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UK Union Carbide

Filed: 23 Apr 21, 7:45am
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2021

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

For the transition period from __________to___________

Commission File Number: 1-1463
 
Union Carbide Corporation
(Exact name of registrant as specified in its charter)
New York13-1421730
(State or other jurisdiction of
     incorporation or organization)
(I.R.S. Employer Identification No.)

7501 STATE HIGHWAY 185 NORTH, SEADRIFT, 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


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.
Yes ☐ No

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).
Yes No

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

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. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes No

At March 31, 2021, 935.51 shares of common stock were outstanding, all of which were held by the registrant’s parent, The Dow Chemical Company.

The registrant meets the conditions set forth in General Instruction H(1)(a) and (b) for Form 10-Q and is therefore filing this form with a reduced disclosure format.
1

Union Carbide Corporation

QUARTERLY REPORT ON FORM 10-Q
For the quarterly period ended March 31, 2021

TABLE OF CONTENTS


2

Union Carbide Corporation and Subsidiaries

Throughout this Quarterly Report on Form 10-Q, except as otherwise indicated by the context, the terms "Corporation" or "UCC" as used herein mean Union Carbide Corporation and its subsidiaries.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this report are "forward-looking statements" within the meaning of 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. Such statements often address expected future business and financial performance, financial condition, and other matters and often contain words or phrases such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “opportunity,” “outlook,” “plan,” “project,” “seek,” “should,” “strategy,” “target,” “will,” “will be,” “will continue,” “will likely result,” “would” and similar expressions, and variations or negatives of these words or phrases.

Forward-looking statements are based on current assumptions and expectations of future events that are subject to risks, uncertainties and other factors that are beyond the Corporation’s control, which may cause actual results to differ materially from those projected, anticipated or implied in the forward-looking statements and speak only as of the date the statements were made. These factors often address expected future business and financial performance and financial condition, including, but not limited to: the continuing global and regional economic impacts of the coronavirus disease 2019 pandemic and other public health-related risks and events on the Corporation’s business; and developments related to contemplated restructuring activities and proposed divestitures or acquisitions such as workforce reduction, manufacturing facility and/or asset closure and related exit and disposal activities, and the benefits and costs associated with each of the foregoing.

Where, in any forward-looking statement, an expectation or belief as to future results or events is expressed, such expectation or belief is based on the current plans and expectations of management and expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the expectation or belief will result or be achieved or accomplished. A detailed discussion of principal risks and uncertainties which may cause actual results and events to differ materially from such forward-looking statements is included in the section titled "Risk Factors" in Part I, Item 1A of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 2020. These are not the only risks and uncertainties that the Corporation faces. There may be other risks and uncertainties that the Corporation is unable to identify at this time or that it does not currently expect to have a material impact on its business. If any of those risks or uncertainties develops into an actual event, it could have a material adverse effect on the Corporation’s business. The Corporation assumes no obligation to update or revise publicly any forward-looking statements whether because of new information, future events, or otherwise, except as required by securities and other applicable laws.

3

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Union Carbide Corporation and Subsidiaries
Consolidated Statements of Income

 Three Months Ended
In millions (Unaudited)Mar 31,
2021
Mar 31,
2020
Net trade sales$34 $29 
Net sales to related companies969 1,013 
Total net sales1,003 1,042 
Cost of sales1,037 826 
Research and development expenses
Selling, general and administrative expenses
Restructuring and asset related charges - net
Sundry income (expense) - net(15)(18)
Interest income
Interest expense and amortization of debt discount
Income (loss) before income taxes(64)187 
Provision (credit) for income taxes(15)41 
Net income (loss) attributable to Union Carbide Corporation$(49)$146 
Depreciation$41 $45 
Capital expenditures$23 $33 
See Notes to the Consolidated Financial Statements.

4

Union Carbide Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income

 Three Months Ended
In millions (Unaudited)Mar 31,
2021
Mar 31,
2020
Net income (loss) attributable to Union Carbide Corporation$(49)$146 
Other comprehensive income, net of tax  
Cumulative translation adjustments
Pension and other postretirement benefit plans84 20 
Total other comprehensive income84 23 
Comprehensive income attributable to Union Carbide Corporation$35 $169 
See Notes to the Consolidated Financial Statements.

5

Union Carbide Corporation and Subsidiaries
Consolidated Balance Sheets
In millions, except share amounts (Unaudited)Mar 31,
2021
Dec 31,
2020
Assets
Current Assets  
Cash and cash equivalents$11 $11 
Accounts receivable:
Trade (net of allowance for doubtful receivables 2021: $0; 2020: $0)24 26 
Related companies709 698 
Other35 27 
Income taxes receivable375 337 
Notes receivable from related companies1,055 1,660 
Inventories248 223 
Other current assets19 17 
Total current assets2,476 2,999 
Investments  
Investments in related companies237 237 
Other investments22 22 
Noncurrent receivables129 124 
Noncurrent receivables from related companies68 66 
Total investments456 449 
Property  
Property7,111 7,089 
Less accumulated depreciation5,865 5,824 
Net property1,246 1,265 
Other Assets  
Intangible assets (net of accumulated amortization 2021: $99; 2020: $97)15 16 
Operating lease right-of-use assets119 123 
Deferred income tax assets472 494 
Deferred charges and other assets38 29 
Total other assets644 662 
Total Assets$4,822 $5,375 
Liabilities and Equity
Current Liabilities  
Notes payable to related companies$29 $33 
Long-term debt due within one year
Accounts payable:
Trade260 229 
Related companies533 409 
Other16 28 
Operating lease liabilities - current19 19 
Income taxes payable22 23 
Asbestos-related liabilities - current85 85 
Accrued and other current liabilities127 139 
Total current liabilities1,093 967 
Long-Term Debt391 391 
Other Noncurrent Liabilities  
Pension and other postretirement benefits - noncurrent680 1,340 
Asbestos-related liabilities - noncurrent995 1,013 
Operating lease liabilities - noncurrent101 105 
Other noncurrent obligations209 201 
Total other noncurrent liabilities1,985 2,659 
Stockholder's Equity  
Common stock (authorized: 1,000 shares of $0.01 par value each; issued: 935.51 shares)
Additional paid-in capital141 141 
Retained earnings2,898 2,987 
Accumulated other comprehensive loss(1,686)(1,770)
Union Carbide Corporation's stockholder's equity1,353 1,358 
Total Liabilities and Equity$4,822 $5,375 
See Notes to the Consolidated Financial Statements.
6

Union Carbide Corporation and Subsidiaries
Consolidated Statements of Cash Flows

 Three Months Ended
In millions (Unaudited)Mar 31,
2021
Mar 31,
2020
Operating Activities  
Net income (loss) attributable to Union Carbide Corporation$(49)$146 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization51 52 
Provision (credit) for deferred income tax(4)
Net gain on sales of property and investments(1)(1)
Restructuring and asset related charges - net
Net periodic pension benefit cost (credit)(1)14 
Pension contributions(547)(1)
Other, net(1)(1)
Changes in assets and liabilities:
Accounts and notes receivable(6)
Related company receivables594 (48)
Inventories(34)
Accounts payable19 
Related company payables120 (95)
Asbestos-related payments(18)(18)
Other assets and liabilities(58)53 
Cash provided by operating activities65 112 
Investing Activities  
Capital expenditures(23)(33)
Change in noncurrent receivable from related company(2)
Cash used for investing activities(25)(33)
Financing Activities  
Dividends paid to parent(40)(81)
Changes in short-term notes payable
Cash used for financing activities(40)(79)
Summary  
Increase in cash and cash equivalents
Cash and cash equivalents at beginning of period11 11 
Cash and cash equivalents at end of period$11 $11 
See Notes to the Consolidated Financial Statements.
7

Union Carbide Corporation and Subsidiaries
Consolidated Statements of Equity

 Three Months Ended
In millions (Unaudited)Mar 31,
2021
Mar 31,
2020
Common Stock  
Balance at beginning and end of period$$
Additional Paid-in Capital  
Balance at beginning and end of period141 141 
Retained Earnings  
Balance at beginning of period2,987 2,922 
Net income (loss) attributable to Union Carbide Corporation(49)146 
Dividends declared(40)(81)
Balance at end of period2,898 2,987 
Accumulated Other Comprehensive Loss, Net of Tax  
Balance at beginning of period(1,770)(1,665)
Other comprehensive income84 23 
Balance at end of period(1,686)(1,642)
Union Carbide Corporation's Stockholder's Equity$1,353 $1,486 
See Notes to the Consolidated Financial Statements.
8

Union Carbide Corporation and Subsidiaries
(Unaudited)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Table of Contents



NOTE 1 - CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation
The unaudited interim consolidated financial statements of Union Carbide Corporation and its subsidiaries (the "Corporation" or "UCC") were prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") and reflect all adjustments (including normal recurring accruals) which, in the opinion of management, are considered necessary for the fair presentation of the results for the periods presented. These statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2020 ("2020 10-K").

The Corporation is a wholly owned subsidiary of The Dow Chemical Company ("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 separate reportable business segments for UCC under the accounting guidance related to segment reporting and no detailed business information is provided to a chief operating decision maker regarding the Corporation’s stand-alone operations, the Corporation’s results are reported as a single operating segment.

Intercompany transactions and balances are eliminated in consolidation. Transactions with the Corporation’s parent company, TDCC, and other subsidiaries of TDCC, have been reflected as related company transactions in the consolidated financial statements. See Note 11 for additional information.


9

NOTE 2 - RECENT ACCOUNTING GUIDANCE
Recently Adopted Accounting Guidance
In the first quarter of 2021, the Corporation adopted Accounting Standards Update 2019-12, "Income Taxes (Topic 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 improve consistent application by clarifying and amending existing guidance. The adoption of this guidance did not have a material impact on the consolidated financial statements.


NOTE 3 - REVENUE
Substantially all of the Corporation's revenue is generated by sales to TDCC. Products are sold to and purchased from TDCC at prices determined in accordance with the terms of an agreement between UCC and TDCC. The Corporation's revenue related to sales of product was approximately 99 percent for the three months ended March 31, 2021 (99 percent for the three months ended March 31, 2020); the remaining revenue primarily related to the licensing of patents and technology. The Corporation 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 with remaining contract terms that range up to 20 years. Amounts are recognized in revenue when the performance obligations for the contract are met. The Corporation has rights to additional consideration when product is delivered to the customer. The balance of contract liabilities was $40 million at March 31, 2021 ($40 million at December 31, 2020), of which $5 million ($5 million at December 31, 2020) was included in "Accrued and other current liabilities" and $35 million ($35 million at December 31, 2020) was included in "Other noncurrent obligations" in the consolidated balance sheets.

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 company, TDCC, and there are no unique economic factors that affect revenue recognition and cash flows associated with these product sales.


NOTE 4 - INVENTORIES
The following table provides a breakdown of inventories:

InventoriesMar 31, 2021Dec 31, 2020
In millions
Finished goods$216 $157 
Work in process29 23 
Raw materials45 38 
Supplies86 98 
Total$376 $316 
Adjustment of inventories to a LIFO basis(128)(93)
Total inventories$248 $223 


10

NOTE 5 - INTANGIBLE ASSETS
The following table provides information regarding the Corporation’s intangible assets:

Intangible AssetsMar 31, 2021Dec 31, 2020
In millionsGross
Carrying Amount
Accum AmortNetGross
Carrying Amount
Accum AmortNet
Intangible assets with finite lives:      
Developed technology$33 $(33)$$33 $(33)$
Software81 (66)15 80 (64)16 
Total intangible assets$114 $(99)$15 $113 $(97)$16 

Total estimated amortization expense for 2021 and the five succeeding fiscal years, including amounts expected to be capitalized, is as follows:

Estimated Amortization Expense
In millions
2021$
2022$
2023$
2024$
2025$
2026$


NOTE 6 - COMMITMENTS AND CONTINGENT LIABILITIES
A summary of the Corporation's commitments and contingent liabilities can be found in Note 14 to the Consolidated Financial Statements included in the 2020 10-K, which is incorporated by reference herein.

Environmental Matters
Accruals for environmental matters are recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated, based on current law and existing technologies. At March 31, 2021, the Corporation had accrued obligations of $142 million for probable environmental remediation and restoration costs, including $19 million for the remediation of Superfund sites. These obligations are included in "Accrued and other current liabilities" and "Other noncurrent obligations" in the consolidated balance sheets. This is management’s best estimate of the costs for remediation and restoration with respect to environmental matters for which the Corporation has accrued liabilities, although it is reasonably possible that the ultimate cost with respect to these particular matters could range up to approximately 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. At December 31, 2020, the Corporation had accrued obligations of $133 million for probable environmental remediation and restoration costs, including $18 million for the remediation of Superfund sites.


11

Litigation
Asbestos-Related Matters
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 these factors in conjunction with the most recent actuarial study and determines whether a change in the estimate is warranted. Based on the Corporation's review of 2021 activity, it was determined that no adjustment to the accrual was required at March 31, 2021.

The Corporation’s total asbestos-related liability for pending and future claims and defense and processing costs was $1,080 million at March 31, 2021 ($1,098 million at December 31, 2020), and was included in “Asbestos-related liabilities - current” and “Asbestos-related liabilities - noncurrent” in the consolidated balance sheets. At March 31, 2021, approximately 24 percent of the recorded claim liability related to pending claims and approximately 76 percent related to future claims.


NOTE 7 - LEASES
For additional information on the Corporation's leases, see Note 15 to the Consolidated Financial Statements included in the 2020 10-K.

The components of lease cost for operating and finance leases for the three months ended March 31, 2021 and 2020 were as follows:

Lease CostThree Months Ended
In millionsMar 31, 2021Mar 31, 2020
Operating lease cost$$
Short-term lease cost
Variable lease cost
Total lease cost$13 $13 

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

Other Lease InformationThree Months Ended
In millionsMar 31, 2021Mar 31, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases$$

12

The following table summarizes the lease-related assets and liabilities recorded in the consolidated balance sheets at March 31, 2021 and December 31, 2020:

Lease PositionBalance Sheet ClassificationMar 31, 2021Dec 31, 2020
In millions
Right-of-use assets obtained in exchange for lease obligations:
Operating leases$$48 
Finance leases$$
Assets
Operating lease assetsOperating lease right-of-use assets$119 $123 
Finance lease assetsProperty15 15 
Finance lease amortizationAccumulated depreciation(9)(8)
Total lease assets$125 $130 
Liabilities
Current
OperatingOperating lease liabilities - current$19 $19 
FinanceLong-term debt due within one year
Noncurrent
OperatingOperating lease liabilities - noncurrent101 105 
FinanceLong-term debt
Total lease liabilities$126 $131 

The weighted-average remaining lease term and discount rate for leases recorded in the consolidated balance sheets at March 31, 2021 and December 31, 2020 are provided below:

Lease Term and Discount RateMar 31, 2021Dec 31, 2020
Weighted-average remaining lease term
Operating leases7.3 years7.5 years
Finance leases3.2 years3.4 years
Weighted-average discount rate
Operating leases3.27 %3.28 %
Finance leases3.62 %3.62 %

The following table provides the maturities of lease liabilities at March 31, 2021:

Maturities of Lease LiabilitiesMar 31, 2021
Operating LeasesFinance Leases
In millions
2021$17 $
202222 
202320 
202420 
202518 
2026 and thereafter38 
Total future undiscounted lease payments$135 $
Less: Imputed interest15 
Total present value of lease liabilities$120 $


13

NOTE 8 - ACCUMULATED OTHER COMPREHENSIVE LOSS
The changes in the balances for each component of accumulated other comprehensive loss ("AOCL") for the three months ended March 31, 2021 and 2020 were as follows:

Accumulated Other Comprehensive LossThree Months Ended
In millionsMar 31, 2021Mar 31, 2020
Cumulative Translation Adjustment
Beginning balance$(55)$(56)
Unrealized gains (losses) on foreign currency translation
Ending balance$(55)$(53)
Pension and Other Postretirement Benefits
Beginning balance$(1,715)$(1,609)
Gains (losses) arising during the period 1
87 
Less: Tax (expense) benefit(20)
Net gains (losses) arising during the period67 
Amortization and recognition of net loss 2
22 26 
Less: Tax expense (benefit) 3
(5)(6)
Net loss reclassified from AOCL to net income (loss)17 20 
Other comprehensive income (loss), net of tax84 20 
Ending balance$(1,631)$(1,589)
Total AOCL ending balance$(1,686)$(1,642)
1.See Note 9 for additional information.
2.These AOCL components are included in the computation of net periodic benefit cost (credit) of the Corporation's defined benefit pension and other postretirement benefit plans. See Note 9 for additional information.
3.Reclassified to "Provision (credit) for income taxes."


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NOTE 9 - PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
A summary of the Corporation's pension and other postretirement benefit plans can be found in Note 17 to the Consolidated Financial Statements included in the 2020 10-K.

On March 4, 2021, TDCC announced changes to the design of its U.S. tax-qualified and non-qualified pension plans, including the plans of the Corporation (the “UCC Plans”). Effective December 31, 2023 (“Effective Date”), the Corporation will freeze the pensionable compensation and credited service amounts used to calculate pension benefits for employees who participate in the UCC Plans. As a result, at the Effective Date and subject to any bargaining obligations required by law, active participants of the UCC Plans will not accrue additional benefits for future service and compensation. Additionally, contributions to U.S. tax-qualified and non-qualified defined contribution plans will be harmonized across the U.S. eligible employee population of TDCC and its consolidated subsidiaries. The new matching contribution, beginning January 1, 2022, will allow all eligible U.S. employees to receive matching contributions of up to 5 percent of their eligible compensation. In addition, beginning on January 1, 2024, all eligible U.S. employees will receive an automatic non-elective contribution of 4 percent of eligible compensation to their respective defined contribution plans.

The Corporation's funding policy is to contribute to pension plans when pension laws and/or economics either require or encourage funding. On March 4, 2021, the Corporation elected to contribute $545 million to its tax-qualified pension plan, funded by the Corporation's notes receivable from TDCC, and, as a result, increased its estimated total 2021 pension contributions to approximately $550 million, of which $547 million has been contributed through March 31, 2021.

In connection with the foregoing plan amendments, the Corporation remeasured the UCC Plans effective February 28, 2021, which resulted in a pretax actuarial gain of $87 million, reflected in other comprehensive income and inclusive of a $14 million reduction in the projected benefit obligation resulting from the plan amendments, and a pretax curtailment gain of $7 million, recognized in the first quarter of 2021.

The following table provides the components of the Corporation's net periodic benefit cost (credit) for all significant plans:

Net Periodic Benefit Cost (Credit) for All Significant PlansThree Months Ended
In millionsMar 31, 2021Mar 31, 2020
Defined Benefit Pension Plans
Service cost$$
Interest cost19 28 
Expected return on plan assets(51)(50)
Amortization of net loss30 27 
Curtailment gain(7)
Net periodic benefit cost (credit)$(1)$14 
Other Postretirement Benefit Plan
Interest cost$$
Amortization of net gain(1)(1)
Net periodic benefit cost$$

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

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NOTE 10 - 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 and quality checks.

The following table summarizes the fair value of the Corporation's financial instruments at March 31, 2021 and December 31, 2020:

Fair Value of Financial InstrumentsMar 31, 2021Dec 31, 2020
In millionsCostGainLossFair ValueCostGainLossFair Value
Cash equivalents 1
$10 $$$10 $10 $$$10 
Long-term debt including debt due within one year$(393)$$(114)$(507)$(393)$$(120)$(513)
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.


NOTE 11 - RELATED PARTY TRANSACTIONS
A summary of the Corporation's related party transactions can be found in Note 19 to the Consolidated Financial Statements included in the 2020 10-K.

Product and Services Agreements
The following table summarizes UCC’s transactions with TDCC and a TDCC subsidiary related to product and services agreements for the three months ended March 31, 2021 and 2020:

Product and Services Agreements TransactionsThree Months Ended
Mar 31, 2021Mar 31, 2020Income Statement Classification
In millions
TDCC Subsidiary:
Commodity and raw materials purchases 1
$483 $231 Cost of sales
Commission expense$$Sundry income (expense) - net
TDCC:
General administrative and overhead type services and service fee 2
$17 $Sundry income (expense) - net
Activity-based costs$19 $23 Cost of sales
1.Period-end balances on hand are included in inventory. The increase in purchase costs was primarily due to higher feedstock and energy costs, which reflect the impacts of Winter Storm Uri.
2.The increase in services and fees resulted from TDCC's periodic review of the actual cost of services provided to UCC in accordance with related agreements.

Dividends
The following table summarizes cash dividends declared and paid to TDCC for the three months ended March 31, 2021 and 2020:

Cash Dividends Declared and PaidThree Months Ended
Mar 31, 2021Mar 31, 2020
In millions
Cash dividends declared and paid$40 $81 

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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. TDCC has been a wholly owned subsidiary of Dow Inc. since 2019.

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 separate reportable business segments for UCC and no detailed business information is provided to a chief operating decision maker regarding the Corporation’s stand-alone operations, the Corporation’s results are reported as a single operating segment.

Statements on COVID-19 and U.S. Gulf Coast Freeze
COVID-19
Additional information regarding all actions taken by UCC since the onset of the pandemic can be found in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2020 ("2020 10-K").

The pandemic caused by coronavirus disease 2019 ("COVID-19") has impacted all geographic regions where UCC's products are produced and sold. Dow Inc. (together, with TDCC and its consolidated subsidiaries, "Dow") directs global safety, crisis management and security protocols for all of Dow's assets and workforce, which includes the assets and workforce of UCC. During this public health crisis, Dow is focused on the health and safety of its employees, contractors, customers and suppliers around the world and maintaining the safe and reliable operations of its manufacturing sites. Although supply disruptions and related logistical issues have posed challenges across all modes of transportation, UCC’s manufacturing sites have continued to operate during the COVID-19 pandemic, with no significant impact to manufacturing whether through shutdowns or shortages in labor, raw materials or personal protective equipment. Supply chain and logistical challenges are expected to stabilize throughout 2021. Contingency plans remain in place in the event of significant impacts from COVID-19 infection resurgences.

A significant number of UCC employees continue to work remotely. The Corporation continues to encourage its workforce to practice safe behaviors in the workplace and while away from work to help prevent community spread of COVID-19. Dow and the Corporation continue to monitor ongoing mitigation efforts to appropriately implement Dow's comprehensive Return to Workplace plan. UCC sites continue to follow on-site workforce restrictions in accordance with government regulations.

Prior to the weather-related events on the U.S. Gulf Coast discussed below, most end-markets for UCC products had substantially recovered from the impacts of COVID-19 and the Corporation experienced improved demand and expected a return to pre-COVID-19 sales levels.

U.S. Gulf Coast Freeze
Beginning in mid-February 2021, Winter Storm Uri had a broad impact on the U.S. Gulf Coast and in particular across the entire state of Texas, resulting in widespread utility and raw material supply disruptions and industry-wide production outages. UCC's Texas City, Texas, ("Texas City") and Seadrift, Texas, ("Seadrift") operations were severely impacted with significant production disruptions that extended into mid-March at Seadrift and late March at Texas City, primarily due to precautionary shutdowns prior to the arrival of record low temperatures, raw material supply constraints and damage caused by extremely cold temperatures. While not as severely impacted, the Corporation's St. Charles, Louisiana, operations initiated certain precautionary shutdowns in anticipation of the record low temperatures and experienced raw material supply disruptions and equipment damage caused by the extreme cold. However, at March 31, 2021, UCC's ethylene production facilities and all sites were operational. As a result of the winter storm, the product and supply chain impacts created very tight industry supply fundamentals which resulted in higher raw material costs in addition to pricing momentum in certain end-markets.


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RESULTS OF OPERATIONS
Net Sales
Total net sales were $1,003 million in the first quarter of 2021 compared with $1,042 million in the first quarter of 2020, a decrease of 4 percent. Net sales to related companies, principally to TDCC, were $969 million in the first quarter of 2021 compared with $1,013 million in the first quarter of 2020, a decrease of 4 percent. Selling prices to TDCC are determined in accordance with the terms of an agreement between UCC and TDCC.

Average selling price increased 13 percent in the first quarter of 2021 compared with the same quarter last year. Price increased primarily in response to tight supply and demand fundamentals in addition to higher feedstock and other raw material costs, with the most significant price increases in polyethylene and acrylic monomers. Volume declined 17 percent in the first quarter of 2021 compared with the same quarter last year as the freeze and related impacts on the U.S. Gulf Coast severely limited production, with the most significant volume declines in oxo alcohols, ethylene oxide/ethylene glycol and glycol ethers.

Cost of Sales
Cost of sales was $1,037 million in the first quarter of 2021 compared with $826 million in the first quarter of 2020, an increase of 26 percent. The increase in cost of sales was driven by higher feedstock and energy costs, as well as repair and start-up costs totaling approximately $30 million, resulting from the record low temperatures that impacted the U.S. Gulf Coast in the first quarter of 2021.

Sundry Income (Expense) - Net
Sundry income (expense) – net includes a variety of income and expense items such as charges for management services provided by TDCC, non-operating pension and other postretirement benefit plan credits or costs, commissions, gains and losses on sales of investments and assets and gains and losses on foreign currency exchange.

Sundry income (expense) - net in the first quarter of 2021 was expense of $15 million compared with expense of $18 million in the same quarter last year. The decrease in the first quarter of 2021 was primarily the result of non-operating pension benefit plan credits recognized in 2021 resulting from a remeasurement of pension plans to reflect the announced freeze of plan benefits, effective December 31, 2023, partially offset by an increase in charges for management services provided by TDCC.

Interest Income
Interest income was $1 million in the first quarter of 2021 compared with $7 million in the first quarter of 2020. The decrease in interest income primarily resulted from the impact of the significant drop in interest rates due to the current interest rate environment.

Interest Expense and Amortization of Debt Discount
Interest expense and amortization of debt discount was $7 million in the first quarter of 2021 compared with $8 million in the first quarter of 2020, reflecting reduced interest expense resulting from the early extinguishment of debt in September 2020.

Provision (Credit) for Income Taxes
The Corporation reported a credit for income taxes of $15 million in the first quarter of 2021, which resulted in an effective tax rate of 23.4 percent, compared with a tax provision of $41 million in the first quarter of 2020, which resulted in an effective tax rate of 21.9 percent. The effective tax rate fluctuates based on, among other factors, where income is earned.

Net Income (Loss) Attributable to UCC
The Corporation reported a net loss of $49 million in the first quarter of 2021 compared with net income of $146 million in the first quarter of 2020. The net loss reported in the first quarter of 2021 was driven primarily by production disruptions, higher feedstock and energy costs, and repair and start-up costs resulting from the extreme weather caused by Winter Storm Uri.

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Capital Expenditures
Capital spending in the first quarter of 2021 was $23 million compared with $33 million in the first quarter of 2020. Capital spending decreased as spending for U.S. Gulf Coast projects and site infrastructure projects continues to trend down and the Corporation continues to limit capital expenditures to retain the financial strength of the Corporation and Dow Inc. while the COVID-19 economic recovery continues to gain traction.

Pension Plan Changes
On March 4, 2021, TDCC announced changes to the design of its U.S. tax-qualified and non-qualified pension plans, including the plans of the Corporation (the “UCC Plans”) and, effective December 31, 2023, the Corporation will freeze the pensionable compensation and credited service amounts used to calculate pension benefits for employees who participate in the plans. Additionally, the Corporation contributed $545 million to its tax-qualified pension plan, of which $81 million was anticipated to satisfy minimum required contributions based on the pre-existing plan design and market conditions at December 31, 2020.

In connection with the foregoing plan amendments and inclusive of the additional discretionary contribution to the U.S. tax-qualified plan, the Corporation remeasured the UCC Plans effective February 28, 2021, which resulted in a decrease of $45 million in expected net periodic pension benefit cost for 2021, inclusive of a curtailment gain of $7 million, recognized in the first quarter of 2021. The Corporation expects a net periodic pension benefit cost credit of approximately $5 million in 2021, inclusive of the curtailment gain. See Note 9 to the Consolidated Financial Statements for additional information related to the Corporation's pension plans.


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 2020 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 2020 10-K. Since December 31, 2020, there have been no material changes in the Corporation’s accounting policies that are impacted by judgments, assumptions and estimates.


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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:

Asbestos-Related Claim Activity20212020
Claims unresolved at Jan 19,126 11,117 
Claims filed1,110 1,296 
Claims settled, dismissed or otherwise resolved(1,428)(1,269)
Claims unresolved at Mar 318,808 11,144 
Claimants with claims against both UCC and Amchem(2,541)(3,809)
Individual claimants at Mar 316,267 7,335 

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 6 to the Consolidated Financial Statements and Note 14 to the Consolidated Financial Statements included in the 2020 10-K, and Part II, Item 1. Legal Proceedings.

Debt Covenants and Default Provisions
The Corporation’s outstanding public debt has been issued under indentures which contain, among other provisions, covenants that the Corporation must comply with while the underlying notes are outstanding. Such covenants are typically based on the Corporation’s size and financial position and include, subject to the exceptions and qualifications contained in the indentures, obligations not to (i) allow liens on principal U.S. manufacturing facilities, (ii) enter into sale and lease-back transactions with respect to principal U.S. manufacturing facilities, or (iii) merge into or consolidate with any other entity or sell or convey all or substantially all of its assets. Failure of the Corporation to comply with any of these covenants could, after the passage of any applicable grace period, result in a default under the applicable indenture which would allow the note holders to accelerate the due date of the outstanding principal and accrued interest on the subject notes. Management believes the Corporation was in compliance with the covenants referred to above at March 31, 2021.

Dividends
On a quarterly basis, the Corporation's Board of Directors (the "Board") reviews and determines if there will be a dividend distribution to its parent company and sole shareholder, 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 first quarter of 2021, the Corporation declared and paid a cash dividend of $40 million to TDCC ($81 million in the first quarter of 2020).


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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

ITEM 1. LEGAL PROCEEDINGS
Litigation
Asbestos-Related Matters
No material developments in asbestos-related matters occurred in the first quarter of 2021. For a current status of asbestos-related matters, see Note 6 to the Consolidated Financial Statements.


ITEM 1A. RISK FACTORS
Since December 31, 2020, there have been no material changes to the Corporation's Risk Factors.


ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.


ITEM 6. EXHIBITS
EXHIBIT NO.DESCRIPTION
23 *
Ankura Consulting Group, LLC's Consent.
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INSThe instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCHInline XBRL Taxonomy Extension Schema Document.
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document.
101.LABInline XBRL Taxonomy Extension Label Linkbase Document.
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document.
104Cover 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
22

 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

Date:April 23, 2021  

/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
/s/ IGNACIO MOLINA
Ignacio Molina
Vice President, Treasurer and
Chief Financial Officer
23