UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D C 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
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 (I.R.S. Employer
incorporation or organization) Identification No.)
39 Old Ridgebury Road, Danbury, CT 06817-0001
(Address of principal executive offices) (Zip Code)
203-794-2000
Registrant's telephone number, including area code
(Former name, former address and former fiscal year,
if changed since last report.)
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 X No _______
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at July 31, 1995
Common Stock, $1 par value 135,714,739 shares
Total number of sequentially numbered pages in this filing,
including exhibits thereto: 23
INDEX
PART I. FINANCIAL INFORMATION
PAGE
Financial Statements
Condensed Consolidated Statement of Income -
Union Carbide Corporation and Subsidiaries -
Quarter Ended June 30, 1995 and 1994......................... 3
Condensed Consolidated Statement of Income -
Union Carbide Corporation and Subsidiaries -
Six Months Ended June 30, 1995 and 1994...................... 4
Condensed Consolidated Balance Sheet - Union Carbide
Corporation and Subsidiaries - June 30, 1995 and
December 31, 1994............................................ 5
Condensed Consolidated Statement of Cash Flows -
Union Carbide Corporation and Subsidiaries -
Six Months Ended June 30, 1995 and 1994...................... 6
Notes to Condensed Consolidated Financial Statements -
Union Carbide Corporation and Subsidiaries................... 7-11
Discussion and Analysis of Results of Operations
and Financial Condition........................................ 12-15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings....................................... 16
Item 5. Other Information....................................... 16
Item 6. Exhibits and Reports on Form 8-K........................ 19
Signature........................................................ 20
Exhibit Index.................................................... 21
PART I. FINANCIAL INFORMATION
UNION CARBIDE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
Millions of dollars
(Except per share figures)
Quarter ended June 30,
1995 1994
NET SALES $ 1,541 $ 1,177
Cost of sales, exclusive of depreciation and
amortization 1,103 906
Research and development 34 33
Selling, administration and other expenses(a) 83 72
Depreciation and amortization 72 67
Interest on long-term and short-term debt 22 20
Partnership income 51 23
Other expense (income) - net (8) 16
INCOME BEFORE PROVISION FOR INCOME TAXES 286 86
Provision for income taxes 84 25
INCOME OF CONSOLIDATED COMPANIES 202 61
Plus: Income from corporate investments
carried at equity 26 12
NET INCOME 228 73
Preferred stock dividend, net of income taxes 3 3
NET INCOME - COMMON STOCKHOLDERS $ 225 $ 70
Earnings per common share
Primary $ 1.59 $ 0.44
Fully diluted $ 1.44 $ 0.42
Cash dividends per common share $ 0.1875 $ 0.1875
(a) Selling, administration and other expenses include:
Selling $ 32 $ 31
Administration 35 26
Other expenses 16 15
$ 83 $ 72
The Notes to Condensed Consolidated Financial Statements on Pages 7 through
11 should be read in conjunction with this statement.
UNION CARBIDE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
Millions of dollars
(Except per share figures)
Six months ended June 30,
1995 1994
NET SALES $ 2,994 $ 2,303
Cost of sales, exclusive of depreciation and
amortization 2,102 1,762
Research and development 70 65
Selling, administration and other expenses(a) 158 144
Depreciation and amortization 155 134
Interest on long-term and short-term debt 41 36
Partnership income 95 52
Other expense (income) - net (45) 52
INCOME BEFORE PROVISION FOR INCOME TAXES 608 162
Provision for income taxes 181 48
INCOME OF CONSOLIDATED COMPANIES 427 114
Plus: Income from corporate investments
carried at equity 31 22
NET INCOME 458 136
Preferred stock dividend, net of income taxes 5 5
NET INCOME - COMMON STOCKHOLDERS $ 453 $ 131
Earnings per common share
Primary $ 3.16 $ 0.83
Fully diluted $ 2.86 $ 0.79
Cash dividends per common share $ 0.375 $ 0.375
(a) Selling, administration and other expenses include:
Selling $ 63 $ 61
Administration 63 53
Other expenses 32 30
$ 158 $ 144
The Notes to Condensed Consolidated Financial Statements on Pages 7 through
11 should be read in conjunction with this statement.
UNION CARBIDE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
Millions of dollars
June 30, Dec. 31,
1995 1994
ASSETS
Cash and cash equivalents $ 222 $ 109
Notes and accounts receivable 1,041 898
Inventories 455 390
Prepaid expenses 263 217
Total current assets 1,981 1,614
Property, plant and equipment 6,118 5,889
Less: Accumulated depreciation 3,493 3,347
Net fixed assets 2,625 2,542
Companies carried at equity 613 418
Other investments and advances 86 88
Total investments and advances 699 506
Other assets 412 366
Total assets $5,717 $5,028
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 338 $ 326
Short-term debt 32 28
Payments to be made within 1 year on
long-term debt 16 19
Accrued income and other taxes 236 179
Other accrued liabilities 651 733
Total current liabilities 1,273 1,285
Long-term debt 1,292 899
Postretirement benefit obligation 496 488
Other long-term obligations 717 537
Deferred credits 190 242
Minority stockholders' equity in consolidated
subsidiaries 24 24
Convertible preferred stock - ESOP 147 148
Unearned employee compensation - ESOP (100) (104)
UCC stockholders' equity:
Common stock authorized - 500,000,000 shares
Common stock issued - 154,609,669 shares 155 155
Additional paid-in capital 361 369
Translation and other equity adjustments (20) (59)
Retained earnings 1,734 1,333
2,230 1,798
Less: Treasury stock, at cost-19,318,576 shares
(10,197,367 shares in 1994) 552 289
Total UCC stockholders' equity 1,678 1,509
Total liabilities and stockholders' equity $5,717 $5,028
The Notes to Condensed Consolidated Financial Statements on Pages 7 through
11 should be read in conjunction with this statement.
UNION CARBIDE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Millions of dollars
Six months ended June 30,
1995 1994
Increase (decrease) in
cash and cash equivalents
OPERATIONS
Income $ 458 $ 136
Noncash charges (credits) to net income
Depreciation and amortization 155 134
Deferred income taxes (62) 25
Other noncash charges 128 2
Investing debits to net income (217) (13)
Working capital(a) (301) (243)
Long-term assets and liabilities 25 58
Cash Flow From Operations 186 99
INVESTING
Capital expenditures (211) (156)
Investments (229) (38)
Purchase of fixed and other assets (80) -
Sale of investments 344 86
Sale of fixed and other assets 47 1
Cash Flow Used for Investing (129) (107)
FINANCING
Change in short-term debt (three months or less) 2 96
Proceeds from long-term debt 402 -
Repayment of long-term debt (14) (32)
Issuance of common stock 46 42
Repurchase of common stock (325) (90)
Payments of dividends (58) (64)
Other 2 5
Cash Flow From (Used for) Financing 55 (43)
Effect of exchange rate changes on cash and
cash equivalents 1 -
Change in cash and cash equivalents 113 (51)
Cash and cash equivalents beginning-of-period 109 108
Cash and cash equivalents end-of-period $ 222 $ 57
Cash paid for interest and income taxes
Interest (net of amount capitalized) $ 55 $ 54
Income taxes $ 195 $ 40
_____________
(a) Net change in working capital by component (excluding cash and cash
equivalents, deferred income taxes and short-term debt):
(Increase) decrease in current assets
Notes and accounts receivable $(155) $(125)
Inventories (50) (14)
Prepaid expenses (30) 7
Decrease in payables and accruals (66) (111)
Working capital $(301) $(243)
The Notes to Condensed Consolidated Financial Statements on Pages 7 through
11 should be read in conjunction with this statement.
UNION CARBIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Consolidated Financial Statements
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements include all adjustments necessary for a
fair statement of the results for the interim periods. These adjustments
consist of only normal recurring adjustments. The accompanying
statements should be read in conjunction with the Notes to Financial
Statements of Union Carbide Corporation and Subsidiaries ("the
corporation" or "UCC") in the 1994 annual report to stockholders.
2. Acquisitions, Dispositions and Special Items
On January 26, 1995, the corporation and Mitsubishi Corporation concluded
the sale of newly issued common stock of UCAR International Inc. ("UCAR")
to a new company formed by Blackstone Capital Partners II Merchant Banking
Fund L.P. ("Blackstone") and a repurchase of certain shares by UCAR that
resulted in Blackstone acquiring a 75 percent interest in UCAR. The
corporation received $343 million in net cash proceeds and retained a
25 percent equity interest in UCAR. This transaction resulted in a gain
of $220 million ($154 million after-tax) and essentially eliminated the
corporation's share of ongoing future earnings from UCAR. On August 9,
1995, the corporation joined in UCAR's initial public offering to sell its
remaining equity interest in UCAR for net cash proceeds of approximately
$200 million. This sale will result in a significant, nonrecurring gain
that will be recorded in the third quarter of 1995. The pro forma effect
of this sale on the corporation's June 30, 1995 balance sheet is
immaterial. If these transactions had occurred effective January 1, 1995,
the corporation's income from corporate investments carried at equity and
net income - common stockholders for the six months ended June 30, 1995
would have been reduced by $4 million, and earnings per share would have
decreased $0.03 per share, primary and fully diluted. If these
transactions had occurred effective January 1, 1994, the corporation's
income from corporate investments carried at equity and net income -
common stockholders for the six months ended June 30, 1994 would have been
reduced by $21 million, and earnings per share would have decreased
$0.14 per share, primary, or $0.12 per share fully diluted.
On March 31, 1995, the corporation acquired 50 percent of the equity of
Polimeri Europa S.r.l. ("Polimeri Europa"), from EniChem S.p.A.
("EniChem"). Enichem retained the other 50 percent. In anticipation of
the corporation's acquisition, Enichem had transferred to Polimeri Europa
all of its polyethylene business, excluding its wire & cable compounds
business. The purchase price for the corporation's 50 percent of the
joint venture's equity was DM323 million ($216 million). If this
acquisition had occurred effective January 1, 1995, the corporation's
income from corporate investments carried at equity and net income -
common stockholders for the six months ended June 30, 1995 would have
increased by $27 million, and earnings per share would have increased
$0.19 per share, primary, or $0.17 per share, fully diluted. If this
acquisition had occurred effective January 1, 1994, the corporation's
income from corporate investments carried at equity and net income -
common stockholders for the six months ended June 30, 1994 would have
decreased by $22 million, and earnings per share would have decreased
$0.14 per share, primary, or $0.13 per share, fully diluted.
If both the Polimeri Europa equity acquisition and the UCAR
recapitalization and sale transactions had occurred effective January 1,
1995, the corporation's income from corporate investments carried at
equity and net income - common stockholders for the six months ended June
30, 1995 would have increased by $23 million, or $0.16 per share, primary,
or $0.14 per share fully diluted. If these transactions had occurred
effective January 1, 1994, the corporation's income from corporate
investments carried at equity and net income - common stockholders for the
six months ended June 30, 1994 would have decreased by $43 million, or
$0.28 per share, primary, or $0.25 per share, fully diluted. The weighted
average number of common shares used for the pro forma earnings per share
calculations for the six months ended June 30, 1995 and 1994 is
142,886,593 and 155,121,953 primary, respectively, and 159,794,027 and
171,942,868 fully diluted, respectively.
On February 1, 1995, the corporation purchased the ethylene oxide
derivative businesses from Imperial Chemical Industries of London for
$80 million in cash.
During the first quarter of 1995, the corporation recognized an
undiscounted, non-recurring, non-cash charge of $191 million ($134 million
after-tax) for future lease payments on unused office space primarily at
the corporation's Danbury headquarters. The charge, similar to one taken
in 1991 for $27 million, reflects the cost of unused office space over the
remaining term of the lease, which runs to 2006, less anticipated sublease
income. In addition, for accounting purposes, the corporation reduced the
depreciable lives of certain computer equipment, resulting in an increase
in depreciation expense of $12 million ($8 million after-tax).
On July 15, 1995 the corporation, Petrochemical Industries Company of
Kuwait ("PIC") and Boubyan Petrochemical Company executed final
agreements to formally establish Equate Petrochemical Company K.S.C.,
their joint venture for development of a world-scale petrochemicals
complex in Kuwait. Construction of the facility is targeted for a
mid-1997 completion date.
3. Long-Term Debt
On June 1, 1995 the corporation completed a $400 million, two-part public
offering of debt securities. It consisted of $150 million principal
amount of 7.50 percent 30-year debentures due June 1, 2025; and
$250 million principal amount of 6.79 percent 30-year debentures due
June 1, 2025, with a one-time option for investors to redeem the bonds on
June 1, 2005.
4. Common Stock
On July 26, 1995, the board of directors of the corporation increased the
number of shares that may be repurchased under the existing common stock
repurchase program to 40 million shares. Through June 30, 1995, the
corporation had repurchased 26,727,378 shares since inception of the
program (11,415,118 during 1995) at an average effective price of $27.318
per share. The corporation will continue to acquire additional shares
from time to time at prevailing market prices, at a rate consistent with
the combination of corporate cash flow and market conditions.
In conjunction with the corporation's common stock buyback program, put
options were sold in a series of private placements entitling the holders
to sell 5 million shares of common stock to UCC, at specified prices upon
exercise of the options. Since inception of this program, through
June 30, 1995, options representing 3,863,800 common shares have expired
unexercised, while options representing 1,136,200 shares were exercised
for $35 million, or an average price of $30.86 per share. There were no
outstanding options at June 30, 1995.
Premiums received since the inception of the program have reduced the
average price of repurchased shares to $27.318 per share from $27.468 per
share.
5. Inventories
Millions of dollars at
June 30, Dec. 31,
1995 1994
Raw materials and supplies $ 126 $ 103
Work in process 52 41
Finished goods 277 246
$ 455 $ 390
6. Commitments and Contingencies
The corporation has entered into 3 major agreements for the purchase of
ethylene-related products and 3 other purchase agreements in the U.S. and
Canada. The net present value of the fixed and determinable portion of
these obligations at June 30, 1995 totaled $407 million.
The corporation is subject to loss contingencies resulting from
environmental laws and regulations, which include obligations to remove or
mitigate the effects on the environment of the disposal or release of
certain wastes and substances at various sites. The corporation has
established accruals in current dollars for those hazardous waste sites
where it is probable that a loss has been incurred and the amount of the
loss can be reasonably estimated. The reliability and precision of the
loss estimates are affected by numerous factors, such as different stages
of site evaluation, the allocation of responsibility among potentially
responsible parties and the assertion of additional claims. The
corporation adjusts its accruals as new remediation requirements are
defined, as information becomes available permitting reasonable estimates
to be made, and to reflect new and changing facts.
At June 30, 1995, the corporation had established environmental
remediation accruals in the amount of $309 million. Approximately
45 percent of the corporation's environmental accrual at June 30, 1995
pertained to closure and postclosure costs for both operating and closed
facilities. In addition, the corporation had environmental loss
contingencies of $181 million.
The corporation had additional contingent obligations at June 30, 1995 of
$94 million, principally related to obligations assumed by purchasers of
UCC facilities for which UCC is primarily liable, litigation, discounted
receivables from customers, guarantees of debt and performance agreements.
See Note 16 of Notes to Financial Statements in the corporation's 1994
Annual Report to Stockholders for information with respect to matters and
proceedings arising from or related to the December 3, 1984 methyl
isocyanate incident at the plant at Bhopal, India, owned and operated by
Union Carbide India Ltd.
The corporation is one of a number of defendants named in approximately
4,472 lawsuits, some of which have more than one plaintiff, involving
silicone gel breast implants. The corporation was not a manufacturer of
breast implants but did supply generic bulk silicone materials to the
industry. Also, in 1990 the corporation acquired and in 1992 divested the
stock of a small specialty silicones company which, among other things,
supplied silicone gel intermediates and silicone dispersions for breast
implants. In 1993, most of the suits that were brought in Federal courts
were consolidated for pre-trial purposes in the United States District
Court, Northern District of Alabama. In 1994, the corporation provisionally
joined a multi-billion dollar settlement of the claims consolidated in that
Court, under which Union Carbide's contribution would be $138 million over
the next several years.
Claimants were entitled to submit claims or to opt out of the settlement.
The settlement provided for a schedule of specific payments to current
claimants, based upon the nature of their claimed injuries, which payments
would be reduced in the event current claims submitted exceeded the
aggregate of $1.2 billion dollars allocated to those claims. If the
schedule of payments were reduced, those who have filed claims would be
given an additional opportunity to opt out. The corporation, as well as the
other companies which are parties to the agreement have the right to
withdraw from the settlement if, among other factors, in their individual
judgment, the number of claimants opting out is too large.
Based upon a sampling of claims filed to date, the Court has determined that
the total amount of current claims likely to be approved for payment would
substantially exceed the $1.2 billion presently designated under the
original settlement schedule. Consequently, the defendants and the
Plaintiffs' Negotiating Committee, at the request of the Court, have been
negotiating to reconsider the structure and funding of the settlement. At
this time it is not possible to predict the outcome of these discussions or
whether the corporation will choose to participate in a new settlement if
one is reached. Recently the Court set a deadline of August 30, 1995 for
the parties to sign a statement of principles for a renegotiated agreement.
The extent of progress required and the consequences of failing to achieve
it are not entirely clear, but lack of sufficient progress could result in
termination of the settlement agreement. Dow Corning Corporation, the
largest contributor to the settlement, has sought protection under Chapter
11 of the United States Bankruptcy Code. It is too early to assess the
effect of Dow Corning's bankruptcy petition on the settlement. The
corporation has previously taken before-tax charges aggregating $35 million
for this litigation. Although insurance coverage is subject to issues as to
scope and application of policies, retention limits, exclusions and policy
limits, and the insurers have reserved their right to deny coverage, the
corporation believes that after probable insurance recoveries neither the
settlement, the lack of a settlement, nor litigation outside the settlement
will have a material adverse effect on the consolidated financial position
of the corporation.
In addition to the above, the corporation and its consolidated subsidiaries
are 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; governmental regulatory proceedings;
health, safety and environmental matters; employment; patents; contracts
and taxes. In some of these legal proceedings and claims, the cost of
remedies that may be sought or damages claimed is substantial.
While it is impossible at this time to determine with certainty the
ultimate outcome of any legal proceedings and claims referred to in this
note, management believes that adequate provisions have been made for
probable losses with respect thereto and that such ultimate outcome, after
provisions therefor, will not have a material adverse effect on the
consolidated financial position of the corporation but could have a
material effect on consolidated results of operations in a given quarter
or year. Should any losses be sustained in connection with any of such
legal proceedings and claims, in excess of provisions therefor, they will
be charged to income in the future.
DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Overview
The corporation reported second quarter, 1995 net income available to common
stockholders of $225 million, or $1.44 per share fully diluted ($1.59 per
share primary). For the first six months of 1995 net income available to
common stockholders was $453 million. or $2.86 per share fully diluted ($3.16
per share primary).
For the corresponding quarter in 1994 the corporation reported earnings of $70
million, or $0.42 per share fully diluted ($0.44 per share primary). For the
first six months of 1994 net income available to common shareholders was $131
million, or $0.79 per share fully diluted ($0.83 per share primary).
The corporation's earnings for both the three and six month periods ending
June 30, 1995 benefited from higher selling prices for most products as
compared to the same periods in 1994. Average selling prices generally
increased during the second quarter of 1995, although there was a decline in
polyethylene prices toward the end of the period. Raw material feedstock
prices were slightly lower than in 1994. Current quarter margins, however,
were adversely impacted by some weather related operations problems as well as
a delay in completing the planned maintenance turnaround at one ethylene
production facility. The corporation's partnerships and equity companies
continue to contribute to the corporation's increase in profitability, both on
a quarterly and year-to-date basis. Results for 2 months of Polimeri Europa,
the corporation's newly formed Italian joint venture, were included in the
corporation's equity income for the first time in the second quarter of 1995.
While it is impossible to forecast the level of future prices for its major
product lines, the corporation anticipates continued weakening in polyethylene
prices over the third quarter, partially offset by improved ethylene glycol
pricing. The impact of reduced polyethylene prices should also be mitigated
if manufacturing operations can be maintained at a more normal level than
experienced in the second quarter of this year. The outlook on market
conditions for the corporation's major joint ventures generally tracks the
outlook for the corporation.
On August 9, 1995, the corporation joined in UCAR International Inc.'s
("UCAR") initial public offering to sell its remaining equity interest in UCAR
for net cash proceeds of approximately $200 million. This sale will result in
a significant, nonrecurring gain that will be recorded in the third quarter of
1995.
Results of Operations
Sales increased over 30 percent in the second quarter of 1995 as well as for
the first six months of the current year over the same periods in 1994.
Prices for most of the corporation's product lines increased on a quarter-to-
quarter and six month basis.
The corporation's variable margin for the second quarter of 1995 was 46.2
percent, compared to 45.2 percent in the second quarter of 1994. For the six
month period ending June 30, 1995 variable margin was 48.0 percent as opposed
to 45.9 percent in the same period last year. Gross margin for 1995 continued
to rise dramatically over 1994, with the second quarter being 28.4 percent
(23.0 percent in second quarter, 1994) and the six month gross margin,
29.8 percent (23.5 percent through six months of 1994). Fixed manufacturing
and distribution costs increased 5 percent versus the prior year quarter and
six month periods due to the acquisition of ICI's ethylene oxide derivative
businesses, increased employee profit sharing expense and expenses associated
with increased capital spending.
Selling, administrative and other expenses rose 15 percent in the second
quarter of 1995 versus the same period in 1994 and for the six month period in
1995 was running 10 percent over 1994. Additional expenses for employee
profit sharing, the increased U.S. dollar equivalent cost of international
overhead and administrative costs associated with new ventures caused this
increase in the current quarter and six month period.
During the first quarter of 1995, the corporation reduced the depreciable
lives of certain computer equipment resulting in a non-recurring increase in
depreciation expense of $12 million. Depreciation in the second quarter of
1995 rose $5 million over the same period last year as a result of increased
plant and equipment.
Partnership income more than doubled in the second quarter of 1995 versus the
comparable quarter in 1994, nearly doubling for the six months of 1995 over
last year. UOP and Petromont continue to perform well on a quarter to quarter
and six month basis.
Other expense (income) - net for the first half of 1995 included the following
items: a $220 million gain on the corporation's reduction of its equity
interest in UCAR and a non-cash charge of $191 million for future lease
payments on unused office space primarily at the corporation's Danbury
headquarters. The undiscounted charge, similar to the one taken in 1991 for
$27 million, reflects the cost of unused office space over the remaining term
of the lease which runs to 2006, less anticipated sublease income. Included
in the first half of 1994 were a $24 million charge for the writeoff of the
corporation's investment in India and associated costs, a $12 million loss on
the proposed sale of the corporation's uranium mill and certain uranium mines
to Energy Fuels, Ltd. and a $24 million gain on the sale of the corporation's
preferred stock investment in OSi Specialties, Inc.
Interest expense increased $5 million in the first half of 1995 when compared
to the same period last year reflecting higher interest rates and increased
borrowings.
During the second quarter of 1995 earnings from the corporation's investments
carried at equity contained the first 2 month's contribution of Polimeri
Europa, the newly formed Italian joint venture. This contribution more than
offset the absence of earnings from UCAR.
The corporation regularly reviews its assets with the objective of maximizing
the deployment of resources in core operations. In this regard, UCC continues
to consider strategies and/or transactions with respect to certain noncore
assets and other assets not essential to the operation of the business that,
if implemented, could result in material nonrecurring gains or losses.
Estimates of future expenses related to environmental protection for
compliance with Federal, state and local laws regulating solid and hazardous
wastes and discharge of materials to air and water, as well as for waste site
remedial activities, and of future capital expenditures relating to
environmental protection, have not changed materially since December 31, 1994.
The reliability and precision of the loss estimates are affected by numerous
factors, such as different stages of site evaluation, the allocation of
responsibility among potentially responsible parties and the assertion of
additional claims.
The corporation has provisionally joined the multi-billion dollar silicone
breast implant litigation settlement agreement, which is currently being
renegotiated. This litigation is discussed in more detail in the "Commitments
and Contingencies" footnote to the financial statements on pages 9 through 11
of this report on Form 10-Q.
In March 1995 the Financial Accounting Standards Board issued Financial
Accounting Standard ("FAS") 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." FAS 121 is effective for
financial statements beginning after December 15, 1995. The corporation does
not expect the adoption of FAS 121 to have a material adverse effect on the
consolidated financial position of the corporation or the consolidated results
of operations in the period of adoption.
Financial Condition - June 30, 1995
Cash flow from operations was $186 million for the first six months of 1995,
an improvement of $87 million versus the comparable period in 1994. Higher
prices for the corporation's main products resulted in a significant earnings
increase, the effect of which was partly offset by an increase in working
capital. Other non-cash charges include the first quarter 1995 $191 million
undiscounted charge for future lease payments on unused office space.
Investing debits to net income include the $220 million gain on the reduction
of the corporation's interest in UCAR.
Cash flow used for investing totaled $129 million for the first six months
compared to $107 million in 1994. In the first quarter of 1995, the
corporation purchased a 50 percent interest in Polimeri Europa for
$216 million and the ethylene oxide derivative businesses of ICI for
$80 million while receiving $343 million for half of its 50 percent equity
interest in UCAR. In 1994, the corporation invested $26 million in a
Brazilian ethylene company and received $86 million from the sale of its
remaining preferred stock investment in OSi Specialties, Inc.
Capital expenditures increased by $55 million in 1995 versus the same period
in 1994. Major projects include the UNIPOL II Unit at Taft (Star plant), La.,
a butanol unit and cogeneration facility at Taft, La., the ethylene propylene
rubber project at Seadrift, Tx. and an energy systems renewal unit at Texas
City, Tx.
Cash flow from financing was $55 million for the first six months of 1995,
representing an increase of $98 million over the same period in 1994. In June
the corporation completed a $400 million, two-part public offering of debt
securities which was used in part to refinance existing short-term debt.
Through the first half of 1995, the corporation repurchased 11.4 million
shares of common stock for $325 million. Since 1993, the corporation has
purchased 26.7 million shares for approximately $730 million pursuant to board
authorizations to repurchase up to a total of 40 million shares. The
corporation intends to acquire additional shares from time to time at
prevailing market rates consistent with the combination of corporate cash flow
and market conditions. Cash dividends to UCC common stockholders amounted to
$52 million in the first half of 1995 and $57 million in the first half of
1994.
The corporation's ratio of debt to total capital increased to 44.0 percent at
June 30, 1995 from 38.2 percent at December 31, 1994. At June 30, 1995 there
were no outstanding borrowings under the existing major bank credit agreements
aggregating $1.2 billion.
At June 30, 1995, the corporation had invested approximately $40 million for
contracts relating to the corporation's planned joint venture with
Petrochemical Industries Company in Kuwait. In July, the joint venture, Equate
Petrochemical Company K.S.C. ("Equate") was formed and the corporation's
investment increased to approximately $65 million. The level of additional
firm future commitments in support of Equate was approximately $65 million at
the end of July, 1995 and additional significant commitments are expected.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See Note 6 to the corporation's consolidated financial statements
on pages 9 through 11 of this 10-Q Report.
As reported in the corporation's Form 10-Q for the period ended
September 30, 1993, the U. S. Environmental Protection Agency ("EPA")
announced on September 28, 1993, the service of an administrative
complaint on Rhone-Poulenc Ag Company ("R-P") alleging violations of
the Resource Conservation and Recovery Act ("RCRA") with respect to
the operation of the hazardous waste boiler at Institute, West
Virginia. The complaint sought a civil penalty of $915,125 against
R-P. In June 1995, the EPA and R-P reached a settlement of this
matter pursuant to which R-P agreed to pay a penalty of $244,924.
Under an agreement between R-P and the corporation, the corporation
may be required to indemnify R-P for a portion of this penalty.
As reported in the corporation's Form 10-K for the period ended
December 31, 1993, the EPA issued a complaint and compliance order
to the corporation on February 23, 1994, alleging violations of RCRA
at the South Charleston, West Virginia plant. The complaint sought a
civil penalty of $320,300. On May 1, 1995, the corporation and EPA
reached a settlement of this matter pursuant to which the corporation
agreed to pay a penalty of $195,000.
Item 5. Other Information
On August 9, 1995, the corporation joined in UCAR International
Inc.'s ("UCAR") initial public offering to sell its remaining equity
interest in UCAR for net cash proceeds of approximately $200 million.
This sale will result in a significant, nonrecurring gain that will
be recorded in the third quarter of 1995.
Pro Forma Financial Information.
The unaudited pro forma information presented in Item 5 for the year
ended December 31, 1994 is derived from UCC's audited consolidated
statement of income for the year ended December 31, 1994. The
unaudited pro forma information presented in this section for the six
months ended June 30, 1995 is derived from UCC's unaudited condensed
consolidated statement of income for the six months ended June 30,
1995, which includes all adjustments (consisting of only normal
recurring accruals) that, in the opinion of management, are necessary
for a fair presentation of such data. The unaudited pro forma
information is presented for illustrative purposes only and does not
purport to represent what UCC's results of operations would have been
if the events described therein had occurred on the dates specified,
nor are they intended to project UCC's results of operations for any
future period. The unaudited pro forma information should be read in
conjunction with UCC's consolidated financial statements and notes
thereto which are contained in UCC's Annual Report on Form 10-K for the
year ended December 31, 1994 and in Part I of this Quarterly Report on
Form 10-Q for the quarter ended June 30, 1995.
In the first quarter of 1995, UCC acquired 50% of the equity of
Polimeri Europa, S.r.l., a joint venture company, and reduced its 50
percent interest in UCAR International Inc. ("UCAR"). Both of these
transactions are reflected in UCC's Condensed Consolidated Balance
Sheet as of June 30, 1995 included in Part I of this Form 10-Q for
the quarter ended June 30, 1995. On August 9, 1995, the corporation
joined in UCAR's initial public offering to sell its remaining equity
interest in UCAR for net cash proceeds of approximately $200 million.
The pro forma effect of this sale on the corporation's June 30, 1995
balance sheet is immaterial. A description of each of these
transactions and of their related pro forma effects on UCC's income
statements for the year ended December 31, 1994 and the quarter ended
June 30, 1995 follows.
(1) Polimeri Europa Equity Acquisition
On March 31, 1995, UCC acquired 50% of the equity of Polimeri Europa,
S.r.l., a joint venture company. EniChem S.p.A. retained the other
50% of the equity in PE. In anticipation of UCC's acquisition of its
equity interest, EniChem had transferred to PE all of its
polyethylene business, excluding its wire and cable compounds
business. The purchase price for UCC's 50% share of the joint
venture's equity was DM323,000,000 ($216 million), and was determined
by arms-length negotiations between UCC and EniChem.
The joint venture's business includes polyethylene production and
research and development facilities in Italy, Germany and France,
ethylene steam crackers in Italy and France, EniChem's polyethylene
resin technology, and EniChem's polyethylene sales activities. The
venture also holds a non-exclusive license of UCC's UNIPOL
technology. The shareholders intend to use the joint venture's
assets to continue to operate the polyethylene business.
If this acquisition had occurred effective January 1, 1994, UCC's
share of net income from corporate investments carried at equity and
net income - common stockholders for the year ended December 31, 1994
would have decreased less than $1 million.
During the first half of 1995 PE experienced higher prices for
substantially all of its products. If this acquisition had occurred
effective January 1, 1995, UCC's share of net income from corporate
investments carried at equity and net income - common stockholders
for the six months ended June 30, 1995 would have increased by $27
million, and earnings per share would have increased $0.19 per share,
primary, or $0.17 per share, fully diluted.
(2) UCAR International Recapitalization and Sales
On January 26, 1995, UCC and Mitsubishi Corporation of Japan
("Mitsubishi") concluded the sale of newly issued common stock
representing 75% of UCAR International Inc.'s outstanding shares to a
new company formed by Blackstone Capital Partners II Merchant Banking
Fund L.P. UCAR had been a 50/50 joint venture of UCC and Mitsubishi.
UCC received $343 million in net cash proceeds and retained a 25%
equity interest in UCAR. The transaction resulted in a nonrecurring
gain of $220 million ($154 million after tax, or $1.06 per share,
primary, or $0.95 per share, fully diluted). UCC used a portion of
the cash proceeds for the acquisition of a 50% interest in Polimeri
Europa, S.r.l., and the remainder for general corporate purposes.
On August 9, 1995, the corporation joined in UCAR's initial public
offering to sell its remaining equity interest in UCAR for net cash
proceeds of approximately $200 million. This sale will result in a
significant, nonrecurring gain that will be recorded in the third
quarter of 1995.
If these transactions had occurred effective January 1, 1994, UCC's
share of net income from corporate investments carried at equity and
net income - common stockholders for the year ended December 31, 1994
would have been reduced by $54 million, and earnings per share would
have decreased $0.35 per share, primary, or $0.32 per share, fully
diluted.
If these transactions had occurred effective January 1, 1995, UCC's
share of net income from corporate investments carried at equity and
net income - common stockholders for the six months ended June 30,
1995 would have been reduced by $4 million, and earnings per share
would have decreased $0.03 per share, primary and fully diluted.
Summary of Pro Forma Effects of 1995 Transactions
Had the Polimeri Europa equity acquisition and the UCAR International
recapitalization and sale transactions occurred effective January 1,
1994, UCC's share of net income from corporate investments carried at
equity and net income - common stockholders for the year ended
December 31, 1994 would have been reduced by $54 million, or $0.35
per share, primary, or $0.32 per share, fully diluted.
Had the Polimeri Europa equity acquisition and the UCAR International
recapitalization and sale transactions occurred effective January 1,
1995, UCC's equity share of net income from corporate investments
carried at equity and net income - common stockholders for the six
months ended June 30, 1995 would have been increased by $23 million,
or $0.16 per share, primary, or $0.14 per share, fully diluted.
The weighted average number of common shares used for the pro forma
earnings per share calculations for the six months ended June 30,
1995 and the year ended December 31, 1994 is 142,886,593 and
154,174,788 primary, respectively, and 159,794,027 and 170,886,405
fully diluted, respectively.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
The following exhibits are filed as part of this report:
11 - Computation of Earnings Per Share
27 - Financial Data Schedule.
(b) The corporation's Form 8-K dated April 10, 1995 as amended by
Form 8-K/A on May 26, 1995, reported the joint announcement by
the corporation and EniChem S.p.A. of the establishment of a new
company, Polimeri Europa S.r.l., which constitutes a 50-50 joint
venture between the two companies.
SIGNATURE
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
(Registrant)
Date: August 14, 1995 By: John K. Wulff
JOHN K. WULFF
Vice-President, Controller
and Principal Accounting
Officer
EXHIBIT INDEX
Exhibit Page
No. Exhibit No.
11 Computation of Earnings Per Share 22
27 Financial Data Schedule 23
<TABLE>
Exhibit 11
UNION CARBIDE CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(In millions of dollars except per share amounts)
<CAPTION>
Quarter Ended June 30,
1995 1994
Earnings Per Share - Primary
<S> <C> <C>
Income $ 228 $ 73
Less: Preferred stock dividend 4 4
Net income available to common stockholders
for primary income calculation $ 224 $ 69
Weighted average number of common
and common equivalent shares applicable
to primary earnings per share calculation
Weighted average number of shares outstanding 136,695,246 151,151,303
Dilutive effect of stock options 4,191,071 4,062,767
140,886,317 155,214,070
Earnings per share - primary $ 1.59 $ 0.44
Earnings Per Share Assuming Full Dilution
Income $ 228 $ 73
Less: Additional ESOP contribution resulting from
assumed conversion of preferred stock - -
Income for fully diluted income calculation $ 228 $ 73
Weighted average number of common
and common equivalent shares applicable to
fully diluted earnings per share calculation
Weighted average number of shares outstanding 136,695,246 151,151,303
Dilutive effect of stock options 4,543,319 4,077,109
Shares issuable upon conversion of UCC
convertible preferred stock 16,381,572 16,563,259
157,620,137 171,791,671
Per share assuming full dilution $ 1.44 $ 0.42
<CAPTION>
Six Months Ended June 30,
1995 1994
Earnings Per Share - Primary
<S> <C> <C>
Income $ 458 $ 136
Less: Preferred stock dividend 7 7
Net income available to common stockholders
for primary income calculation 451 $ 129
Weighted average number of common
and common equivalent shares applicable
to primary earnings per share calculation
Weighted average number of shares outstanding 138,768,552 151,106,994
Dilutive effect of stock options 4,118,041 4,014,959
142,886,593 155,121,953
Earnings per share - primary $ 3.16 $ 0.83
Earnings Per Share Assuming Full Dilution
Income $ 458 $ 136
Less: Additional ESOP contribution resulting from
assumed conversion of preferred stock - -
Income for fully diluted income calculation 458 136
Weighted average number of common
and common equivalent shares applicable to
fully diluted earnings per share calculation
Weighted average number of shares outstanding 138,768,552 151,106,994
Dilutive effect of stock options 4,620,613 4,229,726
Shares issuable upon conversion of UCC
convertible preferred stock 16,404,862 16,606,148
159,794,027 171,942,868
Per share assuming full dilution $ 2.86 $ 0.79
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27 - FINANCIAL DATA SCHEDULE - UNION CARBIDE CORPORATION
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNION
CARBIDE CORPORATION'S FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1995
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000100790
<NAME> UNION CARBIDE CORPORATION
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 222
<SECURITIES> 0
<RECEIVABLES> 1052
<ALLOWANCES> 11
<INVENTORY> 455
<CURRENT-ASSETS> 1981
<PP&E> 6118
<DEPRECIATION> 3493
<TOTAL-ASSETS> 5717
<CURRENT-LIABILITIES> 1273
<BONDS> 1292
<COMMON> 155
147
0
<OTHER-SE> 1523
<TOTAL-LIABILITY-AND-EQUITY> 5717
<SALES> 2994
<TOTAL-REVENUES> 2994
<CGS> 2102
<TOTAL-COSTS> 2102
<OTHER-EXPENSES> 225
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 41
<INCOME-PRETAX> 608
<INCOME-TAX> 181
<INCOME-CONTINUING> 458
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 453
<EPS-PRIMARY> 3.16
<EPS-DILUTED> 2.86
</TABLE>
