UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D C 20549
FORM 10-Q/A No. 1
(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: 7
The undersigned registrant hereby amends "Note 6. - Commitments and
Contingencies" in Financial Statements - Notes to Condensed Consolidated
Financial Statements - Union Carbide Corporation and Subsidiaries, and
"Results of Operations" in Discussion and Analysis of Results of Operations
and Financial Condition, in Part I of the Quarterly Report on Form 10-Q for
the quarter ended June 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: October 5, 1995 By: /s/John K. Wulff
JOHN K. WULFF
Vice-President, Controller
and Principal Accounting
Officer
UNION CARBIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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. 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 $181 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 June 30, 1995 included $243 million for these
sites, of which $104 million was for estimated future expenditures for
site investigation/cleanup and $139 million was for estimated future
expenditures for closure/postclosure activities. In addition, $83 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, $27 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 June 30, 1995 included
$66 million for estimated future expenditures for site
investigation/cleanup at these sites. In addition, $98 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 $21 million for estimated future
expenditures for site investigation/cleanup. In addition, $17 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 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, 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
negotiate with the Plaintiffs' Negotiating Committee. At this time it is not
possible to predict whether the corporation will choose to participate in a
revised settlement agreement. Dow Corning Corporation, the largest
contributor to the original 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 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
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's environmental exposures are 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.
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.
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