UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

At September 30, 2018,2019, 935.51 shares of common stock were outstanding, all of which were held by the registrant’s parent, The Dow Chemical Company.

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

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

FORWARD-LOOKING STATEMENTS

Certain statements in this report, other than purely historical information, including estimates, projections, statements relating to business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995,federal securities laws, including Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements may appear throughout this report, including without limitation, the section "Management's Discussion and Analysis." These forward-looking statements often address expected future business and financial performance, and financial condition and other matters and often contain words or phrases such as "anticipate," "believe," "estimate," "expect," "future," "intend," "may," "opportunity," "outlook," "plan," "project," "see," "seek," "should," "strategy," "target," "will," "would," "will be," "will continue," "will likely result"result," "would," and similar expressions and variations or negatives of these words. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements.

A detailed discussion of principal risks and uncertainties which may cause actual results and events to differ materially from those projected, anticipated or implied in such forward-looking statements is included in the section titled "Risk Factors" (seein Part I, Item 1A of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 2017).2018. UCC undertakesassumes no obligation to update or revise publicly any forward-looking statements whether because of new information, future events, or otherwise, except as required by securities and other applicable laws.

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Consolidated Statements of Income

See Notes to the Consolidated Financial Statements.

Consolidated Statements of Comprehensive Income

See Notes to the Consolidated Financial Statements.

Consolidated Balance Sheets

See Notes to the Consolidated Financial Statements.

Consolidated Statements of Cash Flows

See Notes to the Consolidated Financial Statements.

Consolidated Statements of Equity

See Notes to the Consolidated Financial Statements.

Table of Contents

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, 2017.2018.

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

The Corporation’s business activities comprise components of Dow’sTDCC’s global operations rather than stand-alone operations. DowTDCC conducts its worldwide operations through principal product groups.global businesses. Because there are no separable reportable business segments for UCC under the accounting guidance related to segment reporting and no detailed business information is provided to a chief operating decision maker regarding the Corporation’s stand-alone operations, the Corporation’s results are reported as a single operating segment.

Effective August 31, 2017, pursuant toOn April 1, 2019, DowDuPont Inc. (“DowDuPont” and effective June 3, 2019, n/k/a DuPont de Nemours, Inc.) completed the separation of its materials science business and Dow Inc. became the direct parent company of TDCC. The separation was contemplated by the merger of equals transaction contemplated byeffective August 31, 2017, under the Agreement and Plan of Merger, dated as of December 11, 2015, as amended on March 31, 2017, Dow2017. TDCC and E. I. du Pont de Nemours and Company and its consolidated subsidiaries ("Historical DuPont") each merged with subsidiaries of DowDuPont, Inc. ("DowDuPont") and, as a result, DowTDCC and Historical DuPont became subsidiaries of DowDuPont (the "Merger"“Merger”). FollowingSubsequent to the Merger, TDCC and Historical DuPont engaged in a series of internal reorganization and realignment steps to realign their businesses into three subgroups: agriculture, materials science and specialty products. Dow and DuPont intend to pursue, subject to approval by the board of directorsInc. was formed as a wholly owned subsidiary of DowDuPont to serve as the separation ofholding company for the combined company's agriculture business, specialty products business and materials science business through one or more tax-efficient transactions.business. UCC remains a wholly owned subsidiary of TDCC. See Note 3 for additional information.

Intercompany transactions and balances are eliminated in consolidation. Transactions with the Corporation’s parent company, Dow,TDCC, and other subsidiaries of Dow and DowDuPont,TDCC, have been reflected as related company transactions in the consolidated financial statements. See Note 1213 for additional information.

In the first quarter of 2018, the Corporation2019, UCC adopted Accounting Standards Update ("ASU") 2014-09, "Revenue from Contracts with Customers2016-02, "Leases (Topic 606)842)," and the associated ASUs (collectively, "Topic 606"842"). See Notes 2 and 39 for additional information. The Corporation'sUCC added a significant accounting policy for Revenue was updatedleases as a result of the adoption of Topic 606:842:

In the second quarter of 2018, the Corporation adopted ASU 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income," which resulted in a $254 million increase to retained earnings due to the reclassification from accumulated other comprehensive loss ("AOCL") for the effect of the federal corporate income tax rate change as a result of the Tax Cuts and Jobs Act of 2017 ("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

In the second quarter of the adoption of ASU 2018-02 to indicate2019, the Corporation usesmade a change to separately report "Interest income" which had previously been included in "Sundry income (expense) - net" in the portfolio approach for releasing income tax effects from accumulated other comprehensive loss. See Note 2 for additional information.consolidated statements of income.

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,

The Corporation has a cross-functional team in place to evaluate and implementadopted Topic 842 using the modified retrospective transition approach, applying the new guidance. The team continuesstandard to reviewleases existing lease arrangements and has engaged a third party to assist withat the collectiondate of lease data.initial adoption. The Corporation will electelected to apply the optional transition method that allows forrequirements at the effective date rather than at the beginning of the earliest comparative period presented with a cumulative-effectcumulative effect adjustment to the opening balance of retained earnings in the period of adoption, and prior periods willwere not be restated. The impactIn addition, the Corporation elected to apply the package of practical expedients permitted under the transition guidance which does not require reassessment of prior conclusions, lease

applyingclassification and initial direct lease costs. The Corporation did not elect to use the otherhindsight practical expedients and accounting policy elections has been evaluated andexpedient in determining the Corporation islease term or assessing impairment of ROU assets. Adoption of the new standard resulted in the processrecording of documenting the related considerationsoperating lease ROU assets and decisions. The Corporation is currently implementing a third-party software solution in connection with the adoptionlease liabilities 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$99 million at January 1, 2019. The Corporation is workingdifference between the additional operating lease ROU assets and lease liabilities, net of deferred taxes, was recorded as an adjustment to quantify the impactretained earnings and anticipates that thewas not material. The adoption of the new standard will result inguidance did not have a material increase in lease-related assets and liabilities in the consolidated balance sheets. The impact toon the Corporation's consolidated statements of income and had no impact on cash flows is not expected to be material.flows. See Note 9 for additional information.

In August 2018, the FASB issued ASU 2018-14, "Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changesfirst quarter of 2019, in anticipation of the business separations, UCC's assets and liabilities aligned with the specialty products business were transferred to the Disclosure Requirements for Defined Benefit Plans," which,TDCC as part of the FASB disclosure framework project, removes disclosures thatinternal reorganization steps to align TDCC's specialty products business to DowDuPont. In order to align entity ownership under TDCC, UCC distributed shares and assets to TDCC through dividends or asset distributions. As a result, in February 2019, UCC issued to TDCC a dividend of 1,067 shares of common stock of Dow International Holding Company (“DIHC”), a cost method investment. Prior to the distribution, UCC had an 11.9 percent ownership interest in DIHC with the other 88.1 percent owned by TDCC and its other wholly owned subsidiaries. After the dividend, UCC’s investment in DIHC was reduced to 4.4 percent and resulted in a reduction in "Investments in related companies" of $401 million. UCC also transferred, as an asset distribution, the assets and liabilities aligned with the specialty products business for an additional dividend of $71 million to TDCC. The results of these transactions are no longer considered cost beneficial, clarifiesreflected in “Investments in related companies” and “Retained earnings” in 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.consolidated balance sheets.

Substantially all of the Corporation's revenues are generated by intercompany sales to Dow.TDCC. Products are sold to and purchased from DowTDCC at market-based prices in accordance with the terms of Dow’sTDCC’s intercompany pricing policies. Approximately 99 percent of the Corporation's salesrevenue for the three and nine months ended September 30, 2018,2019, related to sales of product (99 percent infor the three and nine months ended September 30, 2017)2018); the remaining 1 percent primarily related to the licensing of patents and technology. The Corporation sells its products to DowTDCC to simplify the customer interface process.

The Corporation’s contract liabilities include payments received in advance of performance under long-term contracts for product sales and royalties, and are realized when the associated revenue is recognized under the contract with remaining contract terms that range up to 22 years. The Corporation will have rights to future consideration for revenue recognized when product is delivered to the customer. The balance of contract liabilities was $42$41 million at September 30, 20182019 ($4341 million at December 31, 2017)2018) and was included in "Accrued and other current liabilities" and "Other noncurrent obligations" in the consolidated balance sheets.

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

In September and November 2017, the Corporation approved restructuring actions that arewere aligned with DowDuPont’s synergy targets. As a result of these actions,For the three months ended September 30, 2019, the Corporation recorded a pretax restructuring chargecharges of $2 million for severance and related benefit costs of $8($1 million infor the third quarter of 2017. In November 2017,three months ended September 30, 2018). For the nine months ended September 30, 2019, the Corporation approved additional restructuring actions in connection with the restructuring program. Arecorded pretax restructuring chargecharges of $4 million 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.

The Corporation recorded pretax restructuring charges of $79 million inception-to-date under the restructuring program, consisting of severance and related benefit costs of $17 million and $62 million for asset write-downs and write-offs of manufacturing and facility related assets at multiple UCC sites, including a steam unit in Institute, West Virginia. At September 30, 2019.2019, severance of $15 million had been paid, leaving a liability of $2 million.

The Corporation expects to incur additional costs in the future related to restructuring activities, as UCC continually looks for ways to enhance the efficiency and cost effectiveness of its operations. The Corporation expects to incur additional employee-related costs, including involuntary termination benefits, related to its other optimization activities. These costs cannot be reasonably estimated at this time.

On 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,August 13, 2019, the Corporation had not completedentered into a definitive agreement to sell its accounting foracetone derivatives product line to ALTIVIA Ketones & Additives, LLC. The divestiture includes the tax effectsCorporation's acetone derivatives related inventory and production assets located in Institute, West Virginia, in addition to the site infrastructure, land and utilities. The divestiture is expected to close in the fourth quarter of 2019. The Act; however,Corporation will remain at the Institute site 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.

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, 2018,2019, the Corporation had accrued obligations of $102$141 million for probable environmental remediation and restoration costs, including $17$21 million for the remediation of Superfund sites. These obligations are included in "Accrued and other current liabilities" and "Other noncurrent obligations" in the consolidated balance sheets. This is management’s best estimate of the costs for remediation and restoration with respect to environmental matters for which the Corporation has accrued liabilities, although it is reasonably possible that the ultimate cost with respect to these particular matters could range up to approximately threetwo and a half times that amount. Consequently, it is reasonably possible that environmental remediation and restoration costs in excess of amounts accrued could have a material impact on the Corporation's results of operations, financial condition and cash flows. It is the opinion of the Corporation’s management that the possibility is remote that costs in excess of the range disclosed will have a material impact on the Corporation’s results of operations, financial condition and cash flows. Inherent uncertainties exist in these estimates primarily due to unknown environmental conditions, changing governmental regulations and legal standards regarding liability, and emerging remediation technologies for handling site remediation and restoration. As new or additional information becomes available and/or certain spending trends become known, management will evaluate such information in determination of the current estimate of the environmental liability. At December 31, 2017,2018, the Corporation had accrued obligations of $114$94 million for probable environmental remediation and restoration costs, including $19$16 million for the remediation of Superfund sites.

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.

A summary of asbestos-related matters can be found in Note 1413 to the Consolidated Financial Statements included in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2017.2018.

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.

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 reviewedreviews the claim and resolution activity to determine the appropriateness of updating the most recent Ankura study.

Based on the December 20172018 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$1,260 million at December 31, 2017,2018, and was included in “Asbestos-related liabilities - current” and “Asbestos-related liabilities - noncurrent” in the consolidated balance sheets.

Each quarter, the Corporation reviews claims filed, settled and dismissed, as well as average settlement and resolution costs by disease category. The Corporation also considers additional quantitative and qualitative factors such as the nature of pending claims, trial experience of the Corporation and other asbestos defendants, current spending for defense and processing costs, significant appellate rulings and legislative developments, trends in the tort system, and their respective effects on expected future resolution costs. UCC management considers all these factors in conjunction with the most recent Ankura study and determines whether a change in the estimate is warranted. Based on the Corporation's review of 20182019 activity, it was determined that no adjustment to the accrual was required at September 30, 2018.2019.

The Corporation’s asbestos-related liability for pending and future claims and defense and processing costs was $1,290$1,192 million at September 30, 2018,2019, and approximately 1618 percent of the recorded liability related to pending claims and approximately 8482 percent related to future claims.

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

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

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.

The following table summarizeschanges in the changes and after-tax balances offor each component of accumulated other comprehensive loss ("AOCL") for the nine months ended September 30, 2018 and 2017:

A summary of the Corporation's pension plans and other postretirement benefits can be found in Note 1615 to the Consolidated Financial Statements included in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2017.2018. The following table provides the components of the Corporation's net periodic benefit cost for all significant plans:

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, 20182019 and December 31, 2017:2018:

Cost approximates fair value for all other financial instruments.

The Corporation sells its products to DowTDCC to simplify the customer interface process. Products are sold to and purchased from DowTDCC at market-based prices in accordance with the terms of Dow’sTDCC’s intercompany pricing policies. After each quarter, the Corporation and DowTDCC 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 DowTDCC subsidiary and pays a commission to that DowTDCC 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 DowTDCC subsidiary were $407$247 million in the third quarter of 20182019 ($377407 million in the third quarter of 2017)2018) and $1,219$861 million during the first nine months of 20182019 ($1,2131,219 million during the first nine months of 2017)2018). The decrease in purchase costs for the three and nine months ended 2019 when compared with the same period last year was due to lower feedstock and energy costs, lower demand and the impact of the separation of the specialty products business. See Note 3 for additional information.

The Corporation has a master services agreement with DowTDCC, whereby DowTDCC 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,TDCC, general administrative and overhead type services that DowTDCC 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$6 million in the third quarter of 20182019 ($8 million in the third quarter of 2017)2018) and $22$18 million for the first nine months of 20182019 ($2422 million for the first nine months of 2017)2018) for general administrative and overhead type services and the 10 percent service fee, included in "Sundry income (expense) - net" in the consolidated statements of income. The remaining activity-based costs were $23$21 million in the third quarter of 20182019 ($2023 million in the third quarter of 2017)2018) and $67$65 million infor the first nine months of 20182019 ($6067 million infor the first nine months of 2017)2018), and were included in "Cost of sales" in the consolidated statements of income.

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

As part of Dow’sTDCC’s cash management process, UCC is a party to revolving loans with DowTDCC that have interest rates based on LIBOR (London Interbank Offered Rate) with varying maturities. At September 30, 2018,2019, the Corporation had a note receivable of $1.3$1.5 billion ($1.21.3 billion at December 31, 2017)2018) from DowTDCC 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 DowTDCC that allows the Corporation to borrow or obtain credit enhancements up to an aggregate of $1 billion that matures on December 30, 2018. Dow2019. TDCC may demand repayment with a 30-day written notice to the Corporation, subject to certain restrictions. A related collateral agreement provides for the replacement of certain existing pledged assets, primarily equity interests in various subsidiaries, with cash collateral. At September 30, 2018, $9482019, $936 million was available under the revolving credit agreement ($949 million at December 31, 2017)2018). The cash collateral is reported as “Noncurrent receivables from related companies” in the consolidated balance sheets.

On a quarterly basis, the Corporation's board of directors reviews and determines if there will be a dividend distribution to its parent company and sole shareholder, Dow.TDCC. The Board takes into consideration the level of earnings and cash flows, among other factors, in determining the amount of the dividend distribution. In the third quarter of 2019, the Corporation declared a cash dividend of $112 million to TDCC, which was paid on October 3, 2019; cash dividends paid to TDCC totaled $338 million for the first nine months of 2019. In the third quarter of 2018, the Corporation declared and paid a cash dividend of $177 million to Dow;TDCC; cash dividends to DowTDCC 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 2017.2018.

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

References to "Dow""TDCC" refer to The Dow Chemical Company and its consolidated subsidiaries, except as otherwise indicated by the context. Effective August 31, 2017, pursuant toUnion Carbide Corporation (the "Corporation" or "UCC") has been a wholly owned subsidiary of TDCC since 2001. On April 1, 2019, DowDuPont Inc. (“DowDuPont” and effective June 3, 2019, n/k/a DuPont de Nemours, Inc.) completed the separation of its materials science business and Dow Inc. became the direct parent company of TDCC. The separation was contemplated by the merger of equals transaction contemplated byeffective August 31, 2017, under the Agreement and Plan of Merger, dated as of December 11, 2015, as amended on March 31, 2017, Dow2017. TDCC and E. I. du Pont de Nemours and Company and its consolidated subsidiaries ("Historical DuPont") each merged with subsidiaries of DowDuPont, Inc. ("DowDuPont") and, as a result, DowTDCC and Historical DuPont became subsidiaries of DowDuPont (the "Merger"“Merger”). Subsequent to the Merger, TDCC and Historical DuPont engaged in a series of internal reorganization and realignment steps to realign their businesses into three subgroups: agriculture, materials science and specialty products. This included transferring certain Corporation assets and liabilities aligned with the specialty products business to TDCC (the "Business Separation"). Dow Inc. was formed as a wholly owned subsidiary of DowDuPont to serve as the holding company for the materials science business. UCC remains a wholly owned subsidiary of TDCC.

DowTDCC conducts its worldwide operations through principal product groups. Union Carbide Corporation’s (the "Corporation" or "UCC")global businesses. UCC's business activities comprise components of Dow’s principal product groupsTDCC’s global businesses rather than stand-alone operations. Because there are no separable reportable business segments for UCC and no detailed business information is provided to a chief operating decision maker regarding the Corporation’s stand-alone operations, the Corporation’s results are reported as a single operating segment.

Total net sales were $1,059 million in the third quarter of 2019 compared with $1,424 million in the third quarter of 2018, compared with $1,215 million in the third quartera decrease of 2017, an increase of 1726 percent. Total net sales were $3,376 million for the first nine months of 2019 compared with $4,103 million for the first nine months of 2018, compared with $3,835 million for the first nine monthsa decrease of 2017, an increase of 718 percent. Net sales to related companies, principally to Dow,TDCC, and based on market prices for the related products, were $1,028 million in the third quarter of 2019 compared with $1,385 million in the third quarter of 2018, compared with $1,184 million in the third quartera decrease of 2017, an increase of 1726 percent. Net sales to related companies were $3,270 million in the first nine months of 2019 compared with $3,998 million in the first nine months of 2018, compared with $3,722 million for the first nine monthsa decrease of 2017, an increase of 718 percent.

Average selling prices increased 6decreased 19 percent in the third quarter of 20182019 compared with the same quarter last year. Price increaseddecreased across most products, primarily in response to higher feedstock and other raw material costs and market demand, with the largest price increases in oxo alcohols, ethylene oxide/ethylene glycol ("EO/EG"), glycol ethers and polyethylene. Volume was up 11 percent in the third quarter of 2018 compared with the third quarter of 2017, which was impacted by hurricane-related supply disruptions and planned maintenance turnarounds. Volume increases in electrical and telecommunications, ethanolamines, glycol ethers, EO/EG and oxo alcohols more than offset volume declines in glutaraldehydes, polyethylene and vinyl acetate monomers.

For the first nine months of 2018 increased 12019, average selling prices decreased 14 percent compared with the first nine months of 2017. Sales volume2018, with price decreases across all products, driven by lower feedstock and other raw material costs, with the largest decreases in polyethylene, oxo alcohols and EO/EG. Volume for the first nine months of 2019 was down 4 percent compared with the first nine months of 2018, as lower demand in plastics for wire and cable applications and acrylic monomers and decreases resulting from the Business Separation more than offset demand growth in polyethylene and ethyleneamines. Volume was also negatively impacted by hurricane-related supply disruptionsplanned maintenance turnaround activity at multiple production facilities during the first nine months of 2019.

Cost of sales was $854 million in the third quarter of 2017, as well as higher planned maintenance turnaround activity in the first nine months of 2017.

R&D expenses were $4$6 million in the third quarter of 2018 and $142019, compared with $4 million forin the same period last year. For the first nine months of 2018, flat2019, R&D expenses were $19 million compared with $14 million in the same periods last year.first nine months of 2018. SG&A expenses were $2 million in the third quarter of 2019 compared with $1 million in the third quarter of 2018, flat compared with the third quarter of 2017.2018. For the first nine months of 2018,2019, SG&A expenses were $5$4 million compared with $4$5 million in the first nine months of 2017.2018.

In the third quarter ofSeptember and November 2017, the Corporation approved restructuring actions that arewere aligned with DowDuPont'sDowDuPont’s synergy targets. As a result of these actions,For the three months ended September 30, 2019, the Corporation recorded a pretax restructuring chargecharges of $2 million for severance and related benefit costs of $8($1 million infor the third quarter of 2017. Inthree months ended September 30, 2018). For the third quarter of 2018,nine months ended September 30, 2019, the Corporation recorded a pretax chargerestructuring charges of $1$4 million for severance and related benefit costs ($3 million for the first nine months ofended September 30, 2018) for additional severance and related benefit costs, aligned with the DowDuPont synergy targets.. See Note 45 to the Consolidated Financial Statements for additional information on the Corporation's restructuring activities.

Sundry income (expense) – net includes a variety of income and expense items such as the gains or losses on foreign currency exchange, commissions, charges for management services provided by Dow, interest income,TDCC, non-operating pension and other postretirement benefit plan credits or costs, and gains and losses on sales of investments and assets. Sundry income (expense) - net in the third quarter of 20182019 was an expense of $12$19 million compared with an expense of $5$20 million in the same quarter last year.

Interest income was $9 million in the secondthird quarter of 2017, UCC completed the sale of a parcel of land, which also included terminal assets and ancillary agreements2019 ($28 million for the supplyfirst nine months of energy and site and terminal services, at2019) compared with $8 million in the Texas City, Texas, manufacturing facility and recorded a pretax gain of $23 million. In the secondthird quarter of 2017, UCC also completed2018 ($20 million for the salefirst nine months of its ownership2018). The increase in interest income for the nine months ended September 30, 2019, was primarily the result of higher interest rates and an increase in Asian Acetyls Co., LTD. ("ASACCO"), a nonconsolidated affiliate accounted for under the equity method of accounting. ASACCO agreed to purchase all of the shares of registered common stock owned by the Corporation and UCC recorded a pretax gain of $4 million on the sale.notes receivable from related parties.

Interest expense and amortization of debt discount was $7 million in the third quarter of 2019 compared with $9 million in the third quarter of 2018 compared with $6 million in the third quarter of 2017.2018. For the first nine months of 2018,2019, interest expense and amortization of debt discount was $22$21 million compared with $20$22 million in the first nine months of 2017.2018.

The Corporation reported a credit for income taxes of $19 million in the third quarter of 2019, which resulted in an effective tax rate of negative 18.4 percent, compared with a tax provision of $62 million in the third quarter of 2018, which resulted in an effective tax rate of 18.6 percent. This compared with a tax provision of $152 million in the third quarter of 2017, which resulted in an effective tax rate of 77.6 percent. The effective tax rate for the third quarter of 2017 was unfavorably impacted by a deferred gain related to the sale of stock between UCC and Dow in 2014. The gain on the transaction was deferred for tax purposes, but with the restructuring activities that occurred in anticipation of the intended separation of Dow and DuPont into three publicly traded companies, the gain became taxable, resulting in a charge to the tax provision of $97 million. For the first nine months of 2018,2019, the Corporation reported a tax provision of $184$38 million, which resulted in an effective tax rate of 19.87.4 percent. This compared with a tax provision of $337$184 million forin the first nine months of 2017,2018, which resulted in an effective tax rate of 45.819.8 percent. The effective tax rate fluctuates based on, among other factors, where income is earned. The change in the effective tax rate in the firstthree and nine months of 2018 reflectsended September 30, 2019, resulted from amended returns that reflect a recent court judgment that did not involve the change in the U.S. federal corporate incomeCorporation and a tax rate as a result of the Tax Cuts and Jobs Act that was enacted on December 22, 2017, which reduced the U.S. federal corporate income tax rate from 35 percent to 21 percent, as well as a deduction in the U.S.accounting method change related to certain salesdepreciation of fixed assets, both resulting in a favorable adjustment to foreign customers.the provision (credit) for income taxes.

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

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make judgments, assumptions and estimates that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. Note 1 to the Consolidated Financial Statements in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 20172018 ("20172018 10-K") describes the significant accounting policies and methods used in the preparation of the Consolidated Financial Statements. The Corporation’s critical accounting policies that are impacted by judgments, assumptions and estimates are described in Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Corporation’s 20172018 10-K. Since December 31, 2017,2018, there have been no material changes in the Corporation’s accounting policies that are impacted by judgments, assumptions and estimates.

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

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

Plaintiffs' lawyers often sue numerous defendants in individual lawsuits or on behalf of numerous claimants. As a result, the damages alleged are not expressly identified as to UCC, Amchem or any other particular defendant, even when specific damages are alleged with respect to a specific disease or injury. In fact, there are no personal injury cases in which only the Corporation and/or Amchem are the sole named defendants. For these reasons and based upon the Corporation's litigation and settlement experience, the Corporation does not consider the damages alleged against it and Amchem to be a meaningful factor in its determination of any potential asbestos-related liability.

For additional information, see Asbestos-Related Matters in Note 8 to the Consolidated Financial Statements and Part II, Item 1. Legal Proceedings.

The Corporation’s outstanding public debt has been issued under indentures which contain, among other provisions, covenants that the Corporation must comply with while the underlying notes are outstanding. Such covenants are typically based on the Corporation’s size and financial position and include, subject to the exceptions and qualifications contained in the indentures, obligations not to (i) allow liens on principal U.S. manufacturing facilities, (ii) enter into sale and lease-back transactions with respect to principal U.S. manufacturing facilities, or (iii) merge into or consolidate with any other entity or sell or convey all or substantially all of its assets. Failure of the Corporation to comply with any of these covenants could, after the passage of any applicable grace period, result in a default under the applicable indenture which would allow the note holders to accelerate the due date of the outstanding principal and accrued interest on the subject notes. Management believes the Corporation was in compliance with the covenants referred to above at September 30, 2018.2019.