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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit 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 March 31,September 30, 2019, 935.51 shares of common stock were outstanding, all of which were held by the registrant’s parent, The Dow Chemical Company.

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

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

FORWARD-LOOKING STATEMENTS

Certain statements in this report, other than purely historical information, including estimates, projections, statements relating to business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are "forward-looking statements" within the meaning of 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," "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, 2018).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, 2018.

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

The Corporation’s business activities comprise components of TDCC’s global operations rather than stand-alone operations. TDCC conducts its worldwide operations through 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, 2017,2017. TDCC and its consolidated subsidiaries 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, TDCC 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. Dow Inc. was formed as a wholly owned subsidiary of DowDuPont to serve as athe holding company for the materials science business. On April 1, 2019, DowDuPont completed the separation of its materials science business and Dow Inc. became the direct parent company of TDCC. UCC will continue to beremains a wholly owned subsidiary of TDCC. See Note 3 for additional information.

Intercompany transactions and balances are eliminated in consolidation. Transactions with the Corporation’s parent company, TDCC, and other subsidiaries of TDCC, and DowDuPont, have been reflected as related company transactions in the consolidated financial statements. See Note 13 for additional information.

In the first quarter of 2019, UCC adopted Accounting Standards Update ("ASU") 2016-02, "Leases (Topic 842)," and associated ASUs related to Topic 842.(collectively, "Topic 842"). See Notes 2 and 9 for additional information. UCC added a significant accounting policy for leases as a result of the adoption of Topic 842:

Recently Adopted Accounting Guidance

In the first quarter of 2019, the Corporation adopted ASU 2016-02, "Leases (Topic 842)," and associated ASUs related to Topic 842, which requires organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. The new guidance requires that a lessee recognize assets and liabilities for leases, and recognition, presentation and measurement in the financial statements will depend on its classification as a finance or operating lease. In addition, the new guidance requires disclosures to help investors and other financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases. Lessor accounting remains largely unchanged from legacy U.S. GAAP but does contain some targeted improvements to align with revenue recognition guidance Topic 606, "Revenue from Contracts with Customers." The new standard was effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, and early adoption was permitted.

The Corporation adopted Topic 842 using the modified retrospective transition approach, applying the new standard to leases existing at the date of initial adoption. The Corporation elected to apply the transition requirements at the effective date rather than at the beginning of the earliest comparative period presented with a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption, and prior periods were not restated. In addition, the Corporation elected to apply the package of practical expedients permitted under the transition guidance which does not require reassessment of prior conclusions, lease

classification and initial direct lease costs. The Corporation did not elect to use the hindsight practical expedient in determining the lease term or assessing impairment of ROU assets. Adoption of the new standard resulted in the recording of operating lease ROU assets and lease liabilities of $99 million at January 1, 2019. The difference between the additional operating lease ROU assets and lease liabilities, net of deferred taxes, was recorded as an adjustment to retained earnings and was not material. The adoption of the new guidance did not have a material impact on the Corporation's consolidated statements of income and had no impact on cash flows. See Note 9 for additional information.

On April 1, 2019, DowDuPont completed the separation of its materials science business and Dow Inc. became the direct parent company of TDCC. UCC will continue to beremains a wholly owned subsidiary of TDCC.

In the first quarter of 2019, in anticipation of the business separations, UCC's assets and liabilities aligned with the specialty products business were transferred to TDCC as part of the internal reorganization steps to align TDCC's specialty products business to DowDuPont. In order to align entity ownership under TDCC, UCC distributed shares and assets to TDCC through dividends or asset distributions. As a result, in February 2019, UCC issued to TDCC a dividend of 1,067 shares of common stock of Dow International Holding Company (“DIHC”), a cost method investment. Prior to the distribution, UCC had an 11.9 percent ownership interest in DIHC with the other 88.1 percent owned by TDCC and its other wholly owned subsidiaries. After the dividend, UCC’s investment in DIHC was reduced to 4.4 percent and resulted in a reduction in "Investments in related companies" of $401 million. UCC also transferred, as an asset distribution, the assets and liabilities aligned with the specialty products business for an additional dividend of $71 million to TDCC. The results of these transactions are reflected in “Investments in related companies” and “Retained earnings” in the consolidated balance sheets.

Substantially all of the Corporation's revenues are generated by intercompany sales to TDCC. Products are sold to and purchased from TDCC at market-based prices in accordance with the terms of TDCC’s intercompany pricing policies. For the three months ended March 31, 2019 and 2018, approximately 98Approximately 99 percent of the Corporation's revenue for the three and nine months ended September 30, 2019, related to sales of product;product (99 percent for the three and nine months ended September 30, 2018); the remaining 21 percent primarily related to the licensing of patents and technology. The Corporation sells its products to TDCC to simplify the customer interface process.

The Corporation’s contract liabilities include payments received in advance of performance under long-term contracts for product sales and royalties, and are realized when the associated revenue is recognized under the contract with remaining contract terms that range up to 22 years. The Corporation will have rights to future consideration for revenue recognized when product is delivered to the customer. The balance of contract liabilities was $41 million at March 31,September 30, 2019 ($41 million at December 31, 2018) and was included in "Accrued and other current liabilities" and "Other noncurrent obligations" in the consolidated balance sheets.

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

In September and November 2017, the Corporation approved restructuring actions that were aligned with DowDuPont’s synergy targets. For the three months ended March 31,September 30, 2019, the Corporation recorded pretax restructuring charges of $1$2 million for severance and related benefit costs ($1 million for the three months ended March 31,September 30, 2018). For the nine months ended September 30, 2019, the Corporation recorded pretax restructuring charges of $4 million for severance and related benefit costs ($3 million for the nine months ended September 30, 2018). The impact of these charges was shown as “Restructuring and asset related charges - net” in the consolidated statements of income. These actions are expected to be substantially completed by the end of 2019.

The Corporation recorded pretax restructuring charges of $76$79 million inception-to-date under the restructuring program, consisting of severance and related benefit costs of $14$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 March 31,September 30, 2019, severance of $10$15 million had been paid, leaving a liability of $4$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.

Accruals for environmental matters are recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated, based on current law and existing technologies.

At March 31,September 30, 2019, the Corporation had accrued obligations of $100$141 million for probable environmental remediation and restoration costs, including $18$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 currentbest 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

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 13 to the Consolidated Financial Statements included in the Corporation's Annual Report on Form 10-K for the year ended December 31, 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 2018 Ankura review and the Corporation's own review of the data, the Corporation's total asbestos-related liability through the terminal year of 2049, including asbestos-related defense and processing costs, was $1,260 million at December 31, 2018, and was included in “Asbestos-related liabilities - current” and “Asbestos-related liabilities - noncurrent” in the consolidated balance sheets.

Each quarter, the Corporation reviews claims filed, settled and dismissed, as well as average settlement and resolution costs by disease category. The Corporation also considers additional quantitative and qualitative factors such as the nature of pending claims, trial experience of the Corporation and other asbestos defendants, current spending for defense and processing costs, significant appellate rulings and legislative developments, trends in the tort system, and their respective effects on expected future resolution costs. UCC management considers all these factors in conjunction with the most recent Ankura study and determines whether a change in the estimate is warranted. Based on the Corporation's review of 2019 activity, it was determined that no adjustment to the accrual was required at March 31,September 30, 2019.

The Corporation’s asbestos-related liability for pending and future claims and defense and processing costs was $1,243$1,192 million at March 31,September 30, 2019, and approximately 1718 percent of the recorded liability related to pending claims and approximately 8382 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.

Operating lease ROU assets are included in "Operating lease right-of-use assets" and finance lease ROU assets are included in "Net property" in the consolidated balance sheets. With respect to lease liabilities, operating lease liabilities are included in "Operating lease liabilities - current" and "Operating lease liabilities - noncurrent," and finance lease liabilities are included in "Long-term debt due within one year" and "Long-Term Debt" in the consolidated balance sheets.

The Corporation routinely leases sales and administrative offices, product and utility production facilities, warehouses and tanks for product storage, motor vehicles, railcars, computers, office machines and equipment. Some leases contain renewal provisions, purchase options and escalation clauses. The terms for these leased assets vary depending on the lease agreement. These leased assets have remaining lease terms that currently range from 1 to 1110 years. The Corporation's lease agreements do not contain any material residual value guarantees or restrictive covenants. See Notes 1 and 2 for additional information on leases.

The components of lease cost for operating and finance leases for the three and nine months ended March 31,September 30, 2019 were as follows:

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

The following table summarizes the lease-related assets and liabilities recorded in the consolidated balance sheets at March 31,September 30, 2019:

At March 31,September 30, 2019, the Corporation had an additional lease of approximately $5$15 million for a rail yard, which has not yet commenced. This lease is expected to commence in late 2019,2020, with a lease term of 1020 years.

Future minimum lease payments for operating leases accounted for under ASC 840, "Leases," with remaining non-cancelable terms in excess of one year were as follows at December 31, 2018:2018 were as follows:

The following table summarizeschanges in the changes and after-tax balances offor each component of accumulated other comprehensive loss ("AOCL")AOCL for the three and nine months ended March 31, 2019 and 2018:

A summary of the Corporation's pension plans and other postretirement benefits can be found in Note 15 to the Consolidated Financial Statements included in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2018. The following table provides the components of the Corporation's net periodic benefit cost for all significant plans:

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

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 March 31,September 30, 2019 and December 31, 2018:

Cost approximates fair value for all other financial instruments.

The Corporation sells its products to TDCC to simplify the customer interface process. Products are sold to and purchased from TDCC at market-based prices in accordance with the terms of TDCC’s intercompany pricing policies. After each quarter, the Corporation and TDCC analyze the pricing used for the sales in that quarter and reach agreement on any necessary adjustments, at which point the prices are final. The Corporation also procures certain commodities and raw materials through a TDCC subsidiary and pays a commission to that TDCC subsidiary based on the volume and type of commodities and raw materials purchased. The commission expense is included in "Sundry income (expense) - net" in the consolidated statements of income. Purchases from that TDCC subsidiary were $334$247 million in the firstthird quarter of 2019 ($433407 million in the third quarter of 2018) and $861 million during the first quarternine months of 2019 ($1,219 million during the first nine months of 2018). The decrease in purchase costs infor the first quarter ofthree and nine months ended 2019 when compared with the same period last year was due to lower feedstock and energy costs.costs, lower demand and the impact of the separation of the specialty products business. See Note 3 for additional information.

The Corporation has a master services agreement with TDCC, whereby TDCC provides services including, but not limited to, accounting, legal, treasury (investments, cash management, risk management, insurance), procurement, human resources, environmental, health and safety and business management for UCC. Under the master services agreement with TDCC, general administrative and overhead type services that TDCC routinely allocates to various businesses are charged to UCC. The master services agreement cost allocation basis is headcount and includes a 10 percent service fee. This agreement resulted in expense of $6 million in the firstthird quarter of 2019 ($78 million in the third quarter of 2018) and $18 million for the first quarternine months of 2019 ($22 million for the first nine months of 2018) for general administrative and overhead type services and the 10 percent service fee, included in "Sundry income (expense) - net" in the consolidated statements of income. The remaining activity-based costs were $23$21 million in the firstthird quarter of 2019 ($2223 million in the third quarter of 2018) and $65 million for the first quarternine months of 2019 ($67 million for the first nine months of 2018), and were included in "Cost of sales" in the consolidated statements of income.

Management believes the method used for determining expenses charged by TDCC is reasonable. TDCC provides these services by leveraging its centralized functional service centers to provide services at a cost that management believes provides an advantage to the Corporation.

The monitoring and execution of risk management policies related to interest rate and foreign currency risks, which are based on TDCC’s risk management philosophy, are provided as a service to UCC.

As part of TDCC’s cash management process, UCC is a party to revolving loans with TDCC that have interest rates based on LIBOR (London Interbank Offered Rate) with varying maturities. At March 31,September 30, 2019, the Corporation had a note receivable of $1.4$1.5 billion ($1.3 billion at December 31, 2018) from TDCC under a revolving loan agreement. The Corporation may draw from this note receivable in support of its daily working capital requirements and, as such, the net effect of cash inflows and outflows under this revolving loan agreement is presented in the consolidated statements of cash flows as an operating activity.

The Corporation also has a separate revolving credit agreement with TDCC that allows the Corporation to borrow or obtain credit enhancements up to an aggregate of $1 billion that matures on December 30, 2019. TDCC may demand repayment with a 30-day written notice to the Corporation, subject to certain restrictions. A related collateral agreement provides for the replacement of certain existing pledged assets, primarily equity interests in various subsidiaries, with cash collateral. At March 31,September 30, 2019, $949$936 million was available under the revolving credit agreement ($949 million at December 31, 2018). The cash collateral is reported as “Noncurrent receivables from related companies” in the consolidated balance sheets.

On a quarterly basis, the Corporation's board of directors reviews and determines if there will be a dividend distribution to its parent company and sole shareholder, TDCC. The Board takes into consideration the level of earnings and cash flows, among other factors, in determining the amount of the dividend distribution. In the firstthird quarter of 2019, the Corporation declared and paid a cash dividend of $160$112 million to TDCC.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 firstthird quarter of 2018, the Corporation declared and paid a cash dividend of $111$177 million to TDCC.TDCC; cash dividends to TDCC totaled $423 million for the first nine months of 2018.

Also, in the first quarter of 2019, in anticipation of the business separation activities to align the specialty products business with DowDuPont, UCC issued a stock dividend to TDCC for 63.4 percent of its ownership in DIHC, a cost method investment, which totaled $401 million. UCC also distributed assets and liabilities aligned with the specialty products business for an additional dividend to TDCC of $71 million. See Note 3 for additional information.

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

References to "TDCC" refer to The Dow Chemical Company and its consolidated subsidiaries, except as otherwise indicated by the context. Union Carbide Corporation (the "Corporation" or "UCC") has been a wholly owned subsidiary of TDCC since 2001. 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, 2017,2017. 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, TDCC 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 athe holding company for the materials science business. On April 1, 2019, DowDuPont completed the separation of its materials science business and Dow Inc. became the direct parent company of TDCC. UCC will continue to beremains a wholly owned subsidiary of TDCC.

TDCC conducts its worldwide operations through principal product groups.global businesses. UCC's business activities comprise components of TDCC’s principal product groupsglobal 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 $1,278$1,059 million in the firstthird quarter of 2019 compared with $1,318$1,424 million in the firstthird quarter of 2018, a decrease of 326 percent. Total net sales were $3,376 million for the first nine months of 2019 compared with $4,103 million for the first nine months of 2018, a decrease of 18 percent. Net sales to related companies, principally to TDCC, and based on market prices for the related products, were $1,250$1,028 million in the firstthird quarter of 2019 compared with $1,286$1,385 million in the firstthird quarter of 2018, a decrease of 326 percent. Net sales to related companies were $3,270 million in the first nine months of 2019 compared with $3,998 million in the first nine months of 2018, a decrease of 18 percent.

Average selling prices decreased 719 percent in the firstthird quarter of 2019 compared with the same quarter last year. Price decreased across most products, primarily in response to lower feedstock and other raw material costs, with pricethe largest decreases in polyethylene, ethyleneamines, water soluble polymersoxo alcohols and glutaraldehydes more than offsetting price increases inethylene oxide/ethylene glycol ethers, vinyl acetate monomers and oxo alcohols.("EO/EG"). Volume was up 4down 7 percent in the firstthird quarter of 2019 compared with the firstthird quarter of 2018, as a result of weather-related events on the U.S. Gulf Coast in the first quarter of 2018. Volume increases in ethyleneamines, oxo alcohols, water soluble polymers andlower demand for vinyl acetate monomers and plastics for wire and cable applications as well as lower volume resulting from the Business Separation more than offset volume declinesincreases in polyethylene.polyethylene and surfactants.

Cost of sales was $950$854 million in the firstthird quarter of 2019 compared with $1,092$1,062 million in the firstthird quarter of 2018, a decrease of 20 percent. Cost of sales decreased 13 percent. Decreasespercent from $3,102 million in the first nine months of 2018 to $2,706 million in the first nine months of 2019. The decline in cost of sales for the periodthree and nine months ended March 31,September 30, 2019, werewas driven primarily by decreases inlower feedstock and other raw material costs, lower volume and lower planned maintenance turnaround spending when compared with the same period last year.impact from the Business Separation, which more than offset charges for environmental remediation matters.

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

In September and November 2017, the first quarter ofCorporation approved restructuring actions that were aligned with DowDuPont’s synergy targets. For the three months ended September 30, 2019, and 2018, the Corporation recorded a pretax chargerestructuring charges of $1$2 million for additional severance and related benefit costs aligned with($1 million for the DowDuPont synergy targets.three months ended September 30, 2018). For the nine months ended September 30, 2019, the Corporation recorded pretax restructuring charges of $4 million for severance and related benefit costs ($3 million for the nine months ended September 30, 2018). See Note 5 to the Consolidated Financial Statements for additional information on the Corporation's restructuring activities.

Sundry income (expense) – net includes a variety of income and expense items such as gains or losses on foreign currency exchange, commissions, charges for management services provided by TDCC, interest income, 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 firstthird quarter of 2019 was an expense of $12$19 million compared with an expense of $8$20 million in the same quarter last year. For the first nine months of 2019, sundry income (expense) - net was an expense of $58 million compared with an expense of $48 million in the first nine months of 2018. The increase in expense for the nine months ended September 30, 2019 was primarily a result of higher pension and other postretirement benefit plan costs in the first quarter of 2019 compared with the same period last year.

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

The Corporation reported a tax provisioncredit for income taxes of $54$19 million in the firstthird quarter of 2019, which resulted in an effective tax rate of 18.1 percent. Thisnegative 18.4 percent, compared with a tax provision of $38$62 million in the firstthird quarter of 2018, which resulted in an effective tax rate of 18.718.6 percent. For the first nine months of 2019, the Corporation reported a tax provision of $38 million, which resulted in an effective tax rate of 7.4 percent. This compared with a tax provision of $184 million in the first nine months of 2018, which resulted in an effective tax rate of 19.8 percent. The effective tax rate fluctuates based on, among other factors, where income is earned. The change in the effective tax rate in the three and nine months ended September 30, 2019, resulted from amended returns that reflect a recent court judgment that did not involve the Corporation and a tax accounting method change related to depreciation of fixed assets, both resulting in a favorable adjustment to the provision (credit) for income taxes.

The Corporation reported net income of $245$122 million in the firstthird quarter of 2019 compared with $165$272 million in the third quarter of 2018. Net income for the first nine months of 2019 was $477 million compared with $743 million in the first quarternine months of 2018.

Capital spending in the firstthird quarter of 2019 was $60$40 million ($145 million for the first nine months of 2019) compared with $44$73 million in the firstthird quarter of 2018 reflecting increased($174 million for the first nine months of 2018), as spending for U.S. Gulf Coast projects and site infrastructure projects.projects winds down.

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, 2018 ("2018 10-K") describes the significant accounting policies and methods used in the preparation of the Consolidated Financial Statements. The Corporation’s critical accounting policies that are impacted by judgments, assumptions and estimates are described in Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Corporation’s 2018 10-K. Since December 31, 2018, there have been no material changes in the Corporation’s accounting policies that are impacted by judgments, assumptions and estimates.

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 March 31,September 30, 2019.

On a quarterly basis, the Corporation's board of directors reviews and determines if there will be a dividend distribution to its parent company and sole shareholder, TDCC. The Board takes into consideration the level of earnings and cash flows, among other factors, in determining the amount of the dividend distribution.

In the firstthird 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 $160$177 million to TDCC; cash dividends paid to TDCC ($111totaled $423 million infor the first quarternine months of 2018).2018. Also, in the first quarter of 2019, in anticipation ofpreparation for the business separation activities to align the specialty products business with DowDuPont, UCC issued a stock dividend to TDCC for 63.4 percent of its ownership in DIHC, a cost method investment, which totaled $401 million. UCC also distributed assets and liabilities aligned with the specialty products business for an additional dividend to TDCC of $71 million. On May 1,October 23, 2019, the UCC Board of Directors approved a dividend to TDCC of $178$120 million, payable on June 28,or before December 27, 2019.

As of the end of the period covered by this Quarterly Report on Form 10-Q, the Corporation carried out an evaluation, under the supervision and with the participation of the Corporation's Disclosure Committee and the Corporation's management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Corporation's disclosure controls and procedures pursuant to paragraph (b) of Exchange Act Rules 13a-15 and 15d-15. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Corporation's disclosure controls and procedures were effective.

There were no changes in the Corporation's internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 and 15d-15 that was conducted during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Corporation's internal control over financial reporting.

Litigation

No material developments in asbestos-related matters occurred in the firstthird quarter of 2019. For a current status of asbestos-related matters, see Note 8 to the Consolidated Financial Statements.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.