☑QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period endedSeptember 30, 2019
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 York
13-1421730
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
7501 STATE HIGHWAY 185 NORTH, SEADRIFT, TX77983
(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:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
N/A
N/A
N/A
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 filer
☐
Accelerated filer
☐
Non-accelerated filer
☑
Smaller 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 September 30, 2019, 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.
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 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 "Management's Discussion and Analysis." These forward-looking statements often address expected future business and financial performance, financial condition and other matters and often contain words 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. 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" in Part I, Item 1A of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 2018. UCC 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.
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.
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.
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 effective August 31, 2017, under the Agreement and Plan of Merger, dated as of December 11, 2015, as amended on March 31, 2017. TDCC and E. I. du Pont de Nemours and Company and its consolidated subsidiaries ("Historical DuPont") each merged with subsidiaries of DowDuPont, and, as a result, TDCC and Historical DuPont became subsidiaries of DowDuPont (the “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 the holding company for the materials science business. UCC remains a wholly owned subsidiary of TDCC. See Note 3 for additional information.
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 13 for additional information.
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 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 ("AOCL") 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 Adopted Accounting Guidance
In the first quarter of 2019, the Corporation adopted Topic 842, which requires organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. The new guidance requires that a lessee recognize assets and liabilities for leases, 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." The new standard was effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, and early adoption was permitted.
The Corporation adopted Topic 842 using the modified retrospective transition approach, applying the new standard to leases existing at the date of initial adoption. The Corporation elected to apply the transition requirements at the effective date rather than at the beginning 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, lease
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 remains a wholly owned subsidiary of TDCC.
In the first quarter of 2019, in anticipation of the business separations, UCC's assets and liabilities aligned with the 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 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 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 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.
NOTE 4 - REVENUE
Substantially all of the Corporation's revenues are 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 Corporation's revenue for the three and nine months ended September 30, 2019, related to sales of product (99 percent for the three and nine months ended September 30, 2018); the remaining 1 percent 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 22 years. The Corporation will have rights to future consideration for revenue recognized when product is delivered to the customer. The balance of contract liabilities was $41 million at September 30, 2019 ($41 million at December 31, 2018) and was included in "Accrued and other current liabilities" and "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 parent entity, 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 September 30, 2019, the Corporation recorded pretax restructuring charges of $2 million for severance and related benefit costs ($1 million for the three months ended September 30, 2018). For the nine months ended September 30, 2019, the Corporation recorded pretax restructuring charges of $4 million for severance and related benefit costs ($3 million for the nine months ended September 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 $79 million inception-to-date under the restructuring program, consisting of severance and related benefit costs of $17 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 September 30, 2019, severance of $15 million had been paid, leaving a liability of $2 million.
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.
On August 13, 2019, the Corporation entered into a definitive agreement to sell its acetone derivatives product line to ALTIVIA Ketones & Additives, LLC. The divestiture includes the Corporation's acetone derivatives related inventory and production assets located in Institute, West Virginia, in addition to the site infrastructure, land and utilities. The divestiture is expected to close in the fourth quarter of 2019. The Corporation will remain at the Institute site as a tenant. As a result of this planned divestiture, the Corporation recognized a pretax impairment charge of $75 million in the third quarter of 2019. The impairment charge was included in "Restructuring and asset related charges - net" in the consolidated statements of income. See Note 12 for additional information.
NOTE 6 - INVENTORIES
The following table provides a breakdown of inventories:
Inventories
Sep 30, 2019
Dec 31, 2018
In millions
Finished goods
$
183
$
264
Work in process
32
45
Raw materials
41
45
Supplies
89
85
Total
$
345
$
439
Adjustment of inventories to a LIFO basis
(95
)
(135
)
Total inventories
$
250
$
304
NOTE 7 - INTANGIBLE ASSETS
The following table provides information regarding the Corporation’s intangible assets:
Total estimated amortization expense for 2019 and the five succeeding fiscal years is as follows:
Estimated Amortization Expense
In millions
2019
$
7
2020
$
8
2021
$
6
2022
$
4
2023
$
2
2024
$
1
NOTE 8 - 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 September 30, 2019, the Corporation had accrued obligations of $141 million for probable environmental remediation and restoration costs, including $21 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, 2018, the Corporation had accrued obligations of $94 million for probable environmental remediation and restoration costs, including $16 million for the remediation of Superfund sites.
During the third quarter of 2019, the Corporation recorded a pretax charge of $55 million, included in "Cost of sales" in the consolidated statements of income, related to environmental remediation matters at a number of current and historical locations. The charge primarily resulted from the culmination of long-standing negotiations and discussions with regulators and agencies, including technical studies supporting higher cost estimates for final or staged remediation plans, and the Corporation’s review of its closure strategies and obligations to monitor ongoing operations and maintenance activities.
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 13 to the Consolidated Financial Statements included in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2018.
Introduction
The Corporation is and has been involved in a large number of asbestos-related suits filed primarily in state courts during the past four decades. These suits principally allege personal injury resulting from exposure to asbestos-containing products and frequently seek both actual and punitive damages. The alleged claims primarily relate to products that UCC sold in the past, alleged exposure to asbestos-containing products located on UCC’s premises and UCC’s responsibility for asbestos suits filed against a former UCC
subsidiary, Amchem Products, Inc. ("Amchem"). In many cases, plaintiffs are unable to demonstrate that they have suffered any compensable loss as a result of such exposure, or that injuries incurred in fact resulted from exposure to the Corporation’s products.
The Corporation expects more asbestos-related suits to be filed against UCC and Amchem in the future, and will aggressively defend or reasonably resolve, as appropriate, both pending and future claims.
Estimating the Asbestos-Related Liability
Since 2003, the Corporation has engaged Ankura Consulting Group, LLC ("Ankura"), a third party actuarial specialist, to review the Corporation's historical asbestos-related claim and resolution activity in order to assist UCC management in estimating the Corporation's asbestos-related liability. Each year, Ankura reviews the claim and resolution activity to determine the appropriateness of updating the most recent Ankura study.
Based on the December 2018 Ankura review and the Corporation's own review of the data, the Corporation's total asbestos-related liability through the terminal year of 2049, including asbestos-related defense and processing costs, was $1,260 million at December 31, 2018, and was included in “Asbestos-related liabilities - current” and “Asbestos-related liabilities - noncurrent” in the consolidated balance sheets.
Each quarter, the Corporation reviews claims filed, settled and dismissed, as well as average settlement and resolution costs by disease category. The Corporation also considers additional quantitative and qualitative factors such as the nature of pending claims, trial experience of the Corporation and other asbestos defendants, current spending for defense and processing costs, significant appellate rulings and legislative developments, trends in the tort system, and their respective effects on expected future 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 activity, it was determined that no adjustment to the accrual was required at September 30, 2019.
The Corporation’s asbestos-related liability for pending and future claims and defense and processing costs was $1,192 million at September 30, 2019, and approximately 18 percent of the recorded liability related to pending claims and approximately 82 percent related to future claims.
Summary
The Corporation's management believes the amounts recorded for the asbestos-related liability (including defense and processing costs) reflect reasonable and probable estimates of the liability based on current, known facts. However, future events, such as the number of new claims to be filed and/or received each year and the average cost of defending and disposing of each such claim, as well as the numerous uncertainties surrounding asbestos litigation in the United States over a significant period of time, could cause the actual costs for the Corporation to be higher or lower than those projected or those recorded. Any such event could result in an increase or decrease in the recorded liability.
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
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.
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" in the consolidated balance sheets.
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 nine months ended September 30, 2019 were as follows:
Lease Cost
Three Months Ended
Sep 30, 2019
Nine Months Ended Sep 30, 2019
In millions
Operating lease cost
$
7
$
18
Short-term lease cost
6
20
Variable lease cost
1
3
Amortization of right-of-use assets - finance
—
1
Total lease cost
$
14
$
42
The following table provides supplemental cash flow information related to leases:
Other Lease Information
Nine Months Ended
Sep 30, 2019
In millions
Cash paid for amounts included in the measurement of lease liabilities:
The following table summarizes the lease-related assets and liabilities recorded in the consolidated balance sheets at September 30, 2019:
Lease Position
Balance Sheet Classification
Sep 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
$
93
Finance lease assets
Property
12
Finance lease amortization
Accumulated depreciation
(6
)
Total lease assets
$
99
Liabilities
Current
Operating
Operating lease liabilities - current
$
18
Finance
Long-term debt due within one year
1
Noncurrent
Operating
Operating lease liabilities - noncurrent
75
Finance
Long-Term Debt
5
Total lease liabilities
$
99
1.
Includes $99 million related to the adoption of Topic 842. See Note 2 for additional information.
Lease Term and Discount Rate
Sep 30, 2019
Weighted-average remaining lease term
Operating leases
6.4 years
Finance leases
4.8 years
Weighted-average discount rate
Operating leases
4.23
%
Finance leases
4.22
%
The following table provides the maturities of lease liabilities at September 30, 2019:
Maturities of Lease Liabilities at Sep 30, 2019
Operating Leases
Finance Leases
In millions
2019
$
5
$
—
2020
20
2
2021
16
2
2022
15
1
2023
13
1
2024 and thereafter
37
1
Total future undiscounted lease payments
$
106
$
7
Less imputed interest
13
1
Total present value of lease liabilities
$
93
$
6
At September 30, 2019, the Corporation had an additional lease of approximately $15 million for a rail yard, which has not yet commenced. This lease is expected to commence in 2020, with a lease term of 20 years.
Future minimum lease payments for operating leases accounted for under ASC 840, "Leases," with remaining non-cancelable terms in excess of one year at December 31, 2018 were as follows:
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 10 - ACCUMULATED OTHER COMPREHENSIVE LOSS
The changes in the balances for each component of AOCL for the three and nine months ended September 30, 2019 and 2018 were as follows:
Accumulated Other Comprehensive Loss
Three Months Ended
Nine Months Ended
In millions
Sep 30, 2019
Sep 30, 2018
Sep 30, 2019
Sep 30, 2018
Cumulative Translation Adjustment
Beginning balance
$
(57
)
$
(58
)
$
(57
)
$
(59
)
Gains (losses) on foreign currency translation
1
2
1
2
(Gains) losses reclassified from AOCL to net income 1
—
(1
)
—
—
Other comprehensive income (loss), net of tax
1
1
1
2
Ending balance
$
(56
)
$
(57
)
$
(56
)
$
(57
)
Pension and Other Postretirement Benefits
Beginning balance
$
(1,475
)
$
(1,514
)
$
(1,504
)
$
(1,293
)
Amortization and recognition of net loss 2
18
21
56
64
Less: Tax expense (benefit) 3
(4
)
(5
)
(13
)
(15
)
Other comprehensive income (loss), net of tax
14
16
43
49
Reclassification of stranded tax effects 4
—
—
—
(254
)
Ending balance
$
(1,461
)
$
(1,498
)
$
(1,461
)
$
(1,498
)
Total AOCL ending balance
$
(1,517
)
$
(1,555
)
$
(1,517
)
$
(1,555
)
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 for additional information.
3.
Reclassified to "Provision (credit) for income taxes."
4.
Amounts reclassified to retained earnings as a result of the adoption of ASU 2018-02.
NOTE 11 - PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS
A summary of the Corporation's pension plans and other postretirement benefits can be found in Note 15 to the Consolidated Financial Statements included in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2018. 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
Nine Months Ended
In millions
Sep 30, 2019
Sep 30, 2018
Sep 30, 2019
Sep 30, 2018
Defined Benefit Pension Plans:
Service cost
$
9
$
10
$
27
$
30
Interest cost
36
32
108
96
Expected return on plan assets
(52
)
(55
)
(158
)
(164
)
Amortization of net loss
20
24
62
71
Net periodic benefit cost
$
13
$
11
$
39
$
33
Other Postretirement Benefits:
Interest cost
$
2
$
2
$
6
$
5
Amortization of net gain
(2
)
(3
)
(6
)
(7
)
Net periodic benefit cost
$
—
$
(1
)
$
—
$
(2
)
Net periodic benefit cost, other than the service cost component, is included in "Sundry income (expense) - net" in the consolidated statements of income.
NOTE 12 - 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 September 30, 2019 and December 31, 2018:
Fair Value of Financial Instruments
Sep 30, 2019
Dec 31, 2018
In millions
Cost
Gain
Loss
Fair Value
Cost
Gain
Loss
Fair Value
Cash equivalents 1
$
10
$
—
$
—
$
10
$
10
$
—
$
—
$
10
Long-term debt including debt due within one year
$
(474
)
$
—
$
(115
)
$
(589
)
$
(474
)
$
—
$
(67
)
$
(541
)
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.
Fair Value Measurements on a Nonrecurring Basis
In the third quarter of 2019, the Corporation recognized an impairment charge of $75 million resulting from the planned divestiture of its acetone derivatives product line to ALTIVIA Ketones & Additives, LLC. The divestiture includes the Corporation's acetone derivatives related inventory and production assets located in Institute, West Virginia, in addition to the site infrastructure, land and utilities. The assets, classified as Level 3 measurements and valued using unobservable inputs, were written down to zero in the third quarter of 2019, except for inventory, which will be sold at the lower of cost or market. The impairment charge was included in "Restructuring and asset related charges - net" in the consolidated statements of income. See Note 5 for additional information.
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. 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 is included in "Sundry income (expense) - net" in the consolidated statements of income. Purchases from that TDCC subsidiary were $247 million in the third quarter of 2019 ($407 million in the third quarter of 2018) and $861 million during the first nine months of 2019 ($1,219 million during the first nine months of 2018). The decrease in purchase costs for the three and nine months ended 2019 when compared with the same period last year was due to lower feedstock and energy costs, lower demand and the impact of the separation of the specialty products business. See Note 3 for additional information.
The Corporation has a master services agreement with TDCC, whereby TDCC provides services including, but not limited to, accounting, legal, treasury (investments, cash management, risk management, insurance), procurement, human resources, environmental, health and safety and business management for UCC. Under the master services agreement with 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 million in the third quarter of 2019 ($8 million in the third quarter of 2018) and $18 million for the first nine months of 2019 ($22 million for the first nine months of 2018) 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 million in the third quarter of 2019 ($23 million in the third quarter of 2018) and $65 million for the first nine months of 2019 ($67 million for the first nine months of 2018), 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 September 30, 2019, the Corporation had a note receivable of $1.5 billion ($1.3 billion at December 31, 2018) 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.
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. 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 September 30, 2019, $936 million was available under the revolving credit agreement ($949 million at December 31, 2018). The cash collateral is reported as “Noncurrent receivables from related companies” in the consolidated balance sheets.
On a quarterly basis, the Corporation's board of directors reviews and determines if there will be a dividend distribution to its parent company and sole shareholder, 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 third quarter of 2019, the Corporation declared a cash dividend of $112 million to TDCC, which was paid on October 3, 2019; cash dividends paid to TDCC totaled $338 million for the first nine months of 2019. In the third quarter of 2018, the Corporation declared and paid a cash dividend of $177 million to TDCC; cash dividends to TDCC totaled $423 million for the first nine months of 2018.
Also, in the first quarter of 2019, in anticipation of the business separation activities to align the specialty products business with DowDuPont, UCC issued a stock dividend to TDCC for 63.4 percent of its ownership in DIHC, a cost method investment, which totaled $401 million. UCC also distributed assets and liabilities aligned with the specialty products business for an additional dividend to TDCC of $71 million. See Note 3 for additional information.
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. 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 effective August 31, 2017, under the Agreement and Plan of Merger, dated as of December 11, 2015, as amended on March 31, 2017. TDCC and E. I. du Pont de Nemours and Company and its consolidated subsidiaries ("Historical DuPont") each merged with subsidiaries of DowDuPont, and, as a result, TDCC and Historical DuPont became subsidiaries of DowDuPont (the “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 the holding company for the materials science business. UCC 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.
RESULTS OF OPERATIONS
Net Sales
Total net sales were $1,059 million in the third quarter of 2019 compared with $1,424 million in the third quarter of 2018, a decrease of 26 percent. Total net sales were $3,376 million for the first nine months of 2019 compared with $4,103 million for the first nine months of 2018, a decrease of 18 percent. Net sales to related companies, principally to TDCC, and based on market prices for the related products, were $1,028 million in the third quarter of 2019 compared with $1,385 million in the third quarter of 2018, a decrease of 26 percent. Net sales to related companies were $3,270 million in the first nine months of 2019 compared with $3,998 million in the first nine months of 2018, a decrease of 18 percent.
Average selling prices decreased 19 percent in the third quarter of 2019 compared with the same quarter last year. Price decreased across most products, primarily in response to lower feedstock and other raw material costs, with the largest decreases in polyethylene, oxo alcohols and ethylene oxide/ethylene glycol ("EO/EG"). Volume was down 7 percent in the third quarter of 2019 compared with the third quarter of 2018, as lower demand for vinyl acetate monomers and plastics for wire and cable applications as well as lower volume resulting from the Business Separation more than offset increases in polyethylene and surfactants.
For the first nine months of 2019, average selling prices decreased 14 percent compared with the first nine months of 2018, with price decreases across all products, driven by lower feedstock and other raw material costs, with the largest decreases in polyethylene, oxo alcohols and EO/EG. Volume for the first nine months of 2019 was down 4 percent compared with the first nine months of 2018, as lower demand in plastics for wire and cable applications and acrylic monomers and decreases resulting from the Business Separation more than offset demand growth in polyethylene and ethyleneamines. Volume was also negatively impacted by planned maintenance turnaround activity at multiple production facilities during the first nine months of 2019.
Cost of Sales
During the third quarter of 2019, the Corporation recorded a pretax charge of $55 million related to environmental remediation matters at a number of current and historical locations. The charge primarily resulted from the culmination of long-standing negotiations and discussions with regulators and agencies, including technical studies supporting higher cost estimates for final or staged remediation plans, and the Corporation’s review of its closure strategies and obligations to monitor ongoing operations and maintenance activities.
Cost of sales was $854 million in the third quarter of 2019 compared with $1,062 million in the third quarter of 2018, a decrease of 20 percent. Cost of sales decreased 13 percent from $3,102 million in the first nine months of 2018 to $2,706 million in the first nine months of 2019. The decline in cost of sales for the three and nine months ended September 30, 2019, was driven primarily by lower feedstock and other raw material costs, lower volume and the impact from the Business Separation, which more than offset charges for environmental remediation matters.
Research and Development ("R&D"), Selling, General and Administrative ("SG&A") Expenses
R&D expenses were $6 million in the third quarter of 2019, compared with $4 million in the same period last year. For the first nine months of 2019, R&D expenses were $19 million compared with $14 million in the first nine months of 2018. SG&A expenses were $2 million in the third quarter of 2019 compared with $1 million in the third quarter of 2018. For the first nine months of 2019, SG&A expenses were $4 million compared with $5 million in the first nine months of 2018.
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 September 30, 2019, the Corporation recorded pretax restructuring charges of $2 million for severance and related benefit costs ($1 million for the three months ended September 30, 2018). For the nine months ended September 30, 2019, the Corporation recorded pretax restructuring charges of $4 million for severance and related benefit costs ($3 million for the nine months ended September 30, 2018). See Note 5 to the Consolidated Financial Statements for additional information on the Corporation's restructuring activities.
On August 13, 2019, the Corporation entered into a definitive agreement to sell its acetone derivatives product line to ALTIVIA Ketones & Additives, LLC. The divestiture includes the Corporation's acetone derivatives related inventory and production assets located in Institute, West Virginia, in addition to the site infrastructure, land and utilities. The divestiture is expected to close in the fourth quarter of 2019. The Corporation will remain at the Institute site as a tenant. As a result of this planned divestiture, the Corporation recognized a pretax impairment charge of $75 million in the third quarter of 2019. The impairment charge was included in "Restructuring and asset related charges - net" in the consolidated statements of income.
Sundry Income (Expense) - Net
Sundry income (expense) – net includes a variety of income and expense items such as 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 third quarter of 2019 was an expense of $19 million compared with an expense of $20 million in the same quarter last year. For the first nine months of 2019, sundry income (expense) - net was an expense of $58 million compared with an expense of $48 million in the first nine months of 2018. The increase in expense for the nine months ended September 30, 2019 was primarily a result of higher pension and other postretirement benefit plan costs compared with the same period last year.
Interest Income
Interest income was $9 million in the third quarter of 2019 ($28 million for the first nine months of 2019) compared with $8 million in the third quarter of 2018 ($20 million for the first nine months of 2018). The increase in interest income for the nine months ended September 30, 2019, was primarily the result of higher interest rates and an increase in notes receivable from related parties.
Interest Expense and Amortization of Debt Discount
Interest expense and amortization of debt discount was $7 million in the third quarter of 2019 compared with $9 million in the third quarter of 2018. For the first nine months of 2019, interest expense and amortization of debt discount was $21 million compared with $22 million in the first nine months of 2018.
Provision (Credit) for Income Taxes
The Corporation reported a credit for income taxes of $19 million in the third quarter of 2019, which resulted in an effective tax rate of negative 18.4 percent, compared with a tax provision of $62 million in the third quarter of 2018, which resulted in an effective tax rate of 18.6 percent. For the first nine months of 2019, the Corporation reported a tax provision of $38 million, which resulted in an effective tax rate of 7.4 percent. This compared with a tax provision of $184 million in the first nine months of 2018, which resulted in an effective tax rate of 19.8 percent. The effective tax rate fluctuates based on, among other factors, where income is earned. The change in the effective tax rate in the three and nine months ended September 30, 2019, resulted from amended returns that reflect a recent court judgment that did not involve the Corporation and a tax accounting method change related to depreciation of fixed assets, both resulting in a favorable adjustment to the provision (credit) for income taxes.
The Corporation reported net income of $122 million in the third quarter of 2019 compared with $272 million in the third quarter of 2018. Net income for the first nine months of 2019 was $477 million compared with $743 million in the first nine months of 2018.
Capital Expenditures
Capital spending in the third quarter of 2019 was $40 million ($145 million for the first nine months of 2019) compared with $73 million in the third quarter of 2018 ($174 million for the first nine months of 2018), as spending for U.S. Gulf Coast projects and site infrastructure projects winds down.
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 ("2018 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 10-K. Since December 31, 2018, there have been no material changes in the Corporation’s accounting policies that are impacted by judgments, assumptions and estimates.
Asbestos-Related Matters
The Corporation is and has been involved in a large number of asbestos-related suits filed primarily in state courts during the past four decades. These suits principally allege personal injury resulting from exposure to asbestos-containing products and frequently seek both actual and punitive damages. The alleged claims primarily relate to products that UCC sold in the past, alleged exposure to asbestos-containing products located on UCC’s premises, and UCC’s responsibility for asbestos suits filed against a former UCC subsidiary, Amchem Products, Inc. ("Amchem"). In many cases, plaintiffs are unable to demonstrate that they have suffered any compensable loss as a result of such exposure, or that injuries incurred in fact resulted from exposure to UCC’s products.
The table below provides information regarding asbestos-related claims pending against the Corporation and Amchem based on criteria developed by UCC and its external consultants.
Asbestos-Related Claim Activity
2019
2018
Claims unresolved at Jan 1
12,780
15,427
Claims filed
4,396
5,279
Claims settled, dismissed or otherwise resolved
(5,763
)
(7,861
)
Claims unresolved at Sep 30
11,413
12,845
Claimants with claims against both UCC and Amchem
(3,935
)
(4,778
)
Individual claimants at Sep 30
7,478
8,067
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 8 to the Consolidated Financial Statements and Part II, Item 1. Legal Proceedings.
The Corporation determines the costs of environmental remediation of its current and historical locations based on current law and existing technologies. Inherent uncertainties exist in such evaluations primarily due to unknown environmental conditions, changing governmental regulations and legal standards regarding liability, and emerging remediation technologies. The recorded liabilities are adjusted periodically as remediation efforts progress, or as additional technical or legal information becomes available. At September 30, 2019, the Corporation had accrued obligations of $141 million for probable environmental remediation and restoration costs, including $21 million for the remediation of Superfund sites. This is management’s best estimate of the costs for remediation and restoration with respect to environmental matters for which the Corporation has accrued liabilities, although it is reasonably possible that the ultimate cost with respect to these particular matters could range up to approximately two and a half times that amount. For additional information see Environmental Matters in Note 8 to the Consolidated Financial Statements.
Debt Covenants and Default Provisions
The Corporation’s outstanding public debt has been issued under indentures which contain, among other provisions, covenants that the Corporation must comply with while the underlying notes are outstanding. Such covenants are typically based on the Corporation’s size and financial position and include, subject to the exceptions and qualifications contained in the indentures, obligations not to (i) allow liens on principal U.S. manufacturing facilities, (ii) enter into sale and lease-back transactions with respect to principal U.S. manufacturing facilities, or (iii) merge into or consolidate with any other entity or sell or convey all or substantially all of its assets. Failure of the Corporation to comply with any of these covenants could, after the passage of any applicable grace period, result in a default under the applicable indenture which would allow the note holders to accelerate the due date of the outstanding principal and accrued interest on the subject notes. Management believes the Corporation was in compliance with the covenants referred to above at September 30, 2019.
Dividends
On a quarterly basis, the Corporation's board of directors reviews and determines if there will be a dividend distribution to its parent company and sole shareholder, 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 third quarter of 2019, the Corporation declared a cash dividend of $112 million to TDCC, which was paid on October 3, 2019; cash dividends paid to TDCC totaled $338 million for the first nine months of 2019. In the third quarter of 2018, the Corporation declared and paid a cash dividend of $177 million to TDCC; cash dividends paid to TDCC totaled $423 million for the first nine months of 2018. Also, in the first quarter of 2019, in preparation for the business separation activities to align the specialty products business with DowDuPont, UCC issued a stock dividend to TDCC for 63.4 percent of its ownership in DIHC, a cost method investment, which totaled $401 million. UCC also distributed assets and liabilities aligned with the specialty products business for an additional dividend to TDCC of $71 million. On October 23, 2019, the UCC Board of Directors approved a dividend to TDCC of $120 million, payable on or before December 27, 2019.
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.
No material developments in asbestos-related matters occurred in the third quarter of 2019. For a current status of asbestos-related matters, see Note 8 to the Consolidated Financial Statements.
ITEM 1A. RISK FACTORS
There were no material changes in the Corporation's risk factors in the third quarter of 2019.
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.
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:
October 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:
/s/ IGNACIO MOLINA
Ignacio Molina
Vice President, Treasurer and
Chief Financial Officer
25
falsedesktopUCC2019-09-30000002991519000018{"tbl_sim": "https://q10k.com/tbl-sim", "search": "https://q10k.com/search"}{"q10k_tbl_0": "Large accelerated filer\t☐\tAccelerated filer\t☐\nNon-accelerated filer\t☑\tSmaller reporting company\t☐\n\t\tEmerging growth company\t☐\n", "q10k_tbl_1": "\t\tPAGE\nPART I - FINANCIAL INFORMATION\t\t\nItem 1.\tFinancial Statements.\t4\n\tConsolidated Statements of Income.\t4\n\tConsolidated Statements of Comprehensive Income.\t5\n\tConsolidated Balance Sheets.\t6\n\tConsolidated Statements of Cash Flows.\t7\n\tConsolidated Statements of Equity.\t8\n\tNotes to the Consolidated Financial Statements.\t9\nItem 2.\tManagement's Discussion and Analysis of Financial Condition and Results of Operations.\t20\n\tResults of Operations.\t20\n\tOther Matters.\t22\nItem 3.\tQuantitative and Qualitative Disclosures About Market Risk.\t23\nItem 4.\tControls and Procedures.\t23\nPART II - OTHER INFORMATION\t\t\nItem 1.\tLegal Proceedings.\t24\nItem 1A.\tRisk Factors.\t24\nItem 4.\tMine Safety Disclosures.\t24\nItem 6.\tExhibits.\t24\nSIGNATURES\t\t25\n", "q10k_tbl_2": "\tThree Months Ended\t\tNine Months Ended\t\nIn millions (Unaudited)\tSep 30 2019\tSep 30 2018\tSep 30 2019\tSep 30 2018\nNet trade sales\t31\t39\t106\t105\nNet sales to related companies\t1028\t1385\t3270\t3998\nTotal net sales\t1059\t1424\t3376\t4103\nCost of sales\t854\t1062\t2706\t3102\nResearch and development expenses\t6\t4\t19\t14\nSelling general and administrative expenses\t2\t1\t4\t5\nRestructuring and asset related charges - net\t77\t1\t79\t3\nIntegration and separation costs\t0\t1\t2\t2\nSundry income (expense) - net\t(19)\t(20)\t(58)\t(48)\nInterest income\t9\t8\t28\t20\nInterest expense and amortization of debt discount\t7\t9\t21\t22\nIncome before income taxes\t103\t334\t515\t927\nProvision (credit) for income taxes\t(19)\t62\t38\t184\nNet income attributable to Union Carbide Corporation\t122\t272\t477\t743\nDepreciation\t43\t49\t128\t137\nCapital expenditures\t40\t73\t145\t174\n", "q10k_tbl_3": "\tThree Months Ended\t\tNine Months Ended\t\nIn millions (Unaudited)\tSep 30 2019\tSep 30 2018\tSep 30 2019\tSep 30 2018\nNet income attributable to Union Carbide Corporation\t122\t272\t477\t743\nOther comprehensive income net of tax\t\t\t\t\nCumulative translation adjustments\t1\t1\t1\t2\nPension and other postretirement benefit plans\t14\t16\t43\t49\nTotal other comprehensive income\t15\t17\t44\t51\nComprehensive income attributable to Union Carbide Corporation\t137\t289\t521\t794\n", "q10k_tbl_4": "In millions except share amounts (Unaudited)\tSep 30 2019\tDec 31 2018\nAssets\t\t\nCurrent Assets\t\t\nCash and cash equivalents\t13\t13\nAccounts receivable:\t\t\nTrade (net of allowance for doubtful receivables 2019: $-; 2018: $-)\t30\t21\nRelated companies\t745\t1029\nOther\t19\t31\nIncome taxes receivable\t299\t330\nNotes receivable from related companies\t1485\t1281\nInventories\t250\t304\nOther current assets\t25\t15\nTotal current assets\t2866\t3024\nInvestments\t\t\nInvestments in related companies\t238\t639\nOther investments\t21\t23\nNoncurrent receivables\t96\t67\nNoncurrent receivables from related companies\t67\t54\nTotal investments\t422\t783\nProperty\t\t\nProperty\t7410\t7430\nLess accumulated depreciation\t6040\t5982\nNet property\t1370\t1448\nOther Assets\t\t\nIntangible assets (net of accumulated amortization 2019: $90; 2018: $87)\t23\t25\nOperating lease right-of-use assets\t93\t0\nDeferred income tax assets\t474\t463\nDeferred charges and other assets\t26\t34\nTotal other assets\t616\t522\nTotal Assets\t5274\t5777\nLiabilities and Equity\t\t\nCurrent Liabilities\t\t\nNotes payable to related companies\t32\t28\nNotes payable - other\t2\t1\nLong-term debt due within one year\t1\t1\nAccounts payable:\t\t\nTrade\t207\t247\nRelated companies\t313\t515\nOther\t11\t39\nDividends payable to parent\t112\t0\nOperating lease liabilities - current\t18\t0\nIncome taxes payable\t24\t24\nAsbestos-related liabilities - current\t105\t118\nAccrued and other current liabilities\t169\t163\nTotal current liabilities\t994\t1136\nLong-Term Debt\t472\t473\nOther Noncurrent Liabilities\t\t\nPension and other postretirement benefits - noncurrent\t949\t979\nAsbestos-related liabilities - noncurrent\t1087\t1142\nOperating lease liabilities - noncurrent\t75\t0\nOther noncurrent obligations\t184\t132\nTotal other noncurrent liabilities\t2295\t2253\nStockholder's Equity\t\t\nCommon stock (authorized: 1000 shares of $0.01 par value each; issued: 935.51 shares)\t0\t0\nAdditional paid-in capital\t138\t138\nRetained earnings\t2892\t3338\nAccumulated other comprehensive loss\t(1517)\t(1561)\nUnion Carbide Corporation's stockholder's equity\t1513\t1915\nTotal Liabilities and Equity\t5274\t5777\n", "q10k_tbl_5": "\tNine Months Ended\t\nIn millions (Unaudited)\tSep 30 2019\tSep 30 2018\nOperating Activities\t\t\nNet income attributable to Union Carbide Corporation\t477\t743\nAdjustments to reconcile net income to net cash provided by operating activities:\t\t\nDepreciation and amortization\t148\t157\nProvision (credit) for deferred income tax\t(23)\t28\nNet loss on sales of property and investments\t1\t0\nRestructuring and asset related charges - net\t79\t3\nNet periodic pension benefit cost\t39\t33\nPension contributions\t(2)\t(42)\nChanges in assets and liabilities:\t\t\nAccounts and notes receivable\t7\t25\nRelated company receivables\t39\t(86)\nInventories\t34\t(25)\nAccounts payable\t(58)\t12\nRelated company payables\t(195)\t(112)\nAsbestos-related payments\t(68)\t(79)\nOther assets and liabilities\t14\t(63)\nCash provided by operating activities\t492\t594\nInvesting Activities\t\t\nCapital expenditures\t(145)\t(174)\nChange in noncurrent receivable from related company\t(13)\t0\nProceeds from sales of property\t1\t0\nProceeds from sales of investments\t3\t0\nCash used for investing activities\t(154)\t(174)\nFinancing Activities\t\t\nDividends paid to parent\t(338)\t(423)\nChanges in short-term notes payable\t1\t4\nPayments on long-term debt\t(1)\t(1)\nCash used for financing activities\t(338)\t(420)\nSummary\t\t\nIncrease in cash and cash equivalents\t0\t0\nCash and cash equivalents at beginning of period\t13\t13\nCash and cash equivalents at end of period\t13\t13\n", "q10k_tbl_6": "\tThree Months Ended\t\tNine Months Ended\t\nIn millions (Unaudited)\tSep 30 2019\tSep 30 2018\tSep 30 2019\tSep 30 2018\nCommon Stock\t\t\t\t\nBalance at beginning and end of period\t0\t0\t0\t0\nAdditional Paid-in Capital\t\t\t\t\nBalance at beginning and end of period\t138\t138\t138\t138\nRetained Earnings\t\t\t\t\nBalance at beginning of period\t2882\t3061\t3338\t2582\nAdoption of accounting standard (Note 1)\t0\t0\t0\t254\nNet income attributable to Union Carbide Corporation\t122\t272\t477\t743\nDividends declared\t(112)\t(177)\t(922)\t(423)\nOther\t0\t0\t(1)\t0\nBalance at end of period\t2892\t3156\t2892\t3156\nAccumulated Other Comprehensive Loss Net of Tax\t\t\t\t\nBalance at beginning of period\t(1532)\t(1572)\t(1561)\t(1352)\nAdoption of accounting standard (Note 1)\t0\t0\t0\t(254)\nOther comprehensive income\t15\t17\t44\t51\nBalance at end of period\t(1517)\t(1555)\t(1517)\t(1555)\nUnion Carbide Corporation's Stockholder's Equity\t1513\t1739\t1513\t1739\n", "q10k_tbl_7": "Note\t\tPage\n1\tConsolidated Financial Statements\t9\n2\tRecent Accounting Guidance\t10\n3\tBusiness Separation\t11\n4\tRevenue\t11\n5\tRestructuring and Asset Related Charges - Net\t11\n6\tInventories\t12\n7\tIntangible Assets\t12\n8\tCommitments and Contingent Liabilities\t13\n9\tLeases\t15\n10\tAccumulated Other Comprehensive Loss\t17\n11\tPension Plans and Other Postretirement Benefits\t18\n12\tFair Value Measurements\t18\n13\tRelated Party Transactions\t19\n", "q10k_tbl_8": "Inventories\tSep 30 2019\tDec 31 2018\nIn millions\nFinished goods\t183\t264\nWork in process\t32\t45\nRaw materials\t41\t45\nSupplies\t89\t85\nTotal\t345\t439\nAdjustment of inventories to a LIFO basis\t(95)\t(135)\nTotal inventories\t250\t304\n", "q10k_tbl_9": "Intangible Assets\tSep 30 2019\t\t\tDec 31 2018\t\t\nIn millions\tGross Carrying Amount\tAccumulated Amortization\tNet\tGross Carrying Amount\tAccumulated Amortization\tNet\nIntangible assets with finite lives:\t\t\t\t\t\t\nLicenses and developed technology\t33\t(33)\t0\t33\t(33)\t0\nSoftware\t80\t(57)\t23\t79\t(54)\t25\nTotal intangible assets\t113\t(90)\t23\t112\t(87)\t25\n", "q10k_tbl_10": "Estimated Amortization Expense\t\nIn millions\t\n2019\t7\n2020\t8\n2021\t6\n2022\t4\n2023\t2\n2024\t1\n", "q10k_tbl_11": "Lease Cost\tThree Months Ended Sep 30 2019\tNine Months Ended Sep 30 2019\nIn millions\nOperating lease cost\t7\t18\nShort-term lease cost\t6\t20\nVariable lease cost\t1\t3\nAmortization of right-of-use assets - finance\t0\t1\nTotal lease cost\t14\t42\n", "q10k_tbl_12": "Lease Position\tBalance Sheet Classification\tSep 30 2019\nIn millions\nRight-of-use assets obtained in exchange for lease obligations:\t\t\nOperating leases 1\t\t105\nAssets\t\t\nOperating lease assets\tOperating lease right-of-use assets\t93\nFinance lease assets\tProperty\t12\nFinance lease amortization\tAccumulated depreciation\t(6)\nTotal lease assets\t\t99\nLiabilities\t\t\nCurrent\t\t\nOperating\tOperating lease liabilities - current\t18\nFinance\tLong-term debt due within one year\t1\nNoncurrent\t\t\nOperating\tOperating lease liabilities - noncurrent\t75\nFinance\tLong-Term Debt\t5\nTotal lease liabilities\t\t99\n", "q10k_tbl_13": "Maturities of Lease Liabilities at Sep 30 2019\tOperating Leases\tFinance Leases\nIn millions\n2019\t5\t0\n2020\t20\t2\n2021\t16\t2\n2022\t15\t1\n2023\t13\t1\n2024 and thereafter\t37\t1\nTotal future undiscounted lease payments\t106\t7\nLess imputed interest\t13\t1\nTotal present value of lease liabilities\t93\t6\n", "q10k_tbl_14": "Minimum Lease Commitments at Dec 31 2018\t\nIn millions\t\n2019\t18\n2020\t16\n2021\t14\n2022\t13\n2023\t13\n2024 and thereafter\t37\nTotal\t111\n", "q10k_tbl_15": "Accumulated Other Comprehensive Loss\tThree Months Ended\t\tNine Months Ended\t\nIn millions\tSep 30 2019\tSep 30 2018\tSep 30 2019\tSep 30 2018\nCumulative Translation Adjustment\t\t\t\t\nBeginning balance\t(57)\t(58)\t(57)\t(59)\nGains (losses) on foreign currency translation\t1\t2\t1\t2\n(Gains) losses reclassified from AOCL to net income 1\t0\t(1)\t0\t0\nOther comprehensive income (loss) net of tax\t1\t1\t1\t2\nEnding balance\t(56)\t(57)\t(56)\t(57)\nPension and Other Postretirement Benefits\t\t\t\t\nBeginning balance\t(1475)\t(1514)\t(1504)\t(1293)\nAmortization and recognition of net loss 2\t18\t21\t56\t64\nLess: Tax expense (benefit) 3\t(4)\t(5)\t(13)\t(15)\nOther comprehensive income (loss) net of tax\t14\t16\t43\t49\nReclassification of stranded tax effects 4\t0\t0\t0\t(254)\nEnding balance\t(1461)\t(1498)\t(1461)\t(1498)\nTotal AOCL ending balance\t(1517)\t(1555)\t(1517)\t(1555)\n", "q10k_tbl_16": "Net Periodic Benefit Cost for All Significant Plans\tThree Months Ended\t\tNine Months Ended\t\nIn millions\tSep 30 2019\tSep 30 2018\tSep 30 2019\tSep 30 2018\nDefined Benefit Pension Plans:\t\t\t\t\nService cost\t9\t10\t27\t30\nInterest cost\t36\t32\t108\t96\nExpected return on plan assets\t(52)\t(55)\t(158)\t(164)\nAmortization of net loss\t20\t24\t62\t71\nNet periodic benefit cost\t13\t11\t39\t33\nOther Postretirement Benefits:\t\t\t\t\nInterest cost\t2\t2\t6\t5\nAmortization of net gain\t(2)\t(3)\t(6)\t(7)\nNet periodic benefit cost\t0\t(1)\t0\t(2)\n", "q10k_tbl_17": "Fair Value of Financial Instruments\tSep 30 2019\t\t\t\tDec 31 2018\t\t\t\nIn millions\tCost\tGain\tLoss\tFair Value\tCost\tGain\tLoss\tFair Value\nCash equivalents 1\t10\t0\t0\t10\t10\t0\t0\t10\nLong-term debt including debt due within one year\t(474)\t0\t(115)\t(589)\t(474)\t0\t(67)\t(541)\n", "q10k_tbl_18": "Asbestos-Related Claim Activity\t2019\t2018\nClaims unresolved at Jan 1\t12780\t15427\nClaims filed\t4396\t5279\nClaims settled dismissed or otherwise resolved)\t(5763\t(7861)\nClaims unresolved at Sep 30\t11413\t12845\nClaimants with claims against both UCC and Amchem)\t(3935\t(4778)\nIndividual claimants at Sep 30\t7478\t8067\n", "q10k_tbl_19": "EXHIBIT NO.\tDESCRIPTION\n23 *\tAnkura Consulting Group LLC's Consent.\n31.1 *\tCertification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.\n31.2 *\tCertification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.\n32.1 *\tCertification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.\n32.2 *\tCertification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.\n101.INS\tThe instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.\n101.SCH\tInline XBRL Taxonomy Extension Schema Document.\n101.CAL\tInline XBRL Taxonomy Extension Calculation Linkbase Document.\n101.DEF\tInline XBRL Taxonomy Extension Definition Linkbase Document.\n101.LAB\tInline XBRL Taxonomy Extension Label Linkbase Document.\n101.PRE\tInline XBRL Taxonomy Extension Presentation Linkbase Document.\n104\tCover 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.\n"}{"bs": "q10k_tbl_4", "is": "q10k_tbl_2", "cf": "q10k_tbl_5"}None