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 ended~~JUNE~~June 30, ~~2019~~2020

o☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________to___________

Commission File Number: 1-1463

~~UNION CARBIDE CORPORATION~~Union Carbide Corporation

(Exact name of registrant as specified in its charter)



New York						13-1421730
(State or other jurisdiction of incorporation or organization)						~~13-1421730~~ (I.R.S. Employer Identification No.)

7501 STATE HIGHWAY 185 NORTH, SEADRIFT, ~~TEXAS~~TX 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



~~Title of each class~~	~~Trading Symbol(s)~~	~~Name of each exchange on which registered~~
NA	NA	NA

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.

þ ~~Yes~~ o No

☑

Yes

☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).

þ ~~Yes~~ o No

☑

Yes

☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

o☐

Accelerated filer

o☐

Non-accelerated filer

þ☑

Smaller reporting company

o☐

Emerging growth company

o☐

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).

o ~~Yes~~ þ No

☐

Yes

☑

At June 30, ~~2019,~~2020, 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 Instruction H(1)(a) and (b) for Form 10-Q and is therefore filing this form with a reduced disclosure format.

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Union Carbide Corporation

QUARTERLY REPORT ON FORM 10-Q

For the quarterly period ended June 30, ~~2019~~2020

TABLE OF CONTENTS

Table of Contents



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.

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, as amended. Forward-looking statements may appear throughout this report, including without limitation, the section titled "Management's Discussion and ~~Analysis.~~Analysis of Financial Condition and Results of Operations." These forward-looking statements often address expected future business and financial performance and financial condition, including the potential impacts of the coronavirus disease 2019 pandemic and crude oil supply and price volatility and estimates regarding benefits achieved through contemplated restructuring activities, such as workforce reductions and exit and disposal activities. In this context, forward looking statements often contain words or phrases such as "anticipate," "believe," "estimate," "expect,~~" "future,~~" "intend," "may," "opportunity," "outlook," "plan," "project," "seek," "should," "strategy," "target," "will," ~~"would,"~~ "will be," "will continue," "will likely ~~result"~~result," "would" and similar expressions and variations or negatives of these words. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements.

A detailed discussion of principal risks and uncertainties which may cause actual results and events to differ materially from those projected, anticipated or implied in such forward-looking statements is included in the section titled "Risk Factors" contained 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 fiscal year ended December 31, ~~2018.~~2019. UCC ~~undertakes~~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

ITEM 1. FINANCIAL STATEMENTS

Union Carbide Corporation and Subsidiaries

Consolidated Statements of Income


	Three Months Ended						Six Months Ended							Three Months Ended						Six Months Ended
In millions (Unaudited)	Jun 30, 2019			Jun 30, 2018			Jun 30, 2019			Jun 30, 2018			In millions (Unaudited)	Jun 30, 2020		Jun 30, 2019		Jun 30, 2020		Jun 30, 2019
Net trade sales	$	47		$	34		$	75		$	66		Net trade sales	$	21	$	47	$	50	$	75
Net sales to related companies	992			1,327			2,242			2,613			Net sales to related companies	849		992		1,862		2,242
Total net sales	1,039			1,361			2,317			2,679			Total net sales	870		1,039		1,912		2,317
Cost of sales	902			948			1,852			2,040			Cost of sales	746		902		1,572		1,852
Research and development expenses	7			5			13			10			Research and development expenses	5		7		11		13
Selling, general and administrative expenses	—			2			2			4			Selling, general and administrative expenses	2		—		4		2
Restructuring and asset related charges - net	1			1			2			2
Restructuring charges													Restructuring charges	—		1		2		2
Integration and separation costs	1			1			2			1			Integration and separation costs	—		1		—		2

Sundry income (expense) - net	(18		)	(14		)	(39		)	(28		)	Sundry income (expense) - net	(22)		(18)		(40)		(39)
Interest income	10			6			19			12			Interest income	2		10		9		19
Interest expense and amortization of debt discount	7			6			14			13			Interest expense and amortization of debt discount	11		7		19		14
Income before income taxes	113			390			412			593			Income before income taxes	86		113		273		412
Provision for income taxes	3			84			57			122			Provision for income taxes	18		3		59		57
Net income attributable to Union Carbide Corporation	$	110		$	306		$	355		$	471		Net income attributable to Union Carbide Corporation	$	68	$	110	$	214	$	355

Depreciation	$	42		$	43		$	85		$	88		Depreciation	$	46	$	42	$	91	$	85
Capital expenditures	$	45		$	57		$	105		$	101		Capital expenditures	$	32	$	45	$	65	$	105

See Notes to the Consolidated Financial Statements.

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Union Carbide Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income


	Three Months Ended				Six Months Ended					Three Months Ended						Six Months Ended
In millions (Unaudited)	Jun 30, 2019		Jun 30, 2018		Jun 30, 2019		Jun 30, 2018		In millions (Unaudited)	Jun 30, 2020		Jun 30, 2019		Jun 30, 2020		Jun 30, 2019
Net income attributable to Union Carbide Corporation	$	110	$	306	$	355	$	471	Net income attributable to Union Carbide Corporation	$	68	$	110	$	214	$	355
Other comprehensive income, net of tax									Other comprehensive income, net of tax
Cumulative translation adjustments	—		1		—		1		Cumulative translation adjustments	—		—		3		—
Pension and other postretirement benefit plans	14		17		29		33		Pension and other postretirement benefit plans	19		14		39		29
Total other comprehensive income	14		18		29		34		Total other comprehensive income	19		14		42		29
Comprehensive income attributable to Union Carbide Corporation	$	124	$	324	$	384	$	505	Comprehensive income attributable to Union Carbide Corporation	$	87	$	124	$	256	$	384

See Notes to the Consolidated Financial Statements.

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Union Carbide Corporation and Subsidiaries

Consolidated Balance Sheets


In millions, except share amounts (Unaudited)	Jun 30, 2019			Dec 31, 2018			In millions, except share amounts (Unaudited)	Jun 30, 2020		Dec 31, 2019
Assets							Assets
Current Assets							Current Assets
Cash and cash equivalents	$	13		$	13		Cash and cash equivalents	$	11	$	11
Accounts receivable:							Accounts receivable:
Trade (net of allowance for doubtful receivables 2019: $-; 2018: $-)	53			21
Trade (net of allowance for doubtful receivables 2020: $—; 2019: $—)							Trade (net of allowance for doubtful receivables 2020: $—; 2019: $—)	16		26
Related companies	754			1,029			Related companies	595		658
Other	25			31			Other	20		17
Income taxes receivable	341			330			Income taxes receivable	355		337
Notes receivable from related companies	1,386			1,281			Notes receivable from related companies	1,598		1,505
Inventories	274			304			Inventories	227		247
Other current assets	31			15			Other current assets	28		20
Total current assets	2,877			3,024			Total current assets	2,850		2,821
Investments							Investments
Investments in related companies	238			639			Investments in related companies	237		238

Other investments	22			23			Other investments	22		22
Noncurrent receivables	71			67			Noncurrent receivables	120		118
Noncurrent receivables from related companies	56			54			Noncurrent receivables from related companies	66		66
Total investments	387			783			Total investments	445		444
Property							Property
Property	7,411			7,430			Property	7,307		7,247
Less accumulated depreciation	5,961			5,982			Less accumulated depreciation	5,967		5,878
Net property	1,450			1,448			Net property	1,340		1,369
Other Assets							Other Assets
Intangible assets (net of accumulated amortization 2019: $88; 2018: $87)	25			25
Intangible assets (net of accumulated amortization 2020: $94; 2019: $90)							Intangible assets (net of accumulated amortization 2020: $94; 2019: $90)	20		22
Operating lease right-of-use assets	95			—			Operating lease right-of-use assets	86		89
Deferred income tax assets	441			463			Deferred income tax assets	492		507

Deferred charges and other assets	28			34			Deferred charges and other assets	29		26
Total other assets	589			522			Total other assets	627		644
Total Assets	$	5,303		$	5,777		Total Assets	$	5,262	$	5,278
Liabilities and Equity							Liabilities and Equity
Current Liabilities							Current Liabilities
Notes payable to related companies	$	26		$	28		Notes payable to related companies	$	30	$	32
Notes payable - other	2			1			Notes payable - other	9		6
Long-term debt due within one year	1			1			Long-term debt due within one year	1		1
Accounts payable:							Accounts payable:
Trade	258			247			Trade	204		218
Related companies	444			515			Related companies	334		386
Other	24			39			Other	20		10

Operating lease liabilities - current	17			—			Operating lease liabilities - current	16		16
Income taxes payable	24			24			Income taxes payable	25		25
Asbestos-related liabilities - current	105			118			Asbestos-related liabilities - current	95		105
Accrued and other current liabilities	154			163			Accrued and other current liabilities	142		126
Total current liabilities	1,055			1,136			Total current liabilities	876		925
Long-Term Debt	473			473			Long-Term Debt	472		473
Other Noncurrent Liabilities							Other Noncurrent Liabilities
Pension and other postretirement benefits - noncurrent	960			979			Pension and other postretirement benefits - noncurrent	1,125		1,154
Asbestos-related liabilities - noncurrent	1,113			1,142			Asbestos-related liabilities - noncurrent	1,038		1,060
Operating lease liabilities - noncurrent	78			—			Operating lease liabilities - noncurrent	70		74
Other noncurrent obligations	136			132			Other noncurrent obligations	189		194
Total other noncurrent liabilities	2,287			2,253			Total other noncurrent liabilities	2,422		2,482
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	2,882			3,338			Retained earnings	2,974		2,922
Accumulated other comprehensive loss	(1,532		)	(1,561		)	Accumulated other comprehensive loss	(1,623)		(1,665)
Union Carbide Corporation's stockholder's equity	1,488			1,915			Union Carbide Corporation's stockholder's equity	1,492		1,398

Total Liabilities and Equity	$	5,303		$	5,777		Total Liabilities and Equity	$	5,262	$	5,278

See Notes to the Consolidated Financial Statements.

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Union Carbide Corporation and Subsidiaries

Consolidated Statements of Cash Flows


	Six Months Ended							Six Months Ended
In millions (Unaudited)	Jun 30, 2019			Jun 30, 2018			In millions (Unaudited)	Jun 30, 2020		Jun 30, 2019
Operating Activities							Operating Activities
Net income attributable to Union Carbide Corporation	$	355		$	471		Net income attributable to Union Carbide Corporation	$	214	$	355
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	99			101			Depreciation and amortization	105		99
Provision for deferred income tax	15			16			Provision for deferred income tax	3		15
Restructuring and asset related charges - net	2			2

Net gain on sales of property and investments							Net gain on sales of property and investments	(1)		—

Restructuring charges							Restructuring charges	2		2
Net periodic pension benefit cost	26			22			Net periodic pension benefit cost	27		26
Pension contributions	(1		)	(41		)	Pension contributions	(1)		(1)

Changes in assets and liabilities:							Changes in assets and liabilities:
Accounts and notes receivable	(24		)	(8		)	Accounts and notes receivable	7		(24)
Related company receivables	129			129			Related company receivables	(30)		129
Inventories	11			(4		)	Inventories	20		11
Accounts payable	6			(18		)	Accounts payable	(2)		6
Related company payables	(70		)	(221		)	Related company payables	(54)		(70)
Asbestos-related payments	(42		)	(59		)	Asbestos-related payments	(32)		(42)
Other assets and liabilities	(63		)	(44		)	Other assets and liabilities	(34)		(63)
Cash provided by operating activities	443			346			Cash provided by operating activities	224		443
Investing Activities							Investing Activities
Capital expenditures	(105		)	(101		)	Capital expenditures	(65)		(105)
Change in noncurrent receivable from related company	(3		)	(1		)	Change in noncurrent receivable from related company	—		(3)

Proceeds from sales of property							Proceeds from sales of property	1		—

Proceeds from sales of investments	2			—			Proceeds from sales of investments	—		2
Cash used for investing activities	(106		)	(102		)	Cash used for investing activities	(64)		(106)
Financing Activities							Financing Activities

Dividends paid to parent	(338		)	(246		)	Dividends paid to parent	(162)		(338)
Changes in short-term notes payable	1			2			Changes in short-term notes payable	3		1
Payments on long-term debt							Payments on long-term debt	(1)		—
Cash used for financing activities	(337		)	(244		)	Cash used for financing activities	(160)		(337)
Summary							Summary
Increase in cash and cash equivalents	—			—			Increase in cash and cash equivalents	—		—
Cash and cash equivalents at beginning of period	13			13			Cash and cash equivalents at beginning of period	11		13
Cash and cash equivalents at end of period	$	13		$	13		Cash and cash equivalents at end of period	$	11	$	13

See Notes to the Consolidated Financial Statements.

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Union Carbide Corporation and Subsidiaries

Consolidated Statements of Equity


	Three Months Ended						Six Months Ended							Three Months Ended						Six Months Ended
In millions (Unaudited)	Jun 30, 2019			Jun 30, 2018			Jun 30, 2019			Jun 30, 2018			In millions (Unaudited)	Jun 30, 2020		Jun 30, 2019		Jun 30, 2020		Jun 30, 2019
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	138			138			138			138			Balance at beginning and end of period	141		138		141		138

Retained Earnings													Retained Earnings
Balance at beginning of period	2,951			2,636			3,338			2,582			Balance at beginning of period	2,987		2,951		2,922		3,338
Adoption of accounting standard (Note 1)	—			254			—			254

Net income attributable to Union Carbide Corporation	110			306			355			471			Net income attributable to Union Carbide Corporation	68		110		214		355
Dividends declared	(178		)	(135		)	(810		)	(246		)	Dividends declared	(81)		(178)		(162)		(810)
Other	(1		)	—			(1		)	—			Other	—		(1)		—		(1)
Balance at end of period	2,882			3,061			2,882			3,061			Balance at end of period	2,974		2,882		2,974		2,882
Accumulated Other Comprehensive Loss, Net of Tax													Accumulated Other Comprehensive Loss, Net of Tax
Balance at beginning of period	(1,546		)	(1,336		)	(1,561		)	(1,352		)	Balance at beginning of period	(1,642)		(1,546)		(1,665)		(1,561)
Adoption of accounting standard (Note 1)	—			(254		)	—			(254		)

Other comprehensive income	14			18			29			34			Other comprehensive income	19		14		42		29
Balance at end of period	(1,532		)	(1,572		)	(1,532		)	(1,572		)	Balance at end of period	(1,623)		(1,532)		(1,623)		(1,532)
Union Carbide Corporation's Stockholder's Equity	$	1,488		$	1,627		$	1,488		$	1,627		Union Carbide Corporation's Stockholder's Equity	$	1,492	$	1,488	$	1,492	$	1,488

See Notes to the Consolidated Financial Statements.

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~~Union Carbide Corporation and Subsidiaries~~

~~Notes to the Consolidated Financial Statements~~



Union Carbide Corporation and Subsidiaries
(Unaudited)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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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, ~~2018.~~2019.

The Corporation is a wholly owned subsidiary of The Dow Chemical Company ("TDCC"). In accordance with the accounting guidance for earnings per share, the presentation of earnings per share is not required in financial statements of wholly owned subsidiaries.

The Corporation’s business activities comprise components of TDCC’s global operations rather than stand-alone operations. TDCC conducts its worldwide operations through global businesses. Because there are no separable 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.

~~Effective August 31, 2017, pursuant to~~On April 1, 2019, DowDuPont Inc. (“DowDuPont” and effective June 3, 2019, n/k/a DuPont de Nemours, Inc.) completed the separation of its materials science business and Dow Inc. became the direct parent company of TDCC and its consolidated subsidiaries. The separation was contemplated by the merger of equals transaction ~~contemplated by~~effective August 31, 2017, under the Agreement and Plan of Merger, dated as of December 11, 2015, as amended on March 31, ~~2017,~~2017. TDCC ~~and its consolidated subsidiaries~~ and E. I. du Pont de Nemours and Company and its consolidated subsidiaries ("Historical DuPont") each merged with subsidiaries of DowDuPont ~~Inc. ("DowDuPont")~~ and, as a result, TDCC and Historical DuPont became subsidiaries of DowDuPont (the ~~"Merger"~~“Merger”). Subsequent to the Merger, TDCC and Historical DuPont engaged in a series of internal reorganization and realignment steps to realign their businesses into three subgroups: agriculture, materials science and specialty products. Dow Inc. was formed as a wholly owned subsidiary of DowDuPont to serve as athe holding company for the materials science business. ~~On April 1, 2019, DowDuPont completed the separation of its materials science business and Dow Inc. became the direct parent company of TDCC.~~ UCC ~~will continue to be~~remains a wholly owned subsidiary of TDCC. See Note 3 for additional information.

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Intercompany transactions and balances are eliminated in consolidation. Transactions with the Corporation’s parent company, TDCC, and other subsidiaries of TDCC, have been reflected as related company transactions in the consolidated financial statements. See Note 1312 for additional information.

~~Table of Contents~~

~~Union Carbide Corporation and Subsidiaries~~

~~Notes to the Consolidated Financial Statements~~



~~(Unaudited)~~

~~Adoption of Accounting Standards~~

In the first quarter of 2019, UCC adopted Accounting Standards Update ("ASU") 2016-02, "Leases (Topic 842)," and associated ASUs (collectively, "Topic 842"). See Notes 2 and 9 for additional information. UCC added a significant accounting policy for leases as a result of the adoption of Topic 842:

~~Leases~~

~~UCC determines whether a contract contains a lease at contract inception. A contract contains a lease if there is an identified asset and the Corporation has the right to control the asset.~~

Operating lease right-of-use (“ROU”) assets represent UCC’s right to use an underlying asset for the lease term, and lease liabilities represent UCC’s obligation to make lease payments arising from the lease. Operating lease ROU assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. UCC uses the incremental borrowing rate (“IBR”) in determining the present value of lease payments, unless the implicit rate is readily determinable. If lease terms include options to extend or terminate the lease, the ROU asset and lease liability are measured based on the reasonably certain decision. Leases with a term of 12 months or less at the commencement date are not recognized on the balance sheet and are expensed as incurred.

UCC has lease agreements with lease and non-lease components, which are accounted for as a single lease component for all classes of leased assets for which UCC is the lessee. Additionally, for certain equipment leases, the portfolio approach is applied to account for the operating lease ROU assets and lease liabilities. In the consolidated statements of income, lease expense for operating lease payments is recognized on a straight-line basis over the lease term. For finance leases, interest expense is recognized on the lease liability and the ROU asset is amortized over the lease term.

Some leasing arrangements require variable payments that are dependent upon usage or output, or may vary for other reasons, such as insurance or tax payments. Variable lease payments are recognized as incurred and are not presented as part of the ROU asset or lease liability.

In the second quarter of 2018, the Corporation adopted ASU 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income," which resulted in a $254 million increase to retained earnings due to the reclassification from accumulated other comprehensive loss for the effect of the federal corporate income tax rate change as a result of the Tax Cuts and Jobs Act of 2017 on the Corporation's pension plans. This reclassification is reflected in the "Adoption of accounting standard" line in the consolidated statements of equity.

~~Changes in Consolidated Statements of Income Presentation~~

In the second quarter of 2019, the Corporation made a change to separately report "Interest income" which had previously been included in "Sundry income (expense) - net" in the consolidated statements of income.

NOTE 2 - RECENT ACCOUNTING GUIDANCE

~~Recently~~Accounting Guidance Issued But Not Adopted ~~Accounting Guidance~~at June 30, 2020

In ~~the first quarter of~~December 2019, the ~~Corporation adopted ASU 2016-02, "Leases~~Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") 2019-12, "Income Taxes (Topic ~~842),~~740): Simplifying the Accounting for Income Taxes." The amendments simplify the accounting for income taxes by removing certain exceptions to the general principles of Topic 740, "Income Taxes" and ~~associated ASUs related to Topic 842, which requires organizations that lease assets to recognize on the balance sheet the assets~~improve consistent application by clarifying and liabilities for the rights and obligations created by those leases. The new guidance requires that a lessee recognize assets and liabilities for leases, 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 requires disclosures to help investors and other financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases. Lessor accounting remains largely unchanged from legacy U.S. GAAP but does contain some targeted improvements to align with revenue recognition guidance Topic 606, "Revenue from Contracts with Customers."amending existing guidance. The new standard ~~was~~is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, ~~2018, and early~~2020. Early adoption ~~was permitted.~~

is permitted, with the amendments to be applied on a retrospective, modified retrospective or prospective basis, depending on the specific amendment. The Corporation ~~adopted Topic 842 using~~is currently evaluating the ~~modified retrospective transition approach,~~impact of adopting this guidance.

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The amendments provide optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments are intended to ease the potential burden in accounting for, or recognizing the effects of, reference rate reform on financial reporting. The new standard ~~to leases existing at~~is effective March 12, 2020 through December 31, 2022, with the adoption date ~~of initial adoption.~~being dependent upon the Corporation’s election. The Corporation ~~elected to apply~~is currently evaluating the ~~transition requirements at the effective date rather than at the beginning~~impact of the earliest comparative period presented with a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption, and prior periods were not restated. In addition, the Corporation elected to apply the package of practical expedients permitted under the transition guidance which does not require reassessment of prior conclusions, leaseadopting this guidance.

~~Table of Contents~~

~~Union Carbide Corporation and Subsidiaries~~

~~Notes to the Consolidated Financial Statements~~



~~(Unaudited)~~

classification and initial direct lease costs. The Corporation did not elect to use the hindsight practical expedient in determining the lease term or assessing impairment of ROU assets. Adoption of the new standard resulted in the recording of operating lease ROU assets and lease liabilities of $99 million at January 1, 2019. The difference between the additional operating lease ROU assets and lease liabilities, net of deferred taxes, was recorded as an adjustment to retained earnings and was not material. The adoption of the new guidance did not have a material impact on the Corporation's consolidated statements of income and had no impact on cash flows. See Note 9 for additional information.

NOTE 3 - BUSINESS SEPARATION

On April 1, 2019, DowDuPont completed the separation of its materials science business and Dow Inc. became the direct parent company of TDCC. UCC ~~will continue to be~~remains a wholly owned subsidiary of TDCC.

In the first quarter of 2019, in anticipation of ~~the~~DowDuPont's intended separation of its materials science business, ~~separations,~~ UCC's assets and liabilities aligned with ~~the~~TDCC's specialty products business were transferred to TDCC as part of the internal reorganization steps to align TDCC's specialty products business to DowDuPont. In order to align entity ownership under TDCC, UCC distributed shares and assets to TDCC through dividends or asset distributions. As a result, in February 2019, UCC issued to TDCC a dividend of 1,067 shares of common stock of Dow International ~~Holding~~Holdings Company (“DIHC”), a cost method investment. Prior to the distribution, UCC had an 11.9 percent ownership interest in DIHC with the other 88.1 percent owned by TDCC and its other wholly owned subsidiaries. After the dividend, UCC’s investment, ~~in DIHC was reduced to 4.4 percent and resulted~~resulting in a reduction in "Investments in related companies" of $401 million. UCC also transferred, as an asset distribution, the assets and liabilities aligned with ~~the~~TDCC's specialty products business for an additional dividend of $71 million to TDCC. The results of these transactions are reflected in “Investments in related companies” and “Retained earnings” in the consolidated balance sheets. See Note 12 for additional information.

The Corporation evaluated the impact of the specialty products product line transfer and determined it did not represent a strategic shift that had a major effect on the Corporation’s operations and financial results and did not qualify as an individually significant component of the Corporation. As a result, this transfer was not reported as discontinued operations.

NOTE 4 - REVENUE

Substantially all of the Corporation's ~~revenues are~~revenue is generated by ~~intercompany~~ sales to TDCC. Products are sold to and purchased from TDCC at market-based prices in accordance with the terms of ~~TDCC’s intercompany pricing policies. Approximately 99 percent of the~~an agreement between UCC and TDCC. The Corporation's revenue related to sales of product was approximately 98 percent for the three months ended June 30, 2020 and 99 percent for the six months ended June 30, ~~2019, related to sales of product~~2020 (99 percent for the three and six months ended June 30, ~~2018)~~2019); the remaining ~~1 percent~~revenue primarily related to the licensing of patents and technology. 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 product sales and royalties ~~and are realized when the associated revenue is recognized under the contract~~ with remaining contract terms that range up to 2221 years. Amounts are recognized in revenue when the performance obligations for the contract are met. The Corporation ~~will have~~has rights to ~~future~~additional consideration ~~for revenue recognized~~ when product is delivered to the customer. The balance of contract liabilities was ~~$40~~$39 million at June 30, ~~2019~~2020 ($41 million at December 31, ~~2018) and~~2019), of which $3 million ($4 million at December 31, 2019) was included in "Accrued and other current liabilities" and $36 million ($37 million at December 31, 2019) was included in "Other noncurrent obligations" in the consolidated balance sheets.

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The Corporation disaggregates its revenue from contracts with customers by type of customer (sales to related parties and sales to trade customers) as presented in the consolidated statements of income and believes this disaggregation best depicts the nature, amount, timing and uncertainty of its revenue and cash flows. Substantially all of the product sales are made to the Corporation's parent ~~entity,~~company, TDCC, and there are no unique economic factors that affect revenue recognition and cash flows associated with these product sales.

NOTE 5 ~~- RESTRUCTURING AND ASSET RELATED CHARGES - NET~~

In September and November 2017, the Corporation approved restructuring actions that were aligned with DowDuPont’s synergy targets. For the three months ended June 30, 2019 and June 30, 2018, the Corporation recorded pretax restructuring charges of $1 million for severance and related benefit costs ($2 million for the six months ended June 30, 2019 and June 30, 2018). The impact of these charges was shown as “Restructuring and asset related charges - net” in the consolidated statements of income. These actions are expected to be substantially completed by the end of 2019.

The Corporation recorded pretax restructuring charges of $77 million inception-to-date under the restructuring program, consisting of severance and related benefit costs of $15 million and $62 million for asset write-downs and write-offs of manufacturing and facility related assets at multiple UCC sites, including a steam unit in Institute, West Virginia. At June 30, 2019, severance of $12 million had been paid, leaving a liability of $3 million.

~~Table of Contents~~

~~Union Carbide Corporation and Subsidiaries~~

~~Notes to the Consolidated Financial Statements~~



~~(Unaudited)~~

The Corporation expects to incur additional costs in the future related to restructuring activities, as UCC continually looks for ways to enhance the efficiency and cost effectiveness of its operations. 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 6~~ - INVENTORIES

The following table provides a breakdown of inventories:


Inventories	Jun 30, 2020		Dec 31, 2019
In millions
Finished goods	$	146	$	162
Work in process	22		31
Raw materials	43		47
Supplies	88		92
Total	$	299	$	332
Adjustment of inventories to a LIFO basis	(72)		(85)
Total inventories	$	227	$	247

Inventories Jun 30,
2019 Dec 31,
2018
In millions
Finished goods $ 209
$ 264
Work in process 33
45
Raw materials 40
45
Supplies 91
85
Total $ 373
$ 439
Adjustment of inventories to a LIFO basis (99 ) (135 )
Total inventories $ 274
$ 304

NOTE 76 - INTANGIBLE ASSETS

The following table provides information regarding the Corporation’s intangible assets:


Intangible Assets	Jun 30, 2020										Dec 31, 2019
In millions	Gross Carrying Amount		Accumulated Amortization		Net		Gross Carrying Amount		Accumulated Amortization		Net
Intangible assets with finite lives:
Developed technology	$	33	$	(33)	$	—	$	33	$	(33)	$	—
Software	81		(61)		20		79		(57)		22
Total intangible assets	$	114	$	(94)	$	20	$	112	$	(90)	$	22

Intangible Assets Jun 30, 2019 Dec 31, 2018
In millions
Gross
Carrying Amount
Accumulated Amortization Net
Gross
Carrying Amount
Accumulated Amortization Net
Intangible assets with finite lives:
Licenses and developed technology $ 33
$ (33 ) $ —
$ 33
$ (33 ) $ —
Software 80
(55 ) 25
79
(54 ) 25
Total intangible assets $ 113
$ (88 ) $ 25
$ 112
$ (87 ) $ 25

Total estimated amortization expense for ~~2019~~2020 and the five succeeding fiscal years, including amounts expected to be capitalized, is as follows:


Estimated Amortization Expense
In millions
2020	$	8
2021	$	6
2022	$	5
2023	$	3
2024	$	1
2025	$	—

Estimated Amortization Expense
In millions
2019 $ 8
2020 $ 8
2021 $ 6
2022 $ 4
2023 $ 2
2024 $ —

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~~Union Carbide Corporation and Subsidiaries~~

~~Notes to the Consolidated Financial Statements~~



~~(Unaudited)~~

NOTE 87 - COMMITMENTS AND CONTINGENT LIABILITIES

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 June 30, ~~2019,~~2020, the Corporation had accrued obligations of ~~$96~~$126 million for probable environmental remediation and restoration costs, including ~~$18~~$19 million for the remediation of Superfund sites. These obligations are included in "Accrued and other current liabilities" and "Other noncurrent obligations" in the consolidated balance sheets. This is management’s ~~current~~best estimate of the costs for remediation and restoration with respect to environmental matters for which the Corporation has accrued liabilities, although it is reasonably possible that the ultimate cost with respect to these particular matters could range up to approximately ~~three~~two and a half times that amount. Consequently, it is reasonably possible that environmental remediation and restoration costs in excess of amounts accrued could have a material impact on the Corporation's results of operations, financial condition and cash flows. It is the opinion of the Corporation’s management that the possibility is remote that costs in excess of the range disclosed will have a material impact on the Corporation’s results of operations, financial condition and cash flows. Inherent uncertainties exist in these estimates primarily due to unknown environmental conditions, changing governmental regulations and legal standards regarding liability, and emerging remediation technologies for handling site remediation and restoration. As new or additional information becomes available and/or certain spending trends become known, management will evaluate such information in determination of the current estimate of the environmental liability. In the second half of 2019, as a result of the potential culmination of long standing negotiations with regulators and/or agencies, management will perform a comprehensive review of UCC's environmental matters, and believes that it is reasonably possible that the accrued obligation for environmental obligations may increase by up to $50 million as a result of the review. At December 31, ~~2018,~~2019, the Corporation had accrued obligations of ~~$94~~$132 million for probable environmental remediation and restoration costs, including ~~$16~~$20 million for the remediation of Superfund sites.

Litigation

The Corporation is involved in a number of legal proceedings and claims with both private and governmental parties. These cover a wide range of matters, including, but not limited to: product liability; trade regulation; governmental regulatory proceedings; health, safety and environmental matters; employment; patents; contracts; taxes; and commercial disputes.

Asbestos-Related Matters

A summary of asbestos-related matters can be found in Note 1314 to the Consolidated Financial Statements included in the Corporation's Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

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, the Corporation requests Ankura ~~has reviewed the~~to review its claim and resolution activity, including asbestos-related defense and processing costs, to determine the appropriateness of updating the most recent Ankura study.

Based on the review completed by Ankura in December ~~2018 Ankura review~~2019 and the Corporation's ~~own~~internal review ~~of the data,~~process, the Corporation's total asbestos-related liability through the terminal year of 2049, including asbestos-related defense and processing costs, was ~~$1,260~~$1,165 million at December 31, ~~2018,~~2019, and was included in “Asbestos-related liabilities - current” and “Asbestos-related liabilities - noncurrent” in the consolidated balance sheets.

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~~Union Carbide Corporation and Subsidiaries~~

~~Notes to the Consolidated Financial Statements~~



~~(Unaudited)~~

Each quarter, the Corporation reviews claims filed, settled and dismissed, as well as average settlement and resolution costs by disease category. The Corporation also considers additional quantitative and qualitative factors such as the nature of pending claims, trial experience of the Corporation and other asbestos defendants, current spending for defense and processing costs, significant appellate rulings and legislative developments, trends in the tort system, and their respective effects on expected future resolution costs. UCC management considers ~~all~~ these factors in conjunction with the most recent Ankura study and determines whether a change in the estimate is warranted. Based on the Corporation's review of ~~2019~~2020 activity, it was determined that no adjustment to the accrual was required at June 30, ~~2019.~~2020.

The Corporation’s total asbestos-related liability for pending and future claims and defense and processing costs was ~~$1,218~~$1,133 million at June 30, ~~2019,~~2020, and approximately 1720 percent of the recorded claim liability related to pending claims and approximately 8380 percent related to future claims.

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Summary

The Corporation's management believes the amounts recorded for the asbestos-related liability, ~~(including~~including defense and processing ~~costs)~~costs, reflect reasonable and probable estimates of the liability based on current, known facts. However, future events, such as the number of new claims to be filed and/or received each year and the average cost of defending and disposing of each such claim, as well as the numerous uncertainties surrounding asbestos litigation in the United States over a significant period of time, could cause the actual costs for the Corporation to be higher or lower than those projected or those recorded. Any such event could result in an increase or decrease in the recorded liability.

Because of the uncertainties described above, the Corporation cannot estimate the full range of the cost of resolving pending and future asbestos-related claims facing UCC and Amchem. As a result, it is reasonably possible that an additional cost of disposing of asbestos-related claims, including future defense and processing costs, could have a material impact on the Corporation's results of operations and cash flows for a particular period and on the consolidated financial position.

Other Litigation Matters

The Corporation is also involved in a number of legal proceedings and claims with both private and governmental parties. These cover a wide range of matters, including, but not limited to: product liability; trade regulation; governmental tax and regulatory disputes; health, safety and environmental matters; employment matters; patent infringement; contracts; and commercial litigation. While it is not possible at this time to determine with certainty the ultimate outcome of any of the legal proceedings and claims referred to in this filing, management believes that the possibility is remote that the aggregate of all such other claims and lawsuits will have a material adverse impact on the results of operations, cash flows and financial position of the Corporation.

NOTE 8 - LEASES

~~Table of Contents~~

~~Union Carbide Corporation and Subsidiaries~~

~~Notes~~For additional information on the Corporation's leases, see Note 15 to the Consolidated Financial Statements



~~(Unaudited)~~

~~NOTE 9 - LEASES~~

~~Operating lease ROU assets are~~ included in ~~"Operating lease right-of-use assets" and finance lease ROU assets are included in "Net property" in~~ the consolidated balance sheets. With respect to lease liabilities, operating lease liabilities are included in "Operating lease liabilities - current" and "Operating lease liabilities - noncurrent," and finance lease liabilities are included in "Long-term debt due within one year" and "Long-Term Debt" inCorporation's Annual Report on Form 10-K for the ~~consolidated balance sheets.~~year ended December 31, 2019.

The Corporation routinely leases sales and administrative offices, product and utility production facilities, warehouses and tanks for product storage, motor vehicles, railcars, computers, office machines and equipment. Some leases contain renewal provisions, purchase options and escalation clauses. The terms for these leased assets vary depending on the lease agreement. These leased assets have remaining lease terms that currently range from 1 to 10 years. The Corporation's lease agreements do not contain any material residual value guarantees or restrictive covenants. See Notes 1 and 2 for additional information on leases.

The components of lease cost for operating and finance leases for the three and six months ended June 30, 2020 and 2019 were as follows:


Lease Cost	Three Months Ended						Six Months Ended
In millions	Jun 30, 2020		Jun 30, 2019		Jun 30, 2020		Jun 30, 2019
Operating lease cost	$	5	$	5	$	10	$	11
Short-term lease cost	5		7		11		14
Variable lease cost	2		2		4		2

Amortization of right-of-use assets - finance	1		1		1		1

Total lease cost	$	13	$	15	$	26	$	28

Lease Cost
Three Months Ended
Jun 30, 2019
Six Months Ended
Jun 30, 2019
In millions
Operating lease cost $ 5
$ 11
Short-term lease cost 7
14
Variable lease cost 2
2
Amortization of right-of-use assets - finance 1
1
Total lease cost $ 15
$ 28

The following table provides supplemental cash flow information related to leases:


Other Lease Information	Six Months Ended
In millions	Jun 30, 2020		Jun 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	10	$	11
Financing cash flows for finance leases	$	1	$	—

Other Lease Information
Six Months Ended
Jun 30, 2019
In millions
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases $ 11

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~~Union Carbide Corporation and Subsidiaries~~

~~Notes to the Consolidated Financial Statements~~



~~(Unaudited)~~

The following table summarizes the lease-related assets and liabilities recorded in the consolidated balance sheets at June 30, 2020 and December 31, 2019:


Lease Position	Balance Sheet Classification	Jun 30, 2020		Dec 31, 2019
In millions
Right-of-use assets obtained in exchange for lease obligations:
Operating leases ¹		$	3	$	105
Assets
Operating lease assets	Operating lease right-of-use assets	$	86	$	89
Finance lease assets	Property	12		12
Finance lease amortization	Accumulated depreciation	(7)		(6)
Total lease assets		$	91	$	95
Liabilities
Current
Operating	Operating lease liabilities - current	$	16	$	16
Finance	Long-term debt due within one year	1		1
Noncurrent
Operating	Operating lease liabilities - noncurrent	70		74
Finance	Long-Term Debt	4		5
Total lease liabilities		$	91	$	96

Lease Position Balance Sheet Classification Jun 30, 2019
In millions
Right-of-use assets obtained in exchange for lease obligations:
Operating leases ¹
$ 105
Assets
Operating lease assets Operating lease right-of-use assets $ 95
Finance lease assets Property 12
Finance lease amortization Accumulated depreciation (6 )
Total lease assets $ 101
Liabilities
Current
Operating Operating lease liabilities - current $ 17
Finance Long-term debt due within one year 1
Noncurrent
Operating Operating lease liabilities - noncurrent 78
Finance Long-Term Debt 5
Total lease liabilities $ 101


1.	~~Includes $99 million related to the adoption of Topic 842. See Note 2 for additional information.~~

1. Includes $99 million for the period ended December 31, 2019 related to the adoption of ASU 2016-02, "Leases (Topic 842)," and the associated ASUs, in the first quarter of 2019.



~~Lease Term and Discount Rate~~	~~Jun 30, 2019~~
~~Weighted-average remaining lease term~~
~~Operating leases~~	~~6.6 years~~
~~Finance leases~~	~~5.0 years~~
~~Weighted-average discount rate~~
~~Operating leases~~	~~4.26~~	%
~~Finance leases~~	~~4.22~~	%


Lease Term and Discount Rate	Jun 30, 2020		Dec 31, 2019
Weighted-average remaining lease term
Operating leases	6.0 years		6.3 years
Finance leases	4.0 years		4.5 years
Weighted-average discount rate
Operating leases	4.17	%	4.13	%
Finance leases	4.22	%	4.22	%

The following table provides the maturities of lease liabilities at June 30, ~~2019:~~2020:


Maturities of Lease Liabilities	Jun 30, 2020
	Operating Leases		Finance Leases
In millions
2020	$	10	$	1
2021	18		2
2022	16		1
2023	14		1
2024	13		1
2025 and thereafter	27		—
Total future undiscounted lease payments	$	98	$	6
Less imputed interest	12		1
Total present value of lease liabilities	$	86	$	5

Maturities of Lease Liabilities at Jun 30, 2019 Operating Leases Finance Leases
In millions
2019 $ 11
$ 1
2020 19
1
2021 16
1
2022 14
2
2023 13
1
2024 and thereafter 36
1
Total future undiscounted lease payments $ 109
$ 7
Less imputed interest 14
1
Total present value of lease liabilities $ 95
$ 6

At June 30, ~~2019,~~2020, the Corporation had an additional ~~lease~~leases of approximately $5$16 million for equipment and a rail yard, which ~~has~~had not yet commenced. ~~This lease is~~These leases are expected to commence in ~~late 2019,~~2020 and 2021, with a lease ~~term~~terms of 10up to 20 years.

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~~Union Carbide Corporation and Subsidiaries~~

~~Notes to the Consolidated Financial Statements~~



~~(Unaudited)~~

~~Future minimum lease payments for operating leases accounted for under ASC 840, "Leases," with remaining non-cancelable terms in excess of one year were as follows at December 31, 2018:~~

Minimum Lease Commitments at Dec 31, 2018
In millions
2019 $ 18
2020 16
2021 14
2022 13
2023 13
2024 and thereafter 37
Total $ 111

NOTE 109 - ACCUMULATED OTHER COMPREHENSIVE LOSS

The changes in the balances for each component of accumulated other comprehensive loss ("AOCL") for the three and six months ended June 30, ~~2019~~2020 and ~~2018~~2019 were as follows:


Accumulated Other Comprehensive Loss	Three Months Ended						Six Months Ended
In millions	Jun 30, 2020		Jun 30, 2019		Jun 30, 2020		Jun 30, 2019
Cumulative Translation Adjustment
Beginning balance	$	(53)	$	(57)	$	(56)	$	(57)
Gains on foreign currency translation	—		—		3		—




Ending balance	$	(53)	$	(57)	$	(53)	$	(57)
Pension and Other Postretirement Benefits
Beginning balance	$	(1,589)	$	(1,489)	$	(1,609)	$	(1,504)



Amortization and recognition of net loss ¹	25		19		51		38
Less: Tax expense (benefit) ²	(6)		(5)		(12)		(9)
Other comprehensive income, net of tax	19		14		39		29

Ending balance	$	(1,570)	$	(1,475)	$	(1,570)	$	(1,475)
Total AOCL ending balance	$	(1,623)	$	(1,532)	$	(1,623)	$	(1,532)

Accumulated Other Comprehensive Loss Three Months Ended Six Months Ended
In millions Jun 30, 2019 Jun 30, 2018 Jun 30, 2019 Jun 30, 2018
Cumulative Translation Adjustment
Beginning balance $ (57 ) $ (59 ) $ (57 ) $ (59 )
(Gains) losses reclassified from AOCL to net income ¹
—
1
—
1
Ending balance $ (57 ) $ (58 ) $ (57 ) $ (58 )
Pension and Other Postretirement Benefits

Beginning balance $ (1,489 ) $ (1,277 ) $ (1,504 ) $ (1,293 )
Amortization and recognition of net loss ²
19
21
38
43
Less: Tax expense (benefit) ³
(5 ) (4 ) (9 ) (10 )
Other comprehensive income (loss), net of tax 14
17
29
33
Reclassification of stranded tax effects ⁴
—
(254 ) —
(254 )
Ending balance $ (1,475 ) $ (1,514 ) $ (1,475 ) $ (1,514 )
Total AOCL ending balance $ (1,532 ) $ (1,572 ) $ (1,532 ) $ (1,572 )


1.	~~Reclassified to "Sundry income (expense) - net."~~


2.	~~These AOCL components are included in the computation of net periodic benefit cost of the Company's defined benefit pension and other postretirement benefit plans. See Note 11~~1. These AOCL components are included in the computation of net periodic benefit cost of the Corporation's defined benefit pension and other postretirement benefit plans. See Note 10 for additional information.


3.	~~Reclassified to "Provision for income taxes."~~


4.	~~Amounts reclassified to retained earnings as a result of the adoption of ASU 2018-02.~~

2. Reclassified to "Provision for income taxes."

~~Table of Contents~~

~~Union Carbide Corporation and Subsidiaries~~

~~Notes to the Consolidated Financial Statements~~



~~(Unaudited)~~

NOTE 1110 - PENSION ~~PLANS~~ AND OTHER POSTRETIREMENT ~~BENEFITS~~BENEFIT PLANS

A summary of the Corporation's pension ~~plans~~ and other postretirement ~~benefits~~benefit plans can be found in Note 1517 to the Consolidated Financial Statements included in the Corporation's Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019. The following table provides the components of the Corporation's net periodic benefit cost for all significant plans:


Net Periodic Benefit Cost for All Significant Plans	Three Months Ended						Six Months Ended
In millions	Jun 30, 2020		Jun 30, 2019		Jun 30, 2020		Jun 30, 2019
Defined Benefit Pension Plans:
Service cost	$	8	$	9	$	17	$	18
Interest cost	28		36		56		72
Expected return on plan assets	(50)		(53)		(100)		(106)
Amortization of net loss	27		21		54		42
Net periodic benefit cost	$	13	$	13	$	27	$	26

Other Postretirement Benefit Plan:
Service cost	$	1	$	—	$	1	$	—
Interest cost	2		2		3		4
Amortization of net gain	(2)		(2)		(3)		(4)
Net periodic benefit cost	$	1	$	—	$	1	$	—

Net Periodic Benefit Cost for All Significant Plans Three Months Ended Six Months Ended
In millions Jun 30,
2019 Jun 30,
2018 Jun 30,
2019 Jun 30,
2018
Defined Benefit Pension Plans:
Service cost $ 9
$ 10
$ 18
$ 20
Interest cost 36
32
72
64
Expected return on plan assets (53 ) (54 ) (106 ) (109 )
Amortization of net loss 21
23
42
47
Net periodic benefit cost $ 13
$ 11
$ 26
$ 22

Other Postretirement Benefits:
Interest cost $ 2
$ 1
$ 4
$ 3
Amortization of net gain (2 ) (2 ) (4 ) (4 )
Net periodic benefit cost $ —
$ (1 ) $ —
$ (1 )

Net periodic benefit cost, other than the service cost component, is included in "Sundry income (expense) - net" in the consolidated statements of income.

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NOTE 1211 - FAIR VALUE MEASUREMENTS

The Corporation's financial instruments are classified as Level 2 measurements. For assets and liabilities classified as Level 2 measurements, where the security is frequently traded in less active markets, fair value is based on the closing price at the end of the period; where the security is less frequently traded, fair value is based on the price a dealer would pay for the security or similar securities, adjusted for any terms specific to that asset or liability, or by using observable market data points of similar, more liquid securities to imply the price. Market inputs are obtained from well-established and recognized vendors of market data and subjected to tolerance/quality checks.

The following table summarizes the fair value of the Corporation's financial instruments at June 30, ~~2019~~2020 and December 31, ~~2018:~~2019:


Fair Value of Financial Instruments	Jun 30, 2019											Dec 31, 2018											Fair Value of Financial Instruments	Jun 30, 2020														Dec 31, 2019
In millions	Cost			Gain		Loss			Fair Value			Cost			Gain		Loss			Fair Value			In millions	Cost		Gain		Loss		Fair Value		Cost		Gain		Loss		Fair Value
Cash equivalents ¹	$	10		$	—	$	—		$	10		$	10		$	—	$	—		$	10		Cash equivalents ¹	$	10	$	—	$	—	$	10	$	10	$	—	$	—	$	10

Long-term debt including debt due within one year	$	(474	)	$	—	$	(117	)	$	(591	)	$	(474	)	$	—	$	(67	)	$	(541	)	Long-term debt including debt due within one year	$	(473)	$	—	$	(102)	$	(575)	$	(474)	$	—	$	(115)	$	(589)

1. Money market fund is included in "Cash and cash equivalents" in the consolidated balance sheets and held at amortized cost, which approximates fair value.

Cost approximates fair value for all other financial instruments.

~~Table of Contents~~

~~Union Carbide Corporation and Subsidiaries~~

~~Notes to the Consolidated Financial Statements~~



~~(Unaudited)~~

NOTE 1312 - RELATED PARTY TRANSACTIONS

The Corporation sells its products to TDCC to simplify the customer interface process. Products are sold to and purchased from TDCC at market-based prices in accordance with the terms of ~~TDCC’s intercompany pricing policies.~~an agreement between UCC and TDCC. After each quarter, the Corporation and TDCC 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 TDCC subsidiary and pays a commission to that TDCC subsidiary based on the volume and type of commodities and raw materials purchased. The commission expense iswas included in "Sundry income (expense) - net" in the consolidated statements of income. Purchases from that TDCC subsidiary were ~~$280~~$206 million in the second quarter of ~~2019~~2020 ($~~379~~280 million in the second quarter of ~~2018)~~2019) and ~~$614~~$437 million during the first six months of ~~2019~~2020 ($~~812~~614 million during the first six months of ~~2018)~~2019). The decrease in purchase costs for the three and six months ended ~~2019~~June 30, 2020 when compared with the same ~~period~~periods last year was primarily due to lower feedstock and energy costs.

The Corporation has a master services agreement with TDCC, whereby TDCC provides services including, but not limited ~~to, accounting, legal,~~to: accounting; legal; treasury (investments, cash management, risk management, insurance)~~, procurement,~~; procurement; human ~~resources, environmental,~~resources; environmental; health and ~~safety~~safety; and business management for UCC. Under the master services agreement with TDCC, general administrative and overhead type services that TDCC 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 $6$8 million in the second quarter of ~~2019~~2020 ($76 million in the second quarter of ~~2018)~~2019) and ~~$12~~$16 million for the first six months of ~~2019~~2020 ($1412 million for the first six months of ~~2018)~~2019) 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 ~~$21~~$24 million in the second quarter of ~~2019~~2020 ($2221 million in the second quarter of ~~2018)~~2019) and ~~$44~~$47 million for the first six months of ~~2019~~2020 ($44 million for the first six months of ~~2018)~~2019), and were included in "Cost of sales" in the consolidated statements of income.

Management believes the method used for determining expenses charged by TDCC is reasonable. TDCC 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 TDCC’s risk management philosophy, are provided as a service to UCC.

As part of TDCC’s cash management process, UCC is a party to revolving loans with TDCC that have interest rates based on LIBOR (London Interbank Offered Rate) with varying maturities. At June 30, ~~2019,~~2020, the Corporation had a note receivable of ~~$1.4~~$1.6 billion ($~~1.3~~1.5 billion at December 31, ~~2018)~~2019) from TDCC under a revolving loan agreement. The Corporation may draw from this note receivable in support of its daily working capital requirements and, as such, the net effect of cash inflows and outflows under this revolving loan agreement is presented in the consolidated statements of cash flows as an operating activity.

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The Corporation also has a separate revolving credit agreement with TDCC that allows the Corporation to borrow or obtain credit enhancements up to an aggregate of $1 billion that matures on December 30, ~~2019.~~2020. TDCC may demand repayment with a 30-day written notice to the Corporation, subject to certain restrictions. A related collateral agreement provides for the replacement of certain existing pledged assets, primarily equity interests in various subsidiaries, with cash collateral. At June 30, ~~2019, $936~~2020, $937 million was available under the revolving credit agreement ($~~949~~937 million at December 31, ~~2018)~~2019). The cash collateral iswas reported as “Noncurrent receivables from related companies” in the consolidated balance sheets.

On a quarterly basis, the Corporation's ~~board~~Board of ~~directors~~Directors (the "Board") reviews and determines if there will be a dividend distribution to its parent company and sole shareholder, TDCC. The Board takes into consideration the level of earnings and cash flows, among other factors, in determining the amount of the dividend distribution. In the second quarter of 2020, the Corporation declared and paid a cash dividend of $81 million to TDCC; cash dividends to TDCC totaled $162 million for the first six months of 2020. In the second quarter of 2019, the Corporation declared and paid a cash dividend of $178 million to TDCC; cash dividends to TDCC totaled $338 million for the first six months of 2019. ~~In the second quarter of 2018, the Corporation declared and paid a cash dividend of $135 million to TDCC; cash dividends to TDCC totaled $246 million for the first six months of 2018.~~

~~Also, in~~In the first quarter of 2019, in anticipation of the business separation activities to align ~~the~~TDCC's specialty products business with DowDuPont, UCC issued a stock dividend to TDCC for 63.4 percent of its ownership interest in DIHC, a cost method investment, which totaled $401 million. UCC also distributed assets and liabilities aligned with ~~the~~TDCC's specialty products business for an additional dividend to TDCC of $71 million. See Note 3 for additional information.

~~Table~~NOTE 13 - SUBSEQUENT EVENT

On July 2, 2020, TDCC entered into a definitive agreement to sell its rail infrastructure assets and related equipment at certain sites in the U.S. & Canada for expected cash proceeds in excess of ~~Contents~~$310 million. Included in the transaction are certain assets and equipment located at UCC's sites in St. Charles, Louisiana and Seadrift, Texas. TDCC will also enter into long-term service agreements with the buyer for the continuation of certain rail-related services for TDCC's and UCC's existing operations at these sites. The transaction is expected to close in the fourth quarter of 2020, subject to customary closing conditions, and the Corporation expects to record a gain on the transaction.



~~Union Carbide Corporation and Subsidiaries~~

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Pursuant to General Instruction H(1)(a) and (b) for Form 10-Q "Omission of Information by Certain Wholly-Owned Subsidiaries," the Corporation is filing this Form 10-Q with a reduced disclosure format.

References to "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. ~~Effective August 31, 2017, pursuant to~~On April 1, 2019, DowDuPont Inc. (“DowDuPont” and effective June 3, 2019, n/k/a DuPont de Nemours, Inc.) completed the separation of its materials science business and Dow Inc. became the direct parent company of TDCC. The separation was contemplated by the merger of equals transaction ~~contemplated by~~effective August 31, 2017, under the Agreement and Plan of Merger, dated as of December 11, 2015, as amended on March 31, ~~2017,~~2017. TDCC and E. I. du Pont de Nemours and Company and its consolidated subsidiaries ("Historical DuPont") each merged with subsidiaries of DowDuPont ~~Inc. ("DowDuPont")~~ and, as a result, TDCC and Historical DuPont became subsidiaries of DowDuPont (the ~~"Merger"~~“Merger”). Subsequent to the Merger, TDCC and Historical DuPont engaged in a series of internal reorganization and realignment steps to realign their businesses into three subgroups: agriculture, materials science and specialty products. This included transferring certain Corporation assets and liabilities aligned with the specialty products business to TDCC (the "Business Separation"). Dow Inc. was formed as a wholly owned subsidiary of DowDuPont to serve as athe holding company for the materials science business. ~~On April 1, 2019, DowDuPont completed the separation of its materials science business and Dow Inc. became the direct parent company of TDCC.~~ UCC ~~will continue to be~~remains a wholly owned subsidiary of TDCC.

TDCC conducts its worldwide operations through global businesses. UCC's business activities comprise components of TDCC’s global businesses rather than stand-alone operations. Because there are no separable 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.

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Statement on COVID-19 and Oil Price Volatility

Overview of UCC’s Response to COVID-19

The pandemic caused by coronavirus disease 2019 ("COVID-19") has impacted all geographic regions where UCC’s products are produced and sold. Financial markets were volatile towards the end of the first quarter and early in the second quarter of 2020, primarily due to uncertainty with respect to the severity and duration of the pandemic, coupled with fluctuations in crude oil prices due in part to the global spread of COVID-19. As the second quarter progressed, crude oil prices increased, driven by improved supply/demand fundamentals. Financial markets have also improved as economies in the U.S. and Western Europe have started to reopen.

Dow Inc. (together, with TDCC and its consolidated subsidiaries, “Dow”) directs global safety, crisis management and security protocols for all of Dow’s assets and workforce, which includes the assets and workforce of UCC. UCC’s primary manufacturing operations are in the United States, where efforts to contain the spread of COVID-19 resulted in significant mitigation measures, including social distancing and stay-at-home mandates, travel restrictions and/or bans, and restricted access to certain corporate facilities and manufacturing sites. The Corporation’s manufacturing facilities in the United States have been designated essential operations by state and local governments and all of UCC’s manufacturing sites and facilities, including its smaller sites in Asia Pacific, continue to operate and are doing so safely, having implemented social distancing and enhanced health, safety and sanitization measures as directed by Dow’s regional Crisis Management Teams (“CMTs”). The CMTs continue to work closely with site leadership and are adjusting alert levels as warranted on a site by site basis. UCC has also implemented necessary procedures to enable the workforce not essential to site operations to work remotely. The CMTs have initiated the implementation of Dow’s comprehensive Return to Workplace plan that is tailored for each site and includes a number of health and safety measures to be followed in a gradual and phased approach. The Corporation is also encouraging its workforce to follow safety measures when away from work to help prevent community spread of COVID-19.

During this public health crisis, UCC is focused on the health and safety of its employees, contractors, customers and suppliers around the world and maintaining safe and reliable operations of its manufacturing sites. Although supply disruptions and related logistical issues have posed challenges across all modes of transportation, UCC’s manufacturing sites have continued to operate during the COVID-19 pandemic, with no significant impact to manufacturing whether through shutdowns or shortages in labor, raw materials or personal protective equipment. Supply chain and logistical challenges are expected to ease through the remainder of 2020, absent significant impacts from COVID-19 infection resurgences.

Recognizing the significant impact the COVID-19 pandemic would have on demand in the second quarter of 2020, Dow took proactive measures to electively focus on cash and maintain financial strength with a continued emphasis on safe, reliable operations and disciplined capital allocation. In accordance with these actions, the Corporation reduced its 2020 capital expenditures target to approximately $130 million and temporarily idled one of the Corporation’s polyethylene production units in the U.S. to balance production to demand across markets more severely affected by restrained economic activity. Based on current demand, the polyethylene production unit has restarted.

Review of First Half 2020 Financial Impacts from COVID-19

The Corporation's sales declined 17 percent in the first six months of 2020, as the COVID-19 pandemic significantly impacted the global economy and supply/demand fundamentals. While demand has remained strong for products utilized in consumer applications, such as cleaning and detergent ingredients and food, health and hygiene packaging, the Corporation has experienced reduced demand for products used in durable good end-markets, such as automotive.

Local prices declined in the first quarter and continued to decline in the second quarter of 2020, largely impacted by lower global energy prices. In March and April 2020, crude oil prices declined significantly, due in part to the COVID-19 pandemic, coupled with increased supply from oil producers. Declines in crude oil prices impact the pace of oil drilling in the U.S. & Canada, which makes natural gas, a significant by-product of oil drilling and the primary feedstock used in the U.S. by UCC and other ethylene producers, less cost advantaged. The Corporation has feedstock flexibility, driven by manufacturing assets that have the ability to produce ethylene from natural gas liquids or crude oil-based feedstocks, and benefits from Dow's comprehensive financial and physical hedging programs. The Corporation's feedstock flexibility and fully integrated feedstock position enable the Corporation to proactively respond to the challenges from oil price volatility.

The Corporation experienced margin compression in the second quarter, largely due to lower global energy prices. In the latter half of the second quarter, crude oil prices increased as supply/demand fundamentals improved, driving higher feedstock costs which should be beneficial to product prices and margins in the third quarter of 2020. See Results of Operations in this report for additional discussion of results for the three and six months ended June 30, 2020.

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In July 2020, Dow announced plans to take further disciplined actions, including plans to initiate a restructuring program in the third quarter of 2020, which is expected to impact the Corporation. These actions are necessary to maintain competitiveness while the economic recovery gains traction.

At the time of this filing, the ultimate severity and duration of the COVID-19 pandemic and oil price volatility cannot be reasonably estimated. The COVID-19 pandemic has had and could continue to have a substantial negative impact on the Corporation’s results of operations, financial condition and cash flows. The effects of the COVID-19 pandemic in the first six months of 2020 and the additional risks associated with these conditions are more fully discussed in this report in Part II, Item 1A, Risk Factors. The Corporation is actively monitoring for potential financial impacts from the COVID-19 pandemic and oil price volatility, including, but not limited to: evaluating the recoverability of its assets; enhancing cyber security monitoring; and evaluating ongoing appropriateness of its estimates.

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted on March 27, 2020 in the U.S. The Corporation continues to assess the provisions and potential impacts of this legislation; however, there have been no significant impacts to the Corporation's results of operations or financial position resulting from the CARES Act in the three and six months ended June 30, 2020.

RESULTS OF OPERATIONS

Net Sales

Total net sales were $870 million in the second quarter of 2020 compared with $1,039 million in the second quarter of 2019, ~~compared with $1,361 million in the second quarter of 2018,~~ a decrease of 2416 percent. Total net sales were $1,912 million for the first six months of 2020 compared with $2,317 million for the first six months of 2019, ~~compared with $2,679 million for the first six months of 2018,~~ a decrease of 1417 percent. Net sales to related companies, principally to TDCC, and based on market prices for the related products, were $849 million in the second quarter of 2020 compared with $992 million in the second quarter of 2019, ~~compared with $1,327 million in the second quarter of 2018,~~ a decrease of 2514 percent. Net sales to related companies were $1,862 million in the first six months of 2020 compared with $2,242 million in the first six months of 2019, ~~compared with $2,613 million in the first six months of 2018,~~ a decrease of 1417 percent.

Average selling ~~prices~~price decreased 1419 percent in the second quarter of ~~2019~~2020 compared with the same quarter last year. Price decreased across all products except polyglycols, primarily in response to lower feedstock and other raw material costs, with ~~price decreases across most products, with~~ the largest decreases in polyethylene, plastics used for wire and cable applications, oxo alcohols, ~~and~~ ethylene oxide/ethylene glycol ("EO/EG")~~. Volume~~ and glycol ethers. Despite the impact of the COVID-19 pandemic, volume was ~~down 10~~up 3 percent in the second quarter of ~~2019~~2020 compared with the second quarter of ~~2018,~~2019 with increases in vinyl acetate monomers, oxo alcohols and home and personal care products, partially offset by volume decreases resulting from the divestiture of the Corporation's acetone derivatives product line in the fourth quarter of 2019, and volume decreases in ~~electrical & telecommunications, surfactants and oxo alcohols more than offsetting increases~~glycol ethers. Volume in ~~polyethylene and vinyl acetate monomers. Volume decreases were a result~~the second quarter of 2019 was unfavorably impacted by planned maintenance ~~turnarounds~~turnaround activity at multiple production ~~facilities and the impact of the separation of the specialty products business.~~facilities.

~~For~~In the first six months of ~~2019,~~2020, average selling prices decreased 1019 percent compared with the first six months of ~~2018,~~2019, with price decreases across all products, ~~driven by~~primarily in response to lower feedstock and other raw material costs, with the largest decreases in polyethylene, oxo alcohols, glycol ethers, EO/EG and ~~EO/EG. Volume~~ethanolamines. Despite the impact of the COVID-19 pandemic, volume for the first six months of ~~2019~~2020 was ~~down 4~~up 2 percent compared with the first six months of ~~2018,~~2019, with ~~the largest decreases in electrical & telecommunications, surfactants and acrylic monomers which more than offset~~ increases in EO/EG, driven by demand growth in the first quarter of 2020, polyethylene, which was impacted by railcar shortages in the first quarter of 2019, and vinyl acetate monomers, ~~and ethyleneamines. Volume decreases were driven~~which was unfavorably impacted by planned maintenance ~~turnarounds at multiple production facilities~~turnaround activity in the second quarter of 2019. These volume increases were partially offset by volume decreases resulting from the divestiture of the Corporation's acetone derivatives product line in the fourth quarter of 2019 and the ~~impact of the separation of the specialty products business.~~Business Separation.

Cost of Sales

Cost of sales was $746 million in the second quarter of 2020 compared with $902 million in the second quarter of 2019, ~~compared with $948 million in the second quarter of 2018,~~ a decrease of 517 percent. Cost of sales decreased 915 percent from ~~$2,040 million in the first six months of 2018 to~~ $1,852 million in the first six months of ~~2019. Decreases~~2019 to $1,572 million in the first six months of 2020. The decline in cost of sales for the three and six months ended June 30, ~~2019, were~~2020 was driven primarily by lower ~~sales volume which more than offset higher planned maintenance turnaround spending compared with~~feedstock and other raw material costs, the ~~same periods last year.~~divestiture of the Corporation's acetone derivatives product line in the fourth quarter of 2019 and the impact from the Business Separation.

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Research and Development ("R&D"), Selling, General and Administrative ("SG&A") Expenses

R&D expenses were $7$5 million in the second quarter of ~~2019,~~2020, compared with $5$7 million in the same period last year. For the first six months of ~~2019,~~2020, R&D expenses were ~~$13~~$11 million compared with ~~$10~~$13 million in the first six months of ~~2018.~~2019. SG&A expenses were ~~zero in the second quarter of 2019 due to a year-to-date adjustment, compared with~~ $2 million in the second quarter of ~~2018.~~2020, compared with 0 in the same period last year due to a year-to-date adjustment in the second quarter of 2019. For the first six months of ~~2019,~~2020, SG&A expenses were $2$4 million compared with $4$2 million in the first six months of ~~2018.~~2019. The increase was driven primarily by administrative fees associated with ongoing service arrangements.

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~~Union Carbide Corporation and Subsidiaries~~

Restructuring ~~and Asset Related~~ Charges ~~- Net~~

In September and November 2017, the Corporation approved restructuring actions that were aligned with DowDuPont’s synergy targets. As the restructuring program has ended, the Corporation had no additional restructuring charges in the second quarter of ~~2019 and 2018, the Corporation recorded a pretax charge of $1 million ($2 million~~2020, compared with restructuring charges for ~~the first six months of 2019 and 2018) for additional~~ severance and related benefit costs ~~aligned~~of $1 million in the second quarter of 2019. For the six months ended June 30, 2020, the Corporation recorded restructuring charges of $2 million for severance and related benefit costs, compared with $2 million for the ~~DowDuPont synergy targets. See Note 5 to the Consolidated Financial Statements for additional information on the Corporation's restructuring activities.~~six months ended June 30, 2019.

Sundry Income (Expense) - Net

Sundry income (expense) – net includes a variety of income and expense items such as gains or losses on foreign currency exchange, commissions, charges for management services provided by TDCC, non-operating pension and other postretirement benefit plan credits or costs, and gains and losses on sales of investments and assets. Sundry income (expense) - net in the second quarter of ~~2019~~2020 was expense of ~~$18~~$22 million compared with expense of ~~$14~~$18 million in the same quarter last year. For the first six months of ~~2019,~~2020, sundry income (expense) -– net was expense of ~~$39~~$40 million compared with expense of ~~$28~~$39 million in the first six months of ~~2018.~~2019. The increase in expense in the ~~three and six months ended June 30, 2019~~second quarter of 2020 was primarily a result of ~~higher pension and other postretirement benefit plan costs compared~~increased expenses associated with the ~~same periods last year.~~master services agreement with TDCC.

Interest Income

Interest income was ~~$10~~$2 million in the second quarter of 2020 ($9 million for the first six months of 2020) compared with$10 million in the second quarter of 2019 ($19 million for the first six months of 2019) ~~compared with $6 million in the second quarter of 2018 ($12 million for the first six months of 2018)~~. The ~~increase~~decrease in interest income ~~was~~ primarily resulted from the ~~result~~impact of the significant drop in interest ~~rate increases~~rates due to the current interest rate environment.

Interest Expense and Amortization of Debt Discount

Interest expense and amortization of debt discount was $11 million in the second quarter of 2020 compared with $7 million in the second quarter of ~~2019 compared with $6 million in the second quarter of 2018.~~2019. For the first six months of ~~2019,~~2020, interest expense and amortization of debt discount was ~~$14~~$19 million compared with ~~$13~~$14 million in the first six months of ~~2018.~~2019. The increase in interest expense and amortization of debt discount was primarily due to the payment of interest and penalties in May 2020 to settle sales and use tax disputes in Seadrift, Texas and Texas City, Texas.

Provision for Income Taxes

The Corporation reported a tax provision of $18 million in the second quarter of 2020, which resulted in an effective tax rate of 20.9 percent, compared with a tax provision of $3 million in the second quarter of 2019, which resulted in an effective tax rate of 2.7 percent. ~~This compared with a tax provision of $84 million in the second quarter of 2018, which resulted in an effective tax rate of 21.5 percent.~~ For the first six months of ~~2019,~~2020, the Corporation reported a tax provision of ~~$57~~$59 million, which resulted in an effective tax rate of ~~13.8 percent. This~~21.6 percent, compared with a tax provision of ~~$122~~$57 million infor the first six months of ~~2018,~~2019, which resulted in an effective tax rate of ~~20.6~~13.8 percent. The effective tax rate fluctuates based on, among other factors, where income is earned. The ~~change in the effective~~ tax rate was favorably impacted in the three and six months ended June 30, 2019, ~~was a result of a change in deferred taxes related to fixed assets on the 2018 tax return that resulted in a favorable adjustment~~due to the ~~provision~~restoration of tax basis in assets, driven by a court judgment that did not involve the Corporation, and deductions allowed in the U.S. for ~~income taxes.~~certain sales to foreign customers.

Net Income Attributable to UCC

The Corporation reported net income of $68 million in the second quarter of 2020 compared with $110 million in the second quarter of ~~2019 compared with $306 million in the second quarter of 2018.~~2019. Net income for the first six months of ~~2019~~2020 was ~~$355~~$214 million compared with ~~$471~~$355 million in the first six months of ~~2018.~~2019.

Capital Expenditures

Capital spending in the second quarter of ~~2019~~2020 was $32 million ($65 million for the first six months of 2020) compared with $45 million in the second quarter of 2019 ($105 million for the first six months of 2019) ~~compared with $57 million in the second quarter of 2018 ($101 million for the first six months of 2018), reflecting continued~~. Capital spending decreased as spending for U.S. Gulf Coast projects and site infrastructure ~~projects.~~projects continues to trend down and the Corporation reduces its 2020 capital expenditures target to retain the financial strength of the Corporation and Dow Inc.

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Subsequent Event - Sale of Rail Infrastructure Assets and Related Equipment

On July 2, 2020, TDCC entered into a definitive agreement to sell its rail infrastructure assets and related equipment at certain sites in the U.S. & Canada for expected cash proceeds in excess of $310 million. Included in the transaction are certain assets and equipment located at UCC's sites in St. Charles, Louisiana and Seadrift, Texas. TDCC will also enter into long-term service agreements with the buyer for the continuation of certain rail-related services for TDCC's and UCC's operations at these sites. The transaction is expected to close in the fourth quarter of 2020, subject to customary closing conditions, and the Corporation expects to record a gain on the transaction.

OTHER MATTERS

Recent Accounting Guidance

See Note 2 to the Consolidated Financial Statements for a summary of recent accounting guidance.

Critical Accounting Estimates

The preparation of financial statements and related disclosures in 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 Statements and accompanying notes. Note 1 to the Consolidated Financial Statements in the Corporation’s Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019 ("~~2018~~2019 10-K") describes the significant accounting policies and methods used in the preparation of the Consolidated Financial Statements. The Corporation’s critical accounting policies that are impacted by judgments, assumptions and estimates are described in Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Corporation’s ~~2018~~2019 10-K. Since December 31, ~~2018,~~2019, there have been no material changes in the Corporation’s accounting policies that are impacted by judgments, assumptions and estimates.

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~~Union Carbide Corporation and Subsidiaries~~

Asbestos-Related Matters

The Corporation is and has been involved in a large number of asbestos-related suits filed primarily in state courts during the past four decades. These suits principally allege personal injury resulting from exposure to asbestos-containing products and frequently seek both actual and punitive damages. The alleged claims primarily relate to products that UCC sold in the past, alleged exposure to asbestos-containing products located on UCC’s premises, and UCC’s responsibility for asbestos suits filed against a former UCC subsidiary, Amchem Products, Inc. ("Amchem"). In many cases, plaintiffs are unable to demonstrate that they have suffered any compensable loss as a result of such exposure, or that injuries incurred in fact resulted from exposure to UCC’s products.

The table below provides information regarding asbestos-related claims pending against the Corporation and Amchem based on criteria developed by UCC and its external ~~consultants.~~consultants:


Asbestos-Related Claim Activity	2020	2019
Claims unresolved at Jan 1	11,117	12,780
Claims filed	2,194	2,819
Claims settled, dismissed or otherwise resolved	(2,488)	(3,477)
Claims unresolved at Jun 30	10,823	12,122
Claimants with claims against both UCC and Amchem	(3,555)	(4,217)
Individual claimants at Jun 30	7,268	7,905

Asbestos-Related Claim Activity 2019 2018
Claims unresolved at Jan 1 12,780
15,427
Claims filed 2,819
3,537
Claims settled, dismissed or otherwise resolved (3,477 ) (5,230 )
Claims unresolved at Jun 30 12,122
13,734
Claimants with claims against both UCC and Amchem (4,217 ) (4,928 )
Individual claimants at Jun 30 7,905
8,806

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 87 to the Consolidated Financial Statements and Part II, Item 1. Legal Proceedings.

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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 June 30, ~~2019.~~2020.

Dividends

In the second quarter of 2020, the Corporation declared and paid a cash dividend of $81 million to TDCC ($162 million for the first six months of 2020). In the second quarter of 2019, the Corporation declared and paid a cash dividend of $178 million ~~to TDCC; cash dividends paid to TDCC totaled $338~~($338 million for the first six months of ~~2019. In~~2019). On July 20, 2020, the ~~second quarter of 2018, the Corporation declared and paid~~Board approved a ~~cash~~ dividend ~~of $135 million to TDCC; cash dividends paid~~ to TDCC ~~totaled $246~~of $25 million, ~~for the first six months of 2018. Also, in~~payable on or before September 25, 2020.

In the first quarter of 2019, in ~~preparation for~~anticipation of the business separation activities to align ~~the~~TDCC's specialty products business with DowDuPont, UCC issued a stock dividend to TDCC for 63.4 percent of its ownership interest in ~~DIHC,~~Dow International Holdings Company, a cost method investment, which totaled $401 million. UCC also distributed assets and liabilities aligned with ~~the~~TDCC's specialty products business for an additional dividend to TDCC of $71 million. ~~On July 24, 2019, the UCC Board of Directors approved a dividend to TDCC of $112 million, payable on September 27, 2019.~~

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~~Union Carbide Corporation and Subsidiaries~~

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Omitted pursuant to General Instruction H of Form 10-Q.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, the Corporation carried out an evaluation, under the supervision and with the participation of the Corporation's Disclosure Committee and the Corporation's management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Corporation's disclosure controls and procedures pursuant to paragraph (b) of Exchange Act Rules 13a-15 and 15d-15. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Corporation's disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

There were no changes in the Corporation's internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 and 15d-15 that was conducted during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Corporation's internal control over financial reporting.

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Union Carbide Corporation and Subsidiaries PART II - OTHER INFORMATION

~~PART II – OTHER INFORMATION~~

ITEM 1. LEGAL PROCEEDINGS

Litigation

Asbestos-Related Matters

No material developments in asbestos-related matters occurred in the second quarter of ~~2019.~~2020. For a current status of asbestos-related matters, see Note 87 to the Consolidated Financial Statements.

~~Port Refinery Matter~~Environmental Proceedings

On ~~November 27, 2018,~~October 23, 2019, UCC received a proposed Agreed Order from the ~~Corporation signed~~Texas Commission on Environmental Quality (“TCEQ”) relating to emissions of ethylene oxide from a ~~consent decree with~~process leak at the ~~U.S. Department~~Corporation's manufacturing facility in Seadrift, Texas. The proposed Agreed Order included an administrative penalty of ~~Justice~~$800,000. On December 30, 2019, the TCEQ sent a revised Agreed Order reducing the penalty to $600,000 based on ~~behalf~~UCC's corrective actions and allowing for half of the ~~U.S.~~administrative penalty amount to be used to fund a Supplemental Environmental ~~Protection Agency ("EPA"), Region 2 relating to alleged disposal of mercury by a third party which~~Project. UCC ~~contracted with at the Port Refinery site~~paid $300,000 in ~~Rye Brook, New York.~~January 2020. The ~~consent decree~~revised Agreed Order was approved by the ~~United States District Judge~~TCEQ Commissioners on ~~May 9, 2019. Pursuant to the consent decree, the Corporation made a payment of $120,198 to the EPA.~~July 1, 2020.

~~Seadrift, Texas, Facility Matter~~

On March 5, 2019, the Corporation received an informal notice that the EPA, Region 6 was contemplating filing a Notice of Violation with a proposed penalty for alleged violations uncovered during a prior inspection related to the management of hazardous materials at the Seadrift, Texas, manufacturing facility, pursuant to the Risk Management Plan requirements of the Clean Air Act. On June 25, 2019, the Corporation entered into a Consent Agreement and Final Order with the EPA, Region 6 including a payment of $114,313 relating to the alleged violations.

ITEM 1A. RISK FACTORS

~~There were~~Since December 31, 2019, there have been no material changes into the Corporation's Risk Factors, except as noted below:

Public Health Crisis: A public health crisis or global outbreak of disease, including the pandemic caused by coronavirus disease 2019 (“COVID-19”) has had, and could continue to have, a negative effect on the Corporation's manufacturing operations, supply chain and workforce, creating disruptions that could continue to have a substantial negative impact on the Corporation’s results of operations, financial condition and cash flows.

UCC sells substantially all of its products to TDCC in order to simplify the worldwide customer interface process and, as a result, the Corporation is subject to many of the same global risk factors facing TDCC, including those presented by COVID-19. The pandemic caused by COVID-19 has impacted all geographic regions where UCC's products are produced and sold. The global, regional and local spread of COVID-19 has resulted in significant global mitigation measures, including government-directed quarantines, social distancing and shelter-in-place mandates, travel restrictions and/or bans, and restricted access to certain corporate facilities and manufacturing sites. Uncertainty with respect to the ~~second quarter~~severity and duration of ~~2019.~~the COVID-19 pandemic, coupled with crude oil price fluctuations due in part to the global spread of COVID-19, has contributed to the volatility of financial markets. While the severity and duration of the COVID-19 pandemic in key geographic regions and end-markets cannot be reasonably estimated at this time, impacts to the Corporation include, but are not limited to: a decrease in demand for certain Corporation products; reduced profitability; supply chain disruptions impeding the Corporation’s ability to ship and/or receive product; temporary idling of select manufacturing facilities; interruptions or limitations to manufacturing operations imposed by local, state or federal governments; workforce absenteeism and distraction; labor shortages; and increased cyber security risk and data accessibility disruptions due to remote working arrangements. Additional risks may include, but are not limited to: shortages of key raw materials; asset impairment charges; increased obligations related to the Corporation’s pension and other postretirement benefit plans; and deferred tax valuation allowances. Disruptions and market volatility resulting from the COVID-19 pandemic have had and could continue to have a substantial negative impact on the Corporation’s results of operations, financial condition and cash flows.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

Table of Contents

ITEM 6. EXHIBITS


	EXHIBIT NO.			DESCRIPTION

	~~EXHIBIT NO.~~	~~DESCRIPTION~~

23 *			Ankura Consulting Group, LLC's Consent.
	31.1 *			Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31.2 *			Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32.1 *			Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	32.2 *			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 ~~Instance Document.~~tags are embedded within the Inline XBRL document.
	101.SCH			Inline XBRL Taxonomy Extension Schema Document.
	101.CAL			Inline XBRL Taxonomy Extension Calculation Linkbase Document.
	101.DEF			Inline XBRL Taxonomy Extension Definition Linkbase Document.
	101.LAB			Inline XBRL Taxonomy Extension Label Linkbase Document.
	101.PRE			Inline XBRL Taxonomy Extension Presentation Linkbase Document.
	104			Cover Page Interactive Data File. The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

* Filed herewith

Table of Contents



Union Carbide Corporation and Subsidiaries Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

UNION CARBIDE CORPORATION

Registrant


Date:			July 24, 2020
				By:	/s/ RONALD C. EDMONDS
					Ronald C. Edmonds
					Controller and Vice President

~~Date: July 25, 2019~~
	~~By:~~	~~/s/ RONALD C. EDMONDS~~
		~~Ronald C. Edmonds~~
		~~Controller and Vice President~~
		of Controllers and Tax
					The Dow Chemical Company
					Authorized Representative of
					Union Carbide Corporation


			~~By:~~	By:	/s/ IGNACIO MOLINA
					Ignacio Molina
					Vice President, Treasurer and
					Chief Financial Officer


		PAGE

			~~PAGE~~

PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements.	4

	Consolidated Statements of Income.	4

	Consolidated Statements of Comprehensive Income.	5

	Consolidated Balance ~~Sheet~~Sheets.s.	6

	Consolidated Statements of Cash Flows.	7

	Consolidated Statements of Equity.	8

	Notes to the Consolidated Financial Statements.	9

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of ~~Operations~~Operations..	2017

	Results of ~~Operations~~Operations..	2019

	Other ~~Matters~~Matters..	21

Item 3.	Quantitative and Qualitative Disclosures About Market ~~Risk~~Risk..	2322

Item 4.	Controls and ~~Procedures~~Procedures..	2322

PART II - OTHER INFORMATION

Item 1.	Legal ~~Proceedings~~Proceedings..	2423

Item 1A.	Risk ~~Factors~~Factors..	2423

Item 4.	Mine Safety ~~Disclosures~~Disclosures..	2423

Item 6.	~~Exhibits~~Exhibits..	24

SIGNATURES				25


Note		Page
1	Consolidated Financial Statements	9
2	Recent Accounting Guidance	10
3	Business Separation	10
4	Revenue	10
5	Inventories	11
6	Intangible Assets	11
7	Commitments and Contingent Liabilities	12
8	Leases	13
9	Accumulated Other Comprehensive Loss	15
10	Pension and Other Postretirement Benefit Plans	15
11	Fair Value Measurements	16
12	Related Party Transactions	16
13	Subsequent Event	17



Lease Cost	Three Months Ended Jun 30, 2019		Six Months Ended Jun 30, 2019
In millions	Three Months Ended Jun 30, 2019		Six Months Ended Jun 30, 2019
Operating lease cost	$	5	$	11
Short-term lease cost	7		14
Variable lease cost	2		2
Amortization of right-of-use assets - finance	1		1
Total lease cost	$	15	$	28



Asbestos-Related Claim Activity	2019		2018
Claims unresolved at Jan 1	12,780		15,427
Claims filed	2,819		3,537
Claims settled, dismissed or otherwise resolved	(3,477	)	(5,230	)
Claims unresolved at Jun 30	12,122		13,734
Claimants with claims against both UCC and Amchem	(4,217	)	(4,928	)
Individual claimants at Jun 30	7,905		8,806