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 endedSEPTEMBERSeptember 30, 20172023
or
o☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________to___________
Commission File Number: 1-1463
UNION CARBIDE CORPORATIONUnion Carbide Corporation
(Exact name of registrant as specified in its charter)
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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.
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| Large accelerated filer | ☐ | | Accelerated filer | ☐ |
| Non-accelerated filer | ☑ | | Smaller reporting company | ☐ |
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Large accelerated filer o
| | Accelerated filer o
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Non-accelerated filer þ
| (Do not check if a smaller reporting company) | Smaller reporting company o
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| | 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,October 25, 2023, 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, 20172023
TABLE OF CONTENTS
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| Item 2. | | |
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| Item 4. | | |
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| Item 1. | | |
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| Item 1A. | | |
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| Item 6. | | |
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| 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 ABOUT 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 include, but are not limited to: sales of UCC's products; UCC's expenses, future revenues and profitability; any global and regional economic impacts of a pandemic or other public health-related risks and events on the Corporation’s business; any sanctions, export restrictions, supply chain disruptions or increased economic uncertainty related to the ongoing conflict between Russia and Ukraine; capital requirements and need for and availability of financing; unexpected barriers in the development of technology, including with respect to UCC’s contemplated capital and operating projects; significant litigation and environmental matters and related contingencies and unexpected expenses; the success of competing technologies that are or may become available; the ability to protect UCC's intellectual property in the United States and abroad; developments related to contemplated restructuring activities and proposed divestitures or acquisitions such as workforce reduction, manufacturing facility and/or asset closure and related exit and disposal activities, and the benefits and costs associated with each of the foregoing; fluctuations in energy and raw material prices; management of process safety and product stewardship; changes in consumer preferences and demand; changes in laws and regulations, political conditions or industry development; global economic and capital markets conditions, such as inflation, market uncertainty, interest and currency exchange rates, and equity and commodity prices; business or supply disruptions; security threats, such as acts of sabotage, terrorism or war, including the ongoing conflict between Russia and Ukraine; weather events and natural disasters; disruptions in the Corporation’s information technology networks and systems; and, since The Dow Chemical Company ("TDCC"), a wholly owned subsidiary of Dow Inc. (together, with TDCC and its consolidated subsidiaries, "Dow"), is the primary customer of UCC, Dow's ability to realize its commitment to carbon neutrality on the contemplated timeframe; the size of the markets for Dow’s products and services and its ability to compete in such markets; Dow's failure to develop and market new products and optimally manage product life cycles; the rate and degree of market acceptance of Dow’s products; and changes in relationships with Dow’s significant customers and suppliers.
Where, in any forward-looking statement, an expectation or belief as to future results or events is expressed, such expectation or belief is based on the current plans and expectations of management and expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the expectation or belief will result or be achieved or accomplished. A detailed discussion of principal risks and uncertainties which may cause actual results and events to differ materially from such forward-looking statements is included in the section titled "Risk Factors" (seecontained in Part II, Item 1A of this Quarterly Report on Form 10-Q and in Part I, Item 1A of the Corporation's Annual Report on Form 10-K for the year ended December 31, 2016). UCC undertakes2022. 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.
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| PART I - FINANCIAL INFORMATION |
PART I - FINANCIAL INFORMATION
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| ITEM 1. FINANCIAL STATEMENTS |
Union Carbide Corporation and Subsidiaries
Consolidated Statements of Income
| | | | Three Months Ended | Nine Months Ended | | Three Months Ended | Nine Months Ended |
| In millions (Unaudited) | Sep 30,
2017 | Sep 30,
2016 | Sep 30,
2017 | Sep 30,
2016 | In millions (Unaudited) | Sep 30,
2023 | Sep 30,
2022 | Sep 30,
2023 | Sep 30,
2022 |
| Net trade sales | $ | 31 |
| $ | 27 |
| $ | 113 |
| $ | 77 |
| Net trade sales | $ | 30 | | $ | 54 | | $ | 94 | | $ | 157 | |
| Net sales to related companies | 1,184 |
| 1,221 |
| 3,722 |
| 3,644 |
| Net sales to related companies | 1,108 | | 1,284 | | 3,284 | | 4,228 | |
| Total Net Sales | 1,215 |
| 1,248 |
| 3,835 |
| 3,721 |
| |
| Total net sales | | Total net sales | 1,138 | | 1,338 | | 3,378 | | 4,385 | |
| Cost of sales | 991 |
| 957 |
| 3,056 |
| 2,726 |
| Cost of sales | 1,007 | | 1,163 | | 2,913 | | 3,687 | |
| Research and development expenses | 4 |
| 5 |
| 14 |
| 14 |
| Research and development expenses | 5 | | 6 | | 16 | | 20 | |
| Selling, general and administrative expenses | 1 |
| 1 |
| 4 |
| 5 |
| Selling, general and administrative expenses | 2 | | 4 | | 8 | | 8 | |
| Restructuring and asset related charges - net | 8 |
| — |
| 10 |
| 2 |
| Restructuring and asset related charges - net | — | | — | | 14 | | — | |
| 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 | (22) | | (12) | | (67) | | (40) | |
| Interest income | | Interest income | 10 | | 6 | | 30 | | 9 | |
| Interest expense and amortization of debt discount | 6 |
| 7 |
| 20 |
| 18 |
| Interest expense and amortization of debt discount | 3 | | 6 | | 13 | | 20 | |
| Income Before Income Taxes | 196 |
| 268 |
| 736 |
| 979 |
| |
| Income before income taxes | | Income before income taxes | 109 | | 153 | | 377 | | 619 | |
| Provision for income taxes | 152 |
| 82 |
| 337 |
| 380 |
| Provision for income taxes | 23 | | 34 | | 79 | | 144 | |
| Net Income Attributable to Union Carbide Corporation | $ | 44 |
| $ | 186 |
| $ | 399 |
| $ | 599 |
| |
| Net income attributable to Union Carbide Corporation | | Net income attributable to Union Carbide Corporation | $ | 86 | | $ | 119 | | $ | 298 | | $ | 475 | |
| | | |
| Depreciation | $ | 45 |
| $ | 39 |
| $ | 132 |
| $ | 120 |
| Depreciation | $ | 37 | | $ | 41 | | $ | 113 | | $ | 124 | |
| Capital Expenditures | $ | 47 |
| $ | 55 |
| $ | 145 |
| $ | 173 |
| |
| Capital expenditures | | Capital expenditures | $ | 83 | | $ | 41 | | $ | 203 | | $ | 91 | |
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 | Nine Months Ended |
| In millions (Unaudited) | Sep 30,
2017 | Sep 30,
2016 | Sep 30,
2017 | Sep 30,
2016 | In millions (Unaudited) | Sep 30,
2023 | Sep 30,
2022 | Sep 30,
2023 | Sep 30,
2022 |
| Net Income Attributable to Union Carbide Corporation | $ | 44 |
| $ | 186 |
| $ | 399 |
| $ | 599 |
| |
| Other Comprehensive Income, Net of Tax | |
| |
| |
| |
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| Net income attributable to Union Carbide Corporation | | Net income attributable to Union Carbide Corporation | $ | 86 | | $ | 119 | | $ | 298 | | $ | 475 | |
| Other comprehensive income, net of tax | | Other comprehensive income, net of tax | | |
| Cumulative translation adjustments | 1 |
| — |
| 4 |
| — |
| Cumulative translation adjustments | — | | — | | 2 | | — | |
| Pension and other postretirement benefit plans | 12 |
| 11 |
| 36 |
| 32 |
| Pension and other postretirement benefit plans | 9 | | 19 | | 28 | | 57 | |
| Total other comprehensive income | 13 |
| 11 |
| 40 |
| 32 |
| Total other comprehensive income | 9 | | 19 | | 30 | | 57 | |
| 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 | $ | 95 | | $ | 138 | | $ | 328 | | $ | 532 | |
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) | Sep 30,
2023 | Dec 31,
2022 |
| Assets | | | Assets | | |
| Current Assets | | | Current Assets | | |
| Cash and cash equivalents | $ | 13 |
| $ | 11 |
| Cash and cash equivalents | $ | 10 | | $ | 10 | |
| Accounts receivable: |
|
|
|
| Accounts receivable: | | |
| Trade (net of allowance for doubtful receivables 2017: $-; 2016: $-) | 20 |
| 15 |
| |
| Trade (net of allowance for doubtful receivables 2023: $—; 2022: $—) | | Trade (net of allowance for doubtful receivables 2023: $—; 2022: $—) | 25 | | 40 | |
| Related companies | 893 |
| 843 |
| Related companies | 828 | | 766 | |
| Other | 48 |
| 36 |
| Other | 20 | | 24 | |
| Income taxes receivable | 242 |
| 275 |
| Income taxes receivable | 210 | | 211 | |
| Notes receivable from related companies | 1,257 |
| 1,411 |
| Notes receivable from related companies | 718 | | 958 | |
| Inventories | 299 |
| 307 |
| Inventories | 248 | | 256 | |
| Other current assets | 18 |
| 39 |
| Other current assets | 27 | | 38 | |
| Total current assets | 2,790 |
| 2,937 |
| Total current assets | 2,086 | | 2,303 | |
| 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 | 16 | | 23 | |
| Noncurrent receivables | 58 |
| 52 |
| Noncurrent receivables | 96 | | 91 | |
| Noncurrent receivables from related companies | 54 |
| 57 |
| Noncurrent receivables from related companies | 55 | | 61 | |
| Total investments | 776 |
| 792 |
| Total investments | 404 | | 412 | |
| Property | |
| |
| Property | | |
| Property | 7,243 |
| 7,144 |
| Property | 7,283 | | 7,104 | |
| Less accumulated depreciation | 5,837 |
| 5,750 |
| Less accumulated depreciation | 6,018 | | 5,922 | |
| Net property | 1,406 |
| 1,394 |
| Net property | 1,265 | | 1,182 | |
| Other Assets | |
| |
| Other Assets | | |
Intangible assets (net of accumulated amortization 2017: $80; 2016: $78) | 26 |
| 25 |
| |
| Intangible assets (net of accumulated amortization 2023: $102; 2022: $100) | | Intangible assets (net of accumulated amortization 2023: $102; 2022: $100) | 8 | | 9 | |
| Operating lease right-of-use assets | | Operating lease right-of-use assets | 104 | | 107 | |
| Deferred income tax assets | 797 |
| 928 |
| Deferred income tax assets | 232 | | 239 | |
| Deferred charges and other assets | 39 |
| 70 |
| Deferred charges and other assets | 41 | | 37 | |
| Total other assets | 862 |
| 1,023 |
| Total other assets | 385 | | 392 | |
| Total Assets | $ | 5,834 |
| $ | 6,146 |
| Total Assets | $ | 4,140 | | $ | 4,289 | |
| Liabilities and Equity | | | Liabilities and Equity | | |
| Current Liabilities | |
| |
| Current Liabilities | | |
| Notes payable to related companies | $ | 27 |
| $ | 25 |
| Notes payable to related companies | $ | 26 | | $ | 51 | |
| Notes payable - other | 2 |
| — |
| Notes payable - other | 2 | | 4 | |
| Long-term debt due within one year | 1 |
| 1 |
| Long-term debt due within one year | 3 | | 132 | |
| Accounts payable: |
|
|
|
| Accounts payable: | | |
| Trade | 253 |
| 249 |
| Trade | 388 | | 284 | |
| Related companies | 537 |
| 521 |
| Related companies | 426 | | 411 | |
| Other | 15 |
| 7 |
| Other | 21 | | 16 | |
| | Operating lease liabilities - current | | Operating lease liabilities - current | 22 | | 21 | |
| Income taxes payable | 103 |
| 23 |
| Income taxes payable | 30 | | 33 | |
| Asbestos-related liabilities - current | 132 |
| 126 |
| Asbestos-related liabilities - current | 80 | | 90 | |
| Accrued and other current liabilities | 189 |
| 181 |
| Accrued and other current liabilities | 161 | | 145 | |
| Total current liabilities | 1,259 |
| 1,133 |
| Total current liabilities | 1,159 | | 1,187 | |
| Long-Term Debt | 474 |
| 475 |
| Long-Term Debt | 260 | | 262 | |
| Other Noncurrent Liabilities | |
| |
| Other Noncurrent Liabilities | | |
| Pension and other postretirement benefits - noncurrent | 955 |
| 1,170 |
| Pension and other postretirement benefits - noncurrent | 279 | | 298 | |
| Asbestos-related liabilities - noncurrent | 1,266 |
| 1,364 |
| Asbestos-related liabilities - noncurrent | 804 | | 857 | |
| Operating lease liabilities - noncurrent | | Operating lease liabilities - noncurrent | 82 | | 87 | |
| Other noncurrent obligations | 174 |
| 206 |
| Other noncurrent obligations | 278 | | 254 | |
| Total other noncurrent liabilities | 2,395 |
| 2,740 |
| Total other noncurrent liabilities | 1,443 | | 1,496 | |
| 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) | — | | — | |
| Additional paid-in capital | 138 |
| 138 |
| Additional paid-in capital | 141 | | 141 | |
| Retained earnings | 2,848 |
| 2,980 |
| Retained earnings | 2,509 | | 2,605 | |
| Accumulated other comprehensive loss | (1,280 | ) | (1,320 | ) | Accumulated other comprehensive loss | (1,372) | | (1,402) | |
| Union Carbide Corporation's stockholder's equity | 1,706 |
| 1,798 |
| Union Carbide Corporation's stockholder's equity | 1,278 | | 1,344 | |
| | Total Liabilities and Equity | $ | 5,834 |
| $ | 6,146 |
| Total Liabilities and Equity | $ | 4,140 | | $ | 4,289 | |
Union Carbide Corporation and Subsidiaries
Consolidated Statements of Cash Flows
| | | | Nine Months Ended | | Nine Months Ended |
| In millions (Unaudited) | Sep 30,
2017 | Sep 30,
2016 | In millions (Unaudited) | Sep 30,
2023 | Sep 30,
2022 |
| Operating Activities | | | Operating Activities | | |
| Net Income Attributable to Union Carbide Corporation | $ | 399 |
| $ | 599 |
| |
| Net income attributable to Union Carbide Corporation | | Net income attributable to Union Carbide Corporation | $ | 298 | | $ | 475 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | Adjustments to reconcile net income to net cash provided by operating activities: | | |
| Depreciation and amortization | 148 |
| 138 |
| Depreciation and amortization | 132 | | 150 | |
| Provision (credit) for deferred income tax | 109 |
| (306 | ) | Provision (credit) for deferred income tax | (1) | | 8 | |
| 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 | 14 | | — | |
| Net periodic pension benefit cost | 21 |
| 21 |
| Net periodic pension benefit cost | 29 | | 6 | |
| Pension contributions | (162 | ) | (52 | ) | Pension contributions | (2) | | (2) | |
| | Other, net | — |
| (1 | ) | Other, net | (1) | | (2) | |
| Changes in assets and liabilities: | | | Changes in assets and liabilities: | | |
| Accounts and notes receivable | 10 |
| (3 | ) | Accounts and notes receivable | 19 | | 2 | |
| Related company receivables | 104 |
| (82 | ) | Related company receivables | 178 | | 297 | |
| Inventories | 8 |
| (24 | ) | Inventories | 8 | | (37) | |
| Accounts payable | 15 |
| (25 | ) | Accounts payable | 109 | | (37) | |
| Related company payables | 18 |
| 114 |
| Related company payables | (10) | | (69) | |
| Asbestos-related payments | (92 | ) | (39 | ) | Asbestos-related payments | (63) | | (58) | |
| Other assets and liabilities | 67 |
| 272 |
| Other assets and liabilities | 7 | | 128 | |
| Cash provided by operating activities | 625 |
| 562 |
| Cash provided by operating activities | 716 | | 860 | |
| Investing Activities | |
| |
| Investing Activities | | |
| Capital expenditures | (145 | ) | (173 | ) | Capital expenditures | (203) | | (91) | |
| Change in noncurrent receivable from related company | 3 |
| 7 |
| Change in noncurrent receivable from related company | 6 | | (1) | |
| Proceeds from sale of ownership interest in nonconsolidated affiliate | 22 |
| — |
| |
| | Proceeds from sales of property | 18 |
| 58 |
| Proceeds from sales of property | 2 | | 1 | |
| | Proceeds from sales of investments | 9 |
| 3 |
| Proceeds from sales of investments | 7 | | — | |
| Cash used in investing activities | (93 | ) | (105 | ) | |
| Cash used for investing activities | | Cash used for investing activities | (188) | | (91) | |
| Financing Activities | |
| |
| Financing Activities | | |
| Dividends paid to stockholder | (531 | ) | (455 | ) | |
| | Dividends paid to parent | | Dividends paid to parent | (394) | | (768) | |
| Changes in short-term notes payable | 2 |
| — |
| Changes in short-term notes payable | (2) | | — | |
| Payments on long-term debt | (1 | ) | (1 | ) | Payments on long-term debt | (132) | | (2) | |
| Cash used in financing activities | (530 | ) | (456 | ) | |
| | Cash used for financing activities | | Cash used for financing activities | (528) | | (770) | |
| Summary | |
| |
| Summary | | |
| Increase in cash and cash equivalents | 2 |
| 1 |
| |
| Cash and cash equivalents at beginning of year | 11 |
| 23 |
| |
| Decrease in cash and cash equivalents | | Decrease in cash and cash equivalents | — | | (1) | |
| Cash and cash equivalents at beginning of period | | Cash and cash equivalents at beginning of period | 10 | | 11 | |
| Cash and cash equivalents at end of period | $ | 13 |
| $ | 24 |
| Cash and cash equivalents at end of period | $ | 10 | | $ | 10 | |
See Notes to the Consolidated Financial Statements.
Union Carbide Corporation and Subsidiaries
Consolidated Statements of Equity
| | | | | | | | | | | | | | Three Months Ended | Nine Months Ended |
| In millions (Unaudited) | Common Stock | Additional Paid-in Capital | Retained Earnings | Accum. Other Comp Loss | Total Equity | In millions (Unaudited) | Sep 30,
2023 | Sep 30,
2022 | Sep 30,
2023 | Sep 30,
2022 |
| 2016 | | | |
| Balance at Jan 1, 2016 | $ | — |
| $ | 138 |
| $ | 3,391 |
| $ | (1,228 | ) | $ | 2,301 |
| |
| Common Stock | | Common Stock | | | |
| Balance at beginning and end of period | | Balance at beginning and end of period | $ | — | | $ | — | | $ | — | | $ | — | |
| Additional Paid-in Capital | | Additional Paid-in Capital | | | |
| Balance at beginning and end of period | | Balance at beginning and end of period | 141 | | 141 | | 141 | | 141 | |
| | Retained Earnings | | Retained Earnings | | | |
| Balance at beginning of period | | Balance at beginning of period | 2,567 | | 2,909 | | 2,605 | | 3,074 | |
| | Net income attributable to Union Carbide Corporation | — |
| — |
| 599 |
| — |
| 599 |
| Net income attributable to Union Carbide Corporation | 86 | | 119 | | 298 | | 475 | |
| Dividends declared | | Dividends declared | (144) | | (247) | | (394) | | (768) | |
| | Balance at end of period | | Balance at end of period | 2,509 | | 2,781 | | 2,509 | | 2,781 | |
| Accumulated Other Comprehensive Loss, Net of Tax | | Accumulated Other Comprehensive Loss, Net of Tax | | | |
| Balance at beginning of period | | Balance at beginning of period | (1,381) | | (1,513) | | (1,402) | | (1,551) | |
| | Other comprehensive income | — |
| — |
| — |
| 32 |
| 32 |
| Other comprehensive income | 9 | | 19 | | 30 | | 57 | |
| 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 |
| |
| Balance at end of period | | Balance at end of period | (1,372) | | (1,494) | | (1,372) | | (1,494) | |
| Union Carbide Corporation's Stockholder's Equity | | Union Carbide Corporation's Stockholder's Equity | $ | 1,278 | | $ | 1,428 | | $ | 1,278 | | $ | 1,428 | |
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, 2022 ("2022 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.
TDCC conducts its worldwide operations through global businesses. The Corporation’s business activities comprise components of Dow’sTDCC’s global operations rather than stand-alone operations. Dow 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") issuedfirst quarter of 2023, the Corporation adopted the interim period disclosure requirements of Accounting Standards Update ("ASU") 2014-09, "Revenue from Contracts with Customers (Topic 606),2022-04, "Liabilities — Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations." 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, revisedSeptember 2022, requires disclosures intended to enhance the effective date for this ASUtransparency of supplier finance programs. Specifically, the amendments require buyers in a supplier finance program to annual and interim periods beginning on or after December 15, 2017, with early adoption permitted, but not earlier thandisclose sufficient information about 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 eitherprogram to allow 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"), consistinguser of financial statement preparers, auditors and users,statements 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, 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, timingprogram’s nature, activity during the period, changes from period to period 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, "Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory," which requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs.potential magnitude. The amendments are effective for fiscal years andbeginning after December 15, 2022, including interim periods within those fiscal years, beginning after December 15, 2017,except for disclosure of rollforward information, which is required to be disclosed annually 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. The Corporation will adopt the new guidance in the first quarter of 2018 and the adoption of this guidance will not have a material impact on the 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 entity2023. Early adoption is requiredpermitted. The amendments should be applied retrospectively to apply the amendments at the same time that it applies the amendmentseach period in ASU 2014-09.which a balance sheet is presented, except for disclosure of rollforward information, which should be applied prospectively. The Corporation is planningexpects to applyearly adopt the new guidance with the implementation of the new revenue standardannual requirement to disclose rollforward information prospectively beginning 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 requirements2023 annual financial statements. See Note 6 for disclosures related to the income statement presentationCorporation's supplier finance program.
NOTE 3 - REVENUE
Substantially all of the componentsCorporation's revenue is generated by sales of net periodic benefit costproducts 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 sells its products to TDCC to simplify the customer interface process.
The Corporation’s contract liabilities include payments received in advance of performance under long-term contracts for employer sponsored defined benefit pensionproduct sales and other
Union Carbideroyalties with remaining contract terms that range up to 17 years. Amounts are recognized in revenue when the performance obligations for the contract are met. The Corporation and Subsidiaries
Noteshas rights to additional consideration when product is delivered to the Consolidated Financial Statementscustomer. The balance of contract liabilities was $31 million at September 30, 2023 ($33 million at December 31, 2022), of which $2 million ($2 million at December 31, 2022) was included in "Accrued and other current liabilities" and $29 million ($31 million at December 31, 2022) was included in "Other noncurrent obligations" in the consolidated balance sheets.
postretirement benefit plans. UnderThe Corporation disaggregates its revenue from contracts with customers by type of customer (net sales to related companies and net sales to trade customers) as presented in the new guidance, an entity must disaggregateconsolidated statements of income and presentbelieves this disaggregation best depicts the service cost componentnature, amount, timing and uncertainty of its revenue and cash flows. Substantially all 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 costproduct sales are made to the service component. The Corporation is currently evaluating the impact of adopting this guidance.Corporation's parent company, TDCC, and there are no unique economic factors that affect revenue recognition and cash flows associated with these product sales.
NOTE 34 - RESTRUCTURING AND ASSET RELATED CHARGES - NET
2023 Restructuring Program
In September 2017,the first quarter of 2023, the Corporation approvedinitiated restructuring actions that are aligned with DowDuPont’s synergy targets.to achieve its structural cost improvement initiatives in response to the continued economic impact from the global recessionary environment and to enhance its agility and long-term competitiveness across the economic cycle. The program includes workforce cost reductions and actions to rationalize the Corporation's manufacturing assets, which includes asset write-down and write-off charges. As a result of these actions, the Corporation recorded a pretax restructuring chargecharges of $14 million, included in "Restructuring and asset related charges - net" in the consolidated statements of income. The charges consisted of severance and related benefit costs of $12 million and asset write-downs and write-offs of $2 million. These actions are expected to be substantially complete by the end of 2024. The Corporation paid $9 million for severance and related benefit costs through September 30, 2023.
At September 30, 2023, a liability 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.
The Corporation expects to incur additional costsincluded in the future related to restructuring activities, as UCC continually looks for ways to enhance the efficiency"Accrued and cost effectiveness of its operations. The Corporation expects to incur additional employee-related costs, including involuntary termination benefits, related to its other optimization activities. These costs cannot be reasonably estimated at this time.
NOTE 4 - INCOME TAXES
A transaction for the sale of stock between the Corporationcurrent liabilities" and Dow$2 million 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 sheets and recorded a charge to “Provision for income taxes” in the consolidated statements of income of $97 million. sheets.
The total amount 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 was 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 proceedings 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.
Interest and penalties 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).
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 5 - INVENTORIES
The following table provides a breakdown of inventories:
| | | | | | | | |
| Inventories | Sep 30, 2023 | Dec 31, 2022 |
| In millions |
| Finished goods | $ | 193 | | $ | 218 | |
| Work in process | 37 | | 37 | |
| Raw materials | 62 | | 76 | |
| Supplies | 94 | | 87 | |
| Total | $ | 386 | | $ | 418 | |
| Adjustment of inventories to the LIFO basis | (138) | | (162) | |
| Total inventories | $ | 248 | | $ | 256 | |
|
| | | | | | |
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 6 - INTANGIBLE ASSETSSUPPLIER FINANCE PROGRAM
The following table provides information regardingCorporation is a party to a supply chain financing (“SCF”) program, facilitated by TDCC, which can be used in the Corporation’s intangible assets:
|
| | | | | | | | | | | | | | | | | | |
| 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 2017ordinary course of business to extend payment terms with the Corporation's vendors. Under the terms of this program, a vendor can voluntarily enter into an agreement with a participating financial intermediary to sell its receivables due from the Corporation. The vendor receives payment from the financial intermediary, and the five succeeding fiscal yearsCorporation pays the financial intermediary on the terms originally negotiated with the vendor, which generally range from 90 to 120 days. The vendor negotiates the terms of the agreements directly with the financial intermediary and the Corporation is as follows:
|
| | | |
Estimated Amortization Expense
|
| In millions |
| 2017 | $ | 4 |
|
| 2018 | $ | 6 |
|
| 2019 | $ | 6 |
|
| 2020 | $ | 6 |
|
| 2021 | $ | 4 |
|
| 2022 | $ | 2 |
|
Union Carbidenot a party to that agreement. The financial intermediary may allow the participating vendor to utilize TDCC's creditworthiness in establishing credit spreads and associated costs, which may provide the vendor with more favorable terms than they would be able to secure on their own. Neither TDCC nor the Corporation and Subsidiaries
Notesprovide guarantees related to the Consolidated Financial StatementsSCF program. At September 30, 2023, the Corporation's outstanding obligations confirmed as valid under the SCF program were $25 million ($29 million at December 31, 2022), included in “Accounts payable – Trade” in the consolidated balance sheets.
NOTE 7 - COMMITMENTS AND CONTINGENT LIABILITIESCONTINGENCIES
A summary of the Corporation's commitments and contingencies can be found in Note 13 to the Consolidated Financial Statements included in the 2022 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, 2017,2023, the Corporation had accrued obligations of $119$203 million for probable environmental remediation and restoration costs ($183 million at December 31, 2022), including $20$37 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.sites ($36 million at December 31, 2022). This is management’s best estimate of the costs for remediation and restoration with respect to environmental matters for which the Corporation has accrued liabilities, although it is reasonably possible that the ultimate cost with respect to these particular matters could range up to approximately threetwo times that amount. Consequently, it is reasonably possible that environmental remediation and restoration costs in excess of amounts accrued could have a material impact on the Corporation's results of operations, financial condition and cash flows. It is the opinion of the Corporation’s management that the possibility is remote that costs in excess of the range disclosed will have a material impact on the Corporation’s results of operations, financial condition and cash flows. Inherent uncertainties exist in these estimates primarily due to unknown environmental conditions, changing governmental regulations and legal standards regarding liability, and emerging remediation technologies for handling site remediation and restoration. At December 31, 2016,As new or additional information becomes available and/or certain spending trends become known, management will evaluate such information in determination of the current estimate of the environmental liability.
During the first quarter of 2022, the Corporation had accrued obligationsrecorded a pretax charge of $145$37 million, for probableincluded in "Cost of sales" in the consolidated statements of income, related to environmental remediation and restoration costs, including $20 million for the remediation of Superfund sites.
Litigation
The Corporation is involved inat a number of legal proceedingscurrent and claims with both privatehistorical locations. The charge primarily resulted from updated remediation estimates and governmental parties. These cover a wide rangescope changes on existing matters.
Litigation
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 asbestos-related 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 20172023 activity, it was determined that no adjustment to the accrual was required at September 30, 2017.2023.
The Corporation’s total asbestos-related liability for pending and future claims and defense and processing costs was $1,398$884 million at September 30, 2017,2023 ($947 million at December 31, 2022), and was included in “Asbestos-related liabilities - current” and “Asbestos-related liabilities - noncurrent” in the consolidated balance sheets. At September 30, 2023, approximately 1523 percent of the recorded claim liability related to pending claims and approximately 8577 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 8 - 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 14 to the Consolidated Financial Statements included in the 2022 10-K.
The components of operationslease cost for operating and cash flowsfinance leases for a particular periodthe three and on the consolidated financial position.ninemonths ended September 30, 2023 and 2022 were as follows:
Other Litigation | | | | | | | | | | | | | | |
| Lease Cost | Three Months Ended | Nine Months Ended |
| In millions | Sep 30, 2023 | Sep 30, 2022 | Sep 30, 2023 | Sep 30, 2022 |
| Operating lease cost | $ | 6 | | $ | 6 | | $ | 19 | | $ | 18 | |
| Short-term lease cost | 11 | | 7 | | 32 | | 23 | |
| Variable lease cost | 3 | | 5 | | 15 | | 14 | |
| | | | |
| Amortization of right-of-use assets - finance | — | | 1 | | 2 | | 2 | |
| | | | |
| Total lease cost | $ | 20 | | $ | 19 | | $ | 68 | | $ | 57 | |
While it is not possible at this time to determine with certainty the ultimate outcome
NOTE 89 - ACCUMULATED OTHER COMPREHENSIVE LOSS
The following table summarizeschanges in the changes and after-tax balances offor each component of accumulated other comprehensive loss for the nine months ended September 30, 2017 and 2016:
|
| | | | | | | | | |
| 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 and Subsidiaries
Notes to the Consolidated Financial Statements
The tax effects on the net activity related to each component of accumulated other comprehensive income (loss)("AOCL") for the three and nine months ended September 30, 20172023 and 20162022 were as follows:
| | | | | | | | | | | | | | |
| Accumulated Other Comprehensive Loss | Three Months Ended | Nine Months Ended |
| In millions | Sep 30, 2023 | Sep 30, 2022 | Sep 30, 2023 | Sep 30, 2022 |
| Cumulative Translation Adjustment | | | | |
| Beginning balance | $ | (52) | | $ | (53) | | $ | (54) | | $ | (53) | |
| Unrealized gains (losses) on foreign currency translation | — | | — | | 2 | | — | |
| | | | |
| | | | |
| | | | |
| | | | |
| Ending balance | $ | (52) | | $ | (53) | | $ | (52) | | $ | (53) | |
| Pension and Other Postretirement Benefits | | | | |
| Beginning balance | $ | (1,329) | | $ | (1,460) | | $ | (1,348) | | $ | (1,498) | |
| | | | |
| | | | |
| | | | |
Amortization of net loss and prior service credit reclassified from AOCL to net income 1 | 12 | | 25 | | 37 | | 74 | |
Tax expense (benefit) 2 | (3) | | (6) | | (9) | | (17) | |
| Net loss and prior service credit reclassified from AOCL to net income | 9 | | 19 | | 28 | | 57 | |
| | | | |
| Ending balance | $ | (1,320) | | $ | (1,441) | | $ | (1,320) | | $ | (1,441) | |
| Total AOCL ending balance | $ | (1,372) | | $ | (1,494) | | $ | (1,372) | | $ | (1,494) | |
1.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 10 for additional information.
2.Reclassified to "Provision for income taxes."
|
| | | | | | | | | | | | |
| 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 |
|
NOTE 10 - PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
A summary of the reclassifications out of accumulatedCorporation's pension and other comprehensive loss for the three and nine months ended September 30, 2017 and 2016 is provided as follows:
|
| | | | | | | | | | | | | |
| 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. | Includedpostretirement benefit plans can be found 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 included in the 2022 10-K. The following table provides the components of the Corporation's net periodic benefit cost (credit) for all significant plans:
| | | | | | | | | | | | | | |
| Net Periodic Benefit Cost (Credit) for All Significant Plans | Three Months Ended | Nine Months Ended |
| In millions | Sep 30, 2023 | Sep 30, 2022 | Sep 30, 2023 | Sep 30, 2022 |
| Defined Benefit Pension Plans | | | | |
| Service cost | $ | 8 | | $ | 10 | | $ | 25 | | $ | 28 | |
| Interest cost | 38 | | 21 | | 112 | | 67 | |
| Expected return on plan assets | (52) | | (57) | | (156) | | (170) | |
| Amortization of prior service credit | — | | — | | — | | (1) | |
| Amortization of net loss | 16 | | 28 | | 48 | | 82 | |
| Net periodic benefit cost | $ | 10 | | $ | 2 | | $ | 29 | | $ | 6 | |
| | | | |
| Other Postretirement Benefit Plan | | | | |
| Service cost | $ | — | | $ | 1 | | $ | — | | $ | 1 | |
| Interest cost | 2 | | 1 | | 5 | | 3 | |
| Amortization of net gain | (4) | | (3) | | (11) | | (7) | |
| Net periodic benefit credit | $ | (2) | | $ | (1) | | $ | (6) | | $ | (3) | |
Net periodic benefit cost (credit), other than the service cost component, is included in "Sundry income (expense) - net" in the consolidated statements of income.
NOTE 1011 - 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 September 30, 2023 and December 31, 2022: |
| | | | | | | | | | | | | | | | | | | | | | | | |
| 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 | Sep 30, 2023 | Dec 31, 2022 |
| In millions | Cost | Gain | Loss | Fair Value | Cost | Gain | Loss | Fair Value |
Cash equivalents 1 | $ | 10 | | $ | — | | $ | — | | $ | 10 | | $ | 10 | | $ | — | | $ | — | | $ | 10 | |
| | | | | | | | |
| Long-term debt including debt due within one year | $ | (263) | | $ | — | | $ | (20) | | $ | (283) | | $ | (394) | | $ | — | | $ | (29) | | $ | (423) | |
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,instruments.
Fair Value Measurements on a Nonrecurring Basis
As part of the 2023 Restructuring Program, the Corporation rationalized its manufacturing assets to achieve its structural cost approximates fair value.improvement initiatives. In the first quarter of 2023, the manufacturing assets associated with this plan, classified as Level 3 measurements and valued using unobservable inputs, were written down to zero and the Corporation recorded an impairment charge of $2 million, which was included in "Restructuring and asset related charges - net" in the consolidated statements of income.
NOTE 1112 - RELATED PARTY TRANSACTIONS
The Corporation sells its products to Dow to simplifyA summary of the customer interface process. Products are sold to and purchased from Dow at market-based pricesCorporation's related party transactions can be found in accordance with the terms of Dow’s intercompany pricing policies. After each quarter, the Corporation and Dow analyze the pricing used for the sales in that quarter and reach agreement on any necessary adjustments, at which point the prices are final. The Corporation also procures certain commodities and raw materials 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). The increase in purchase costs in the first nine months of 2017 when compared with the same period last year is due to higher feedstock and energy costs.
The Corporation has a master services agreement with Dow whereby Dow provides services including, but not limited to, accounting, legal, treasury (investments, cash management, risk management, insurance), procurement, human resources, environmental, health 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.
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.
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
NotesNote 18 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 included in the consolidated statements of cash flows as an operating activity.2022 10-K.
Product and Services Agreements
The Corporation also hasfollowing table summarizes UCC’s transactions with TDCC and a separate revolving credit agreement with Dow that allows the CorporationTDCC subsidiary related 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 providesproduct and services agreements for the replacement of certain existing pledged assets, primarily equity interests in various subsidiaries, with cash collateral. Atthree and nine months ended September 30, 2017, $949 million2023 and 2022:
| | | | | | | | | | | | | | | | | |
| Product and Services Agreements Transactions | Three Months Ended | Nine Months Ended | |
| Sep 30, 2023 | Sep 30, 2022 | Sep 30, 2023 | Sep 30, 2022 | Income Statement Classification |
| In millions |
| TDCC Subsidiary: | | | | | |
Commodity and raw material purchases 1 | $ | 286 | | $ | 518 | | $ | 867 | | $ | 1,586 | | Cost of sales |
| Commission expense | $ | 5 | | $ | 5 | | $ | 15 | | $ | 15 | | Sundry income (expense) - net |
| TDCC: | | | | | |
| General administrative and overhead type services and service fee | $ | 17 | | $ | 16 | | $ | 51 | | $ | 48 | | Sundry income (expense) - net |
Activity-based costs 2 | $ | 23 | | $ | 24 | | $ | 74 | | $ | 66 | | Cost of sales |
1.Period-end balances on hand are included in inventory. The decrease in purchase costs was available underprimarily due to lower feedstock and energy costs and lower production.
2.The year-to-date increase in activity-based costs was primarily due to labor expense for engineering related to capital investment activity on the revolving credit agreement ($947 million at December 31, 2016). U.S. Gulf Coast.
The following table summarizes 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 Corporationdividends declared and paid a cash dividend of $181 million to Dow; dividends to Dow totaled $531 million inTDCC for the firstthree and nine months of 2017. In the third quarter of 2016, the Corporation declaredended September 30, 2023 and paid a cash dividend of $55 million to Dow; dividends to Dow totaled $455 million in the first nine months of 2016.2022:
| | | | | | | | | | | | | | |
| Cash Dividends Declared and Paid | Three Months Ended | Nine Months Ended |
| Sep 30, 2023 | Sep 30, 2022 | Sep 30, 2023 | Sep 30, 2022 |
| In millions |
| | | | |
| Cash dividends declared and paid | $ | 144 | | $ | 247 | | $ | 394 | | $ | 768 | |
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.
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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.
Seadrift Operations Unplanned Shutdown
On October 19, 2023, the Corporation’s manufacturing site in Seadrift, Texas, (“Seadrift”) initiated a sequenced site shutdown necessary to repair an underground water leak. Seadrift operations, which primarily produces polyethylene, ethylene oxide, ethylene glycol, glycol ethers and plastics used in wire and cable applications, is expected to be shut down for a minimum of 7 days.
RESULTS OF OPERATIONS
Net Sales
Total net sales were $1,215$3,378 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 million infor the first nine months of 20172023 compared with $3,721$4,385 million infor the first nine months of 2016, an increase2022, a decrease of 323 percent. Net sales to related companies, principally to Dow, and based on market pricesTDCC, were $3,284 million for the related products, 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 million in the first nine months of 20172023 compared with $3,644$4,228 million infor the first nine months of 2016,2022, a decrease of 22 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 prices increased 5 percent in the third quarter of 2017 compared with the same quarter last year. Price increases across almost all products were primarily driven by tight market supply as a result of hurricane-related supply disruptions, with the largest price increases 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.
Infor the first nine months of 2017, average selling prices were up 52023 decreased 18 percent with price increases in most products compared with the first nine months of 2016, driven by higher feedstock, energy and other2022. Price decreased in almost all product lines in response to lower raw material costs and tight market supply as a result of hurricane-related supply disruptions in the third quarter of 2017. Sales volume infeedstock costs. Volume for the first nine months of 2017 was down 22023 decreased 5 percent when compared with the first nine months of 2016. Sales volume increases2022, with decreases across almost all product lines. Volume decreases were primarily in vinyl acetate monomers, acrylic monomers and glutaraldehydes were more than offset by lower sales volume in electrical and telecommunications, EO/EGsurfactants, glycol ethers and oxo alcohols.alcohols, which were negatively impacted by various factors, including reduced demand, internal and external raw material supply limitations, including impacts from the July 2023 explosion and fire at TDCC's Louisiana Operations Glycol-2 unit in Plaquemine, Louisiana, and planned maintenance turnaround activities.
Cost of Sales
Cost of sales were $991was $2,913 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 $2,726 million infor the first nine months of 2016 to $3,0562023 compared with $3,687 million infor the first nine months of 2017. Increases for the three- and nine-month periods ended September 30, 2017, were2022, a decrease of 21 percent. The decrease in cost of sales was driven primarily by higher feedstock, energy and otherlower raw material, feedstock and energy costs as well as increasedon lower volume, partially offset by spending for large planned maintenance turnaround spending when compared withprojects at the same periods last year, and hurricane-related production and supply disruptions and repair costsCorporation's manufacturing site in the third quarterSt. Charles, Louisiana. Cost of 2017.
Research and Development ("R&D"), Selling, General and Administrative ("SG&A") Expenses
R&D expenses were $4 million in the third quartersales as a percentage of 2017 compared with $5 million in the third quarter of 2016. Innet sales was 86.2 percent for the first nine months of 2017, R&D expenses were $14 million, flat when2023 compared with 84.1 percent for 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 million in the first nine months of 2016.2022.
Restructuring and Asset Related Charges - Net
In the thirdfirst quarter of 2017,2023, the Corporation approvedinitiated restructuring actions that are aligned with DowDuPont’s synergy targets.to achieve its structural cost improvement initiatives in response to the continued economic impact from the global recessionary environment and to enhance
its agility and long-term competitiveness across the economic cycle. The program includes workforce cost reductions and actions to rationalize the Corporation's manufacturing assets, which include asset write-down and write-off charges. As a result of these actions, the Corporation recorded a pretax restructuring charge for severance and related benefit costscharges of $8$14 million, included in the third quarter of 2017. The impact of this charge is shown as “Restructuring"Restructuring and asset related charges - net”net" in the consolidated
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Union Carbide Corporation and Subsidiaries |
statements of income. See Note 34 to the Consolidated Financial Statements for additional information onabout the Corporation's restructuring activities.activities and related charges.
Equity in Earnings of Nonconsolidated Affiliate
Equity in earnings of a nonconsolidated affiliate was zeroThe Corporation expects to incur additional costs in the third quarter of 2017future related to its restructuring activities. Future costs are expected to include demolition costs related to closed facilities 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 agreementrestructuring plan implementation costs; these costs will be recognized as incurred. The Corporation also expects to sellincur additional employee-related costs, including involuntary termination benefits, related to 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.other optimization activities. These costs cannot be reasonably estimated at this time.
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, losses on early extinguishment of debt and gains and losses on foreign currency exchange.
Sundry income (expense) -– net in the third quarter of 2017 was expense of $8 million compared with expense of $10 million in the same quarter last year. In the first nine months of 2017, sundry income (expense) - net2023 was incomeexpense of $6$67 million compared with income of $20$40 million in the first nine months of 2016. Sundry2022. The increase was primarily the result of lower net non-operating pension and other postretirement benefit plan credits resulting from higher interest cost and lower expected return on assets, partially offset by lower net actuarial loss amortization related to the plans. See Note 10 to the Consolidated Financial Statements for additional information about the Corporation's pension and other postretirement benefit plans.
Interest Income
Interest income (expense) - net includeswas $30 million for the pretax gainsfirst nine months of 2023 compared with $9 million for the first nine months of 2022. The increase in interest income primarily resulted from the significant increase in the interest rate on the sales of land atCorporation's note receivable from TDCC since 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 secondfirst 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 $23 million in the second quarter of 2017.2022.
Interest Expense and Amortization of Debt Discount
Interest expense and amortization of debt discount was $6 million in the third quarter of 2017 ($20$13 million in the first nine months of 2017)2023 compared with $7 million in the third quarter of 2016 ($18$20 million in the first nine months of 2016).2022, reflecting reduced interest expense resulting from the maturity and payment of long-term debt of $129 million in April 2023.
Provision for Income Taxes
The Corporation reported a tax provision of $152 million in the third quarter of 2017, which resulted in an effective tax rate of 77.6 percent. This compared with a tax provision of $82 million in the third quarter of 2016, which resulted in an effective tax rate of 30.6 percent. Inis subject primarily to U.S. federal and state taxes. For the first nine months of 2017,2023, the Corporation reported a tax provision of $337$79 million, which resulted in an effective tax rate of 45.8 percent. This21.0 percent compared with a tax provision of $380$144 million infor the first nine months of 2016,2022, which resulted in an effective tax rate of 38.823.3 percent. The effective tax rate fluctuates based on, among other factors, where income is earned, dividends received from investments in related companies and the level of income relative to tax credits available. The effective tax rate for the third quarterfirst nine months of 20172023 was favorably impacted by a deferred gain related to the sale of stock between UCC and Dow in 2014. The gaininterest accrued on the transaction was deferred for tax purposes, but with the activities that were executed in anticipation 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. See Note 4 to the Consolidated Financial Statements for additional information.receivables.
Net Income Attributable to UCC
The Corporation reported net income of $44$298 million infor the third quarterfirst nine months of 20172023 compared with $186$475 million infor the third quarterfirst nine months of 2016. Net income2022.
Capital Expenditures
Capital expenditures in the first nine months of 2017 was $3992023 were $203 million compared with $599$91 million in the first nine months of 2016.2022, as the Corporation increased investment in production assets and environmental protection projects, primarily on the U.S. Gulf Coast.
Capital ExpendituresPension Plans
Capital spendingThe Corporation expects to pursue certain de-risking opportunities for its pension plans, including annuitization and risk transfer of certain pension liabilities. If executed, the transactions will result in a non-operating and non-cash settlement charge in the third quarterrange of 2017 was $47$100 million ($145to $200 million in the first nine months of 2017) compared with $55 million in the thirdfourth 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.
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Union Carbide Corporation and Subsidiaries |
OTHER MATTERS
Recent Accounting Guidance
2023. See Note 210 to the Consolidated Financial Statements and Note 16 to the Consolidated Financial Statements included in the Corporation’s Annual Report on Form 10-K for a summarythe year ended December 31, 2022 ("2022 10-K") for additional information related to the Corporation's pension plans.
OTHER MATTERS
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 included in the Corporation’s Annual Report on Form2022 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 included in the Corporation’s 20162022 10-K. Since December 31, 2016,2022, 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-containingasbestos‑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 | 2023 | 2022 |
| Claims unresolved at Jan 1 | 6,873 | | 8,747 | |
| Claims filed | 3,097 | | 3,662 | |
| Claims settled, dismissed or otherwise resolved | (3,428) | | (5,823) | |
| Claims unresolved at Sep 30 | 6,542 | | 6,586 | |
| Claimants with claims against both UCC and Amchem | (1,452) | | (1,502) | |
| Individual claimants at Sep 30 | 5,090 | | 5,084 | |
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| | | | |
| 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 7 to the Consolidated Financial Statements andStatements; Part II, Item 1. Legal Proceedings.Proceedings; and Note 13 to the Consolidated Financial Statements included in the 2022 10-K.
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, 2017.2023.
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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. For
the third quarterfirst nine months of 2017,2023, the Corporation declared and paid a cash dividenddividends of $181$394 million to Dow; dividends paid to Dow totaled $531TDCC ($768 million infor the first nine months of 2017. In2022). On October 18, 2023, 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 DowTDCC of $72$118 million, payable on or before December 22, 2017.29, 2023.
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Union Carbide Corporation and Subsidiaries |
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| ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Omitted pursuant to General Instruction H of Form 10-Q.
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| 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 ended September 30, 2023, 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
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Union Carbide Corporation and Subsidiaries PART II - OTHER INFORMATION |
PART II – OTHER INFORMATION
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| ITEM 1. LEGAL PROCEEDINGS |
Asbestos-Related Matters
No material developments in asbestos-related matters occurred in the third quarterfirst nine months of 2017.2023. For a current status of asbestos-related matters, see Note 7 to the Consolidated Financial Statements.
There wereSince December 31, 2022, there have been no material changes into the Corporation's risk factors in the third quarter of 2017.Risk Factors.
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| 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 |
| 4.2 | | The Corporation will furnish to the Commission upon request any other debt instrument referred to in Item 601(b)(4)(iii)(A) of Regulation S-K. |
| | | 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
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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
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Date: November 6, 2017 | | |
| By: | /s/ RONALD C. EDMONDS |
| | Ronald C. Edmonds |
| |
Controller and Vice President |
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of Controllers and Tax |
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The Dow Chemical Company |
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Authorized Representative of |
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Union Carbide Corporation |
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| By: | /s/ IGNACIO MOLINA |
| | Ignacio Molina |
| | Vice President, Treasurer and |
| | Chief Financial Officer |
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Union Carbide Corporation/s/ IGNACIO MOLINA
|
Ignacio Molina
Vice President, Treasurer and SubsidiariesExhibit Index
Chief Financial Officer |
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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. |
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101.INS | | XBRL Instance Document. |
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101.SCH | | XBRL Taxonomy Extension Schema Document. |
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101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document. |
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101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document. |
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101.LAB | | XBRL Taxonomy Extension Label Linkbase Document. |
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101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document. |