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Litigation: The Corporation is party to a number of claims and lawsuits arising out of the normal course of business with respect to commercial matters, including product liability, governmental tax and regulation disputes, and other actions.
The Corporation is involved in a number of legal proceedings and claims with both private and governmental parties. These cover a wide range of matters, including, but not limited to: product liability; trade regulation; governmental tax and regulatory proceedings; health, safety and environmental matters; employment matters; patent infringement; contracts; and commercial litigation. With the exception of the possible effect of the asbestos-related liability described below, it is the opinion of the Corporation's management that the possibility is remote that the aggregate of all such claims and lawsuits will have a material adverse impact on the Corporation's consolidated financial statements.
The Corporation is and has been involved in a large number of asbestos-related suits filed primarily in state courts during the past four decades. At December 31, 2023, the Corporation's total asbestos-related liability for pending and future claims, including future defense and processing costs, was $867 million ($947 million at December 31, 2022). See Notes 1 and 12 to the Consolidated Financial Statements for more information on asbestos-related matters.
Health and Safety: Increased concerns regarding the safe use of chemicals and plastics in commerce and their potential impact on the environment have resulted in more restrictive regulations and could lead to new regulations.
Concerns regarding the safe use of chemicals and plastics in commerce and their potential impact on health and the environment reflect a growing trend in societal demands for increasing levels of product safety and environmental protection. These concerns could manifest themselves in stockholder proposals, preferred purchasing, delays or failures in obtaining or retaining regulatory approvals and continued pressure for more stringent regulatory intervention and litigation. These concerns could also influence public perceptions, the viability or continued sales of the Corporation's products, the Corporation's reputation and the cost to comply with regulations. In addition, terrorist attacks and natural disasters have increased concerns about the security and safety of chemical production and distribution. These concerns could have a negative impact on the Corporation's results of operations.
Local, state, federal and foreign governments continue to propose new regulations related to the security of chemical plant locations and the transportation of hazardous chemicals, which could result in higher operating costs.
Plastic Waste: Increased concerns regarding plastic waste in the environment, resulting in the demand for substitute materials; brand owners selectively reducing their use of plastic products; a lack of plastic waste collection and recycling infrastructure and a failure to develop circular plastic materials or a circular economy for plastics; and/or the development of new or more restrictive regulations and rules related to plastic waste and related emissions could reduce demand for the Corporation’s plastic products and could negatively impact the Corporation’s financial results.
Plastics have faced increasing public scrutiny due to low recycling rates and the presence of plastic waste in the environment, including the world’s oceans and rivers, and pollution associated with the manufacture of plastics. Accordingly, regulators, manufacturers, brand owners and consumers are driving demand for materials made with recycled content, bio-based materials and materials made with low or zero carbon emission options, and local, state, federal and foreign governments are proposing and implementing regulations to address the global plastic waste challenge, including, but not limited to, extended producer responsibility fees, recycled content mandates, taxes on plastics at the national level and bans on non-essential items. Further, an intergovernmental negotiation committee is in the process of negotiating an international legally binding instrument to end plastic pollution.
Substantially all of the Corporation's sales are to TDCC, a wholly owned subsidiary of Dow and one of the world’s largest plastics producers. TDCC sells plastic products that continue to enable increasing quality and standards of living and offer significant greenhouse gas reductions compared with alternative solutions. In order to both maintain the benefits of plastics, meet growing demand for circular and renewable plastics and advance efforts to end plastic pollution in the environment, Dow is partnering with other organizations to bring the waste back into the circular economy. Dow's Transform the Waste target (announced in October 2022) aims to transform plastic waste and other forms of waste to commercialize 3 million metric tons of circular and renewable solutions annually by 2030. Further, Dow has committed to reducing its net annual greenhouse gas emissions and intends to be carbon neutral by 2050 (Scope 1+2+3, as defined by the Greenhouse Gas Protocol Corporate Accounting and Reporting Standard, plus product benefits).
Without the expansion of proper waste collection and recycling infrastructure and the development of a circular economy for plastics at scale, along with increased pressure to reduce the use of plastics, the Corporation could experience reduced demand for its polyethylene products, which could negatively impact the Corporation's financial condition, results of operations and cash flows.
OPERATIONAL RISKS
Raw Materials: Availability of purchased feedstocks and energy, and the volatility of these costs, impact the Corporation's operating costs and add variability to earnings.
Purchased feedstock and energy costs account for a substantial portion of the Corporation's total production costs and operating expenses. The Corporation purchases hydrocarbon raw materials including ethane, propane, butane and naphtha as feedstocks. The Corporation also purchases certain monomers, primarily ethylene and propylene, to supplement internal production, as well as other raw materials. The Corporation also purchases natural gas, primarily to generate electricity, electric power to supplement internal generation, and purchases electric power.steam.
Feedstock and energy costs generally follow price trends in crude oil and natural gas, which are sometimes volatile. Power prices often follow general energy trends, and are additionally subject to short-term surfeits and shortages related to, for example, intermittent wind and solar generation, and power generation and transmission outages. Ultimately, the ability to pass on underlying cost increases is dependent on market conditions. Conversely, when feedstock and energy costs decline, selling prices generally decline as well. As a result, volatility in these costs could impact the Corporation's results of operations.
While the Corporation expects abundant and cost-advantaged supplies of natural gas liquids ("NGLs") in the United States to persist for the foreseeable future, if NGLs were to become significantly less advantaged than crude oil-based feedstocks, it could have a negative impact on the Corporation's results of operations and future investments. Also, if the Corporation's key suppliers of feedstocks and energy are unable to provide the raw materials required for production, it could have a negative impact on the Corporation's results of operations.
Supply/Demand Balance: Earnings generated by the Corporation vary based in part on the balance of supply relative to demand within the industry.
The balance of supply relative to demand within the industry may be significantly impacted by the addition of new capacity, especially for basic commodities where capacity is generally added in large increments as world-scale facilities are built. This may disrupt industry balances and result in downward pressure on prices due to the increase in supply, which could negatively impact the Corporation's results of operations.
Financial Flexibility: Market conditions could reduce Dow's financial flexibility, which could impact the financial flexibility of the Corporation.
Adverse economic conditions could reduce Dow's flexibility to respond to changing business and economic conditions or to fund capital expenditures or working capital needs. The economic environment could result in a contraction in the availability of credit in the marketplace and reduce sources of liquidity for Dow and could result in higher borrowing costs. Since Dow is a service provider, material debtor, and the major customer of the Corporation, reduced financial flexibility for Dow could potentially impact the financial flexibility of the Corporation.
Environmental Compliance: The costs of complying with evolving regulatory requirements could negatively impact the Corporation's financial results. Actual or alleged violations of environmental laws or permit requirements could result in restrictions or prohibitions on plant operations, substantial civil or criminal sanctions, as well as the assessment of strict liability and/or joint and several liability.
The Corporation is subject to extensive federal, state, local and foreign laws, regulations, rules and ordinances relating to pollution, protection of the environment, greenhouse gas emissions and the generation, storage, handling, transportation, treatment, disposal and remediation of hazardous substances and waste materials. At December 31, 2017, the Corporation had accrued obligations of $114 million ($145 million at December 31, 2016) for probable environmental remediation and restoration costs, including $19 million ($20 million at December 31, 2016) for the remediation of Superfund sites. This is management's best estimate of the costs for remediation and restoration with respect to environmental matters for which the Corporation has accrued liabilities, although it is reasonably possible that the ultimate cost with respect to these particular matters could range up to approximately three times that amount. Costs and capital expenditures relating to environmental, health or safety matters are subject to evolving regulatory requirements and depend on the timing of the promulgation and enforcement of specific standards which impose the requirements. Moreover, changes in environmental regulations could inhibit or interrupt the Corporation's operations, or require modifications to its facilities. Accordingly, environmental, health or safety regulatory matters could result in significant unanticipated costs or liabilities.
Litigation: The Corporation is party to a number of claims and lawsuits arising out of the normal course of business with respect to commercial matters, including product liability, governmental regulation and other actions.
The Corporation is involved in a number of legal proceedings and claims with both private and governmental parties. These cover a wide range of matters, including, but not limited to: product liability; trade regulation; governmental regulatory proceedings; health, safety and environmental matters; employment; patents; contracts; taxes; and commercial disputes. With the exception of the possible effect of the asbestos-related liability described below, it is the opinion of the Corporation's management that the possibility is remote that the aggregate of all such claims and lawsuits will have a material adverse impact on the Corporation's consolidated financial statements.
The Corporation is and has been involved in a large number of asbestos-related suits filed primarily in state courts during the past four decades. At December 31, 2017, the Corporation's total asbestos-related liability for pending and future claims, including future defense and processing costs, was $1,369 million ($1,490 million at December 31, 2016). See Notes 1 and 14 to the Consolidated Financial Statements for more information on asbestos-related matters.
Health and Safety: Increased concerns regarding the safe use of chemicals in commerce and their potential impact on the environment have resulted in more restrictive regulations and could lead to new regulations.
Concerns regarding the safe use of chemicals in commerce and their potential impact on health and the environment reflect a growing trend in societal demands for increasing levels of product safety and environmental protection. These concerns could manifest themselves in stockholder proposals, preferred purchasing and continued pressure for more stringent regulatory intervention. These concerns could also influence public perceptions, the viability of the Corporation's products, the Corporation's reputation and the cost to comply with regulations. In addition, terrorist attacks and natural disasters have increased concerns about the security and safety of chemical production and distribution. These concerns could have a negative impact on the Corporation's results of operations.
Local, state, federal and foreign governments continue to propose new regulations related to the security of chemical plant locations and the transportation of hazardous chemicals, which could result in higher operating costs.
Operational Event: A significant operational event could negatively impact the Corporation's results of operations.
As a diversified chemical manufacturing company, the Corporation's operations at each site, including maintenance of its facilities, the transportation of supplies and products, cyber-attackscyberattacks, pandemics or severe weather conditions and other natural phenomena (such as freezing, drought, hurricanes, earthquakes, tsunamis, floods, etc.) could result in an unplanned event that could be significant in scale and could negatively impact operations, neighbors or the public at large, which could have a negative impact on the Corporation's results of operations.
Major hurricanes and other weather-related events have caused significant disruption in UCC's operations on the U.S. Gulf Coast, logistics across the region, and the supply of certain raw materials, which had an adverse impact on volume and cost for some of UCC's products. Due to the Corporation's substantial presence on the U.S. Gulf Coast, similar severe weather conditions or other natural phenomena in the future could negatively affectimpact UCC's results of operations.
Pension Other non-weather-related unplanned events have also caused disruptions in UCC’s operations at various sites. While the Corporation has processes in place to minimize the risks and Other Postretirement Benefits: Increased obligations and expenses related to the Corporation's defined benefit pension plans and other postretirement benefit planimpacts of such events, such unplanned future events could negatively affect UCC's financial condition andimpact the Corporation’s results of operations.
The Corporation has defined benefit pension plans and an other postretirement benefit plan (the "plans") in the United States. The assets
Cybersecurity Threat: Disruption of the Corporation's funded plans are primarily invested in fixed income securities, equity securitiesinformation technology, data security, and alternative investments in real estate and private equity of U.S. and foreign issuers. Changes in the market value of plan assets, investment returns, discount rates, mortality rates, the rate of increase in compensation levels, regulations and health care cost trends may affect the funded statusother operating or third-party systems, including disruption of the Corporation's plansability to safely and could cause volatility in the net periodic benefit cost, future funding requirements of the plans and the funded status of the plans. A significant increase inreliably operate the Corporation's obligations or future funding requirements could have a negative impact onfacilities; the Corporation's results of operations and cash flows for a particular period and on the consolidated financial position of the Corporation.
Cyber Threat: The risk of loss of the Corporation's intellectual property,proprietary information including trade secrets, know-how or other sensitive business informationinformation; and the risk of loss or disruptionsecurity of operationsthe private data of the Corporation, its customers and its employees could negatively impact the Corporation's results of operations, financial results.condition and reputation.
Cyber-attacks or security breaches could compromise confidential,UCC relies on various information systems, including information systems operated by Dow and by third-parties, to support safe, efficient and reliable business critical information, cause a disruption in the Corporation's operations or harm the Corporation's reputation. The Corporation has attractiveand operating processes and activities and to safeguard its proprietary information assets, including intellectual property, trade secrets, know-how and other sensitive, business critical information. These systems are critical to the Corporation's process to accurately report financial results for management and external reporting purposes and to ensure compliance with financial reporting, legal and tax requirements in the United States and around the world. These systems may also be used to collect and process sensitive customer and personal employee data the Corporation may be legally required to protect.
Increased global cybersecurity vulnerabilities, threats and more sophisticated and targeted cyberattacks continue to pose risks to UCC’s products, systems and networks, and the confidentiality, availability and integrity of the Corporation’s data. These vulnerabilities also expose the Corporation’s customers’, suppliers’ and third-party service providers to loss. In addition, the Corporation is exposed to similar risks resulting from cyberattacks that are experienced by its suppliers and other vendors. As a result, cyberattacks, internal and external security breaches, and attacks and security breaches of third-party systems could disrupt UCC's operations, compromise UCC’s
proprietary and confidential, business critical information, jeopardize UCC's ability to safeguard and maintain accurate data, including personal data, and harm UCC's reputation which could result in litigation, enforcement actions, including fines, penalties and disruption of UCC's right to operate in certain jurisdictions, and significant remediation costs. Additionally, UCC’s and/or Dow's use of artificial intelligence software may create additional risks related to the unintentional disclosure of proprietary, confidential, personal or otherwise sensitive information.
While the Corporation has ais part of Dow's comprehensive cyber-securitycybersecurity program that is continuously reviewed, maintained and upgraded, a significant cyber-attack could result in the losscyberattacks by nation-state organizations, crime organizations and other hackers have become increasingly sophisticated, and it is possible for such attacks to remain undetected for an extended period of critical business information and/or could negatively impact operations, whichtime. Such attacks could have a material negative impact on the Corporation'sCorporation’s results of operations, financial results.position and reputation. More information on the Corporation’s processes for assessing, identifying and managing material risks from cybersecurity threats, including management’s role and the Board's oversight of such processes, can be found in Item 1C. Cybersecurity.
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| ITEM 1B. UNRESOLVED STAFF COMMENTS |
None.
Risk Management and Strategy
Dow has processes in place to identify, assess and monitor material risks from cybersecurity threats, including the material risks of the Corporation. These processes are part of Dow’s overall enterprise risk management process and have been embedded in Dow’s operating procedures, internal controls and information systems.
Dow's comprehensive cybersecurity and information security framework includes risk assessment and mitigation through a threat intelligence-driven approach, application controls, and enhanced security with ransomware defense. The framework leverages International Organization for Standardizations 27001/27002 standards for general information technology controls, International Society of Automation/International Electrotechnical Commission standards for industrial automation, the National Institute of Standards and Technology Cyber Security Framework ("NIST CSF") for measuring overall readiness to respond to cyber threats, and Sarbanes-Oxley for assessment of internal controls.
Dow contracts with external firms to assess Dow’s cyber security controls relative to its peers using the NIST CSF. Dow also has a third-party risk management program that assesses risks from vendors and suppliers. In addition, Dow maintains business continuity and disaster recovery plans as well as a cybersecurity insurance policy.
Dow has established cybersecurity and information security awareness training programs. Formal training on topics relating to Dow’s cybersecurity, data privacy and information security policies and procedures is mandatory at least annually for all employees, contractors and third parties with access to Dow’s network. Training is administered and tracked through online learning modules. Training topics include how to escalate suspicious activities including phishing, viruses, spams, insider threats, suspect human behaviors or safety issues. Based on role and location, some employees receive additional in-depth training to provide more comprehensive knowledge on potential risks related to their individual job responsibilities. Training is supplemented through regular Dow company-wide communications with frequent updates to educate on the latest adversary trends and social engineering techniques.
Additionally, Dow engages in cyber crisis response simulations to assess Dow’s ability to adapt to information and operational technology threats. Improper or illegitimate use of Dow’s information system resources or violation of Dow’s information security policies and procedures is subject to disciplinary action. Dow’s security posture is supported by a comprehensive defense-in-depth strategy that relies on layers of technology including Multi-Factor Authentication and principles of Zero Trust to ensure that access to information and communication is vetted and secure.
Dow also utilizes internal and external audits and assessments, vulnerability testing, governance processes over outsourced service providers, active risk management and benchmarking against peers in the industry to validate Dow’s security posture. Dow also engages external firms to measure Dow’s NIST CSF maturity level.
No risks from cybersecurity threats, including those resulting from any previous cybersecurity incidents, have materially affected, or are reasonably likely to materially affect, the Corporation, including its business strategy, results of operations or financial condition.
Governance
Role of Management
Dow’s Information Systems organization led by Dow’s Chief Information and Digital Officer, is responsible for administration of the cybersecurity and information security framework and risk management, including that of the Corporation, with oversight by Dow's Audit Committee.
Dow’s Chief Information and Digital Officer has formal education in information technology and extensive experience working in and leading Dow’s information systems and technology function. The Chief Information and Digital Officer receives regular updates on cybersecurity matters, results of mitigation efforts and cybersecurity incident response and remediation.
Dow management responsible for developing and executing its cybersecurity policies is comprised of individuals with either formal education and degrees in information technology or cybersecurity, or with experience working in information technology and cybersecurity, including relevant industry experience in security related industries. Additionally, leaders in Dow’s information technology function receive periodic training and education on cybersecurity related topics. Certain leaders also obtain industry certifications, such as Certified Information Systems Security Professional or Certified Information Security Manager.
Dow’s Cyber Security Operations Center (“CSOC”) serves as the central point for all cybersecurity incidents and reporting, including incidents that directly target employees or Dow internal information systems and incidents originating from third parties. The CSOC provides end-to-end operations for purposes of monitoring, detecting, alerting and responding to cyber incidents. The CSOC evaluates each incident in terms of its impact on Dow’s and the Corporation's operations, ability to conduct business with customers and suppliers, brand reputation and health, safety or the environment, and the speed and degree to which the incident has been contained. The CSOC is also responsible for activating the containment and resolution efforts and third-party service providers are engaged where appropriate to support Dow through the resolution of the incident. The CSOC escalates incidents with significant impact and pervasiveness to Dow’s Corporate Crisis Management Team for further action. After initial identification, the CSOC monitors all cybersecurity incidents for changes in degree of impact or pervasiveness.
Role of the Corporation's Board
The Corporation's Board of Directors ("Board") recognizes the importance of cybersecurity in safeguarding the Corporation’s sensitive data. The Board is responsible for overseeing overall risk management for the Corporation, including review and approval of the enterprise risk management approach and processes implemented by management to identify, assess, manage and mitigate risk.
The Corporation’s Board receives information and updates periodically with respect to the effectiveness of Dow’s cybersecurity and information security framework, data privacy and risk management, which includes that of the Corporation. The Board also receives updates on material incidents relating to information systems security, including cybersecurity incidents.
The Corporation operates eight manufacturing sites in three countries. The Corporation considers its properties to be in good operating condition and that its machinery and equipment have been well maintained. The following are the major production sites:
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United States: | Hahnville (St. Charles), Louisiana; Seadrift and Texas City, Texas. |
All of UCC's plants are owned or leased, subject to certain easements of other persons that, in the opinion of management, do not substantially interfere with the continued use of such properties or materially affect their value. No title examination of the properties has been made for the purpose of this report.
A summary of property, classified by type, is contained in Note 98 to the Consolidated Financial Statements.
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| ITEM 3. LEGAL PROCEEDINGS |
Asbestos-Related Matters
The Corporation is and has been involved in a large number of asbestos-related suits filed primarily in state courts during the past four decades. These suits principally allege personal injury resulting from exposure to asbestos-containing products and frequently seek both actual and punitive damages. The alleged claims primarily relate to products that UCC sold in the past, alleged exposure to asbestos-containing products located on UCC's premises, and UCC's responsibility for asbestos suits filed against a former subsidiary, Amchem Products, Inc.
For additional information, see Asbestos-Related Matters in Management's Discussion and Analysis of Financial Condition and Results of Operations, and Notes 1 and 1412 to the Consolidated Financial Statements.
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| ITEM 4. MINE SAFETY DISCLOSURES |
Not applicable.
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| Union Carbide Corporation and Subsidiaries |
| PART II |
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| ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
The Corporation is a wholly owned subsidiary of Dow;TDCC; therefore, there is no public trading market for the Corporation's common stock.
ITEM 6. SELECTED FINANCIAL DATA
Omitted pursuant to General Instruction I of Form 10‑K.
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| ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Pursuant to General Instruction I of Form 10-K "Omission of Information by Certain Wholly-Owned Subsidiaries," this section includes only management's narrative analysis of the results of operations for the year ended December 31, 2017,2023, the most recent fiscal year, compared with the year ended December 31, 2016,2022, the fiscal year immediately preceding it.
Union Carbide Corporation (the "Corporation" or "UCC") is a chemicals and polymers company that has been a wholly owned subsidiary of The Dow Chemical Company ("Dow") since 2001. Effective August 31, 2017, pursuant to the merger of equals transaction contemplated by the Agreement and Plan of Merger, dated as of December 11, 2015, as amended on March 31, 2017, Dow and E. I. du Pont de Nemours and Company ("DuPont") each merged with subsidiaries of DowDuPont Inc. ("DowDuPont") and, as a result, Dow and DuPont became subsidiaries of DowDuPont (the "Merger"). See Note 3 to the Consolidated Financial Statements for additional information.
References below to "Dow""TDCC" refer to The Dow Chemical Company and its consolidated subsidiaries, except as otherwise indicated by the context. Union Carbide Corporation (the "Corporation" or "UCC") has been a wholly owned subsidiary of TDCC since 2001. TDCC has been a wholly owned subsidiary of Dow Inc. since 2019. References to "DowDuPont""Dow" refer to DowDuPontDow Inc., together with TDCC and its consolidated subsidiaries, except as otherwise indicated by the context.subsidiaries.
DowTDCC conducts its worldwide operations through principal product groups,global businesses and the Corporation's business activities comprise components of Dow'sTDCC’s global operationsbusinesses rather than stand-alone operations. The Corporation sells substantially all of its products to TDCC in order to simplify the customer interface process, at prices determined in accordance with the terms of an agreement between UCC and TDCC. Because there are no separableseparate reportable business segments for UCC and no detailed business information is provided to a chief operating decision maker regarding the Corporation'sCorporation’s stand-alone operations, the Corporation'sCorporation’s results are reported as a single operating segment.
Seadrift Operations Unplanned Shutdown
On October 19, 2023, the Corporation’s manufacturing site in Seadrift, Texas, (“Seadrift”) initiated a sequenced site shutdown necessary to repair an onsite underground water leak. The site primarily produces polyethylene, ethylene oxide, ethylene glycol, glycol ethers and plastics used in wire and cable applications. While repairs were ongoing, the site was able to resume production of plastics used in wire and cable applications in October 2023 followed by ethanolamines and glycol ethers and limited production of polyethylene and polyethylene catalyst in November 2023. Full operating capacity, including production of remaining products, was restored in December 2023.
U.S. Gulf Coast Infrastructure Assets
As part of the Corporation's and TDCC's application of a best-owner mindset when reviewing non-product producing assets and to allow UCC and TDCC to have more visibility into the operations and economics of such assets, on November 1, 2023, UCC and certain other TDCC subsidiaries contributed certain production supporting infrastructure assets on the U.S. Gulf Coast (which are not product-producing assets themselves) to a TDCC subsidiary that will manage the contributed assets ("TDCC Infrastructure Subsidiary") in exchange for a membership interest ("Common Control Membership Interest") in the TDCC Infrastructure Subsidiary. The carrying value of net assets contributed by UCC was $389 million. In connection with this contribution, TDCC and UCC entered into various agreements, designating UCC to receive or provide certain site services as defined under the agreements. Such agreements were designed to ensure the continuation of services to support UCC's existing operations. UCC recognized equity earnings of $10 million in the fourth quarter of 2023 related to this investment.
On December 1, 2023, the Corporation sold its Common Control Membership Interest to another TDCC subsidiary in exchange for a $1,543 million term loan receivable, which bears interest based on alternative reference rates and matures on December 1, 2043. This transaction was accounted for as a transfer between entities under common control, which resulted in an increase to additional paid in capital of $893 million, net of tax of $251 million.
RESULTS OF OPERATIONS
Net Sales
Total net sales for 20172023 were $5,165$4,296 million, compared with total net sales of $4,919$5,449 million in 2016, an increase2022, a decrease of 521 percent. Net sales to related companies, principally to Dow,TDCC, were $5,022$4,149 million for 2017,2023, compared with $4,811$5,258 million for 2016, an increase2022, a decrease of 421 percent. Selling prices to DowTDCC are based on market prices for the related products,determined in accordance with the terms of Dow's intercompany pricing policies.an agreement between UCC and TDCC.
Total net salesAverage selling price decreased 18 percent in 2023 compared with 2022. Price decreased across almost all product lines in response to lower raw material and feedstock costs, with the most significant price decreases in polyethylene, oxo alcohols, ethanolamines and acrylic monomers. Volume decreased 3 percent in 2023 compared with 2022, due to lower volume in surfactants, glycol ethers and plastics used for wire and cable applications, which were upnegatively impacted by various factors, including the temporary unplanned site shutdown at Seadrift in the fourth quarter of 2023; and internal and external raw material supply limitations, including impacts from the previous year driven by an increaseJuly 2023 explosion and fire at TDCC's Louisiana Operations Glycol-2 unit in price. Average selling prices increased 5 percentPlaquemine, Louisiana. These decreases more than offset higher volume in 2017polyethylene, resulting from strengthening demand, and volume improvements for acrylic monomers compared with 2016. Prices were up across most products, primarily driven by higher feedstock, energy and other raw material costs and tight market supply as a result of hurricane-related supply disruptions in the last half of 2017, with the largest increases in polyethylene, ethylene oxide/ethylene glycol ("EO/EG"), oxo alcohols and vinyl acetate monomers. Sales volume was flat in 2017 compared with 2016 as sales volume increases in glutaraldehydes, vinyl acetate monomers and polyglycols were offset by volume declines in electrical and telecommunications, oxo alcohols and EO/EG.2022, when unplanned downtime negatively impacted production.
Cost of Sales
Cost of sales were $4,176in 2023 was $3,804 million, up 12down 17 percent from $3,713$4,586 million in 2016, due to higher feedstock, energy and other2022. The decrease in cost of sales was driven by lower raw material, feedstock and energy costs increasedon lower volume and the impact of structural cost improvements, partially offset by spending for large, planned maintenance turnaround spending, as well as hurricane-related productionprojects at the Corporation's manufacturing site in St. Charles, Louisiana, and supply disruptionscosts for site services provided by the TDCC Infrastructure Subsidiary. In addition to higher raw material, feedstock and repairenergy costs, cost of sales in 2022 was negatively impacted by environmental charges of $37 million in the last halffirst quarter of 2017,2022, resulting from updated remediation estimates and scope changes on existing matters and positively impacted by third party insurance recoveries related to covered losses resulting from severe weather events on the U.S. Gulf Coast in 2021, which were facilitated by TDCC through its global insurance program. Cost of sales as a percentage of total net sales increased to 88.5 percent in 2023 compared with 84.2 percent in 2022, primarily due to lower selling prices, partially offset by a decrease in accruals for environmental remediationlower raw material, feedstock and restoration projects compared withenergy costs and the previous year.impact of structural cost improvements.
Research and Development, Selling, General and Administrative Expenses
Research and development expenses were $19 million in 2017, compared with $18 million in 2016. Selling, general and administrative expenses were $6 million in 2017 compared with $7 million in 2016.
Restructuring and Asset Related Charges - Net
In September 2017,the first quarter of 2023, the Corporation approvedinitiated restructuring actions that are aligned with DowDuPont's synergy targets.to achieve its structural cost improvement initiatives in response to the continued economic impact from the global recessionary environment and to enhance its agility and long-term competitiveness across the economic cycle. The program includes workforce cost reductions and actions to rationalize the Corporation's manufacturing assets, which includes asset write-down and write-off charges. As a result of these actions, the Corporation recorded a pretax restructuring charge for severance and related benefit costs of $8 million in the third quarter of 2017. In November 2017, the Corporation approved additional restructuring actions in connection with the restructuring program. A pretax restructuring charge for severance and related benefit costs of $2 million was recorded in the fourth quarter of 2017, as well as charges of $62$14 million, for the write-off and write-down of manufacturing and facility assets at multiple UCC sites. The impact of these charges is shown asincluded in "Restructuring and asset related charges - net" in the consolidated statements of income. These actions are expected to be complete by the end of 2019.
In the second quarter of 2016, the Corporation approved actions to further improve cost effectiveness with additional workforce reductions. As a result of these actions, the Corporation recorded a pretax restructuring charge for severance and related benefit costs of $1 million for the separation of approximately 5 positions. In the fourth quarter of 2016, the Corporation recorded an additional charge of $2 million related to the separation of an additional 16 positions, and in the second quarter of 2017, an additional charge of $2 million was recorded to adjust the charge for severance and related benefit costs. At December 31, 2017, the liability for severance and related benefit costs associated with the 2016 restructuring was zero, substantially completing the program.
In addition, in the second quarter of 2016, the Corporation recorded an unfavorable adjustment to the 2015 restructuring charge related to additional accruals for exit and disposal activities of $1 million. See Note 54 to the Consolidated Financial Statements for additional information onabout the Corporation's restructuring activities.activities and related charges.
Asbestos-Related Charge
InThe Corporation expects to incur additional costs in the fourth quarter of 2016, the Corporation electedfuture related to change its method of accounting for asbestos-related defenserestructuring activities. Future costs are expected to include demolition costs related to closed facilities and processingrestructuring plan implementation costs; these costs from expensingwill be recognized as incurred to estimating and accruing a liability. As a result of this accounting policy change, the Corporation recorded a pretax charge of $1,009 million for asbestos-related defense and processing costs through the terminal date of 2049.incurred. The Corporation also recorded a pretax charge of $104 millionexpects to increase the asbestos-related liability for pending and future claims through the terminal date of 2049.incur additional employee-related costs, including involuntary termination benefits, related to its other optimization activities. These charges were included in "Asbestos-related charge" in the consolidated statements of income. See Notes 1 and 14 to the Consolidated Financial Statements for details on the asbestos-related charge.costs cannot be reasonably estimated at this time.
Equity in Earnings of a Nonconsolidated Affiliate
Equity in earnings of a nonconsolidated affiliate were zero in 2017, down from $2 million in 2016. In the second quarter of 2017, UCC completed the sale of its ownership interest in Asian Acetyls Co., Ltd. ("ASACCO"), a nonconsolidated affiliate accounted for under the equity method of accounting. ASACCO agreed to purchase all the shares of registered common stock owned by UCC resulting in a pretax gain of $4 million on the sale, included in "Sundry income (expense) - net" in the consolidated statements of income. For additional information on the nonconsolidated affiliate, see Note 10 to the Consolidated Financial Statements.
Sundry Income (Expense) - Net
Sundry income (expense) -– net includes a variety of income and expense items such as the gain or loss on foreign currency exchange, commissions, charges for management services provided by Dow, interest incomeTDCC, non-operating pension and other postretirement benefit plan credits or costs, commissions, gains and losses on sales of investments and assets. assets, losses on early extinguishment of debt and gains and losses on foreign currency exchange.
Sundry income (expense) -– net for 20172023 was net expense of $11$25 million compared with net income of $16$53 million in 2016. Sundry income (expense) - net included the pretax2022. The decrease in expense from 2022 was primarily due to a $206 million gain on the salessale of land and terminal assets ata portion of the Corporation's Texas City, Texas siteownership interest in a TDCC joint venture to a TDCC subsidiary and equity earnings of $10 million from the Corporation's investment in the second quartersTDCC Infrastructure Subsidiary, partially offset by a pension settlement charge of 2016$149 million resulting from the transfer of certain plan obligations to an insurance company through the purchase of
a nonparticipating group annuity contract and 2017 described belowlower net non-operating pension and other asset sales.postretirement benefit plan credits in 2023. See Note 6Notes 5, 15 and 17 to the Consolidated Financial Statements for additional information.
Texas City, Texas, Land SaleInterest Income
On June 27, 2016, UCC signed agreementsInterest income for the sale of excess land at the Texas City, Texas, manufacturing site. In the second quarter of 2016, UCC recorded a pretax gain of $462023 was $49 million, compared with $18 million in 2022. The increase in interest income primarily resulted from significant increases in interest rates on the sale of one parcel of land. On April 3, 2017, the salebalance of the second parcel of land was completed which also included terminalCorporation's revolving note receivable from TDCC and interest earned on a $1,543 million term loan receivable from a related party, received on December 1, 2023, in exchange for UCC's interest in a TDCC subsidiary that manages certain site infrastructure assets for UCC and ancillary agreementsTDCC on the U.S. Gulf Coast. See Note 17 to the Consolidated Financial Statements for additional information related to the supply of energyCorporation's related party investment, cash management and site and terminal services, and a pretax gain of $23 million was recorded in the second quarter 2017.loan activities.
Interest Expense and Amortization of Debt Discount
Net interestInterest expense (interest expense less capitalized interest) and amortization of debt discount for 2017 was $28$16 million in 2023 compared with $25$26 million in 2016, primarily driven by a decrease2022, reflecting reduced interest expense resulting from the maturity and payment of long-term debt of $129 million in capitalized interest in 2017 due to the reduction in capital spending.April 2023. See Notes 9 and 13Note 11 to the Consolidated Financial Statements for additional information.information related to the Corporation's debt financing activities.
Provision (Credit) for Income Taxes
On December 22, 2017, the Tax Cuts and Jobs Act ("The Act") was enacted. The Act reduces the U.S. federal corporate tax rate from 35 percent to 21 percent, requires companies to pay a one-time transition tax on earnings of foreign subsidiaries that were previously deferred, creates new provisions related to foreign sourced earnings, eliminates the domestic manufacturing deduction and moves to a territorial system. At December 31, 2017, the Corporation had not completed its accounting for the tax effects of The Act; however, the Corporation made a reasonable estimate of the effects on its existing deferred tax balances and the one-time transition tax, which resulted in a provisional charge of $250 million, included in "Provision (Credit) for income taxes."
The Corporation reported $645 million for thea tax provision of $73 million in 2017,2023, which resulted in an overall effective tax rate of 75.916.1 percent. The tax rate for 2017 was unfavorably impacted byIn 2022, the enactment of The Act and the recognition of a deferred gain related to the sale of stock between Dow and UCC in 2014. This compares withCorporation reported a tax benefitprovision of $32$172 million, in 2016, which resulted in an overall effective tax rate of negative 56.122.5 percent. In 2016, theThe tax rate for 2023 was favorably impacted by interest on accrued taxes receivable and a benefit related to the releasesale of a reserveportion of its 50 percent ownership interest in excess of the settlement of an uncertain tax position and the impact from the asbestos-related charge.a joint venture with TDCC. The underlying factors affecting UCC's overall effective tax rates are summarized in Note 76 to the Consolidated Financial Statements.
Net Income Attributable to UCC
The Corporation reported net income of $205$381 million in 2017,2023, compared with net income of $89$594 million for 2016.in 2022.
Capital Expenditures
Capital spending in 20172023 was $223$274 million, compared with $267$143 million in 2016, reflecting spending2022, as the Corporation increased investment in production assets and environmental protection projects, primarily on the U.S. Gulf Coast projects and site infrastructure projects in both years.Coast.
OTHER MATTERS
Recent Accounting Guidance
See Note 2 to the Consolidated Financial Statements for a summary of recent accounting guidance.
Critical Accounting Estimates
The preparation of financial statements and related disclosures in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") requires management to make judgments, assumptions and estimates that affect the amounts reported in the consolidated financial statements and accompanying notes. Note 1 to the Consolidated Financial Statements describes the significant accounting policies and methods used in preparation of the consolidated financial statements.Consolidated Financial Statements. Following are the Corporation's accounting policies impacted by judgments, assumptions and estimates:estimates.
Litigation
The Corporation is subject to legal proceedings and claims arising out of the normal course of business. The Corporation routinely assesses the likelihood of any adverse judgments or outcomes to these matters, as well as ranges of probable losses. A determination of the amount of the reserves required, if any, for these contingencies is made after thoughtful analysis of each known claim. The Corporation has an active risk management program consisting of numerous insurance policies secured from many carriers. These policies provide coverage that is utilized to minimize the financial impact, if any, of the legal proceedings. The required reserves may change in the future due to new developments in each matter. For further discussion, see Note 14 to the Consolidated Financial Statements.
Asbestos-Related Matters
The Corporation is and has been involved in a large number of asbestos-related suits filed primarily in state courts during the past four decades. These suits principally allege personal injury resulting from exposure to asbestos-containing products and frequently seek both actual and punitive damages. The alleged claims primarily relate to products that UCC sold in the past, alleged exposure to asbestos-containing products located on UCC'sUCC’s premises, and UCC'sUCC’s responsibility for asbestos suits filed against a former UCC subsidiary, Amchem Products, Inc. ("Amchem"). Each year, Ankura Consulting Group, LLC ("Ankura") performs a review for UCC based upon historical asbestos claims and resolution activity and historical defense spending. UCC compares current asbestos claim, resolution and defense spending activity to the results of the most recent Ankura study at each balance sheet date to determine whether the asbestos-related liability continues to be appropriate.
In 2016, UCC elected to change its method of accounting for asbestos-related defense and processing costs from expensing as incurred to estimating and accruing a liability. In addition to performing their annual review of pending and future asbestos claim resolution activity, Ankura also performed a review for UCC of asbestos-related defense and processing costs to determine a reasonable estimate ofclaims, including future defense and processing costs, continues to be included in the asbestos-related liability, through the terminal yearappropriate.
For additional information, see Part I, Item 3. Legal Proceedings; Asbestos-Related Matters in Management's Discussion and Analysis of Financial Condition and Results of Operations; and Notes 1 and 1412 to the Consolidated Financial Statements.
Environmental Matters
The Corporation determines the costs of environmental remediation of its facilities and formerly owned facilities based on evaluations of current law and existing technologies. Inherent uncertainties exist in such evaluations primarily due to unknown environmental conditions, changing governmental regulations and legal standards regarding liability, and emerging remediation technologies. The recorded liabilities are adjusted periodically as remediation efforts progress or as additional technical or legal information becomes available. At December 31, 2017,2023, the Corporation had accrued obligations of $114$194 million for probable environmental remediation and restoration costs, including $19$37 million for the remediation of Superfund sites. This is management's best estimate of the costs for remediation and restoration with respect to environmental matters for which the Corporation has accrued liabilities, although it is reasonably possible that the ultimate cost with respect to these particular matters could range up to approximately threetwo times that amount. For further discussion, see Environmental Matters in Notes 1 and 1412 to the Consolidated Financial Statements.
Pension Plans and Other Postretirement Benefits
The amounts recognized in the consolidated financial statements related to pension and other postretirement benefits are determined from actuarial valuations. Inherent in these valuations are assumptions including expected return on plan assets, discount rates at which the liabilities could have been settled at December 31, 2017,2023, rate of increase in future compensation levels, mortality rates and health care cost trend rates. These assumptions are updated annually and are disclosed in Note 1615 to the Consolidated Financial Statements. In accordance with U.S. GAAP, actual results that differ from the assumptions are accumulated and amortized over future periods and, therefore, affect expense recognized and obligations recorded in future periods. The Corporation's pension plans were frozen effective December 31, 2023, and therefore, participants will not accrue additional benefits for future service and compensation.
On January 1, 2016, theThe Corporation adopteduses the spot rate approach to determine the discount rate utilized to measure the service cost and interest cost components of net periodic pension and other postretirement benefit costs. Under the spot rate approach, the Corporation calculates service costscost and interest costscost by applying individual spot rates from the Willis Towers Watson U.S. RATE:Link 60-90 corporate yield curve (based on 60th to 90th percentile high-quality corporate bond yields) to the separate expected cash flow components of service cost and interest cost. Prior to 2016, the service and interest cost components were determined based on the single discount rate used to measure the benefit obligation. The Corporation changed to the new method to provide a more precise measure of service and interest costs by improving the correlation between projected benefit cash flows and the discrete spot yield curves. The Corporation accounted for this change as a change in accounting estimate and it was applied prospectively starting in 2016.
The Corporation determines the expected long-term rate of return on plan assets by performing a detailed analysis of key economic and market factors driving historical returns for each asset class and formulating a projected return based on factors in the current environment. Factors considered include, but are not limited to, inflation, real economic growth, interest rate yield, interest rate spreads, and other valuation measures and market metrics. The expected long-term rate of return for each asset class is then weighted based on the strategic asset allocation approved by the governing body for each plan. The Corporation's historical experience with the pension fund asset performance is also considered. The expected long-term rate of return is an assumption and not what is expected to be earned in any one particular year. The weighted-average long-term rate of return assumption used for determining net periodic pension expense for 20172023 and 20162022 was 6.80 percent. ThisThe weighted-average assumption was alsoto be used for determining 20182024 net periodic pension expense.expense is 6.40 percent. Future actual pension expense will depend on future investment performance, changes in future discount rates and various other factors related to the population of participants in the Corporation's pension plans.
The discount rates utilized to measure the pension and other postretirement benefit obligations are based on the yield on high-quality corporate fixed income investments at the measurement date. Future expected actuarially determined cash flows for the plans are individually discounted at the spot rates under the Willis Towers Watson U.S. RATE:Link 60-90 corporate yield curve (based on 60th to 90th percentile high-quality corporate bond yields) to arrive at the plan’s obligations as of the measurement date. The weighted-average discount rate utilized to measure pension obligations was 3.595.25 percent at December 31, 20172023 and 4.005.60 percent at December 31, 2016.2022.
The value of the Corporation's qualified planplans' assets totaled $3.3$2.4 billion at December 31, 2017, an increase2023, a decrease from $3.1$2.7 billion at December 31, 2016.2022. The net underfunded status of the Corporation's qualified plan decreasedplans increased by $86$83 million at December 31, 2017,2023, compared with December 31, 2016.2022. The Corporation contributed $162 milliondid not make contributions to the qualified planplans in 2017.
2023. The assumption for the long-term rate of increase in compensation levels was 4.25 percent at December 31, 2017 and 2016. Since 2002, the Corporation has useduses a generational mortality table to determine the duration of its pension and other postretirement obligations.
The Corporation bases the determination of pension expense on a market-related valuation of plan assets that reduces year-to-year volatility. This market-related valuation recognizes investment gains or losses over a five-year period from the year in which they occur. Investment gains or losses for this purpose represent the difference between the expected return calculated using the market-related value of plan assets and the actual return based on the market value of plan assets. Since the market-related value of plan assets recognizes gains or losses over a five-year period, the future value of plan assets will be impacted when previously deferred gains or losses are recorded. Over the life of the plan, both gains and losses have been recognized and amortized. At December 31, 2017, $122023, $429 million of net losses remain to be recognized in the calculation of the market-related value of plan assets. These net losses will result in increases in future pension expense as they are recognized in the market-related value of assets.
The net decrease in the market-related value of assets due to the recognition of prior gains (losses)losses is presented in the following table:
| | | | | |
| Net Decrease in Market-Related Asset Value Due to Recognition of Prior Losses | |
| In millions |
| 2024 | $ | 122 | |
| 2025 | 148 | |
| 2026 | 151 | |
| 2027 | 8 | |
| Total | $ | 429 | |
|
| | | |
| Net Decrease in Market-Related Asset Value due to Recognition of Prior Gains (Losses) | |
| In millions |
| 2018 | $ | (15 | ) |
| 2019 | (31 | ) |
| 2020 | 12 |
|
| 2021 | 22 |
|
| Total | $ | (12 | ) |
Based onExclusive of a one-time settlement charge in 2023, resulting from the 2018 pension assumptions and changes intransfer of certain plan obligations to an insurance company through the market-related valuepurchase of assets,a nonparticipating group annuity contract, the Corporation expects net periodic benefit costpension expense to increasedecrease in 2024 by approximately $17 million for pension and other postretirement benefits in 2018 compared with 2017.$8 million. The increase in net periodic benefit costdecrease is primarily due to the impactfreeze of lowerpension benefits, effective December 31, 2023, and other de-risking activities, partially offset by discount rates and the resulting increase in amortization of actuarial losses.rate decreases.
A 25 basis point adjustmentincrease or decrease in the long-term return on assets assumption would change the Corporation's total pension expense by $7 million for 2018 by $8 million.2024. A 25 basis point adjustmentincrease or decrease in the discount rate assumption would have an immaterial impact onchange the Corporation's total pension expense by $1 million for 2018.2024.
Income Taxes
Deferred tax assets and liabilities are determined based on temporary differences between the financial reporting and tax bases of assets and liabilities, applying enacted tax rates expected to be in effect for the year in which the differences are expected to reverse. Based on the evaluation of available evidence, both positive and negative, the Corporation recognizes future tax benefits, such as net operating loss carryforwards and tax credit carryforwards, to the extent that realizing these benefits is considered more likely than not.
At December 31, 2017,2023, the Corporation had a net deferred tax asset balance of $511$257 million, after valuation allowances of $19$11 million. In evaluating the ability to realize the deferred tax assets, the Corporation relies on, in order of increasing subjectivity, taxable income in prior carryback years, the future reversals of existing taxable temporary differences, tax planning strategies and forecasted taxable income using historical and projected future operating results.
At December 31, 2017, the Corporation had deferred tax assets for tax loss and tax credit carryforwards of $47 million of which $30 million is subject to expiration in the years 2018 through 2022. In order to realize these deferred tax assets for tax loss and tax credit carryforwards, the Corporation needs taxable income of approximately $1,538 million across multiple jurisdictions. The taxable income needed to realize the deferred tax assets for tax loss and tax credit carryforwards that are subject to expiration between 2018 through 2022 is $618 million.
The Corporation recognizes the financial statement effects of an uncertain tax position when it is more likely than not, based on technical merits, that the position will be sustained upon examination. At December 31, 2017,2023, the Corporation had a liability for uncertain tax positions of $1$8 million.
The Corporation accrues for non-income tax contingencies when it is probable that a liability to a taxing authority has been incurred and the amount of the contingency can be reasonably estimated. At December 31, 2017, the Corporation had an immaterial tax contingency reserve.
On December 22, 2017, The Act was enacted, making significant changes to the U.S. tax law. The SEC staff issued Staff Accounting Bulletin No. 118 ("SAB 118"), which provides guidance on accounting for the tax effects of The Act for which the accounting
under Accounting Standards Codification 740, "Income Taxes" ("ASC 740") is incomplete. To the extent that a company's accounting for certain income tax effects of The Act is incomplete, but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. The provisional amounts, and adjustments identified in the measurement period, are recorded to the provision for income taxes on continuing operations in the period the amounts are determined. In accordance with SAB 118, income tax effects of The Act may be refined upon obtaining, preparing or analyzing additional information during the measurement period and such changes could be material. SAB 118 provides that the measurement period is complete when a company's accounting is complete and in no circumstances should the measurement period extend beyond one year from the enactment date. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before enactment of The Act. For additional information, see Notes 1 and 7Note 6 to the Consolidated Financial Statements.
Environmental Matters
Environmental Policies
The Corporation is committed to world-class environmental, health and safety ("EH&S") performance, as demonstrated by a long-standing commitment to RESPONSIBLE CARE®,the American Chemistry Council's Responsible Care® program, as well as a strong commitment to achieve the Corporation'sDow's 2025 Sustainability Goals -and Dow's drive to deliver against its targets around a circular economy and climate protection. These goals thatand targets set the standard for sustainability in the chemical industry, by focusing on improvements in UCC's local corporate citizenship and product stewardship, and by actively pursuing methods to reduce the Corporation's environmental impact.
TheTo help meet Dow’s public commitments, as well as the stringent laws and government regulations related to environmental protection and remediation to which its global operations are subject, UCC has well-defined policies, requirements and management systems. Dow's EH&S management system ("EMS") defines the "who, what, when and how" needed for the businessesCorporation to achieve theimplement Dow's policies and requirements and meet performance objectives, leadership expectations and public commitments. EMS is also designed to minimize the long-term cost of environmental protection and to comply with applicable laws and regulations. To ensure effective utilization, Dow's EMS is integrated into a company-wide management system for EH&S, Operations, Quality and Human Resources, including implementationResources.
Dow believes third-party verification and transparent public reporting are cornerstones of the global EH&S Work Process to improveworld-class EH&S performance and building public trust. Numerous Dow sites in Europe, Latin America, Asia Pacific and the U.S. & Canada, including UCC sites, have received third-party verification of compliance with Responsible Care® and with outside specifications such as ISO-14001. Dow continues to ensure ongoing compliance worldwide.be a global champion of Responsible Care® and has worked to broaden the application and impact of Responsible Care® around the world through engagement with suppliers, customers and joint venture partners.
UCC first works to eliminate or minimize the generation of waste and emissions at the source through research, process design, plant operations and maintenance. Next, UCC finds ways to reuse and recycle materials. Finally, unusable or non-recyclable hazardous waste is treated before disposal to eliminate or reduce the hazardous nature and volume of the waste. Treatment may include destruction by chemical, physical, biological or thermal means. Disposal of waste materials in landfills is considered only after all other options have been thoroughly evaluated. UCC has specific requirements for waste that is transferred to non-UCC facilities, including the periodic auditing of these facilities.
Chemical Security
Public and political attention continues to be placed on the protection of U.S. critical infrastructure, including the chemical industry, from security threats. Terrorist attacks andSabotage, terrorism, war, natural disasters and cybersecurity incidents have increased concernglobal concerns about the security and safety of chemical production and distribution. The focus on security is not new to UCC. UCC continues to improve its security plans, placing emphasis on the safety of UCC communities and people by being prepared to meet risks at any level and to address both internal and external identifiable risks. UCC's security plans are also developeddesigned to avert interruptions of normal business operations whichthat could have a material impact on the Corporation's results of operations, liquidityfinancial condition and financial condition.cash flows.
UCC is a RESPONSIBLE CARE®Responsible Care® company and adheres to the RESPONSIBLE CARE®Responsible Care® Security Code ("Security Code"), which requires that all aspects of security - including facility, transportation and cyberspace - be assessed and gaps addressed. Through global implementation of the Security Code, including voluntary security enhancements and upgrades, made since 2002, UCC has permanently heightened theits level of security - not just in the United States, but worldwide. In addition, UCC uses a risk-based approach employingFurther, the U.S. Government's Sandia National Labs methodology to repeatedly assess the risks to sites, systems and processes. UCC has expanded its comprehensiveCorporation’s Distribution Risk Review process that had been in place for decades to addressaddresses potential threats in all modes of transportation across itsthe supply chain. In 2019, Dow Inc. established its Global Security Operations Center ("GSOC") to provide 24-hour/day, 365-day/year real-time monitoring of global risks to Dow Inc. assets and people, which includes UCC assets and people. The GSOC employs state-of-the-art social media monitoring, threat reporting and geo-fencing capabilities to analyze global risks and report those risks, facilitating decision-making and actions to prevent Dow Inc. and UCC crises.
To reduce vulnerabilities, UCC maintains security measures that meet or exceed regulatory and industry security standards in all areas in which UCC operates. Assessment and improvement costs are not considered material to the Corporation's consolidated financial statements.
Climate ChangeProtection
Climate change mattersEvaluation of climate-related risks and opportunities continues to be a catalyst for UCC are driven by changes in regulatory mattersthe development of Dow’s Decarbonize & Grow strategy (Dow’s climate transition plan), its water-intensity goal and physical climate parameters.
Regulatory Matters
Regulatory matters include capits Valuing Nature goal. Dow's science-based strategy includes a phased approach to decarbonize while meeting growing demand for Dow's products and trade schemes, increased greenhouse gas ("GHG") limits, and taxes on GHG emissions, fuel and energy. The potential implications of each of these matters are all very similar, including increased cost of purchased energy, additional capital costs for installation or modification of GHG emitting equipment, and additional costs associated directly with GHG emissions (such as cap and trade systems or carbon taxes), which are primarily related to energy use. It is difficult to estimate the potential impact of these regulatory matters on energy prices.
Reducing UCC's overall energy usage and GHG emissions through new and unfolding projects will decrease the potential impact of these regulatory matters. The Corporation has not experienced any material impact related to regulated GHG emissions.
Physical Climate Parameters
Many scientific academies throughout the world have concluded that it is very likely that human activities are contributing to global warming. At this point, it is difficult to predicta low-carbon future through continued investment in new products, technologies and assess the probability and opportunity of a global warming trend on UCC specifically. Preparedness plans are developed that detail actions needed in the event of severe weather. These measures have historically been in place and these activities and associated costs are driven by normal operational preparedness. UCC continues to study the long-term implications of changing climate parameters or water availability, plant siting issues, and impacts and opportunities for products.
The Corporation continues to elevate its internal focus and external positions to focus on the root cause of GHG emissions, including the sustainable use of energy. Through corporate energy efficiency programs and focused GHG management efforts, the Corporation has and is continuingprocesses. In 2020, Dow announced commitments to reduce its GHGnet annual Scope 1 and 2 CO2 equivalent ("CO2e") emissions footprint.by an additional 5 million metric tons by 2030 versus its 2020 baseline, a 15 percent reduction versus 2020 and a 30 percent reduction in greenhouse gas emissions since 2005. Additionally, Dow announced its intention to be carbon neutral by 2050 (Scope 1+2+3, as defined by the Greenhouse Gas Protocol Corporate Accounting and Reporting Standard, plus product benefits). In 2021, Dow outlined a path to decarbonize its production processes (Scope 1 and 2 CO2e emissions), utilizing a phased approach in which end-of-life capacity is
replaced with higher-efficiency, lower greenhouse gas emitting assets. Reflecting Dow's focus to make meaningful progress in the near term, Dow intends to reduce its CO2e emissions by approximately 2 million metric tons by 2025 versus its 2020 baseline while growing underlying earnings and plans to build the world's first net-zero Scope 1 and 2 CO2e emissions integrated ethylene cracker and derivatives facility in Alberta, Canada, which is expected to add approximately 1,885 KTA of ethylene and polyethylene capacity by 2029. Dow is also committed to advancing water stewardship within its operations and to working collaboratively to enhance water management at the watershed level. As part of this commitment, Dow has set a global target to reduce freshwater intake intensity by 20 percent at six key water-stressed sites by 2025. Additionally, Dow has implemented a robust process to quantify the value of products and projects that are better for nature, including nature-based solutions.
Despite these commitments, climate change-related risks and uncertainties, legal or regulatory responses to climate change, and failure to meet climate change commitments could negatively impact UCC’s results of operations, financial condition and/or reputation. Climate-related risks include both physical and transition risks.
Physical Risks
Climate-related physical risks include more frequent severe weather events, potential changes in precipitation patterns, water scarcity and extreme variability in weather patterns, which can disrupt the operations of Dow and the Corporation, as well as those of its customers, partners and vendors.
To evaluate physical risks, Dow partnered with S&P Global Trucost (“Trucost”) to assess Dow’s exposure to physical risks based on the geographic location of its manufacturing operations. The risks assessed included water stress, flood, heat waves, cold waves, hurricanes, wildfires and sea level rise. The analysis included an assessment of the physical risks using a baseline year of 2020 with time periods for medium- (year 2030) and long-term (year 2050) using the Intergovernmental Panel on Climate Change representative concentration pathways. These pathways represent varying degrees of global atmospheric greenhouse gas concentrations (low, medium and high), and thus different expectations on global temperature rise. Results will be incorporated into Dow’s long-term assessments of its manufacturing sites, which is a key input into Dow’s and UCC's capital approval process.
Transition Risks
Climate-related transition risks include the availability, development and affordability of lower greenhouse gas emissions technology, the effects of CO2e pricing and changes in public sentiment, regulations, taxes, public mandates or requirements as they relate to CO2e, water or land use.
Climate-related risks, including both physical and transition risks, are assessed by Dow with input from internal and external sources including corporate, business, function and geographic leaders; subject matter experts; investors; and other stakeholders. The evaluation of climate-related risks and opportunities is integrated into Dow's annual company-wide risk management process, known as enterprise risk management (“ERM”). ERM identifies significant or major risks to Dow and develops action plans to modify or mitigate risks.
Every few years, Dow also utilizes a robust scenario analysis to assess the long-term materiality and impact of climate-related risks and opportunities. Scenario analysis is used to challenge business-as-usual assumptions and strengthen the resiliency of Dow’s Decarbonize & Grow strategy. Scenarios are used to evaluate both physical and transition risk and are particularly useful in evaluating the potential and impact of emerging risks.
Advancing a Circular Economy
Dow is committed to turning the tide on plastic waste and meeting customers’ increasing demands for more sustainable and circular products through Dow's materials science expertise and its investments in circular innovations and partnerships – from designing for recyclability at the beginning of a product’s life to building materials ecosystems that will help turn plastic waste into a valuable resource that can be used to create new products. Dow is working to advance circularity for its key materials and, to this end, is working to deliver on its enterprise target to Transform the Waste, which entails transforming plastic waste and other forms of feedstocks to deliver 3 million metric tons of circular and renewable solutions annually by 2030. To reach the target, Dow is collaborating with other stakeholders across value chains to build materials ecosystems to collect, reuse or recycle plastic waste. This, in turn, will enable Dow to return more plastic waste into the circular system, and scale production of circular and low-carbon emissions solutions.
In support of, and in collaboration with, value chain partners and customers, Dow is aligning its innovation and application development programs so its products are recycle-ready at the outset or enable circularity in customers’ products and processes. Designing for circularity at the molecular level expands the possibilities for recycling across
a variety of applications, and ultimately lessens the environmental impact of Dow's customers’ products. UCC will continue to work with Dow and its subsidiaries and partners to help provide solutions for this global issue.
Developing Safer Materials
How Dow and UCC manufacture, distribute and enable the proper use and disposal of their products can have a large and meaningful impact on the environment. Dow’s vision is a future where every material it brings to market is sustainable for people and the planet. Dow is working to deliver that sustainable future through its materials science expertise and collaboration with its customers. By constantly innovating how it sources, manufactures and delivers material solutions, Dow helps customers achieve their goals and create a better tomorrow. Dow has an impact on safer materials directly through the manufacture and delivery of solutions and indirectly through the chemicals that are sourced.
Dow is committed to demonstrating the value of chemistry and materials science to society and improving the way the world understands and considers science in decision-making to maximize benefits to businesses, society and the planet. Through Dow’s 2025 Safe Materials for a Sustainable Planet goal, Dow has made progress toward this vision by innovating sustainable materials of tomorrow, leading candid conversations about product safety and committing to the advancement of open and transparent chemistry with value chain partners, customers and the public. As a subsidiary producer of Dow products, UCC will continue to be a key partner in advancing Dow's progress towards achieving this goal.
Environmental Remediation
UCC accrues the costs of remediation of its facilities and formerly owned facilities based on current law and existing technologies. The nature of such remediation includes, for example, the management of soil and groundwater contamination. The policies adopted to properly reflect the monetary impacts of environmental matters are discussed in Note 1 to the Consolidated Financial Statements. To assess the impact on the consolidated financial statements, environmental experts review currently available facts to evaluate the probability and scope of potential liabilities. Inherent uncertainties exist in such evaluations primarily due to unknown environmental conditions, changing governmental regulations and legal standards regarding liability, and emerging remediation technologies. These liabilities are adjusted periodically as remediation efforts progress or as additional technical or legal information becomes available. In the fourth quarter of 2016, the Corporation recorded an adjustment to the environmental accrual, primarily resulting from the culmination of negotiations with regulators and/or final stages of certain remediation projects. These charges were included in "Cost of sales" in the consolidated statements of income. The Corporation had an accrued liability of $95$157 million at December 31, 20172023 and $125$147 million at December 31, 2016,2022, related to the remediation of current or former UCC-owned sites.
In addition to current and former UCC-owned sites, under the Federal Comprehensive Environmental Response, Compensation and Liability Act and equivalent state laws (hereafter referred to collectively as "Superfund Law"), UCC is liable for remediation of other hazardous waste sites where UCC allegedly disposed of, or arranged for the treatment or disposal of, hazardous substances. Because Superfund Law imposes joint and several liability upon each party at a site, UCC has evaluated its potential liability in light of the number of other companies that also have been named potentially responsible parties ("PRPs") at each site, the estimated apportionment of costs among all PRPs, and the financial ability and commitment of each to pay its expected share. Management's estimate of the Corporation's remaining liability for the remediation of Superfund sites was $19$37 million at December 31, 20172023 and $20$36 million at December 31, 2016,2022, which has been accrued, although the ultimate cost with respect to these sites could exceed that amount. The Corporation has not recorded any third-party recovery related to these sites as a receivable.
Information regarding environmental sites is provided below:
| | | | | | | | | | | | | | |
| Environmental Sites | UCC-owned Sites 1 | Superfund Sites 2 |
| 2023 | 2022 | 2023 | 2022 |
| Number of sites at Jan 1 | 26 | | 26 | | 61 | | 66 | |
| Sites added during year | — | | — | | 3 | | — | |
| Sites closed during year | (1) | | — | | (1) | | (5) | |
| Number of sites at Dec 31 | 25 | | 26 | | 63 | | 61 | |
1.UCC-owned sites are sites currently or formerly owned by UCC. In the United States, remediation obligations are imposed by the Resource Conservation and Recovery Act or analogous state law.
2.Superfund sites are sites, including sites not owned by UCC, where remediation obligations are imposed by Superfund Law.
|
| | | | | | | | |
| Environmental Sites | UCC-owned Sites 1 | Superfund Sites 2 |
| | 2017 | 2016 | 2017 | 2016 |
| Number of sites at Jan 1 | 26 |
| 27 |
| 70 |
| 67 |
|
| Sites added during year | — |
| — |
| 1 |
| 4 |
|
| Sites closed during year | (1 | ) | (1 | ) | (2 | ) | (1 | ) |
| Number of sites at Dec 31 | 25 |
| 26 |
| 69 |
| 70 |
|
| |
1. | UCC-owned sites are sites currently or formerly owned by UCC. In the United States, remediation obligations are imposed by the Resource Conservation and Recovery Act or analogous state law. |
| |
2. | Superfund sites are sites, including sites not owned by UCC, where remediation obligations are imposed by Superfund Law. |
In total, the Corporation's accrued liability for probable environmental remediation and restoration costs was $114$194 million at December 31, 2017,2023, compared with $145$183 million at December 31, 2016.2022. This is management's best estimate of the costs for remediation and restoration with respect to environmental matters for which the Corporation has accrued liabilities, although it is reasonably possible that the ultimate cost with respect to these particular matters could range up to approximately threetwo times that amount. Consequently, it is reasonably possible that environmental remediation and restoration costs in excess of amounts accrued could have a material impact on the Corporation's results of operations, financial condition and cash flows. It is the opinion of the Corporation's management, however, that the possibility is remote that costs in excess of the range disclosed will have a material impact on the Corporation's results of operations, financial condition and cash flows.
The amounts charged to income on a pretax basis related to environmental remediation totaled $36$44 million in 2017, $1222023, $72 million in 20162022 and $58$47 million in 2015.2021. The amounts charged to income on a pretax basis related to operating the Corporation's pollution abatement facilities, excluding internal recharges, totaled $113$106 million in 2017, $1032023, $119 million in 20162022 and $96$101 million in 2015.2021. Capital expenditures for environmental protection were $9$47 million in 2017, $102023, $38 million in 20162022 and $14$8 million in 2015.2021. The Corporation is in the process of installing additional air pollution control and monitoring technology on its steam-assisted flares at its olefins manufacturing facility in St. Charles, Louisiana. These installations are expected to be substantially complete by the end of 2024 and result in additional capital expenditures of approximately $18 million.
Asbestos-Related Matters
The Corporation is and has been involved in a large number of asbestos-related suits filed primarily in state courts during the past four decades. These suits principally allege personal injury resulting from exposure to asbestos-containing products and frequently seek both actual and punitive damages. The alleged claims primarily relate to products that UCC sold in the past, alleged exposure to asbestos-containing products located on UCC's premises, and UCC's responsibility for asbestos suits filed against a former UCC subsidiary, Amchem. In many cases, plaintiffs are unable to demonstrate that they have suffered any compensable loss as a result of such exposure, or that injuries incurred in fact resulted from exposure to UCC's products.
The table below provides information regarding asbestos-related claims pending against the Corporation and Amchem based on criteria developed by UCC and its external consultants. UCC had a significant increase in the number of claims settled, dismissed or otherwise resolved in 2015, resulting from a detailed review of the status of individual claims and an update to criteria used to classify claims.consultants:
| | | | | | | | | | | |
| Asbestos-Related Claim Activity | 2023 | 2022 | 2021 |
| Claims unresolved at Jan 1 | 6,873 | | 8,747 | | 9,126 | |
| Claims filed | 4,199 | | 4,664 | | 4,233 | |
| Claims settled, dismissed or otherwise resolved | (4,705) | | (6,538) | | (4,612) | |
| Claims unresolved at Dec 31 | 6,367 | | 6,873 | | 8,747 | |
| Claimants with claims against both UCC and Amchem | (1,236) | | (1,530) | | (2,139) | |
| Individual claimants at Dec 31 | 5,131 | | 5,343 | | 6,608 | |
|
| | | | | | |
| Asbestos-Related Claim Activity | 2017 | 2016 | 2015 |
| Claims unresolved at Jan 1 | 16,141 |
| 18,778 |
| 26,116 |
|
| Claims filed | 7,010 |
| 7,813 |
| 7,544 |
|
| Claims settled, dismissed or otherwise resolved | (7,724 | ) | (10,450 | ) | (14,882 | ) |
| Claims unresolved at Dec 31 | 15,427 |
| 16,141 |
| 18,778 |
|
| Claimants with claims against both UCC and Amchem | (5,530 | ) | (5,741 | ) | (6,804 | ) |
| Individual claimants at Dec 31 | 9,897 |
| 10,400 |
| 11,974 |
|
Plaintiffs' lawyers often sue numerous defendants in individual lawsuits or on behalf of numerous claimants. As a result, the damages alleged are not expressly identified as to UCC, Amchem or any other particular defendant, even when specific damages are alleged with respect to a specific disease or injury. In fact, there are no asbestos personal injury cases in which only the Corporation and/or Amchem are the sole named defendants. For these reasons and based upon the Corporation's litigation and settlement experience, the Corporation does not consider the damages alleged against it and Amchem to be a meaningful factor in its determination of any potential asbestos-related liability.
For additional information, see Part I, Item 3. Legal Proceedings and Asbestos-Related Matters in Notes 1 and 1412 to the Consolidated Financial Statements.
Debt Covenants and Default Provisions
The Corporation's outstanding public debt has been issued under indentures which contain, among other provisions, covenants that the Corporation must comply with while the underlying notes are outstanding. Such covenants are typically based on the Corporation's size and financial position and include, subject to the exceptions and qualifications contained in the indentures, obligations not to (i) allow liens on principal U.S. manufacturing facilities, (ii) enter into sale and lease-back transactions with respect to principal U.S. manufacturing facilities, or (iii) merge into or consolidate with any other entity or sell or convey all or substantially all of its assets. Failure of the Corporation to comply with any of these covenants could, after the passage of any applicable grace period, result in a default under the applicable indenture which would allow the note holders to accelerate the due date of the outstanding principal and accrued interest on the subject notes. Management believes the Corporation was in compliance with the covenants referred to above at December 31, 2017.2023.
| | |
| ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
UCC'sUCC’s business operations give rise to market risk exposure due to changes in foreign exchange rates, interest rates, commodity prices and interest rates.other market factors such as equity prices. To manage such risks effectively, the Corporation can enterenters into hedging transactions, pursuant to established guidelines and policies that enable it to mitigate the adverse effects of financial market risk. Derivatives used for this purpose are designated as hedges per the accounting guidance related to derivatives and hedging activities, where appropriate.
The Corporation does not hold derivative financial instruments for trading purposes.
global nature of UCC’s business requires active participation in the foreign exchange markets. As a result of investments, production facilities and other operations on a global basis, the Corporation has assets, liabilities and cash flows in currencies other than the U.S. dollar. The primary objective of the Corporation'sCorporation’s foreign exchange risk management is to optimize the U.S. dollar value of net assets and cash flows, keeping the adverse impact of currency movements to a minimum.flows. To achieve this objective, the Corporation will hedge, when appropriate,hedges on a net exposure basis using foreign currency forward contracts, over-the-counter option contracts, cross-currency swaps and nonderivative instruments in foreign currencies. The main exposures are relatedExposures primarily relate to assets, liabilities and cash flows denominated in foreign currencies. The largest exposures are denominated in the Canadian dollar as well as the currencies of Europe and Asia Pacific and Canada.Pacific.
The main objective of interest rate risk management is to reduce the total funding cost to the Corporation and to alter the interest rate exposure to the desired risk profile. To achieve this objective, the Corporation hedges using interest rate swaps, “swaptions,” and exchange-traded instruments. The Corporation'sCorporation’s primary exposure is to the U.S. dollar yield curve. UCC will use interest rate swaps and “swaptions,” when appropriate, to accomplish this objective.
UCC uses value-at-risk ("VAR"), stress testing and scenario analysis for risk measurement and control purposes. VAR estimates the maximum potential loss in fair market values given a certain move in prices over a certain period of time, using specified confidence levels. The VAR methodology used by the Corporation is a variance/covariance model. This model uses a 97.5 percent confidence level and includes at least one year of historical data. The 20172023 and 20162022 year-end and average daily VAR for the aggregate of all positions are shown below:
| | | | | | | | | | | | | | |
| Total Daily VAR at Dec 31 | 2023 | 2022 |
| In millions | Year-end | Average | Year-end | Average |
| Interest rate | $ | 3 | | $ | 4 | | $ | 5 | | $ | 4 | |
|
| | | | | | | | | | | | |
| Total Daily VAR at Dec 31 | 2017 | 2016 |
| In millions | Year-end | Average | Year-end | Average |
| Interest rate | $ | 3 |
| $ | 3 |
| $ | 3 |
| $ | 3 |
|
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
| | |
| ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholder and the Board of Directors and Stockholder of Union Carbide Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Union Carbide Corporation and subsidiaries (the "Corporation") as of December 31, 20172023 and 2016,2022, the related consolidated statements of income, comprehensive income, equity, and cash flows, for each of the three years in the period ended December 31, 2017,2023, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Corporation as of December 31, 20172023 and 2016,2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017,2023, in conformity with accounting principles generally accepted in the United States of America.
Change in Accounting Principle
As discussed in Note 14 to the financial statements, in the fourth quarter of 2016, the Corporation changed its accounting policy from expensing asbestos-related defense and processing costs as incurred to the accrual of asbestos-related defense and processing costs when probable of occurring and estimable.
Basis for Opinion
These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on the Corporation's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Corporation in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Corporation is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Corporation’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.
Asbestos - Refer to Notes 1 and 12 to the Financial Statements
Critical Audit Matter Description
The Corporation is and has been involved in a large number of asbestos-related suits filed primarily in state courts during the past four decades. The Corporation expects more asbestos-related suits to be filed against the Corporation and its former subsidiary Amchem Products, Inc. in the future, and will aggressively defend or reasonably resolve, as appropriate, both pending and future claims. Since 2003, the Corporation has engaged a third-party actuarial specialist to review the Corporation's historical asbestos-related claim and resolution activity in order to assist management in estimating the Corporation's asbestos-related liability. The Corporation considers quantitative and qualitative factors such as the nature of pending claims, trial experience of the Corporation and
other asbestos defendants, current spending for defense and processing costs, significant appellate rulings and legislative developments, trends in the tort system, and their respective effects on expected future resolution costs.
The Corporation considers the following summarized assumptions and judgments in arriving at the estimated liability:
•The average resolution value calculated by the Corporation to settle each pending and future claim
•The Corporation’s estimation of the number of pending and future claims
•The curve of how claims will occur over the estimated period through the terminal year
•The estimated terminal year 2049 (date at which future claims will cease)
•The acceptance rate applied to estimated future claims (the rate at which claims will be resolved with payment)
Given the significant judgments made by management to estimate the asbestos liability, performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to average resolution value of pending and future claims, estimated number of pending and future claims, curve of how claims will occur, estimated terminal date, and acceptance rate applied to estimated future claims required a high degree of auditor judgment and an increased extent of effort, including the need to involve our actuarial specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to management’s estimate and assumptions of the asbestos liability included the following, among other procedures:
•We tested the effectiveness of controls related to the asbestos liability including management’s controls over the determination of average resolution value of pending and future claims, estimated number of pending and future claims, valuation of future claims, curve of how claims will occur, the estimated terminal date and the acceptance rate applied to estimated future claims.
•We evaluated the methods and assumptions used by management to estimate the asbestos liability by:
◦Testing the underlying data that served as the basis for the actuarial analysis, including historical claims, to test that the inputs to the actuarial estimate were reasonable.
◦Comparing management’s prior-year assumptions of expected development and ultimate loss to actuals incurred during the current year to identify potential bias in the determination of the asbestos-related liabilities.
•With the assistance of our actuarial specialists, we independently developed scenario-adjusted estimates of the asbestos-related liabilities, including loss data and industry claim development factors, and compared our estimates to management’s estimates.
•We read external information included in regulatory filings and news releases to search for contradictory evidence.
| | | | | | | | |
| | |
/s/ DELOITTE & TOUCHE LLP | | |
Deloitte & Touche LLP
Midland, Michigan February 15, 2018
| | |
| January 31, 2024 | | |
We have served as the Corporation's auditor since 2001.
Union Carbide Corporation and Subsidiaries
Consolidated Statements of Income
| | | (In millions) For the years ended Dec 31, | 2017 | 2016 | 2015 | (In millions) For the years ended Dec 31, | 2023 | 2022 | 2021 |
| Net trade sales | $ | 143 |
| $ | 108 |
| $ | 87 |
|
| Net sales to related companies | 5,022 |
| 4,811 |
| 5,755 |
|
| Total Net Sales | 5,165 |
| 4,919 |
| 5,842 |
|
| Total net sales | |
| Cost of sales | 4,176 |
| 3,713 |
| 4,506 |
|
| Research and development expenses | 19 |
| 18 |
| 20 |
|
| Selling, general and administrative expenses | 6 |
| 7 |
| 8 |
|
| Asbestos-related charge | — |
| 1,113 |
| — |
|
| | Restructuring and asset related charges - net | 74 |
| 4 |
| 19 |
|
| Integration and separation costs | 1 |
| — |
| — |
|
| Equity in earnings of a nonconsolidated affiliate | — |
| 2 |
| 4 |
|
| Restructuring and asset related charges - net | |
| Restructuring and asset related charges - net | |
| | Sundry income (expense) - net | (11 | ) | 16 |
| (22 | ) |
| | Sundry income (expense) - net | |
| | Sundry income (expense) - net | |
| Interest income | |
| Interest expense and amortization of debt discount | 28 |
| 25 |
| 28 |
|
| Income Before Income Taxes | 850 |
| 57 |
| 1,243 |
|
| Provision (Credit) for income taxes | 645 |
| (32 | ) | 435 |
|
| Net Income Attributable to Union Carbide Corporation | $ | 205 |
| $ | 89 |
| $ | 808 |
|
| Income before income taxes | |
| Provision for income taxes | |
| Net income attributable to Union Carbide Corporation | |
See Notes to the Consolidated Financial Statements.
Union Carbide Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income
|
| | | | | | | | | |
| (In millions) For years ended Dec 31, | 2017 | 2016 | 2015 |
| Net Income Attributable to Union Carbide Corporation | $ | 205 |
| $ | 89 |
| $ | 808 |
|
| Other Comprehensive Income (Loss), Net of Tax | |
| |
| |
|
| Cumulative translation adjustments | 3 |
| (1 | ) | 2 |
|
| Pension and other postretirement benefit plans | (35 | ) | (91 | ) | 13 |
|
| Total other comprehensive income (loss) | (32 | ) | (92 | ) | 15 |
|
| Comprehensive Income (Loss) Attributable to Union Carbide Corporation | $ | 173 |
| $ | (3 | ) | $ | 823 |
|
| | | | | | | | | | | |
| (In millions) For the years ended Dec 31, | 2023 | 2022 | 2021 |
| Net income attributable to Union Carbide Corporation | $ | 381 | | $ | 594 | | $ | 375 | |
| Other comprehensive income (loss), net of tax | | | |
| Cumulative translation adjustments | 1 | | (1) | | 2 | |
| | | |
| Pension and other postretirement benefit plans | 58 | | 150 | | 217 | |
| | | |
| Total other comprehensive income | 59 | | 149 | | 219 | |
| Comprehensive income attributable to Union Carbide Corporation | $ | 440 | | $ | 743 | | $ | 594 | |
See Notes to the Consolidated Financial Statements.
Union Carbide Corporation and Subsidiaries
Consolidated Balance Sheets
|
| | | | | | |
| (In millions, except share amounts) At Dec 31, | 2017 | 2016 |
| Assets |
| Current Assets | | |
| Cash and cash equivalents | $ | 13 |
| $ | 11 |
|
| Accounts receivable: |
|
| |
| Trade (net of allowance for doubtful receivables 2017: $-; 2016: $-) | 21 |
| 15 |
|
| Related companies | 972 |
| 843 |
|
| Other | 50 |
| 36 |
|
| Income taxes receivable | 281 |
| 275 |
|
| Notes receivable from related companies | 1,238 |
| 1,411 |
|
| Inventories | 278 |
| 307 |
|
| Other current assets | 35 |
| 39 |
|
| Total current assets | 2,888 |
| 2,937 |
|
| Investments | |
| |
|
| Investments in related companies | 639 |
| 639 |
|
| Investment in nonconsolidated affiliate | — |
| 14 |
|
| Other investments | 25 |
| 30 |
|
| Noncurrent receivables | 62 |
| 52 |
|
| Noncurrent receivables from related companies | 54 |
| 57 |
|
| Total investments | 780 |
| 792 |
|
| Property | |
| |
|
| Property | 7,309 |
| 7,144 |
|
| Less accumulated depreciation | 5,930 |
| 5,750 |
|
| Net property | 1,379 |
| 1,394 |
|
| Other Assets | |
| |
|
| Intangible assets (net of accumulated amortization 2017: $82; 2016: $78) | 25 |
| 25 |
|
| Deferred income tax assets | 511 |
| 928 |
|
| Deferred charges and other assets | 36 |
| 70 |
|
| Total other assets | 572 |
| 1,023 |
|
| Total Assets | $ | 5,619 |
| $ | 6,146 |
|
| Liabilities and Equity |
| Current Liabilities | |
| |
|
| Notes payable to related companies | $ | 28 |
| $ | 25 |
|
| Long-term debt due within one year | 1 |
| 1 |
|
| Accounts payable: |
|
|
|
|
| Trade | 270 |
| 249 |
|
| Related companies | 684 |
| 521 |
|
| Other | 22 |
| 7 |
|
| Income taxes payable | 24 |
| 23 |
|
| Asbestos-related liabilities - current | 132 |
| 126 |
|
| Accrued and other current liabilities | 174 |
| 181 |
|
| Total current liabilities | 1,335 |
| 1,133 |
|
| Long-Term Debt | 474 |
| 475 |
|
| Other Noncurrent Liabilities | |
| |
|
| Pension and other postretirement benefits - noncurrent | 1,054 |
| 1,170 |
|
| Asbestos-related liabilities - noncurrent | 1,237 |
| 1,364 |
|
| Other noncurrent obligations | 151 |
| 206 |
|
| Total other noncurrent liabilities | 2,442 |
| 2,740 |
|
| Stockholders' Equity | |
| |
|
| Common stock (authorized: 1,000 shares of $0.01 par value each; issued: 935.51 shares) | — |
| — |
|
| Additional paid-in capital | 138 |
| 138 |
|
| Retained earnings | 2,582 |
| 2,980 |
|
| Accumulated other comprehensive loss | (1,352 | ) | (1,320 | ) |
| Union Carbide Corporation's stockholders' equity | 1,368 |
| 1,798 |
|
| Total Liabilities and Equity | $ | 5,619 |
| $ | 6,146 |
|
| | | | | | | | |
| (In millions, except share amounts) At Dec 31, | 2023 | 2022 |
| Assets | | |
| Current Assets | | |
| Cash and cash equivalents | $ | 11 | | $ | 10 | |
| Accounts receivable: | | |
| Trade (net of allowance for doubtful receivables 2023: $—; 2022: $—) | 16 | | 40 | |
| Related companies | 700 | | 766 | |
| Other | 14 | | 24 | |
| Income taxes receivable | 238 | | 211 | |
| Notes receivable from related companies | 799 | | 958 | |
| Inventories | 227 | | 256 | |
| Other current assets | 36 | | 38 | |
| Total current assets | 2,041 | | 2,303 | |
| Investments | | |
| Investments in related companies | 237 | | 237 | |
| | |
| Other investments | 15 | | 23 | |
| Noncurrent receivables | 99 | | 91 | |
| Noncurrent receivables from related companies | 1,598 | | 61 | |
| Total investments | 1,949 | | 412 | |
| Property | | |
| Property | 5,406 | | 7,104 | |
| Less accumulated depreciation | 4,512 | | 5,922 | |
| Net property | 894 | | 1,182 | |
| Other Assets | | |
| Intangible assets (net of accumulated amortization 2023: $93; 2022: $100) | 7 | | 9 | |
| Operating lease right-of-use assets | 85 | | 107 | |
| Deferred income tax assets | 257 | | 239 | |
| Deferred charges and other assets | 39 | | 37 | |
| Total other assets | 388 | | 392 | |
| Total Assets | $ | 5,272 | | $ | 4,289 | |
| Liabilities and Equity | | |
| Current Liabilities | | |
| Notes payable to related companies | $ | 68 | | $ | 51 | |
| Notes payable - other | 1 | | 4 | |
| Long-term debt due within one year | 1 | | 132 | |
| Accounts payable: | | |
| Trade | 286 | | 284 | |
| Related companies | 420 | | 411 | |
| Other | 12 | | 16 | |
| Operating lease liabilities - current | 17 | | 21 | |
| Income taxes payable | 30 | | 33 | |
| Asbestos-related liabilities - current | 80 | | 90 | |
| Accrued and other current liabilities | 116 | | 145 | |
| Total current liabilities | 1,031 | | 1,187 | |
| Long-Term Debt | 259 | | 262 | |
| Other Noncurrent Liabilities | | |
| Pension and other postretirement benefits - noncurrent | 395 | | 298 | |
| Asbestos-related liabilities - noncurrent | 787 | | 857 | |
| Operating lease liabilities - noncurrent | 68 | | 87 | |
| Other noncurrent obligations | 567 | | 254 | |
| Total other noncurrent liabilities | 1,817 | | 1,496 | |
| Stockholders' Equity | | |
| Common stock (authorized: 1,000 shares of $0.01 par value each; issued: 935.51 shares) | — | | — | |
| Additional paid-in capital | 1,034 | | 141 | |
| Retained earnings | 2,474 | | 2,605 | |
| Accumulated other comprehensive loss | (1,343) | | (1,402) | |
| Union Carbide Corporation's stockholders' equity | 2,165 | | 1,344 | |
| | |
| | |
| Total Liabilities and Equity | $ | 5,272 | | $ | 4,289 | |
See Notes to the Consolidated Financial Statements.
Union Carbide Corporation and Subsidiaries
Consolidated Statements of Cash Flows
| | | | | | | | | | | |
| (In millions) For the years ended Dec 31, | 2023 | 2022 | 2021 |
| Operating Activities | | | |
| Net income attributable to Union Carbide Corporation | $ | 381 | | $ | 594 | | $ | 375 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | |
| Depreciation and amortization | 170 | | 199 | | 202 | |
| Provision (credit) for deferred income tax | (18) | | 5 | | 140 | |
| | | |
| Net gain on sales of property and investments | (1) | | (3) | | (6) | |
| Net gain on sale of ownership interest in related party | (206) | | — | | — | |
| | | |
| | | |
| Restructuring and asset related charges - net | 14 | | — | | 1 | |
| Net periodic pension benefit cost (credit) | 184 | | 9 | | (5) | |
| Pension contributions | (2) | | (3) | | (549) | |
| | | |
| Other, net | — | | — | | 11 | |
| Changes in assets and liabilities: | | | |
| Accounts and notes receivable | 31 | | 14 | | (22) | |
| Related company receivables | 225 | | 658 | | (24) | |
| Inventories | 22 | | (6) | | (48) | |
| Accounts payable | 4 | | (89) | | 132 | |
| Related company payables | 26 | | (190) | | 210 | |
| Asbestos-related payments | (80) | | (69) | | (82) | |
| Other assets and liabilities | (52) | | 75 | | 71 | |
| Cash provided by operating activities | 698 | | 1,194 | | 406 | |
| Investing Activities | | | |
| Capital expenditures | (274) | | (143) | | (121) | |
| | | |
| Proceeds from sale of ownership interest in related party | 206 | | — | | — | |
| Change in noncurrent receivable from related company | 6 | | 7 | | (2) | |
| Proceeds from sales of property and investments | 12 | | 3 | | 7 | |
| | | |
| | | |
| | | |
| | | |
| Cash used for investing activities | (50) | | (133) | | (116) | |
| Financing Activities | | | |
| Dividends paid to parent | (512) | | (1,063) | | (288) | |
| Changes in short-term notes payable | (3) | | 4 | | — | |
| Payments on long-term debt | (132) | | (3) | | (2) | |
| | | |
| Cash used for financing activities | (647) | | (1,062) | | (290) | |
| Summary | | | |
| Increase (decrease) in cash and cash equivalents | 1 | | (1) | | — | |
| Cash and cash equivalents at beginning of year | 10 | | 11 | | 11 | |
| Cash and cash equivalents at end of year | $ | 11 | | $ | 10 | | $ | 11 | |
|
| | | | | | | | | |
| (In millions) For the years ended Dec 31, | 2017 | 2016 | 2015 |
| Operating Activities | | | |
| Net Income Attributable to Union Carbide Corporation | $ | 205 |
| $ | 89 |
| $ | 808 |
|
| Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
| Depreciation and amortization | 200 |
| 190 |
| 184 |
|
| Provision (credit) for deferred income tax | 414 |
| (297 | ) | (44 | ) |
| Earnings of nonconsolidated affiliate in excess of dividends received | — |
| (1 | ) | (1 | ) |
| Net gain on sales of property and investments | (26 | ) | (51 | ) | (7 | ) |
| Net gain on sale of ownership interest in nonconsolidated affiliate | (4 | ) | — |
| — |
|
| Net gain on ownership transfer of property | — |
| — |
| (23 | ) |
| Asbestos-related charge | — |
| 1,113 |
| — |
|
| Restructuring and asset related charges - net | 74 |
| 4 |
| 19 |
|
| Net periodic pension benefit cost | 28 |
| 27 |
| 68 |
|
| Pension contributions | (162 | ) | (52 | ) | (2 | ) |
| Other, net | — |
| (1 | ) | 1 |
|
| Changes in assets and liabilities: | | | |
| Accounts and notes receivable | 7 |
| (7 | ) | 39 |
|
| Related company receivables | 44 |
| 132 |
| 191 |
|
| Inventories | 29 |
| (4 | ) | 62 |
|
| Accounts payable | 36 |
| 18 |
| (22 | ) |
| Related company payables | 166 |
| 45 |
| (413 | ) |
| Asbestos-related payments | (121 | ) | (61 | ) | (76 | ) |
| Other assets and liabilities | (112 | ) | (457 | ) | 569 |
|
| Cash provided by operating activities | 778 |
| 687 |
| 1,353 |
|
| Investing Activities | |
| |
| |
| Capital expenditures | (223 | ) | (267 | ) | (270 | ) |
| Proceeds from sale of ownership interest in nonconsolidated affiliate | 22 |
| — |
| — |
|
| Changes in noncurrent receivable from related company | 3 |
| 5 |
| 69 |
|
| Proceeds from sales of property | 18 |
| 60 |
| 40 |
|
| Cash acquired in ownership transfer of property | — |
| — |
| 5 |
|
| Purchases of investments | (1 | ) | (1 | ) | (27 | ) |
| Proceeds from sales of investments | 9 |
| 5 |
| 1 |
|
| Cash used for investing activities | (172 | ) | (198 | ) | (182 | ) |
| Financing Activities | |
| |
| |
| Dividends paid to stockholder | (603 | ) | (500 | ) | (1,170 | ) |
| Payments on long-term debt | (1 | ) | (1 | ) | (1 | ) |
| Cash used for financing activities | (604 | ) | (501 | ) | (1,171 | ) |
| Summary | |
| |
| |
| Increase (Decrease) in cash and cash equivalents | 2 |
| (12 | ) | — |
|
| Cash and cash equivalents at beginning of year | 11 |
| 23 |
| 23 |
|
| Cash and cash equivalents at end of year | $ | 13 |
| $ | 11 |
| $ | 23 |
|
| | | | |
| Supplemental Cash Flow Information | | | |
| Cash paid (refunded) for: | | | |
| Interest, net of amounts capitalized | $ | 37 |
| $ | 38 |
| $ | 39 |
|
| Income taxes | $ | 254 |
| $ | 697 |
| $ | (125 | ) |
See Notes to the Consolidated Financial Statements.
Union Carbide Corporation and Subsidiaries
Consolidated Statements of Equity
|
| | | | | | | | | | | | | | | |
| (In millions) | Common Stock | Additional Paid-in Capital | Retained Earnings | Accum. Other Comp Loss | Total Equity |
| 2015 | | | | | |
| Balance at Jan 1, 2015 | $ | — |
| $ | 312 |
| $ | 3,740 |
| $ | (1,243 | ) | $ | 2,809 |
|
| Net income attributable to Union Carbide Corporation | — |
| — |
| 808 |
| — |
| 808 |
|
| Other comprehensive income | — |
| — |
| — |
| 15 |
| 15 |
|
| Dividends declared | — |
| — |
| (1,170 | ) | — |
| (1,170 | ) |
| Shares acquired for constructive retirement | — |
| (174 | ) | — |
| — |
| (174 | ) |
| Other | — |
| — |
| 13 |
| — |
| 13 |
|
| Balance at Dec 31, 2015 | $ | — |
| $ | 138 |
| $ | 3,391 |
| $ | (1,228 | ) | $ | 2,301 |
|
| 2016 | | | | | |
| Net income attributable to Union Carbide Corporation | — |
| — |
| 89 |
| — |
| 89 |
|
| Other comprehensive loss | — |
| — |
| — |
| (92 | ) | (92 | ) |
| Dividends declared | — |
| — |
| (500 | ) | — |
| (500 | ) |
| Balance at Dec 31, 2016 | $ | — |
| $ | 138 |
| $ | 2,980 |
| $ | (1,320 | ) | $ | 1,798 |
|
| 2017 | | | | | |
| Net income attributable to Union Carbide Corporation | — |
| — |
| 205 |
| — |
| 205 |
|
| Other comprehensive loss | — |
| — |
| — |
| (32 | ) | (32 | ) |
| Dividends declared | — |
| — |
| (603 | ) | — |
| (603 | ) |
| Balance at Dec 31, 2017 | $ | — |
| $ | 138 |
| $ | 2,582 |
| $ | (1,352 | ) | $ | 1,368 |
|
| | | | | | | | | | | |
| (In millions) For the years ended Dec 31, | 2023 | 2022 | 2021 |
| Common Stock | | | |
| Balance at beginning and end of period | $ | — | | $ | — | | $ | — | |
| Additional Paid-in Capital | | | |
| Balance at beginning and end of period | 141 | | 141 | | 141 | |
| Common control transaction (Note 17) | 893 | | — | | — | |
| Balance at end of period | 1,034 | | 141 | | 141 | |
| Retained Earnings | | | |
| Balance at beginning of period | 2,605 | | 3,074 | | 2,987 | |
| | | |
| Net income attributable to Union Carbide Corporation | 381 | | 594 | | 375 | |
| Dividends declared | (512) | | (1,063) | | (288) | |
| | | |
| Balance at end of period | 2,474 | | 2,605 | | 3,074 | |
| Accumulated Other Comprehensive Loss, Net of Tax | | | |
| Balance at beginning of period | (1,402) | | (1,551) | | (1,770) | |
| | | |
| Other comprehensive income | 59 | | 149 | | 219 | |
| Balance at end of period | (1,343) | | (1,402) | | (1,551) | |
| Union Carbide Corporation's Stockholder's Equity | $ | 2,165 | | $ | 1,344 | | $ | 1,664 | |
See Notes to the Consolidated Financial Statements.
| | |
|
| Union Carbide Corporation and Subsidiaries |
| Notes to the Consolidated Financial Statements |
Table of Contents
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NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Basis of Presentation
Except as otherwise indicated by the context, the terms "Corporation" and "UCC" as used herein mean Union Carbide Corporation and its consolidated subsidiaries. The accompanying consolidated financial statements of the Corporation were prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") and include the assets, liabilities, revenues and expenses of all majority-owned subsidiaries over which the Corporation exercises control and, when applicable, entities for which the Corporation has a controlling financial interest. Intercompany transactions and balances are eliminated in consolidation. Investments in nonconsolidated affiliates (20-50 percent owned companies, joint ventures and partnerships) are accounted for using the equity method.
The Corporation is a wholly owned subsidiary of The Dow Chemical Company ("Dow"TDCC"). In accordance with the accounting requirementsguidance for wholly owned subsidiaries,earnings per share, the presentation of earnings per share is not required and therefore is not provided.in financial statements of wholly owned subsidiaries.
TDCC conducts its worldwide operations through global businesses. The Corporation’s business activities comprise components of Dow’sTDCC’s global operationsbusinesses rather than stand-alone operations. Dow conducts its worldwide operations through principal product groups. Because there are no separableseparate reportable business segments for UCC under the accounting guidance related to segment reporting and no detailed business information is provided to a chief operating decision maker ("CODM") regarding the Corporation’s stand-alone operations, the Corporation’s results are reported as a single operating segment.
Effective August 31, 2017, pursuant toIntercompany transactions and balances are eliminated in consolidation. Transactions with the merger of equals transaction contemplated by the AgreementCorporation’s parent company, TDCC, and Plan of Merger, dated as of December 11, 2015, as amended on March 31, 2017, Dow and E. I. du Pont de Nemours and Company ("DuPont") each merged withother subsidiaries of DowDuPont Inc. ("DowDuPont") and,TDCC, have been reflected as a result, Dow and DuPont became subsidiaries of DowDuPont (the "Merger").related company transactions in the consolidated financial statements. See Note 317 for additional information.
Use of Estimates in Financial Statement Preparation
The preparation of financial statements in accordance with U.S. GAAP requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. The Corporation's consolidated financial statements include amounts that are based on management's best estimates and judgments. Actual results could differ from those estimates.
Related Companies
Transactions with the Corporation's parent company, Dow, and other subsidiaries of Dow and DowDuPont have been reflected as related company transactions in the consolidated financial statements.
Significant Accounting Policies
Asbestos-Related Matters
Accruals for asbestos-related matters, including defense and processing costs, are recorded based on an analysis of claim and resolution activity, defense spending and pending and future claims. These accruals are assessed at each balance sheet date to determine if the asbestos-related liability remains appropriate. Accruals for asbestos-related matters are included in the consolidated balance sheets in "Asbestos-related liabilities - current" and "Asbestos-related liabilities - noncurrent."
This accounting policy was added in the fourth quarter of 2016. See Note 1412 for additional information.
Legal Costs
The Corporation expenses legal costs as incurred, with the exception of defense and processing costs associated with asbestos-related matters.
Foreign Currency Translation
While the Corporation's consolidated subsidiaries are primarily based in the United States, the Corporation has small subsidiaries in Asia Pacific and the rest of the world. For those subsidiaries, the local currency has been primarily used as the functional currency. Translation gains and losses of those operations that use local currency as the functional currency are included in the consolidated balance sheets in "Accumulated other comprehensive loss" ("AOCL"). Where the U.S. dollar is used as the functional currency, foreign currency translation gains and losses are reflected in income.
Environmental Matters
Accruals for environmental matters are recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated based on current law and existing technologies. These accruals are adjusted periodically as assessment and remediation efforts progress or as additional technical or legal information becomes available. Accruals for environmental liabilities are included in the consolidated balance sheets in "Accrued and other current liabilities" and "Other noncurrent obligations" at undiscounted amounts. Accruals for related insurance or other third-party recoveries for environmental liabilities are recorded when it is probable that a recovery will be realized and are included in the consolidated balance sheets in "Accounts receivable - Other."
Environmental costs are capitalized if the costs extend the life of the property, increase its capacity, and/or mitigate or prevent contamination from future operations. Environmental costs are also capitalized in recognition of legal asset retirement obligations resulting from the acquisition, construction and/or normal operation of a long-lived asset. Costs related to environmental contamination treatment and cleanup are charged to expense. Estimated future incremental operations, maintenance and management costs directly related to remediation are accrued when such costs are probable and reasonably estimable.
Cash and Cash Equivalents
Cash and cash equivalents include time deposits and investments with maturities of three months or less at the time of purchase.
Financial Instruments
The Corporation calculates the fair value of financial instruments using quoted market prices when available. When quoted market prices are not available for financial instruments, the Corporation uses standard pricing models with market-based inputs that take into account the present value of estimated future cash flows.
Inventories
Inventories are stated at the lower of cost or net realizable value. The method of determining cost for each subsidiary varies among last-in, first-out ("LIFO"); first-in, first-out ("FIFO"); and average cost, and is used consistently from year to year.
The Corporation routinely exchanges and swaps raw materials and finished goods with other companies to reduce delivery time, freight and other transportation costs. These transactions are treated as non-monetary exchanges and are valued at cost.
Property
Land, buildings and equipment including property under capital lease agreements, are carried at cost less accumulated depreciation.depreciation or amortization. Property under finance lease agreements is carried at the present value of lease payments over the lease term less accumulated amortization. Depreciation is based on the estimated service lives of depreciable assets and is calculated using the straight-line method. Fully depreciated assets are retained in property and accumulated depreciation accounts until they are removed from service.disposed. In the case of disposals, assets and related accumulated depreciation are removed from the accounts, and the net amounts, less proceeds from disposal, are included in income.
Impairment and Disposal of Long-Lived Assets
The Corporation evaluates long-lived assets and certain identifiable(property, finite-lived intangible assets and lease right-of-use assets) for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. When undiscounted future cash flows are not expected to be sufficient to recover an asset's carrying amount, the asset is written down to its fair value based on bids received from third parties or a discounted cash flow analysis based on market participant assumptions.
Long-lived assets to be disposed of by sale, if material, are classified as held for sale and reported at the lower of carrying amount or fair value less cost to sell, and depreciationdepreciation/amortization is ceased. Long-lived assets to be disposed of other than by sale are classified as held and used until they are disposed of and reported at the lower of carrying amount or fair value, and depreciationdepreciation/amortization is recognized over the remaining useful life of the assets.
Other Intangible Assets
Finite-lived intangible assets, such as purchased customer lists, developed technology patents, trademarks and software, are amortized over their estimated useful lives, generally on a straight-line basis for periods ranging primarily from three3 to twenty20 years.
Investments in Related Companies
Investments in related companies consist of the Corporation's ownership interests in DowTDCC subsidiaries located in North Americathe United States and Latin America. The Corporation accounts for these investments using the cost method as it does not have significant influence over the operating and financial policies of these related companies.
Leases
UCC determines whether a contract contains a lease at contract inception. A contract contains a lease if there is an identified asset and the Corporation has the right to control the asset. Operating lease right-of-use (“ROU”) assets represent UCC’s right to use an underlying asset for the lease term, and lease liabilities represent UCC’s obligation to make lease payments arising from the lease. Operating lease ROU assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. UCC uses the incremental borrowing rate in determining the present value of lease payments, unless the implicit rate is readily determinable. If lease terms include options to extend or terminate the lease, the ROU asset and lease liability are measured based on the reasonably certain decision. Leases with a term of 12 months or less at the commencement date are not recognized on the balance sheet and are expensed as incurred.
UCC has lease agreements with lease and non-lease components, which are accounted for as a single lease component for nearly all classes of leased assets for which UCC is the lessee. Additionally, for certain equipment leases, the portfolio approach is applied to account for the operating lease ROU assets and lease liabilities. In the consolidated statements of income, lease expense for operating lease payments is recognized on a straight-line basis over the lease term. For finance leases, interest expense is recognized on the lease liability and the ROU asset is amortized over the lease term.
Some leasing arrangements require variable payments that are dependent upon usage or output, or may vary for other reasons, such as insurance or tax payments. Variable lease payments are recognized as incurred and are not presented as part of the ROU asset or lease liability. See Note 13 for additional information.
Revenue
Substantially all of the Corporation's revenues are generated by sales to Dow. Approximately 99 percent of the Corporation's sales are related to sales of product (99 percent in 2016 and 99 percent in 2015); the remaining 1 percent is related to the licensing of patents and technology (1 percent in 2016 and 1 percent in 2015).
TDCC. Revenue for product sales to related companies is recognized as risk and title to the product transfer towhen the related company obtains control of the product, which occurs either at the time that production is complete or shipped free on board ("FOB") from UCC's manufacturing facility, in accordance with the sales agreement between the Corporation and Dow.
RevenueTDCC. The Corporation recognizes revenue for product sales to trade customers is recognized as risk and titlewhen its customer obtains control of promised goods or services, in an amount that reflects the consideration which the Corporation expects to receive in exchange for those goods or services. To determine revenue recognition, the Corporation performs the following five steps: (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the product transfer to the customer, which for trade sales, usually occurs at the time shipment is made. As such, title to the product passes when the product is delivered to the freight carrier. UCC's standard terms of delivery are included in its contracts of sale, order confirmation documents and invoices. Freight costs and any directly related costs of transporting finished product to customers are recorded as "Cost of sales"performance obligations in the consolidated statements of income.contract, and (5) recognize revenue when (or as) the entity satisfies a performance obligation. See Note 3 for additional information.
Revenue related to the initial licensing of patents and technology is recognized when earned; revenue related to running royalties is recognized according to licensee production levels.
Severance Costs
Management routinely reviews its operations around the world in an effort to ensure competitiveness across its operations and geographic regions. When the reviews result in a workforce reduction related to the shutdown of facilities or other optimization activities, severance benefits are provided to employees primarily under ongoing benefit arrangements. These severance costs are accrued once management commits to a plan of termination and it becomes probable that employees will be entitled to benefits at amounts that can be reasonably estimated.
Integration and Separation Costs
The Corporation classifies expenses related to the Merger as integration and separation costs. Merger-related costs include: costs incurred to prepare for and close the Merger, post-Merger integration expenses and costs incurred to prepare for the separation of Dow’s agriculture business, specialty products business and materials science business.
This accounting policy was added in the third quarter of 2017 as a result of the Merger.
Income Taxes
The Corporation accounts for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences of temporary differences between the carrying amounts and tax bases of assets and liabilities using enacted tax rates. The effect of a change in tax rates on deferred tax assets or liabilities is recognized in income in the period that includes the enactment date. The Corporation is included in the same consolidated federal income tax group and consolidated income tax return as Dow.TDCC. The Corporation accounts for its income taxes following the formula in the Dow-UCCTDCC-UCC Tax Sharing Agreement used to compute the amount due to DowTDCC or UCC for UCC's share of taxable income and tax attributes on the consolidated income tax return. This method generally follows the separate return method. The amounts reported as income taxes payable or receivable represent the Corporation's payment obligation (or refundable amount) to DowTDCC based on a theoretical tax liability calculated on a separate return method.
The Corporation recognizes the financial statement effects of an uncertain income tax position when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. The Corporation accrues for non-income tax contingencies when it is probable that a liability to a taxing authority has been incurred and the amount of the contingency can be reasonably estimated.
Provision is made for taxes on undistributed earnings of foreign subsidiaries and related companies to the extent that such earnings are not deemed to be permanently invested.
Changes in Financial Statement Presentation
Consolidated Statements of Income
In the third quarter of 2017, the Corporation changed the presentation of certain line items on the face of the consolidated statements of income to conform to the presentation that was adopted for DowDuPont. Costs associated with integration and separation activities are now separately reported as "Integration and separation costs" and "Interest income" has been reclassified to "Sundry income (expense) - net." The following table summarizes the changes made to the consolidated statements of income for the years ended December 31, 2016 and 2015:
|
| | | | | | | | | | | | |
| Summary of Changes to the Consolidated Statements of Income | 2016 | 2015 |
| In millions | As Filed | Updated | As Filed | Updated |
| Sundry income (expense) - net | $ | 2 |
| $ | 16 |
| $ | (30 | ) | $ | (22 | ) |
| Interest income | $ | 14 |
| $ | — |
| $ | 8 |
| $ | — |
|
Consolidated Statements of Cash Flows
In the first quarter of 2017, the Corporation made a change to the consolidated statements of cash flows to include a new line under "Operating Activities" entitled "Asbestos-related payments." The new line captures cash payments made for asbestos-related claim and resolution activity as well as asbestos-related defense and processing costs (effective as of the fourth quarter of 2016 as a result of an accounting policy change).
In the third quarter of 2017, the Corporation changed the presentation to the consolidated statements of cash flows to conform to the presentation that was adopted for DowDuPont. "Net periodic pension benefit cost" is now separately reported and has been reclassified from "Other assets and liabilities." The following table summarizes the changes made to the consolidated statements of cash flows for the years ended December 31, 2016 and 2015:
|
| | | | | | | | | | | | |
| Summary of Changes to the Consolidated Statements of Cash Flows | 2016 | 2015 |
| In millions | As Filed | Updated | As Filed | Updated |
| Operating Activities | | | | |
| Net periodic pension benefit cost | $ | — |
| $ | 27 |
| $ | — |
| $ | 68 |
|
| Asbestos-related payments | $ | — |
| $ | (61 | ) | $ | — |
| $ | (76 | ) |
| Other assets and liabilities | $ | (491 | ) | $ | (457 | ) | $ | 561 |
| $ | 569 |
|
NOTE 2 - RECENT ACCOUNTING GUIDANCE
Recently Adopted Accounting Guidance
In 2023, the Corporation adopted the disclosure requirements of Accounting Standards Update ("ASU") 2022-04, "Liabilities — Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations," including early adoption of the requirement to disclose rollforward information on a prospective basis. The ASU, which is intended to enhance the transparency of supplier finance programs, requires buyers in a supplier finance program to disclose sufficient information about the program to allow a user of financial statements to understand the program’s nature, activity during the period, changes from period to period, and potential magnitude. See Note 5 for disclosures related to the Corporation's supplier finance program.
Accounting Guidance Issued But Not Adopted at December 31, 20172023
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09, "Revenue from Contracts with Customers (Topic 606)," which is the new comprehensive revenue recognition standard that will supersede all existing revenue recognition guidance under U.S. GAAP. The standard's core principle is that a company will recognize revenue when it transfers promised goods or services to a customer in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. ASU 2015-14, "Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date," which was issued in August 2015, revised the effective date for this ASU to annual and interim periods beginning on or after December 15, 2017, with early adoption permitted, but not earlier than the original effective date of annual and interim periods beginning on or after December 15, 2016, for public entities. Entities will have the option of using either a full retrospective approach or a modified approach to adopt the guidance in ASU 2014-09.
In May 2014, the FASB and International Accounting Standards Board formed The Joint Transition Resource Group for Revenue Recognition ("TRG"), consisting of financial statement preparers, auditors and users, to seek feedback on potential issues related to the implementation of the new revenue standard. As a result of feedback from the TRG, the FASB issued additional guidance to provide clarification, implementation guidance and practical expedients to address some of the challenges of implementation. In March 2016,November 2023, the FASB issued ASU 2016-08, "Revenue from Contracts with Customers2023-07, "Segment Reporting (Topic 606)280): Principal versus Agent Considerations (Reporting Revenue Gross versus Net),Improvements to Reportable Segment Disclosures," which is an amendment on assessing whether an entity is a principal or an agent in a revenue transaction. This amendment addresses issuesintended to clarify the principal versus agent assessment and leads to more consistent application. In April 2016, the FASB issued ASU 2016-10, "Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing," which contains amendments to the new revenue recognition standard on identifying performance obligations and accounting for licenses of intellectual property. The amendments related to identifying performance obligations clarify when a promised good or service is separately identifiable and allows entities to disregard items that are immaterial in the context of a contract. The licensing implementation amendments clarify how an entity should evaluate the nature of its promise in granting a license of intellectual property, which will determine whether revenue is recognized over time or at a point in time. In May 2016, the FASB issued ASU 2016-12, "Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients," which provides clarity and implementation guidance on assessing collectibility, presentation of sales taxes, noncash consideration, and completed contracts and contract modifications at transition. The new standards have the same effective date and transition requirements as ASU 2014-09.
The Corporation analyzed the impact of ASU 2014-09 and the related ASU's across all revenue streams to evaluate the impact of the new standard on revenue contracts. This included reviewing current accounting policies and practices to identify potential differences that would result from applying the requirements under the new standard. The Corporation has completed contract reviews and validated the results of applying the new revenue guidance. The Corporation has finalized its accounting policies, the evaluation of the impact of the accounting andimprove reportable segment disclosure requirements, on its business processes, controls and systems, and is currently drafting newprimarily through enhanced disclosures required post-implementation in 2018. The Corporation will adopt the new standard using the modified retrospective approach, under which the cumulative effect of initially applying the new guidance is recognized as an adjustment to the opening balance of retained earnings in the first quarter of 2018. Based on the completed analysis, the Corporation has determined the adjustment will not have a material impact on the consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)," which requires organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. The new guidance requires that a lessee recognize assets and liabilities for leases with lease terms of more than twelve months and recognition, presentation and measurement in the financial statements will depend on its classification as a finance or operating lease. In addition, the new
guidance will require disclosures to help investors and otherabout significant segment expenses, allowing financial statement users to better understand the amount, timing and uncertaintycomponents of a segment's profit or loss to assess potential future cash flows arising from leases. Lessor accounting remains largely unchanged from current U.S. GAAP but does contain some targeted improvements to align withfor each reportable segment and the new revenue recognition guidance issued in 2014.entity as a whole. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, usingamendments expand a modified retrospective approach, and early adoption is permitted. The Corporation has a team in place to evaluate the new guidance and is in the processpublic entity's segment disclosures by requiring disclosure of implementing a software solution to facilitate the development of business processes and controls around leasessignificant segment expenses that are regularly provided to the meet theCODM, clarifying when an entity may report one or more additional measures to assess segment performance, requiring enhanced interim disclosures, providing new accounting and
disclosure requirements upon adoption in the first quarter of 2019.
In October 2016, the FASB issued ASU 2016-16, "Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory," which requires an entity to recognize the income tax consequences of an intra-entity transfer of an assetfor entities with a single reportable segment, and requiring other than inventory when the transfer occurs.new disclosures. The amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years beginning after December 15, 2017,2024, and should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings at the beginning period of adoption. Earlyearly adoption is permitted inpermitted. Although the first interim periodASU only requires additional disclosures about the Corporation's operating segment, the Corporation is currently evaluating the impact of an annual reporting period for which financial statements have not been issued. The Corporation will adopt the new guidance in the first quarter of 2018 and the adoption ofadopting this guidance will not have a material impact on the consolidated financial statements.
In February 2017,December 2023, the FASB issued ASU 2017-05, "Other2023-09, "Income Taxes (Topic 740): Improvements to Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets,Tax Disclosures," which clarifiesis intended to enhance the scopetransparency, decision usefulness and effectiveness of guidance on nonfinancial asset derecognitionincome tax disclosures. The amendments in Accounting Standards Codification 610-20this ASU require a public entity to disclose a tabular tax rate reconciliation, using both percentages and currency, with specific categories. A public entity is also required to provide a qualitative description of the states and local jurisdictions that make up the majority of the effect of the state and local income tax category and the accounting for partial salesnet amount of nonfinancial assets.income taxes paid, disaggregated by federal, state and foreign taxes and also disaggregated by individual jurisdictions. The new guidanceamendments also conforms the derecognition guidance for nonfinancial assets with the model in the new revenue standard (ASU 2014-09).remove certain disclosures that are no longer considered cost beneficial. The new standard isamendments are effective prospectively for annual reporting periods and interim periods within those fiscal years, beginning after December 15, 2017,2024, and an entityearly adoption and retrospective application are permitted. Although the ASU only modifies the Corporation's required income tax disclosures, the Corporation is required to applycurrently evaluating the amendments at the same time that it applies the amendments in ASU 2014-09. The Corporation will apply the newimpact of adopting this guidance with the implementation of the new revenue standard in the first quarter of 2018 and the adoption of the guidance will not have a material impact on the consolidated financial statements.
In March 2017, the FASB issues ASU 2017-07, "Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost," which amends the requirements related to the income statement presentation of the components of net periodic benefit cost for employer sponsored defined benefit pension and other postretirement benefit plans. Under the new guidance, an entity must disaggregate and present the service cost component of the net periodic benefit cost in the same income statement line item(s) as other employee compensation costs arising from services rendered during the period, and only the service cost component will be eligible for capitalization. Other components of net periodic benefit cost will be presented separately from the line item(s) that includes the service cost. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted at the beginning of an annual period in which the financial statements have not been issued. Entities must use a retrospective transition method to adopt the requirement for separate presentation of the income statement service cost and other components, and a prospective transition method to adopt the requirement to limit the capitalization of benefit cost to the service component. The Corporation will adopt the new guidance in the first quarter of 2018 using a retrospective transition method to reclassify net periodic benefit cost, other than the service cost component, from "Cost of sales," "Research and development expenses" and "Selling, general and administrative expenses" to "Sundry income (expense) - net" in the consolidated statements of income.
NOTE 3 - MERGER WITH DUPONTREVENUE
Effective August 31, 2017, DowSubstantially all of the Corporation's revenue is generated by sales of products, primarily to TDCC. Products are sold to and DuPont completedpurchased from TDCC at prices determined in accordance with the previously announced mergerterms of equals transaction contemplated byan agreement between UCC and TDCC. The Corporation sells its products to TDCC to simplify the Agreementcustomer interface process.
Substantially all product sale contracts are short-term in nature and Planhave original expected durations of Merger, dated asone year or less. Revenue from product sales is recognized when TDCC or the trade customer obtains control of December 11, 2015, as amendedthe Corporation’s product, which occurs at a point in time, typically at the time production is complete or product is shipped FOB from UCC’s manufacturing facility for sales to TDCC, or upon shipment for sales to trade customers. The Corporation’s payment terms are on March 31, 2017 (the "Merger Agreement"), byaverage 30 to 60 days after invoicing. All shipping and among Dow, DuPont, DowDuPont, Diamond Merger Sub, Inc. and Orion Merger Sub, Inc. Pursuanthandling activities that occur after control transfers to the Merger Agreement, (i) Diamond Merger Sub, Inc. was merged with and into Dow, with Dow survivingcustomer are considered fulfillment activities. Certain long-term contracts include a series of distinct goods that are delivered continuously to the merger ascustomer through a subsidiarypipeline. For these types of DowDuPont (the "Diamond Merger") and (ii) Orion Merger Sub, Inc. was merged with and into DuPont, with DuPont survivingproduct sales, the merger as a subsidiary of DowDuPont (the "Orion Merger" and, togetherCorporation invoices the customer in an amount that directly corresponds with the Diamond Merger,value to the "Mergers"). Following the consummationcustomer of the Mergers, each of Dow and DuPont became subsidiaries of DowDuPont (collectively, the "Merger"). Following the Merger, Dow and DuPont intendCorporation’s performance to pursue, subject to approval by the board of directors of DowDuPont ("DowDuPont Board"), the separation of the combined company's agriculture business, specialty products business and materials science business through one or more tax-efficient transactions ("Intended Business Separations").
On August 31, 2017, following the Diamond Merger, Dow requested that the New York Stock Exchange ("NYSE") withdraw the shares of Dow Common Stock from listing on the NYSE and file a Form 25 with the U.S. Securities and Exchange Commission ("SEC") to report that the shares of Dow Common Stock are no longer listed on the NYSE. The shares of Dow Common Stock were suspended from trading on the NYSE prior to the open of trading on September 1, 2017.
On September 12, 2017, DowDuPont announced that the DowDuPont Board and management, with the assistance of independent advisors, completed their comprehensive review of the portfolio composition of the three intended independent companies. The DowDuPont Board unanimously concluded that, in light of knowledge gained since the announcement of the proposed merger of equals, certain targeted adjustments will be made between the materials science and specialty products businesses, which will enhance the competitive advantages of the intended resulting companies.date. As a result, of this change, itrevenue is expected that a portion of UCC's business will moverecognized based on the amount billable to the specialty products business as partcustomer in accordance with the right to invoice practical expedient.
The transaction price for product sales includes estimates for the most likely amount of consideration to which the Intended Business Separations,Corporation will be entitled based on historical award experience and the Corporation’s best judgment at the time. Taxes collected and remitted to governmental authorities are excluded from the transaction price. For contracts with multiple performance obligations, the Corporation does not expectallocates the Intended Business Separationstransaction price to have a material impacteach performance obligation on the Consolidated Financial Statements.basis of relative standalone selling price, which is based on the price charged to customers or estimated using the expected cost plus margin method.
NOTE 4 - DIVESTITURE
Divestiture of Methylmercapto Propionaldehyde Assets
On November 1, 2015, the Corporation completed the sale of its assetsRevenue related to the productioninitial licensing of methylmercapto propionaldehyde ("MMP") atpatents and technology is recognized when the St. Charles Operations siteperformance obligation is satisfied. Revenue related to sales-based royalties to which the Corporation expects to be entitled is estimated based on historical sales.
The Corporation’s contract liabilities include payments received in Taft, Louisianaadvance of performance under long-term contracts for product sales and royalties with remaining contract terms that range up to MMP SCO, LLC ("Novus"), a subsidiary of Novus International, Inc.,17 years. Amounts are recognized in revenue when the performance obligations for net proceeds of $31 million. Included in the divestiture was the Corporation's MMP manufacturing facility, as well as inventory.contract are met. The Corporation continueshas rights to operate and provide servicesadditional consideration when product is delivered to the MMP facility under separate agreements with Novus.customer. The net proceeds werebalance of contract liabilities was $31 million at December 31, 2023 ($33 million at December 31, 2022), of which $2 million ($2 million at December 31, 2022) was included in "Accrued and other current liabilities" and $29 million ($31 million at December 31, 2022) was included in "Other noncurrent obligations" in the consolidated balance sheetssheets.
The Corporation disaggregates its revenue from contracts with customers by type of customer (sales to related parties and sales to trade customers) as a deferred gain and will be amortized to "Sundry income (expense) - net" inpresented on the consolidated statements of income overand believes this disaggregation best depicts the 25-year termnature, amount, timing and uncertainty of its revenue and cash flows. Substantially all of the operating agreements. The transaction also included a 25-year acrolein supply agreement containing an upfront payment of $42.5 million which was reflected in "Accruedproduct sales are made to the Corporation's parent company, TDCC, and other current liabilities"there are no unique economic factors that affect revenue recognition and "Other noncurrent obligations" in the consolidated balance sheets and will be amortized to "Net trade sales" over the 25-year term of the agreement. Proceeds of $10 million for the sale of two related patents resulted in a pretax gain of $10 million and was included in "Sundry income (expense) - net" in the consolidated statements of income.cash flows associated with these product sales.
NOTE 54 - RESTRUCTURING AND ASSET RELATED CHARGES - NET
20172023 Restructuring and Asset Related ChargesProgram
In September 2017,the first quarter of 2023, the Corporation approvedinitiated restructuring actions that are aligned with DowDuPont's synergy targets.to achieve its structural cost improvement initiatives in response to the continued economic impact from the global recessionary environment and to enhance its agility and long-term competitiveness across the economic cycle. The program includes workforce cost reductions and actions to rationalize the Corporation's manufacturing assets, which includes asset write-down and write-off charges. As a result of these actions, the Corporation recorded a pretax restructuring charge for severance and related benefit costs of $8 million in the third quarter of 2017. In November 2017, the Corporation approved additional restructuring actions in connection with the restructuring program. A pretax restructuring charge for severance and related benefit costs of $2 million was recorded in the fourth quarter of 2017, as well as charges of $62$14 million, for the write-off and write-down of manufacturing and facility assets at multiple UCC sites, including a steam unitincluded in Institute, West Virginia. The impact of these charges was shown as "Restructuring and asset related charges - net" in the consolidated statements of income. The charges consisted of severance and related benefit costs of $12 million and asset write-downs and write-offs of $2 million. These actions are expected to be substantially completedcomplete by the end of 2019. At December 31, 2017, severance of $22024. The Corporation paid $10 million had been paid, leaving a liability of $8 million.
2016 Restructuring
On June 27, 2016, the Corporation approved actions to further improve cost effectiveness with additional workforce reductions. As a result of these actions, the Corporation recorded a pretax restructuring charge in the second quarter of 2016 consisting of severance and related benefit costs of $1 million for the separation of approximately 5 positions. In the fourth quarter of 2016, the Corporation recorded an additional charge of $2 million related to the separation of an additional 16 positions, and in the second quarter of 2017, an additional charge of $2 million was recorded to adjust the charge for severance and related benefit costs. The impact of these charges was shown as "Restructuring and asset related charges - net" in the consolidated statements of income. At December 31, 2017, the liability for severance and related benefit costs was zero, substantially completing the 2016 restructuring program.through December 31, 2023.
2015 Restructuring and Asset Related Charges
On April 29, 2015, the Corporation approved actions to improve the cost effectiveness of the Corporation's global operations and further streamline the organization. These actions affected approximately 16 positions and resulted in the shutdown ofAt December 31, 2023, a manufacturing facility that produced water soluble polymers in Institute, West Virginia, in the fourth quarter of 2015.
As a result of these actions, the Corporation recorded pretax restructuring charges of $18 million in the second quarter of 2015 consisting of costs associated with exit and disposal activities of $2 million,liability for severance and related benefit costs of $2 million and asset related charges of $14 million. In the fourth quarter of 2015, the Corporation recorded an additional charge of $1 million related to the separation of an additional 8 positions. At December 31, 2015, severance of $1 million had been paid, leaving a liability of $2 million for approximately 15 employees.
During the second quarter of 2016, the Corporation recorded an unfavorable adjustment to the 2015 restructuring charge related to additional accruals for exit and disposal activities of $1 million,was included in "Restructuring"Accrued and asset related charges - net"other current liabilities" in
the consolidated statements of income. In 2016, severance of $2 million was paid, substantially completing the 2015 restructuring activities, with any remaining liabilities for contract cancellation fees to be settled over time.balance sheets.
The Corporation expects to incur additional costs in the future related to restructuring activities, as UCC continually looks for ways to enhance the efficiency and cost effectiveness of its operations. Future costs are expected to include demolition costs related to the closed facilities; these will be recognized as incurred. The Corporation also expects to incur additional employee related costs, including involuntary termination benefits, related to its other optimization activities. These costs cannot be reasonably estimated at this time.
NOTE 65 - SUPPLEMENTARY INFORMATION
|
| | | | | | | | | |
| Sundry Income (Expense) - Net | | | |
| In millions | 2017 | 2016 | 2015 |
Dow administrative and overhead fees 1 | $ | (33 | ) | $ | (27 | ) | $ | (30 | ) |
Net commission expense - related company 1 | (22 | ) | (22 | ) | (22 | ) |
| Net gain (loss) on sales of property | 23 |
| 50 |
| (3 | ) |
| Interest income | 20 |
| 14 |
| 8 |
|
Net gain on sale of a nonconsolidated affiliate 2 | 4 |
| — |
| — |
|
| Net gain on ownership transfer of property | — |
| — |
| 23 |
|
Net gain on sale of patents 3 | — |
| — |
| 10 |
|
| Foreign exchange gain (loss) | — |
| 1 |
| (2 | ) |
| Other - net | (3 | ) | — |
| (6 | ) |
| Total sundry income (expense) - net | $ | (11 | ) | $ | 16 |
| $ | (22 | ) |
| |
1. | See Note 18 for additional information. |
| |
2. | See Note 10 for additional information. |
| |
3. | See Note 4 for additional information. |
| | | | | | | | | | | |
| Sundry Income (Expense) - Net | | | |
| In millions | 2023 | 2022 | 2021 |
General administrative and overhead type services and service fees 1 | $ | (72) | | $ | (65) | | $ | (63) | |
Net commission expense - related company 1 | (19) | | (19) | | (21) | |
Non-operating pension and other postretirement benefit plan net credits (costs) 2 | (144) | | 34 | | 32 | |
Gain on sale of ownership interest in related party 3 | 206 | | — | | — | |
| Net gain on sales of property | 1 | | 3 | | 6 | |
Equity in earnings of nonconsolidated affiliate 1 | 10 | | — | | — | |
| Other - net | (7) | | (6) | | (7) | |
| Total sundry income (expense) - net | $ | (25) | | $ | (53) | | $ | (53) | |
Accrued and Other Current Liabilities1.See Note 17 for additional information.
"Accrued2.The 2023 expense includes pretax pension settlement charges of $149 million related to the transfer of certain plan obligations to an insurance company. See Note 15 for additional information about the Corporation's pension and other current liabilities"postretirement benefit plans, including pension settlement charges.
3.The 2023 amount relates to the sale of a portion of the Corporation's ownership interest in Dow Technology Investments LLC. See Note 17 for additional information.
Supplier Finance Program
The Corporation is a party to a supply chain financing (“SCF”) program, facilitated by TDCC, which can be used in the ordinary course of business to extend payment terms with the Corporation's vendors. Under the terms of this program, a vendor can voluntarily enter into an agreement with a participating financial intermediary to sell its receivables due from the Corporation. The vendor receives payment from the financial intermediary, and the Corporation pays the financial intermediary on the terms originally negotiated with the vendor, which generally range from 90 to 120 days. The vendor negotiates the terms of the agreements directly with the financial intermediary and the Corporation is not a party to that agreement. The financial intermediary may allow the participating vendor to utilize TDCC's creditworthiness in establishing credit spreads and associated costs, which may provide the vendor with more favorable terms than they would be able to secure on their own. Neither TDCC nor the Corporation provide guarantees related to the SCF program. At December 31, 2023, the Corporation's outstanding obligations confirmed as valid under the SCF program were $27 million ($29 million at December 31, 2022), included in “Accounts payable – Trade” in the consolidated balance sheets were $174 million atsheets.
The following table summarizes the outstanding obligations confirmed as valid under the SCF program for the year ended December 31, 2017,2023:
| | | | | | |
| Supplier Finance Program Activity | | |
| In millions | 2023 | |
| Confirmed obligations outstanding at Jan 1 | $ | 29 | | |
| Invoices confirmed to financial intermediary | 102 | | |
| Confirmed invoices paid to financial intermediary | (104) | | |
| Confirmed obligations outstanding at Dec 31 | $ | 27 | | |
Supplemental Cash Flow Information
The following table shows cash paid (refunded) for interest and $181 million atincome taxes for the years ended December 31, 2016. The current portion of the Corporation's accrued obligations for environmental matters, which is a component of "Accrued2023, 2022 and other current liabilities," was $67 million at December 31, 2017, and $58 million at December 31, 2016 (see Note 14 for additional information). No other component of "Accrued and other current liabilities" was more than 5 percent of total current liabilities.2021:
| | | | | | | | | | | |
| Supplemental Cash Flow Information | 2023 | 2022 | 2021 |
| In millions |
| Cash paid (refunded) during year for: | | | |
| Interest | $ | 26 | | $ | 31 | | $ | 31 | |
| Income taxes | $ | 102 | | $ | 63 | | $ | (62) | |
NOTE 76 - INCOME TAXES
On December 22, 2017, the Tax Cuts and Jobs Act ("The Act") was enacted. The Act reduces the U.S. federal corporate income tax rate from 35 percent to 21 percent, requires companies to pay a one-time transition tax on earnings | | | | | | | | | | | |
| Geographic Allocation of Income and Provision for Income Taxes | | | |
| In millions | 2023 | 2022 | 2021 |
| Income (loss) before income taxes | | | |
| Domestic | $ | 455 | | $ | 767 | | $ | 531 | |
| Foreign | (1) | | (1) | | (2) | |
| Income before income taxes | $ | 454 | | $ | 766 | | $ | 529 | |
| Current tax expense (benefit) | | | |
| Federal | $ | 96 | | $ | 157 | | $ | (11) | |
| State and local | (6) | | 9 | | 5 | |
| Foreign | 1 | | 1 | | 20 | |
| Total current tax expense | $ | 91 | | $ | 167 | | $ | 14 | |
| Deferred tax expense (benefit) | | | |
| Federal | $ | (19) | | $ | (2) | | $ | 122 | |
| State and local | 1 | | 3 | | 23 | |
| Foreign | — | | 4 | | (5) | |
| Total deferred tax expense | $ | (18) | | $ | 5 | | $ | 140 | |
| Provision for income taxes | $ | 73 | | $ | 172 | | $ | 154 | |
| Net income | $ | 381 | | $ | 594 | | $ | 375 | |
Table of certain foreign subsidiaries that were previously deferred, creates new provisions related to foreign sourced earnings, eliminates the domestic manufacturing deduction and moves to a territorial system. At December 31, 2017, the Corporation had not completed its accounting for the tax effects of The Act; however, as described below, the Corporation made a reasonable estimate of the effects on its existing deferred tax balances and the one-time transition tax. In accordance with Staff Accounting Bulletin 118 (“SAB118”), income tax effects of The Act may be refined upon obtaining, preparing or analyzing additional information during the measurement period and such changes could be material. During the measurement period, provisional amounts may also be adjusted for the effects, if any, of interpretive guidance issued after December 31, 2017, by U.S. regulatory and standard-setting bodies.Contents | | | | | | | | | | | |
| Reconciliation to U.S. Statutory Rate | 2023 | 2022 | 2021 |
| Statutory U.S. federal income tax rate | 21.0 | % | 21.0 | % | 21.0 | % |
| | | |
| Unrecognized tax benefits and related interest | (2.7) | | (0.7) | | 3.0 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| State and local tax impact | (1.2) | | 1.7 | | 5.3 | |
| Other - net | (1.0) | | 0.5 | | (0.2) | |
| Effective Tax Rate | 16.1 | % | 22.5 | % | 29.1 | % |
As a result of The Act, the Corporation remeasured its U.S. federal deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21 percent. However, the Corporation is still analyzing certain aspects of The Act and refining its calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts. The provisional amount recorded
| | | | | | | | | | | | | | |
| Deferred Tax Balances at Dec 31 | 2023 | 2022 |
| In millions | Assets | Liabilities | Assets | Liabilities |
| Property | $ | — | | $ | 123 | | $ | — | | $ | 154 | |
| Tax loss and credit carryforwards | 11 | | — | | 26 | | — | |
| Postretirement benefit obligations | 92 | | — | | 72 | | — | |
| Other accruals and reserves | 270 | | — | | 293 | | 3 | |
| Inventory | 2 | | — | | 2 | | — | |
| Other - net | 16 | | — | | 18 | | — | |
| Subtotal | $ | 391 | | $ | 123 | | $ | 411 | | $ | 157 | |
Valuation allowances 1 | (11) | | — | | (15) | | — | |
| Total | $ | 380 | | $ | 123 | | $ | 396 | | $ | 157 | |
1.Primarily related to the remeasurementrealization of the Corporation’s deferredrecorded tax balance was $250 million, recorded as a charge to "Provision (Credit) for income taxes."
The Act requires a mandatory deemed repatriation of post-1986 undistributed foreign earnings and profits ("E&P"), which results in a one-time transition tax. As a result, the Corporation recorded an insignificant provisional amount for the transitionbenefits on state tax liability for its foreign subsidiaries. The Corporation has not yet completed its calculation of the total post-1986 foreign E&P for its foreign subsidiaries as E&P will not be finalized until the DowDuPont federal income tax
return is filed. Further, the transition tax is based in part on the amount of those earnings held in cash and other specified assets, which is a defined term under The Act.
For tax years beginning after December 31, 2017, The Act introduces new provisions for U.S. taxation of certain global intangible low-taxed income ("GILTI"). Due to its complexity and a current lack of guidance as to how to calculate the tax, the Corporation is not yet able to determine a reasonable estimate for the impact of the incremental tax liability. When additional guidance is available, the Corporation will make a policy election on whether the additional liability will be recordedloss carryforwards from operations in the period in which it is incurred or recognized for the basis differences that would be expected to reverse in future years.United States.
| | | | | | | | |
| Operating Loss and Tax Credit Carryforwards at Dec 31 | 2023 | 2022 |
| In millions | Assets | Assets |
| Operating loss carryforwards | | |
| Expire within 5 years | $ | 5 | | $ | 8 | |
| Expire after 5 years or indefinite expiration | 3 | | 12 | |
| Total operating loss carryforwards | $ | 8 | | $ | 20 | |
| Tax credit carryforwards | | |
| Expire within 5 years | $ | 2 | | $ | 5 | |
| Expire after 5 years or indefinite expiration | 1 | | 1 | |
| Total tax credit carryforwards | $ | 3 | | $ | 6 | |
| Total tax loss and tax credit carryforwards | $ | 11 | | $ | 26 | |
|
| | | | | | | | | |
| Geographic Allocation of Income and Provision (Credit) for Income Taxes | | | |
| In millions | 2017 | 2016 | 2015 |
| Income (Loss) Before Income Taxes | | | |
| Domestic | $ | 856 |
| $ | 49 |
| $ | 1,254 |
|
| Foreign | (6 | ) | 8 |
| (11 | ) |
| Income before income taxes | $ | 850 |
| $ | 57 |
| $ | 1,243 |
|
| Current tax expense (benefit) | | | |
| Federal | $ | 226 |
| $ | 265 |
| $ | 373 |
|
| State and local | 2 |
| (3 | ) | 2 |
|
| Foreign | 3 |
| 3 |
| 104 |
|
| Total current tax expense | $ | 231 |
| $ | 265 |
| $ | 479 |
|
| Deferred tax expense (benefit) | | | |
Federal 1 | $ | 392 |
| $ | (285 | ) | $ | (31 | ) |
| State and local | 22 |
| (12 | ) | (13 | ) |
| Total deferred tax expense (benefit) | $ | 414 |
| $ | (297 | ) | $ | (44 | ) |
| Provision (Credit) for income taxes | $ | 645 |
| $ | (32 | ) | $ | 435 |
|
| Net Income | $ | 205 |
| $ | 89 |
| $ | 808 |
|
| |
1. | 2017 includes the impact of The Act; 2016 includes the impact of the asbestos-related charge. |
|
| | | | | | |
| Reconciliation to U.S. Statutory Rate | 2017 | 2016 | 2015 |
| Statutory U.S. federal income tax rate | 35.0 | % | 35.0 | % | 35.0 | % |
| U.S. manufacturing deductions | — |
| (14.0 | ) | (0.6 | ) |
| Unrecognized tax benefits | (0.4 | ) | (45.6 | ) | 1.9 |
|
| Federal tax accrual adjustments | (1.1 | ) | (12.3 | ) | (0.6 | ) |
| Impact of U.S. tax reform | 29.4 |
| — |
| — |
|
| Deferred intercompany gain | 11.4 |
| — |
| — |
|
| State and local tax impact | 2.2 |
| (24.6 | ) | (0.9 | ) |
| Other - net | (0.6 | ) | 5.4 |
| 0.2 |
|
Effective Tax Rate 1 | 75.9 | % | (56.1 | )% | 35.0 | % |
| |
1. | The tax rate for 2017 was unfavorably impacted by The Act and the recognition of a deferred gain. The tax rate for 2016 was favorably impacted by the release of a reserve in excess of the settlement of an uncertain tax position and from the asbestos-related charge. The tax rate for 2015 was favorably impacted by changes in valuation allowances on state income tax attributes. A change in uncertain tax positions in the fourth quarter of 2015 unfavorably impacted the tax rate and resulted in an increase in "Deferred income tax assets" and "Other noncurrent obligations" in the consolidated balance sheets. |
A transaction for the sale of stock between the Corporation and Dow in 2014 created a gain that was initially deferred for tax purposes. This deferred gain became taxable as a result of activities executed in anticipation of the intended separation of DowDuPont into three publicly traded companies. As a result, in the third quarter of 2017, the Corporation increased “Income taxes payable” in the consolidated balance sheets and recorded a charge to "Provision (Credit) for income taxes" in the consolidated statements of income of $97 million.
|
| | | | | | | | | | | | |
| Deferred Tax Balances at Dec 31 | 2017 | 2016 |
| In millions | Assets | Liabilities | Assets | Liabilities |
| Property | $ | — |
| $ | 132 |
| $ | — |
| $ | 183 |
|
| Tax loss and credit carryforwards | 47 |
| — |
| 53 |
| — |
|
| Postretirement benefit obligations | 251 |
| — |
| 442 |
| — |
|
| Other accruals and reserves | 349 |
| 1 |
| 611 |
| — |
|
| Inventory | 8 |
| — |
| 14 |
| — |
|
| Other - net | 9 |
| 1 |
| 13 |
| 2 |
|
| Subtotal | $ | 664 |
| $ | 134 |
| $ | 1,133 |
| $ | 185 |
|
Valuation allowances 1 | (19 | ) | — |
| (20 | ) | — |
|
| Total | $ | 645 |
| $ | 134 |
| $ | 1,113 |
| $ | 185 |
|
| |
1. | Primarily related to the realization of recorded tax benefits on state tax loss carryforwards from operations in the United States. |
|
| | | | | | |
| Operating Loss and Tax Credit Carryforwards | 2017 | 2016 |
| In millions | Asset | Asset |
| Operating loss carryforwards | | |
| Expire within 5 years | $ | 29 |
| $ | 31 |
|
| Expire after 5 years or indefinite expiration | 12 |
| 17 |
|
| Total operating loss carryforwards | $ | 41 |
| $ | 48 |
|
| Tax credit carryforwards | | |
| Expire within 5 years | $ | 1 |
| $ | 1 |
|
| Expire after 5 years or indefinite expiration | 5 |
| 4 |
|
| Total tax credit carryforwards | $ | 6 |
| $ | 5 |
|
Undistributed earnings of foreign subsidiaries and related companies that are deemed to be permanently invested amounted to $9 millionwere zero at December 31, 20172023 and $36 million at December 31, 2016. The2022. Accordingly, there are no unrecognized deferred tax liability on those earnings is not material.liabilities related to such earnings.
The following table provides a reconciliation of the Corporation's unrecognized tax benefits:
|
| | | | | | | | | |
| Total Gross Unrecognized Tax Benefits | | | |
| In millions | 2017 | 2016 | 2015 |
| Total unrecognized tax benefits at Jan 1 | $ | 1 |
| $ | 68 |
| $ | 1 |
|
| Increases related to positions taken on items from prior years | — |
| 139 |
| 67 |
|
| Settlement of uncertain tax positions with tax authorities | — |
| (206 | ) | — |
|
| Total unrecognized tax benefits at Dec 31 | $ | 1 |
| $ | 1 |
| $ | 68 |
|
| Total unrecognized tax benefits that, if recognized, would impact the effective tax rate | $ | 1 |
| $ | 1 |
| $ | 1 |
|
| Total amount of interest and penalties (benefit) recognized in "Provision (Credit) for income taxes" | $ | (6 | ) | $ | (36 | ) | $ | 37 |
|
| Total accrual for interest and penalties recognized in the consolidated balance sheets | $ | — |
| $ | — |
| $ | 38 |
|
In the fourth quarter of 2016, a settlement in the amount of $206 million was reached for a tax matter regarding a historical change in the legal ownership structure of a nonconsolidated affiliate. As a result of the settlement, the Corporation recorded a net decrease to uncertain tax positions of $67 million in "Other noncurrent obligations" in the consolidated balance sheets.
The Corporation is included in Dow'sTDCC's consolidated federal income tax group and consolidated tax return.group. Current and deferred tax expenses are calculated for the Corporation as a stand-alone group and are allocated to the group from the consolidated totals, consistent with the Dow-UCCTDCC-UCC Tax Sharing Agreement. UCCThe amounts reported as income taxes payable or receivable represent the Corporation's payment obligation (or refundable amount) to TDCC based on a theoretical tax liability calculated on a separate return method.
Under this method, in 2023, the U.S. Gulf Coast Infrastructure Assets transactions and sale of a portion of UCC's ownership interest in Dow Technology Investments LLC, as discussed in Note 17, resulted in the recognition of a $301 million tax payable, included in “Other noncurrent obligations” in the consolidated balance sheets.
The following table provides a reconciliation of the Corporation's unrecognized tax benefits:
| | | | | | | | | | | |
| Total Gross Unrecognized Tax Benefits | | | |
| In millions | 2023 | 2022 | 2021 |
| Total unrecognized tax benefits at Jan 1 | $ | 8 | | $ | 8 | | $ | 1 | |
| Decreases related to positions taken on items from prior years | — | | — | | (1) | |
| Increases related to positions taken on items from prior years | — | | — | | 8 | |
| | | |
| | | |
| | | |
| Total unrecognized tax benefits at Dec 31 | $ | 8 | | $ | 8 | | $ | 8 | |
| Total unrecognized tax benefits that, if recognized, would impact the effective tax rate | $ | 8 | | $ | 8 | | $ | 8 | |
| Total amount of interest and penalties (benefit) recognized in "Provision for income taxes" | $ | (12) | | $ | (10) | | $ | 11 | |
| Total accrual for interest and penalties recognized in the consolidated balance sheets | $ | 11 | | $ | 10 | | $ | 12 | |
| | | |
During 2021, the Corporation recorded an uncertain tax position related to a foreign jurisdiction.
The Corporation is currently under examination in a number of tax jurisdictions,
including the U.S. federal and various state jurisdictions. It is reasonably possible that these examinations may be resolved within twelve months. The impact onearliest open tax years are 2004 for state income taxes and 2007 for federal income taxes in the Corporation’s results of operations is not expected to be material.United States.
Tax years that remain subject to examination for the Corporation's major tax jurisdictions are shown below:
|
| |
Tax Years Subject to Examination by Major Tax Jurisdiction at Dec 31, 2017 | Earliest Open Year |
Jurisdiction |
United States: | |
Federal income tax | 2004 |
State and local income tax | 2004 |
Inherent uncertainties exist in estimates of tax contingencies due to changes in tax law, both legislated and concluded through the various jurisdictions' tax court systems. It is the opinion of the Corporation's management that the possibility is remote that costs in excess of those accrued will have a material impact on the Corporation's consolidated financial statements.
NOTE 87 - INVENTORIES
The following table provides a breakdown of inventories:
| | | | | | | | |
| Inventories at Dec 31 | | |
| In millions | 2023 | 2022 |
| Finished goods | $ | 189 | | $ | 218 | |
| Work in process | 30 | | 37 | |
| Raw materials | 60 | | 76 | |
| Supplies | 87 | | 87 | |
| Total | $ | 366 | | $ | 418 | |
| Adjustment of inventories to the LIFO basis | (139) | | (162) | |
| Total inventories | $ | 227 | | $ | 256 | |
|
| | | | | | |
| Inventories at Dec 31 | | |
| In millions | 2017 | 2016 |
| Finished goods | $ | 222 |
| $ | 186 |
|
| Work in process | 47 |
| 38 |
|
| Raw materials | 48 |
| 50 |
|
| Supplies | 73 |
| 87 |
|
| Total | $ | 390 |
| $ | 361 |
|
| Adjustment of inventories to a LIFO basis | (112 | ) | (54 | ) |
| Total inventories | $ | 278 |
| $ | 307 |
|
InventoriesInventories valued on athe LIFO basis, principally U.S. chemicals and plastics product inventories, represented 7060 percent of the total inventories at December 31, 2023 and 65 percent of the total inventories at December 31, 2017, and 68 percent2022.
A reduction of certain inventories resulted in the liquidation of some of the Corporation's LIFO inventory layers, which increased pretax income $2 million in 2017, had an immaterial impact on pretax income in 2016 and decreased pretax income $14 million in 2015.
NOTE 98 - PROPERTY
The following table provides a breakdown of property:
| | | | | | | | | | | |
| Property at Dec 31 | Estimated Useful Lives (Years) | | |
| In millions | 2023 | 2022 |
| Land and land improvements | 0-25 | $ | 68 | | $ | 186 | |
| Buildings | 5-50 | 259 | | 403 | |
| Machinery and equipment | 3-20 | 4,799 | | 5,993 | |
| Other property | 3-30 | 111 | | 383 | |
| Construction in progress | — | | 169 | | 139 | |
Total property 1 | | $ | 5,406 | | $ | 7,104 | |
|
| | | | | | | | |
Property at Dec 31 1 | Estimated Useful Lives (Years) | | |
| In millions | 2017 | 2016 |
| Land and land improvements | 0-25 |
| $ | 283 |
| $ | 274 |
|
| Buildings | 5-50 |
| 402 |
| 396 |
|
| Machinery and equipment | 3-20 |
| 6,049 |
| 5,872 |
|
| Other property | 3-30 |
| 325 |
| 272 |
|
| Construction in progress | — |
| 250 |
| 330 |
|
| Total property |
| $ | 7,309 |
| $ | 7,144 |
|
| |
1. | Updated to conform with the presentation adopted for Dow. |
1.In 2023, Total property decreased $1.8 billion due to the Corporation's contribution of certain assets to the TDCC Infrastructure Subsidiary. See Note 17 for additional information.
The following table provides information regarding depreciation expense and capitalized interest:
| | | | | | | | | | | |
| In millions | 2023 | 2022 | 2021 |
| Depreciation expense | $ | 146 | | $ | 165 | | $ | 167 | |
| Capitalized interest | $ | 8 | | $ | 5 | | $ | 5 | |
|
| | | | | | | | | |
| In millions | 2017 | 2016 | 2015 |
| Depreciation expense | $ | 176 |
| $ | 166 |
| $ | 160 |
|
| Capitalized interest | $ | 10 |
| $ | 13 |
| $ | 10 |
|
NOTE 10 - NONCONSOLIDATED AFFILIATE
The Corporation's investment in Asian Acetyls Co., Ltd. ("ASACCO"), a nonconsolidated affiliate accounted for by the equity method, was zero at December 31, 2017 and $14 million at December 31, 2016. Dividends received from ASACCO were zero in 2017, $1 million in 2016 and $2 million in 2015. Undistributed earnings of ASACCO included in retained earnings were zero at December 31, 2017 and $9 million at December 31, 2016. The nonconsolidated affiliate was a privately held company; therefore, a quoted market price was not available.
On March 16, 2017, UCC entered into a share sale and purchase agreement to sell its ownership interest in the nonconsolidated affiliate. ASACCO agreed to purchase all of the shares of registered common stock owned by UCC. On April 24, 2017, the sale was completed for $22 million. In the second quarter of 2017, the Corporation recorded a pretax gain of $4 million on the sale, included in "Sundry income (expense) - net" in the consolidated statements of income.
NOTE 119 - INVESTMENTS IN RELATED COMPANIES
The Corporation's ownership interests in related companies at December 31, 20172023 and 20162022 were as follows:
| | | | | | | | | | | | | | |
| Investments in Related Companies at Dec 31 | Ownership Interest | Investment Balance |
| In millions | 2023 | 2022 | 2023 | 2022 |
| Dow International Holdings Company | 5 | % | 5 | % | $ | 232 | | $ | 232 | |
| Dow Quimica Mexicana S.A. de C.V. | 14 | % | 14 | % | 5 | | 5 | |
| | | | |
| Total investments in related companies | | | $ | 237 | | $ | 237 | |
|
| | | | | | | | | | |
| Investments in Related Companies at Dec 31 | Ownership Interest | Investment Balance |
| In millions | 2017 | 2016 | 2017 | 2016 |
Dow International Holdings Company 1 | 12 | % | 15 | % | $ | 633 |
| $ | 633 |
|
Dow Quimica Argentina S.A. 2 | — | % | 23 | % | — |
| — |
|
| Dow Quimica Mexicana S.A. de C.V. | 15 | % | 15 | % | 5 |
| 5 |
|
| Other | — | % | — | % | 1 |
| 1 |
|
| Total Investments in Related Companies | | | $ | 639 |
| $ | 639 |
|
1. Ownership interest changed as a result2. UCC transferred its shares in Dow Quimica Argentina S.A. ("DQA") to PBB Polisur S.R.L. and Dow Investment Argentina S.A., subsidiaries of Dow, in exchange for $2 million in cash and was included in "Sundry income (expense) - net" in the consolidated statements of income. In 2013, UCC's investment in DQA was fully impaired.
NOTE 1210 - INTANGIBLE ASSETS
The following table provides information regarding the Corporation's intangible assets:
| | | | | | | | | | | | | | | | | | | | |
| Intangible Assets at Dec 31 | 2023 | 2022 |
| In millions | Gross Carrying Amount | Accum Amort | Net | Gross Carrying Amount | Accum Amort | Net |
| Intangible assets with finite lives: | | | | | | |
| Developed technology | $ | 33 | | $ | (33) | | $ | — | | $ | 33 | | $ | (33) | | $ | — | |
| | | | | | |
Software1 | 67 | | (60) | | 7 | | 76 | | (67) | | 9 | |
| Total intangible assets | $ | 100 | | $ | (93) | | $ | 7 | | $ | 109 | | $ | (100) | | $ | 9 | |
|
| | | | | | | | | | | | | | | | | | |
| Intangible Assets at Dec 31 | 2017 | 2016 |
| In millions | Gross Carrying Amount | Accum Amort | Net | Gross Carrying Amount | Accum Amort | Net |
| Intangible assets with finite lives: | | | | | | |
| Licenses and developed technology | $ | 33 |
| $ | (33 | ) | $ | — |
| $ | 33 |
| $ | (33 | ) | $ | — |
|
| Software | 74 |
| (49 | ) | 25 |
| 70 |
| (45 | ) | 25 |
|
| Total intangible assets | $ | 107 |
| $ | (82 | ) | $ | 25 |
| $ | 103 |
| $ | (78 | ) | $ | 25 |
|
The following table provides information regarding amortization expense:
| | | | | | | | | | | |
| Amortization Expense | | | |
| In millions | 2023 | 2022 | 2021 |
| Software, included in "Cost of sales" | $ | 3 | | $ | 5 | | $ | 6 | |
|
| | | | | | | | | |
| Amortization Expense | | | |
| In millions | 2017 | 2016 | 2015 |
Software 1 | $ | 5 |
| $ | 4 |
| $ | 2 |
|
1. Included in “Cost of sales” in the consolidated statements of income.
Total estimated amortization expense for the next five fiscal years, including amounts expected to be capitalized, is as follows:
| | | | | |
| Estimated Amortization Expense for Next Five Years |
| In millions |
| 2024 | $ | 2 | |
| 2025 | $ | 2 | |
| 2026 | $ | 1 | |
| 2027 | $ | 1 | |
| 2028 | $ | 1 | |
|
| | | |
| Estimated Amortization Expense for Next Five Years |
| In millions |
| 2018 | $ | 6 |
|
| 2019 | $ | 6 |
|
| 2020 | $ | 6 |
|
| 2021 | $ | 4 |
|
| 2022 | $ | 2 |
|
NOTE 1311 - NOTES PAYABLE AND LONG-TERM DEBT
| | | Notes Payable at Dec 31 | |
| In millions | 2017 | 2016 |
| In millions | |
| In millions | | 2023 | 2022 |
| Notes payable to related companies | $ | 28 |
| $ | 25 |
|
| Notes payable - other | |
| Total notes payable | |
| Year-end average interest rates | 2.56 | % | 2.07 | % | Year-end average interest rates | 1.06 | % | 1.02 | % |
| | | | | | | | | | | | | | | |
Long-Term Debt at Dec 31
| 2023 Average Rate | 2023 | 2022 Average Rate | 2022 | |
|
| In millions | |
| Promissory notes and debentures: | | | | | |
| Debentures due 2023 | — | % | $ | — | | 7.875 | % | $ | 129 | | |
| Debentures due 2025 | 6.79 | % | 12 | | 6.79 | % | 12 | | |
| Debentures due 2025 | 7.50 | % | 113 | | 7.50 | % | 113 | | |
| Debentures due 2096 | 7.75 | % | 135 | | 7.75 | % | 135 | | |
Finance lease obligations 1 | | 3 | | | 7 | | |
| Unamortized debt discount and issuance costs | | (3) | | | (2) | | |
| Long-term debt due within one year | | (1) | | | (132) | | |
| Total long-term debt | | $ | 259 | | | $ | 262 | | |
|
| | | | | | | | | | | |
| | Long-Term Debt at Dec 31
| 2017 Average Rate | 2017 | 2016 Average Rate | 2016 |
| |
| | In millions |
| | Promissory notes and debentures: | | | | |
| | Debentures due 2023 | 7.875 | % | $ | 175 |
| 7.875 | % | $ | 175 |
|
| | Debentures due 2025 | 6.79 | % | 12 |
| 6.79 | % | 12 |
|
| | Debentures due 2025 | 7.50 | % | 150 |
| 7.50 | % | 150 |
|
| | Debentures due 2096 | 7.75 | % | 135 |
| 7.75 | % | 135 |
|
| | Capital lease obligations | — |
| 8 |
| — |
| 9 |
|
| | Unamortized debt discount and issuance costs | — |
| (5 | ) | — |
| (5 | ) |
| | Long-term debt due within one year | — |
| (1 | ) | — |
| (1 | ) |
| | Total long-term debt | | $ | 474 |
| | $ | 475 |
|
| | | | | |
| Maturities of Long-Term Debt for Next Five Years at Dec 31, 2023 |
| In millions |
| 2024 | $ | 1 | |
| 2025 | $ | 126 | |
| 2026 | $ | 1 | |
| 2027 | $ | — | |
| 2028 | $ | — | |
|
| | | |
| Maturities of Long-Term Debt for Next Five Years at Dec 31, 2017 |
| In millions |
| 2018 | $ | 1 |
|
| 2019 | $ | 1 |
|
| 2020 | $ | 1 |
|
| 2021 | $ | 1 |
|
| 2022 | $ | 1 |
|
2023 Activity
In 2023, the Corporation repaid $129 million of long-term debt at maturity.
Letters of Credit
The Corporation utilizes letters of credit to support commitments made in the ordinary course of business. While the terms and amounts of letters of credit change, UCC generally has approximately $6 million of outstanding letters of credit at any given time.
Debt Covenants and Default Provisions
The Corporation's outstanding public debt has been issued under indentures which contain, among other provisions, covenants that the Corporation must comply with while the underlying notes are outstanding. Such covenants are typically based on the Corporation's size and financial position and include, subject to the exceptions and qualifications contained in the indentures, obligations not to (i) allow liens on principal U.S. manufacturing facilities, (ii) enter into sale and lease-back transactions with respect to principal U.S. manufacturing facilities, or (iii) merge into or consolidate with any other entity or sell or convey all or substantially all of its assets. Failure of the Corporation to comply with any of these covenants could, after the passage of any applicable grace period, result in a default under the applicable indenture which would allow the note holders to accelerate the due date of the outstanding principal and accrued interest on the subject notes.
NOTE 1412 - COMMITMENTS AND CONTINGENT LIABILITIESCONTINGENCIES
Environmental Matters
Accruals for environmental matters are recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated, based on current law and existing technologies.
At December 31, 2017,2023, the Corporation had accrued obligations of $114$194 million for probable environmental remediation and restoration costs ($183 million at December 31, 2022), including $19$37 million for the remediation of Superfund sites. These obligations were included in "Accrued and other current liabilities" and "Other noncurrent obligations" in the consolidated balance sheets.sites ($36 million at December 31, 2022). This is management's best estimate of the costs for remediation and restoration with respect to environmental matters for which the Corporation has accrued liabilities, although it is reasonably possible that the ultimate cost with respect to these particular matters could range up to approximately threetwo times that amount. Consequently, it is reasonably possible that environmental remediation and restoration costs in excess of amounts accrued could have a material impact on the Corporation's results of operations, financial condition and cash flows. It is the opinion of the Corporation's management, however, that the possibility is remote that costs in excess of the range disclosed will have a material impact on the Corporation's results of operations, financial condition and cash flows. Inherent uncertainties exist in these estimates primarily due to unknown environmental conditions, changing governmental regulations and legal standards regarding liability, and emerging remediation technologies for handling site remediation and restoration. At December 31, 2016,As new or additional information becomes available and/or certain spending trends become known, management will evaluate such information in determination of the Corporation had accrued obligationscurrent estimate of $145 million for probable environmental remediation and restoration costs, including $20 million for the remediation of Superfund sites. In the fourth quarter of 2016, the Corporation recorded an adjustment to the environmental accrual, primarily resulting from the culmination of negotiations with regulators and/or final stages of certain remediation projects. These charges were included in "Cost of sales" in the consolidated statements of income and were included in the total obligation of $145 million.liability.
The following table summarizes the activity in the Corporation's accrued obligations for environmental matters for the years ended December 31, 20172023 and 2016:2022:
| | | | | | | | |
| Accrued Liability for Environmental Matters | | |
| In millions | 2023 | 2022 |
| Balance at Jan 1 | $ | 183 | | $ | 148 | |
| Accrual adjustment | 49 | | 78 | |
| Payments against reserve | (37) | | (42) | |
| Foreign currency impact | (1) | | (1) | |
| Balance at Dec 31 | $ | 194 | | $ | 183 | |
|
| | | | | | |
| Accrued Liability for Environmental Matters | | |
| In millions | 2017 | 2016 |
| Balance at Jan 1 | $ | 145 |
| $ | 115 |
|
| Accrual adjustment | 36 |
| 115 |
|
| Payments against reserve | (68 | ) | (85 | ) |
| Foreign currency impact | 1 |
| — |
|
| Balance at Dec 31 | $ | 114 |
| $ | 145 |
|
The amounts charged to income on a pretax basis related to environmental remediation totaled $36$44 million in 2017, $1222023, $72 million in 20162022 and $58$47 million in 2015.2021. Capital expenditures for environmental protection were $9$47 million in 2017, $102023, $38 million in 20162022 and $14$8 million in 2015.2021.
Litigation
The Corporation is involved in a number of legal proceedings and claims with both private and governmental parties. These cover a wide range of matters, including, but not limited to: product liability; trade regulation; governmental regulatory proceedings; health, safety and environmental matters; employment; patents; contracts; taxes; and commercial disputes.
Asbestos-Related Matters
Introduction
Separately, theThe Corporation is and has been involved in a large number of asbestos-related suits filed primarily in state courts during the past four decades. These suits principally allege personal injury resulting from exposure to asbestos-containing products and frequently seek both actual and punitive damages. The alleged claims primarily relate to products that UCC sold in the past, alleged exposure to asbestos-containing products located on UCC'sUCC’s premises and UCC'sUCC’s responsibility for asbestos suits filed against a former UCC subsidiary, Amchem Products, Inc. ("Amchem"). In many cases, plaintiffs are unable to demonstrate that they have suffered any compensable loss as a result of such exposure, or that injuries incurred in fact resulted from exposure to the Corporation'sCorporation’s products.
The Corporation expects more asbestos-related suits to be filed against UCC and Amchem in the future, and will aggressively defend or reasonably resolve, as appropriate, both pending and future claims.
Estimating the Liability for Asbestos-Related Pending and Future ClaimsLiability
Based on a study completed byThe Corporation has engaged Ankura Consulting Group, LLC ("Ankura") in January 2003,to perform periodic studies to estimate the Corporation increased its December 31, 2002, asbestos-related liability forundiscounted cost of disposing of pending and future claims foragainst UCC and Amchem through the terminal year of 2049, including a 15-year period ending in 2017 to $2.2 billion, excludingreasonable forecast of future defense and processing costs. Since then,Each October, the Corporation has compared current asbestos claim and resolution activity to the results of the most recent Ankura study at each balance sheet date to determine whether the accrual continues to be appropriate. In addition, the Corporation has requested Ankura to review the Corporation's historical asbestos claim and resolution activity each year since 2004 to determine the appropriateness of updating the most recent Ankura study.
In October 2016, the Corporation requestedrequests Ankura to review its historical asbestos claim and resolution activity through the third quarter of the current year, including asbestos-related defense and processing costs, to determine the appropriateness of updating its December 2014the most recent study. In response toAt each balance sheet date, the request, Ankura reviewed and analyzed asbestos-relatedCorporation also compares current asbestos claim and resolution dataactivity, including asbestos-related defense and processing costs, to the results of the most recent Ankura study to determine whether the accrual continues to be appropriate.
In December 2021, Ankura stated that an update of its December 2020 study would not provide a more likely estimate of future events than the estimate reflected in that study and, therefore, the estimate in that study remained applicable. Based on the Corporation's internal review process and Ankura's response, the Corporation determined that no change to the accrual was required.
In December 2022, Ankura completed a study of the Corporation's historical asbestos claim and resolution activity through September 30, 2016. The resulting study, completed by Ankura in December 2016,2022, including asbestos-related defense and processing costs, and provided estimates for the undiscounted cost of disposing of pending and future claims against UCC and Amchem excluding future defense and processing costs, for both a 15-year period and through the terminal year of 2049.
Based on the study completed in December 2016 by Ankura, and the Corporation's own review of the asbestos claim and resolution activity, it was determined that an adjustment to the accrual was necessary. The Corporation determined that using the estimate through the terminal year of 2049 was more appropriate due to increasing knowledge and data about the costs to resolve claims and diminished volatility in filing rates. Using the range in the Ankura December 2016 study, which was estimated to be between $502 million and $565 million for the undiscounted cost of disposing of pending and future claims, the Corporation increased its asbestos-related liability for pending and future claims through the terminal year of 2049 by $104 million, included in "Asbestos-related charge" in the consolidated statements of income. At December 31, 2016, the Corporation's asbestos-related liability for pending and future claims was $486 million, and approximately 14 percent of the recorded liability related to pending claims and approximately 86 percent related to future claims.
Estimating the Liability for Asbestos-Related Defense and Processing Costs
In September 2014, the Corporation began to implement a strategy designed to reduce and to ultimately stabilize and forecast defense costs associated with asbestos-related matters. The strategy included a number of important changes including: invoicing protocols including capturing costs by plaintiff; review of existing counsel roles, work processes and workflow; and utilization of enterprise legal management software, which enabled claim-specific tracking of asbestos-related defense and processing costs. The Corporation reviewed the information generated from this new strategy and determined that it now had the ability to reasonably estimate asbestos-related defense and processing costs for the same periods that it estimates its asbestos-related liability for pending and future claims. The Corporation believes that including estimates of the liability for asbestos-related defense and processing costs provides a more complete assessment and measure of the liability associated with resolving asbestos-related matters, which the Corporation believes is preferable in these circumstances.
In October 2016, in addition to the study for asbestos claim and resolution activity, the Corporation requested Ankura to review asbestos-related defense and processing costs and provide an estimate of a reasonable forecast of defense and processing costs associated with resolving pending and future asbestos-related claims facing UCC and Amchem for the same periods of time that the Corporation uses for estimating resolution costs. In December 2016, Ankura conducted the study and provided the Corporation with an estimate of future defense and processing costs for both a 15-year period and through the terminal year of 2049. The resulting study estimated asbestos-related defense and processing costs for pending and future asbestos claims to be between $1,009 million and $1,081 million through the terminal year of 2049.
In the fourth quarter of 2016, the Corporation elected to change its method of accounting for asbestos-related defense and processing costs from expensing as incurred to estimating and accruing a liability. This change is believed to be preferable as asbestos-related defense and processing costs represent expenditures related to legacy activities that do not contribute to current or future revenue generating activities of the Corporation. The change is also reflective of the manner in which the Corporation manages its asbestos-related exposure, including careful monitoring of the correlation between defense spending and resolution costs. Together, these two sources of cost more accurately represent the "total cost" of resolving asbestos-related claims now and in the future.
This accounting policy change was reflected as a change in accounting estimate effected by a change in accounting principle. As a result of this accounting policy change and basedBased on the December 2016 Ankura study of asbestos-related defense and processing costs and the Corporation's owninternal review of the data, a pretax charge for asbestos-related defense and processing costs of $1,009 millionprocess, it was recorded in the fourth quarter of 2016, included in "Asbestos-related charge" in the consolidated statements of income. The Corporation's total asbestos-related liability, including defense and processing costs, was $1,490 million at December 31, 2016, and was included in "Asbestos-related liabilities - current" and "Asbestos-related liabilities - noncurrent" in the consolidated balance sheets.
Asbestos-Related Liability at December 31, 2017
In October 2017, the Corporation requested Ankura to review its historical asbestos claim and resolution activity (including asbestos-related defense and processing costs) and determine the appropriateness of updating its December 2016 study. In response to that request, Ankura reviewed and analyzed data through September 30, 2017. In December 2017, Ankura stated that an update of its December 2016 study would not provide a more likely estimate of future events than the estimate reflected in the study and, therefore, the estimate in that study remained applicable. Based on the Corporation's own review of the asbestos claim and resolution activity (including asbestos-related defense and processing costs) and Ankura's response, the Corporation determined that no changeadjustment to the accrual was required. At December 31, 2017,2022, the asbestos-related liability for pending and future claims against UCC and Amchem, including future asbestos-related defense and processing costs, was $1,369$947 million and approximately 1623 percent of the recorded liability related to pending claims and approximately 8477 percent related to future claims.
Insurance Receivables
TheIn December 2023, Ankura stated that an update of its December 2022 study would not provide a more likely estimate of future events than the estimate reflected in that study and, therefore, the estimate in that study remained applicable. Based on the Corporation's internal review process and Ankura's response, the Corporation has receivables for insurance recoveries relateddetermined that no adjustment to its asbestos liability as well as receivables for defense and resolution costs submitted to insurance carriers that have a settlement agreement in place regarding their asbestos-related insurance coverage. The Corporation continues to believe that its recorded receivable for insurance recoveries from all insurance carriers is probable of collection.the accrual was required. At December 31, 2017,2023, the Corporation's receivableasbestos-related liability for insurance recoveriespending and future claims against UCC and Amchem, including future asbestos-related defense and processing costs, was $867 million, and approximately 25 percent of the recorded liability related to its asbestos liability was $37 million ($41 million at December 31, 2016).pending claims and approximately 75 percent related to future claims.
Summary
The Corporation's management believes the amounts recorded for the asbestos-related liability, (includingincluding defense and processing costs)costs, reflect reasonable and probable estimates of the liability based on current, known facts. However, future events, such as the number of new claims to be filed and/or received each year, and the average cost of defending and disposing of each such claim, as well as the numerous uncertainties surrounding asbestos litigation in the United States over a significant period of time, could cause the actual costs for the Corporation to be higher or lower than those projected or those recorded. Any such event could result in an increase or decrease in the recorded liability.
Because of the uncertainties described above, the Corporation cannot estimate the full range of the cost of resolving pending and future asbestos-related claims facing UCC and Amchem. As a result, it is reasonably possible that an additional cost of disposing of asbestos-related claims, including future defense and processing costs, could have a material impact on the Corporation's results of operations and cash flows for a particular period and on the consolidated financial position.
Other Litigation
The Corporation is also involved in a number of legal proceedings and claims with both private and governmental parties. These cover a wide range of matters, including, but not limited to: product liability; trade regulation; governmental tax and regulatory disputes; health, safety and environmental matters; employment matters; patent infringement; contracts; and commercial litigation. While it is not possible at this time to determine with certainty the ultimate outcome of any of the legal proceedings and claims referred to in this filing, management believes that the possibility is remote that the aggregate of all such other claims and lawsuits will have a material adverse impact on the results of operations, cash flows and financial position of the Corporation.
Purchase Commitments
The Corporation has outstanding purchase commitments and various commitments for take-or-pay or throughput agreements. The Corporation was not aware of any purchase commitments that were negotiated as part of a financing arrangement for the facilities that will provide the contracted goods or services or for the costs related to those goods or services at December 31, 20172023 and 2016.2022.
NOTE 13 - LEASES
Operating Leaseslease ROU assets are included in "Operating lease right-of-use assets" and finance lease ROU assets are included in "Net property" in the consolidated balance sheets. With respect to lease liabilities, operating lease liabilities are included in "Operating lease liabilities - current" and "Operating lease liabilities - noncurrent," and finance lease liabilities are included in "Long-term debt due within one year" and "Long-Term Debt" in the consolidated balance sheets.
The Corporation hasroutinely leases primarilyproduct and utility production facilities, sales and administrative offices, warehouses and tanks for facilitiesproduct storage, motor vehicles, railcars, office machines and distribution equipment. Some leases contain renewal provisions, purchase options and escalation clauses. The future minimum rental payments underterms for these leased assets vary depending on the lease agreement. These leased assets have remaining lease terms of up to 21 years. The Corporation's lease agreements do not contain any material residual value guarantees or restrictive covenants.
The components of lease cost for operating and finance leases with remaining noncancelable terms in excess of one year arefor the years ended December 31, 2023, 2022 and 2021 were as follows:
| | | | | | | | | | | | |
| Lease Cost | 2023 | 2022 | 2021 | |
| In millions | |
| Operating lease cost | $ | 25 | | $ | 25 | | $ | 23 | | |
| Short-term lease cost | 41 | | 31 | | 28 | | |
| Variable lease cost | 25 | | 19 | | 39 | | |
| | | | |
| Amortization of right-of-use assets - finance | 3 | | 3 | | 3 | | |
| | | | |
| Total lease cost | $ | 94 | | $ | 78 | | $ | 93 | | |
The following table provides supplemental cash flow and other information related to leases:
| | | | | | | | | | | |
| Other Lease Information | 2023 | 2022 | 2021 |
| In millions |
| Cash paid for amounts included in the measurement of lease liabilities: | | | |
| Operating cash flows for operating leases | $ | 24 | | $ | 25 | | $ | 23 | |
| Financing cash flows for finance leases | $ | 3 | | $ | 3 | | $ | 3 | |
| Right-of-use assets obtained in exchange for lease obligations: | | | |
| Operating leases | $ | 12 | | $ | 2 | | $ | 15 | |
| Finance leases | $ | 2 | | $ | 1 | | $ | 5 | |
|
| | | |
| Minimum Lease Commitments at Dec 31, 2017 |
| In millions |
| 2018 | $ | 5 |
|
| 2019 | 4 |
|
| 2020 | 3 |
|
| 2021 | 2 |
|
| 2022 | 1 |
|
| 2023 and thereafter | 6 |
|
| Total | $ | 21 |
|
Rental expenses under | | | | | | | | | | | | |
| Lease Position | Balance Sheet Classification | Dec 31, 2023 | Dec 31, 2022 | |
| In millions | |
| Assets | | | | |
| Operating lease assets | Operating lease right-of-use assets | $ | 85 | | $ | 107 | | |
| Finance lease assets | Property | 14 | | 20 | | |
| Finance lease amortization | Accumulated depreciation | (12) | | (13) | | |
| Total lease assets | | $ | 87 | | $ | 114 | | |
| Liabilities | | | | |
| Current | | | | |
| Operating | Operating lease liabilities - current | $ | 17 | | $ | 21 | | |
| Finance | Long-term debt due within one year | 1 | | 3 | | |
| Noncurrent | | | | |
| Operating | Operating lease liabilities - noncurrent | 68 | | 87 | | |
| Finance | Long-Term Debt | 2 | | 4 | | |
| Total lease liabilities | | $ | 88 | | $ | 115 | | |
The weighted-average remaining lease term and discount rate for leases were $32 millionrecorded in 2017, $28 million in 2016the consolidated balance sheets at December 31, 2023 and $29 million in 2015.2022 are provided below:
| | | | | | | | | |
| Lease Term and Discount Rate | Dec 31, 2023 | Dec 31, 2022 | |
| Weighted-average remaining lease term | | | |
| Operating leases | 6.7 years | 6.3 years | |
| Finance leases | 3.8 years | 2.5 years | |
| Weighted-average discount rate | | | |
| Operating leases | 3.42 | % | 3.43 | % | |
| Finance leases | 4.38 | % | 2.33 | % | |
The following table provides the maturities of lease liabilities at December 31, 2023:
| | | | | | | | |
| Maturities of Lease Liabilities | Dec 31, 2023 |
| In millions | Operating Leases | Finance Leases |
| 2024 | $ | 19 | | $ | 1 | |
| 2025 | 18 | | 1 | |
| 2026 | 17 | | 1 | |
| 2027 | 11 | | — | |
| 2028 | 10 | | — | |
| 2029 and thereafter | 20 | | — | |
| Total future undiscounted lease payments | $ | 95 | | $ | 3 | |
| Less: Imputed interest | 10 | | — | |
| Total present value of lease liabilities | $ | 85 | | $ | 3 | |
At December 31, 2023, the Corporation had no additional leases for assets that have not yet commenced.
NOTE 1514 - ACCUMULATED OTHER COMPREHENSIVE LOSS
The following table summarizes the changes and after-tax balances ofin each component of accumulated other comprehensive lossAOCL for the years ended December 31, 2017, 20162023, 2022 and 2015:
|
| | | | | | | | | |
| Accumulated Other Comprehensive Loss | Cumulative Translation Adj | Pension and Other Postretire Benefits | Accum Other Comp Loss |
| In millions |
| 2015 | | | |
| Balance at Jan 1, 2015 | $ | (63 | ) | $ | (1,180 | ) | $ | (1,243 | ) |
| Other comprehensive income (loss) before reclassifications | 2 |
| (34 | ) | (32 | ) |
| Amounts reclassified from accumulated other comprehensive income | — |
| 47 |
| 47 |
|
| Net other comprehensive income | 2 |
| 13 |
| 15 |
|
| Balance at Dec 31, 2015 | $ | (61 | ) | $ | (1,167 | ) | $ | (1,228 | ) |
| 2016 |
|
|
|
|
|
|
| Other comprehensive loss before reclassifications | (1 | ) | (133 | ) | (134 | ) |
| Amounts reclassified from accumulated other comprehensive income | — |
| 42 |
| 42 |
|
| Net other comprehensive loss | (1 | ) | (91 | ) | (92 | ) |
| Balance at Dec 31, 2016 | $ | (62 | ) | $ | (1,258 | ) | $ | (1,320 | ) |
| 2017 |
|
|
|
|
|
|
| Other comprehensive loss before reclassifications | — |
| (83 | ) | (83 | ) |
| Amounts reclassified from accumulated other comprehensive income | 3 |
| 48 |
| 51 |
|
| Net other comprehensive income (loss) | 3 |
| (35 | ) | (32 | ) |
| Balance at Dec 31, 2017 | $ | (59 | ) | $ | (1,293 | ) | $ | (1,352 | ) |
The tax effects on the net activity related to each component of accumulated other comprehensive income (loss) for the years ended December 31, 2017, 2016 and 20152021 were as follows:
| | | | | | | | | | | |
| Accumulated Other Comprehensive Loss | 2023 | 2022 | 2021 |
| In millions |
| Cumulative Translation Adjustment | | | |
| Beginning balance | $ | (54) | | $ | (53) | | $ | (55) | |
| Unrealized gains (losses) on foreign currency translation | 1 | | — | | 2 | |
| | | |
| | | |
(Gains) losses reclassified from AOCL to net income 1 | — | | (1) | | — | |
| Other comprehensive income (loss), net of tax | 1 | | (1) | | 2 | |
| Ending balance | $ | (53) | | $ | (54) | | $ | (53) | |
| Pension and Other Postretirement Benefits | | | |
| Beginning balance | $ | (1,348) | | $ | (1,498) | | $ | (1,715) | |
| Gains (losses) arising during the period | (116) | | 96 | | 180 | |
| Tax (expense) benefit | 25 | | (22) | | (43) | |
| Net gains (losses) arising during the period | (91) | | 74 | | 137 | |
Amortization of net loss and prior service credit reclassified from AOCL to net income 2 | 194 | | 98 | | 104 | |
Tax expense (benefit) 3 | (45) | | (22) | | (24) | |
| Net loss and prior service credit reclassified from AOCL to net income | 149 | | 76 | | 80 | |
| Other comprehensive income (loss), net of tax | 58 | | 150 | | 217 | |
| | | |
| Ending balance | $ | (1,290) | | $ | (1,348) | | $ | (1,498) | |
| Total AOCL ending balance | $ | (1,343) | | $ | (1,402) | | $ | (1,551) | |
|
| | | | | | | | | |
| Tax Benefit (Expense) | | | |
| In millions | 2017 | 2016 | 2015 |
| Pension and other postretirement benefit plans | $ | 3 |
| $ | (54 | ) | $ | 5 |
|
A summary2.These AOCL components are included in the computation of net periodic benefit cost (credit) of the reclassifications out of accumulatedCorporation's defined benefit pension and other comprehensive losspostretirement benefit plans. See Note 15 for the years ended December 31, 2017, 2016 and 2015 is provided as follows:additional information.
3.Reclassified to "Provision for income taxes."
|
| | | | | | | | | | |
| Reclassifications Out of Accumulated Other Comprehensive Loss | | | | Consolidated Statements of Income Classification |
| 2017 | 2016 | 2015 |
| In millions |
| Cumulative translation adjustments | $ | 3 |
| $ | — |
| $ | — |
| See (1) below |
| Pension and other postretirement benefit plans | 76 |
| 67 |
| 75 |
| See (2) below |
| Tax benefit | (28 | ) | (25 | ) | (28 | ) | See (3) below |
| After-tax | 48 |
| 42 |
| 47 |
| |
| Total reclassifications for the period, after-tax | $ | 51 |
| $ | 42 |
| $ | 47 |
| |
| |
1. | "Sundry income (expense) - net." |
| |
2. | Included in the computation of net periodic benefit cost of the Corporation's pension and other postretirement plans. See Note 16 for additional information. |
| |
3. | "Provision (Credit) for income taxes." |
NOTE 1615 - PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS
Pension Plans
The Corporation has aboth funded and unfunded defined benefit plans in the United States, which covered substantially all U.S. employees through December 31, 2023. On March 4, 2021, TDCC announced changes to the design of its U.S. tax-qualified and non-qualified pension plan that coversplans, including the plans of the Corporation (the “UCC Plans”). As a result, effective December 31, 2023, the Corporation froze the pensionable compensation and credited service amounts used to calculate pension benefits for substantially all employees who participated in the United States. Benefits are based on length ofUCC Plans, except for certain employees subject to collective bargaining agreements, and impacted employees will not accrue additional benefits for future service and compensation. In connection with the employee's three highest consecutive yearsplan amendments, the Corporation remeasured the UCC Plans effective February 28, 2021, which resulted in a pretax actuarial gain of compensation. Employees hired on or after January 1, 2008, earn$87 million, reflected in other comprehensive income and inclusive of a $14 million reduction in the projected benefit obligation resulting from the plan amendments, and a pretax curtailment gain of $7 million, recognized in the first quarter of 2021.
Separately, in the fourth quarter of 2023, certain of the Corporation’s tax-qualified pension plans purchased a nonparticipating group annuity contract from an insurance company, irrevocably transferring approximately $230 million of benefit obligations and $210 million of related plan assets to the insurers. This transaction did not require any cash funding from the Corporation and did not impact the pension benefits that are based onof participants. As a set percentageresult of annual pay, plus interest. Thethis transaction, the Corporation also hasrecognized a non-qualified supplemental pension plan.non-cash pretax settlement charge of $149 million in 2023, related to the accelerated recognition of a portion of the accumulated actuarial losses of the plan, recorded in “Sundry income (expense) – net” in the consolidated statements of income.
The Corporation's funding policy is to contribute to the plan when pension laws or economics either require or encourage funding. In 2017,2023, UCC contributed $162$2 million to its pension plans, including contributions to fund benefit payments for its non-qualified supplemental plan. UCC expects to contribute approximately $42$2 million to its pension plans in 2018.2024.
The weighted-average assumptions used to determine pension plan obligations and net periodic benefit costscost are provided below:
| | | | | | | | | | | | | | | | | |
| Pension Plan Assumptions | Benefit Obligations
at Dec 31 | Net Periodic Benefit Cost
for the Year Ended |
| 2023 | 2022 | 2023 | 2022 | 2021 |
| Discount rate | 5.25 | % | 5.60 | % | 5.72 | % | 2.94 | % | 2.86 | % |
| Interest crediting rate for applicable benefits | 4.50 | % | 4.50 | % | 4.50 | % | 4.50 | % | 4.50 | % |
| Rate of compensation increase | 4.25 | % | 4.25 | % | 4.25 | % | 4.25 | % | 4.25 | % |
| Expected return on plan assets | | | 6.80 | % | 6.80 | % | 6.80 | % |
|
| | | | | | | | | | |
| Pension Plan Assumptions | Benefit Obligations at Dec 31 | Net Periodic Costs for the Year Ended |
| | 2017 | 2016 | 2017 | 2016 | 2015 |
| Discount rate | 3.59 | % | 4.00 | % | 4.00 | % | 4.26 | % | 3.90 | % |
| Rate of compensation increase | 4.25 | % | 4.25 | % | 4.25 | % | 4.50 | % | 4.50 | % |
| Expected return on plan assets | — |
| — |
| 6.80 | % | 6.80 | % | 6.80 | % |
Other Postretirement BenefitsBenefit Plans
The Corporation provides certain health care and life insurance benefits to retired U.S. employees and survivors. The plan provides health care benefits, including hospital, physicians' services, drug and major medical expense coverage and life insurance benefits. The Corporation and the retiree share the cost of these benefits, with the Corporation portion increasing as the retiree has increased years of credited service, although there is a cap on the Corporation portion. The Corporation has the ability to change these benefits at any time. Employees hired after January 1, 2008, are not covered under this plan.
The Corporation funds most of the cost of these health care and life insurance benefits as incurred. In 2017,2023, UCC did not make any contributions to its other postretirement benefit plan trust. Likewise, UCC does not expect to contribute assets to its other postretirement benefit plan trust in 2018.2024.
The weighted-average assumptions used to determine other postretirement benefit plan obligations and net periodic benefit costscost for the plan are provided in the following table:
| | | | | | | | | | | | | | | | | |
| Other Postretirement Benefit Plan Assumptions | Benefit Obligations at Dec 31 | Net Periodic Benefit Cost for the Year Ended |
| 2023 | 2022 | 2023 | 2022 | 2021 |
| Discount rate | 5.20 | % | 5.56 | % | 5.56 | % | 2.84 | % | 2.34 | % |
| Health care cost trend rate assumed for next year | 6.50 | % | 6.57 | % | 6.57 | % | 6.50 | % | 6.75 | % |
| Rate to which the cost trend rate is assumed to decline (the ultimate health care cost trend rate) | 5.00 | % | 5.00 | % | 5.00 | % | 5.00 | % | 5.00 | % |
| Year that the rate reaches the ultimate health care cost trend rate | 2033 | 2033 | 2033 | 2028 | 2028 |
|
| | | | | | | | | | |
| Plan Assumptions for Other Postretirement Benefits | Benefit Obligations at Dec 31 | Net Periodic Costs for the Year Ended |
| | 2017 | 2016 | 2017 | 2016 | 2015 |
| Discount rate | 3.51 | % | 3.88 | % | 3.88 | % | 4.08 | % | 3.75 | % |
| Health care cost trend rate assumed for next year | 6.75 | % | 7.00 | % | 7.00 | % | 7.25 | % | 7.05 | % |
| Rate to which the cost trend rate is assumed to decline (the ultimate health care cost trend rate) | 5.00 | % | 5.00 | % | 5.00 | % | 5.00 | % | 5.00 | % |
| Year that the rate reaches the ultimate health care cost trend rate | 2025 |
| 2025 |
| 2025 |
| 2025 |
| 2020 |
|
Assumed health care cost trend rates have a modest effect on the amounts reported for the health care plan. A one percentage point change in assumed health care cost trend rates would have an immaterial impact on service and interest cost and the postretirement benefit obligation.
Assumptions
The Corporation determines the expected long-term rate of return on plan assets by performing a detailed analysis of key economic and market factors driving historical returns for each asset class and formulating a projected return based on factors in the current environment. Factors considered include, but are not limited to, inflation, real economic growth, interest rate yield, interest rate spreads, and other valuation measures and market metrics. The expected long-term rate of return for each asset class is then weighted based on the strategic asset allocation approved by the governing body for each plan. The Corporation's historical experience with the pension fund asset performance is also considered.
Effective January 1, 2016, theThe Corporation adopteduses the spot rate approach to determine the discount rate utilized to measure the service cost and interest cost components of net periodic pension and other postretirement benefit costs. Under the spot rate approach, the Corporation calculates service cost and interest cost by applying individual spot rates from the Willis Towers Watson U.S. RATE:Link 60-90 corporate yield curve (based on 60th to 90th percentile high-quality corporate bond yields) to the separate expected cash flow components of service cost and interest cost. Prior to 2016, the service and interest cost components were determined based on the single discount rate used to measure the benefit obligation. The Corporation changed to the new method to provide a more precise measure
The discount rates utilized to measure the pension and other postretirement obligations of the U.S. qualified plans were based on the yield on high-quality corporate fixed income investments at the measurement date. Future expected actuarially determined cash flows for the plans are individually discounted at the spot rates under the Willis Towers Watson U.S. RATE:Link 60-90 corporate yield curve (based on 60th to 90th percentile high-quality corporate bond yields) to arrive at the plan’s obligations as of the measurement date.
The Corporation utilizesCorporation's mortality assumption used for the U.S. plans is a benefit-weighted version of the Society of Actuaries’Actuaries' RP-2014 base table with future rates of mortality tables released in 2014 andimprovement based on a modified version of the generational mortality improvement scale releasedassumptions used in 2014 for purposes of measuring the U.S. pension and other postretirement obligations, based on an evaluation of the mortality experience of its pension plans.Social Security Administration's 2021 trustees report.
Summarized information on the Corporation's pension and other postretirement benefit plans is as follows:
| | | | | | | | | | | | | | |
| Change in Projected Benefit Obligations, Plan Assets and Funded Status for All Plans | Defined Benefit
Pension Plans | Other Postretirement Benefit Plan |
| In millions | 2023 | 2022 | 2023 | 2022 |
| Change in projected benefit obligations: | | | | |
| Benefit obligations at beginning of year | $ | 2,860 | | $ | 3,940 | | $ | 128 | | $ | 174 | |
| Service cost | 32 | | 37 | | — | | 1 | |
| Interest cost | 147 | | 91 | | 7 | | 3 | |
| | | | |
| Actuarial changes in assumptions and experience | 55 | | (826) | | 6 | | (48) | |
| Benefits paid | (246) | | (265) | | (8) | | (2) | |
Termination of benefits/settlement 1 | (211) | | — | | — | | — | |
Acquisition/divestiture/other 2 | (4) | | (117) | | — | | — | |
| Benefit obligations at end of year | $ | 2,633 | | $ | 2,860 | | $ | 133 | | $ | 128 | |
| | | | |
| Change in plan assets: | | | | |
| Fair value of plan assets at beginning of year | $ | 2,679 | | $ | 3,611 | | $ | — | | $ | — | |
| Actual return on plan assets | 146 | | (556) | | — | | — | |
| Employer contributions | 2 | | 3 | | — | | — | |
| Asset transfers | (5) | | (8) | | — | | — | |
| Benefits paid | (246) | | (265) | | — | | — | |
Settlement 3 | (211) | | — | | — | | — | |
Other 4 | 5 | | (106) | | — | | — | |
| Fair value of plan assets at end of year | $ | 2,370 | | $ | 2,679 | | $ | — | | $ | — | |
| | | | |
| Funded status at end of year | $ | (263) | | $ | (181) | | $ | (133) | | $ | (128) | |
| | | | | | | | | | | | | | |
| Net amounts recognized in the consolidated balance sheets at Dec 31: | | | | |
| Deferred charges and other assets | $ | 10 | | $ | — | | $ | — | | $ | — | |
| Accrued and other current liabilities | (2) | | (2) | | (12) | | (12) | |
| Pension and other postretirement benefits - noncurrent | (271) | | (179) | | (121) | | (116) | |
| Net amount recognized | $ | (263) | | $ | (181) | | $ | (133) | | $ | (128) | |
| | | | |
| Pretax amounts recognized in accumulated other comprehensive loss at Dec 31: | | | | |
| Net loss (gain) | $ | 1,752 | | $ | 1,852 | | $ | (102) | | $ | (124) | |
| | | | |
| | | | |
1.The 2023 impact primarily relates to the transfer of certain pension benefit obligations through the purchase of annuity contracts from an insurance company, triggering settlement accounting.
2.The 2022 impact primarily relates to the transfer of certain pension benefit obligations through the purchase of annuity contracts from an insurance company.
3.The 2023 impact primarily relates to the purchase of an annuity contract associated with the transfer of certain pension benefit obligations to an insurance company, triggering settlement accounting.
4.The 2022 impact primarily relates to the purchase of an annuity contract associated with the transfer of benefit obligations to an insurance company.
|
| | | | | | | | | | | | |
| Change in Projected Benefit Obligations, Plan Assets and Funded Status for all Plans | Defined Benefit Pension Plans | Other Postretirement Benefits |
| In millions | 2017 | 2016 | 2017 | 2016 |
| Change in projected benefit obligations: | | | | |
| Benefit obligation at beginning of year | $ | 4,025 |
| $ | 3,993 |
| $ | 264 |
| $ | 276 |
|
| Service cost | 38 |
| 39 |
| 1 |
| 1 |
|
| Interest cost | 129 |
| 131 |
| 8 |
| 8 |
|
| Actuarial changes in assumptions and experience | 241 |
| 155 |
| (23 | ) | 4 |
|
| Benefits paid | (281 | ) | (285 | ) | (26 | ) | (25 | ) |
| Other | (2 | ) | (8 | ) | — |
| — |
|
| Benefit obligation at end of year | $ | 4,150 |
| $ | 4,025 |
| $ | 224 |
| $ | 264 |
|
| | | | | |
| Change in plan assets: | | | | |
| Fair value of plan assets at beginning of year | $ | 3,097 |
| $ | 3,173 |
| $ | — |
| $ | — |
|
| Actual return on plan assets | 331 |
| 165 |
| — |
| — |
|
| Employer contributions | 162 |
| 52 |
| — |
| — |
|
| Asset transfers | (2 | ) | (8 | ) | — |
| — |
|
| Benefits paid | (281 | ) | (285 | ) | — |
| — |
|
| Fair value of plan assets at end of year | $ | 3,307 |
| $ | 3,097 |
| $ | — |
| $ | — |
|
| | | | | |
| Funded status at end of year | $ | (843 | ) | $ | (928 | ) | $ | (224 | ) | $ | (264 | ) |
|
| | | | | | | | | | | | |
| Net amounts recognized in the consolidated balance sheets at Dec 31: | | | | |
| Accrued and other current liabilities | $ | (2 | ) | $ | (2 | ) | $ | (15 | ) | $ | (24 | ) |
Pension and other postretirement benefits - noncurrent
| (841 | ) | (926 | ) | (209 | ) | (240 | ) |
| Net amount recognized | $ | (843 | ) | $ | (928 | ) | $ | (224 | ) | $ | (264 | ) |
| | | | | |
Pretax amounts recognized in accumulated other comprehensive (income) loss at Dec 31:
| | | | |
| Net loss (gain) | $ | 2,083 |
| $ | 2,035 |
| $ | (86 | ) | $ | (69 | ) |
| Prior service credit | (12 | ) | (13 | ) | — |
| — |
|
Pretax balance in accumulated other comprehensive (income) loss at end of year
| $ | 2,071 |
| $ | 2,022 |
| $ | (86 | ) | $ | (69 | ) |
The accumulated benefit obligation for all defined benefit pension plans was $4.1$2.6 billion at December 31, 20172023, and $4.0$2.9 billion at December 31, 2016.2022.
| | | | | | | | |
Pension Plans with Accumulated Benefit Obligations in Excess of Plan Assets at Dec 31 | | |
| In millions | 2023 | 2022 |
| Accumulated benefit obligations | $ | 2,593 | | $ | 2,859 | |
| Fair value of plan assets | $ | 2,320 | | $ | 2,679 | |
|
| | | | | | |
Pension Plans with Accumulated Benefit Obligations in Excess of Plan Assets at Dec 31 | | |
| In millions | 2017 | 2016 |
| Projected benefit obligations | $ | 4,150 |
| $ | 4,025 |
|
| Accumulated benefit obligations | $ | 4,120 |
| $ | 3,997 |
|
| Fair value of plan assets | $ | 3,307 |
| $ | 3,097 |
|
| | | | | | | | |
| Pension Plans with Projected Benefit Obligations in Excess of Plan Assets at Dec 31 | 2023 | 2022 |
| In millions |
| Projected benefit obligations | $ | 2,593 | | $ | 2,860 | |
| Fair value of plan assets | $ | 2,320 | | $ | 2,679 | |
|
| | | | | | |
| Pension Plans with Projected Benefit Obligations in Excess of Plan Assets at Dec 31 | 2017 | 2016 |
| In millions |
| Projected benefit obligations | $ | 4,150 |
| $ | 4,025 |
|
| Accumulated benefit obligations | $ | 4,120 |
| $ | 3,997 |
|
| Fair value of plan assets | $ | 3,307 |
| $ | 3,097 |
|
| | | | | | | | | | | | | | | | | | | | |
| Net Periodic Benefit Cost (Credit) for All Plans for the Year Ended Dec 31 | Defined Benefit Pension Plans | Other Postretirement Benefit Plan |
|
| In millions | 2023 | 2022 | 2021 | 2023 | 2022 | 2021 |
| Net Periodic Benefit Cost (Credit): | | | | | | |
| Service cost | $ | 32 | | $ | 37 | | $ | 26 | | $ | — | | $ | 1 | | $ | 1 | |
| Interest cost | 147 | | 91 | | 80 | | 7 | | 3 | | 3 | |
| Expected return on plan assets | (204) | | (226) | | (219) | | — | | — | | — | |
| Amortization of prior service credit | — | | (1) | | (1) | | — | | — | | — | |
| Amortization of net (gain) loss | 60 | | 108 | | 116 | | (15) | | (9) | | (4) | |
Curtailment and settlement (gain) loss 1 | 149 | | — | | (7) | | — | | — | | — | |
| Net periodic benefit cost (credit) | $ | 184 | | $ | 9 | | $ | (5) | | $ | (8) | | $ | (5) | | $ | — | |
| Changes in plan assets and benefit obligations recognized in other comprehensive (income) loss: | | | | | | |
| Net (gain) loss | $ | 109 | | $ | (47) | | $ | (144) | | $ | 7 | | $ | (49) | | $ | (36) | |
| | | | | | |
| Amortization of prior service credit | — | | 1 | | 1 | | — | | — | | — | |
| Amortization of net gain (loss) | (60) | | (108) | | (116) | | 15 | | 9 | | 4 | |
Curtailment and settlement gain (loss) 1 | (149) | | — | | 7 | | — | | — | | — | |
| Total recognized in other comprehensive (income) loss | $ | (100) | | $ | (154) | | $ | (252) | | $ | 22 | | $ | (40) | | $ | (32) | |
| Total recognized in net periodic benefit cost and other comprehensive (income) loss | $ | 84 | | $ | (145) | | $ | (257) | | $ | 14 | | $ | (45) | | $ | (32) | |
1.The 2023 impact relates to the settlement of certain pension benefit obligations through the purchase of a nonparticipating group annuity contract from an insurer. The 2021 impact relates to the freeze of pensionable compensation and credited service amounts for employees that participate in the UCC Plans.
|
| | | | | | | | | | | | | | | | | | | |
| | Net Periodic Benefit Cost for All Plans for the Year Ended Dec 31 | Defined Benefit Pension Plans | Other Postretirement Benefits |
| |
| | In millions | 2017 | 2016 | 2015 | 2017 | 2016 | 2015 |
| | Net Periodic Benefit Cost: | | | | | | |
| | Service cost | $ | 38 |
| $ | 39 |
| $ | 44 |
| $ | 1 |
| $ | 1 |
| $ | 1 |
|
| | Interest cost | 129 |
| 131 |
| 164 |
| 8 |
| 8 |
| 10 |
|
| | Expected return on plan assets | (221 | ) | (217 | ) | (226 | ) | — |
| — |
| — |
|
| | Amortization of prior service credit | (1 | ) | (1 | ) | (1 | ) | — |
| — |
| (1 | ) |
| | Amortization of net (gain) loss | 83 |
| 75 |
| 87 |
| (6 | ) | (7 | ) | (10 | ) |
| | Net periodic benefit cost | $ | 28 |
| $ | 27 |
| $ | 68 |
| $ | 3 |
| $ | 2 |
| $ | — |
|
| | Changes in plan assets and benefit obligations recognized in other comprehensive (income) loss: | | | | | | |
| | Net (gain) loss | $ | 131 |
| $ | 208 |
| $ | 34 |
| $ | (23 | ) | $ | 4 |
| $ | 19 |
|
| | Prior service cost | — |
| — |
| 4 |
| — |
| — |
| — |
|
| | Amortization of prior service credit | 1 |
| 1 |
| 1 |
| — |
| — |
| 1 |
|
| | Amortization of net gain (loss) | (83 | ) | (75 | ) | (87 | ) | 6 |
| 7 |
| 10 |
|
| | Total recognized in other comprehensive (income) loss | $ | 49 |
| $ | 134 |
| $ | (48 | ) | $ | (17 | ) | $ | 11 |
| $ | 30 |
|
| | Total recognized in net periodic benefit cost and other comprehensive (income) loss | $ | 77 |
| $ | 161 |
| $ | 20 |
| $ | (14 | ) | $ | 13 |
| $ | 30 |
|
The estimated pretax net (gain) loss and prior service credit for defined benefit pension plans and other postretirement benefit plans that will be amortized from accumulated other comprehensive loss into netNet periodic benefit cost during 2018 are summarized below:(credit), other than the service cost component, is included in "Sundry income (expense) - net" in the consolidated statements of income. See Note 5 for additional information.
|
| | | |
| Estimated Pretax Amortization of Net (Gain) Loss and Prior Service Credit for the Year Ended Dec 31 | 2018 |
| In millions |
| Defined Benefit Pension Plans: | |
| Net loss | $ | 95 |
|
| Prior service credit | $ | (1 | ) |
| Other Postretirement Benefit Plans: | |
| Net gain | $ | (9 | ) |
Estimated Future Benefit Payments
The estimated future benefit payments, reflecting expected future service, as appropriate, are presented in the following table:
| | | | | | | | |
| Estimated Future Benefit Payments at Dec 31, 2023 | Defined Benefit Pension Plans | Other Postretirement Benefit Plan |
| In millions |
| 2024 | $ | 238 | | $ | 13 | |
| 2025 | 213 | | 13 | |
| 2026 | 210 | | 13 | |
| 2027 | 207 | | 12 | |
| 2028 | 203 | | 12 | |
| 2029 through 2033 | 945 | | 51 | |
| Total | $ | 2,016 | | $ | 114 | |
|
| | | | | | |
| Estimated Future Benefit Payments at Dec 31, 2017 | Defined Benefit Pension Plans | Other Postretirement Benefits |
| In millions |
| 2018 | $ | 275 |
| $ | 16 |
|
| 2019 | 275 |
| 17 |
|
| 2020 | 274 |
| 17 |
|
| 2021 | 274 |
| 18 |
|
| 2022 | 272 |
| 19 |
|
| 2023-2027 | 1,307 |
| 79 |
|
| Total | $ | 2,677 |
| $ | 166 |
|
Plan Assets
Plan assets consist primarily of equity and fixed income securities of U.S. and foreign issuers, and include alternative investments, such as real estate, private equity and other absolute return strategies. Plan assets totaled $3.3$2.4 billion at December 31, 20172023 and $3.1$2.7 billion at December 31, 2016, of which2022 and included no DowDuPont or Dowdirectly held common stock was directly held.of Dow Inc.
The Corporation's investment strategy for the plan assets is to manage the assets in relation to the liability in order to pay retirement benefits to plan participants over the life of the plans. This is accomplished by identifying and managing the exposure to various market risks, diversifying investments across various asset classes and earning an acceptable long-term rate of return consistent with an acceptable amount of risk, while considering the liquidity needs of the plan.
The plan is permitted to use derivative instruments for investment purposes, as well as for hedging the underlying asset and liability exposures and rebalancing the asset allocation. The plan uses value-at-risk, stress testing, scenario analysis and Monte Carlo simulation to monitor and manage both assetthe risk inwithin the portfolios and the surplus risk.risk of the plan.
Equity securities primarily include investments in large- and small-cap companies located in both developed and emerging markets around the world. Fixed income securities are primarily U.S. dollar based and include U.S. treasuries and investment grade corporate bonds of companies diversified across industries. Alternative investments primarily include investments in real estate, private equity limited partnerships and absolute return strategies. Other significant investment types include various insurance contracts;contracts and interest rate, equity, commodity and foreign exchange derivative investments and hedges.
The Corporation mitigates the credit risk of investments by establishing guidelines with the investment managers that limit investment in any single issue or issuer to an amount that is not material to the portfolio being managed. These guidelines are monitored for compliance both by the Corporation and the external managers. Credit risk for hedgingrelated to derivative activity is mitigated by utilizing multiple counterparties, collateral support agreements, and centralized clearing where appropriate.
The Northern Trust Collective Government Short Term Investment A short-term investment money market fund is utilized as the sweep vehicle for the pension plan, which from time to time can represent a significant investment. Approximately 35 percent of the liability of the pension plan is covered by a participating group annuity issued by Prudential Insurance Company.
The weighted-average target allocation for plan assets of the Corporation's pension plansplan is summarized as follows:
|
| | | | |
Target Allocation for Plan Assets at Dec 31, 20172023 | Target Allocation |
| Asset Category |
| Equity securities | 23 | % |
| Fixed income securities | 45 | |
| Alternative investments | 27 | |
| Other | 5 | |
| Total | 100 | % |
Fair value calculations may not be indicative of net realizable value or reflective of future fair values. Furthermore, although the Corporation believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
For pension plan assets classified as Level 1 measurements (measured using quoted prices in active markets), the total fair value is either the price of the most recent trade at the time of the market close or the official close price, as defined by the exchange on which the asset is most actively traded on the last trading day of the period, multiplied by the number of units held without consideration of transaction costs.
For pension plan assets classified as Level 2 measurements, where the security is frequently traded in less active markets, fair value is based on the closing price at the end of the period; where the security is less frequently traded, fair value is based on the price a dealer would pay for the security or similar securities, adjusted for any terms specific to that asset or liability. Market inputs are obtained from well-established and recognized vendors of market data and subjected to tolerance and quality checks. For derivative assets and liabilities, standard industry models are used to calculate the fair value of the various financial instruments based on significant observable market inputs such as foreign exchange rates, commodity prices, swap rates, interest rates, and implied volatilities obtained from various market sources. For other assets for which observable inputs are used, fair value is derived through the use of fair value models, such as a discounted cash flow model or other standard pricing models.
For pension plan assets classified as Level 3 measurements, total fair value is based on significant unobservable inputs including assumptions where there is little, if any, market activity for the investment. Investment managers or fund managers provide valuations of the investment on a monthly or quarterly basis. These valuations are reviewed for reasonableness based on applicable sector, benchmark and company performance. Adjustments to valuations are made where appropriate. Where available, audited financial statements are obtained and reviewed for the investments as support for the manager's investment valuation. Some
Certain pension plan assets are held in funds where fair value is based on an estimated net asset value per share (or its equivalent) as of the most recently available fund financial statements which are received on a monthly or quarterly basis. These valuations are reviewed for reasonableness based on applicable sector, benchmark and adjusted forcompany performance. Adjustments to valuations are made where appropriate to arrive at an estimated earnings and investment activity.net asset value per share at the measurement date. These funds are not classified as Level 3 due to the significant unobservable inputs inherent inwithin the fair value measurement.hierarchy.
The following table summarizes the bases used to measure the Corporation’s pension plan assets at fair value for the years ended December 31, 20172023 and 2016:2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Basis of Fair Value Measurements | Dec 31, 2023 | Dec 31, 2022 |
| In millions | Total | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 |
| Cash and cash equivalents | $ | 203 | | $ | 188 | | $ | 15 | | $ | — | | $ | 224 | | $ | 172 | | $ | 52 | | $ | — | |
| Equity securities: | | | | | | | | |
| U.S. equity securities | $ | 239 | | $ | 238 | | $ | 1 | | $ | — | | $ | 288 | | $ | 288 | | $ | — | | $ | — | |
| Non - U.S. equity securities | 250 | | 238 | | 11 | | 1 | | 255 | | 244 | | 11 | | — | |
| Total equity securities | $ | 489 | | $ | 476 | | $ | 12 | | $ | 1 | | $ | 543 | | $ | 532 | | $ | 11 | | $ | — | |
| Fixed income securities: | | | | | | | | |
| Debt - government-issued | $ | 720 | | $ | — | | $ | 720 | | $ | — | | $ | 665 | | $ | 1 | | $ | 664 | | $ | — | |
| Debt - corporate-issued | 265 | | 1 | | 264 | | — | | 442 | | 1 | | 441 | | — | |
| Debt - asset-backed | 37 | | — | | 37 | | — | | 20 | | — | | 20 | | — | |
| Total fixed income securities | $ | 1,022 | | $ | 1 | | $ | 1,021 | | $ | — | | $ | 1,127 | | $ | 2 | | $ | 1,125 | | $ | — | |
| Alternative investments: | | | | | | | | |
| | | | | | | | |
| Private markets | $ | — | | $ | — | | $ | — | | $ | — | | $ | 2 | | $ | — | | $ | — | | $ | 2 | |
| | | | | | | | |
| Derivatives - asset position | 7 | | — | | 7 | | — | | 5 | | — | | 5 | | — | |
| Derivatives - liability position | (13) | | — | | (13) | | — | | (16) | | — | | (16) | | — | |
| Total alternative investments | $ | (6) | | $ | — | | $ | (6) | | $ | — | | $ | (9) | | $ | — | | $ | (11) | | $ | 2 | |
| Other investments | $ | 1 | | $ | 1 | | $ | — | | $ | — | | $ | 3 | | $ | 2 | | $ | 1 | | $ | — | |
| Subtotal | $ | 1,709 | | $ | 666 | | $ | 1,042 | | $ | 1 | | $ | 1,888 | | $ | 708 | | $ | 1,178 | | $ | 2 | |
| Investments measured at net asset value: | | | | | | | | |
| Hedge funds | $ | 125 | | | | | $ | 142 | | | | |
| Private markets | 344 | | | | | 411 | | | | |
| Real estate | 199 | | | | | 240 | | | | |
| Total investments measured at net asset value | $ | 668 | | | | | $ | 793 | | | | |
| Items to reconcile to fair value of plan assets: | | | | | | | | |
Pension trust receivables 1 | $ | 7 | | | | | $ | 4 | | | | |
Pension trust payables 2 | (14) | | | | | (6) | | | | |
| Total | $ | 2,370 | | | | | $ | 2,679 | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| Basis of Fair Value Measurements | Dec 31, 2017 | Dec 31, 2016 1 |
| In millions | Total | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 |
| Cash and cash equivalents | $ | 193 |
| $ | 153 |
| $ | 40 |
| $ | — |
| $ | 242 |
| $ | 237 |
| $ | 5 |
| $ | — |
|
| Equity securities: | | | | | | | | |
| U.S. equity securities | $ | 374 |
| $ | 357 |
| $ | 17 |
| $ | — |
| $ | 253 |
| $ | 236 |
| $ | 17 |
| $ | — |
|
| Non - U.S. equity securities | 472 |
| 404 |
| 61 |
| 7 |
| 294 |
| 234 |
| 54 |
| 6 |
|
| Total equity securities | $ | 846 |
| $ | 761 |
| $ | 78 |
| $ | 7 |
| $ | 547 |
| $ | 470 |
| $ | 71 |
| $ | 6 |
|
| Fixed income securities: | | | | | | | | |
| Debt - government-issued | $ | 873 |
| $ | — |
| $ | 873 |
| $ | — |
| $ | 893 |
| $ | — |
| $ | 893 |
| $ | — |
|
| Debt - corporate-issued | 515 |
| — |
| 515 |
| — |
| 512 |
| — |
| 512 |
| — |
|
| Debt - asset-backed | 24 |
| — |
| 24 |
| — |
| 33 |
| — |
| 33 |
| — |
|
| Total fixed income securities | $ | 1,412 |
| $ | — |
| $ | 1,412 |
| $ | — |
| $ | 1,438 |
| $ | — |
| $ | 1,438 |
| $ | — |
|
| Alternative investments: | | | | | | | | |
| Hedge funds | $ | 292 |
| $ | — |
| $ | 124 |
| $ | 168 |
| $ | 341 |
| $ | 21 |
| $ | 139 |
| $ | 181 |
|
| Private market securities | 237 |
| — |
| — |
| 237 |
| 214 |
| — |
| — |
| 214 |
|
| Real estate | 360 |
| — |
| — |
| 360 |
| 329 |
| — |
| — |
| 329 |
|
| Derivatives - asset position | 6 |
| — |
| 6 |
| — |
| 55 |
| — |
| 55 |
| — |
|
| Derivatives - liability position | (32 | ) | — |
| (32 | ) | — |
| (66 | ) | — |
| (66 | ) | — |
|
| Total alternative investments | $ | 863 |
| $ | — |
| $ | 98 |
| $ | 765 |
| $ | 873 |
| $ | 21 |
| $ | 128 |
| $ | 724 |
|
| Other investments | $ | (6 | ) | $ | — |
| $ | (6 | ) | $ | — |
| $ | 18 |
| $ | — |
| $ | (1 | ) | $ | 19 |
|
| Subtotal | $ | 3,308 |
| $ | 914 |
| $ | 1,622 |
| $ | 772 |
| $ | 3,118 |
| $ | 728 |
| $ | 1,641 |
| $ | 749 |
|
| Items to reconcile to fair value of plan assets: | | | | | | | | |
Pension trust receivables 2 | $ | 2 |
| |
| |
| |
| $ | 4 |
| |
| |
| |
|
Pension trust payables 3 | (3 | ) | |
| |
| |
| (25 | ) | | | |
| Total | $ | 3,307 |
| |
| |
| |
| $ | 3,097 |
| |
| |
| |
|
| |
1. | As a result of the DowDuPont merger, certain asset categories and classifications of prior period amounts have been revised to improve comparability with the presentation of Dow and DowDuPont, including the reclassification of cash and cash equivalents of $237 million, equity securities of $124 million and alternative investments of $21 million from Level 2 to Level 1. Further, pension trust receivables and pension trust payables previously presented with Level 2 investments are now separately presented. |
| |
2. | Primarily receivables for investment securities sold. |
| |
3. | Primarily payables for investment securities purchased. |
2.Primarily payables for investment securities purchased.
The following table summarizes the changes in fair value of Level 3 pension plan assets for the years ended December 31, 20172023 and 2016:2022:
| | | | | | | | | | | | | |
| Fair Value Measurement of Level 3 Pension Plan Assets | Equity Securities | | Alternative Investments | | Total |
| In millions |
| Balance at Jan 1, 2022 | $ | 1 | | | $ | 2 | | | $ | 3 | |
| Actual return on plan assets: | | | | | |
| Relating to assets held at Dec 31, 2022 | (1) | | | (2) | | | (3) | |
| | | | | |
| Purchases, sales and settlements | — | | | 2 | | | 2 | |
| | | | | |
| | | | | |
| Balance at Dec 31, 2022 | $ | — | | | $ | 2 | | | $ | 2 | |
| Actual return on plan assets: | | | | | |
| Relating to assets held at Dec 31, 2023 | 1 | | | (2) | | | (1) | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Balance at Dec 31, 2023 | $ | 1 | | | $ | — | | | $ | 1 | |
|
| | | | | | | | | | | | |
Fair Value Measurement of Level 3 Pension Plan Assets 1 | Equity Securities | Alternative Investments | Other Investments | Total |
| In millions |
| Balance at Jan 1, 2016 | $ | 5 |
| $ | 720 |
| $ | 22 |
| $ | 747 |
|
| Actual return on plan assets: |
|
|
|
|
|
| |
| Relating to assets held at Dec 31, 2016 | 1 |
| (37 | ) | 2 |
| (34 | ) |
| Relating to assets sold during 2016 | — |
| 39 |
| (8 | ) | 31 |
|
| Purchases, sales and settlements | — |
| 2 |
| 3 |
| 5 |
|
| Balance at Dec 31, 2016 | $ | 6 |
| $ | 724 |
| $ | 19 |
| $ | 749 |
|
| Actual return on plan assets: | | | | |
| Relating to assets held at Dec 31, 2017 | — |
| 4 |
| — |
| 4 |
|
| Relating to assets sold during 2017 | — |
| 25 |
| — |
| 25 |
|
| Purchases, sales and settlements | 1 |
| 12 |
| (19 | ) | (6 | ) |
| Balance at Dec 31, 2017 | $ | 7 |
| $ | 765 |
| $ | — |
| $ | 772 |
|
| |
1. | As a result of the DowDuPont merger, certain classifications of prior period amounts have been revised to improve comparability with the presentation of Dow and DowDuPont, including the reclassification of $77 million at December 31, 2016 ($51 million at December 31, 2015) of assets from fixed income securities to alternative investments. |
Defined Contribution Plans
In addition to the qualified defined benefit pension plan, U.S. employees may participate in defined contribution plans (Employee Savings Plans or 401(k) plans) by contributing a portion of their compensation, which is partially matched by the Corporation. Expense recognized for all defined contribution plans was $21$12 million in 2017, $172023, $12 million in 20162022 and $16$8 million in 2015.2021.
On March 4, 2021, TDCC announced changes to its U.S. tax-qualified and non-qualified defined contribution plans. Effective January 1, 2022, contributions to U.S. tax-qualified and non-qualified defined contribution plans were harmonized across the U.S. eligible employee population of TDCC and its consolidated subsidiaries, including the plans of the Corporation. The new matching contribution allows all eligible U.S. employees to receive matching contributions of up to 5 percent of their eligible compensation. In addition, beginning on January 1, 2024, all eligible U.S. employees will receive an automatic non-elective contribution of 4 percent of eligible compensation to their respective defined contribution plans.
NOTE 1716 - FAIR VALUE MEASUREMENTS
The Corporation's investments in marketable securities are classified as available-for-sale. Proceeds from sales of available-for-sale securities in 2017 were $2 million ($2 million in 2016 and $1 million in 2015).
Portfolio managers regularly review all of the Corporation's holdings to determine if any investments are other-than-temporarily impaired. The analysis includes reviewing the amount of the impairment, as well as the length of time it has been impaired. In addition, specific guidelines for each instrument type are followed to determine if an other-than-temporary impairment has occurred. At December 31, 2017 and 2016, there were no impairment indicators or circumstances that would result in a material adjustment of these investments.
The Corporation's financial instruments are classified as Level 2 measurements. For assets and liabilities classified as Level 2 measurements, where the security is frequently traded in less active markets, fair value is based on the closing price at the end of the period; where the security is less frequently traded, fair value is based on the price a dealer would pay for the security or similar securities, adjusted for any terms specific to that asset or liability, or by using observable market data points of similar, more liquid securities to imply the price. Market inputs are obtained from well-established and recognized vendors of market data and subjected to tolerance/tolerance and quality checks.
Assets that are measured using significant other observable inputs are primarily valued by reference to quoted prices of similar assets in active markets, adjusted for any terms specific to that asset. For all other assets for which observable inputs are used, fair value is derived through the use of fair value models, such as a discounted cash flow model or other standard pricing models. There were no transfers between Levels 1 and 2 in the years ended December 31, 20172023 and 2016.2022.
The following table summarizes the fair value of the Corporation's financial instruments at December 31, 20172023 and 2016:2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value of Financial Instruments | 2023 | 2022 |
| In millions | Cost | Gain | Loss | Fair Value | Cost | Gain | Loss | Fair Value |
Cash equivalents 1 | $ | 10 | | $ | — | | $ | — | | $ | 10 | | $ | 10 | | $ | — | | $ | — | | $ | 10 | |
| | | | | | | | |
| Long-term debt including debt due within one year | $ | (260) | | $ | — | | $ | (47) | | $ | (307) | | $ | (394) | | $ | — | | $ | (29) | | $ | (423) | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value of Financial Instruments | 2017 | 2016 |
| In millions | Cost | Gain | Loss | Fair Value | Cost | Gain | Loss | Fair Value |
| Cash equivalents | $ | 9 |
| $ | — |
| $ | — |
| $ | 9 |
| $ | 7 |
| $ | — |
| $ | — |
| $ | 7 |
|
Debt securities 1 | $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 2 |
| $ | — |
| $ | — |
| $ | 2 |
|
| Long-term debt including debt due within one year | $ | (475 | ) | $ | — |
| $ | (129 | ) | $ | (604 | ) | $ | (476 | ) | $ | — |
| $ | (95 | ) | $ | (571 | ) |
| |
1. | Marketable securities are included in “Other investments” in the consolidated balance sheets. |
Cost approximates fair value for all other financial instruments.
Fair Value Measurements on a Nonrecurring Basis
In 2023, as part of the 2023 Restructuring Program, the Corporation rationalized its manufacturing assets to achieve its structural cost improvement initiatives. The manufacturing assets associated with this plan, classified as Level 3 measurements and valued using unobservable inputs, were written down to zero and the Corporation recorded an impairment charge of $2 million, which was included in "Restructuring and asset related charges - net" in the consolidated statements of income.
NOTE 1817 - RELATED PARTY TRANSACTIONS
U.S. Gulf Coast Infrastructure Assets
As part of the Corporation's and TDCC's application of a best-owner mindset when reviewing non-product producing assets and to allow UCC and TDCC to have more visibility into the operations and economics of such assets, on November 1, 2023, UCC and certain other TDCC subsidiaries contributed certain production supporting infrastructure assets on the U.S. Gulf Coast (which are not product-producing assets themselves) to a TDCC
subsidiary that will manage the contributed assets ("TDCC Infrastructure Subsidiary") in exchange for a membership interest ("Common Control Membership Interest") in the TDCC Infrastructure Subsidiary. The carrying value of net assets contributed by UCC was $389 million. In connection with this contribution, TDCC and UCC entered into various agreements, designating UCC to receive or provide certain site services as defined under the agreements. Such agreements were designed to ensure the continuation of services to support UCC's existing operations. UCC recognized equity earnings of $10 million in the fourth quarter of 2023 related to this investment, recorded in "Sundry income (expense) - net" in the consolidated statements of income.
On December 1, 2023, UCC sold its Common Control Membership Interest to another TDCC subsidiary in exchange for a $1,543 million term loan receivable, recorded in "Noncurrent receivables from related companies" in the consolidated balance sheets. This loan bears interest based on alternative reference rates and matures on December 1, 2043. This transaction was accounted for as a transfer between entities under common control, which resulted in an increase to additional paid in capital of $893 million, net of tax of $251 million, and recorded in "Additional Paid-in Capital" in the consolidated statements of equity.
Sale of Ownership Interest in Dow Technology Investments LLC ("DTIL")
In December 2023, the Corporation sold a portion of its 50 percent ownership interest in DTIL, which has no carrying value, to its joint venture partner, Dow Global Technologies LLC, a TDCC subsidiary, thereby reducing UCC's ownership interest in DTIL to 0.5 percent. As part of this transaction, the Corporation received cash proceeds and recognized a pretax gain of $206 million, recorded in "Sundry income (expense) - net" in the consolidated statements of income.
The Corporation evaluated the divestment of the infrastructure assets on the U.S. Gulf Coast and the sale of a portion of its ownership interest in DTIL and determined they did not represent strategic shifts that had a major effect on the Corporation’s operations and financial results and did not qualify as an individually significant component of the Corporation. As a result, the transactions are not reported as discontinued operations.
Product and Services Agreements
The Corporation sells its products to DowTDCC to simplify the customer interface process. Products are sold to and purchased from DowTDCC at market-based prices determined in accordance with the terms of Dow’s intercompany pricing policies.an agreement between UCC and TDCC. After each quarter, the Corporation and DowTDCC analyze the pricing used for the sales in that quarter and reach agreement on any necessary adjustments, at which point the prices are final. The Corporation also procures certain commodities, and raw materials, pipeline, storage and site services through a Dow subsidiaryTDCC and the TDCC Infrastructure Subsidiary and pays a commission to that Dow subsidiarycommissions and service fees based on the services, volume and type of commodities and raw materials purchased. The commission expense was included in "Sundry income (expense) - net" in the consolidated statements of income. Purchases from that Dow subsidiary were approximately $1.7 billion in 2017, $1.4 billion in 2016 and $1.7 billion in 2015.
The Corporation also has a master services agreement with DowTDCC, whereby DowTDCC provides services including, but not limited to, accounting, legal,to: accounting; legal; treasury (investments, cash management, risk management, insurance), procurement,; procurement; human resources, environmental,resources; environmental; health and safety,safety; and business management for UCC. Under the master services agreement with Dow,TDCC, general administrative and overhead type services that DowTDCC routinely allocates to various businesses are charged to UCC. The master services agreement cost allocation basis is headcount and includes a 10 percent service fee. This agreement resulted
The following table summarizes UCC’s transactions with TDCC and a TDCC subsidiary related to product and services agreements for the years ended December 31, 2023, 2022 and 2021:
| | | | | | | | | | | | | | |
| Product and Services Agreements Transactions | 2023 | 2022 | 2021 | Income Statement |
| In millions | Classification |
Commodity and raw materials purchases 1 | $ | 1,078 | | $ | 1,909 | | $ | 1,915 | | Cost of sales |
| Commission expense | $ | 19 | | $ | 19 | | $ | 21 | | Sundry income (expense) - net |
| | | | |
General administrative and overhead type services and service fee 2 | $ | 72 | | $ | 65 | | $ | 63 | | Sundry income (expense) - net |
Activity-based costs 2 | $ | 158 | | $ | 89 | | $ | 74 | | Cost of sales |
1.Period-end balances on hand are included in expense of $33 millioninventory. The 2023 decrease in 2017, $27 millionpurchase costs was primarily due to lower feedstock and energy costs on lower production.
2.The 2023 increase was due to changes in 2016 and $30 million in 2015 for general administrative and overhead type servicescost flows and the 10 percent service fee, and was included in "Sundry income (expense) - net"cost of site infrastructure services resulting from UCC's divestment of certain non-product producing infrastructure assets to another TDCC subsidiary in the consolidated statementsfourth quarter of income. The remaining2023.
activity-based costs were approximately $78 million in 2017, $58 million in 2016 and $63 million in 2015 and were included in "Cost
Management believes the method used for determining expenses charged by DowTDCC is reasonable. DowTDCC provides these services by leveraging its centralized functional service centers to provide services at a cost that management believes provides an advantage to the Corporation.
The monitoring and execution of risk management policies related to interest rate and foreign currency risks, which are based on Dow’sTDCC’s risk management philosophy, are provided as a service to UCC.
The Corporation incurred asset losses and other costs and experienced lost sales and margins due to severe weather events that impacted the U.S. Gulf Coast in 2021. These costs and losses are covered, in part, by an insurance program purchased by TDCC from its insurance affiliate. In December 2021, the Corporation recorded an insurance recovery of $114 million from TDCC for the Corporation’s share of covered losses and incurred costs, included in "Cost of sales" in the consolidated statements of income. Proceeds from this insurance recovery were received in 2022.
Tax Sharing Agreement
In accordance with the Tax Sharing Agreement between the Corporation and TDCC, the Corporation makes payments to TDCC to cover the Corporation's estimated federal tax liability; payments were $113 million in 2023, $155 million in 2022 and $42 million in 2021.
Cash Management
As part of Dow’sTDCC’s cash management process, UCC is a party to a revolving loansloan with DowTDCC that havematures December 30, 2024 and has interest rates based on alternative reference rates, effective January 1, 2022, and based on LIBOR (London Interbank Offered Rate) with varying maturities.in prior periods. At December 31, 2017,2023, the Corporation had a note receivable of $1.2 billion$799 million ($1.4 billion958 million at December 31, 2016)2022) from DowTDCC under a revolving loanthis agreement. The Corporation may draw from this note receivable in support of its daily working capital requirements and, as such, the net effect of cash inflows and outflows under this revolving loan agreement is presented in the consolidated statements of cash flows as an operating activity.
The Corporation also has a separate revolving credit agreement with DowTDCC that allows the Corporation to borrow or obtain credit enhancements up to an aggregate of $1 billion that matures on December 30, 2018. Dowbillion. TDCC may demand repayment with a 30-day written notice to the Corporation, subject to certain restrictions. A related collateral agreement provides for the replacement of certain existing pledged assets, primarily equity interests in various subsidiaries and joint ventures, with cash collateral. At December 31, 2017, $9492023, $948 million ($947 million at December 31, 2016) was available under the revolving credit agreement.agreement ($942 million at December 31, 2022). The cash collateral was reported as "Noncurrent receivables from related companies" in the consolidated balance sheets.
Dividends and Other Equity Transactions
On a quarterly basis, the Corporation's Board of Directors ("Board") reviews and determines if there will be a dividend distribution to its parent company and sole shareholder, Dow.TDCC. The Board takes into consideration the level of earnings and cash flows, among other factors, in determining the amount of the dividend distribution. In 2017, the Corporation
The following table summarizes cash dividends declared and paid dividends totaling $603 million to Dow. In 2016,TDCC for the Corporation declaredyears ended 2023, 2022 and paid dividends totaling $500 million to Dow.2021:
In accordance with the Tax Sharing Agreement between the Corporation and Dow, the Corporation makes payments to Dow to cover the Corporation's estimated federal tax liability; payments were $294 million in 2017, $415 million in 2016 and $310 million in 2015. | | | | | | | | | | | |
| Cash Dividends Declared and Paid | 2023 | 2022 | 2021 |
| In millions |
| | | |
| Cash dividends declared and paid | $ | 512 | | $ | 1,063 | | $ | 288 | |
NOTE 1918 - BUSINESS AND GEOGRAPHIC REGIONS
DowTDCC conducts its worldwide operations through principal product groups, and the Corporation's business activities comprise components of Dow'sTDCC's principal product groups rather than stand-alone operations. The Corporation sells substantially all of its products to DowTDCC in order to simplify the customer interface process, at market-based prices determined in accordance with Dow's intercompany pricing policy.the terms of an agreement between UCC and TDCC. Because there are no separableseparate reportable business segments for the Corporation and no detailed business information is provided to a chief operating decision maker regarding the Corporation's stand-alone operations, the Corporation's results are reported as a single operating segment.
Sales are attributed to geographic regions based on customer location; long-lived assets are attributed to geographic regions based on asset location. Sales to external customers and long-lived assets by geographic region were as follows:
| | | | | | | | | | | | | | |
| Geographic Region Information | United States | Asia Pacific | Rest of World | Total |
| In millions |
| 2023 | | | | |
Sales to external customers 1 | $ | 117 | | $ | 30 | | $ | — | | $ | 147 | |
| Long-lived assets | $ | 862 | | $ | 21 | | $ | 11 | | $ | 894 | |
| 2022 | | | | |
Sales to external customers 1 | $ | 182 | | $ | 3 | | $ | 6 | | $ | 191 | |
| Long-lived assets | $ | 1,149 | | $ | 22 | | $ | 11 | | $ | 1,182 | |
| 2021 | | | | |
Sales to external customers 1 | $ | 139 | | $ | 4 | | $ | 11 | | $ | 154 | |
| Long-lived assets | $ | 1,169 | | $ | 24 | | $ | 15 | | $ | 1,208 | |
|
| | | | | | | | | | | | |
| Geographic Region Information | United States | Asia Pacific | Rest of World | Total |
| In millions |
| 2017 | | | | |
Sales to external customers 1 | $ | 110 |
| $ | 21 |
| $ | 12 |
| $ | 143 |
|
| Long-lived assets | $ | 1,341 |
| $ | 9 |
| $ | 29 |
| $ | 1,379 |
|
| 2016 | | | | |
Sales to external customers 1 | $ | 95 |
| $ | 3 |
| $ | 10 |
| $ | 108 |
|
| Long-lived assets | $ | 1,353 |
| $ | 10 |
| $ | 31 |
| $ | 1,394 |
|
| 2015 | | | | |
Sales to external customers 1 | $ | 70 |
| $ | 3 |
| $ | 14 |
| $ | 87 |
|
| Long-lived assets | $ | 1,259 |
| $ | 10 |
| $ | 32 |
| $ | 1,301 |
|
1.Of total sales to external customers, sales in Malaysia were approximately 1520 percent in 2017, 32023, 1 percent in 20162022 and 42 percent in 2015,2021, and are included in Asia Pacific.
| | |
| ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None.
| | |
| ITEM 9A. CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by the Annual Report on Form 10-K, the Corporation carried out an evaluation, under the supervision and with the participation of the Corporation's Disclosure Committee and the Corporation's management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Corporation's disclosure controls and procedures pursuant to Exchange Act Rule 15d - 15(b). Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Corporation's disclosure controls and procedures were effective.
Changes in Internal Control Over Financial Reporting
There were no changes in the Corporation's internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that was conducted during the last fiscal quarter ended December 31, 2023, that materially affected or were reasonably likely to materially affect the Corporation's internal control over financial reporting.
Management's Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting. The Corporation's internal control framework and processes are designed to provide reasonable assurance to management and the Board of Directors regarding the reliability of financial reporting and the preparation of the Corporation's consolidated financial statements in accordance with accounting principles generally accepted in the United States of America.
The Corporation's internal control over financial reporting includes those policies and procedures that:
•pertain to the maintenance of records, that in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Corporation;
•provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Corporation are being made only in accordance with authorizations of management and Directors of the Corporation; and
•provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Corporation's assets that could have a material effect on the consolidated financial statements.
Because of its inherent limitations, any system of internal control over financial reporting can provide only reasonable assurance and may not prevent or detect misstatements.
Management assessed the effectiveness of the Corporation's internal control over financial reporting and concluded that, as of December 31, 2017,2023, such internal control is effective. In making the assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control--Integrated Framework (2013).
The Corporation's internal control over financial reporting was not subject to attestation by the Corporation's independent registered public accounting firm, Deloitte & Touche LLP, pursuant to the rules of the Securities and Exchange Commission that permit the Corporation to provide only management's report. Therefore, this annual report does not include an attestation report regarding internal controls over financial reporting from Deloitte & Touche LLP.
February 15, 2018
| | |
| ITEM 9B. OTHER INFORMATION |
None.
| | |
| | |
/s/ RICHARD A. WELLS | | /s/ IGNACIO MOLINA |
Richard A. Wells
President and Chief Executive Officer
| | Ignacio Molina
Vice President, Treasurer and
Chief Financial Officer |
| | |
/s/ RONALD C. EDMONDS | | |
Ronald C. Edmonds, Controller and
Vice President of Controllers and Tax
The Dow Chemical Company
Authorized Representative of
Union Carbide Corporation
| | |
ITEM 9B. OTHER INFORMATION
None.
|
|
| Union Carbide Corporation and Subsidiaries |
| PART III |
| | |
| ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
Omitted pursuant to General Instruction I of Form 10-K.
| | |
| ITEM 11. EXECUTIVE COMPENSATION |
Omitted pursuant to General Instruction I of Form 10-K.
| | |
| ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
Omitted pursuant to General Instruction I of Form 10-K.
| | |
| ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
Omitted pursuant to General Instruction I of Form 10-K.
| | |
| ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES |
Prior to the closing of the DowDuPont transaction, theThe Dow Inc. Audit Committee pre-approved all auditing services and permitted non-audit services for 20172023 (including the fees and terms thereof) to be performed for Dow Inc. and its subsidiaries (including the Corporation) by its independent auditor, subject to the de minimus exception for non-audit services described in Section 10A(i)(1)(B) of the Securities Exchange Act, any such exceptions are approved by the Dow Audit Subcommittee of the DowDuPontInc. Audit Committee prior to the completion of the audit. The Corporation's management and its Board of Directors subscribe to these policies and procedures. For the years ended December 31, 20172023 and 2016,2022, professional services were performed for the Corporation by Deloitte & Touche LLP,, the member firms of Deloitte Touche Tohmatsu Limited, and their respective affiliates (collectively, the "Deloitte Entities").
Total fees paid for the Corporation to the Deloitte Entities were $1.5 million in 20172023 and $1.6 million in 2016.2022. These are the aggregate of fees billed for the audit of the Corporation's annual financial statements, the reviews of the financial statements in the Quarterly Reports on Form 10-Q, statutory audits and other regulatory filings.
| | |
|
| Union Carbide Corporation and Subsidiaries |
| PART IV |
| | |
| ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES |
(a) The following documents are filed as part of this report:
1. The Corporation's 20172023 Consolidated Financial Statements and the Report of Independent Registered Public Accounting Firm (PCAOB ID: 34) are included in Item 8 of this Annual Report on Form 10-K.
2. Financial Statement Schedules are omitted because of the absence of the conditions under which they are required or because the information called for is included in the Consolidated Financial Statements or Notes thereto.
The following exhibits are filed with or incorporated by reference into this Annual Report on Form 10-K:
| | | | | |
| |
| Exhibit No. | Description of Exhibit |
| 2.1 | |
| 2.2 | |
3.12.3* | |
| 3.1 | |
| 3.2 | |
| 4.1 | |
| 4.2 | The Corporation will furnish to the Commission upon request any other debt instrument referred to in Item 601(b)(4)(iii)(A) of Regulation S-K. |
| 10.1 | |
| 10.1.1 | |
| 10.1.2 | |
| 10.1.3 | |
| 10.1.4 | |
| | | | | |
| Exhibit No. | Description of Exhibit |
| 10.1.5 | |
| 10.2 | |
| 10.2.1 | |
| 10.2.2 | |
|
| |
Exhibit No. | Description of Exhibit |
| 10.3 | |
10.410.3.1* | |
| 10.4 | |
| 10.5 | |
| 10.5.1 | |
| 10.5.2 | |
| 10.5.3 | |
| 10.5.4 | |
| 10.5.5 | |
| 10.5.6 | |
| 10.5.7 | |
| | | | | |
| Exhibit No. | Description of Exhibit |
| 10.5.8 | |
| 10.5.9 | |
| 10.5.10 | |
| 10.5.11 | |
| 10.5.12 | |
| 10.5.13 | |
| 10.5.14 | |
|
| |
Exhibit No. | Description of Exhibit |
10.5.15*10.5.15 | |
10.610.5.16 | |
| 10.5.17 | |
| 10.5.18 | |
| 10.5.19 | |
| 10.5.20 | |
| 10.5.21 | |
| 10.5.22* | |
| | | | | |
| Exhibit No. | Description of Exhibit |
| 10.6 | |
| 10.7 | |
| 10.7.1 | |
| 10.7.2 | |
| 10.7.3 | |
| 10.7.4 | |
| 10.7.5 | |
| 10.7.6 | |
| 10.7.7 | |
10.910.7.8 | |
| 10.7.9 | |
| 10.7.10 | |
| 10.7.11* | |
| 10.9 | |
2110.10* | |
| 10.11* | |
| 10.12* | |
| | | | | |
| Exhibit No. | Description of Exhibit |
| 10.13* | |
| 21 | Omitted pursuant to General Instruction I of Form 10-K. |
| 23* | |
| 31.1* | |
| 31.2* | |
| 32.1* | |
| 32.2* | |
| 101.INS | The Instance Document does not appear in the Interactive Data File because its XBRL Instance Document.tags are embedded within the Inline XBRL document. |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document. |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
| 104 | Cover Page Interactive Data File. The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
* Filed herewith
The Corporation will provide a copy of any exhibit upon receipt of a written request for the particular exhibit or exhibits desired. All requests should be addressed to the Corporation's principal executive offices.
| | |
| ITEM 16. FORM 10-K SUMMARY |
Not applicable.
| | |
|
| Union Carbide Corporation and Subsidiaries |
| Trademark Listing |
The following trademarks or servicemarks of Union Carbide CorporationThe Dow Chemical Company or its subsidiariesan affiliated company of Dow appear in this report:
CARBOWAX, FLEXOMER, POLYOX,LP OXO, METEOR, REDI-LINK, SENTRY, SI-LINK, TERGITOL, TRITON, TUFLIN, UCAR, UCARTHERM, UCON, UNIGARD, UNIPURGE, UNIVAL
The following trademark of The Dow Chemical Company appears in this report: METEOR
The following registered service mark of The American Chemistry Council in the United States appears in this report: RESPONSIBLE CAREResponsible Care®
® ™Trademark ℠ ™ Trademark of The Dow Chemical Company (“Dow”("TDCC") or an affiliated company, of Dow
except as otherwise specified.
| | |
|
| Union Carbide Corporation and Subsidiaries |
| Signatures |
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrantregistrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, on the 15th day of February 2018.January 31, 2024.
| | |
|
| UNION CARBIDE CORPORATION |
|
|
| /s/ RONALD C. EDMONDS |
Ronald C. Edmonds, Controller and Vice President of Controllers and Tax
The Dow Chemical Company
(Authorized Representative of Union Carbide Corporation
Corporation) |
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below on the 15th day of February 2018January 31, 2024, by the following persons on behalf of the Registrantregistrant and in the capacities indicated:
| | | | | | | | |
| | |
/s/ RICHARD A. WELLS | | /s/ GLENN J. MORAN |
Richard A. Wells, Director, President and Chief Executive Officer | | Glenn J. Moran, Director |
| | |
/s/ IGNACIO MOLINA | | /s/ RONALD C. EDMONDS | | /s/ IGNACIO MOLINA |
Ignacio Molina, Director, Vice President, Treasurer and
Chief Financial Officer | | Ronald C. Edmonds, Controller and Vice President of Controllers and Tax
The Dow Chemical Company
(Authorized Representative of Union Carbide Corporation
Corporation) | | Ignacio Molina, Director, Vice President, Treasurer and Chief Financial Officer (Principal Financial Officer) |
| | |
| /s/ MARSHALL A. HEINBERG | | /s/ FERNANDO SIGNORINI |
| Marshall A. Heinberg, Director | | Fernando Signorini, Director, President and Chief Executive Officer (Principal Executive Officer) |
| | |
|
|
| Union Carbide Corporation and Subsidiaries |
Supplemental Information to be Furnished With Reports Filed Pursuant to Section 15(d) of the Act by Registrants Which Have Not Registered Securities Pursuant to Section 12 of the Act
The Corporation is a wholly owned subsidiary of The Dow Chemical Company ("Dow"TDCC"). Dow and E.I. du Pont de Nemours and Company ("DuPont") each merged with subsidiaries of DowDuPont, Inc. ("DowDuPont") on August 31, 2017, and, as a result, Dow and DuPont became subsidiaries of DowDuPont. The CorporationTDCC is a wholly owned subsidiary of Dow and, asInc. As such, the Corporation does not send an annual report to security holders or proxy material with respect to any annual or other meeting of security holders to TDCC, Dow DowDuPontInc. or any other security holders.