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 September 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 October 31, 1995
Common Stock, $1 par value 136,113,325 shares
Total number of sequentially numbered pages in this filing,
including exhibits thereto: 22
INDEX
PART I. FINANCIAL INFORMATION
PAGE
Financial Statements
Condensed Consolidated Statement of Income -
Union Carbide Corporation and Subsidiaries -
Quarter Ended September 30, 1995 and 1994.................... 3
Condensed Consolidated Statement of Income -
Union Carbide Corporation and Subsidiaries -
Nine Months Ended September 30, 1995 and 1994................ 4
Condensed Consolidated Balance Sheet - Union Carbide
Corporation and Subsidiaries - September 30, 1995 and
December 31, 1994............................................ 5
Condensed Consolidated Statement of Cash Flows -
Union Carbide Corporation and Subsidiaries -
Nine Months Ended September 30, 1995 and 1994................ 6
Notes to Condensed Consolidated Financial Statements -
Union Carbide Corporation and Subsidiaries................... 7-13
Discussion and Analysis of Results of Operations
and Financial Condition........................................ 14-17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings....................................... 18
Item 6. Exhibits and Reports on Form 8-K........................ 18
Signature........................................................ 19
Exhibit Index.................................................... 20
PART I. FINANCIAL INFORMATION
UNION CARBIDE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
Millions of dollars
(Except per share figures)
Quarter ended Sept. 30,
1995 1994
NET SALES $ 1,495 $ 1,252
Cost of sales, exclusive of depreciation and
amortization 1,038 953
Research and development 36 35
Selling, administration and other expenses(a) 148 69
Depreciation and amortization 72 69
Interest on long-term and short-term debt 23 22
Partnership income 26 21
Other expense (income) - net (171) 7
INCOME BEFORE PROVISION FOR INCOME TAXES 375 118
Provision for income taxes 122 35
INCOME OF CONSOLIDATED COMPANIES 253 83
Income from corporate investments carried at equity 24 13
NET INCOME 277 96
Preferred stock dividends, net of income taxes 2 2
NET INCOME - COMMON STOCKHOLDERS $ 275 $ 94
Earnings per common share
Primary $ 1.96 $ 0.61
Fully diluted $ 1.77 $ 0.57
Cash dividends per common share $ 0.1875 $ 0.1875
(a) Selling, administration and other expenses include:
Selling $ 32 $ 31
Administration 96 21
Other expenses 20 17
$ 148 $ 69
The Notes to Condensed Consolidated Financial Statements on Pages 7 through
13 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)
Nine months ended Sept. 30,
1995 1994
NET SALES $ 4,489 $ 3,555
Cost of sales, exclusive of depreciation and
amortization 3,140 2,715
Research and development 106 100
Selling, administration and other expenses(a) 306 213
Depreciation and amortization 227 203
Interest on long-term and short-term debt 64 58
Partnership income 121 73
Other expense (income) - net (216) 59
INCOME BEFORE PROVISION FOR INCOME TAXES 983 280
Provision for income taxes 303 83
INCOME OF CONSOLIDATED COMPANIES 680 197
Income from corporate investments carried at equity 55 35
NET INCOME 735 232
Preferred stock dividends, net of income taxes 7 7
NET INCOME - COMMON STOCKHOLDERS $ 728 $ 225
Earnings per common share
Primary $ 5.11 $ 1.44
Fully diluted $ 4.61 $ 1.35
Cash dividends per common share $ 0.5625 $ 0.5625
(a) Selling, administration and other expenses include:
Selling $ 95 $ 92
Administration 159 74
Other expenses 52 47
$ 306 $ 213
The Notes to Condensed Consolidated Financial Statements on Pages 7 through
13 should be read in conjunction with this statement.
UNION CARBIDE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
Millions of dollars
Sept. 30, Dec. 31,
1995 1994
ASSETS
Cash and cash equivalents $ 498 $ 109
Notes and accounts receivable 1,024 898
Inventories 496 390
Prepaid expenses 194 217
Total current assets 2,212 1,614
Property, plant and equipment 6,254 5,889
Less: Accumulated depreciation 3,554 3,347
Net fixed assets 2,700 2,542
Companies carried at equity 694 418
Other investments and advances 85 88
Total investments and advances 779 506
Other assets 394 366
Total assets $6,085 $5,028
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 290 $ 326
Short-term debt 18 28
Payments to be made within 1 year on
long-term debt 17 19
Accrued income and other taxes 308 179
Other accrued liabilities 669 733
Total current liabilities 1,302 1,285
Long-term debt 1,287 899
Postretirement benefit obligation 501 488
Other long-term obligations 794 537
Deferred credits 191 242
Minority stockholders' equity in consolidated
subsidiaries 24 24
Convertible preferred stock - ESOP 146 148
Unearned employee compensation - ESOP (99) (104)
UCC stockholders' equity:
Common stock authorized - 500,000,000 shares
Common stock issued - 154,609,669 shares 155 155
Additional paid-in capital 345 369
Translation and other equity adjustments (6) (59)
Retained earnings 1,984 1,333
2,478 1,798
Less: Treasury stock, at cost-18,697,786 shares
(10,197,367 shares in 1994) 539 289
Total UCC stockholders' equity 1,939 1,509
Total liabilities and stockholders' equity $6,085 $5,028
The Notes to Condensed Consolidated Financial Statements on Pages 7 through
13 should be read in conjunction with this statement.
UNION CARBIDE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Millions of dollars
Nine months ended Sept. 30,
1995 1994
Increase (decrease) in
cash and cash equivalents
OPERATIONS
Income $ 735 $ 232
Noncash charges (credits) to net income
Depreciation and amortization 227 203
Deferred income taxes (47) 7
Other noncash charges 183 35
Investing debits to net income (382) (18)
Working capital(a) (233) (236)
Long-term assets and liabilities 44 109
Cash Flow From Operations 527 332
INVESTING
Capital expenditures (364) (269)
Investments (298) (43)
Purchase of fixed and other assets (80) -
Sale of investments 552 87
Sale of fixed and other assets 36 47
Cash Flow Used for Investing (154) (178)
FINANCING
Change in short-term debt (three months or less) (10) 65
Proceeds from short-term debt - 4
Proceeds from long-term debt 402 17
Repayment of long-term debt (18) (33)
Issuance of common stock 68 59
Repurchase of common stock (343) (161)
Payments of dividends (87) (95)
Other 3 6
Cash Flow From (Used for) Financing 15 (138)
Effect of exchange rate changes on cash and
cash equivalents 1 -
Change in cash and cash equivalents 389 16
Cash and cash equivalents beginning-of-period 109 108
Cash and cash equivalents end-of-period $ 498 $ 124
Cash paid for interest and income taxes
Interest (net of amount capitalized) $ 59 $ 75
Income taxes $ 221 $ 49
_____________
(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 $(134) $(214)
Inventories (91) (16)
Prepaid expenses 23 (6)
Decrease in payables and accruals (31) -
Working capital $(233) $(236)
The Notes to Condensed Consolidated Financial Statements on Pages 7 through
13 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 $199 million.
This sale resulted in a gain of $161 million ($99 million after tax). 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 nine months ended September 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 nine months ended September 30, 1994 would
have been reduced by $35 million, and earnings per share would have
decreased $0.23 per share, primary, or $0.20 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 nine months ended September 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 nine months ended September 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 nine months ended
September 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 nine months ended September 30, 1994 would have
decreased by $57 million, or $0.37 per share, primary, or $0.33 per share,
fully diluted. The weighted average number of common shares used for the
pro forma earnings per share calculations for the nine months ended
September 30, 1995 and 1994 is 142,086,594 and 154,976,847 primary,
respectively, and 159,223,673 and 172,332,479 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.
On July 15, 1995, the corporation, Petrochemical Industries Company of
Kuwait and Boubyan Petrochemical Company executed final agreements to
formally establish Equate Petrochemical Company K.S.C. ("Equate"), 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. At September 30, 1995, the corporation had invested
approximately $75 million on behalf of the venture and had additional
commitments approximating $225 million. Additional significant
commitments are anticipated.
During the first quarter of 1995, the corporation recognized a
non-recurring, non-cash charge of $191 million ($134 million after-tax)
for future minimum lease payments on unused office space, primarily at the
corporation's Danbury headquarters. The headquarters charge reflects the
pro rata costs of unused office space over the remaining term of the
lease, which runs to 2006, less anticipated net sublease income. Neither
the expected future costs nor expected net sub-lease revenues were
discounted. 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).
During the third quarter of 1995, the corporation recorded a charge of
$68 million ($49 million after tax) for postemployment benefits. The
charge includes severance costs relating to future staff reductions
associated with work process simplification efforts and changes in the
corporation's severance benefits.
3. Segment Information
The company's operations are classified into two main business segments,
Basic Chemicals & Polymers and Specialties & Intermediates. The Basic
Chemicals & Polymers Segment includes the corporation's ethylene and
propylene manufacturing operations as well as the production of first
level ethylene derivatives - polyethylene and ethylene oxide/glycol. The
Specialties & Intermediates Segment includes the corporation's specialty
chemicals and polymers product lines, licensing and solvents and chemical
intermediates. The corporation's non-core operations and financial
transactions are included in "Other".
Information about the corporation's operations in its business segments
for the third quarter of 1995 and 1994, the nine month periods ended
September 30, 1995 and 1994, and calendar years 1994, 1993 and 1992 is as
follows:
<TABLE>
<CAPTION>
Millions of dollars
Quarter ended Nine months ended
September 30, September 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Sales
Basic Chemicals & Polymers $ 565 $ 369 $1,590 $ 987
Specialties & Intermediates 1,014 925 3,117 2,694
Intersegment Eliminations (84) (42) (218) (126)
Total $1,495 $1,252 $4,489 $3,555
Operating Profit
Basic Chemicals & Polymers $ 121 $ 2 $ 329 $ (75)
Specialties & Intermediates 115 145 532 470
Other 162 (7) 186 (57)
Total $ 398 $ 140 $1,047 $ 338
Depreciation and Amortization
Basic Chemicals & Polymers $ 27 $ 25 $ 82 $ 77
Specialties & Intermediates 45 44 145 126
Total $ 72 $ 69 $ 227 $ 203
Capital Expenditures
Basic Chemicals & Polymers $ 39 $ 46 $ 98 $ 110
Specialties & Intermediates 114 67 266 159
Total $ 153 $ 113 $ 364 $ 269
<CAPTION>
Millions of dollars
Year ended December 31,
1994 1993 1992
<S> <C> <C> <C>
Sales
Basic Chemicals & Polymers $1,411 $1,324 $1,422
Specialties & Intermediates 3,636 3,487 3,619
Intersegment Eliminations (182) (171) (169)
Total $4,865 $4,640 $4,872
Operating Profit
Basic Chemicals & Polymers $ (22) $ (208) $ (133)
Specialties & Intermediates 634 526 422
Other (61) (21) 35
Total $ 551 $ 297 $ 324
Depreciation and Amortization
Basic Chemicals & Polymers $ 105 $ 99 $ 110
Specialties & Intermediates 169 177 183
Total $ 274 $ 276 $ 293
Capital Expenditures
Basic Chemicals & Polymers $ 156 $ 155 $ 216
Specialties & Intermediates 253 240 143
Total $ 409 $ 395 $ 359
</TABLE>
Following is an analysis of identifiable assets by segment:
Millions of dollars
Sept. 30, Dec. 31, Dec. 31,
1995 1994 1993
Basic Chemicals & Polymers $2,010 $1,511 $1,363
Specialties & Intermediates 3,438 3,111 2,869
Other 637 406 457
Total $6,085 $5,028 $4,689
Sales of the Basic Chemicals & Polymers Segment include intersegment
sales, principally ethylene oxide, which are made at the estimated market
value of the products transferred. Operating profit is income before
provision for income taxes and interest expense.
The operating profit of the Basic Chemicals & Polymers Segment for the
first nine months of 1995 includes a $20 million charge in the third
quarter for postemployment benefits. The operating profit of the
Specialties & Intermediates Segment for the first nine months of 1995
includes a $48 million charge in the third quarter for postemployment
benefits and an increase of $12 million in depreciation expense related to
a reduction in the depreciable lives of certain computer equipment. Other
operating profit for the first nine months of 1995 includes a gain of
$381 million on the sales of the corporation's interest in UCAR
International Inc., of which $161 million was recognized in the third
quarter, and a charge of $191 million for future lease payments on unused
office space primarily at the corporation's Danbury headquarters.
The 1994 operating profit of the Specialties & Intermediates Segment
includes an $81 million gain on the sale of a manufacturing facility and
distribution terminal in Hong Kong, a $74 million charge for litigation
costs and other costs primarily related to divested operations and, in the
first nine month period of the year, a $24 million gain on a preferred
stock investment in the OrganoSilicon business ("OSi"). Other 1994
operating profit includes, in the first nine months of the year, a $24
million charge from the write-down and sale of the corporation's
stockholding in Union Carbide India Limited and a $12 million loss on the
sale of the corporation's interest in a uranium mill and certain uranium
mines.
The 1993 operating profit of the Basic Chemicals & Polymers Segment
includes a $46 million charge from the shut-down of an ethylene
oxide/glycol manufacturing facility at Montreal East, Quebec, Canada and a
$9 million loss on the write-down of a Canadian business. The 1993
operating profit of the Specialties & Intermediates Segment includes a $54
million gain from the sale of OSi and a $9 million loss on the sale of a
medical device company. Other 1993 operating profit includes a gain of
$8 million on the sale of a corporate aircraft.
The 1992 operating profit of the Specialties & Intermediates Segment
includes a $35 million charge for severance expense associated with the
corporation's profit improvement program and a $25 million gain from the
settlement of a patent infringement case. Other 1992 operating profit
includes a $34 million gain on the sales of the corporation's investments
in Exel Limited, a casualty insurance company, an $8 million gain on the
sale of a corporate aircraft, a $21 million charge related to discontinued
and noncore businesses, and $9 million of debt redemption costs.
4. 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.
5. 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 September 30, 1995, the
corporation had repurchased 27,249,378 shares since inception of the
program (11,937,118 during 1995) at an average effective price of $27.449
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 5.5 million shares of common stock to UCC, at specified prices
upon exercise of the options. Since inception of this program, through
September 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.
Options representing 450,000 shares remain outstanding at September 30,
1995.
Premiums received since the inception of the program have reduced the
average price of repurchased shares from $27.611 per share to $27.449 per
share.
6. Inventories
Millions of dollars
Sept. 30, Dec. 31,
1995 1994
Raw materials and supplies $ 113 $ 103
Work in process 39 41
Finished goods 344 246
$ 496 $ 390
7. 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 September 30, 1995 totaled $397 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 September 30, 1995, the corporation had established environmental
remediation accruals in the amount of $325 million. These accruals have
two components, estimated future expenditures for site
investigation/cleanup and estimated expenditures for closure/postclosure
activities. In addition, the corporation had environmental loss
contingencies of $152 million.
The corporation has sole responsibility for the remediation of
approximately half of its environmental sites. These sites are well
advanced in the investigation/cleanup stage. The corporation's
environmental accruals at September 30, 1995 included $237 million for
these sites, of which $105 million was for estimated future expenditures
for site investigation/cleanup and $132 million was for estimated future
expenditures for closure/postclosure activities. In addition, $68 million
of the corporation's environmental loss contingencies related to these
sites. The site with the largest total potential cost to the corporation
is a non-operating site. Of the above accruals, this site accounted for
$48 million, of which $26 million was for estimated future expenditures
for site investigation/cleanup and $22 million was for estimated future
expenditures for closure/postclosure activities. In addition, $15 million
of the above environmental loss contingencies related to this site.
The corporation does not have sole responsibility at the remainder of its
environmental sites. All of these sites are in the investigation/cleanup
stage. The corporation's environmental accruals at September 30, 1995
included $88 million for estimated future expenditures for site
investigation/cleanup at these sites. In addition, $84 million of the
corporation's environmental loss contingencies related to these sites.
The largest of these sites is also a non-operating site. Of the above
accruals, this site accounted for $19 million for estimated future
expenditures for site investigation/cleanup. In addition, $18 million of
the above environmental loss contingencies related to this site.
In 1994, worldwide expenses of continuing operations 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, totaled $153
million. Expenses in 1993 and 1992 were $149 million and $150 million,
respectively. While estimates of the costs of environmental protection
for 1995 are necessarily imprecise, the corporation estimates that the
level of these expenses will not change materially.
The corporation had additional contingent obligations at September 30,
1995 of $93 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
4,379 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.
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.
Based upon a sampling of claims filed, the Court determined that the total
amount of current claims likely to be approved for payment would
substantially exceed the $1.2 billion 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. Recently,
negotiators for certain manufacturers reached preliminary agreement on a
revised settlement agreement, subject to appropriate corporate approvals.
The corporation is not a party to the proposed agreement but continues to
participate in discussions regarding a revised settlement. At this time it is
not possible to predict whether the corporation will choose to participate
in a revised settlement agreement. The corporation has previously recorded
a liability for $138 million, and an insurance recovery receivable of $103
million, resulting in a net before-tax charge of $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 third quarter, 1995 net income available to common
stockholders of $275 million, or $1.77 per share, fully diluted ($1.96 per
share, primary). For the first nine months of 1995 net income available to
common stockholders was $728 million, or $4.61 per share, fully diluted ($5.11
per share, primary).
For the corresponding quarter in 1994 the corporation reported earnings of
$94 million, or $0.57 per share, fully diluted ($0.61 per share, primary). For
the first nine months of 1994 net income available to common shareholders was
$225 million, or $1.35 per share, fully diluted ($1.44 per share, primary).
The corporation's earnings for both the three and nine month periods ending
September 30, 1995 benefited from higher selling prices for most products as
compared to the same periods in 1994. Third quarter margins were higher than
those of the corresponding prior year period. Average selling prices
improved, while raw material feedstock prices were slightly lower than in
1994. Total volumes declined slightly in the third quarter of 1995 in
comparison to 1994, as a decrease in Specialties & Intermediates volumes more
than offset an increase in the volumes of the Basic Chemicals & Polymers
Segment. 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.
Beginning with this quarterly report on Form 10-Q, the corporation is
providing disaggregated disclosure for two main business segments, Basic
Chemicals & Polymers and Specialties & Intermediates.
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 remainder of the year, partially offset by improved ethylene
glycol pricing. Operating profit of the corporation's Specialties &
Intermediates business should improve in the fourth quarter due to the
absence of a $48 million charge for postemployment benefits
included in the Segment's third quarter 1995 operating profit. The outlook
on market conditions for the corporation's major joint ventures generally
tracks the outlook for the corporation.
Results of Operations
Sales increased over 19 percent in the third quarter, and over 26 percent in
the first nine months, of 1995 over the same periods of 1994. Prices were
higher on a quarter-to-quarter and nine month basis. Quarterly volumes
declined 2 percent, and nine month volumes increased 1 percent, in comparison
to the corresponding prior periods.
The corporation's variable margin for the third quarter of 1995 was
48.5 percent, compared to 44.9 percent in the third quarter of 1994. For the
nine month period ending September 30, 1995 variable margin was 48.2 percent
as opposed to 45.6 percent in the same period last year. Current year gross
margin (variable margin less fixed manufacturing and distribution costs)
continued to rise dramatically over 1994 reflecting the improved variable
margins coupled with relatively modest increases in fixed manufacturing and
distribution costs. Gross margin was 30.6 percent for the third quarter of
1995 (23.9 percent in the third quarter of 1994) and 30.1 percent for the nine
month period ended September 30, 1995 (23.6 percent in the comparable prior
year period). Fixed manufacturing and distribution costs increased
2.3 percent versus the prior year quarter and 4.4 percent versus the prior
year nine month period due to the acquisition of ICI's ethylene oxide
derivative businesses, increased employee profit sharing expense and expenses
associated with increased capital spending.
Sales of the Basic Chemicals & Polymers Segment increased 53 percent to $565
million in the third quarter of 1995 from $369 million in the comparable
quarter of 1994. Operating profit for the third quarter of 1995, which
included a $20 million charge for postemployment benefits, increased to $121
million from $2 million. The increases are attributable to higher prices and
increased ethylene oxide/glycol volumes.
Sales of the Specialties & Intermediates Segment increased 10 percent to
$1,014 million in the third quarter of 1995 over that of 1994. Operating
profit for the third quarter of 1995 was $115 million, versus $145 million for
the comparable quarter of 1994. Improved prices, which more than offset small
volume declines, accounted for the sales increase, while 1995 operating profit
included a $48 million charge for postemployment benefits.
Selling, administrative and other expenses included a $68 million charge for
postemployment benefits in the third quarter of 1995. Excluding this charge,
selling, administrative and other expenses rose $11 million versus the third
quarter of 1994, and rose $25 million for the nine month period of 1995 versus
the comparable period in 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 these increases.
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 third quarter of
1995 rose $3 million over the same period last year as a result of increased
plant and equipment.
Partnership income increased $5 million in the third quarter of 1995 versus
the comparable quarter in 1994, and increased $48 million for the nine months
of 1995 over last year. While year to year comparisons are favorable,
partnership results weakened during the third quarter of 1995 versus preceding
quarters of the year as a result of declines in polymer prices which
negatively impacted the polyolefins partnerships, as well as seasonal factors
at UOP.
Other expense (income) - net for the first nine months of 1995 included the
following items: a $381 million gain on the corporation's reduction of its
equity interest in UCAR and a non-cash charge of $191 million for future
minimum lease payments on unused office space, primarily at the corporation's
Danbury headquarters. The headquarters charge reflects the pro rata costs of
unused office space over the remaining term of the lease, which runs to 2006,
less anticipated net sublease income. Neither the expected future costs nor
expected net sub-lease revenues were discounted. Included in the first nine
months of 1994 were a $24 million charge for the writeoff of the corporation's
investment in India and associated costs, a $12 million charge 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 $6 million in the first nine months of 1995 when
compared to the same period last year reflecting higher interest rates and
increased borrowings.
During the third quarter of 1995 earnings from the corporation's investments
carried at equity included the results of Polimeri Europa, the newly formed
Italian joint venture, which 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's environmental exposures are discussed in
more detail in the Commitments and Contingencies footnote to the financial
statements on pages 11 through 13 of this report on Form 10-Q.
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 11 through 13
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 - September 30, 1995
Cash flow from operations was $527 million for the first nine months of 1995,
an improvement of $195 million versus the comparable period of 1994. Higher
prices and volumes 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 minimum lease payments on
unused office space and a $68 million charge for postemployment benefits
related to staff reductions associated with work process simplification
efforts and changes in the corporation's severance benefits. Investing debits
to net income include the $381 million gain on the sale of the corporation's
interest in UCAR.
Cash flow used for investing totaled $154 million for the first nine months
compared to $178 million in 1994. In the first nine months 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, and received $542 million for its 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.
On July 15, 1995, the corporation, Petrochemical Industries Company of Kuwait
and Boubyan Petrochemical Company executed final agreements to formally
establish Equate Petrochemical Company K.S.C. ("Equate"), 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. At
September 30, 1995, the corporation had invested approximately $75 million on
behalf of the venture and had additional commitments approximating
$225 million. Additional significant commitments are anticipated.
Capital expenditures increased by $95 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., an energy systems renewal unit at Texas City,
Tx. and an upgrade to the information technology infrastructure in preparation
for the installation of integrated information technology systems throughout
the corporation.
Cash flow from financing was $15 million for the first nine months of 1995,
representing an increase of $153 million over the same period in 1994. In
June 1995 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 nine months of 1995, the corporation repurchased
11.9 million shares of common stock for $343 million. Since 1993, the
corporation has purchased 27.2 million shares for approximately $750 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 $78 million in the first nine months of 1995 and $85 million in
the first nine months of 1994.
The corporation's ratio of debt to total capital increased to 40.3 percent at
September 30, 1995 from 38.2 percent at December 31, 1994. At September 30,
1995 there were no outstanding borrowings under the existing major bank credit
agreements aggregating $1.2 billion.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See Note 7 to the corporation's consolidated financial statements on
pages 11 through 13 of this 10-Q Report.
As reported in the corporation's Form 10-K for the period ended
December 31, 1994, on February 14, 1995 the U.S. Environmental
Protection Agency ("EPA") issued a complaint to the corporation
alleging violations of the Federal Insecticide, Fungicide, and
Rodenticide Act with a proposed civil penalty of $400,000. This
matter concerns a discontinued medical instrument sterilant. The
corporation voluntarily requested cancellation of its pesticide
registration. On October 10, 1995, a settlement of that matter was
approved by the EPA Environmental Appeals Board pursuant to which the
corporation agreed to pay a penalty of $80,000.
As reported in the corporation's Form 10-Q for the period ended
March 31, 1994, on March 31, 1994 the EPA filed a complaint against
the corporation alleging violations of the Federal Resource
Conservation and Recovery Act and the Texas Solid Waste Disposal Act
at the corporation's Texas City, Texas plant. The complaint sought a
civil penalty of $139,000. On October 26, 1995, a settlement of this
matter was approved by the Regional Administrator of Region VI of EPA
pursuant to which the corporation agreed to pay a civil penalty of
$61,000.
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) No reports on Form 8-K were filed for the three months ended
September 30, 1995
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: November 13, 1995 By: /s/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 21
27 Financial Data Schedule 22
<TABLE>
Exhibit 11
UNION CARBIDE CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(In millions of dollars except per share amounts)
<CAPTION>
Quarter Ended Sept. 30,
1995 1994
Earnings Per Share - Primary
<S> <C> <C>
Income $ 277 $ 96
Less: Preferred stock dividend 3 2
Net income available to common stockholders
for primary income calculation $ 274 $ 94
Weighted average number of common
and common equivalent shares applicable
to primary earnings per share calculation
Weighted average number of shares outstanding 135,666,903 150,009,443
Dilutive effect of stock options 4,657,138 4,518,960
140,324,041 154,528,403
Earnings per share - primary $ 1.96 $ 0.61
Earnings Per Share - Fully Diluted
Income $ 277 $ 96
Weighted average number of common
and common equivalent shares applicable to
fully diluted earnings per share calculation
Weighted average number of shares outstanding 135,666,903 150,009,443
Dilutive effect of stock options 4,896,059 4,812,336
Shares issuable upon conversion of UCC
convertible preferred stock 16,311,909 16,503,425
156,874,871 171,325,204
Earnings per share - fully diluted $ 1.77 $ 0.57
<CAPTION>
Nine Months Ended Sept. 30,
1995 1994
Earnings Per Share - Primary
<S> <C> <C>
Income $ 735 $ 232
Less: Preferred stock dividend 9 9
Net income available to common stockholders
for primary income calculation $ 726 $ 223
Weighted average number of common
and common equivalent shares applicable
to primary earnings per share calculation
Weighted average number of shares outstanding 137,723,307 150,737,123
Dilutive effect of stock options 4,363,287 4,239,724
142,086,594 154,976,847
Earnings per share - primary $ 5.11 $ 1.44
Earnings Per Share - Fully Diluted
Income $ 735 $ 232
Weighted average number of common
and common equivalent shares applicable to
fully diluted earnings per share calculation
Weighted average number of shares outstanding 137,723,307 150,737,123
Dilutive effect of stock options 5,126,829 5,023,826
Shares issuable upon conversion of UCC
convertible preferred stock 16,373,537 16,571,530
159,223,673 172,332,479
Earnings per share - fully diluted $ 4.61 $ 1.35
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNION
CARBIDE CORPORATION'S FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 498
<SECURITIES> 0
<RECEIVABLES> 1039
<ALLOWANCES> 15
<INVENTORY> 496
<CURRENT-ASSETS> 2212
<PP&E> 6254
<DEPRECIATION> 3554
<TOTAL-ASSETS> 6085
<CURRENT-LIABILITIES> 1302
<BONDS> 1287
<COMMON> 155
146
0
<OTHER-SE> 1784
<TOTAL-LIABILITY-AND-EQUITY> 6085
<SALES> 4489
<TOTAL-REVENUES> 4489
<CGS> 3140
<TOTAL-COSTS> 3140
<OTHER-EXPENSES> 333
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 64
<INCOME-PRETAX> 983
<INCOME-TAX> 303
<INCOME-CONTINUING> 735
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<NET-INCOME> 728
<EPS-PRIMARY> 5.11
<EPS-DILUTED> 4.61
</TABLE>
