Omitted pursuant to General Instruction I of Form 10‑K.
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| ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Pursuant to General Instruction I of Form 10-K "Omission of Information by Certain Wholly-Owned Subsidiaries," this section includes only management's narrative analysis of the results of operations for the year ended December 31, 2019,2020, the most recent fiscal year, compared with the year ended December 31, 2018,2019, the fiscal year immediately preceding it.
References below 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 and its consolidated subsidiaries. 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 TDCC's 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 separate reportable business segments for UCC and no detailed business information is provided to a chief operating decision maker regarding the Corporation’s stand-alone operations, the Corporation’s results are reported as a single operating segment.
Statement on COVID-19 and Oil Price Volatility
Overview of UCC’s Response to COVID-19
The pandemic caused by coronavirus disease 2019 ("COVID-19") has impacted all geographic regions where UCC’s products are produced and sold. Financial markets were volatile towards the end of the first quarter and early in the second quarter of 2020, primarily due to uncertainty with respect to the severity and duration of the pandemic, coupled with fluctuations in crude oil prices due in part to the global spread of COVID-19. As the second quarter progressed, crude oil prices increased, driven by improved supply and demand fundamentals, which continued into the second half of 2020. Financial markets also continued a gradual recovery in the second half of 2020.
Dow Inc. (together, with TDCC and its consolidated subsidiaries, “Dow”) directs global safety, crisis management and security protocols for all of Dow’s assets and workforce, which includes the assets and workforce of UCC.
UCC’s primary manufacturing operations are in the United States, where efforts to contain the spread of COVID-19 resulted in significant mitigation measures, including social distancing and stay-at-home mandates, travel restrictions and/or bans, and restricted access to certain corporate facilities and manufacturing sites. The Corporation’s manufacturing facilities in the United States have been designated essential operations by state and local governments and all of UCC’s manufacturing sites and facilities, including its smaller sites in Asia Pacific, continue to operate and are doing so safely, having implemented social distancing and enhanced health, safety and sanitization measures as directed by Dow’s regional Crisis Management Teams (“CMTs”). The CMTs continue to work closely with site leadership and are adjusting alert levels as warranted on a site by site basis.
In the second quarter of 2020, the CMTs initiated implementation of Dow’s comprehensive Return to Workplace ("RTW") plan that is tailored for each site and includes a number of health and safety measures to be followed in a gradual and phased approach. A significant number of employees continue to work remotely as the Corporation and Dow monitors the pandemic evolution, awaiting acceptable and safe levels to implement its RTW phases. If ongoing mitigation efforts are successful, U.S. sites expect to implement additional RTW phases in the first and second quarters of 2021. The Corporation continues to encourage its workforce to practice safe behaviors in the workplace and while away from work to help prevent community spread of COVID-19.
During this public health crisis, UCC is focused on the health and safety of its employees, contractors, customers and suppliers around the world and maintaining safe and reliable operations of its manufacturing sites. Although supply disruptions and related logistical issues have posed challenges across all modes of transportation, UCC’s manufacturing sites have continued to operate during the COVID-19 pandemic, with no significant impact to manufacturing whether through shutdowns or shortages in labor, raw materials or personal protective equipment. Supply chain and logistical challenges are expected to stabilize in 2021. Contingency plans remain in place in the event of significant impacts from COVID-19 infection resurgences.
Dow took proactive measures to electively focus on cash and maintain financial strength with a continued emphasis on safe, reliable operations and disciplined capital allocation. In accordance with these actions, the Corporation reduced its 2020 capital expenditures target and temporarily idled one of the Corporation’s U.S. polyethylene production units to balance production to demand across markets more severely affected by restrained economic activity. The polyethylene production unit returned to more normalized operating rates in the third quarter of 2020. Further, on September 30, 2020, the Corporation's Board of Directors (the "Board") approved restructuring actions that were aligned to the structural cost improvement initiatives announced by Dow Inc. in response to the continued economic impact from the pandemic caused by COVID-19. The restructuring program is designed to reduce structural costs and enable the Corporation to further enhance competitiveness while the COVID-19 economic recovery gains traction. This program includes workforce cost reductions and actions to rationalize the Corporation's manufacturing assets. See Note 6 to the Consolidated Financial Statements for additional information.
Review of 2020 Financial Impacts from COVID-19
The Corporation's sales declined 15 percent in 2020 compared with 2019, as the COVID-19 pandemic disrupted the global economy and supply and demand fundamentals. The most significant impacts from the pandemic occurred in the first nine months of the year, with year-over-year sales declines of 18 percent, with a gradual yet uneven recovery beginning to take hold in the fourth quarter.
Local price declined in the first and second quarters of 2020, largely impacted by lower global energy prices. In March and April 2020, crude oil prices declined significantly, due in part to the COVID-19 pandemic, coupled with increased supply from oil producers, resulting in margin compression in the second quarter of 2020. Crude oil prices increased in the latter half of the second quarter as supply and demand fundamentals improved, driving higher feedstock costs, with the Corporation experiencing continued margin compression due to pricing pressures through the remainder of the year. See Results of Operations in this report for further discussion of 2020 operating results.
At the time of this filing, the ultimate severity and duration of the COVID-19 pandemic cannot be reasonably estimated. The COVID-19 pandemic has had and could continue to have a substantial negative impact on the Corporation’s results of operations, financial condition and cash flows. The effects of the COVID-19 pandemic for the year ended December 31, 2020 and the additional risks associated with these conditions are more fully discussed in this report in Part II, Item 1A, Risk Factors. The Corporation is actively monitoring for potential financial impacts from the COVID-19 pandemic and oil price volatility, including, but not limited to: evaluating the recoverability of its assets; enhancing cyber security monitoring; and evaluating ongoing appropriateness of its estimates.
The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted on March 27, 2020 in the United States. There have been no significant impacts to the Corporation's provision for income taxes in 2020 as a result of the CARES Act legislation.
RESULTS OF OPERATIONS
Net Sales
Total net sales for 20192020 were $4,377$3,703 million, compared with net sales of $5,446$4,377 million in 2018,2019, a decrease of 2015 percent. Net sales to related companies, principally to TDCC, were $3,574 million for 2020, compared with $4,239 million for 2019, compared with $5,310 million for 2018, a decrease of 2016 percent. Selling prices to TDCC are based on market prices for the related products,determined in accordance with the terms of an agreement between UCC and TDCC.
Total net sales were down from the previous year driven by decreases in price and volume. Average selling pricesprice decreased 1614 percent in 20192020 compared with 2018. Price decreased2019 with price decreases across all products, primarily in response to lower feedstock and other raw material costs and resulting pricing pressures, with the largest decreases in polyethylene, oxo alcohols, ethylene oxide/ethylene glycol and plastics for wire and cable applications. Volume was down 4 percent in 2019 compared with 2018, as lower demand for plastics for wire and cable applications acrylic monomers and glycol ethers andethers. Volume was down 1 percent in 2020 compared with 2019, as decreases resulting from the divestiture of the Corporation's acetone derivatives product line, the Business Separation and polyethylene volume declines, resulting primarily from planned and unplanned outages, more than offset demand growth in polyethylene, ethyleneamineshome and vinyl acetate monomers. Volume was also negatively impacted by planned maintenance turnaround activity at multiple production facilities in 2019.personal care products and ethylene oxide/ethylene glycol.
Cost of Sales
In 2019,Cost of sales in 2020 was $3,245 million, down 7 percent from $3,500 million in 2019. The decline in cost of sales was driven by lower feedstock and other raw material costs, lower volume, the Corporation recordeddivestiture of the Corporation's acetone derivatives product line, the impact of the Business Separation and a pretaxone-time charge of $55 million related to environmental remediation matters at a number of current and historical locations. The charge primarily resulted fromsites, recorded in the culminationthird quarter 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. See Note 14 for additional information about the Corporation's environmental matters.2019.
Cost of sales in 2019 was $3,500 million, down 14 percent from $4,047 million in 2018. The decline in cost of sales 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, Selling, General and Administrative Expenses
Research and development expenses were $24 million in 2020, compared with $25 million in 2019, compared with $21 million in 2018.2019. Selling, general and administrative expenses ("SG&A") were $9 million in 2020, compared with $4 million in 2019 and $6 million2019. The increase in 2018.SG&A expenses was driven in part by administrative fees associated with ongoing service arrangements.
Restructuring and Asset Related Charges - Net
2020 Restructuring Program
On September 30, 2020, the Board approved restructuring actions that were aligned to the structural cost improvement initiatives announced by Dow Inc. in response to the continued economic impact from the pandemic caused by COVID-19. The restructuring program is designed to reduce structural costs and enable the Corporation to further enhance competitiveness while the COVID-19 economic recovery gains traction. This program includes workforce cost reductions and actions to rationalize the Corporation's manufacturing assets. These actions are expected to be substantially complete by the end of 2021.
As a result of these actions, in the third quarter of 2020, the Corporation recorded pretax restructuring charges of $13 million, consisting of severance and related benefit costs of $9 million and asset write-downs and write-offs of $4 million.
DowDuPont Cost Synergy Program
In September and November 2017, the Corporation approved restructuring actions that were aligned with DowDuPont's synergy plans. As a result of these actions,targets. In connection with this program, the Corporation recorded pretax restructuring charges of $4 million in 2019 and $3 million in 2018 for severance and related benefit costs. At December 31, costs of $2 million in 2020 and $4 million in 2019. This program was completed in 2020.
2019 severance of $16 million had been paid, leaving a liability of $1 million, substantially completing the program.
On August 13, 2019, the Corporation entered into a definitive agreement to sell its acetone derivatives product line to ALTIVIA Ketones & Additives, LLC. The transaction closed on November 1, 2019, and included the Corporation's acetone derivatives related inventory and production assets located in Institute, West Virginia, in addition to the site infrastructure, land and utilities and certain railcars previously owned by TDCC. The Corporation remains at the Institute site as a tenant. As a result of this planned transaction, the Corporation recognized a pretax impairment charge of $75 million in the third quarter of 2019, which was included in "Restructuring and asset related charges - net" in the consolidated statements of income. The transaction closed November 1, 2019. See Notes 65 and 18 to the Consolidated Financial Statements for additional information.
Sundry Income (Expense) - Net
Sundry income (expense) – net includes a variety of income and expense items such as charges for management services provided by TDCC, commissions, 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 for 20192020 was expenseincome of $82$168 million, compared with expense of $62$82 million in 2018.2019. The increase in expensesundry income in 20192020 was primarily athe result of higher non-operating pensionthe sale of UCC's marine and other postretirement benefit plan coststerminal operations and assets at its site in St. Charles, Louisiana ("St. Charles"), which resulted in a pretax gain of $185 million, and the recognitionsale of UCC's rail infrastructure operations and assets at its sites in St. Charles and Seadrift, Texas, which resulted in a pretax gain of $86 million, partially offset by a pretax loss of $5$19 million on the saleearly extinguishment of the Corporation's acetone derivatives product line.debt. See Notes 5, 7 and 713 to the Consolidated Financial Statements for additional information.
Interest Income and Expense
Interest income for 20192020 was $36$12 million, compared with $28$36 million in 2018.2019. The increasedecrease in interest income from 2018 primarily resulted from an increasethe impact of the significant drop in notes receivable from related parties. Net interest rates due to the current interest rate environment. See Note 19 to the Consolidated Financial Statements for additional information.
Interest Expense and Amortization of Debt Discount
Interest expense (interest expense less capitalized interest) and amortization of debt discount was $33 million in 2020 compared with $30 million in 20192019. The increase in interest expense and 2018.amortization of debt discount was primarily due to the recognition of interest and penalties related to the settlement of sales and use tax disputes in Seadrift, Texas, and Texas City, Texas, which was partially offset by reduced interest expense resulting from the early extinguishment of debt in September 2020. See Notes 13 and 19 to the Consolidated Financial Statements for additional information.information related to the Corporation's debt financing and cash management activities.
Provision for Income Taxes
The Corporation reported a tax provision of $64$130 million in 2020, which resulted in an overall effective tax rate of 23.3 percent. The tax rate for 2020 was unfavorably impacted by an accrual to return adjustment. In 2019, the Corporation reported a tax provision of $64 million, which resulted in an overall effective tax rate of 9.3 percent. The tax rate for 2019 was favorably impacted by the restoration of tax basis in assets, driven by a recent court judgment that did not involve the Corporation. In 2018,Corporation, and deductions allowed in the Corporation reported a tax provision of $247 million, which resulted in an overall effective tax rate of 19.0 percent. The tax rateUnited States for 2018 was favorably impacted by deductions oncertain sales to foreign derived intangible income.customers. The underlying factors affecting UCC's overall effective tax rates are summarized in Note 8 to the Consolidated Financial Statements.
Net Income Attributable to UCC
The Corporation reported net income of $627$427 million in 2019,2020, compared with net income of $1,055$627 million in 2018.2019.
Capital Expenditures
Capital spending in 20192020 was $196$135 million, compared with $250$196 million in 2018,2019. Capital spending decreased in 2020 as spending for U.S. Gulf Coast projects and site infrastructure projects trended down.continues to trend down and the Corporation reduced its 2020 capital expenditures target to retain the financial strength of the Corporation and Dow Inc. in response to the COVID-19 pandemic.
In accordance with a proposed final consent decree filed on January 19, 2021, the Corporation would be required to install and operate additional air pollution control and monitoring technology on its steam-assisted flares at its olefins manufacturing facility in St. Charles. These installations are expected to result in additional capital expenditures of approximately $120 million, to be completed over the next several years. See Part I, Item 3, Legal Proceedings for more information on Environmental Proceedings.
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 accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") 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 describes the significant accounting policies and methods used in preparation of the Consolidated Financial Statements. Following are the Corporation's accounting policies impacted by judgments, assumptions and estimates.
Litigation
The Corporation is subject to legal proceedings and claims arising out of the normal course of business. The Corporation routinely assesses the likelihood of any adverse judgments or outcomes to these matters, as well as ranges of probable losses. A determination of the amount of the reserves required, if any, for these contingencies is made after thoughtful analysis of each known claim, with the exception of asbestos-related matters, which is described in the following section. The Corporation has an active risk management program consisting of numerous insurance policies secured from many carriers. These policies provide coverage that is utilized to minimize the financial impact, if any, of the legal proceedings. The required reserves may change in the future due to new developments in each matter. For further discussion, see Note 14 to the Consolidated Financial Statements.
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"). Each year, Ankura Consulting Group, LLC ("Ankura") performs a review for UCC based upon historical asbestos claims and resolution activity and historical defense spending. UCC compares current asbestos claim, resolution and defense spending activity to the results of the most recent Ankura study at each balance sheet date to determine whether the asbestos-related liability for pending and future claims, including future defense and processing costs, continues to be appropriate.
For additional information, see Part I, Item 3. Legal Proceedings; Asbestos-Related Matters in Management's Discussion and Analysis of Financial Condition and Results of Operations; and Notes 1 and 14 to the Consolidated Financial Statements.
Environmental Matters
The Corporation determines the costs of environmental remediation of its facilities and formerly owned facilities based on evaluations of 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 December 31, 2019,2020, the Corporation had accrued obligations of $132$133 million for probable environmental remediation and restoration costs, including $20$18 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 further discussion, see Environmental Matters in Notes 1 and 14 to the Consolidated Financial Statements.
Pension Plans and Other Postretirement Benefits
The amounts recognized in the consolidated financial statements related to pension and other postretirement benefits are determined from actuarial valuations. Inherent in these valuations are assumptions including expected return on plan assets, discount rates at which the liabilities could have been settled at December 31, 2019,2020, rate of increase in future compensation levels, mortality rates and health care cost trend rates. These assumptions are updated annually and are disclosed in Note 17 to the Consolidated Financial Statements. In accordance with U.S. GAAP, actualActual results that differ from the assumptions are accumulated and amortized over future periods and, therefore, affect expense recognized and obligations recorded in future periods.
The Corporation uses the spot rate approach to determine the discount rate utilized to measure the service cost and interest cost components of net periodic pension and other postretirement benefit costs. Under the spot rate approach, the Corporation calculates service costscost and interest costscost by applying individual spot rates from the Willis Towers Watson U.S. RATE:Link 60-90 corporate
yield curve (based on 60th to 90th percentile high-quality corporate bond yields) to the separate expected cash flow components of service cost and interest cost.
The Corporation determines the expected long-term rate of return on plan assets by performing a detailed analysis of key economic and market factors driving historical returns for each asset class and formulating a projected return based on factors in the current environment. Factors considered include, but are not limited to, inflation, real economic growth, interest rate yield, interest rate spreads, and other valuation measures and market metrics. The expected long-term rate of return for each asset class is then weighted based on the strategic asset allocation approved by the governing body for each plan. The Corporation's historical experience with the pension fund asset performance is also considered. The expected long-term rate of return is an assumption and not what is expected to be earned in any one particular year. The weighted-average long-term rate of return assumption used for determining net periodic pension expense for 20192020 and 20182019 was 6.8 percent. This assumption will also be used for determining 20202021 net periodic pension expense. Future actual pension expense will depend on future investment performance, changes in future discount rates and various other factors related to the population of participants in the Corporation's pension plans.
The discount rates utilized to measure the pension and other postretirement benefit obligations are based on the yield on high-quality corporate fixed income investments at the measurement date. Future expected actuarially determined cash flows for the plans are individually discounted at the spot rates under the Willis Towers Watson U.S. RATE:Link 60-90 corporate yield curve (based on 60th to 90th percentile high-quality corporate bond yields) to arrive at the plan’s obligations as of the measurement date. The weighted-average discount rate utilized to measure pension obligations was 2.53 percent at December 31, 2020 and 3.29 percent at December 31, 2019 and 4.32 percent at December 31, 2018.2019.
The value of the qualified plan assets totaled $3.1 billion at December 31, 2019, an increase2020, unchanged from $3.0 billion at December 31, 2018.2019. The underfunded status of the qualified plan increased by $166$185 million at December 31, 2019,2020, compared with December 31, 2018.2019. The Corporation did not make contributions to the qualified plan in 2019.2020.
The assumption for the long-term rate of increase in compensation levels was 4.25 percent at December 31, 20192020 and 2018.2019. Since 2002, the Corporation has used a generational mortality table to determine the duration of its pension and other postretirement obligations.
The Corporation bases the determination of pension expense on a market-related valuation of plan assets that reduces year-to-year volatility. This market-related valuation recognizes investment gains or losses over a five-year period from the year in which they occur. Investment gains or losses for this purpose represent the difference between the expected return calculated using the market-related value of plan assets and the actual return based on the market value of plan assets. Since the market-related value of plan assets recognizes gains or losses over a five-year period, the future value of plan assets will be impacted when previously deferred gains or losses are recorded. Over the life of the plan, both gains and losses have been recognized and amortized. At December 31, 2019, $682020, $177 million of net gains remain to be recognized in the calculation of the market-related value of plan assets. These net gains will result in decreases in future pension expense as they are recognized in the market-related value of assets.
The net increase in the market-related value of assets due to the recognition of prior gains (losses) is presented in the following table:
| | | | | |
| Net Increase in Market-Related Asset Value Due to Recognition of Prior Gains | |
| In millions |
| 2021 | $ | 46 | |
| 2022 | 23 | |
| 2023 | 79 | |
| 2024 | 29 | |
| Total | $ | 177 | |
|
| | | |
| Net Increase in Market-Related Asset Value Due to Recognition of Prior Gains (Losses) | |
| In millions |
| 2020 | $ | 6 |
|
| 2021 | 17 |
|
| 2022 | (5 | ) |
| 2023 | 50 |
|
| Total | $ | 68 |
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At December 31, 2019,2020, the Corporation expects pension expense to increasedecrease in 20202021 by approximately $3$15 million. The increasedecrease in pension expense is primarily due to the decrease in discount rates.lower interest cost component.
A 25 basis point adjustment in the long-term return on assets assumption would change total pension expense for 20202021 by $7 million. A 25 basis point adjustment in the discount rate assumption would have an immaterial impact on the total pension expense for 2020.2021.
Income Taxes
Deferred tax assets and liabilities are determined based on temporary differences between the financial reporting and tax bases of assets and liabilities, applying enacted tax rates expected to be in effect for the year in which the differences are expected to reverse. Based on the evaluation of available evidence, both positive and negative, the Corporation recognizes future tax benefits, such as net operating loss carryforwards and tax credit carryforwards, to the extent that realizing these benefits is considered more likely than not.
At December 31, 2019,2020, the Corporation had a net deferred tax asset balance of $507$494 million, after valuation allowances of $21$18 million. In evaluating the ability to realize the deferred tax assets, the Corporation relies on, in order of increasing subjectivity, taxable income in prior carryback years, the future reversals of existing taxable temporary differences, tax planning strategies and forecasted taxable income using historical and projected future operating results.
At December 31, 2019,2020, the Corporation had deferred tax assets for tax loss and tax credit carryforwards of $39$34 million, of which $26$21 million is subject to expiration in the years 20202021 through 2024.2025. In order to realize these deferred tax assets for tax loss and tax credit carryforwards, the Corporation needs taxable income of approximately $1,206$1,121 million across multiple jurisdictions. The taxable income needed to realize the deferred tax assets for tax loss and tax credit carryforwards that are subject to expiration between 2020 through 20242021 and 2025 is $485$406 million.
The Corporation recognizes the financial statement effects of an uncertain tax position when it is more likely than not, based on technical merits, that the position will be sustained upon examination. At December 31, 2019,2020, the Corporation had a liability for uncertain tax positions of $1 million.
The Corporation accrues for non-income tax contingencies when it is probable that a liability to a taxing authority has been incurred and the amount of the contingency can be reasonably estimated. At December 31, 2019,2020, the Corporation had an immaterial tax contingency reserve. For additional information, see Note 8 to the Consolidated Financial Statements.
Environmental Matters
Environmental Policies
The Corporation is committed to world-class environmental, health and safety ("EH&S") performance, as demonstrated by a long-standing commitment to Responsible Care®, as well as a strong commitment to achieve the Corporation'sDow Inc.'s 2025 Sustainability Goals - goals that set the standard for sustainability in the chemical industry by focusing on improvements in UCC's local corporate citizenship and product stewardship, and by actively pursuing methods to reduce the Corporation's environmental impact.
The EH&S management system ("EMS") defines the "who, what, when and how" needed for the businessesCorporation to achieve the policies, requirements, performance objectives, leadership expectations and public commitments. EMS is also designed to minimize the long-term cost of environmental protection and to comply with applicable laws and regulations. To ensure effective utilization, EMS is integrated into a company-wide management system for EH&S, Operations, Quality and Human Resources, including implementation of the global EH&S Work Process to improve EH&S performance and to ensure ongoing compliance worldwide.
The Corporation adheres to a waste management hierarchy that minimizes the impact of wastes and emissions on the environment. UCC first works to eliminate or minimize the generation of waste and emissions at the source through research, process design, plant operations and maintenance. Next, UCC finds ways to reuse and recycle materials. Finally, unusable or non-recyclable hazardous waste is treated before disposal to eliminate or reduce the hazardous nature and volume of the waste. Treatment may include destruction by chemical, physical, biological or thermal means. Disposal of waste materials in landfills is considered only after all other options have been thoroughly evaluated. UCC has specific requirements for waste that is transferred to non-UCC facilities, including the periodic auditing of these facilities.
Chemical Security
Public and political attention continues to be placed on the protection of U.S. critical infrastructure, including the chemical industry, from security threats. Terrorist attacks and natural disasters have increased concernglobal concerns about the security and safety of chemical production and distribution. The focus on security is not new to UCC. UCC continues to improve its security plans, placing emphasis on the safety of UCC communities and people by being prepared to meet risks at any level and to address both internal and external identifiable risks. UCC's security plans are also developeddesigned to avert interruptions of normal business operations whichthat could have a material impact on the Corporation's results of operations, liquidityfinancial condition and financial condition.cash flows.
UCC is a Responsible Care® company and adheres to the Responsible Care® Security Code, which requires that all aspects of security - including facility, transportation and cyberspace - be assessed and gaps addressed. Through global implementation of the Security Code, including voluntary security enhancements and upgrades, , UCC has permanently heightened theits level of security - not just in the United States, but worldwide. In addition, UCC uses a risk-based approach employingFurther, the U.S. Government's
Sandia National Labs methodology to repeatedly assess the risks to sites, systems and processes. UCC has expanded its comprehensiveCorporation’s Distribution Risk Review process that had been in place for decades to addressaddresses potential threats in all modes of transportation across itsthe Company’s supply chain. In 2019, Dow Inc. established its Global Security Operations Center ("GSOC") to provide 24-hour/day, 365-day/year real-time monitoring of global risks to Dow Inc. assets and people, which includes UCC assets and people. The GSOC employs state-of-the-art social media monitoring, threat reporting and geo-fencing capabilities to analyze global risks and report those risks, facilitating decision-making and actions to prevent Dow Inc. and UCC crises.
To reduce vulnerabilities, UCC maintains security measures that meet or exceed regulatory and industry security standards in all areas in which UCC operates. Assessment and improvement costs are not considered material to the Corporation's consolidated financial statements.
Climate Change
Climate change matters for UCC are likely to be driven by changes in regulatory mattersseveral categories of risks related to the transition to a lower-carbon economy (“Transition Risks”) and risks related to the physical impacts of climate parameters.change (“Physical Risks”).
Regulatory MattersTransition Risks
Regulatory mattersTransition Risks include cap and trade schemes, increased greenhouse gas ("GHG") limits, and taxes on GHGcarbon pricing mechanisms, a transition to lower emissions fuel and energy. The potential implications of each of these matters are all very similar, includingtechnology, increased cost of purchasedraw materials, and mandates on and regulation of existing products and services. Carbon pricing is a market-based strategy for lowering global warming emissions by putting a monetary value on carbon emissions so the costs of climate impacts and opportunities for low-carbon energy additional capitaloptions are reflected in production and consumption choices.
Carbon pricing mechanisms will not only increase UCC’s direct costs for installation or modification of GHG emitting equipment, and additional costs associated directly with GHG emissions (such as cap and trade systems or carbon taxes), which are primarily related to operate but will also result in increased energy use. It is difficult to estimatecosts. UCC mitigates the potentialdirect cost impact of these regulatory matters onexisting regulation through research and development projects designed to increase energy prices.
Reducing UCC's overallefficiency and capital investment projects that will reduce the Corporation’s energy usage and GHG emissions through newcarbon footprint.
Physical Risks
Operationally, climate change may result in more frequent severe weather events, potential changes in precipitation patterns and unfolding projects will decrease the potential impact of these regulatory matters.extreme variability in weather patterns, which can disrupt operations. The Corporation has not experienced any material impact relatedengineered susceptible facilities, particularly on the U.S. Gulf Coast, to regulated GHG emissions.
Physical Climate Parameters
Many scientific academies throughoutbetter withstand severe weather and rising sea levels, and continues to study the world have concluded that it is very likely that human activities are contributing to global warming. At this point, it is difficult to predictlong-term implications of changing climate parameters on water availability, plant siting issues and assess the probability and opportunity of a global warming trend on UCC specifically.other impacts. Preparedness plans are developed that detail actions needed in the event of severe weather. These measures have historically been in place and these activities and associated costs are driven by normal operational preparedness. UCC continues to study the long-term implications of changing climate parameters or water availability, plant siting issues, and impacts and opportunities for products.
The Corporation continues to elevate its internal focus and external positions to focus on the root cause of GHGgreenhouse gas ("GHG") emissions, including the sustainable use of energy. Through corporateDow’s energy efficiency programs and focused GHG management efforts, the Corporation has and is continuing to reduce its GHG emissions footprint.
Environmental Remediation
UCC accrues the costs of remediation of its facilities and formerly owned facilities based on current law and existing technologies. The nature of such remediation includes, for example, the management of soil and groundwater contamination. The policies adopted to properly reflect the monetary impacts of environmental matters are discussed in Note 1 to the Consolidated Financial Statements. To assess the impact on the consolidated financial statements, environmental experts review currently available facts to evaluate the probability and scope of potential liabilities. Inherent uncertainties exist in such evaluations primarily due to unknown environmental conditions, changing governmental regulations and legal standards regarding liability, and emerging remediation technologies. These liabilities are adjusted periodically as remediation efforts progress or as additional technical or legal information becomes available. The Corporation had an accrued liability of $115 million at December 31, 2020 and $112 million at December 31, 2019, and $78 million at December 31, 2018, related to the remediation of current or former UCC-owned sites.
In addition to current and former UCC-owned sites, under the Federal Comprehensive Environmental Response, Compensation and Liability Act and equivalent state laws (hereafter referred to collectively as "Superfund Law"), UCC is liable for remediation of other hazardous waste sites where UCC allegedly disposed of, or arranged for the treatment or disposal of, hazardous substances. Because Superfund Law imposes joint and several liability upon each party at a site, UCC has evaluated its potential liability in light of the number of other companies that also have been named potentially responsible parties ("PRPs") at each site, the estimated apportionment of costs among all PRPs, and the financial ability and commitment of each to pay its expected share. Management's estimate of the Corporation's remaining liability for the remediation of Superfund sites was $18 million at December 31, 2020 and $20 million at December 31, 2019, and $16 million at December 31, 2018, which has been accrued, although the ultimate cost with respect to these sites could exceed that amount. The Corporation has not recorded any third-party recovery related to these sites as a receivable.
Information regarding environmental sites is provided below:
| | | | | | | | | | | | | | |
| Environmental Sites | UCC-owned Sites 1 | Superfund Sites 2 |
| 2020 | 2019 | 2020 | 2019 |
| Number of sites at Jan 1 | 25 | | 25 | | 67 | | 68 | |
| Sites added during year | — | | — | | — | | 1 | |
| Sites closed during year | — | | — | | (1) | | (2) | |
| Number of sites at Dec 31 | 25 | | 25 | | 66 | | 67 | |
|
| | | | | | | | |
| Environmental Sites | UCC-owned Sites 1 | Superfund Sites 2 |
| | 2019 | 2018 | 2019 | 2018 |
| Number of sites at Jan 1 | 25 |
| 25 |
| 68 |
| 69 |
|
| Sites added during year | — |
| — |
| 1 |
| — |
|
| Sites closed during year | — |
| — |
| (2 | ) | (1 | ) |
| Number of sites at Dec 31 | 25 |
| 25 |
| 67 |
| 68 |
|
| |
1. | UCC-owned sites are sites currently or formerly owned by UCC. In the United States, remediation obligations are imposed by the Resource Conservation and Recovery Act or analogous state law. |
| |
2. | Superfund sites are sites, including sites not owned by UCC, where remediation obligations are imposed by Superfund Law. |
2.Superfund sites are sites, including sites not owned by UCC, where remediation obligations are imposed by Superfund Law.
In total, the Corporation's accrued liability for probable environmental remediation and restoration costs was $133 million at December 31, 2020, compared with $132 million at December 31, 2019, compared with $94 million at December 31, 2018.2019. 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, however, 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.
In 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.
The amounts charged to income on a pretax basis related to environmental remediation totaled $49 million in 2020, $93 million in 2019 and $38 million in 2018 and $36 million in 2017.2018. The amounts charged to income on a pretax basis related to operating the Corporation's pollution abatement facilities, excluding internal recharges, totaled $109$98 million in 2019, $1132020,
$109 million in 20182019 and $113 million in 2017.2018. Capital expenditures for environmental protection were $5 million in 2020, $11 million in 2019 $9 million in 2018 and $9 million in 2017.2018.
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. 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 | 2020 | 2019 | 2018 |
| Claims unresolved at Jan 1 | 11,117 | | 12,780 | | 15,427 | |
| Claims filed | 4,857 | | 5,743 | | 6,599 | |
| Claims settled, dismissed or otherwise resolved | (6,848) | | (7,406) | | (9,246) | |
| Claims unresolved at Dec 31 | 9,126 | | 11,117 | | 12,780 | |
| Claimants with claims against both UCC and Amchem | (2,904) | | (3,837) | | (4,675) | |
| Individual claimants at Dec 31 | 6,222 | | 7,280 | | 8,105 | |
|
| | | | | | |
| Asbestos-Related Claim Activity | 2019 | 2018 | 2017 |
| Claims unresolved at Jan 1 | 12,780 |
| 15,427 |
| 16,141 |
|
| Claims filed | 5,743 |
| 6,599 |
| 7,010 |
|
| Claims settled, dismissed or otherwise resolved | (7,406 | ) | (9,246 | ) | (7,724 | ) |
| Claims unresolved at Dec 31 | 11,117 |
| 12,780 |
| 15,427 |
|
| Claimants with claims against both UCC and Amchem | (3,837 | ) | (4,675 | ) | (5,530 | ) |
| Individual claimants at Dec 31 | 7,280 |
| 8,105 |
| 9,897 |
|
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 Part I, Item 3. Legal Proceedings and Asbestos-Related Matters in Notes 1 and 14 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 December 31, 2019.2020.
| | |
| ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
UCC’s business operations give rise to market risk exposure due to changes in foreign exchange rates, interest rates, commodity prices and other market factors such as equity prices. To manage such risks effectively, the Corporation enters into hedging transactions, pursuant to established guidelines and policies that enable it to mitigate the adverse effects of financial market risk. Derivatives used for this purpose are designated as hedges per the accounting guidance related to derivatives and hedging activities, where appropriate.
The global nature of UCC’s business requires active participation in the foreign exchange markets. As a result of investments, production facilities and other operations on a global basis, the Corporation has assets, liabilities and cash flows in currencies other than the U.S. dollar. The primary objective of the Corporation’s foreign exchange risk management is to optimize the U.S. dollar value of net assets and cash flows. To achieve this objective, the Corporation hedges on a net exposure basis using foreign currency forward contracts, over-the-counter option contracts, cross-currency swaps and nonderivative instruments in foreign currencies. Exposures primarily relate to assets, liabilities and cash flows denominated in foreign currencies. The largest exposures are denominated in the Canadian dollar as well as the currencies of Europe and Asia Pacific.
The main objective of interest rate risk management is to reduce the total funding cost to the Corporation and to alter the interest rate exposure to the desired risk profile. To achieve this objective, the Corporation hedges using interest rate swaps, “swaptions,” and exchange-traded instruments. The Corporation’s primary exposure is to the U.S. dollar yield curve.
UCC uses value-at-risk ("VAR"), stress testing and scenario analysis for risk measurement and control purposes. VAR estimates the maximum potential loss in fair market values given a certain move in prices over a certain period of time, using specified confidence levels. The VAR methodology used by the Corporation is a variance/covariance model. This model uses a 97.5 percent confidence level and includes at least one year of historical data. The 20192020 and 20182019 year-end and average daily VAR for the aggregate of all positions are shown below:
| | | | | | | | | | | | | | |
| Total Daily VAR at Dec 31 | 2020 | 2019 |
| In millions | Year-end | Average | Year-end | Average |
| Interest rate | $ | 3 | | $ | 4 | | $ | 2 | | $ | 2 | |
|
| | | | | | | | | | | | |
| Total Daily VAR at Dec 31 | 2019 | 2018 |
| In millions | Year-end | Average | Year-end | Average |
| Interest rate | $ | 2 |
| $ | 2 |
| $ | 2 |
| $ | 2 |
|
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
| | |
| ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholder and the Board of Directors of Union Carbide Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Union Carbide Corporation and subsidiaries (the "Corporation") as of December 31, 20192020 and 2018,2019, the related consolidated statements of income, comprehensive income, equity, and cash flows, for each of the three years in the period ended December 31, 2019,2020, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Corporation as of December 31, 20192020 and 2018,2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019,2020, in conformity with accounting principles generally accepted in the United States of America.
Change
Changes in Accounting PrinciplePrinciples
As discussed in Note 1 to the financial statements, in the first quarter of 2018, the Corporation changed its method of accounting for revenue due to the adoption of Accounting Standards Codification Topic 606, Revenue From Contracts with Customers and, in the first quarter of 2019, the Corporation changed itsthe method of accounting for leases due to the adoption of ASC Topic 842, Leases.
Basis for Opinion
These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on the Corporation's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Corporation in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Corporation is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Corporation’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which they relate.
Asbestos – Refer to Note 1 and Note 14 to the Financial Statements
Critical Audit Matter Description
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. The Corporation expects more asbestos-related suits to be filed against the
Corporation and its former subsidiary Amchem Products, Inc. in the future, and will aggressively defend or reasonably resolve, as appropriate, both pending and future claims. Since 2003, the Corporation has engaged a third-party actuarial specialist to review the Corporation's historical asbestos-related claim and resolution activity in order to assist management in estimating the Corporation's asbestos-related liability. The Corporation considers 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.
The Corporation considers the following summarized assumptions and judgments in arriving at the estimated liability:
•The average resolution value calculated by the Corporation to settle each pending and future claim
•The Corporation’s estimation of the number of pending and future claims
•The curve of how claims will occur over the estimated period through the terminal year
•The estimated terminal year 2049 (date at which future claims will cease)
Given the significant judgments made by management to estimate the asbestos liability, performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to average resolution value of pending and future claims, estimated number of pending and future claims, valuation of future claims, curve of how claims will occur, and estimated terminal date required a high degree of auditor judgment and an increased extent of effort, including the need to involve our actuarial specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to management’s estimate and assumptions of the asbestos liability included the following, among others:
•We tested the effectiveness of internal controls related to the asbestos liability including management’s controls over the determination of average resolution value of pending and future claims, estimated number of claims, valuation of future claims, curve of how claims will occur, and the estimated terminal date.
•We evaluated the methods and assumptions used by management to estimate the asbestos liability by:
◦Testing the underlying data that served as the basis for the actuarial analysis, including historical claims, to test that the inputs to the actuarial estimate were reasonable.
◦Comparing management’s prior-year assumptions of expected development and ultimate loss to actuals incurred during the current year to identify potential bias in the determination of the asbestos-related liabilities.
•With the assistance of our actuarial specialists, we developed independent estimates of the asbestos-related liabilities, including loss data and industry claim development factors, and compared our estimates to management’s estimates.
•We read external information included in regulatory filings and news releases to search for contradictory evidence.
|
| | | | | | | |
| /s/ DELOITTE & TOUCHE LLP | | |
Deloitte & Touche LLP
Midland, Michigan | | |
February 7, 20205, 2021 | | |
We have served as the Corporation's auditor since 2001.
Union Carbide Corporation and Subsidiaries
Consolidated Statements of Income
| | | (In millions) For the years ended Dec 31, | 2019 | 2018 | 2017 | (In millions) For the years ended Dec 31, | 2020 | 2019 | 2018 |
| Net trade sales | $ | 138 |
| $ | 136 |
| $ | 143 |
| Net trade sales | $ | 129 | | $ | 138 | | $ | 136 | |
| Net sales to related companies | 4,239 |
| 5,310 |
| 5,022 |
| Net sales to related companies | 3,574 | | 4,239 | | 5,310 | |
| Total Net Sales | 4,377 |
| 5,446 |
| 5,165 |
| |
| Total net sales | | Total net sales | 3,703 | | 4,377 | | 5,446 | |
| Cost of sales | 3,500 |
| 4,047 |
| 4,184 |
| Cost of sales | 3,245 | | 3,500 | | 4,047 | |
| Research and development expenses | 25 |
| 21 |
| 19 |
| Research and development expenses | 24 | | 25 | | 21 | |
| Selling, general and administrative expenses | 4 |
| 6 |
| 6 |
| Selling, general and administrative expenses | 9 | | 4 | | 6 | |
| | Restructuring and asset related charges - net | 79 |
| 3 |
| 74 |
| Restructuring and asset related charges - net | 15 | | 79 | | 3 | |
| Integration and separation costs | 2 |
| 3 |
| 1 |
| Integration and separation costs | 0 | | 2 | | 3 | |
| | Sundry income (expense) - net | (82 | ) | (62 | ) | (23 | ) | Sundry income (expense) - net | 168 | | (82) | | (62) | |
| Interest income | 36 |
| 28 |
| 20 |
| Interest income | 12 | | 36 | | 28 | |
| Interest expense and amortization of debt discount | 30 |
| 30 |
| 28 |
| Interest expense and amortization of debt discount | 33 | | 30 | | 30 | |
| Income Before Income Taxes | 691 |
| 1,302 |
| 850 |
| |
| Income before income taxes | | Income before income taxes | 557 | | 691 | | 1,302 | |
| Provision for income taxes | 64 |
| 247 |
| 645 |
| Provision for income taxes | 130 | | 64 | | 247 | |
| Net Income Attributable to Union Carbide Corporation | $ | 627 |
| $ | 1,055 |
| $ | 205 |
| |
| Net income attributable to Union Carbide Corporation | | Net income attributable to Union Carbide Corporation | $ | 427 | | $ | 627 | | $ | 1,055 | |
See Notes to the Consolidated Financial Statements.
Union Carbide Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income
|
| | | | | | | | | |
| (In millions) For years ended Dec 31, | 2019 | 2018 | 2017 |
| Net Income Attributable to Union Carbide Corporation | $ | 627 |
| $ | 1,055 |
| $ | 205 |
|
| Other Comprehensive Income (Loss), Net of Tax | |
| |
| |
|
| Cumulative translation adjustments | 1 |
| 2 |
| 3 |
|
| Pension and other postretirement benefit plans | (105 | ) | 43 |
| (35 | ) |
| Total other comprehensive income (loss) | (104 | ) | 45 |
| (32 | ) |
| Comprehensive Income Attributable to Union Carbide Corporation | $ | 523 |
| $ | 1,100 |
| $ | 173 |
|
| | | | | | | | | | | |
| (In millions) For the years ended Dec 31, | 2020 | 2019 | 2018 |
| Net income attributable to Union Carbide Corporation | $ | 427 | | $ | 627 | | $ | 1,055 | |
| Other comprehensive income (loss), net of tax | | | |
| Cumulative translation adjustments | 1 | | 1 | | 2 | |
| | | |
| Pension and other postretirement benefit plans | (106) | | (105) | | 43 | |
| | | |
| Total other comprehensive income (loss) | (105) | | (104) | | 45 | |
| Comprehensive income attributable to Union Carbide Corporation | $ | 322 | | $ | 523 | | $ | 1,100 | |
See Notes to the Consolidated Financial Statements.
Union Carbide Corporation and Subsidiaries
Consolidated Balance Sheets
| | | (In millions, except share amounts) At Dec 31, | 2019 | 2018 | (In millions, except share amounts) At Dec 31, | 2020 | 2019 |
| Assets | Assets | Assets | | |
| Current Assets | | Current Assets | | |
| Cash and cash equivalents | $ | 11 |
| $ | 13 |
| Cash and cash equivalents | $ | 11 | | $ | 11 | |
| Accounts receivable: |
|
| | Accounts receivable: | | |
| Trade (net of allowance for doubtful receivables 2019: $-; 2018: $-) | 26 |
| 21 |
| |
| Trade (net of allowance for doubtful receivables 2020: $0; 2019: $0) | | Trade (net of allowance for doubtful receivables 2020: $0; 2019: $0) | 26 | | 26 | |
| Related companies | 658 |
| 1,029 |
| Related companies | 698 | | 658 | |
| Other | 17 |
| 31 |
| Other | 27 | | 17 | |
| Income taxes receivable | 337 |
| 330 |
| Income taxes receivable | 337 | | 337 | |
| Notes receivable from related companies | 1,505 |
| 1,281 |
| Notes receivable from related companies | 1,660 | | 1,505 | |
| Inventories | 247 |
| 304 |
| Inventories | 223 | | 247 | |
| Other current assets | 20 |
| 15 |
| Other current assets | 17 | | 20 | |
| Total current assets | 2,821 |
| 3,024 |
| Total current assets | 2,999 | | 2,821 | |
| Investments | |
| |
| Investments | | |
| Investments in related companies | 238 |
| 639 |
| Investments in related companies | 237 | | 238 | |
| | Other investments | 22 |
| 23 |
| Other investments | 22 | | 22 | |
| Noncurrent receivables | 118 |
| 67 |
| Noncurrent receivables | 124 | | 118 | |
| Noncurrent receivables from related companies | 66 |
| 54 |
| Noncurrent receivables from related companies | 66 | | 66 | |
| Total investments | 444 |
| 783 |
| Total investments | 449 | | 444 | |
| Property | |
| |
| Property | | |
| Property | 7,247 |
| 7,430 |
| Property | 7,089 | | 7,247 | |
| Less accumulated depreciation | 5,878 |
| 5,982 |
| Less accumulated depreciation | 5,824 | | 5,878 | |
| Net property | 1,369 |
| 1,448 |
| Net property | 1,265 | | 1,369 | |
| Other Assets | |
| |
| Other Assets | | |
| Intangible assets (net of accumulated amortization 2019: $90; 2018: $87) | 22 |
| 25 |
| |
| Intangible assets (net of accumulated amortization 2020: $97; 2019: $90) | | Intangible assets (net of accumulated amortization 2020: $97; 2019: $90) | 16 | | 22 | |
| Operating lease right-of-use assets | 89 |
| — |
| Operating lease right-of-use assets | 123 | | 89 | |
| Deferred income tax assets | 507 |
| 463 |
| Deferred income tax assets | 494 | | 507 | |
| Deferred charges and other assets | 26 |
| 34 |
| Deferred charges and other assets | 29 | | 26 | |
| Total other assets | 644 |
| 522 |
| Total other assets | 662 | | 644 | |
| Total Assets | $ | 5,278 |
| $ | 5,777 |
| Total Assets | $ | 5,375 | | $ | 5,278 | |
| Liabilities and Equity | Liabilities and Equity | Liabilities and Equity | | |
| Current Liabilities | |
| |
| Current Liabilities | | |
| Notes payable to related companies | $ | 32 |
| $ | 28 |
| Notes payable to related companies | $ | 33 | | $ | 32 | |
| Notes payable - other | 6 |
| 1 |
| Notes payable - other | 0 | | 6 | |
| Long-term debt due within one year | 1 |
| 1 |
| Long-term debt due within one year | 2 | | 1 | |
| Accounts payable: |
|
|
|
| Accounts payable: | | |
| Trade | 218 |
| 247 |
| Trade | 229 | | 218 | |
| Related companies | 386 |
| 515 |
| Related companies | 409 | | 386 | |
| Other | 10 |
| 39 |
| Other | 28 | | 10 | |
| Operating lease liabilities - current | 16 |
| — |
| Operating lease liabilities - current | 19 | | 16 | |
| Income taxes payable | 25 |
| 24 |
| Income taxes payable | 23 | | 25 | |
| Asbestos-related liabilities - current | 105 |
| 118 |
| Asbestos-related liabilities - current | 85 | | 105 | |
| Accrued and other current liabilities | 126 |
| 163 |
| Accrued and other current liabilities | 139 | | 126 | |
| Total current liabilities | 925 |
| 1,136 |
| Total current liabilities | 967 | | 925 | |
| Long-Term Debt | 473 |
| 473 |
| Long-Term Debt | 391 | | 473 | |
| Other Noncurrent Liabilities | |
| |
| Other Noncurrent Liabilities | | |
| Pension and other postretirement benefits - noncurrent | 1,154 |
| 979 |
| Pension and other postretirement benefits - noncurrent | 1,340 | | 1,154 | |
| Asbestos-related liabilities - noncurrent | 1,060 |
| 1,142 |
| Asbestos-related liabilities - noncurrent | 1,013 | | 1,060 | |
| Operating lease liabilities - noncurrent | 74 |
| — |
| Operating lease liabilities - noncurrent | 105 | | 74 | |
| Other noncurrent obligations | 194 |
| 132 |
| Other noncurrent obligations | 201 | | 194 | |
| Total other noncurrent liabilities | 2,482 |
| 2,253 |
| Total other noncurrent liabilities | 2,659 | | 2,482 | |
| Stockholders' Equity | |
| |
| Stockholders' Equity | | |
| Common stock (authorized: 1,000 shares of $0.01 par value each; issued: 935.51 shares) | — |
| — |
| Common stock (authorized: 1,000 shares of $0.01 par value each; issued: 935.51 shares) | 0 | | 0 | |
| Additional paid-in capital | 141 |
| 138 |
| Additional paid-in capital | 141 | | 141 | |
| Retained earnings | 2,922 |
| 3,338 |
| Retained earnings | 2,987 | | 2,922 | |
| Accumulated other comprehensive loss | (1,665 | ) | (1,561 | ) | Accumulated other comprehensive loss | (1,770) | | (1,665) | |
| Union Carbide Corporation's stockholders' equity | 1,398 |
| 1,915 |
| Union Carbide Corporation's stockholders' equity | 1,358 | | 1,398 | |
| | Total Liabilities and Equity | $ | 5,278 |
| $ | 5,777 |
| Total Liabilities and Equity | $ | 5,375 | | $ | 5,278 | |
Union Carbide Corporation and Subsidiaries
Consolidated Statements of Cash Flows
| | | (In millions) For the years ended Dec 31, | 2019 | 2018 | 2017 | (In millions) For the years ended Dec 31, | 2020 | 2019 | 2018 |
| Operating Activities | | | Operating Activities | | |
| Net income attributable to Union Carbide Corporation | $ | 627 |
| $ | 1,055 |
| $ | 205 |
| Net income attributable to Union Carbide Corporation | $ | 427 | | $ | 627 | | $ | 1,055 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | Adjustments to reconcile net income to net cash provided by operating activities: | | |
| Depreciation and amortization | 204 |
| 207 |
| 200 |
| Depreciation and amortization | 210 | | 204 | | 207 | |
| Provision (credit) for deferred income tax | (10 | ) | 35 |
| 414 |
| Provision (credit) for deferred income tax | 46 | | (10) | | 35 | |
| | Net (gain) loss on sales of property and investments | 6 |
| — |
| (26 | ) | Net (gain) loss on sales of property and investments | (271) | | 6 | | 0 | |
| Net gain on sale of ownership interest in nonconsolidated affiliate | — |
| — |
| (4 | ) | |
| | Restructuring and asset related charges - net | 79 |
| 3 |
| 74 |
| Restructuring and asset related charges - net | 15 | | 79 | | 3 | |
| Net periodic pension benefit cost | 52 |
| 43 |
| 28 |
| Net periodic pension benefit cost | 56 | | 52 | | 43 | |
| Pension contributions | (2 | ) | (42 | ) | (162 | ) | Pension contributions | (2) | | (2) | | (42) | |
| Net loss on early extinguishment of debt | | Net loss on early extinguishment of debt | 19 | | 0 | | 0 | |
| | Changes in assets and liabilities: | | | Changes in assets and liabilities: | | |
| Accounts and notes receivable | 13 |
| 23 |
| 7 |
| Accounts and notes receivable | (6) | | 13 | | 23 | |
| Related company receivables | 105 |
| (100 | ) | 44 |
| Related company receivables | (194) | | 105 | | (100) | |
| Inventories | 23 |
| (26 | ) | 29 |
| Inventories | 33 | | 23 | | (26) | |
| Accounts payable | (51 | ) | (6 | ) | 36 |
| Accounts payable | 28 | | (51) | | (6) | |
| Related company payables | (121 | ) | (169 | ) | 166 |
| Related company payables | 24 | | (121) | | (169) | |
| Asbestos-related payments | (95 | ) | (109 | ) | (121 | ) | Asbestos-related payments | (67) | | (95) | | (109) | |
| Other assets and liabilities | (82 | ) | (113 | ) | (112 | ) | Other assets and liabilities | (42) | | (82) | | (113) | |
| Cash provided by operating activities | 748 |
| 801 |
| 778 |
| Cash provided by operating activities | 276 | | 748 | | 801 | |
| Investing Activities | |
| |
| | Investing Activities | | |
| Capital expenditures | (196 | ) | (250 | ) | (223 | ) | Capital expenditures | (135) | | (196) | | (250) | |
| Proceeds from sale of ownership interest in nonconsolidated affiliate | — |
| — |
| 22 |
| |
| Changes in noncurrent receivable from related company | (13 | ) | — |
| 3 |
| |
| | Change in noncurrent receivable from related company | | Change in noncurrent receivable from related company | 0 | | (13) | | 0 | |
| Proceeds from sales of property | 21 |
| — |
| 18 |
| Proceeds from sales of property | 330 | | 21 | | 0 | |
| | Purchases of investments | — |
| (1 | ) | (1 | ) | Purchases of investments | 0 | | 0 | | (1) | |
| Proceeds from sales of investments | 4 |
| 3 |
| 9 |
| Proceeds from sales of investments | 0 | | 4 | | 3 | |
| Cash used for investing activities | (184 | ) | (248 | ) | (172 | ) | |
| Cash provided by (used for) investing activities | | Cash provided by (used for) investing activities | 195 | | (184) | | (248) | |
| Financing Activities | |
| |
| | Financing Activities | | |
| Dividends paid to parent | (570 | ) | (553 | ) | (603 | ) | Dividends paid to parent | (362) | | (570) | | (553) | |
| Changes in short-term notes payable | 5 |
| 1 |
| — |
| Changes in short-term notes payable | (6) | | 5 | | 1 | |
| Payments on long-term debt | (1 | ) | (1 | ) | (1 | ) | Payments on long-term debt | (84) | | (1) | | (1) | |
| Transaction financing, debt issuance and other costs | | Transaction financing, debt issuance and other costs | (19) | | 0 | | 0 | |
| Cash used for financing activities | (566 | ) | (553 | ) | (604 | ) | Cash used for financing activities | (471) | | (566) | | (553) | |
| Summary | |
| |
| | Summary | | |
| Increase (decrease) in cash and cash equivalents | (2 | ) | — |
| 2 |
| Increase (decrease) in cash and cash equivalents | 0 | | (2) | | 0 | |
| Cash and cash equivalents at beginning of year | 13 |
| 13 |
| 11 |
| Cash and cash equivalents at beginning of year | 11 | | 13 | | 13 | |
| Cash and cash equivalents at end of year | $ | 11 |
| $ | 13 |
| $ | 13 |
| Cash and cash equivalents at end of year | $ | 11 | | $ | 11 | | $ | 13 | |