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, 1996
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, 1996
Common Stock, $1 par value 129,649,367 shares
Total number of sequentially numbered pages in this filing,
including exhibits thereto: 19
INDEX
PART I. FINANCIAL INFORMATION
PAGE
Financial Statements
Condensed Consolidated Statement of Income -
Union Carbide Corporation and Subsidiaries -
Quarter Ended June 30, 1996 and 1995......................... 3
Condensed Consolidated Statement of Income -
Union Carbide Corporation and Subsidiaries -
Six Months Ended June 30, 1996 and 1995...................... 4
Condensed Consolidated Balance Sheet - Union Carbide
Corporation and Subsidiaries - June 30, 1996 and
December 31, 1995............................................ 5
Condensed Consolidated Statement of Cash Flows -
Union Carbide Corporation and Subsidiaries -
Six Months Ended June 30, 1996 and 1995...................... 6
Notes to Condensed Consolidated Financial Statements -
Union Carbide Corporation and Subsidiaries................... 7-10
Discussion and Analysis of Results of Operations
and Financial Condition........................................ 11-14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings....................................... 15
Item 5. Other Information....................................... 15
Item 6. Exhibits and Reports on Form 8-K........................ 15
Signature........................................................ 16
Exhibit Index.................................................... 17
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,
1996 1995
NET SALES $ 1,559 $ 1,541
Cost of sales, exclusive of depreciation and
amortization 1,150 1,103
Research and development 40 34
Selling, administration and other expenses(a) 78 83
Depreciation and amortization 79 72
Interest expense 14 22
Partnership income (37) (51)
Other expense (income) - net 4 (8)
INCOME BEFORE PROVISION FOR INCOME TAXES 231 286
Provision for income taxes 65 84
INCOME OF CONSOLIDATED COMPANIES 166 202
Income from corporate investments
carried at equity 7 26
NET INCOME 173 228
Preferred stock dividend, net of income taxes 3 3
NET INCOME - COMMON STOCKHOLDERS $ 170 $ 225
Earnings per common share
Primary $ 1.23 $ 1.59
Fully diluted $ 1.12 $ 1.44
Cash dividends declared per common share $ 0.1875 $ 0.1875
(a) Selling, administration and other expenses include:
Selling $ 32 $ 32
Administration 28 35
Other expenses 18 16
$ 78 $ 83
The Notes to Condensed Consolidated Financial Statements on Pages 7 through 10
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,
1996 1995
NET SALES $ 3,060 $ 2,994
Cost of sales, exclusive of depreciation and
amortization 2,249 2,102
Research and development 76 70
Selling, administration and other expenses(a) 159 158
Depreciation and amortization 154 155
Interest expense 37 41
Partnership income (63) (95)
Other income - net (19) (45)
INCOME BEFORE PROVISION FOR INCOME TAXES 467 608
Provision for income taxes 131 181
INCOME OF CONSOLIDATED COMPANIES 336 427
Income (loss) from corporate investments
carried at equity (6) 31
NET INCOME 330 458
Preferred stock dividend, net of income taxes 5 5
NET INCOME - COMMON STOCKHOLDERS $ 325 $ 453
Earnings per common share
Primary $ 2.34 $ 3.16
Fully diluted $ 2.13 $ 2.86
Cash dividends declared per common share $ 0.375 $ 0.375
(a) Selling, administration and other expenses include:
Selling $ 64 $ 63
Administration 59 63
Other expenses 36 32
$ 159 $ 158
The Notes to Condensed Consolidated Financial Statements on Pages 7 through 10
should be read in conjunction with this statement.
UNION CARBIDE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
Millions of dollars
June 30, Dec. 31,
1996 1995
ASSETS
Cash and cash equivalents $ 78 $ 449
Notes and accounts receivable 1,079 996
Inventories 515 544
Other current assets 184 207
Total current assets 1,856 2,196
Property, plant and equipment 6,875 6,357
Less: Accumulated depreciation 3,673 3,549
Net fixed assets 3,202 2,808
Companies carried at equity 739 739
Other investments and advances 94 84
Total investments and advances 833 823
Other assets 443 429
Total assets $6,334 $6,256
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 342 $ 316
Short-term debt and current portion of
long-term debt 92 38
Accrued income and other taxes 196 259
Other accrued liabilities 660 725
Total current liabilities 1,290 1,338
Long-term debt 1,288 1,285
Postretirement benefit obligation 490 480
Other long-term obligations 858 834
Deferred credits 264 201
Minority stockholders' equity in consolidated
subsidiaries 28 24
Convertible preferred stock - ESOP 145 146
Unearned employee compensation - ESOP (94) (97)
Stockholders' equity:
Common stock authorized - 500,000,000 shares
Common stock issued - 154,609,669 shares 155 155
Additional paid-in capital 328 343
Translation and other equity adjustments (26) (15)
Retained earnings 2,420 2,145
2,877 2,628
Less: Treasury stock, at cost-23,953,501 shares
(19,501,701 shares in 1995) 812 583
Total stockholders' equity 2,065 2,045
Total liabilities and stockholders' equity $6,334 $6,256
The Notes to Condensed Consolidated Financial Statements on Pages 7 through 10
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,
1996 1995
Increase (decrease) in
cash and cash equivalents
OPERATIONS
Income $ 330 $ 458
Noncash charges (credits) to net income
Depreciation and amortization 154 155
Deferred income taxes 24 (62)
Other noncash charges 7 128
Net gains on investing transactions (1) (217)
Increase in working capital(a) (106) (301)
Long-term assets and liabilities 16 25
Cash Flow From Operations 424 186
INVESTING
Capital expenditures (363) (211)
Investments and acquisitions (excluding
cash acquired) (262) (309)
Sale of investments - 344
Sale of fixed and other assets 12 47
Cash Flow Used for Investing (613) (129)
FINANCING
Change in short-term debt (three months or less) 68 2
Proceeds from short-term debt 21 -
Repayment of short-term debt (26) -
Proceeds from long-term debt - 402
Repayment of long-term debt (5) (14)
Issuance of common stock 87 46
Purchase of common stock (272) (325)
Payment of dividends (56) (58)
Other 1 2
Cash Flow From (Used for) Financing (182) 55
Effect of exchange rate changes on cash and
cash equivalents - 1
Change in cash and cash equivalents (371) 113
Cash and cash equivalents beginning-of-period 449 109
Cash and cash equivalents end-of-period $ 78 $ 222
Cash paid for interest and income taxes
Interest (net of amount capitalized) $ 32 $ 55
Income taxes $ 110 $ 195
_____________
(a) Net change in certain components of working capital (excluding
non-cash transactions):
(Increase) decrease in current assets
Notes and accounts receivable $ (58) $(155)
Inventories 68 (50)
Other current assets 4 (30)
Decrease in payables and accruals (120) (66)
Increase in working capital $(106) $(301)
The Notes to Condensed Consolidated Financial Statements on Pages 7 through 10
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 1995 annual report to stockholders.
2. Acquisitions
On January 18, 1996, the corporation completed the purchase of the
polypropylene assets and business of Shell Oil Company. The purchased
assets, located in the U.S., are comprised of Shell's polypropylene
technology and manufacturing facilities and polypropylene assets
previously held jointly by both companies. Additionally, on February 28,
1996, the corporation completed the purchase of 95 percent of the
outstanding shares of Companhia Alcoolquimica Nacional, a Brazilian
producer of vinyl acetate monomer. The polypropylene resin business is
part of the Basic Chemicals & Polymers Segment, while the polypropylene
licensing and catalyst businesses and the Brazilian vinyl acetate monomer
business are included within the Specialties & Intermediates Segment.
3. Common Stock
On July 24, 1996, the board of directors of the corporation increased the
number of shares that may be repurchased under the existing common stock
repurchase program to 50 million shares. Through June 30, 1996, since
inception of its common share repurchase program, the corporation
repurchased 36,813,978 shares (7,374,500 during 1996) at an average
effective price of $31.06 per share. The corporation intends 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 8,172,581 shares of common stock to UCC, at specified prices upon
exercise of the options. Since inception of this program, through June
30, 1996, options representing 5,986,381 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 1,050,000 shares remain outstanding at June 30, 1996.
Premiums received since the inception of the program have reduced the
average price of repurchased shares from $31.28 per share to $31.06 per
share.
4. Inventories
Millions of dollars
June 30, Dec. 31,
1996 1995
Raw materials and supplies $ 108 $ 117
Work in process 51 46
Finished goods 356 381
$ 515 $ 544
5. Commitments and Contingencies
The corporation has entered into 3 major agreements for the purchase of
ethylene-related products and 2 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, 1996 totaled $373 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, 1996, the corporation had established environmental remediation
accruals in the amount of $331 million. These accruals have two components,
estimated future expenditures for site investigation/cleanup and estimated
future expenditures for closure/postclosure activities. In addition, the
corporation had environmental loss contingencies of $164 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, 1996 included $240 million for these
sites, of which $112 million was for estimated future expenditures for
site investigation/cleanup and $128 million was for estimated future
expenditures for closure/postclosure activities. In addition, $81 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
$47 million, of which $26 million was for estimated future expenditures
for site investigation/cleanup and $21 million was for estimated future
expenditures for closure/postclosure activities. In addition, $16 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, 1996 included
$91 million for estimated future expenditures for site
investigation/cleanup at these sites. In addition, $83 million of the
corporation's environmental loss contingencies related to these sites.
The largest two of these sites are also non-operating sites. Of the above
accruals, these sites accounted for $25 million for estimated future
expenditures for site investigation/cleanup. In addition, $25 million of
the above environmental loss contingencies related to these sites.
In 1995, 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 $138
million. Expenses in 1994 and 1993 were $153 million and $149 million,
respectively. While estimates of the costs of environmental protection
for 1996 are necessarily imprecise, the corporation estimates that the
level of these expenses will not change materially.
At June 30, 1996, the corporation had invested approximately $139 million
in Equate Petrochemical Company K.S.C., its Kuwaiti joint venture, and had
severally guaranteed up to $225 million of Equate debt. Additional
significant commitments are anticipated.
The corporation had additional contingent obligations at June 30, 1996 of
$56 million, principally related to guarantees of debt, obligations
assumed by purchasers of UCC facilities for which UCC is primarily liable,
discounted receivables from customers and performance agreements.
The corporation is one of a number of defendants named in approximately
4,400 lawsuits, some of which have more than one plaintiff, involving
silicone breast implants. The corporation was not a manufacturer of
breast implants but did supply generic bulk silicone materials to certain
manufacturers. Also, the corporation in 1990 acquired and in 1992
divested the stock of a small specialty silicones company that, 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.
The District Court later determined that the total amount of current
claims likely to be approved for payment under the original settlement
schedule would substantially exceed the funds available. Consequently, the
defendants and the Plaintiffs' Negotiating Committee, at the request of
the court, initiated negotiations to reconsider the structure and funding
of the settlement. Subsequently, certain defendants, including the
corporation, proposed, and the court approved, a revised settlement
program. While the corporation cannot predict the number of claimants who
will participate in the settlement, based on sample data prepared under
supervision of the court, the corporation estimates that its maximum
expenditures under the revised agreement should not exceed $100 million
prior to insurance recovery. 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 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 remedies
that may be sought or damages claimed is substantial.
The corporation has recorded nonenvironmental litigation accruals of
$227 million, and related insurance recovery receivables of $134 million,
resulting in net before-tax charges of $93 million for nonenvironmental
litigation. At June 30, 1996, the corporation had nonenvironmental
litigation loss contingencies of $44 million.
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 1996 net income available to common
stockholders of $170 million, or $1.12 per share, fully diluted ($1.23 per
share, primary). For the first six months of 1996, net income available to
common stockholders was $325 million, or $2.13 per share, fully diluted ($2.34
per share, primary).
For the corresponding quarter in 1995, the corporation reported earnings 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).
The corporation's earnings for the quarter ending June 30, 1996 were affected
by lower average selling prices and higher feedstock costs as compared to the
same quarter in 1995. Earnings for the six month period ending June 30, 1996
were further impacted by weather-related problems that affected first quarter
operations. As a result of these factors, margins for both the second quarter
and the first six months of 1996 were lower than those of the corresponding
prior year periods. The impact of these declining margins was mitigated
somewhat by improved volumes in both business segments.
Barring more adverse conditions in the world's economy, the outlook for the
Specialties & Intermediates segment is good. Volumes are expected to remain
strong, and margins should improve modestly as raw material increases received
in the second quarter are passed on through selling prices in the third
quarter. Within the Basic Chemicals & Polymers segment, barring more adverse
conditions in the world's economy, the corporation anticipates that
polyethylene and polypropylene selling prices will increase from second
quarter 1996 levels, while ethylene glycol prices are expected to decline,
possibly bottoming-out by the end of the third quarter. Basic Chemical &
Polymer volumes are expected to remain at current levels.
Results of Operations
Revenues increased 1.2 percent in the second quarter and 2.2 percent in the
first six months of 1996 in comparison to the comparable periods in 1995.
Declining average selling prices in the current year were more than offset by
the effect of increasing volumes. Second quarter volumes increased
12.4 percent versus the 1995 period, while first half volumes increased by
9.7 percent. Average unit prices declined by 9.9 percent and 6.7 percent for
the quarter and six month periods, respectively.
The combined impact of falling selling prices and rising feedstock costs have
caused current year margins to decline in comparison to last year. The
corporation's variable margin for the second quarter of 1996 was 45.0 percent,
compared to 46.2 percent in the second quarter of 1995. For the six month
period ending June 30, 1996, variable margin was 45.2 percent as opposed to
48.0 percent in the same period last year. Gross margin (variable margin less
fixed manufacturing and distribution costs) declined to 26.2 percent for the
second quarter of 1996 from 28.4 percent for the second quarter of 1995, and
declined to 26.5 percent for the six months ending June 30, 1996 from 29.8
percent for the six months ending June 30, 1995. Fixed manufacturing and
distribution costs increased 6.4 percent in the second quarter, and 4.8
percent in the first six months of 1996, compared to the same periods of 1995,
primarily due to the acquisition of Shell Oil Company's polypropylene assets
and business.
Industry Segments
The company's operations are classified into two main business segments,
Specialties & Intermediates and Basic Chemicals & Polymers. The Specialties &
Intermediates segment includes the corporation's specialty chemicals and
specialty polymers product lines, licensing, solvents and chemical
intermediates. The Basic Chemicals & Polymers segment includes the
corporation's ethylene and propylene manufacturing operations as well as the
production of first level ethylene and propylene derivatives - polyethylene,
ethylene oxide/glycol and polypropylene. 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 second quarter and six month periods of 1996 and 1995 follows. 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 represents income before interest expense and
the provision for income taxes.
Quarter ended Six Months ended
June 30, June 30,
Millions of dollars 1996 1995 1996 1995
Sales
Specialties & Intermediates $1,109 $1,056 $2,186 $2,103
Basic Chemicals & Polymers 527 557 1,046 1,025
Intersegment Eliminations (77) (72) (172) (134)
Total $1,559 $1,541 $3,060 $2,994
Operating Profit
Specialties & Intermediates $ 190 $ 207 $ 383 $ 417
Basic Chemicals & Polymers 47 100 105 208
Other 8 1 16 24
Total $ 245 $ 308 $ 504 $ 649
Depreciation and Amortization
Specialties & Intermediates $ 48 $ 45 $ 94 $ 100
Basic Chemicals & Polymers 31 27 60 55
Total $ 79 $ 72 $ 154 $ 155
Capital Expenditures
Specialties & Intermediates $ 132 $ 91 $ 266 $ 152
Basic Chemicals & Polymers 45 37 97 59
Total $ 177 $ 128 $ 363 $ 211
Sales of the Specialties & Intermediates segment increased 5.0 percent to
$1,109 million in the second quarter of 1996 over that of 1995, and increased
3.9 percent to $2,186 million in the first six months of 1996 compared to the
first six months of 1995. Operating profit for the second quarter of 1996 was
$190 million, as compared to $207 million for the same quarter of 1995;
operating profit was $383 million for the first half of 1996, versus $417 for
the same period of 1995, which included an increase of $12 million in
depreciation expense related to a reduction in the depreciable lives of
certain computer equipment. Increases in volumes, offset by declines in
average selling prices, accounted for the sales increases.
Sales of the Basic Chemicals & Polymers segment declined 5.4 percent to
$527 million in the second quarter of 1996 versus that of 1995, and increased
2.0 percent to $1,046 million in the first six months of 1996 compared to the
first six months of 1995. Operating profit for the second quarter of 1996
declined to $47 million from $100 million for the second quarter of 1995, and
also declined on a year-to-date basis to $105 million from $208 million in the
corresponding period of the prior year. The second quarter sales decline is
attributable to decreased selling prices, partially offset by increased
volumes from the newly acquired polypropylene business. The same factors are
behind the sales increase for the first six months of the year, although the
declines in selling prices were not so great as to offset the increases in
polyethylene and polypropylene volumes.
Selling, administrative and other expenses declined $5 million in the second
quarter of 1996 versus the same quarter of 1995, and increased $1 million in
the first six months of 1996 over the same period of 1995.
Partnership income declined $14 million in the second quarter of 1996 and
$32 million in the first half of 1996, as a result of decreased earnings for
Petromont due to lower polyethylene prices, and the elimination of the
earnings of the polypropylene partnership with Shell Oil Company, which was
acquired in January of 1996 and is now included in consolidated earnings.
Other expense (income) - net for the first half of 1996 included a charge for
the discontinuance of the Basic Chemicals & Polymers segment's high density
polyethylene recycle resin operation. Included in the first half of 1995 were
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.
Interest expense declined by $8 million to $14 million in the quarter ended
June 30, 1996 versus the comparable 1995 quarter, and declined $4 million to
$37 million in the first six months of 1996 versus the same period of 1995,
due to an increase in capitalized interest associated with the corporation's
increased capital program.
Income from corporate investments carried at equity declined to $7 million in
the second quarter of 1996 from $26 million in the second quarter of 1995, and
to a loss of $6 million for the first half of 1996 from income of $31 million
in the first half of 1995, due to a decline in the earnings of Polimeri Europa
as the result of increased raw material prices and decreased selling prices in
Europe, and the recognition of preliminary operating expenses, which will
continue to be incurred until plant start-up which is expected to be in
mid-1997, by Equate Petrochemical Company.
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, 1995.
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 8 through 10 of this report on Form 10-Q.
The corporation continues to be named as one of a number of defendants in
lawsuits, some of which have more than one plaintiff, involving silicone gel
breast implants. The corporation supplied bulk silicone materials to certain
companies that at various times were involved in the manufacture of breast
implants. These cases are discussed in more detail in the "Commitments and
Contingencies" footnote to the financial statements on pages 8 through 10 of
this report on Form 10-Q.
Financial Condition - June 30, 1996
Cash flow from operations was $424 million for the first six months of 1996,
compared to $186 million in the comparable period of 1995. Decreased earnings
in the first six months of 1996 versus the first six months of 1995 were
offset by lower working capital requirements as well as reduced tax payments.
Net gains on investing transactions were significantly higher in the first
half of 1995 because of the gain on the reduction of the corporation's equity
interest in UCAR during that period. Other noncash charges of $128 million in
the first six months of 1995 included the $191 million charge for future lease
payments on unused office space.
Cash flow used for investing totaled $613 million in the first six months of
1996, and $129 million in the first six months of 1995. In the first quarter
of 1996, the corporation purchased the polypropylene assets and business of
Shell Oil Company and 95 percent of the outstanding shares of Companhia
Alcoolquimica Nacional, a Brazilian producer of vinyl acetate monomer. In the
prior year's first six months, investments and acquisitions included the
acquisition of a 50 percent equity interest in Polimeri Europa and the
ethylene oxide derivatives businesses of ICI, while sale of investments
reflected the sale of half of the corporation's 50 percent equity interest in
UCAR International Inc.
Capital expenditures increased to $363 million in the first six months of 1996
in comparison to $211 million in the first six months of 1995. Major
projects include an ethylene propylene rubber project at Seadrift, Tex.,
within the Specialties & Intermediates Segment; a cogeneration facility at
Taft, La., within both business segments; and an upgrade to the information
technology infrastructure, which involves all segments.
Cash flow used for financing in the first six months of 1996 was $182 million,
as compared to cash flow provided from financing of $55 million in the
comparable 1995 period. The 1996 period included net common stock repurchases
of $185 million under the existing common stock repurchase program, while net
common stock repurchases during the 1995 period totaled $279 million. Through
the first half of 1996 the corporation has purchased 7.4 million shares of
common stock for $314 million. Since 1993, the corporation has purchased 36.8
million shares of common stock for $1.143 billion. On July 24, 1996, the
corporation's board of directors authorized an increase of 10 million in the
number of shares that may be repurchased under the existing common stock
repurchase program to a total of 50 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 common stockholders amounted to $56 million and $58 million
for the six month periods ended June 30, 1996 and 1995, respectively. In the
first half of 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.
The corporation's ratio of debt to total capital increased to 39.7 percent at
June 30, 1996 from 39.0 percent at December 31, 1995. At June 30, 1996, there
were no outstanding borrowings under the existing bank credit agreement
aggregating $1 billion.
At June 30, 1996, the corporation had invested approximately $139 million in
Equate Petrochemical Company K.S.C., its Kuwait joint venture, and had
severally guaranteed up to $225 million of Equate debt. Additional significant
commitments are anticipated.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See Note 5 to the corporation's condensed consolidated financial
statements on pages 8 through 10 of this 10-Q Report.
Item 5. Other Information
On August 8, 1996, the corporation signed a memorandum of
understanding with Exxon Chemical Company to form a 50/50 joint
venture to research, develop, market and license technologies for the
production of polyethylene. The technologies to be offered by the
venture will be based on the corporation's UNIPOL I and UNIPOL II
gas-phase processes and catalyst systems, and Exxon Chemical's EXXPOL
metallocene catalyst systems and super condensed mode technology
gas-phase process improvement. The new company, targeted to be
operational by the end of 1996, also will manufacture and sell
metallocene catalysts for polyethylene production. Exxon Chemical
and the corporation will each separately retain their production and
sales of polyethylene resins.
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
June 30, 1996.
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 8, 1996 By: /s/John K. Wulff
JOHN K. WULFF
Vice-President and
Chief Financial Officer
EXHIBIT INDEX
Exhibit Page
No. Exhibit No.
11 Computation of Earnings Per Share 18
27 Financial Data Schedule 19
<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,
1996 1995
Earnings Per Share - Primary
<S> <C> <C>
Income $ 173 $ 228
Less: Preferred stock dividend 3 4
Net income available to common stockholders
for primary income calculation $ 170 $ 224
Weighted average number of common
and common equivalent shares applicable
to primary earnings per share calculation
Weighted average number of shares outstanding 133,389,682 136,695,246
Dilutive effect of stock options 4,593,584 4,191,071
137,983,266 140,886,317
Earnings per share - primary $ 1.23 $ 1.59
Earnings Per Share - Fully Diluted
Income $ 173 $ 228
Weighted average number of common
and common equivalent shares applicable to
fully diluted earnings per share calculation
Weighted average number of shares outstanding 133,389,682 136,695,246
Dilutive effect of stock options 4,593,584 4,543,319
Shares issuable upon conversion of UCC
convertible preferred stock 16,134,750 16,381,572
154,118,016 157,620,137
Earnings per share - fully diluted $ 1.12 $ 1.44
<CAPTION>
Six Months Ended June 30,
1996 1995
Earnings Per Share - Primary
<S> <C> <C>
Income $ 330 $ 458
Less: Preferred stock dividend 6 7
Net income available to common stockholders
for primary income calculation $ 324 $ 451
Weighted average number of common
and common equivalent shares applicable
to primary earnings per share calculation
Weighted average number of shares outstanding 133,946,048 138,768,552
Dilutive effect of stock options 4,667,864 4,118,041
138,613,912 142,886,593
Earnings per share - primary $ 2.34 $ 3.16
Earnings Per Share - Fully Diluted
Income $ 330 $ 458
Weighted average number of common
and common equivalent shares applicable to
fully diluted earnings per share calculation
Weighted average number of shares outstanding 133,946,048 138,768,552
Dilutive effect of stock options 4,667,864 4,620,613
Shares issuable upon conversion of UCC
convertible preferred stock 16,167,454 16,404,862
154,781,366 159,794,027
Earnings per share - fully diluted $ 2.13 $ 2.86
</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, 1996 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-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 78
<SECURITIES> 0
<RECEIVABLES> 1079
<ALLOWANCES> 0
<INVENTORY> 515
<CURRENT-ASSETS> 1856
<PP&E> 6875
<DEPRECIATION> 3673
<TOTAL-ASSETS> 6334
<CURRENT-LIABILITIES> 1290
<BONDS> 1288
145
0
<COMMON> 155
<OTHER-SE> 1910
<TOTAL-LIABILITY-AND-EQUITY> 6334
<SALES> 3060
<TOTAL-REVENUES> 3060
<CGS> 2249
<TOTAL-COSTS> 2249
<OTHER-EXPENSES> 230
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 37
<INCOME-PRETAX> 467
<INCOME-TAX> 131
<INCOME-CONTINUING> 336
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 325
<EPS-PRIMARY> 2.34
<EPS-DILUTED> 2.13
</TABLE>
