Union Carbide Corporation

07/26/2024 | Press release | Distributed by Public on 07/26/2024 06:00

Quarterly Report for Quarter Ending June 30, 2024 (Form 10-Q)

ucc-20240630
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☑QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2024
or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________to___________
Commission File Number: 1-1463
Union Carbide Corporation
(Exact name of registrant as specified in its charter)
New York 13-1421730
(State or other jurisdiction of
incorporation or organization) 		(I.R.S. Employer Identification No.)
7501 STATE HIGHWAY 185 NORTH, SEADRIFT, TX77983
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 361-553-2769
Securities registered pursuant to Section 12(b) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
☑ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
☑ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☑ Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
☐ Yes ☑ No
At July 26, 2024, 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.
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Union Carbide Corporation
QUARTERLY REPORT ON FORM 10-Q
For the quarterly period ended June 30, 2024
TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION
Item 1.
Financial Statements.
4
Consolidated Statements of Income.
4
Consolidated Statements of Comprehensive Income.
5
Consolidated Balance Sheets.
6
Consolidated Statements of Cash Flows.
7
Consolidated Statements of Equity.
8
Notes to the Consolidated Financial Statements.
9
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations.
15
Results of Operations.
15
Other Matters.
17
Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
18
Item 4.
Controls and Procedures.
18
PART II - OTHER INFORMATION
Item 1.
Legal Proceedings.
19
Item 1A.
Risk Factors.
19
Item 4.
Mine Safety Disclosures.
19
Item 6.
Exhibits.
19
SIGNATURES
20
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Union Carbide Corporation and Subsidiaries
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.
CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS
Certain statements in this report are "forward-looking statements" within the meaning of the 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. Such statements often address expected future business and financial performance, financial condition, and other matters, and often contain words or phrases such as "anticipate," "believe," "estimate," "expect," "intend," "may," "opportunity," "outlook," "plan," "project," "seek," "should," "strategy," "target," "will," "will be," "will continue," "will likely result," "would" and similar expressions, and variations or negatives of these words or phrases.
Forward-looking statements are based on current assumptions and expectations of future events that are subject to risks, uncertainties and other factors that are beyond the Corporation's control, which may cause actual results to differ materially from those projected, anticipated or implied in the forward-looking statements and speak only as of the date the statements were made. These factors include, but are not limited to: sales of UCC's products; UCC's expenses, future revenues and profitability; any global and regional economic impacts of a pandemic or other public health-related risks and events on the Corporation's business; any sanctions, export restrictions, supply chain disruptions or increased economic uncertainty related to the ongoing conflicts between Russia and Ukraine and in the Middle East; capital requirements and need for and availability of financing; unexpected barriers in the development of technology, including with respect to UCC's contemplated capital and operating projects; significant litigation and environmental matters and related contingencies and unexpected expenses; the success of competing technologies that are or may become available; the ability to protect UCC's intellectual property in the United States and abroad; developments related to contemplated restructuring activities and proposed divestitures or acquisitions such as workforce reduction, manufacturing facility and/or asset closure and related exit and disposal activities, and the benefits and costs associated with each of the foregoing; fluctuations in energy and raw material prices; management of process safety and product stewardship; changes in public sentiment and political leadership; increased concerns about plastics in the environment and lack of a circular economy for plastics at scale; changes in consumer preferences and demand; changes in laws and regulations, political conditions or industry development; global economic and capital markets conditions, such as inflation, market uncertainty, interest and currency exchange rates, and equity and commodity prices; business or supply disruptions; security threats, such as acts of sabotage, terrorism or war, including the ongoing conflicts between Russia and Ukraine and in the Middle East; weather events and natural disasters; disruptions in the Corporation's information technology networks and systems, including the impact of cyberattacks; and, since The Dow Chemical Company ("TDCC"), a wholly owned subsidiary of Dow Inc. (together, with TDCC and its consolidated subsidiaries, "Dow"), is the primary customer of UCC: Dow's ability to realize its commitment to carbon neutrality on the contemplated timeframe; the size of the markets for Dow's products and services and its ability to compete in such markets; Dow's failure to develop and market new products and optimally manage product life cycles; the rate and degree of market acceptance of Dow's products; and changes in relationships with Dow's significant customers and suppliers.
Where, in any forward-looking statement, an expectation or belief as to future results or events is expressed, such expectation or belief is based on the current plans and expectations of management and expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the expectation or belief will result or be achieved or accomplished. A detailed discussion of principal risks and uncertainties which may cause actual results and events to differ materially from such forward-looking statements is included in the section titled "Risk Factors" contained in Part II, Item 1A of this Quarterly Report on Form 10-Q and in Part I, Item 1A of the Corporation's Annual Report on Form 10-K for the year ended December 31, 2023. These are not the only risks and uncertainties that the Corporation faces. There may be other risks and uncertainties that the Corporation is unable to identify at this time or that it does not currently expect to have a material impact on its business. If any of those risks or uncertainties develops into an actual event, it could have a material adverse effect on the Corporation's business. The Corporation assumes no obligation to update or revise publicly any forward-looking statements whether because of new information, future events, or otherwise, except as required by securities and other applicable laws.
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Union Carbide Corporation and Subsidiaries
Consolidated Statements of Income
Three Months Ended Six Months Ended
In millions (Unaudited) Jun 30,
2024 		Jun 30,
2023 		Jun 30,
2024 		Jun 30,
2023
Net trade sales $ 24 $ 27 $ 55 $ 64
Net sales to related companies 1,070 1,138 2,137 2,176
Total net sales 1,094 1,165 2,192 2,240
Cost of sales 974 925 1,905 1,906
Research and development expenses 7 5 12 11
Selling, general and administrative expenses 1 4 3 6
Restructuring and asset related charges - net - - - 14
Sundry income (expense) - net (19) (23) (44) (45)
Interest income 38 9 71 20
Interest expense and amortization of debt discount 2 4 5 10
Income before income taxes 129 213 294 268
Provision for income taxes 28 46 64 56
Net income attributable to Union Carbide Corporation $ 101 $ 167 $ 230 $ 212
Depreciation $ 30 $ 38 $ 58 $ 76
Capital expenditures $ 92 $ 62 $ 168 $ 120
See Notes to the Consolidated Financial Statements.
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Union Carbide Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income
Three Months Ended Six Months Ended
In millions (Unaudited) Jun 30,
2024 		Jun 30,
2023 		Jun 30,
2024 		Jun 30,
2023
Net income attributable to Union Carbide Corporation $ 101 $ 167 $ 230 $ 212
Other comprehensive income, net of tax
Cumulative translation adjustments (1) 1 - 2
Pension and other postretirement benefit plans 10 10 20 19
Total other comprehensive income 9 11 20 21
Comprehensive income attributable to Union Carbide Corporation $ 110 $ 178 $ 250 $ 233
See Notes to the Consolidated Financial Statements.
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Union Carbide Corporation and Subsidiaries
Consolidated Balance Sheets
In millions, except share amounts (Unaudited) Jun 30,
2024 		Dec 31,
2023
Assets
Current Assets
Cash and cash equivalents $ 11 $ 11
Accounts receivable:
Trade (net of allowance for doubtful receivables 2024: $-; 2023: $-)
14 16
Related companies 835 700
Other 17 14
Income taxes receivable 47 238
Notes receivable from related companies 844 799
Inventories 260 227
Other current assets 36 36
Total current assets 2,064 2,041
Investments
Investments in related companies 237 237
Other investments 13 15
Noncurrent receivables 70 99
Noncurrent receivables from related companies 1,643 1,598
Total investments 1,963 1,949
Property
Property 5,589 5,406
Less accumulated depreciation 4,575 4,512
Net property 1,014 894
Other Assets
Intangible assets (net of accumulated amortization 2024: $93; 2023: $93)
7 7
Operating lease right-of-use assets 78 85
Deferred income tax assets 242 257
Deferred charges and other assets 32 39
Total other assets 359 388
Total Assets $ 5,400 $ 5,272
Liabilities and Equity
Current Liabilities
Notes payable to related companies $ 23 $ 68
Notes payable - other - 1
Long-term debt due within one year 126 1
Accounts payable:
Trade 366 286
Related companies 533 420
Other 22 12
Operating lease liabilities - current 17 17
Income taxes payable 28 30
Asbestos-related liabilities - current 80 80
Accrued and other current liabilities 101 116
Total current liabilities 1,296 1,031
Long-Term Debt 144 259
Other Noncurrent Liabilities
Pension and other postretirement benefits - noncurrent 375 395
Asbestos-related liabilities - noncurrent 744 787
Operating lease liabilities - noncurrent 62 68
Other noncurrent obligations 550 567
Total other noncurrent liabilities 1,731 1,817
Stockholder's Equity
Common stock (authorized: 1,000 shares of $0.01 par value each; issued: 935.51 shares)
- -
Additional paid-in capital 1,034 1,034
Retained earnings 2,518 2,474
Accumulated other comprehensive loss (1,323) (1,343)
Union Carbide Corporation's stockholder's equity 2,229 2,165
Total Liabilities and Equity $ 5,400 $ 5,272
See Notes to the Consolidated Financial Statements.
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Union Carbide Corporation and Subsidiaries
Consolidated Statements of Cash Flows
Six Months Ended
In millions (Unaudited) Jun 30,
2024 		Jun 30,
2023
Operating Activities
Net income attributable to Union Carbide Corporation $ 230 $ 212
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 69 88
Provision (credit) for deferred income tax 8 (3)
Net gain on sales of property and investments - (1)
Net gain on sale of ownership interest in related party (2) -
Restructuring and asset related charges - net - 14
Net periodic pension benefit cost 13 19
Pension contributions (1) (1)
Other, net (1) (1)
Changes in assets and liabilities:
Accounts and notes receivable (1) 13
Related company receivables (180) 185
Inventories (33) (8)
Accounts payable 90 9
Related company payables 68 (29)
Asbestos-related payments (43) (43)
Other assets and liabilities 135 36
Cash provided by operating activities 352 490
Investing Activities
Capital expenditures (168) (120)
Change in noncurrent receivable from related company - 3
Proceeds from sale of ownership interest in related party 2 -
Proceeds from sales of property - 1
Proceeds from sales of investments 2 7
Cash used for investing activities (164) (109)
Financing Activities
Dividends paid to parent (186) (250)
Changes in short-term notes payable (1) -
Payments on long-term debt (1) (131)
Cash used for financing activities (188) (381)
Summary
Change in cash and cash equivalents - -
Cash and cash equivalents at beginning of period 11 10
Cash and cash equivalents at end of period $ 11 $ 10
See Notes to the Consolidated Financial Statements.
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Union Carbide Corporation and Subsidiaries
Consolidated Statements of Equity
Three Months Ended Six Months Ended
In millions (Unaudited) Jun 30,
2024 		Jun 30,
2023 		Jun 30,
2024 		Jun 30,
2023
Common Stock
Balance at beginning and end of period $ - $ - $ - $ -
Additional Paid-in Capital
Balance at beginning and end of period 1,034 141 1,034 141
Retained Earnings
Balance at beginning of period 2,560 2,515 2,474 2,605
Net income attributable to Union Carbide Corporation 101 167 230 212
Dividends declared (143) (115) (186) (250)
Balance at end of period 2,518 2,567 2,518 2,567
Accumulated Other Comprehensive Loss, Net of Tax
Balance at beginning of period (1,332) (1,392) (1,343) (1,402)
Other comprehensive income 9 11 20 21
Balance at end of period (1,323) (1,381) (1,323) (1,381)
Union Carbide Corporation's Stockholder's Equity $ 2,229 $ 1,327 $ 2,229 $ 1,327
See Notes to the Consolidated Financial Statements.
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Union Carbide Corporation and Subsidiaries
(Unaudited)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Table of Contents
Note Page
1
Consolidated Financial Statements
9
2
Recent Accounting Guidance
10
3
Revenue
10
4
Restructuring and Asset Related Charges - Net
11
5
Inventories
11
6
Supplier Finance Program
11
7
Commitments and Contingencies
12
8
Leases
12
9
Accumulated Other Comprehensive Loss
13
10
Pension and Other Postretirement Benefit Plans
13
11
Fair Value Measurements
14
12
Related Party Transactions
14
NOTE 1 - CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation
The unaudited interim consolidated financial statements of Union Carbide Corporation and its subsidiaries (the "Corporation" or "UCC") were prepared in accordance with accounting principles generally accepted in the United States of America 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, 2023 ("2023 10-K").
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.
TDCC conducts its worldwide operations through global businesses. The Corporation's business activities comprise components of TDCC's global operations rather than stand-alone operations. Because there are no separate 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 ("CODM") regarding the Corporation's stand-alone operations, the Corporation's results are reported as a single operating segment.
Intercompany transactions and balances are eliminated in consolidation. Transactions with the Corporation's parent company, TDCC, and other subsidiaries of TDCC, have been reflected as related company transactions in the consolidated financial statements. See Note 12 for additional information.
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NOTE 2 - RECENT ACCOUNTING GUIDANCE
Accounting Guidance Issued But Not Adopted at June 30, 2024
In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures," which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses, allowing financial statement users to better understand the components of a segment's profit or loss to assess potential future cash flows for each reportable segment and the entity as a whole. The amendments expand a public entity's segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the CODM, clarifying when an entity may report one or more additional measures to assess segment performance, requiring enhanced interim disclosures, providing new disclosure requirements for entities with a single reportable segment, and requiring other new disclosures. The amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and early adoption is permitted. The adoption of the ASU is not expected to have a material impact on the Corporation's consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures," which is intended to enhance the transparency, decision usefulness and effectiveness of income tax disclosures. The amendments in this ASU require a public entity to disclose a tabular tax rate reconciliation, using both percentages and currency, with specific categories. A public entity is also required to provide a qualitative description of the states and local jurisdictions that make up the majority of the effect of the state and local income tax category and the net amount of income taxes paid, disaggregated by federal, state and foreign taxes and also disaggregated by individual jurisdictions. The amendments also remove certain disclosures that are no longer considered cost beneficial. The amendments are effective prospectively for annual periods beginning after December 15, 2024, and early adoption and retrospective application are permitted. The adoption of the ASU is not expected to have a material impact on the Corporation's consolidated financial statements.
SEC Final Rules Not Adopted at June 30, 2024
In March 2024, the U.S. Securities and Exchange Commission ("SEC") adopted final rules under SEC Release Nos. 33-11275 and 34-99678, "The Enhancement and Standardization of Climate-Related Disclosures for Investors," which requires registrants to disclose certain climate-related information in registration statements and annual reports. The final rules include requirements to disclose material climate-related risks; activities to mitigate or adapt to such risks; information about the board of directors' oversight of climate-related risks and management's role in managing material climate-related risks; and information on any climate-related targets or goals that are material to the registrant's business, results of operations, or financial condition. Registrants are also required to disclose the financial statement effects of severe weather events and other natural conditions in the notes to the financial statements. Certain large registrants are also required to disclose Scope 1 and Scope 2 greenhouse gas emissions, when material. As a non-accelerated filer, the Corporation is not required to disclose such greenhouse gas emissions information. The final rules include a phased-in compliance period for all registrants, with most disclosures required for the Corporation for the year ending December 31, 2027. In April 2024, the SEC issued an order to stay the final rules until various legal challenges are resolved by the U.S. Court of Appeals for the Eighth Circuit. The Corporation is currently evaluating the impact of the final rules on its consolidated financial statements and annual disclosures.
NOTE 3 - REVENUE
Substantially all of the Corporation's revenue is generated by sales of products to TDCC. Products are sold to and purchased from TDCC at prices determined in accordance with the terms of an agreement between UCC and TDCC. 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 with remaining contract terms that range up to 16 years. Amounts are recognized in revenue when the performance obligations for the contract are met. The Corporation has rights to additional consideration when product is delivered to the customer. The balance of contract liabilities was $30 million at June 30, 2024 ($31 million at December 31, 2023), of which $2 million ($2 million at December 31, 2023) was included in "Accrued and other current liabilities" and $28 million ($29 million at December 31, 2023) was included in "Other noncurrent obligations" in the consolidated balance sheets.
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The Corporation disaggregates its revenue from contracts with customers by type of customer (net sales to related companies and net 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 Corporation's parent company, TDCC, and there are no unique economic factors that affect revenue recognition and cash flows associated with these product sales.
NOTE 4 - RESTRUCTURING AND ASSET RELATED CHARGES - NET
2023 Restructuring Program
In the first quarter of 2023, the Corporation initiated restructuring actions to achieve its structural cost improvement initiatives in response to the continued economic impact from the global recessionary environment and to enhance its agility and long-term competitiveness across the economic cycle. The program includes workforce cost reductions and actions to rationalize the Corporation's manufacturing assets, which includes asset write-down and write-off charges. As a result of these actions, the Corporation recorded pretax restructuring charges of $14 million, included in "Restructuring and asset related charges - net" in the consolidated statements of income. The charges consisted of severance and related benefit costs of $12 million and asset write-downs and write-offs of $2 million. These actions are expected to be substantially complete by the end of 2024. The Corporation paid $10 million for severance and related benefit costs through June 30, 2024.
At June 30, 2024, $2 million ($2 million at December 31, 2023) for severance and related benefit costs was included in "Accrued and other current liabilities" in the consolidated balance sheets.
NOTE 5 - INVENTORIES
The following table provides a breakdown of inventories:
Inventories Jun 30, 2024 Dec 31, 2023
In millions
Finished goods $ 215 $ 189
Work in process 40 30
Raw materials 55 60
Supplies 84 87
Total $ 394 $ 366
Adjustment of inventories to the LIFO basis (134) (139)
Total inventories $ 260 $ 227
NOTE 6 - SUPPLIER FINANCE PROGRAM
The Corporation is a party to a supply chain financing ("SCF") program, facilitated by TDCC, which can be used in the ordinary course of business to extend payment terms with the Corporation's vendors. Under the terms of this program, a vendor can voluntarily enter into an agreement with a participating financial intermediary to sell its receivables due from the Corporation. The vendor receives payment from the financial intermediary, and the Corporation pays the financial intermediary on the terms originally negotiated with the vendor, which generally range from 90 to 120 days. The vendor negotiates the terms of the agreements directly with the financial intermediary and the Corporation is not a party to that agreement. The financial intermediary may allow the participating vendor to utilize TDCC's creditworthiness in establishing credit spreads and associated costs, which may provide the vendor with more favorable terms than they would be able to secure on their own. Neither TDCC nor the Corporation provide guarantees related to the SCF program. At June 30, 2024, the Corporation's outstanding obligations confirmed as valid under the SCF program were $33 million ($27 million at December 31, 2023), included in "Accounts payable - Trade" in the consolidated balance sheets.
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NOTE 7 - COMMITMENTS AND CONTINGENCIES
A summary of the Corporation's commitments and contingencies can be found in Note 12 to the Consolidated Financial Statements included in the 2023 10-K, which is incorporated by reference herein.
Environmental Matters
Accruals for environmental matters are recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated, based on current law and existing technologies. At June 30, 2024, the Corporation had accrued obligations of $189 million for probable environmental remediation and restoration costs ($194 million at December 31, 2023), including $36 million for the remediation of Superfund sites ($37 million at December 31, 2023). This is management's best estimate of the costs for remediation and restoration with respect to environmental matters for which the Corporation has accrued liabilities, although it is reasonably possible that the ultimate cost with respect to these particular matters could range up to approximately two 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.
Litigation
Asbestos-Related Matters
Each quarter, the Corporation reviews asbestos-related 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 these factors in conjunction with the most recent actuarial study and determines whether a change in the estimate is warranted. Based on the Corporation's review of 2024 activity, it was determined that no adjustment to the accrual was required at June 30, 2024.
The Corporation's total asbestos-related liability for pending and future claims and defense and processing costs was $824 million at June 30, 2024 ($867 million at December 31, 2023). At June 30, 2024, approximately 25 percent of the recorded claim liability related to pending claims and approximately 75 percent related to future claims.
NOTE 8 - LEASES
For additional information on the Corporation's leases, see Note 13 to the Consolidated Financial Statements included in the 2023 10-K.
The components of lease cost for operating and finance leases for the three and six months ended June 30, 2024 and 2023 were as follows:
Lease Cost Three Months Ended Six Months Ended
In millions Jun 30, 2024 Jun 30, 2023 Jun 30, 2024 Jun 30, 2023
Operating lease cost $ 5 $ 7 $ 10 $ 13
Short-term lease cost 13 11 22 21
Variable lease cost 9 5 18 12
Amortization of right-of-use assets - finance 1 1 1 2
Total lease cost $ 28 $ 24 $ 51 $ 48
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NOTE 9 - ACCUMULATED OTHER COMPREHENSIVE LOSS
The changes in the balances for each component of accumulated other comprehensive loss ("AOCL") for the three and six months ended June 30, 2024 and 2023 were as follows:
Accumulated Other Comprehensive Loss Three Months Ended Six Months Ended
In millions Jun 30, 2024 Jun 30, 2023 Jun 30, 2024 Jun 30, 2023
Cumulative Translation Adjustment
Beginning balance $ (52) $ (53) $ (53) $ (54)
Unrealized gains (losses) on foreign currency translation (1) 1 - 2
Ending balance $ (53) $ (52) $ (53) $ (52)
Pension and Other Postretirement Benefits
Beginning balance $ (1,280) $ (1,339) $ (1,290) $ (1,348)
Amortization of net loss reclassified from AOCL to net income 1
13 13 27 25
Tax expense (benefit) 2
(3) (3) (7) (6)
Net loss reclassified from AOCL to net income 10 10 20 19
Ending balance $ (1,270) $ (1,329) $ (1,270) $ (1,329)
Total AOCL ending balance $ (1,323) $ (1,381) $ (1,323) $ (1,381)
1.These AOCL components are included in the computation of net periodic benefit cost (credit) of the Corporation's defined benefit pension and other postretirement benefit plans. See Note 10 for additional information.
2.Reclassified to "Provision for income taxes."
NOTE 10 - PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
A summary of the Corporation's pension and other postretirement benefit plans can be found in Note 15 to the Consolidated Financial Statements included in the 2023 10-K. The following table provides the components of the Corporation's net periodic benefit cost (credit) for all significant plans:
Net Periodic Benefit Cost (Credit) for All Significant Plans Three Months Ended Six Months Ended
In millions Jun 30, 2024 Jun 30, 2023 Jun 30, 2024 Jun 30, 2023
Defined Benefit Pension Plans
Service cost 1
$ - $ 8 $ - $ 17
Interest cost 33 37 65 74
Expected return on plan assets (43) (52) (85) (104)
Amortization of net loss 16 16 33 32
Net periodic benefit cost $ 6 $ 9 $ 13 $ 19
Other Postretirement Benefit Plan
Interest cost $ 1 $ 1 $ 3 $ 3
Amortization of net gain (3) (3) (6) (7)
Net periodic benefit credit $ (2) $ (2) $ (3) $ (4)
1.The decrease in service cost is due to the freeze of pension benefits, effective December 31, 2023.
Net periodic benefit cost (credit), other than the service cost component, is included in "Sundry income (expense) - net" in the consolidated statements of income.
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NOTE 11 - FAIR VALUE MEASUREMENTS
The Corporation's financial instruments are classified as Level 2 measurements. For assets and liabilities classified as Level 2 measurements, where the security is frequently traded in less active markets, fair value is based on the closing price at the end of the period; where the security is less frequently traded, fair value is based on the price a dealer would pay for the security or similar securities, adjusted for any terms specific to that asset or liability, or by using observable market data points of similar, more liquid securities to imply the price. Market inputs are obtained from well-established and recognized vendors of market data and subjected to tolerance and quality checks.
The following table summarizes the fair value of the Corporation's financial instruments at June 30, 2024 and December 31, 2023:
Fair Value of Financial Instruments Jun 30, 2024 Dec 31, 2023
In millions Cost Gain Loss Fair Value Cost Gain Loss Fair Value
Cash equivalents 1
$ 11 $ - $ - $ 11 $ 10 $ - $ - $ 10
Long-term debt including debt due within one year $ (270) $ - $ (34) $ (304) $ (260) $ - $ (47) $ (307)
1.Money market fund is included in "Cash and cash equivalents" in the consolidated balance sheets and held at amortized cost, which approximates fair value.
Cost approximates fair value for all other financial instruments.
NOTE 12 - RELATED PARTY TRANSACTIONS
A summary of the Corporation's related party transactions can be found in Note 17 to the Consolidated Financial Statements included in the 2023 10-K.
Product and Services Agreements
The following table summarizes UCC's transactions with TDCC and a TDCC subsidiary related to product and services agreements for the three and six months ended June 30, 2024 and 2023:
Product and Services Agreements Transactions Three Months Ended Six Months Ended
Jun 30, 2024 Jun 30, 2023 Jun 30, 2024 Jun 30, 2023 Income Statement Classification
In millions
Activity-based costs 1
$ 143 $ 25 $ 291 $ 51 Cost of sales
Commodity and raw material purchases2
$ 239 $ 262 $ 499 $ 581 Cost of sales
Commission expense $ 5 $ 5 $ 10 $ 10 Sundry income (expense) - net
General administrative and overhead type services and service fee 3
$ 11 $ 17 $ 26 $ 34 Sundry income (expense) - net
1.In the fourth quarter of 2023, UCC divested certain non-product producing infrastructure assets to another TDCC subsidiary ("Infrastructure Divestment"), resulting in an increase in activity-based costs, as certain site infrastructure-related costs previously administered independently by the Corporation are now performed by another TDCC subsidiary and billed to the Corporation. The Infrastructure Divestment also resulted in certain changes in other cost flows, which also resulted in increased activity-based costs. Activity-based costs include short-term lease cost of $4 million and $7 million related to pipeline and site services for the three and six months ended June 30, 2024, respectively, included in Lease Cost in Note 8.
2.Period-end balances on hand are included in inventory. The decrease in purchase costs was primarily due to lower feedstock costs and the changes in cost flows resulting from the Infrastructure Divestment.
3.The decrease in services and fees resulted from TDCC's periodic review of its cost allocation for global services, partially offset by increases due to changes in cost flows and cost of site infrastructure services resulting from the Infrastructure Divestment.
Additionally, the Corporation experienced an unplanned shutdown of its manufacturing site in Seadrift, Texas, in October 2023, resulting in lost sales and margins in the fourth quarter of 2023. These losses are covered, in part, by an insurance program purchased by TDCC from its insurance affiliate. In the first quarter of 2024, the Corporation recorded insurance recoveries of $22 million from TDCC for covered losses, which is included in "Cost of sales" in the consolidated statements of income for the six months ended June 30, 2024.
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Tax Sharing Agreement
The Corporation is included in TDCC's consolidated federal income tax group. Current and deferred tax expenses are calculated for the Corporation as a stand-alone group and are allocated to the group from the consolidated totals, consistent with the TDCC-UCC Tax Sharing Agreement. The amounts reported as income taxes payable or receivable represent the Corporation's payment obligation (or refundable amount) to TDCC based on a theoretical tax liability calculated on a separate return method.
The Corporation recorded a decrease of approximately $220 million of its income tax and related interest receivable due to a tax audit closure in the first quarter of 2024. These amounts were reclassified from "Income taxes receivable" and settled through the Corporation's cash management process with TDCC and are reflected in "Related company receivables" and "Other assets and liabilities" in the consolidated statements of cash flows for the six months ended June 30, 2024.
Dividends
The following table summarizes cash dividends declared and paid to TDCC for the three and six months ended June 30, 2024 and 2023:
Cash Dividends Declared and Paid Three Months Ended Six Months Ended
Jun 30, 2024 Jun 30, 2023 Jun 30, 2024 Jun 30, 2023
In millions
Cash dividends declared and paid $ 143 $ 115 $ 186 $ 250
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Pursuant to General Instruction H(1)(a) and (b) for Form 10-Q "Omission of Information by Certain Wholly-Owned Subsidiaries," the Corporation is filing this Form 10-Q with a reduced disclosure format.
References to "TDCC" refer to The Dow Chemical Company and its consolidated subsidiaries, except as otherwise indicated by the context. Union Carbide Corporation (the "Corporation" or "UCC") has been a wholly owned subsidiary of TDCC since 2001. TDCC has been a wholly owned subsidiary of Dow Inc. since 2019.
TDCC conducts its worldwide operations through global businesses. UCC's business activities comprise components of TDCC's global businesses rather than stand-alone operations. Because there are no separate reportable business segments for UCC and no detailed business information is provided to a chief operating decision maker regarding the Corporation's stand-alone operations, the Corporation's results are reported as a single operating segment.
RESULTS OF OPERATIONS
Net Sales
Total net sales were $2,192 million for the first six months of 2024 compared with $2,240 million for the first six months of 2023, a decrease of 2 percent. Net sales to related companies, principally to TDCC, were $2,137 million for the first six months of 2024 compared with $2,176 million for the first six months of 2023, a decrease of 2 percent. Selling prices to TDCC are determined in accordance with the terms of an agreement between UCC and TDCC.
Average selling price for the first six months of 2024 decreased 11 percent compared with the first six months of 2023. Price decreased in most product lines in response to lower raw material and feedstock costs, with the most significant decreases in oxo alcohols, plastics used for wire and cable applications, vinyl acetate monomers and polyethylene. Volume for the first six months of 2024 increased 9 percent compared with the first six months of 2023. Volume increased in most product lines, with the most significant increases in vinyl acetate monomers, polyethylene, oxo alcohols, plastics used for wire and cable applications and glycol ethers, partially offset by a volume decrease in ethylene oxide. Volume was positively impacted by increased demand, improved internal and external raw material supply availability and less planned maintenance turnaround activities compared to 2023. Ethylene oxide volume for the first six months of 2024 was negatively impacted by lost production due to a freeze event and a steam outage in the first quarter of 2024.
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Cost of Sales
Cost of sales was $1,905 million for the first six months of 2024 compared with $1,906 million for the first six months of 2023. Cost of sales was flat despite an increase in sales volume, driven primarily by lower raw material, feedstock and energy costs. Cost of sales as a percentage of net sales was 86.9 percent for the first six months of 2024 compared with 85.1 percent for the first six months of 2023, reflecting lower sales driven by a decrease in average selling price.
Restructuring and Asset Related Charges - Net
In the first quarter of 2023, the Corporation recorded pretax restructuring charges of $14 million, included in "Restructuring and asset related charges - net" in the consolidated statements of income. See Note 4 to the Consolidated Financial Statements for additional information about the Corporation's restructuring activities and related charges.
The Corporation expects to incur additional costs in the future related to its restructuring activities. Future costs are expected to include demolition costs related to closed facilities and restructuring plan implementation costs; these costs will be recognized as incurred. The Corporation also 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.
Sundry Income (Expense) - Net
Sundry income (expense) - net includes a variety of income and expense items such as charges for management services provided by TDCC, non-operating pension and other postretirement benefit plan credits or costs, commissions and gains and losses on sales of investments and assets and on foreign currency exchange.
Sundry income (expense) - net in the first six months of 2024 was expense of $44 million compared with $45 million in the first six months of 2023. Sundry income (expense) - net for the first six months of 2024 was favorably impacted by a decrease in charges for services provided by TDCC and a $2 million gain on the sale of the Corporation's ownership interest in a TDCC joint venture to a TDCC subsidiary, partially offset by higher non-operating defined benefit pension costs resulting primarily from lower expected returns on plan assets that were partially offset by lower interest costs. See Note 12 to the Consolidated Financial Statements for additional information about the Corporation's service agreements with TDCC and Note 10 to the Consolidated Financial Statements for additional information about the Corporation's defined benefit pension plans.
Interest Income
Interest income was $71 million for the first six months of 2024 compared with $20 million for the first six months of 2023. The increase in interest income primarily resulted from interest earned on a term loan receivable from a related party, received on December 1, 2023, in exchange for UCC's interest in a TDCC subsidiary that manages certain site infrastructure assets for UCC and TDCC on the U.S. Gulf Coast.
Interest Expense and Amortization of Debt Discount
Interest expense and amortization of debt discount was $5 million in the first six months of 2024 compared with $10 million in the first six months of 2023, reflecting reduced interest expense resulting from the maturity and payment of $129 million of long-term debt in April 2023.
Provision for Income Taxes
The Corporation is subject primarily to U.S. federal and state taxes. For the first six months of 2024, the Corporation reported a tax provision of $64 million, which resulted in an effective tax rate of 21.8 percent compared with a tax provision of $56 million for the first six months of 2023, which resulted in an effective tax rate of 20.9 percent. The tax rate for the first six months of 2023 was favorably impacted by interest accrued on tax receivables.
Net Income Attributable to UCC
The Corporation reported net income of $230 million for the first six months of 2024 compared with $212 million for the first six months of 2023.
Capital Expenditures
Capital expenditures in the first six months of 2024 were $168 million compared with $120 million in the first six months of 2023, as the Corporation continues to invest in production assets, primarily on the U.S. Gulf Coast.
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Pension Plans
As announced in 2021, UCC's pension plans were frozen for substantially all employees who participated in the U.S. defined benefit pension programs effective December 31, 2023. In the fourth quarter of 2023, the Corporation spun off a portion of its existing tax-qualified U.S defined benefit pension plan into a new tax-qualified pension plan, which includes the tax-qualified benefit obligations for substantially all employees hired after January 1, 2008. These employees earned benefits based on a set percentage of annual pay, plus interest, and the spin of this plan provides the Corporation the ability to separately manage the assets and obligations of plans with like benefits. In the second quarter of 2024, as part of its ongoing pension de-risking initiatives, the Corporation initiated the termination of the new tax-qualified pension plan. As part of the plan termination process, the Corporation will offer participants of this plan annuity or lump sum distribution options. Final asset distributions are expected to be paid from plan assets in the fourth quarter of 2025, with minimal additional funding, if any, required from the Corporation, and are anticipated to result in pension settlement charges, with the amounts dependent on various factors, including interest rates, plan asset returns, annuity pricing and participant distribution elections.
See Note 10 to the Consolidated Financial Statements and Note 15 to the Consolidated Financial Statements included in the 2023 10-K for additional information related to the Corporation's pension plans.
OTHER MATTERS
Critical Accounting Estimates
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make judgments, assumptions and estimates that affect the amounts reported in the consolidated financial statements and accompanying notes. Note 1 to the Consolidated Financial Statements included in the 2023 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 included in the 2023 10-K. Since December 31, 2023, there have been no material changes in the Corporation's accounting policies that are impacted by judgments, assumptions and estimates.
Asbestos-Related Matters
The Corporation is and has been involved in a large number of asbestos-related suits filed primarily in state courts during the past four decades. These suits principally allege personal injury resulting from exposure to asbestos-containing products and frequently seek both actual and punitive damages. The alleged claims primarily relate to products that UCC sold in the past, alleged exposure to asbestos-containing products located on UCC's premises, and UCC's responsibility for asbestos suits filed against a former UCC subsidiary, Amchem Products, Inc. ("Amchem"). In many cases, plaintiffs are unable to demonstrate that they have suffered any compensable loss as a result of such exposure, or that injuries incurred in fact resulted from exposure to UCC's products.
The table below provides information regarding asbestos-related claims pending against the Corporation and Amchem based on criteria developed by UCC and its external consultants:
Asbestos-Related Claim Activity 2024 2023
Claims unresolved at Jan 1 6,367 6,873
Claims filed 2,182 1,911
Claims settled, dismissed or otherwise resolved (2,370) (1,622)
Claims unresolved at Jun 30 6,179 7,162
Claimants with claims against both UCC and Amchem (1,016) (1,457)
Individual claimants at Jun 30 5,163 5,705
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. 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.
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For additional information, see Asbestos-Related Matters in Note 7 to the Consolidated Financial Statements; Part II, Item 1. Legal Proceedings; and Note 12 to the Consolidated Financial Statements included in the 2023 10-K.
Debt Covenants and Default Provisions
The Corporation's outstanding public debt has been issued under indentures which contain, among other provisions, covenants that the Corporation must comply with while the underlying notes are outstanding. Such covenants are typically based on the Corporation's size and financial position and include, subject to the exceptions and qualifications contained in the indentures, obligations not to (i) allow liens on principal U.S. manufacturing facilities, (ii) enter into sale and lease-back transactions with respect to principal U.S. manufacturing facilities, or (iii) merge into or consolidate with any other entity or sell or convey all or substantially all of its assets. Failure of the Corporation to comply with any of these covenants could, after the passage of any applicable grace period, result in a default under the applicable indenture which would allow the note holders to accelerate the due date of the outstanding principal and accrued interest on the subject notes. Management believes the Corporation was in compliance with the covenants referred to above at June 30, 2024.
Dividends
On a quarterly basis, the Corporation's Board of Directors ("the Board") 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. For the first six months of 2024, the Corporation declared and paid cash dividends of $186 million to TDCC ($250 million for the first six months of 2023). On July 22, 2024, the Board approved a dividend to TDCC of $42 million, payable on or before September 27, 2024.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Omitted pursuant to General Instruction H of Form 10-Q.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Quarterly Report on Form 10-Q, the Corporation carried out an evaluation, under the supervision and with the participation of the Corporation's Disclosure Committee and the Corporation's management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Corporation's disclosure controls and procedures pursuant to paragraph (b) of Exchange Act Rules 13a-15 and 15d-15. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Corporation's disclosure controls and procedures were effective.
Changes in Internal Control Over Financial Reporting
There were no changes in the Corporation's internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 and 15d-15 that was conducted during the quarter ended June 30, 2024, that have materially affected, or are reasonably likely to materially affect, the Corporation's internal control over financial reporting.
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Union Carbide Corporation and Subsidiaries
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Asbestos-Related Matters
No material developments in asbestos-related matters occurred in the first six months of 2024. For a current status of asbestos-related matters, see Note 7 to the Consolidated Financial Statements.
ITEM 1A. RISK FACTORS
Since December 31, 2023, there have been no material changes to the Corporation's Risk Factors.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 6. EXHIBITS
EXHIBIT NO. DESCRIPTION
4.2 The Corporation will furnish to the Commission upon request any other debt instrument referred to in Item 601(b)(4)(iii)(A) of Regulation S-K.
23*
Ankura Consulting Group, LLC's Consent.
31.1*
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 *
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH Inline XBRL Taxonomy Extension Schema Document.
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104 Cover Page Interactive Data File. The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
* Filed herewith
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Union Carbide Corporation and Subsidiaries
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
UNION CARBIDE CORPORATION
Date: July 26, 2024
/s/ ANDREA L. DOMINOWSKI
Andrea L. Dominowski
Controller and Vice President
of Controllers
The Dow Chemical Company
(Authorized Representative of
Union Carbide Corporation)
/s/ IGNACIO MOLINA
Ignacio Molina
Vice President, Treasurer and
Chief Financial Officer
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