|UNION CARBIDE CORP /NEW/ filed this Form 10-Q on 04/27/2017|
Provision for Income Taxes
The Corporation reported a tax provision of $90 million in the first quarter of 2017, which resulted in an effective tax rate of 34.2 percent. This compared with a tax provision of $119 million in the first quarter of 2016, which resulted in an effective tax rate of 33.1 percent. The effective tax rate fluctuates based on, among other factors, where income is earned, dividends received from investments in related companies and the level of income relative to tax credits available.
Net Income Attributable to UCC
The Corporation reported net income of $173 million in the first quarter of 2017 compared with $240 million in the first quarter of 2016. When compared with the same quarter last year, the impact of higher feedstock, energy and other raw material costs more than offset higher selling prices and increased sales volume.
Capital spending in the first quarter of 2017 was $50 million compared with $53 million in the first quarter of 2016, reflecting spending for U.S. Gulf Coast projects and site infrastructure projects in both periods.
Texas City, Texas, Land Sale
On June 27, 2016, UCC signed agreements for the sale of excess land at the Texas City, Texas, manufacturing site. As a result, in the second quarter of 2016, UCC recorded a pretax gain of $46 million on the sale of one parcel of land. In addition, a down payment of $8 million was received for the sale of a second parcel of land which is included in "Accrued and other current liabilities" in the consolidated balance sheets. On April 3, 2017, the sale of the second parcel of land was completed which also included terminal assets and ancillary agreements for the supply of energy and site and terminal services. In the second quarter of 2017, a pretax gain of $23 million will be recorded on the sale and will be included in "Sundry income (expense) - net" in the consolidated statements of income.
Sale in Ownership of a Nonconsolidated Affiliate
On March 16, 2017, UCC entered into a share sale and purchase agreement to sell it ownership interest in Asian Acetyls Co., Ltd. ("ASACCO"), a nonconsolidated affiliate accounted for under the equity method of accounting. ASACCO agreed to purchase all of the shares of registered common stock owned by UCC. On April 24, 2017, the sale was completed for $22 million. In the second quarter of 2017, the Corporation expects to record a pretax gain of $4 million on the sale and will be included in "Sundry income (expense) - net" in the consolidated statements of income.
Recent Accounting Guidance
See Note 2 to the Consolidated Financial Statements for a summary of recent accounting guidance.
Critical Accounting Policies
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, 2016 ("2016 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 2016 10-K. Since December 31, 2016, there have been no material changes in the Corporation’s critical accounting policies.
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.