UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ☑QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period endedSEPTEMBER 30, 2017March 31, 2021
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 CORPORATIONUnion Carbide Corporation
(Exact name of registrant as specified in its charter)
|
| | | | | | | |
New York | | 13-1421730 |
(State or other jurisdiction of
incorporation or organization) | | 13-1421730
(I.R.S. Employer Identification No.) |
7501 STATE HIGHWAY 185 NORTH, SEADRIFT, TEXASTX 77983
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 361-553-2997
Securities registered pursuant to Section 12(b) of the Act: None
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.
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).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | |
Large accelerated filer | ☐ | | Accelerated filer | ☐ |
Non-accelerated filer | ☑ | | Smaller reporting company | ☐ |
| | |
Large accelerated filer o
| | Accelerated filer o
|
Non-accelerated filer þ
| (Do not check if a smaller reporting company) | Smaller reporting company o
|
| | 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act).
At September 30, 2017,March 31, 2021, 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 H(1)(a) and (b) for Form 10-Q and is therefore filing this form with a reduced disclosure format.
Union Carbide Corporation
QUARTERLY REPORT ON FORM 10-Q
For the quarterly period ended September 30, 2017March 31, 2021
TABLE OF CONTENTS
| | | | | | | | |
| | Page |
| | |
| | PAGE |
| | |
| |
| | |
Item 1. | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
Item 2. | | |
| | |
| | |
| | |
| | |
| | |
Item 3. | | |
| | |
Item 4. | | |
| | |
| |
| | |
Item 1. | | |
| | |
Item 1A. | | |
| | |
Item 4. | | |
| | |
Item 6. | | |
| | |
| |
| |
| |
|
| |
Union Carbide Corporation and Subsidiaries |
Throughout this Quarterly Report on Form 10-Q, 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: "Management's Discussionoften address expected future business and Analysis"financial performance, financial condition, and "Risk Factors." These forward-looking statements are generally identified by theother matters and often contain words or phrases "anticipate," "believe," "estimate," "expect," "future," "intend," "may," "opportunity," "outlook," "plan," "project," "should," "strategy," "will," "would," "willsuch as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “opportunity,” “outlook,” “plan,” “project,” “seek,” “should,” “strategy,” “target,” “will,” “will be," "will” “will continue," "will” “will likely result"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 often address expected future business and financial performance and financial condition, including, but not limited to: the continuing global and regional economic impacts of the coronavirus disease 2019 pandemic and other public health-related risks and events on the Corporation’s business; and 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.
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 titled "Risk Factors" (seein Part I, Item 1A of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 2016). UCC undertakes2020. 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 those risks or uncertainties develops into an actual event, it could have a material adverse effect on the Corporation’s business. The Corporation assumes 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.
| | |
PART I - FINANCIAL INFORMATION |
PART I - FINANCIAL INFORMATION
| | |
ITEM 1. FINANCIAL STATEMENTS |
Union Carbide Corporation and Subsidiaries
Consolidated Statements of Income
| | | Three Months Ended | Nine Months Ended | | Three Months Ended | |
In millions (Unaudited) | Sep 30, 2017 | Sep 30, 2016 | Sep 30, 2017 | Sep 30, 2016 | In millions (Unaudited) | Mar 31, 2021 | Mar 31, 2020 | |
Net trade sales | $ | 31 |
| $ | 27 |
| $ | 113 |
| $ | 77 |
| Net trade sales | $ | 34 | | $ | 29 | | |
Net sales to related companies | 1,184 |
| 1,221 |
| 3,722 |
| 3,644 |
| Net sales to related companies | 969 | | 1,013 | | |
Total Net Sales | 1,215 |
| 1,248 |
| 3,835 |
| 3,721 |
| |
Total net sales | | Total net sales | 1,003 | | 1,042 | | |
Cost of sales | 991 |
| 957 |
| 3,056 |
| 2,726 |
| Cost of sales | 1,037 | | 826 | | |
Research and development expenses | 4 |
| 5 |
| 14 |
| 14 |
| Research and development expenses | 6 | | 6 | | |
Selling, general and administrative expenses | 1 |
| 1 |
| 4 |
| 5 |
| Selling, general and administrative expenses | 3 | | 2 | | |
Restructuring and asset related charges - net | 8 |
| — |
| 10 |
| 2 |
| Restructuring and asset related charges - net | 0 | | 2 | | |
Integration and separation costs | 1 |
| — |
| 1 |
| — |
| |
Equity in earnings of nonconsolidated affiliate | — |
| — |
| — |
| 3 |
| |
| Sundry income (expense) - net | (8 | ) | (10 | ) | 6 |
| 20 |
| Sundry income (expense) - net | (15) | | (18) | | |
Interest income | | Interest income | 1 | | 7 | | |
Interest expense and amortization of debt discount | 6 |
| 7 |
| 20 |
| 18 |
| Interest expense and amortization of debt discount | 7 | | 8 | | |
Income Before Income Taxes | 196 |
| 268 |
| 736 |
| 979 |
| |
Provision for income taxes | 152 |
| 82 |
| 337 |
| 380 |
| |
Net Income Attributable to Union Carbide Corporation | $ | 44 |
| $ | 186 |
| $ | 399 |
| $ | 599 |
| |
Income (loss) before income taxes | | Income (loss) before income taxes | (64) | | 187 | | |
Provision (credit) for income taxes | | Provision (credit) for income taxes | (15) | | 41 | | |
Net income (loss) attributable to Union Carbide Corporation | | Net income (loss) attributable to Union Carbide Corporation | $ | (49) | | $ | 146 | | |
| | | |
Depreciation | $ | 45 |
| $ | 39 |
| $ | 132 |
| $ | 120 |
| Depreciation | $ | 41 | | $ | 45 | | |
Capital Expenditures | $ | 47 |
| $ | 55 |
| $ | 145 |
| $ | 173 |
| |
Capital expenditures | | Capital expenditures | $ | 23 | | $ | 33 | | |
See Notes to the Consolidated Financial Statements.
Union Carbide Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income
| | | Three Months Ended | Nine Months Ended | | Three Months Ended | |
In millions (Unaudited) | Sep 30, 2017 | Sep 30, 2016 | Sep 30, 2017 | Sep 30, 2016 | In millions (Unaudited) | Mar 31, 2021 | Mar 31, 2020 | |
Net Income Attributable to Union Carbide Corporation | $ | 44 |
| $ | 186 |
| $ | 399 |
| $ | 599 |
| |
Other Comprehensive Income, Net of Tax | |
| |
| |
| |
| |
Net income (loss) attributable to Union Carbide Corporation | | Net income (loss) attributable to Union Carbide Corporation | $ | (49) | | $ | 146 | | |
Other comprehensive income, net of tax | | Other comprehensive income, net of tax | | | |
Cumulative translation adjustments | 1 |
| — |
| 4 |
| — |
| Cumulative translation adjustments | 0 | | 3 | | |
Pension and other postretirement benefit plans | 12 |
| 11 |
| 36 |
| 32 |
| Pension and other postretirement benefit plans | 84 | | 20 | | |
Total other comprehensive income | 13 |
| 11 |
| 40 |
| 32 |
| Total other comprehensive income | 84 | | 23 | | |
Comprehensive Income Attributable to Union Carbide Corporation | $ | 57 |
| $ | 197 |
| $ | 439 |
| $ | 631 |
| |
Comprehensive income attributable to Union Carbide Corporation | | Comprehensive income attributable to Union Carbide Corporation | $ | 35 | | $ | 169 | | |
See Notes to the Consolidated Financial Statements.
Union Carbide Corporation and Subsidiaries
Consolidated Balance Sheets
| | In millions, except share amounts (Unaudited) | Sep 30, 2017 | Dec 31, 2016 | In millions, except share amounts (Unaudited) | Mar 31, 2021 | Dec 31, 2020 |
Assets | | | Assets | | |
Current Assets | | | Current Assets | | |
Cash and cash equivalents | $ | 13 |
| $ | 11 |
| Cash and cash equivalents | $ | 11 | | $ | 11 | |
Accounts receivable: |
|
|
|
| Accounts receivable: | | |
Trade (net of allowance for doubtful receivables 2017: $-; 2016: $-) | 20 |
| 15 |
| |
Trade (net of allowance for doubtful receivables 2021: $0; 2020: $0) | | Trade (net of allowance for doubtful receivables 2021: $0; 2020: $0) | 24 | | 26 | |
Related companies | 893 |
| 843 |
| Related companies | 709 | | 698 | |
Other | 48 |
| 36 |
| Other | 35 | | 27 | |
Income taxes receivable | 242 |
| 275 |
| Income taxes receivable | 375 | | 337 | |
Notes receivable from related companies | 1,257 |
| 1,411 |
| Notes receivable from related companies | 1,055 | | 1,660 | |
Inventories | 299 |
| 307 |
| Inventories | 248 | | 223 | |
Other current assets | 18 |
| 39 |
| Other current assets | 19 | | 17 | |
Total current assets | 2,790 |
| 2,937 |
| Total current assets | 2,476 | | 2,999 | |
Investments | |
| |
| Investments | | |
Investments in related companies | 639 |
| 639 |
| Investments in related companies | 237 | | 237 | |
Investment in nonconsolidated affiliate | — |
| 14 |
| |
| Other investments | 25 |
| 30 |
| Other investments | 22 | | 22 | |
Noncurrent receivables | 58 |
| 52 |
| Noncurrent receivables | 129 | | 124 | |
Noncurrent receivables from related companies | 54 |
| 57 |
| Noncurrent receivables from related companies | 68 | | 66 | |
Total investments | 776 |
| 792 |
| Total investments | 456 | | 449 | |
Property | |
| |
| Property | | |
Property | 7,243 |
| 7,144 |
| Property | 7,111 | | 7,089 | |
Less accumulated depreciation | 5,837 |
| 5,750 |
| Less accumulated depreciation | 5,865 | | 5,824 | |
Net property | 1,406 |
| 1,394 |
| Net property | 1,246 | | 1,265 | |
Other Assets | |
| |
| Other Assets | | |
Intangible assets (net of accumulated amortization 2017: $80; 2016: $78) | 26 |
| 25 |
| |
Intangible assets (net of accumulated amortization 2021: $99; 2020: $97) | | Intangible assets (net of accumulated amortization 2021: $99; 2020: $97) | 15 | | 16 | |
Operating lease right-of-use assets | | Operating lease right-of-use assets | 119 | | 123 | |
Deferred income tax assets | 797 |
| 928 |
| Deferred income tax assets | 472 | | 494 | |
| Deferred charges and other assets | 39 |
| 70 |
| Deferred charges and other assets | 38 | | 29 | |
Total other assets | 862 |
| 1,023 |
| Total other assets | 644 | | 662 | |
Total Assets | $ | 5,834 |
| $ | 6,146 |
| Total Assets | $ | 4,822 | | $ | 5,375 | |
Liabilities and Equity | | | Liabilities and Equity | | |
Current Liabilities | |
| |
| Current Liabilities | | |
Notes payable to related companies | $ | 27 |
| $ | 25 |
| Notes payable to related companies | $ | 29 | | $ | 33 | |
Notes payable - other | 2 |
| — |
| |
| Long-term debt due within one year | 1 |
| 1 |
| Long-term debt due within one year | 2 | | 2 | |
Accounts payable: |
|
|
|
| Accounts payable: | | |
Trade | 253 |
| 249 |
| Trade | 260 | | 229 | |
Related companies | 537 |
| 521 |
| Related companies | 533 | | 409 | |
Other | 15 |
| 7 |
| Other | 16 | | 28 | |
| Operating lease liabilities - current | | Operating lease liabilities - current | 19 | | 19 | |
Income taxes payable | 103 |
| 23 |
| Income taxes payable | 22 | | 23 | |
Asbestos-related liabilities - current | 132 |
| 126 |
| Asbestos-related liabilities - current | 85 | | 85 | |
Accrued and other current liabilities | 189 |
| 181 |
| Accrued and other current liabilities | 127 | | 139 | |
Total current liabilities | 1,259 |
| 1,133 |
| Total current liabilities | 1,093 | | 967 | |
Long-Term Debt | 474 |
| 475 |
| Long-Term Debt | 391 | | 391 | |
Other Noncurrent Liabilities | |
| |
| Other Noncurrent Liabilities | | |
Pension and other postretirement benefits - noncurrent | 955 |
| 1,170 |
| Pension and other postretirement benefits - noncurrent | 680 | | 1,340 | |
Asbestos-related liabilities - noncurrent | 1,266 |
| 1,364 |
| Asbestos-related liabilities - noncurrent | 995 | | 1,013 | |
Operating lease liabilities - noncurrent | | Operating lease liabilities - noncurrent | 101 | | 105 | |
Other noncurrent obligations | 174 |
| 206 |
| Other noncurrent obligations | 209 | | 201 | |
Total other noncurrent liabilities | 2,395 |
| 2,740 |
| Total other noncurrent liabilities | 1,985 | | 2,659 | |
Stockholder's Equity | |
| |
| Stockholder's Equity | | |
Common stock (authorized: 1,000 shares of $0.01 par value each; issued: 935.51 shares) | — |
| — |
| Common stock (authorized: 1,000 shares of $0.01 par value each; issued: 935.51 shares) | 0 | | 0 | |
Additional paid-in capital | 138 |
| 138 |
| Additional paid-in capital | 141 | | 141 | |
Retained earnings | 2,848 |
| 2,980 |
| Retained earnings | 2,898 | | 2,987 | |
Accumulated other comprehensive loss | (1,280 | ) | (1,320 | ) | Accumulated other comprehensive loss | (1,686) | | (1,770) | |
Union Carbide Corporation's stockholder's equity | 1,706 |
| 1,798 |
| Union Carbide Corporation's stockholder's equity | 1,353 | | 1,358 | |
| Total Liabilities and Equity | $ | 5,834 |
| $ | 6,146 |
| Total Liabilities and Equity | $ | 4,822 | | $ | 5,375 | |
See Notes to the Consolidated Financial Statements.
Union Carbide Corporation and Subsidiaries
Consolidated Statements of Cash Flows
| | | Nine Months Ended | | Three Months Ended |
In millions (Unaudited) | Sep 30, 2017 | Sep 30, 2016 | In millions (Unaudited) | Mar 31, 2021 | Mar 31, 2020 |
Operating Activities | | | Operating Activities | | |
Net Income Attributable to Union Carbide Corporation | $ | 399 |
| $ | 599 |
| |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Net income (loss) attributable to Union Carbide Corporation | | Net income (loss) attributable to Union Carbide Corporation | $ | (49) | | $ | 146 | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | |
Depreciation and amortization | 148 |
| 138 |
| Depreciation and amortization | 51 | | 52 | |
Provision (credit) for deferred income tax | 109 |
| (306 | ) | Provision (credit) for deferred income tax | (4) | | 1 | |
Earnings of nonconsolidated affiliate in excess of dividends received | — |
| (2 | ) | |
| Net gain on sales of property and investments | (26 | ) | (50 | ) | Net gain on sales of property and investments | (1) | | (1) | |
Net gain on sale of ownership interest in nonconsolidated affiliate | (4 | ) | — |
| |
| Restructuring and asset related charges - net | 10 |
| 2 |
| Restructuring and asset related charges - net | 0 | | 2 | |
Net periodic pension benefit cost | 21 |
| 21 |
| |
Net periodic pension benefit cost (credit) | | Net periodic pension benefit cost (credit) | (1) | | 14 | |
Pension contributions | (162 | ) | (52 | ) | Pension contributions | (547) | | (1) | |
| Other, net | — |
| (1 | ) | Other, net | (1) | | (1) | |
Changes in assets and liabilities: | | | Changes in assets and liabilities: | | |
Accounts and notes receivable | 10 |
| (3 | ) | Accounts and notes receivable | (6) | | 1 | |
Related company receivables | 104 |
| (82 | ) | Related company receivables | 594 | | (48) | |
Inventories | 8 |
| (24 | ) | Inventories | (34) | | 4 | |
Accounts payable | 15 |
| (25 | ) | Accounts payable | 19 | | 3 | |
Related company payables | 18 |
| 114 |
| Related company payables | 120 | | (95) | |
Asbestos-related payments | (92 | ) | (39 | ) | Asbestos-related payments | (18) | | (18) | |
Other assets and liabilities | 67 |
| 272 |
| Other assets and liabilities | (58) | | 53 | |
Cash provided by operating activities | 625 |
| 562 |
| Cash provided by operating activities | 65 | | 112 | |
Investing Activities | |
| |
| Investing Activities | | |
Capital expenditures | (145 | ) | (173 | ) | Capital expenditures | (23) | | (33) | |
Change in noncurrent receivable from related company | 3 |
| 7 |
| Change in noncurrent receivable from related company | (2) | | 0 | |
Proceeds from sale of ownership interest in nonconsolidated affiliate | 22 |
| — |
| |
Proceeds from sales of property | 18 |
| 58 |
| |
Proceeds from sales of investments | 9 |
| 3 |
| |
Cash used in investing activities | (93 | ) | (105 | ) | |
| Cash used for investing activities | | Cash used for investing activities | (25) | | (33) | |
Financing Activities | |
| |
| Financing Activities | | |
Dividends paid to stockholder | (531 | ) | (455 | ) | |
| Dividends paid to parent | | Dividends paid to parent | (40) | | (81) | |
Changes in short-term notes payable | 2 |
| — |
| Changes in short-term notes payable | 0 | | 2 | |
Payments on long-term debt | (1 | ) | (1 | ) | |
Cash used in financing activities | (530 | ) | (456 | ) | |
| Cash used for financing activities | | Cash used for financing activities | (40) | | (79) | |
Summary | |
| |
| Summary | | |
Increase in cash and cash equivalents | 2 |
| 1 |
| Increase in cash and cash equivalents | 0 | | 0 | |
Cash and cash equivalents at beginning of year | 11 |
| 23 |
| |
Cash and cash equivalents at beginning of period | | Cash and cash equivalents at beginning of period | 11 | | 11 | |
Cash and cash equivalents at end of period | $ | 13 |
| $ | 24 |
| Cash and cash equivalents at end of period | $ | 11 | | $ | 11 | |
See Notes to the Consolidated Financial Statements.
Union Carbide Corporation and Subsidiaries
Consolidated Statements of Equity
|
| | | | | | | | | | | | | | | |
In millions (Unaudited) | Common Stock | Additional Paid-in Capital | Retained Earnings | Accum. Other Comp Loss | Total Equity |
2016 | | | | | |
Balance at Jan 1, 2016 | $ | — |
| $ | 138 |
| $ | 3,391 |
| $ | (1,228 | ) | $ | 2,301 |
|
Net income attributable to Union Carbide Corporation | — |
| — |
| 599 |
| — |
| 599 |
|
Other comprehensive income | — |
| — |
| — |
| 32 |
| 32 |
|
Dividends declared | — |
| — |
| (455 | ) | — |
| (455 | ) |
Other | — |
| — |
| 1 |
| — |
| 1 |
|
Balance at Sep 30, 2016 | $ | — |
| $ | 138 |
| $ | 3,536 |
| $ | (1,196 | ) | $ | 2,478 |
|
2017 | | | | | |
Balance at Jan 1, 2017 | $ | — |
| $ | 138 |
| $ | 2,980 |
| $ | (1,320 | ) | $ | 1,798 |
|
Net income attributable to Union Carbide Corporation | — |
| — |
| 399 |
| — |
| 399 |
|
Other comprehensive income | — |
| — |
| — |
| 40 |
| 40 |
|
Dividends declared | — |
| — |
| (531 | ) | — |
| (531 | ) |
Balance at Sep 30, 2017 | $ | — |
| $ | 138 |
| $ | 2,848 |
| $ | (1,280 | ) | $ | 1,706 |
|
| | | | | | | | | | |
| Three Months Ended | |
In millions (Unaudited) | Mar 31, 2021 | Mar 31, 2020 | | |
Common Stock | | | | |
Balance at beginning and end of period | $ | 0 | | $ | 0 | | | |
Additional Paid-in Capital | | | | |
Balance at beginning and end of period | 141 | | 141 | | | |
| | | | |
| | | | |
Retained Earnings | | | | |
Balance at beginning of period | 2,987 | | 2,922 | | | |
| | | | |
Net income (loss) attributable to Union Carbide Corporation | (49) | | 146 | | | |
Dividends declared | (40) | | (81) | | | |
| | | | |
Balance at end of period | 2,898 | | 2,987 | | | |
Accumulated Other Comprehensive Loss, Net of Tax | | | | |
Balance at beginning of period | (1,770) | | (1,665) | | | |
| | | | |
Other comprehensive income | 84 | | 23 | | | |
Balance at end of period | (1,686) | | (1,642) | | | |
Union Carbide Corporation's Stockholder's Equity | $ | 1,353 | | $ | 1,486 | | | |
See Notes to the Consolidated Financial Statements.
Union Carbide Corporation and Subsidiaries
Notes to the Consolidated Financial Statements
|
| | |
Union Carbide Corporation and Subsidiaries |
(Unaudited) |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Table of Contents
NOTE 1 - CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation
The unaudited interim consolidated financial statements of Union Carbide Corporation and its subsidiaries (the "Corporation" or "UCC") were prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") and reflect all adjustments (including normal recurring accruals) which, in the opinion of management, are considered necessary for the fair presentation of the results for the periods presented. These statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2020 ("2020 10-K").
The Corporation is a wholly owned subsidiary of The Dow Chemical Company ("Dow"TDCC"). In accordance with the accounting guidance for earnings per share, the presentation of earnings per share is not required in financial statements of wholly owned subsidiaries.
The Corporation’s business activities comprise components of Dow’sTDCC’s global operations rather than stand-alone operations. DowTDCC conducts its worldwide operations through global businesses. 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 regarding the Corporation’s stand-alone operations, the Corporation’s results are reported as a single operating segment.
Intercompany transactions and balances are eliminated in consolidation. Transactions with the Corporation’s parent company, Dow,TDCC, and other Dow subsidiaries of TDCC, have been reflected as related company transactions in the consolidated financial statements. See Note 11 for further discussion.
These statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2016.
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 12 for additional information.
Significant Accounting Policy Update
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.
Union Carbide Corporation and Subsidiaries
Notes to the Consolidated Financial Statements
Changes in Financial Statement Presentation
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 period pension benefit cost" are now separately reported and have been reclassified from "Other assets and liabilities." Prior periods have been updated to conform to the current year presentation and are summarized below:
|
| | | | | | |
Summary of Changes to the Consolidated Statements of Cash Flows | Nine Months Ended Sep 30, 2016 |
In millions | As filed | Updated |
Operating Activities | | |
Net periodic pension benefit cost | $ | — |
| $ | 21 |
|
Asbestos-related payments | $ | — |
| $ | (39 | ) |
Other assets and liabilities | $ | 254 |
| $ | 272 |
|
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 changes were retrospectively applied and are summarized below:
|
| | | | | | | | | | | | |
Summary of Changes to the Consolidated Statements of Income | Three Months Ended | Nine Months Ended |
| Sep 30, 2016 | Sep 30, 2016 | Sep 30, 2016 | Sep 30, 2016 |
In millions | As Filed | Updated | As Filed | Updated |
Sundry income (expense) - net | $ | (14 | ) | $ | (10 | ) | $ | 10 |
| $ | 20 |
|
Interest income | $ | 4 |
| $ | — |
| $ | 10 |
| $ | — |
|
NOTE 2 - RECENT ACCOUNTING GUIDANCE
Recently Adopted Accounting Guidance Issued But Not Yet Adopted at September 30, 2017
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," 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, the FASB issued ASU 2016-08, "Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)," which is an amendment on assessing whether an entity is a principal or
Union Carbide Corporation and Subsidiaries
Notes to the Consolidated Financial Statements
an agent in a revenue transaction. This amendment addresses issues to clarify the principal versus agent assessment and lead 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 has a team in place to analyze ASU 2014-09 and the related ASU's across all revenue streams to evaluate the impact of the new standard on revenue contracts. This includes reviewing current accounting policies and practices to identify potential differences that would result from applying the requirements under the new standard. The Corporation is completing contract evaluations and validating the results of applying the new revenue guidance. The Corporation is in the process of finalizing its accounting policies, drafting the new disclosures, quantifying the potential financial adjustment and completing its evaluation of the impact of the accounting and disclosure requirements on business processes, controls and systems. Full implementation will be completed by the end of 2017. Based on analysis completed to date, the Corporation expects the potential impact on the recognition of revenue from product sales and licensing arrangements to remain substantially unchanged. The Corporation expects to 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.
In February 2016,2021, 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 other financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases. Lessor accounting remains largely unchanged from current U.S. GAAP but does contain some targeted improvements to align with the new revenue recognition guidance issued in 2014 (ASU 2014-09). The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, using 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 process of implementing a software solution to facilitate the development of business processes and controls around leases to meet the new accounting and disclosure requirements upon adoption in the first quarter of 2019.
In October 2016, the FASB issued ASU 2016-16,adopted Accounting Standards Update 2019-12, "Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory," which requires an entity to recognizeSimplifying the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs.Accounting for Income Taxes." The amendments are effectivesimplify the accounting for fiscal years,income taxes by removing certain exceptions to the general principles of Topic 740, "Income Taxes" and interim periods within those fiscal years, beginning after December 15, 2017,improve consistent application by clarifying and should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings at the beginning of the period of adoption. Early adoption is permitted in the first interim period of an annual reporting period for which financial statements have not been issued.amending existing guidance. The Corporation will adopt the new guidance in the first quarter of 2018 and the adoption of this guidance willdid not have a material impact on the Consolidated Financial Statements.consolidated financial statements.
In February 2017, the FASB issued ASU 2017-05, "Other 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," which clarifies the scope of guidance on nonfinancial asset derecognition in Accounting Standards Codification 610-20 and the accounting for partial sales of nonfinancial assets. The new guidance also conforms the derecognition guidance for nonfinancial assets with the model in the new revenue standard (ASU 2014-09). The new standard is effective for annual reporting periods, and interim periods within those fiscal years, beginning after December 15, 2017, and an entity is required to apply the amendments at the same time that it applies the amendments in ASU 2014-09. The Corporation is planning to apply the new guidance with the implementation of the new revenue standard in the first quarter of 2018.
In March 2017, the FASB issued 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
Union Carbide Corporation and Subsidiaries
Notes to the Consolidated Financial Statements
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 is currently evaluating the impact of adopting this guidance.
NOTE 3 - RESTRUCTURING AND ASSET RELATED CHARGES - NETREVENUE
In September 2017,Substantially all of the Corporation's revenue is generated by sales to TDCC. Products are sold to and purchased from TDCC at prices determined in accordance with the terms of an agreement between UCC and TDCC. The Corporation's revenue related to sales of product was approximately 99 percent for the three months ended March 31, 2021 (99 percent for the three months ended March 31, 2020); the remaining revenue primarily related to the licensing of patents and technology. The Corporation approved restructuring actions that are aligned with DowDuPont’s synergy targets. As a result of these actions,sells its products to TDCC to simplify the Corporation recorded a pretax restructuring charge for severance and related benefit costs of $8 million in the third quarter of 2017. The impact of this charge is shown as “Restructuring and asset related charges - net” in the consolidated statements of income. These actions are expected to be substantially completed by September 30, 2019. At September 30, 2017, severance of $1 million was paid, leaving a liability of $7 million.customer interface process.
The Corporation expectsCorporation’s contract liabilities include payments received in advance of performance under long-term contracts for product sales and royalties with remaining contract terms that range up to incur additional costs20 years. Amounts are recognized in revenue when the future related to restructuring activities, as UCC continually looksperformance obligations for ways to enhance the efficiency and cost effectiveness of its operations.contract are met. The Corporation expectshas rights to incur additional employee-related costs, including involuntary termination benefits, relatedconsideration when product is delivered to itsthe customer. The balance of contract liabilities was $40 million at March 31, 2021 ($40 million at December 31, 2020), of which $5 million ($5 million at December 31, 2020) was included in "Accrued and other optimization activities. These costs cannot be reasonably estimatedcurrent liabilities" and $35 million ($35 million at this time.
NOTE 4 - INCOME TAXES
A transaction for the sale of stock between the Corporation and DowDecember 31, 2020) was included 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”"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 recorded a chargesales to “Provision for income taxes”trade customers) as presented in the consolidated statements of income and believes this disaggregation best depicts the nature, amount, timing and uncertainty of $97 million.
The total amountits revenue and cash flows. Substantially all of gross unrecognized tax benefits for uncertain tax positions, including positions impacting only the timing of tax benefits, was $1 million at September 30, 2017 and $1 million at December 31, 2016. The amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate was $1 million at September 30, 2017 and $1 million at December 31, 2016.
In the second quarter of 2016, an adjustment wasproduct sales are made to a reserve for a tax matter regarding a historical change in the legal ownership structure of a former nonconsolidated affiliate. The adjustment arose due to legal proceedingsCorporation's parent company, TDCC, and the Corporation’s ongoing assessment of the unrecognized tax benefits, which resulted in an unfavorable impact of $57 million to “Provision for income taxes” in the consolidated statements of income.
Interestthere are no unique economic factors that affect revenue recognition and penaltiescash flows associated with uncertain tax positions are recognized as components of "Provision for income taxes" in the consolidated statements of income which totaled an insignificant amount for the three months ended September 30, 2017 and 2016. In the nine months ended September 30, 2017, the Corporation recognized a benefit of $2 million for interest and penalties (a charge of $82 million in the nine months ended September 30, 2016).these product sales.
The Corporation is included in Dow's consolidated federal income tax group and consolidated tax return. 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. UCC is currently under examination in a number of tax jurisdictions, including the U.S. federal and various state jurisdictions. Positions challenged by the tax authorities may be settled or appealed by the Corporation. As a result, there is an uncertainty in income taxes recognized in the Corporation’s financial statements in accordance with accounting for income taxes and accounting for uncertainty in income taxes. Net reductions to the Corporation’s global unrecognized tax benefits are not expected to be material within the next twelve months.
Union Carbide Corporation and Subsidiaries
Notes to the Consolidated Financial Statements
NOTE 54 - INVENTORIES
The following table provides a breakdown of inventories:
| | | | | | | | |
Inventories | Mar 31, 2021 | Dec 31, 2020 |
In millions |
Finished goods | $ | 216 | | $ | 157 | |
Work in process | 29 | | 23 | |
Raw materials | 45 | | 38 | |
Supplies | 86 | | 98 | |
Total | $ | 376 | | $ | 316 | |
Adjustment of inventories to a LIFO basis | (128) | | (93) | |
Total inventories | $ | 248 | | $ | 223 | |
|
| | | | | | |
Inventories
| Sep 30, 2017 | Dec 31, 2016 |
In millions |
Finished goods | $ | 210 |
| $ | 186 |
|
Work in process | 44 |
| 38 |
|
Raw materials | 53 |
| 50 |
|
Supplies | 79 |
| 87 |
|
Total | $ | 386 |
| $ | 361 |
|
Adjustment of inventories to a LIFO basis | (87 | ) | (54 | ) |
Total inventories | $ | 299 |
| $ | 307 |
|
NOTE 65 - INTANGIBLE ASSETS
The following table provides information regarding the Corporation’s intangible assets:
| | | | | | | | | | | | | | | | | | | | |
Intangible Assets | Mar 31, 2021 | Dec 31, 2020 |
In millions | Gross Carrying Amount | Accum Amort | Net | Gross Carrying Amount | Accum Amort | Net |
Intangible assets with finite lives: | | | | | | |
Developed technology | $ | 33 | | $ | (33) | | $ | 0 | | $ | 33 | | $ | (33) | | $ | 0 | |
Software | 81 | | (66) | | 15 | | 80 | | (64) | | 16 | |
Total intangible assets | $ | 114 | | $ | (99) | | $ | 15 | | $ | 113 | | $ | (97) | | $ | 16 | |
|
| | | | | | | | | | | | | | | | | | |
Intangible Assets | Sep 30, 2017 | Dec 31, 2016 |
In millions | Gross Carrying Amount | Accumulated Amortization | Net | Gross Carrying Amount | Accumulated Amortization | Net |
Intangible assets with finite lives: | | | | | | |
Licenses and intellectual property | $ | 33 |
| $ | (33 | ) | $ | — |
| $ | 33 |
| $ | (33 | ) | $ | — |
|
Software | 73 |
| (47 | ) | 26 |
| 70 |
| (45 | ) | 25 |
|
Total intangible assets | $ | 106 |
| $ | (80 | ) | $ | 26 |
| $ | 103 |
| $ | (78 | ) | $ | 25 |
|
Total estimated amortization expense for 20172021 and the five succeeding fiscal years, including amounts expected to be capitalized, is as follows:
| | | | | |
Estimated Amortization Expense |
In millions |
2021 | $ | 6 | |
2022 | $ | 5 | |
2023 | $ | 3 | |
2024 | $ | 1 | |
2025 | $ | 1 | |
2026 | $ | 0 | |
|
| | | |
Estimated Amortization Expense
|
In millions |
2017 | $ | 4 |
|
2018 | $ | 6 |
|
2019 | $ | 6 |
|
2020 | $ | 6 |
|
2021 | $ | 4 |
|
2022 | $ | 2 |
|
Union Carbide Corporation and Subsidiaries
Notes to the Consolidated Financial Statements
NOTE 76 - COMMITMENTS AND CONTINGENT LIABILITIES
A summary of the Corporation's commitments and contingent liabilities can be found in Note 14 to the Consolidated Financial Statements included in the 2020 10-K, which is incorporated by reference herein.
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 September 30, 2017,March 31, 2021, the Corporation had accrued obligations of $119$142 million for probable environmental remediation and restoration costs, including $20$19 million for the remediation of Superfund sites. These obligations are included in "Accrued and other current liabilities" and "Other noncurrent obligations" in the consolidated balance sheets. 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 and a half 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 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. As new or additional information becomes available and/or certain spending trends become known, management will evaluate such information in determination of the current estimate of the environmental liability. At December 31, 2016,2020, the Corporation had accrued obligations of $145$133 million for probable environmental remediation and restoration costs, including $20$18 million for the remediation of Superfund sites.
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
A description of asbestos-related matters can be found in Note 13 to the Consolidated Financial Statements included in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2016.
Introduction
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 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’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 Asbestos-Related Liability
Since 2003, the Corporation has engaged Ankura Consulting Group, LLC ("Ankura"), a third party actuarial specialist, to review the Corporation's historical asbestos-related claim and resolution activity in order to assist UCC management in estimating the Corporation's asbestos-related liability. Each year, Ankura has reviewed the claim and resolution activity to determine the appropriateness of updating the most recent Ankura study. Historically, every other year beginning in October, Ankura has completed a full review and formal update to the most recent Ankura study.
Based on the December 2016 Ankura study and the Corporation's own review of the data, and taking into account the change in accounting policy that occurred in the fourth quarter of 2016, the Corporation's total asbestos-related liability through the terminal year of 2049, including asbestos-related 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.
Each quarter, the Corporation reviews claims filed, settled and dismissed, as well as average settlement and resolution costs by disease category. The Corporation also considers additional 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
Union Carbide Corporation and Subsidiaries
Notes to the Consolidated Financial Statements
resolution costs. UCC management considers all these factors in conjunction with the most recent Ankuraactuarial study and determines whether a change in the estimate is warranted. Based on the Corporation's review of 20172021 activity, it was determined that no adjustment to the accrual was required at September 30, 2017.March 31, 2021.
The Corporation’s total asbestos-related liability for pending and future claims and defense and processing costs was $1,398$1,080 million at September 30, 2017,March 31, 2021 ($1,098 million at December 31, 2020), and was included in “Asbestos-related liabilities - current” and “Asbestos-related liabilities - noncurrent” in the consolidated balance sheets. At March 31, 2021, approximately 1524 percent of the recorded claim liability related to pending claims and approximately 8576 percent related to future claims.
Summary
The Corporation's management believes the amounts recorded for the asbestos-related liability (including defense and processing 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.
NOTE 7 - LEASES
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 anFor additional cost of disposing of asbestos-related claims, including future defense and processing costs, could have a material impactinformation on the Corporation's resultsleases, see Note 15 to the Consolidated Financial Statements included in the 2020 10-K.
The components of operationslease cost for operating and finance leases for the three months ended March 31, 2021 and 2020 were as follows:
| | | | | | | | | | |
Lease Cost | Three Months Ended | |
In millions | Mar 31, 2021 | Mar 31, 2020 | | |
Operating lease cost | $ | 5 | | $ | 5 | | | |
Short-term lease cost | 6 | | 6 | | | |
Variable lease cost | 2 | | 2 | | | |
| | | | |
| | | | |
| | | | |
Total lease cost | $ | 13 | | $ | 13 | | | |
The following table provides supplemental cash flows for a particular periodflow information related to leases:
| | | | | | | | |
Other Lease Information | Three Months Ended |
In millions | Mar 31, 2021 | Mar 31, 2020 |
Cash paid for amounts included in the measurement of lease liabilities: | | |
Operating cash flows for operating leases | $ | 5 | | $ | 5 | |
| | |
The following table summarizes the lease-related assets and onliabilities recorded in the consolidated financial position.balance sheets at March 31, 2021 and December 31, 2020:
Other Litigation | | | | | | | | | | | |
Lease Position | Balance Sheet Classification | Mar 31, 2021 | Dec 31, 2020 |
In millions |
Right-of-use assets obtained in exchange for lease obligations: | | | |
Operating leases | | $ | 0 | | $ | 48 | |
Finance leases | | $ | 0 | | $ | 3 | |
Assets | | | |
Operating lease assets | Operating lease right-of-use assets | $ | 119 | | $ | 123 | |
Finance lease assets | Property | 15 | | 15 | |
Finance lease amortization | Accumulated depreciation | (9) | | (8) | |
Total lease assets | | $ | 125 | | $ | 130 | |
Liabilities | | | |
Current | | | |
Operating | Operating lease liabilities - current | $ | 19 | | $ | 19 | |
Finance | Long-term debt due within one year | 2 | | 2 | |
Noncurrent | | | |
Operating | Operating lease liabilities - noncurrent | 101 | | 105 | |
Finance | Long-term debt | 4 | | 5 | |
Total lease liabilities | | $ | 126 | | $ | 131 | |
While it is not possible
The weighted-average remaining lease term and discount rate for leases recorded in the consolidated balance sheets at this time to determine with certaintyMarch 31, 2021 and December 31, 2020 are provided below:
| | | | | | | | |
Lease Term and Discount Rate | Mar 31, 2021 | Dec 31, 2020 |
Weighted-average remaining lease term | | |
Operating leases | 7.3 years | 7.5 years |
Finance leases | 3.2 years | 3.4 years |
Weighted-average discount rate | | |
Operating leases | 3.27 | % | 3.28 | % |
Finance leases | 3.62 | % | 3.62 | % |
The following table provides the ultimate outcomematurities of anylease liabilities at March 31, 2021:
| | | | | | | | |
Maturities of Lease Liabilities | Mar 31, 2021 |
| Operating Leases | Finance Leases |
In millions |
2021 | $ | 17 | | $ | 2 | |
2022 | 22 | | 2 | |
2023 | 20 | | 2 | |
2024 | 20 | | 1 | |
2025 | 18 | | 0 | |
2026 and thereafter | 38 | | 0 | |
Total future undiscounted lease payments | $ | 135 | | $ | 7 | |
Less: Imputed interest | 15 | | 1 | |
Total present value of lease liabilities | $ | 120 | | $ | 6 | |
NOTE 8 - ACCUMULATED OTHER COMPREHENSIVE LOSS
The following table summarizeschanges in the changes and after-tax balances offor each component of accumulated other comprehensive loss ("AOCL") for the ninethree months ended September 30, 2017March 31, 2021 and 2016:2020 were as follows:
| | | | | | | | | | |
Accumulated Other Comprehensive Loss | | Three Months Ended |
In millions | | | Mar 31, 2021 | Mar 31, 2020 |
Cumulative Translation Adjustment | | | | |
Beginning balance | | | $ | (55) | | $ | (56) | |
Unrealized gains (losses) on foreign currency translation | | | 0 | | 3 | |
| | | | |
| | | | |
| | | | |
| | | | |
Ending balance | | | $ | (55) | | $ | (53) | |
Pension and Other Postretirement Benefits | | | | |
Beginning balance | | | $ | (1,715) | | $ | (1,609) | |
Gains (losses) arising during the period 1 | | | 87 | | 0 | |
Less: Tax (expense) benefit | | | (20) | | 0 | |
Net gains (losses) arising during the period | | | 67 | | 0 | |
Amortization and recognition of net loss 2 | | | 22 | | 26 | |
Less: Tax expense (benefit) 3 | | | (5) | | (6) | |
Net loss reclassified from AOCL to net income (loss) | | | 17 | | 20 | |
Other comprehensive income (loss), net of tax | | | 84 | | 20 | |
| | | | |
Ending balance | | | $ | (1,631) | | $ | (1,589) | |
Total AOCL ending balance | | | $ | (1,686) | | $ | (1,642) | |
1.See Note 9 for additional information.
2.These AOCL components are included in the computation of net periodic benefit cost (credit) of the Corporation's defined benefit pension and other postretirement benefit plans. See Note 9 for additional information.
3.Reclassified to "Provision (credit) for income taxes."
|
| | | | | | | | | |
Accumulated Other Comprehensive Loss | Cumulative Translation Adj | Pension and Other Postretire Benefits | Accum Other Comp Loss |
In millions |
Balance at Jan 1, 2016 | $ | (61 | ) | $ | (1,167 | ) | $ | (1,228 | ) |
Amounts reclassified from accumulated other comprehensive income | — |
| 32 |
| 32 |
|
Net other comprehensive income | — |
| 32 |
| 32 |
|
Balance at Sep 30, 2016 | $ | (61 | ) | $ | (1,135 | ) | $ | (1,196 | ) |
| | | |
Balance at Jan 1, 2017 | $ | (62 | ) | $ | (1,258 | ) | $ | (1,320 | ) |
Other comprehensive income before reclassifications | 1 |
| — |
| 1 |
|
Amounts reclassified from accumulated other comprehensive income | 3 |
| 36 |
| 39 |
|
Net other comprehensive income | 4 |
| 36 |
| 40 |
|
Balance at Sep 30, 2017 | $ | (58 | ) | $ | (1,222 | ) | $ | (1,280 | ) |
Union Carbide Corporation
NOTE 9 - PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
A summary of the Corporation's pension and Subsidiaries
Notesother postretirement benefit plans can be found in Note 17 to the Consolidated Financial Statements included in the 2020 10-K.
On March 4, 2021, TDCC announced changes to the design of its U.S. tax-qualified and non-qualified pension plans, including the plans of the Corporation (the “UCC Plans”). Effective December 31, 2023 (“Effective Date”), the Corporation will freeze the pensionable compensation and credited service amounts used to calculate pension benefits for employees who participate in the UCC Plans. As a result, at the Effective Date and subject to any bargaining obligations required by law, active participants of the UCC Plans will not accrue additional benefits for future service and compensation. Additionally, contributions to U.S. tax-qualified and non-qualified defined contribution plans will be harmonized across the U.S. eligible employee population of TDCC and its consolidated subsidiaries. The new matching contribution, beginning January 1, 2022, will allow 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.
The tax effects onCorporation's funding policy is to contribute to pension plans when pension laws and/or economics either require or encourage funding. On March 4, 2021, the net activity relatedCorporation elected to each componentcontribute $545 million to its tax-qualified pension plan, funded by the Corporation's notes receivable from TDCC, and, as a result, increased its estimated total 2021 pension contributions to approximately $550 million, of accumulatedwhich $547 million has been contributed through March 31, 2021.
In connection with the foregoing plan amendments, the Corporation remeasured the UCC Plans effective February 28, 2021, which resulted in a pretax actuarial gain of $87 million, reflected in other comprehensive income (loss) forand inclusive of a $14 million reduction in the threeprojected benefit obligation resulting from the plan amendments, and nine months ended September 30, 2017 and 2016 were as follows:a pretax curtailment gain of $7 million, recognized in the first quarter of 2021.
|
| | | | | | | | | | | | |
Tax Benefit | Three Months Ended | Nine Months Ended |
In millions | Sep 30, 2017 | Sep 30, 2016 | Sep 30, 2017 | Sep 30, 2016 |
Pension and other postretirement benefits | $ | 6 |
| $ | 6 |
| $ | 22 |
| $ | 20 |
|
A summaryThe following table provides the components of the reclassifications outCorporation's net periodic benefit cost (credit) for all significant plans:
| | | | | | | | | | |
Net Periodic Benefit Cost (Credit) for All Significant Plans | | Three Months Ended |
In millions | | | Mar 31, 2021 | Mar 31, 2020 |
Defined Benefit Pension Plans | | | | |
Service cost | | | $ | 8 | | $ | 9 | |
Interest cost | | | 19 | | 28 | |
Expected return on plan assets | | | (51) | | (50) | |
Amortization of net loss | | | 30 | | 27 | |
Curtailment gain | | | (7) | | 0 | |
Net periodic benefit cost (credit) | | | $ | (1) | | $ | 14 | |
| | | | |
Other Postretirement Benefit Plan | | | | |
| | | | |
Interest cost | | | $ | 1 | | $ | 1 | |
Amortization of net gain | | | (1) | | (1) | |
Net periodic benefit cost | | | $ | 0 | | $ | 0 | |
Net periodic benefit cost (credit), other than the service cost component, is included in "Sundry income (expense) - net" in the consolidated statements of accumulated other comprehensive loss for the three and nine months ended September 30, 2017 and 2016 is provided as follows:income.
|
| | | | | | | | | | | | | |
Reclassifications Out of Accumulated Other Comprehensive Loss | Three Months Ended | Nine Months Ended | Consolidated Statements of Income Classification |
Sep 30, 2017 | Sep 30, 2016 | Sep 30, 2017 | Sep 30, 2016 |
In millions |
Cumulative translation adjustments | $ | — |
| $ | — |
| $ | 3 |
| $ | — |
| See (1) below |
Pension and other postretirement benefits | 18 |
| 17 |
| 58 |
| 52 |
| See (2) below |
Tax benefit | (6 | ) | (6 | ) | (22 | ) | (20 | ) | See (3) below |
After-tax | 12 |
| 11 |
| 36 |
| 32 |
| |
Total reclassifications for the period, after-tax | $ | 12 |
| $ | 11 |
| $ | 39 |
| $ | 32 |
| |
| |
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 9 for additional information. |
| |
3. | "Provision for income taxes." |
NOTE 9 - PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS
|
| | | | | | | | | | | | |
Net Periodic Benefit Cost for All Significant Plans | Three Months Ended | Nine Months Ended |
In millions | Sep 30, 2017 | Sep 30, 2016 | Sep 30, 2017 | Sep 30, 2016 |
Defined Benefit Pension Plans: | | | | |
Service cost | $ | 10 |
| $ | 9 |
| $ | 28 |
| $ | 27 |
|
Interest cost | 33 |
| 33 |
| 97 |
| 99 |
|
Expected return on plan assets | (56 | ) | (54 | ) | (166 | ) | (162 | ) |
Amortization of net loss | 20 |
| 19 |
| 62 |
| 57 |
|
Net periodic benefit cost | $ | 7 |
| $ | 7 |
| $ | 21 |
| $ | 21 |
|
| | | | |
Other Postretirement Benefits: | | | | |
Interest cost | $ | 2 |
| $ | 2 |
| $ | 6 |
| $ | 6 |
|
Amortization of net gain | (2 | ) | (2 | ) | (4 | ) | (5 | ) |
Net periodic benefit cost | $ | — |
| $ | — |
| $ | 2 |
| $ | 1 |
|
Union Carbide Corporation and Subsidiaries
Notes to the Consolidated Financial Statements
NOTE 10 - FINANCIAL INSTRUMENTS
InvestmentsFAIR VALUE MEASUREMENTS
The Corporation's investments in marketable securitiesfinancial instruments are classified as available-for-sale. Proceeds from sales of available-for-sale securities were $2 million forLevel 2 measurements. For assets and liabilities classified as Level 2 measurements, where the nine-month period ended September 30, 2017 ($2 million in proceeds from the maturity of marketable securities for the nine-month period ended September 30, 2016).
For securitiessecurity 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.
The following table summarizes the fair value of the Corporation's financial instruments at March 31, 2021 and December 31, 2020: |
| | | | | | | | | | | | | | | | | | | | | | | | |
Fair Value of Financial Instruments | Sep 30, 2017 | Dec 31, 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 | ) | $ | — |
| $ | (134 | ) | $ | (609 | ) | $ | (476 | ) | $ | — |
| $ | (95 | ) | $ | (571 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Fair Value of Financial Instruments | Mar 31, 2021 | Dec 31, 2020 |
In millions | Cost | Gain | Loss | Fair Value | Cost | Gain | Loss | Fair Value |
Cash equivalents 1 | $ | 10 | | $ | 0 | | $ | 0 | | $ | 10 | | $ | 10 | | $ | 0 | | $ | 0 | | $ | 10 | |
| | | | | | | | |
Long-term debt including debt due within one year | $ | (393) | | $ | 0 | | $ | (114) | | $ | (507) | | $ | (393) | | $ | 0 | | $ | (120) | | $ | (513) | |
1. Marketable securities areMoney market fund is included in "Other investments""Cash and cash equivalents" in the consolidated balance sheets.sheets and held at amortized cost, which approximates fair value.
ForCost approximates fair value for all other financial instruments, cost approximates fair value.instruments.
NOTE 11 - RELATED PARTY TRANSACTIONS
A summary of the Corporation's related party transactions can be found in Note 19 to the Consolidated Financial Statements included in the 2020 10-K.
Product and Services Agreements
The Corporation sells its productsfollowing table summarizes UCC’s transactions with TDCC and a TDCC subsidiary related to Dow to simplify the customer interface process. Products are sold toproduct and purchased from Dow at market-based prices in accordance with the terms of Dow’s intercompany pricing policies. After each quarter, the Corporation and Dow analyze the pricing usedservices agreements for the sales in that quarterthree months ended March 31, 2021 and reach agreement2020:
| | | | | | | | | | | | | |
Product and Services Agreements Transactions | Three Months Ended | | |
| Mar 31, 2021 | Mar 31, 2020 | | | Income Statement Classification |
In millions |
TDCC Subsidiary: | | | | | |
Commodity and raw materials purchases 1 | $ | 483 | | $ | 231 | | | | Cost of sales |
Commission expense | $ | 6 | | $ | 5 | | | | Sundry income (expense) - net |
TDCC: | | | | | |
General administrative and overhead type services and service fee 2 | $ | 17 | | $ | 8 | | | | Sundry income (expense) - net |
Activity-based costs | $ | 19 | | $ | 23 | | | | Cost of sales |
1.Period-end balances on any necessary adjustments, at which point the priceshand are final. The Corporation also procures certain commodities and raw materials through a Dow subsidiary and pays a commission to that Dow subsidiary based on the volume and type of commodities and raw materials purchased. The commission expense is included in "Sundry income (expense) - net" in the consolidated statements of income. Purchases from that Dow subsidiary were $377 million in the third quarter of 2017 ($379 million in the third quarter of 2016) and $1,213 million in the first nine months of 2017 ($1,011 million in the first nine months of 2016).inventory. The increase in purchase costs in the first nine months of 2017 when compared with the same period last year iswas primarily due to higher feedstock and energy costs.costs, which reflect the impacts of Winter Storm Uri.
2.The increase in services and fees resulted from TDCC's periodic review of the actual cost of services provided to UCC in accordance with related agreements.
Dividends
The Corporation has a master services agreement with Dow whereby Dow provides services including, but not limitedfollowing table summarizes cash dividends declared and paid to accounting, legal, treasury (investments, cash management, risk management, insurance), procurement, human resources, environmental, healthTDCC for the three months ended March 31, 2021 and safety and business management for UCC. Under the master services agreement with Dow, general administrative and overhead type services that Dow 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 in expense of $8 million in the third quarter of 2017 ($7 million in the third quarter of 2016) and $24 million in the first nine months of 2017 ($21 million in the first nine months of 2016) for general administrative and overhead type services and the 10 percent service fee, included in "Sundry income (expense) - net" in the consolidated statements of income. The remaining activity-based costs were $20 million in the third quarter of 2017 ($19 million in the third quarter of 2016) and $60 million in the first nine months of 2017 ($53 million in the first nine months of 2016), and were included in "Cost of sales" in the consolidated statements of income.2020:
Management believes the method used for determining expenses charged by Dow is reasonable. Dow 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. | | | | | | | | | | | | |
Cash Dividends Declared and Paid | Three Months Ended | | |
| Mar 31, 2021 | Mar 31, 2020 | | | | |
In millions |
| | | | | | |
Cash dividends declared and paid | $ | 40 | | $ | 81 | | | | | |
The monitoring and execution of risk management policies related to interest rate and foreign currency risks, which are based on Dow’s risk management philosophy, are provided as a service to UCC.
As part of Dow’s cash management process, UCC is a party to revolving loans with Dow that have interest rates based on LIBOR (London Interbank Offered Rate) with varying maturities. At September 30, 2017, the Corporation had a note receivable of
Union Carbide Corporation and Subsidiaries
Notes to the Consolidated Financial Statements
$1.2 billion ($1.4 billion at December 31, 2016) from Dow under a revolving loan 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 Dow that allows the Corporation to borrow or obtain credit enhancements up to an aggregate of $1 billion that matures December 30, 2017. Dow 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, with cash collateral. At September 30, 2017, $949 million was available under the revolving credit agreement ($947 million at December 31, 2016). The cash collateral is reported as “Noncurrent receivables from related companies” in the consolidated balance sheets.
On a quarterly basis, the Corporation's Board of Directors reviews and determines if there will be a dividend distribution to its parent company and sole shareholder, Dow. The Board takes into consideration the level of earnings and cash flows, among other factors, in determining the amount of the dividend distribution. In the third quarter of 2017, the Corporation declared and paid a cash dividend of $181 million to Dow; dividends to Dow totaled $531 million in the first nine months of 2017. In the third quarter of 2016, the Corporation declared and paid a cash dividend of $55 million to Dow; dividends to Dow totaled $455 million in the first nine months of 2016.
NOTE 12 - MERGER WITH DUPONT
Effective August 31, 2017, Dow and DuPont completed the previously announced merger of equals transaction contemplated by the Agreement and Plan of Merger, dated as of December 11, 2015, as amended on March 31, 2017 (the "Merger Agreement"), by and among Dow, DuPont, DowDuPont, Diamond Merger Sub, Inc. and Orion Merger Sub, Inc. Pursuant to the Merger Agreement, (i) Diamond Merger Sub, Inc. was merged with and into Dow, with Dow surviving the merger as a subsidiary of DowDuPont (the "Diamond Merger") and (ii) Orion Merger Sub, Inc. was merged with and into DuPont, with DuPont surviving the merger as a subsidiary of DowDuPont (the "Orion Merger" and, together with the Diamond Merger, the "Mergers"). Following the consummation of the Mergers, each of Dow and DuPont became subsidiaries of DowDuPont (collectively, the "Merger"). Following the Merger, Dow and DuPont intend to pursue, subject to the receipt of regulatory approvals and 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. As a result of this change, it is expected that a portion of UCC's business will move to the specialty products business as part of the intended spin-off transactions, and the Corporation does not expect the intended spin-off transactions to have a material impact on the Consolidated Financial Statements.
|
| | |
Union Carbide Corporation and Subsidiaries |
ITEM 2. MANAGEMENT’S | | |
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Pursuant to General Instruction H ofH(1)(a) and (b) for Form 10-Q "Omission of Information by Certain Wholly-Owned Subsidiaries," the Corporation is filing this section includes only management's narrative analysis of the results of operations for the nine-month period ended September 30, 2017, the most recent period, comparedForm 10-Q with the nine-month period ended September 30, 2016, the corresponding period in the preceding fiscal year.a reduced disclosure format.
References 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.
DowTDCC conducts its worldwide operations through global businesses. Union Carbide Corporation’s (the "Corporation" or "UCC")UCC's business activities comprise components of Dow’sTDCC’s global operationsbusinesses 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.
Statements on COVID-19 and U.S. Gulf Coast Freeze
COVID-19
Additional information regarding all actions taken by UCC since the onset of the pandemic can be found in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2020 ("2020 10-K").
The pandemic caused by coronavirus disease 2019 ("COVID-19") has impacted all geographic regions where UCC's products are produced and sold. Dow Inc. (together, with TDCC and its consolidated subsidiaries, "Dow") directs global safety, crisis management and security protocols for all of Dow's assets and workforce, which includes the assets and workforce of UCC. During this public health crisis, Dow is focused on the health and safety of its employees, contractors, customers and suppliers around the world and maintaining the safe and reliable operations of its manufacturing sites. Although supply disruptions and related logistical issues have posed challenges across all modes of transportation, UCC’s manufacturing sites have continued to operate during the COVID-19 pandemic, with no significant impact to manufacturing whether through shutdowns or shortages in labor, raw materials or personal protective equipment. Supply chain and logistical challenges are expected to stabilize throughout 2021. Contingency plans remain in place in the event of significant impacts from COVID-19 infection resurgences.
A significant number of UCC employees continue to work remotely. The Corporation continues to encourage its workforce to practice safe behaviors in the workplace and while away from work to help prevent community spread of COVID-19. Dow and the Corporation continue to monitor ongoing mitigation efforts to appropriately implement Dow's comprehensive Return to Workplace plan. UCC sites continue to follow on-site workforce restrictions in accordance with government regulations.
Prior to the weather-related events on the U.S. Gulf Coast discussed below, most end-markets for UCC products had substantially recovered from the impacts of COVID-19 and the Corporation experienced improved demand and expected a return to pre-COVID-19 sales levels.
U.S. Gulf Coast Freeze
Beginning in mid-February 2021, Winter Storm Uri had a broad impact on the U.S. Gulf Coast and in particular across the entire state of Texas, resulting in widespread utility and raw material supply disruptions and industry-wide production outages. UCC's Texas City, Texas, ("Texas City") and Seadrift, Texas, ("Seadrift") operations were severely impacted with significant production disruptions that extended into mid-March at Seadrift and late March at Texas City, primarily due to precautionary shutdowns prior to the arrival of record low temperatures, raw material supply constraints and damage caused by extremely cold temperatures. While not as severely impacted, the Corporation's St. Charles, Louisiana, operations initiated certain precautionary shutdowns in anticipation of the record low temperatures and experienced raw material supply disruptions and equipment damage caused by the extreme cold. However, at March 31, 2021, UCC's ethylene production facilities and all sites were operational. As a result of the winter storm, the product and supply chain impacts created very tight industry supply fundamentals which resulted in higher raw material costs in addition to pricing momentum in certain end-markets.
RESULTS OF OPERATIONS
Net Sales
Total net sales were $1,215 million in the third quarter of 2017 compared with $1,248 million in the third quarter of 2016, a decrease of 3 percent. Total net sales were $3,835$1,003 million in the first nine monthsquarter of 20172021 compared with $3,721$1,042 million in the first nine monthsquarter of 2016, an increase2020, a decrease of 34 percent. Net sales to related companies, principally to Dow, and based on market prices for the related products,TDCC, were $1,184 million in the third quarter of 2017 compared with $1,221 million in the third quarter of 2016, a decrease of 3 percent. Net sales to related companies were $3,722$969 million in the first nine monthsquarter of 20172021 compared with $3,644$1,013 million in the first nine monthsquarter of 2016,2020, a decrease of 4 percent. Selling prices to TDCC are determined in accordance with the terms of an increase of 2 percent.agreement between UCC and TDCC.
Average selling pricesprice increased 513 percent in the thirdfirst quarter of 20172021 compared with the same quarter last year. Price increases across almost all products wereincreased primarily driven byin response to tight market supply as a result of hurricane-related supply disruptions, with the largest price increasesand demand fundamentals in polyethylene, ethylene oxide/ethylene glycol ("EO/EG"), oxo alcohols and vinyl acetate monomers. Total sales volume was down 8 percent in the third quarter of 2017 compared with the third quarter of 2016 as a result of hurricane-related production disruptions and the impact of planned maintenance turnarounds. Increases in sales volume in water soluble polymers and glutaraldehydes were more than offset by lower sales volume in electrical and telecommunications, polyethylene, EO/EG, glycol ethers and ethanolamines.
In the first nine months of 2017, average selling prices were up 5 percent with price increases in most products compared with the first nine months of 2016, driven byaddition to higher feedstock energy and other raw material costs, with the most significant price increases in polyethylene and tight market supply as a result of hurricane-related supply disruptions in the third quarter of 2017. Sales volumeacrylic monomers. Volume declined 17 percent in the first nine monthsquarter of 2017 was down 2 percent when2021 compared with the first nine months of 2016. Salessame quarter last year as the freeze and related impacts on the U.S. Gulf Coast severely limited production, with the most significant volume increasesdeclines in vinyl acetate monomers, acrylic monomersoxo alcohols, ethylene oxide/ethylene glycol and glutaraldehydes were more than offset by lower sales volume in electrical and telecommunications, EO/EG and oxo alcohols.glycol ethers.
Cost of Sales
Cost of sales were $991 million in the third quarter of 2017 compared with $957 million in the third quarter of 2016, an increase of 4 percent. Cost of sales increased 12 percent from $2,726was $1,037 million in the first nine monthsquarter of 2016 to $3,0562021 compared with $826 million in the first nine monthsquarter of 2017. Increases for the three- and nine-month periods ended September 30, 2017, were2020, an increase of 26 percent. The increase in cost of sales was driven by higher feedstock energy and other raw materialenergy costs, as well as increased planned maintenance turnaround spending when compared withrepair and start-up costs totaling approximately $30 million, resulting from the same periods last year, and hurricane-related production and supply disruptions and repair costs inrecord low temperatures that impacted the third quarter of 2017.
Research and Development ("R&D"), Selling, General and Administrative ("SG&A") Expenses
R&D expenses were $4 million in the third quarter of 2017 compared with $5 million in the third quarter of 2016. In the first nine months of 2017, R&D expenses were $14 million, flat when compared with the first nine months of 2016. SG&A expenses were $1 million in the third quarter of 2017 and the third quarter of 2016. In the first nine months of 2017, SG&A expenses were $4 million compared with $5 millionU.S. Gulf Coast in the first nine months of 2016.
Restructuring and Asset Related Charges - Net
In the third quarter of 2017, the Corporation approved restructuring actions that are aligned with DowDuPont’s synergy targets. 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. The impact of this charge is shown as “Restructuring and asset related charges - net” in the consolidated2021.
|
| | |
Union Carbide Corporation and Subsidiaries |
statements of income. See Note 3 to the Consolidated Financial Statements for additional information on the Corporation's restructuring activities.
Equity in Earnings of Nonconsolidated Affiliate
Equity in earnings of a nonconsolidated affiliate was zero in the third quarter of 2017 and the first nine months of 2017, compared with zero in the third quarter of 2016 and $3 million in the first nine months of 2016. On March 16, 2017, UCC entered into a share sale and purchase agreement to sell 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 of the shares of registered common stock owned by UCC. On April 24, 2017, the sale was completed for proceeds of $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.
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 income,TDCC, non-operating pension and other postretirement benefit plan credits or costs, commissions, gains and losses on sales of investments and assets. assets and gains and losses on foreign currency exchange.
Sundry income (expense) - net in the thirdfirst quarter of 20172021 was expense of $8$15 million compared with expense of $10$18 million in the same quarter last year. InThe decrease in the first nine monthsquarter of 2017, sundry2021 was primarily the result of non-operating pension benefit plan credits recognized in 2021 resulting from a remeasurement of pension plans to reflect the announced freeze of plan benefits, effective December 31, 2023, partially offset by an increase in charges for management services provided by TDCC.
Interest Income
Interest income (expense) - net was income of $6 million compared with income of $20$1 million in the first nine months of 2016. Sundry income (expense) - net includes the pretax gains on the sales of land at the Corporation's Texas City, Texas, site in the second quarters of 2016 and 2017.
Texas City, Texas, Land Sales
On June 27, 2016, UCC signed agreements for the sale of excess land at the Texas City, Texas, manufacturing site. As a result, in the second quarter of 2016, UCC recorded a pretax gain of $46 million on the sale of one parcel of land. On April 3, 2017, the Corporation sold a second parcel of land, which also included terminal assets and ancillary agreements for the supply of energy and site and terminal services, and recorded a pretax gain of $232021 compared with $7 million in the secondfirst quarter of 2017.2020. The decrease in interest income primarily resulted from the impact of the significant drop in interest rates due to the current interest rate environment.
Interest Expense and Amortization of Debt Discount
Interest expense and amortization of debt discount was $6 million in the third quarter of 2017 ($20$7 million in the first nine monthsquarter of 2017)2021 compared with $7 million in the third quarter of 2016 ($18$8 million in the first nine monthsquarter of 2016).2020, reflecting reduced interest expense resulting from the early extinguishment of debt in September 2020.
Provision (Credit) for Income Taxes
The Corporation reported a tax provisioncredit for income taxes of $152$15 million in the thirdfirst quarter of 2017,2021, which resulted in an effective tax rate of 77.6 percent. This23.4 percent, compared with a tax provision of $82$41 million in the thirdfirst quarter of 2016,2020, which resulted in an effective tax rate of 30.6 percent. In the first nine months of 2017, the Corporation reported a tax provision of $337 million, which resulted in an effective tax rate of 45.8 percent. This compared with a tax provision of $380 million in the first nine months of 2016, which resulted in an effective tax rate of 38.821.9 percent. The effective tax rate fluctuates based on, among other factors, where income is earned, dividends receivedearned.
Net Income (Loss) Attributable to UCC
The Corporation reported a net loss of $49 million in the first quarter of 2021 compared with net income of $146 million in the first quarter of 2020. The net loss reported in the first quarter of 2021 was driven primarily by production disruptions, higher feedstock and energy costs, and repair and start-up costs resulting from investmentsthe extreme weather caused by Winter Storm Uri.
Capital Expenditures
Capital spending in related companiesthe first quarter of 2021 was $23 million compared with $33 million in the first quarter of 2020. Capital spending decreased as spending for U.S. Gulf Coast projects and site infrastructure projects continues to trend down and the levelCorporation continues to limit capital expenditures to retain the financial strength of income relativethe Corporation and Dow Inc. while the COVID-19 economic recovery continues to tax credits available. Thegain traction.
Pension Plan Changes
On March 4, 2021, TDCC announced changes to the design of its U.S. tax-qualified and non-qualified pension plans, including the plans of the Corporation (the “UCC Plans”) and, effective tax rateDecember 31, 2023, the Corporation will freeze the pensionable compensation and credited service amounts used to calculate pension benefits for employees who participate in the thirdplans. Additionally, the Corporation contributed $545 million to its tax-qualified pension plan, of which $81 million was anticipated to satisfy minimum required contributions based on the pre-existing plan design and market conditions at December 31, 2020.
In connection with the foregoing plan amendments and inclusive of the additional discretionary contribution to the U.S. tax-qualified plan, the Corporation remeasured the UCC Plans effective February 28, 2021, which resulted in a decrease of $45 million in expected net periodic pension benefit cost for 2021, inclusive of a curtailment gain of $7 million, recognized in the first quarter of 2017 was impacted by2021. The Corporation expects a deferred gain related to the salenet periodic pension benefit cost credit of stock between UCC and Dowapproximately $5 million in 2014. The gain on the transaction was deferred for tax purposes, but with the activities that were executed in anticipation2021, inclusive of the intended separation of DowDuPont into three publicly traded companies, the gain became taxable, resulting in a charge to the tax provision of $97 million. In the second quarter of 2016, the Corporation adjusted the reserve for uncertain tax positions for a tax matter regarding the historical change in the legal ownership structure of a former nonconsolidated affiliate, resulting in a charge to the tax provision of $57 million.curtailment gain. See Note 49 to the Consolidated Financial Statements for additional information.information related to the Corporation's pension plans.
Net Income Attributable to UCC
The Corporation reported net income of $44 million in the third quarter of 2017 compared with $186 million in the third quarter of 2016. Net income in the first nine months of 2017 was $399 million compared with $599 million in the first nine months of 2016.
Capital Expenditures
Capital spending in the third quarter of 2017 was $47 million ($145 million in the first nine months of 2017) compared with $55 million in the third quarter of 2016 ($173 million in the first nine months of 2016), reflecting spending for U.S. Gulf Coast and site infrastructure projects in both years.
|
| | |
Union Carbide Corporation and Subsidiaries |
OTHER MATTERS
Recent Accounting Guidance
See Note 2 to the Consolidated Financial Statements for a summary of recent accounting guidance.
Critical Accounting PoliciesEstimates
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make judgments, assumptions and estimates that affect the amounts reported in the Consolidated Financial Statementsconsolidated financial statements and accompanying notes. Note 1 to the Consolidated Financial Statements in the Corporation’s Annual Report on FormCorporation's 2020 10-K for the year ended December 31, 2016 ("2016 10-K") describes the significant accounting policies and methods used in the preparation of the Consolidated Financial Statements.consolidated financial statements. The Corporation’s critical accounting policies that are impacted by judgments, assumptions and estimates are described in Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Corporation’s 20162020 10-K. Since December 31, 2016,2020, there have been no material changes in the Corporation’s critical accounting policies.policies that are impacted by judgments, assumptions and estimates.
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 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 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.consultants:
| | | | | | | | |
Asbestos-Related Claim Activity | 2021 | 2020 |
Claims unresolved at Jan 1 | 9,126 | | 11,117 | |
Claims filed | 1,110 | | 1,296 | |
Claims settled, dismissed or otherwise resolved | (1,428) | | (1,269) | |
Claims unresolved at Mar 31 | 8,808 | | 11,144 | |
Claimants with claims against both UCC and Amchem | (2,541) | | (3,809) | |
Individual claimants at Mar 31 | 6,267 | | 7,335 | |
|
| | | | |
Asbestos-Related Claim Activity | 2017 | 2016 |
Claims unresolved at Jan 1 | 16,141 |
| 18,778 |
|
Claims filed | 5,598 |
| 5,909 |
|
Claims settled, dismissed or otherwise resolved | (6,560 | ) | (7,052 | ) |
Claims unresolved at Sep 30 | 15,179 |
| 17,635 |
|
Claimants with claims against both UCC and Amchem | (5,544 | ) | (6,444 | ) |
Individual claimants at Sep 30 | 9,635 |
| 11,191 |
|
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 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 Asbestos-Related Matters in Note 76 to the Consolidated Financial Statements and Note 14 to the Consolidated Financial Statements included in the 2020 10-K, and Part II, Item 1. Legal Proceedings.
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 September 30, 2017.March 31, 2021.
|
| | |
Union Carbide Corporation and Subsidiaries |
Dividends
On a quarterly basis, the Corporation's Board of Directors (the "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 the thirdfirst quarter of 2017,2021, the Corporation declared and paid a cash dividend of $181$40 million to Dow; dividends paid to Dow totaled $531TDCC ($81 million in the first nine months of 2017. In the third quarter of 2016, the Corporation declared and paid a cash dividend of $55 million to Dow; dividends paid to Dow totaled $455 million in the first nine months of 2016. On November 2, 2017, the UCC Board of Directors approved a dividend to Dow of $72 million, payable on December 22, 2017.2020).
|
| | |
Union Carbide Corporation and Subsidiaries |
| | |
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Omitted pursuant to General Instruction H of Form 10-Q.
| | |
ITEM 4. CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Quarterly Report on Form 10-Q, 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 paragraph (b) of Exchange Act Rules 13a-15 and 15d-15. 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 and 15d-15 that was conducted during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Corporation's internal control over financial reporting.
Effective August 31, 2017, pursuant to the merger
| | |
Union Carbide Corporation and Subsidiaries PART II - OTHER INFORMATION |
PART II – OTHER INFORMATION
| | |
ITEM 1. LEGAL PROCEEDINGS |
Litigation
Asbestos-Related Matters
No material developments in asbestos-related matters occurred in the thirdfirst quarter of 2017.2021. For a current status of asbestos-related matters, see Note 76 to the Consolidated Financial Statements.
There wereSince December 31, 2020, there have been no material changes into the Corporation's risk factors in the third quarter of 2017.Risk Factors.
| | |
ITEM 4. MINE SAFETY DISCLOSURES |
Not applicable.
See the Exhibit Index of this Quarterly Report on Form 10-Q for exhibits filed with this report. | | | | | | | | | | | |
| EXHIBIT NO. | | DESCRIPTION |
| | | |
| | | Ankura Consulting Group, LLC's Consent. |
| | | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| | | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| 101.INS | | The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
| 101.SCH | | Inline XBRL Taxonomy Extension Schema Document. |
| 101.CAL | | Inline XBRL Taxonomy 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
|
| |
Union Carbide Corporation and Subsidiaries Signatures |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
UNION CARBIDE CORPORATION
Registrant
| | |
Date: November 6, 2017 | | |
| By: | /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 |
| | |
| | |
| By: | /s/ IGNACIO MOLINA |
| | Ignacio Molina |
| | Vice President, Treasurer and |
| | Chief Financial Officer |
|
|
Union Carbide Corporation/s/ IGNACIO MOLINA
|
Ignacio Molina Vice President, Treasurer and SubsidiariesExhibit Index
Chief Financial Officer |
|
| | |
EXHIBIT NO. | | DESCRIPTION |
| | |
| | Ankura Consulting Group, LLC's Consent. |
| | |
| | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | |
| | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | |
| | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| | |
| | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| | |
101.INS | | XBRL Instance Document. |
| | |
101.SCH | | XBRL Taxonomy Extension Schema Document. |
| | |
101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document. |
| | |
101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document. |
| | |
101.LAB | | XBRL Taxonomy Extension Label Linkbase Document. |
| | |
101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document. |