New York (State or other jurisdiction of incorporation or organization) | 13-1421730 (I.R.S. Employer Identification No.) |
Large accelerated filer | o | Accelerated filer | o | |
Non-accelerated filer | þ | Smaller reporting company | o | |
Emerging growth company | o |
PAGE | ||
Item 1. | ||
Item 2. | ||
Item 3. | ||
Item 4. | ||
Item 1. | ||
Item 1A. | ||
Item 4. | ||
Item 6. | ||
Union Carbide Corporation and Subsidiaries |
Three Months Ended | Nine Months Ended | |||||||||||
In millions (Unaudited) | Sep 30, 2018 | Sep 30, 2017 | Sep 30, 2018 | Sep 30, 2017 | ||||||||
Net trade sales | $ | 39 | $ | 31 | $ | 105 | $ | 113 | ||||
Net sales to related companies | 1,385 | 1,184 | 3,998 | 3,722 | ||||||||
Total net sales | 1,424 | 1,215 | 4,103 | 3,835 | ||||||||
Cost of sales | 1,062 | 994 | 3,102 | 3,061 | ||||||||
Research and development expenses | 4 | 4 | 14 | 14 | ||||||||
Selling, general and administrative expenses | 1 | 1 | 5 | 4 | ||||||||
Restructuring and asset related charges - net | 1 | 8 | 3 | 10 | ||||||||
Integration and separation costs | 1 | 1 | 2 | 1 | ||||||||
Sundry income (expense) - net | (12 | ) | (5 | ) | (28 | ) | 11 | |||||
Interest expense and amortization of debt discount | 9 | 6 | 22 | 20 | ||||||||
Income before income taxes | 334 | 196 | 927 | 736 | ||||||||
Provision for income taxes | 62 | 152 | 184 | 337 | ||||||||
Net income attributable to Union Carbide Corporation | $ | 272 | $ | 44 | $ | 743 | $ | 399 | ||||
Depreciation | $ | 49 | $ | 45 | $ | 137 | $ | 132 | ||||
Capital expenditures | $ | 73 | $ | 47 | $ | 174 | $ | 145 |
Three Months Ended | Nine Months Ended | |||||||||||
In millions (Unaudited) | Sep 30, 2018 | Sep 30, 2017 | Sep 30, 2018 | Sep 30, 2017 | ||||||||
Net income attributable to Union Carbide Corporation | $ | 272 | $ | 44 | $ | 743 | $ | 399 | ||||
Other comprehensive income, net of tax | ||||||||||||
Cumulative translation adjustments | 1 | 1 | 2 | 4 | ||||||||
Pension and other postretirement benefit plans | 16 | 12 | 49 | 36 | ||||||||
Total other comprehensive income | 17 | 13 | 51 | 40 | ||||||||
Comprehensive income attributable to Union Carbide Corporation | $ | 289 | $ | 57 | $ | 794 | $ | 439 |
In millions, except share amounts (Unaudited) | Sep 30, 2018 | Dec 31, 2017 | ||||
Assets | ||||||
Current Assets | ||||||
Cash and cash equivalents | $ | 13 | $ | 13 | ||
Accounts receivable: | ||||||
Trade (net of allowance for doubtful receivables 2018: $-; 2017: $-) | 25 | 21 | ||||
Related companies | 1,019 | 972 | ||||
Other | 25 | 50 | ||||
Income taxes receivable | 326 | 281 | ||||
Notes receivable from related companies | 1,277 | 1,238 | ||||
Inventories | 303 | 278 | ||||
Other current assets | 13 | 35 | ||||
Total current assets | 3,001 | 2,888 | ||||
Investments | ||||||
Investments in related companies | 639 | 639 | ||||
Other investments | 25 | 25 | ||||
Noncurrent receivables | 65 | 62 | ||||
Noncurrent receivables from related companies | 54 | 54 | ||||
Total investments | 783 | 780 | ||||
Property | ||||||
Property | 7,353 | 7,309 | ||||
Less accumulated depreciation | 5,940 | 5,930 | ||||
Net property | 1,413 | 1,379 | ||||
Other Assets | ||||||
Intangible assets (net of accumulated amortization 2018: $85; 2017: $82) | 27 | 25 | ||||
Deferred income tax assets | 468 | 511 | ||||
Deferred charges and other assets | 33 | 36 | ||||
Total other assets | 528 | 572 | ||||
Total Assets | $ | 5,725 | $ | 5,619 | ||
Liabilities and Equity | ||||||
Current Liabilities | ||||||
Notes payable to related companies | $ | 29 | $ | 28 | ||
Notes payable - other | 4 | — | ||||
Long-term debt due within one year | 1 | 1 | ||||
Accounts payable: | ||||||
Trade | 265 | 270 | ||||
Related companies | 571 | 684 | ||||
Other | 37 | 22 | ||||
Income taxes payable | 22 | 24 | ||||
Asbestos-related liabilities - current | 126 | 132 | ||||
Accrued and other current liabilities | 193 | 174 | ||||
Total current liabilities | 1,248 | 1,335 | ||||
Long-Term Debt | 474 | 474 | ||||
Other Noncurrent Liabilities | ||||||
Pension and other postretirement benefits - noncurrent | 966 | 1,054 | ||||
Asbestos-related liabilities - noncurrent | 1,164 | 1,237 | ||||
Other noncurrent obligations | 134 | 151 | ||||
Total other noncurrent liabilities | 2,264 | 2,442 | ||||
Stockholder's Equity | ||||||
Common stock (authorized: 1,000 shares of $0.01 par value each; issued: 935.51 shares) | — | — | ||||
Additional paid-in capital | 138 | 138 | ||||
Retained earnings | 3,156 | 2,582 | ||||
Accumulated other comprehensive loss | (1,555 | ) | (1,352 | ) | ||
Union Carbide Corporation's stockholder's equity | 1,739 | 1,368 | ||||
Total Liabilities and Equity | $ | 5,725 | $ | 5,619 |
Nine Months Ended | ||||||
In millions (Unaudited) | Sep 30, 2018 | Sep 30, 2017 | ||||
Operating Activities | ||||||
Net income attributable to Union Carbide Corporation | $ | 743 | $ | 399 | ||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||
Depreciation and amortization | 157 | 148 | ||||
Provision for deferred income tax | 28 | 109 | ||||
Net gain on sales of property and investments | — | (26 | ) | |||
Net gain on sale of ownership interest in nonconsolidated affiliate | — | (4 | ) | |||
Restructuring and asset related charges - net | 3 | 10 | ||||
Net periodic pension benefit cost | 33 | 21 | ||||
Pension contributions | (42 | ) | (162 | ) | ||
Changes in assets and liabilities: | ||||||
Accounts and notes receivable | 25 | 10 | ||||
Related company receivables | (86 | ) | 104 | |||
Inventories | (25 | ) | 8 | |||
Accounts payable | 12 | 15 | ||||
Related company payables | (112 | ) | 18 | |||
Asbestos-related payments | (79 | ) | (92 | ) | ||
Other assets and liabilities | (63 | ) | 67 | |||
Cash provided by operating activities | 594 | 625 | ||||
Investing Activities | ||||||
Capital expenditures | (174 | ) | (145 | ) | ||
Change in noncurrent receivable from related company | — | 3 | ||||
Proceeds from sale of ownership interest in nonconsolidated affiliate | — | 22 | ||||
Proceeds from sales of property | — | 18 | ||||
Proceeds from sales of investments | — | 9 | ||||
Cash used for investing activities | (174 | ) | (93 | ) | ||
Financing Activities | ||||||
Dividends paid to parent | (423 | ) | (531 | ) | ||
Changes in short-term notes payable | 4 | 2 | ||||
Payments on long-term debt | (1 | ) | (1 | ) | ||
Cash used for financing activities | (420 | ) | (530 | ) | ||
Summary | ||||||
Increase in cash and cash equivalents | — | 2 | ||||
Cash and cash equivalents at beginning of year | 13 | 11 | ||||
Cash and cash equivalents at end of period | $ | 13 | $ | 13 |
In millions (Unaudited) | Common Stock | Additional Paid-in Capital | Retained Earnings | Accum. Other Comp Loss | Total Equity | ||||||||||
2017 | |||||||||||||||
Balance at Jan 1, 2017 | $ | — | $ | 138 | $ | 2,980 | $ | (1,320 | ) | $ | 1,798 | ||||
Net income attributable to Union Carbide Corporation | — | — | 399 | — | 399 | ||||||||||
Other comprehensive income | — | — | — | 40 | 40 | ||||||||||
Dividends declared | — | — | (531 | ) | — | (531 | ) | ||||||||
Balance at Sep 30, 2017 | $ | — | $ | 138 | $ | 2,848 | $ | (1,280 | ) | $ | 1,706 | ||||
2018 | |||||||||||||||
Balance at Jan 1, 2018 | $ | — | $ | 138 | $ | 2,582 | $ | (1,352 | ) | $ | 1,368 | ||||
Adoption of accounting standard (Note 1) | — | — | 254 | (254 | ) | — | |||||||||
Net income attributable to Union Carbide Corporation | — | — | 743 | — | 743 | ||||||||||
Other comprehensive income | — | — | — | 51 | 51 | ||||||||||
Dividends declared | — | — | (423 | ) | — | (423 | ) | ||||||||
Balance at Sep 30, 2018 | $ | — | $ | 138 | $ | 3,156 | $ | (1,555 | ) | $ | 1,739 |
(Unaudited) |
Note | Page | |
1 | ||
2 | ||
3 | ||
4 | ||
5 | ||
6 | ||
7 | ||
8 | ||
9 | ||
10 | ||
11 | ||
12 |
(Unaudited) |
Summary of Changes to the Consolidated Statements of Income | Three Months Ended Sep 30, 2017 | Nine Months Ended Sep 30, 2017 | ||||||||||
In millions | As Filed | Updated | As Filed | Updated | ||||||||
Cost of sales | $ | 991 | $ | 994 | $ | 3,056 | $ | 3,061 | ||||
Sundry income (expense) - net | $ | (8 | ) | $ | (5 | ) | $ | 6 | $ | 11 |
(Unaudited) |
(Unaudited) |
(Unaudited) |
• | As a result of The Act, the Corporation remeasured its U.S. federal deferred tax assets and liabilities based on the income tax rates at which they are expected to reverse in the future, which is generally 21 percent. However, the Corporation is still analyzing certain aspects of The Act and refining its calculations. Adjustments for the three and nine months ended September 30, 2018 were $5 million, recorded as a benefit to "Provision for income taxes" in the consolidated statements of income. To date, the provisional amount recorded related to the remeasurement of the Corporation’s deferred tax balance was $245 million, recorded as a charge to “Provision for income taxes." |
• | The Act requires a mandatory deemed repatriation of post-1986 undistributed foreign earnings and profits (“E&P”), which results in a one-time transition tax. As a result, the provisional amount recorded for the transition tax liability for its foreign subsidiaries was insignificant at September 30, 2018. The Corporation has not yet completed its calculation of the total post-1986 foreign E&P for its foreign subsidiaries as E&P will not be finalized until the fourth quarter of 2018, after the DowDuPont federal income tax return is filed. |
• | The Corporation recorded an indirect impact of The Act related to prepaid tax on intercompany sales of inventory. The amount related to the inventory was $2 million, recorded as a charge to "Provision for income taxes" in the first quarter of 2018. |
• | For tax years beginning after December 31, 2017, The Act introduces new provisions for U.S. taxation of certain global intangible low-taxed income ("GILTI"). The Corporation is evaluating the policy election on whether the additional liability will be recorded in the period in which it is incurred or recognized for the basis differences that would be expected to reverse in future years. |
(Unaudited) |
Inventories | Sep 30, 2018 | Dec 31, 2017 | ||||
In millions | ||||||
Finished goods | $ | 262 | $ | 222 | ||
Work in process | 65 | 47 | ||||
Raw materials | 46 | 48 | ||||
Supplies | 80 | 73 | ||||
Total | $ | 453 | $ | 390 | ||
Adjustment of inventories to a LIFO basis | (150 | ) | (112 | ) | ||
Total inventories | $ | 303 | $ | 278 |
Intangible Assets | Sep 30, 2018 | Dec 31, 2017 | ||||||||||||||||
In millions | Gross Carrying Amount | Accumulated Amortization | Net | Gross Carrying Amount | Accumulated Amortization | Net | ||||||||||||
Intangible assets with finite lives: | ||||||||||||||||||
Licenses and developed technology | $ | 33 | $ | (33 | ) | $ | — | $ | 33 | $ | (33 | ) | $ | — | ||||
Software | 79 | (52 | ) | 27 | 74 | (49 | ) | 25 | ||||||||||
Total intangible assets | $ | 112 | $ | (85 | ) | $ | 27 | $ | 107 | $ | (82 | ) | $ | 25 |
(Unaudited) |
Estimated Amortization Expense | |||
In millions | |||
2018 | $ | 7 | |
2019 | $ | 7 | |
2020 | $ | 7 | |
2021 | $ | 5 | |
2022 | $ | 4 | |
2023 | $ | 1 |
(Unaudited) |
(Unaudited) |
Accumulated Other Comprehensive Loss | Cumulative Translation Adj | Pension and Other Postretire Benefits | Total Accum Other Comp Loss | ||||||
In millions | |||||||||
Balance at Jan 1, 2017 | $ | (62 | ) | $ | (1,258 | ) | $ | (1,320 | ) |
Other comprehensive income before reclassifications | 1 | — | 1 | ||||||
Amounts reclassified from accumulated other comprehensive loss | 3 | 36 | 39 | ||||||
Net other comprehensive income | $ | 4 | $ | 36 | $ | 40 | |||
Balance at Sep 30, 2017 | $ | (58 | ) | $ | (1,222 | ) | $ | (1,280 | ) |
Balance at Jan 1, 2018 | $ | (59 | ) | $ | (1,293 | ) | $ | (1,352 | ) |
Other comprehensive income before reclassifications | 2 | — | 2 | ||||||
Amounts reclassified from accumulated other comprehensive loss | — | 49 | 49 | ||||||
Net other comprehensive income | $ | 2 | $ | 49 | $ | 51 | |||
Reclassification of stranded tax effects 1 | — | (254 | ) | (254 | ) | ||||
Balance at Sep 30, 2018 | $ | (57 | ) | $ | (1,498 | ) | $ | (1,555 | ) |
1. | Amounts reclassified to retained earnings as a result of the adoption of ASU 2018-02. See Notes 1 and 2 for additional information. |
Tax Expense 1 | Three Months Ended | Nine Months Ended | ||||||||||
In millions | Sep 30, 2018 | Sep 30, 2017 | Sep 30, 2018 | Sep 30, 2017 | ||||||||
Pension and other postretirement benefit plans | $ | (5 | ) | $ | (6 | ) | $ | (15 | ) | $ | (22 | ) |
1. | Prior period amounts were updated to conform with the current year presentation. |
Reclassifications Out of Accumulated Other Comprehensive Loss | Three Months Ended | Nine Months Ended | Consolidated Statements of Income Classification | ||||||||||
Sep 30, 2018 | Sep 30, 2017 | Sep 30, 2018 | Sep 30, 2017 | ||||||||||
In millions | |||||||||||||
Cumulative translation adjustments | $ | — | $ | — | $ | — | $ | 3 | See (1) below | ||||
Pension and other postretirement benefit plans | $ | 21 | $ | 18 | $ | 64 | $ | 58 | See (2) below | ||||
Tax benefit | $ | (5 | ) | $ | (6 | ) | $ | (15 | ) | $ | (22 | ) | See (3) below |
After tax | $ | 16 | $ | 12 | $ | 49 | $ | 36 | |||||
Total reclassifications for the period, after tax | $ | 16 | $ | 12 | $ | 49 | $ | 39 |
1. | "Sundry income (expense) - net." |
2. | These AOCL components are included in the computation of net periodic benefit cost of the Corporation's defined benefit pension and other postretirement benefit plans. See Note 10 for additional information. |
3. | "Provision for income taxes." |
(Unaudited) |
Net Periodic Benefit Cost (Credit) for All Significant Plans | Three Months Ended | Nine Months Ended | ||||||||||
In millions | Sep 30, 2018 | Sep 30, 2017 | Sep 30, 2018 | Sep 30, 2017 | ||||||||
Defined Benefit Pension Plans: | ||||||||||||
Service cost | $ | 10 | $ | 10 | $ | 30 | $ | 28 | ||||
Interest cost | 32 | 33 | 96 | 97 | ||||||||
Expected return on plan assets | (55 | ) | (56 | ) | (164 | ) | (166 | ) | ||||
Amortization of net loss | 24 | 20 | 71 | 62 | ||||||||
Net periodic benefit cost | $ | 11 | $ | 7 | $ | 33 | $ | 21 | ||||
Other Postretirement Benefits: | ||||||||||||
Interest cost | $ | 2 | $ | 2 | $ | 5 | $ | 6 | ||||
Amortization of net gain | (3 | ) | (2 | ) | (7 | ) | (4 | ) | ||||
Net periodic benefit cost (credit) | $ | (1 | ) | $ | — | $ | (2 | ) | $ | 2 |
Fair Value of Financial Instruments | Sep 30, 2018 | Dec 31, 2017 | ||||||||||||||||||||||
In millions | Cost | Gain | Loss | Fair Value | Cost | Gain | Loss | Fair Value | ||||||||||||||||
Cash equivalents 1 | $ | 9 | $ | — | $ | — | $ | 9 | $ | 9 | $ | — | $ | — | $ | 9 | ||||||||
Long-term debt including debt due within one year | $ | (475 | ) | $ | — | $ | (88 | ) | $ | (563 | ) | $ | (475 | ) | $ | — | $ | (129 | ) | $ | (604 | ) |
(Unaudited) |
Asbestos-Related Claim Activity | 2018 | 2017 | ||
Claims unresolved at Jan 1 | 15,427 | 16,141 | ||
Claims filed | 5,279 | 5,598 | ||
Claims settled, dismissed or otherwise resolved | (7,861 | ) | (6,560 | ) |
Claims unresolved at Sep 30 | 12,845 | 15,179 | ||
Claimants with claims against both UCC and Amchem | (4,778 | ) | (5,544 | ) |
Individual claimants at Sep 30 | 8,067 | 9,635 |
EXHIBIT NO. | DESCRIPTION | ||
23 * | Ankura Consulting Group, LLC's Consent. | ||
31.1 * | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
31.2 * | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
32.1 * | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
32.2 * | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
101.INS | XBRL Instance Document. | ||
101.SCH | XBRL Taxonomy Extension Schema Document. | ||
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document. | ||
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document. | ||
101.LAB | XBRL Taxonomy Extension Label Linkbase Document. | ||
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document. |
Union Carbide Corporation and Subsidiaries Signatures |
Date: November 2, 2018 | ||
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 |
EXHIBIT 23 |
Ankura Consulting Group, LLC's Consent |
/s/ B. THOMAS FLORENCE | ||
B. Thomas Florence Senior Managing Director Ankura Consulting Group, LLC November 2, 2018 |
EXHIBIT 31.1 |
Union Carbide Corporation and Subsidiaries |
1. | I have reviewed this quarterly report on Form 10-Q of Union Carbide Corporation; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): |
a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
/s/ RICHARD A. WELLS |
Richard A. Wells President and Chief Executive Officer |
EXHIBIT 31.2 |
Union Carbide Corporation and Subsidiaries |
1. | I have reviewed this quarterly report on Form 10-Q of Union Carbide Corporation; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): |
a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
/s/ IGNACIO MOLINA |
Ignacio Molina Vice President, Treasurer and Chief Financial Officer |
EXHIBIT 32.1 |
Union Carbide Corporation and Subsidiaries |
1. | the Quarterly Report on Form 10-Q of the Corporation for the quarter ended September 30, 2018 as filed with the Securities and Exchange Commission (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2. | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation. |
/s/ RICHARD A. WELLS |
Richard A. Wells |
President and Chief Executive Officer |
Date: November 2, 2018 |
EXHIBIT 32.2 |
Union Carbide Corporation and Subsidiaries |
1. | the Quarterly Report on Form 10-Q of the Corporation for the quarter ended September 30, 2018 as filed with the Securities and Exchange Commission (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2. | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation. |
/s/ IGNACIO MOLINA |
Ignacio Molina |
Vice President, Treasurer and |
Chief Financial Officer |
Date: November 2, 2018 |
Document and Entity Information |
9 Months Ended |
---|---|
Sep. 30, 2018
shares
| |
Document and Entity Information | |
Entity Registrant Name | UNION CARBIDE CORP /NEW/ |
Entity Central Index Key | 0000100790 |
Current Fiscal Year End Date | --12-31 |
Entity Filer Category | Non-accelerated Filer |
Document Type | 10-Q |
Document Period End Date | Sep. 30, 2018 |
Document Fiscal Year Focus | 2018 |
Document Fiscal Period Focus | Q3 |
Amendment Flag | false |
Entity Common Stock, Shares Outstanding | 935.51 |
Entity Small Business | false |
Entity Emerging Growth Company | false |
Consolidated Statements of Income - USD ($) $ in Millions |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
|
Net trade sales | $ 39 | $ 31 | $ 105 | $ 113 |
Net sales to related companies | 1,385 | 1,184 | 3,998 | 3,722 |
Total Net Sales | 1,424 | 1,215 | 4,103 | 3,835 |
Cost of sales | 1,062 | 994 | 3,102 | 3,061 |
Research and development expenses | 4 | 4 | 14 | 14 |
Selling, general and administrative expenses | 1 | 1 | 5 | 4 |
Restructuring and asset related charges - net | 1 | 8 | 3 | 10 |
Integration and separation costs | 1 | 1 | 2 | 1 |
Sundry income (expense) - net | (12) | (5) | (28) | 11 |
Interest expense and amortization of debt discount | 9 | 6 | 22 | 20 |
Income before income taxes | 334 | 196 | 927 | 736 |
Provision for income taxes | 62 | 152 | 184 | 337 |
Net Income Attributable to Union Carbide Corporation | 272 | 44 | 743 | 399 |
Depreciation | 49 | 45 | 137 | 132 |
Capital Expenditures | $ 73 | $ 47 | $ 174 | $ 145 |
Consolidated Statements of Comprehensive Income - USD ($) $ in Millions |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
|
Net income attributable to Union Carbide Corporation | $ 272 | $ 44 | $ 743 | $ 399 |
Other comprehensive income, net of tax | ||||
Cumulative translation adjustments | 1 | 1 | 2 | 4 |
Pension and other postretirement benefit plans | 16 | 12 | 49 | 36 |
Other comprehensive income | 17 | 13 | 51 | 40 |
Comprehensive income attributable to Union Carbide Corporation | $ 289 | $ 57 | $ 794 | $ 439 |
Consolidated Balance Sheets (Parentheticals) - USD ($) $ in Millions |
Sep. 30, 2018 |
Dec. 31, 2017 |
---|---|---|
Allowance for doubtful accounts | $ 0 | $ 0 |
Accumulated Amortization | $ 85 | $ 82 |
Common stock, par value | $ 0.01 | $ 0.01 |
Common stock, shares authorized | 1,000 | 1,000 |
Common stock, shares issued | 935.51 | 935.51 |
CONSOLIDATED FINANCIAL STATEMENTS |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
CONSOLIDATED FINANCIAL STATEMENTS | 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, 2017. The Corporation is a wholly owned subsidiary of The Dow Chemical Company ("Dow"). In accordance with the accounting guidance for earnings per share, the presentation of earnings per share is not required in financial statements of wholly owned subsidiaries. The Corporation’s business activities comprise components of Dow’s global operations rather than stand-alone operations. Dow conducts its worldwide operations through principal product groups. Because there are no separable reportable business segments for UCC under the accounting guidance related to segment reporting and no detailed business information is provided to a chief operating decision maker regarding the Corporation’s stand-alone operations, the Corporation’s results are reported as a single operating segment. Effective August 31, 2017, pursuant to the merger of equals transaction contemplated by the Agreement and Plan of Merger, dated as of December 11, 2015, as amended on March 31, 2017, Dow and E. I. du Pont de Nemours and Company ("DuPont") each merged with subsidiaries of DowDuPont Inc. ("DowDuPont") and, as a result, Dow and DuPont became subsidiaries of DowDuPont (the "Merger"). Following the Merger, Dow and DuPont intend to pursue, subject to approval by the board of directors of DowDuPont, the separation of the combined company's agriculture business, specialty products business and materials science business through one or more tax-efficient transactions. Intercompany transactions and balances are eliminated in consolidation. Transactions with the Corporation’s parent company, Dow, and other subsidiaries of Dow and DowDuPont, have been reflected as related company transactions in the consolidated financial statements. See Note 12 for additional information. Significant Accounting Policy Updates In the first quarter of 2018, the Corporation adopted Accounting Standards Update ("ASU") 2014-09, "Revenue from Contracts with Customers (Topic 606)" and the associated ASUs (collectively, "Topic 606"). See Notes 2 and 3 for additional information. The Corporation's significant accounting policy for Revenue was updated as a result of the adoption of Topic 606: Revenue Substantially all of the Corporation's revenues are generated by sales to Dow. Revenue for product sales to related companies is recognized when the related company obtains control of the product, which occurs either at the time that production is complete or shipped free on board ("FOB") from UCC's manufacturing facility, in accordance with the sales agreement between the Corporation and Dow. The Corporation recognizes revenue for product sales to trade customers when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the Corporation expects to receive in exchange for those goods or services. To determine revenue recognition for the arrangements that the Corporation determines are within the scope of Topic 606, the Corporation performs the following five steps: (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisfies a performance obligation. Changes in Financial Statement Presentation Consolidated Statements of Income In the first quarter of 2018, the Corporation adopted ASU 2017-07, "Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost," which required retrospective application for the reclassification of net periodic benefit costs, other than the service cost component, from "Cost of sales" to "Sundry income (expense) - net." See Note 2 for additional information. The changes to the consolidated statements of income as a result of the retrospective adoption of ASU 2017-07 are summarized below:
Consolidated Statements of Equity In the second quarter of 2018, the Corporation adopted ASU 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income," which resulted in a $254 million increase to retained earnings due to the reclassification from accumulated other comprehensive loss for the effect of the federal corporate income tax rate change as a result of the Tax Cuts and Jobs Act of 2017 ("The Act") on the Corporation's pension plans. This reclassification is reflected in the "Adoption of accounting standard" line in the consolidated statements of equity. The Corporation's significant accounting policy for Income Taxes was updated as a result of the adoption of ASU 2018-02 to indicate the Corporation uses the portfolio approach for releasing income tax effects from accumulated other comprehensive loss. See Note 2 for additional information. |
RECENT ACCOUNTING GUIDANCE |
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Sep. 30, 2018 | |
New Accounting Pronouncements and Changes in Accounting Principles [Abstract] | |
RECENT ACCOUNTING GUIDANCE | RECENT ACCOUNTING GUIDANCE Recently Adopted Accounting Guidance In the second quarter of 2018, the Corporation early adopted ASU 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income," which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from The Act, which was enacted on December 22, 2017, and requires certain disclosures about stranded tax effects. An entity has the option of applying the new guidance at the beginning of the period of adoption or retrospectively to each period (or periods) in which the tax effects related to items remaining in accumulated other comprehensive income are recognized. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, and early adoption is permitted, including adoption in an interim period for reporting periods in which the financial statements have not yet been issued. The Corporation's adoption of the new standard was applied prospectively at the beginning of the second quarter of 2018, with a reclassification of the stranded tax effects as a result of The Act from accumulated other comprehensive loss to retained earnings. See Note 1 for additional information. In the first quarter of 2018, the Corporation adopted ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)," which is the new comprehensive revenue recognition standard that supersedes the revenue recognition requirements in Topic 605, "Revenue Recognition," and most industry specific guidance. The standard's core principle is that a company will recognize revenue when it transfers promised goods or services to a customer in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In 2015 and 2016, the Financial Accounting Standards Board ("FASB") issued additional ASUs related to Topic 606 that delayed the effective date of the guidance and clarified various aspects of the new revenue guidance, including principal versus agent considerations, identification of performance obligations, and accounting for licenses, and included other improvements and practical expedients. The new guidance was effective for annual and interim periods beginning after December 15, 2017. The Corporation elected to adopt the new guidance using the modified retrospective transition method for all contracts not completed as of the date of adoption, which requires the cumulative effect of applying the new revenue standard as an adjustment to the opening balance of retained earnings in the first period of adoption. As a result of adopting the new guidance, there were no adjustments required to retained earnings at the beginning of the first quarter of 2018 and there was no impact on the consolidated financial statements. The comparative periods have not been restated and continue to be accounted for under Topic 605. See Notes 1 and 3 for additional disclosures regarding the Corporation's contracts with customers as well as the impact of adopting Topic 606. In the first quarter of 2018, the Corporation adopted ASU 2016-16, "Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory," which requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The amendments were effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, and applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings at the beginning of the period of adoption. The adoption of this guidance did not have an impact on the consolidated financial statements. In the first quarter of 2018, the Corporation adopted ASU 2017-07, "Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost," which amends the requirements related to the income statement presentation of the components of net periodic benefit cost for employer sponsored defined benefit pension and other postretirement benefit plans. Under the new guidance, an entity must disaggregate and present the service cost component of net periodic benefit cost in the same income statement line item(s) as other employee compensation costs arising from services rendered during the period, and only the service cost component will be eligible for capitalization. Other components of net periodic benefit cost must be presented separately from the line item(s) that includes the service cost. The new standard was effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Entities were required to use a retrospective transition method to adopt the requirement for separate income statement presentation of the service cost and other components, and a prospective transition method to adopt the requirement to limit the capitalization of benefit cost to the service component. In the first quarter of 2018, the Corporation used a retrospective transition method to reclassify net periodic benefit cost, other than the service component, from "Cost of sales" to "Sundry income (expense) - net" in the consolidated statements of income. See Note 1 for additional information. Accounting Guidance Issued But Not Adopted at September 30, 2018 In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)," and associated ASUs for Topic 842, which requires organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. The new guidance requires that a lessee recognize assets and liabilities for leases with lease terms of more than twelve months and recognition, presentation and measurement in the financial statements will depend on its classification as a finance or operating lease. In addition, the new guidance will require disclosures to help investors and other financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases. Lessor accounting remains largely unchanged from current U.S. GAAP but does contain some targeted improvements to align with the new revenue recognition guidance issued in 2014 (ASU 2014-09). The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, using a modified retrospective approach, and early adoption is permitted. The Corporation has a cross-functional team in place to evaluate and implement the new guidance. The team continues to review existing lease arrangements and has engaged a third party to assist with the collection of lease data. The Corporation will elect the optional transition method that allows for a cumulative-effect adjustment in the period of adoption, and prior periods will not be restated. The impact of applying the other practical expedients and accounting policy elections has been evaluated and the Corporation is in the process of documenting the related considerations and decisions. The Corporation is currently implementing a third-party software solution in connection with the adoption of the ASU; however, the system is still being modified to comply with the new guidance. The Corporation continues to enhance accounting systems and update business processes and controls related to the new guidance for leases. Collectively, these activities are expected to facilitate the Corporation's ability to meet the new accounting and disclosure requirements upon adoption in the first quarter of 2019. The Corporation is working to quantify the impact and anticipates that the adoption of the new standard will result in a material increase in lease-related assets and liabilities in the consolidated balance sheets. The impact to the Corporation's consolidated statements of income and cash flows is not expected to be material. In August 2018, the FASB issued ASU 2018-14, "Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans," which, as part of the FASB disclosure framework project, removes disclosures that are no longer considered cost beneficial, clarifies the specific requirements of certain disclosures and adds new disclosure requirements that are considered relevant for employers that sponsor defined benefit pension and/or other postretirement benefit plans. The new standard is effective for fiscal years ending after December 15, 2020, and early adoption is permitted. The new guidance should be applied on a retrospective basis for all periods presented. The Corporation is currently evaluating the impact of adopting this guidance. |
REVENUE FROM CONTRACT WITH CUSTOMERS |
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Sep. 30, 2018 | |
Revenue from Contract with Customer [Abstract] | |
Revenue from Contract with Customer [Text Block] | NOTE 3 - REVENUE Substantially all of the Corporation's revenues are generated by intercompany sales to Dow. Products are sold to and purchased from Dow at market-based prices in accordance with the terms of Dow’s intercompany pricing policies. Approximately 99 percent of the Corporation's sales for the three and nine months ended September 30, 2018, related to sales of product (99 percent in the three and nine months ended September 30, 2017); the remaining 1 percent related to the licensing of patents and technology. The Corporation sells its products to Dow to simplify the customer interface process. Substantially all product sale contracts are short-term in nature and have original expected durations of one year or less. Revenue from product sales is recognized when Dow or the customer obtains control of the Corporation’s product, which occurs at a point in time, typically at the time production is complete or product is shipped FOB from UCC’s manufacturing facility for sales to Dow, or upon shipment for sales to trade customers. The Corporation’s payment terms are on average 40 to 60 days after invoicing. All shipping and handling activities that occur after control transfers to the customer are considered fulfillment activities. Certain long-term contracts include a series of distinct goods that are delivered continuously to the customer through a pipeline. For these types of product sales, the Corporation invoices the customer in an amount that directly corresponds with the value to the customer of the Corporation’s performance to date. As a result, revenue is recognized based on the amount billable to the customer in accordance with the right to invoice practical expedient. The transaction price for product sales includes estimates for the most likely amount of consideration to which the Corporation will be entitled based on historical award experience and the Corporation’s best judgment at the time. Taxes collected and remitted to governmental authorities are excluded from the transaction price. For contracts with multiple performance obligations, the Corporation allocates the transaction price to each performance obligation on the basis of relative standalone selling price, which is based on the price charged to customers or estimated using the expected cost plus margin method. Revenue related to the initial licensing of patents and technology is recognized when the performance obligation is satisfied. Revenue related to sales-based royalties to which the Corporation expects to be entitled is estimated based on historical sales. 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 $42 million at September 30, 2018 ($43 million at December 31, 2017) 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, Dow, and there are no unique economic factors that affect revenue recognition and cash flows associated with these product sales. |
RESTRUCTURING AND ASSET RELATED CHARGES - NET |
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Sep. 30, 2018 | |
Restructuring and Related Activities [Abstract] | |
Restructuring and Related Activities Disclosure [Text Block] | In September 2017, the Corporation approved restructuring actions that are aligned with DowDuPont’s synergy targets. As a result of these actions, the Corporation recorded a pretax restructuring charge for severance and related benefit costs of $8 million in the third quarter of 2017. In November 2017, the Corporation approved additional restructuring actions in connection with the restructuring program. A pretax restructuring charge for severance and related benefit costs of $2 million was recorded in the fourth quarter of 2017, as well as charges of $62 million for the write-off and write-down of manufacturing and facility related assets at multiple UCC sites, including a steam unit in Institute, West Virginia. In addition to actions taken in 2017, the Corporation recorded pretax charges of $1 million in the third quarter of 2018 ($3 million for the first nine months of 2018) for additional restructuring charges for severance and related benefit costs. At September 30, 2018, severance of $8 million had been paid, leaving a liability of $5 million. The impact of this charge was shown as “Restructuring and asset related charges - net” in the consolidated statements of income. These actions are expected to be substantially completed by September 30, 2019. 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. |
INCOME TAXES |
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Sep. 30, 2018 | |||||||||||||||||
Income Tax Disclosure [Abstract] | |||||||||||||||||
Income Tax Disclosure [Text Block] | INCOME TAXES On December 22, 2017, The Act was enacted. The Act reduces the U.S. federal corporate income tax rate from 35 percent to 21 percent, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously deferred, creates new provisions related to foreign sourced earnings, eliminates the domestic manufacturing deduction and moves towards a territorial system. At September 30, 2018, the Corporation had not completed its accounting for the tax effects of The Act; however, as described below, the Corporation made reasonable estimates of the effects on its existing deferred tax balances and the one-time transition tax. In accordance with Staff Accounting Bulletin 118, income tax effects of The Act may be refined upon obtaining, preparing, or analyzing additional information during the measurement period and such changes could be material. During the measurement period, provisional amounts may also be adjusted for the effects, if any, of interpretative guidance issued after December 31, 2017, by U.S. regulatory and standard-setting bodies.
In the first quarter of 2018, a settlement was reached for a tax matter regarding fees paid to the Corporation by a foreign nonconsolidated affiliate. As a result, the Corporation recorded an increase of $40 million to "Income taxes receivable" and "Income taxes payable" in the consolidated balance sheets. There was no impact to the consolidated statements of income. In the second quarter of 2018, a payment of $40 million was made for the settlement of the tax matter. A transaction for the sale of stock between the Corporation and Dow in 2014 created a gain that was initially deferred for tax purposes. This deferred gain became taxable as a result of activities executed in anticipation of the intended separation of DowDuPont into three publicly traded companies. As a result, in the third quarter of 2017, the Corporation increased "Income taxes payable" in the consolidated balance sheets and recorded a charge to "Provision for income taxes" in the consolidated statements of income of $97 million. The Corporation is included in Dow's consolidated federal income tax group and DowDuPont's consolidated tax return. Current and deferred tax expenses are calculated for the Corporation as a stand-alone group and are allocated to the group from the consolidated totals, consistent with the Dow-UCC Tax Sharing Agreement. UCC is currently under examination in a number of tax jurisdictions, including the U.S. federal and various state jurisdictions. It is reasonably possible that these examinations may be resolved in the next twelve months. The impact on the Corporation’s results of operations is not expected to be material. |
INVENTORIES |
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Inventory Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
INVENTORIES | INVENTORIES The following table provides a breakdown of inventories:
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INTANGIBLE ASSETS |
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Intangible Assets, Net (Excluding Goodwill) [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
INTANGIBLE ASSETS DISCLOSURE | INTANGIBLE ASSETS The following table provides information regarding the Corporation’s intangible assets:
Total estimated amortization expense for 2018 and the five succeeding fiscal years is as follows:
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COMMITMENTS AND CONTINGENT LIABILITIES |
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Sep. 30, 2018 | |
Commitments and Contingencies Disclosure [Abstract] | |
COMMITMENTS AND CONTINGENCIES DISCLOSURE | 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, 2018, the Corporation had accrued obligations of $102 million for probable environmental remediation and restoration costs, including $17 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 three times that amount. Consequently, it is reasonably possible that environmental remediation and restoration costs in excess of amounts accrued could have a material impact on the Corporation's results of operations, financial condition and cash flows. It is the opinion of the Corporation’s management that the possibility is remote that costs in excess of the range disclosed will have a material impact on the Corporation’s results of operations, financial condition and cash flows. Inherent uncertainties exist in these estimates primarily due to unknown environmental conditions, changing governmental regulations and legal standards regarding liability, and emerging remediation technologies for handling site remediation and restoration. At December 31, 2017, the Corporation had accrued obligations of $114 million for probable environmental remediation and restoration costs, including $19 million for the remediation of Superfund sites. Litigation The Corporation is involved in a number of legal proceedings and claims with both private and governmental parties. These cover a wide range of matters, including, but not limited to: product liability; trade regulation; governmental regulatory proceedings; health, safety and environmental matters; employment; patents; contracts; taxes; and commercial disputes. Asbestos-Related Matters A summary of asbestos-related matters can be found in Note 14 to the Consolidated Financial Statements included in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2017. Introduction The Corporation is and has been involved in a large number of asbestos-related suits filed primarily in state courts during the past four decades. These suits principally allege personal injury resulting from exposure to asbestos-containing products and frequently seek both actual and punitive damages. The alleged claims primarily relate to products that UCC sold in the past, alleged exposure to asbestos-containing products located on UCC’s premises and UCC’s responsibility for asbestos suits filed against a former UCC subsidiary, Amchem Products, Inc. ("Amchem"). In many cases, plaintiffs are unable to demonstrate that they have suffered any compensable loss as a result of such exposure, or that injuries incurred in fact resulted from exposure to the Corporation’s products. The Corporation expects more asbestos-related suits to be filed against UCC and Amchem in the future, and will aggressively defend or reasonably resolve, as appropriate, both pending and future claims. Estimating the Asbestos-Related Liability Since 2003, the Corporation has engaged Ankura Consulting Group, LLC ("Ankura"), a third party actuarial specialist, to review the Corporation's historical asbestos-related claim and resolution activity in order to assist UCC management in estimating the Corporation's asbestos-related liability. Each year, Ankura has reviewed the claim and resolution activity to determine the appropriateness of updating the most recent Ankura study. Based on the December 2017 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 $1,369 million at December 31, 2017, 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 2018 activity, it was determined that no adjustment to the accrual was required at September 30, 2018. The Corporation’s asbestos-related liability for pending and future claims and defense and processing costs was $1,290 million at September 30, 2018, and approximately 16 percent of the recorded liability related to pending claims and approximately 84 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, 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. |
ACCUMULATED OTHER COMPREHENSIVE LOSS |
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ACCUMULATED OTHER COMPREHENSIVE LOSS | ACCUMULATED OTHER COMPREHENSIVE LOSS The following table summarizes the changes and after-tax balances of each component of accumulated other comprehensive loss ("AOCL") for the nine months ended September 30, 2018 and 2017:
The tax effects on the net activity related to each component of other comprehensive loss for the three and nine months ended September 30, 2018 and 2017 were as follows:
A summary of the reclassifications out of AOCL for the three and nine months ended September 30, 2018 and 2017 is provided as follows:
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PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS |
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Retirement Benefits [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS | PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS A summary of the Corporation's pension plans and other postretirement benefits can be found in Note 16 to the Consolidated Financial Statements included in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2017. The following table provides the components of the Corporation's net periodic benefit cost for all significant plans:
On January 1, 2018, the Corporation adopted ASU 2017-07, which impacted the presentation of the components of net periodic benefit cost in the consolidated statements of income. Net periodic benefit cost, other than the service cost component, was retrospectively reclassified to "Sundry income (expense) - net" in the consolidated statements of income. See Notes 1 and 2 for additional information. |
FAIR VALUE MEASUREMENTS |
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Financial Instruments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Financial Instruments Disclosure [Text Block] | 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, 2018 and December 31, 2017:
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. |
RELATED PARTY TRANSACTIONS |
9 Months Ended |
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Sep. 30, 2018 | |
Related Party Transactions [Abstract] | |
RELATED PARTY TRANSACTIONS DISCLOSURE | RELATED PARTY TRANSACTIONS The Corporation sells its products to Dow to simplify the customer interface process. Products are sold to and purchased from Dow at market-based prices in accordance with the terms of Dow’s intercompany pricing policies. After each quarter, the Corporation and Dow analyze the pricing used for the sales in that quarter and reach agreement on any necessary adjustments, at which point the prices are final. The Corporation also procures certain commodities and raw materials through a Dow subsidiary and pays a commission to that Dow subsidiary based on the volume and type of commodities and raw materials purchased. The commission expense is included in "Sundry income (expense) - net" in the consolidated statements of income. Purchases from that Dow subsidiary were $407 million in the third quarter of 2018 ($377 million in the third quarter of 2017) and $1,219 million during the first nine months of 2018 ($1,213 million during the first nine months of 2017). The Corporation has a master services agreement with Dow whereby Dow provides services including, but not limited to, accounting, legal, treasury (investments, cash management, risk management, insurance), procurement, human resources, environmental, health and safety and business management for UCC. Under the master services agreement with Dow, general administrative and overhead type services that Dow routinely allocates to various businesses are charged to UCC. The master services agreement cost allocation basis is headcount and includes a 10 percent service fee. This agreement resulted in expense of $8 million in the third quarter of 2018 ($8 million in the third quarter of 2017) and $22 million for the first nine months of 2018 ($24 million for the first nine months of 2017) 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 $23 million in the third quarter of 2018 ($20 million in the third quarter of 2017) and $67 million in the first nine months of 2018 ($60 million in the first nine months of 2017), and were included in "Cost of sales" in the consolidated statements of income. Management believes the method used for determining expenses charged by Dow is reasonable. Dow provides these services by leveraging its centralized functional service centers to provide services at a cost that management believes provides an advantage to the Corporation. The monitoring and execution of risk management policies related to interest rate and foreign currency risks, which are based on Dow’s risk management philosophy, are provided as a service to UCC. As part of Dow’s cash management process, UCC is a party to revolving loans with Dow that have interest rates based on LIBOR (London Interbank Offered Rate) with varying maturities. At September 30, 2018, the Corporation had a note receivable of $1.3 billion ($1.2 billion at December 31, 2017) from Dow under a revolving loan agreement. The Corporation may draw from this note receivable in support of its daily working capital requirements and, as such, the net effect of cash inflows and outflows under this revolving loan agreement is presented in the consolidated statements of cash flows as an operating activity. The Corporation also has a separate revolving credit agreement with Dow that allows the Corporation to borrow or obtain credit enhancements up to an aggregate of $1 billion that matures December 30, 2018. Dow may demand repayment with a 30-day written notice to the Corporation, subject to certain restrictions. A related collateral agreement provides for the replacement of certain existing pledged assets, primarily equity interests in various subsidiaries, with cash collateral. At September 30, 2018, $948 million was available under the revolving credit agreement ($949 million at December 31, 2017). The cash collateral is reported as “Noncurrent receivables from related companies” in the consolidated balance sheets. On a quarterly basis, the Corporation's board of directors reviews and determines if there will be a dividend distribution to its parent company and sole shareholder, Dow. The Board takes into consideration the level of earnings and cash flows, among other factors, in determining the amount of the dividend distribution. In the third quarter of 2018, the Corporation declared and paid a cash dividend of $177 million to Dow; dividends to Dow totaled $423 million in the first nine months of 2018. In the third quarter of 2017, the Corporation declared and paid a cash dividend of $181 million to Dow; dividends to Dow totaled $531 million for the first nine months of 2017. |
CONSOLIDATED FINANCIAL STATEMENTS SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) |
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Sep. 30, 2018 | |
Accounting Policies [Abstract] | |
Revenue Recognition, Sales of Goods [Policy Text Block] | Significant Accounting Policy Updates In the first quarter of 2018, the Corporation adopted Accounting Standards Update ("ASU") 2014-09, "Revenue from Contracts with Customers (Topic 606)" and the associated ASUs (collectively, "Topic 606"). See Notes 2 and 3 for additional information. The Corporation's significant accounting policy for Revenue was updated as a result of the adoption of Topic 606: Revenue Substantially all of the Corporation's revenues are generated by sales to Dow. Revenue for product sales to related companies is recognized when the related company obtains control of the product, which occurs either at the time that production is complete or shipped free on board ("FOB") from UCC's manufacturing facility, in accordance with the sales agreement between the Corporation and Dow. The Corporation recognizes revenue for product sales to trade customers when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the Corporation expects to receive in exchange for those goods or services. To determine revenue recognition for the arrangements that the Corporation determines are within the scope of Topic 606, the Corporation performs the following five steps: (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisfies a performance obligation. |
Income Tax, Policy [Policy Text Block] | The Corporation's significant accounting policy for Income Taxes was updated as a result of the adoption of ASU 2018-02 to indicate the Corporation uses the portfolio approach for releasing income tax effects from accumulated other comprehensive loss. See Note 2 for additional information. |
CONSOLIDATED FINANCIAL STATEMENTS Summary of Changes in Financial Presentation (Tables) |
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Schedule of New Accounting Pronouncements and Changes in Accounting Principles [Table Text Block] |
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INVENTORIES (Tables) |
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Schedule of Inventory, Current [Table Text Block] | The following table provides a breakdown of inventories:
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INTANGIBLE ASSETS (Tables) |
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Intangible Assets, Net (Excluding Goodwill) [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Intangible Assets | The following table provides information regarding the Corporation’s intangible assets:
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Schedule of Expected Amortization Expense [Table Text Block] | Total estimated amortization expense for 2018 and the five succeeding fiscal years is as follows:
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ACCUMULATED OTHER COMPREHENSIVE LOSS (Tables) |
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Accumulated Other Comprehensive Income (Loss), Net of Tax [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Components of Other Comprehensive Income (Loss) |
The tax effects on the net activity related to each component of other comprehensive loss for the three and nine months ended September 30, 2018 and 2017 were as follows:
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Schedule of Reclassifications Out of Accumulated Other Comprehensive Income |
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PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS (Tables) |
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Retirement Benefits [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Periodic Benefit Cost for All Significant Plans |
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FAIR VALUE MEASUREMENTS FAIR VALUE MEASUREMENTS (Tables) |
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Financial Instruments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value, by Balance Sheet Grouping [Table Text Block] |
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. |
CONSOLIDATED FINANCIAL STATEMENTS Summary of Changes in Financial Statement Presentation (Details) - USD ($) $ in Millions |
3 Months Ended | 9 Months Ended | ||
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Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
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New Accounting Pronouncements or Change in Accounting Principle [Line Items] | ||||
Tax Cuts and Jobs Act, Reclassification from AOCI to Retained Earnings, Tax Effect | $ (254) | $ (254) | ||
Cost of sales | 1,062 | $ 994 | 3,102 | $ 3,061 |
Sundry income (expense) - net | $ (12) | (5) | $ (28) | 11 |
Previously Reported [Member] | ||||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | ||||
Cost of sales | 991 | 3,056 | ||
Sundry income (expense) - net | $ (8) | $ 6 |
Revenue from Contract with Customer (Details) - USD ($) $ in Millions |
9 Months Ended | ||
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Sep. 30, 2018 |
Dec. 31, 2017 |
Sep. 30, 2017 |
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Revenue from External Customer [Line Items] | |||
Contract with Customer, Liability, Noncurrent | $ 42 | $ 43 | |
Revenue, Performance Obligation, Description of Timing | 22 | ||
Product [Member] | |||
Revenue from External Customer [Line Items] | |||
Revenue, Percentage from Products and Services Transferred to Customers | 99.00% | 99.00% | |
Licensing of Technology [Member] | |||
Revenue from External Customer [Line Items] | |||
Revenue, Percentage from Products and Services Transferred to Customers | 1.00% | 1.00% |
Restructuring and Asset Related Charges - Net (Details) - USD ($) $ in Millions |
3 Months Ended | 9 Months Ended | 13 Months Ended | |||
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Sep. 30, 2018 |
Dec. 31, 2017 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
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Restructuring Cost and Reserve [Line Items] | ||||||
Restructuring and asset related charges - net | $ 1 | $ 8 | $ 3 | $ 10 | ||
2017 Restructuring [Member] | Employee Severance [Member] | ||||||
Restructuring Cost and Reserve [Line Items] | ||||||
Payments for Restructuring | $ (8) | |||||
Restructuring Reserve | 5 | 5 | $ 5 | |||
Restructuring and asset related charges - net | $ 1 | $ 2 | $ 8 | $ 3 | ||
2017 Restructuring [Member] | Impairment of Long-Lived Assets and Other Assets [Member] | ||||||
Restructuring Cost and Reserve [Line Items] | ||||||
Asset Impairment Charges | $ 62 |
INCOME TAXES (Details) - USD ($) $ in Millions |
3 Months Ended | 9 Months Ended | |||
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Sep. 30, 2018 |
Jun. 30, 2018 |
Mar. 31, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
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Income Tax Contingency [Line Items] | |||||
Tax Cuts and Jobs Act of 2017, Indirect Impact on Inventory, Provisional Income Tax Expense | $ 2 | ||||
Tax Cuts and Jobs Act of 2017, Incomplete Accounting, Change in Tax Rate, Provisional Income Tax Expense(Benefit) | $ 5 | $ 245 | |||
Increase (Decrease) in Income Taxes Receivable | 40 | ||||
Income Tax Expense (Benefit), Continuing Operations, Adjustment of Deferred Tax (Asset) Liability | $ 97 | ||||
Foreign Tax Authority [Member] | |||||
Income Tax Contingency [Line Items] | |||||
Increase (Decrease) in Income Taxes Payable | $ (40) | $ 40 |
INVENTORIES (Schedule of Inventories) (Details) - USD ($) $ in Millions |
Sep. 30, 2018 |
Dec. 31, 2017 |
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Inventory Disclosure [Abstract] | ||
Finished goods | $ 262 | $ 222 |
Work in process | 65 | 47 |
Raw materials | 46 | 48 |
Supplies | 80 | 73 |
Total | 453 | 390 |
Adjustment of inventories to a LIFO basis | (150) | (112) |
Total inventories | $ 303 | $ 278 |
INTANGIBLE ASSETS (Schedule of Amortization Expense of Intangible Assets) (Table and Narrative) (Details) - USD ($) $ in Millions |
Sep. 30, 2018 |
Dec. 31, 2017 |
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Finite-Lived Intangible Assets [Line Items] | ||
Finite-Lived Intangible Assets, Gross | $ 112 | $ 107 |
Finite-Lived Intangible Assets, Accumulated Amortization | (85) | (82) |
Finite-Lived Intangible Assets, Net | 27 | 25 |
Licenses and developed technology [Member] | ||
Finite-Lived Intangible Assets [Line Items] | ||
Finite-Lived Intangible Assets, Gross | 33 | 33 |
Finite-Lived Intangible Assets, Accumulated Amortization | (33) | (33) |
Finite-Lived Intangible Assets, Net | 0 | 0 |
Software [Member] | ||
Finite-Lived Intangible Assets [Line Items] | ||
Finite-Lived Intangible Assets, Gross | 79 | 74 |
Finite-Lived Intangible Assets, Accumulated Amortization | (52) | (49) |
Finite-Lived Intangible Assets, Net | $ 27 | $ 25 |
INTANGIBLE ASSETS (Schedule of Future Amortization Expense of Intangible Assets) (Details) $ in Millions |
Sep. 30, 2018
USD ($)
|
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Goodwill and Intangible Assets Disclosure [Abstract] | |
Estimated Amortization Expense, 2018 | $ 7 |
Estimated Amortization Expense, 2019 | 7 |
Estimated Amortization Expense, 2020 | 7 |
Estimated Amortization Expense, 2021 | 5 |
Estimated Amortization Expense, 2022 | 4 |
Estimated Amortization Expense, 2023 | $ 1 |
COMMITMENTS AND CONTINGENT LIABILITIES (Environmental Matters) (Narrative) (Details) - USD ($) $ in Millions |
Sep. 30, 2018 |
Dec. 31, 2017 |
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Site Contingency [Line Items] | ||
Accrual for Environmental Loss Contingencies | $ 102 | $ 114 |
Super Fund Sites [Member] | ||
Site Contingency [Line Items] | ||
Accrual for Environmental Loss Contingencies | $ 17 | $ 19 |
COMMITMENTS AND CONTINGENT LIABILITIES (Asbestos-Related Matters of Union Carbide Corporation) (Table and Narrative) (Details) - USD ($) $ in Millions |
Sep. 30, 2018 |
Dec. 31, 2017 |
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Loss Contingencies [Line Items] | ||
Liability for Asbestos Claims and Defense Costs Gross | $ 1,290 | $ 1,369 |
Percentage of recorded asbestos liability related to pending claims | 16.00% | |
Percentage of recorded asbestos liability related to future claims | 84.00% |
PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS (Details) - USD ($) $ in Millions |
3 Months Ended | 9 Months Ended | ||
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Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
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Defined Benefit Pension Plans [Member] | ||||
Defined Benefit Plan, Net Periodic Benefit Cost (Credit) [Abstract] | ||||
Service cost | $ 10 | $ 10 | $ 30 | $ 28 |
Interest cost | 32 | 33 | 96 | 97 |
Expected return on plan assets | (55) | (56) | (164) | (166) |
Amortization of net (gain) loss | 24 | 20 | 71 | 62 |
Net periodic benefit cost | 11 | 7 | 33 | 21 |
Other Postretirement Benefits [Member] | ||||
Defined Benefit Plan, Net Periodic Benefit Cost (Credit) [Abstract] | ||||
Interest cost | 2 | 2 | 5 | 6 |
Amortization of net (gain) loss | (3) | (2) | (7) | (4) |
Net periodic benefit cost | $ (1) | $ 0 | $ (2) | $ 2 |
FAIR VALUE MEASUREMENTS FAIR VALUE MEASUREMENTS (Fair Value of Financial Instruments) (Details) - USD ($) $ in Millions |
Sep. 30, 2018 |
Dec. 31, 2017 |
---|---|---|
Debt Securities, Available-for-sale [Line Items] | ||
Long-term Debt | $ (475) | $ (475) |
Long-term Debt, Fair Value | (563) | (604) |
Long-term Debt [Member] | ||
Debt Securities, Available-for-sale [Line Items] | ||
Financial Instruments Gross Unrealized Gains | 0 | 0 |
Financial Instruments Gross Unrealized Loss | (88) | (129) |
Money Market Funds [Member] | ||
Debt Securities, Available-for-sale [Line Items] | ||
Cash Equivalents, at Carrying Value | 9 | 9 |
Financial Instruments Gross Unrealized Gains | 0 | 0 |
Financial Instruments Gross Unrealized Loss | 0 | 0 |
Cash Equivalents, Fair Value | $ 9 | $ 9 |
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