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, 1997
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, 1997
Common Stock, $1 par value 124,218,449 shares
Total number of sequentially numbered pages in this filing,
including exhibits thereto: 20
UNION CARBIDE CORPORATION AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
PAGE
Financial Statements
Condensed Consolidated Statement of Income -
Quarter ended June 30, 1997 and 1996......................... 3
Condensed Consolidated Statement of Income -
Six months ended June 30, 1997 and 1996...................... 4
Condensed Consolidated Balance Sheet -
June 30, 1997 and December 31, 1996.......................... 5
Condensed Consolidated Statement of Cash Flows -
Six months ended June 30, 1997 and 1996...................... 6
Notes to Condensed Consolidated Financial Statements............. 7-10
Discussion and Analysis of Results of Operations
and Financial Condition........................................ 11-15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings....................................... 16
Item 2. Changes in Securities................................... 16
Item 6. Exhibits and Reports on Form 8-K........................ 16
Signature........................................................ 17
Exhibit Index.................................................... 18
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,
1997 1996
NET SALES $ 1,666 $ 1,559
Cost of sales, exclusive of depreciation and
amortization 1,220 1,150
Research and development 41 40
Selling, administration and other expenses(a) 75 78
Depreciation and amortization 87 79
Partnership income 37 37
Other income (expense) - net 11 (4)
INCOME BEFORE INTEREST EXPENSE AND PROVISION FOR
INCOME TAXES 291 245
Interest expense 19 14
INCOME BEFORE PROVISION FOR INCOME TAXES 272 231
Provision for income taxes 79 65
INCOME OF CONSOLIDATED COMPANIES AND PARTNERSHIPS 193 166
Minority interest 5 -
Income from corporate investments carried at equity 3 7
NET INCOME 191 173
Preferred stock dividend, net of income taxes 3 3
NET INCOME - COMMON STOCKHOLDERS $ 188 $ 170
Earnings per common share
Primary $ 1.41 $ 1.23
Fully diluted $ 1.28 $ 1.12
Cash dividends declared per common share $ 0.1875 $ 0.1875
(a) Selling, administration and other expenses include:
Selling $ 31 $ 32
Administration 34 28
Other expenses 10 18
$ 75 $ 78
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,
1997 1996
NET SALES $ 3,304 $ 3,060
Cost of sales, exclusive of depreciation and
amortization 2,451 2,249
Research and development 81 76
Selling, administration and other expenses(a) 155 159
Depreciation and amortization 169 154
Partnership income 72 63
Other income - net 18 19
INCOME BEFORE INTEREST EXPENSE AND PROVISION FOR
INCOME TAXES 538 504
Interest expense 38 37
INCOME BEFORE PROVISION FOR INCOME TAXES 500 467
Provision for income taxes 145 131
INCOME OF CONSOLIDATED COMPANIES AND PARTNERSHIPS 355 336
Minority interest 8 (1)
Income (loss) from corporate investments
carried at equity 1 (7)
NET INCOME 348 330
Preferred stock dividend, net of income taxes 5 5
NET INCOME - COMMON STOCKHOLDERS $ 343 $ 325
Earnings per common share
Primary $ 2.54 $ 2.34
Fully diluted $ 2.31 $ 2.13
Cash dividends declared per common share $ 0.375 $ 0.375
(a) Selling, administration and other expenses include:
Selling $ 62 $ 64
Administration 63 59
Other expenses 30 36
$ 155 $ 159
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,
1997 1996
ASSETS
Cash and cash equivalents $ 115 $ 94
Notes and accounts receivable 1,079 1,047
Inventories 544 541
Other current assets 185 191
Total current assets 1,923 1,873
Property, plant and equipment 7,424 7,159
Less: Accumulated depreciation 3,855 3,750
Net fixed assets 3,569 3,409
Companies carried at equity 701 695
Other investments and advances 64 77
Total investments and advances 765 772
Other assets 513 492
Total assets $6,770 $6,546
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 273 $ 268
Short-term debt and current portion of
long-term debt 88 112
Accrued income and other taxes 96 133
Other accrued liabilities 674 765
Total current liabilities 1,131 1,278
Long-term debt 1,467 1,487
Postretirement benefit obligation 470 473
Other long-term obligations 812 811
Deferred credits 345 301
Minority stockholders' equity in consolidated
subsidiaries 279 29
Convertible preferred stock - ESOP 140 144
Unearned employee compensation - ESOP (82) (91)
Stockholders' equity:
Common stock - authorized - 500,000,000 shares
- issued - 154,609,669 shares 155 155
Additional paid-in capital 317 370
Translation and other equity adjustments (49) (33)
Retained earnings 2,925 2,629
Less: Treasury stock, at cost-30,580,343 shares
(28,169,324 shares in 1996) 1,140 1,007
Total stockholders' equity 2,208 2,114
Total liabilities and stockholders' equity $6,770 $6,546
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,
1997 1996
Increase (decrease) in
cash and cash equivalents
OPERATIONS
Net income $ 348 $ 330
Noncash charges (credits) to net income
Depreciation and amortization 169 154
Deferred income taxes 37 24
Other (10) 7
Net gains on investing transactions - (1)
Increase in working capital(a) (151) (106)
Long-term assets and liabilities 10 16
Cash Flow From Operations 403 424
INVESTING
Capital expenditures (328) (363)
Investments, advances and acquisitions
(excluding cash acquired) (43) (262)
Sale of fixed and other assets 1 12
Cash Flow Used for Investing (370) (613)
FINANCING
Change in short-term debt (3 months or less) (41) 68
Proceeds from short-term debt 20 21
Repayment of short-term debt - (26)
Proceeds from long-term debt 14 -
Repayment of long-term debt (20) (5)
Issuance of common stock 25 87
Purchase of common stock (176) (272)
Proceeds from subsidiary preferred stock 246 -
Payment of dividends (66) (56)
Other (13) 1
Cash Flow Used for Financing (11) (182)
Effect of exchange rate changes on cash and
cash equivalents (1) -
Change in cash and cash equivalents 21 (371)
Cash and cash equivalents beginning-of-period 94 449
Cash and cash equivalents end-of-period $ 115 $ 78
Cash paid for interest and income taxes
Interest (net of amount capitalized) $ 38 $ 32
Income taxes $ 60 $ 110
_____________
(a) Net change in certain components of working capital (excluding
non-cash expenditures):
(Increase) decrease in current assets
Notes and accounts receivable $ (31) $ (58)
Inventories (3) 68
Other current assets 8 4
Decrease in payables and accruals (125) (120)
Increase in working capital $(151) $(106)
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 1996 annual report to stockholders.
2. Common Stock
On July 23, 1997, the board of directors of the corporation increased the
number of shares that may be repurchased under the existing common stock
repurchase program by 10 million shares to an aggregate of 60 million
shares since inception of the program.
Through June 30, 1997, since inception of its common share repurchase
program, the corporation repurchased 46.0 million shares (3.7 million
during 1997) at an average effective price of $33.69 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 11.5 million shares of common stock to UCC, at specified prices
upon exercise of the options. Through June 30, 1997, since inception of
this program, options representing 8.7 million common shares have expired
unexercised, while options representing 2.1 million shares were exercised
for $79 million, or an average price of $37.05 per share. Options
representing 0.7 million shares remain outstanding at June 30, 1997.
Premiums received since the inception of the program, recorded as
additional paid-in capital, have reduced the average price of repurchased
shares from $33.95 per share to $33.69 per share.
3. Inventories
Millions of dollars
June 30, Dec. 31,
1997 1996
Raw materials and supplies $ 131 $ 114
Work in process 57 54
Finished goods 356 373
$ 544 $ 541
4. Commitments and Contingencies
The corporation has three major agreements for the purchase of ethylene-
related products and two 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, 1997 totaled $325 million.
The corporation is subject to loss contingencies resulting from
environmental laws and regulations, which include obligations to remove or
remediate 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, 1997, the corporation had established environmental remediation
accruals in the amount of $288 million. These accruals have two components,
estimated future expenditures for site investigation and cleanup and
estimated future expenditures for closure and postclosure activities. In
addition, the corporation had environmental loss contingencies of
$141 million.
The corporation has sole responsibility for the remediation of
approximately 40 percent of its environmental sites. These sites are well
advanced in the investigation and cleanup stage. The corporation's
environmental accruals at June 30, 1997 included $197 million for these
sites, of which $72 million was for estimated future expenditures for site
investigation and cleanup and $125 million was for estimated future
expenditures for closure and postclosure activities. In addition,
$73 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 nonoperating site. Of the above accruals, this site
accounted for $31 million, of which $17 million was for estimated future
expenditures for site investigation and cleanup and $14 million was for
estimated future expenditures for closure and postclosure activities. In
addition, $20 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 and
cleanup stage. The corporation's environmental accruals at June 30, 1997
included $91 million for estimated future expenditures for site
investigation and cleanup at these sites. In addition, $68 million of the
corporation's environmental loss contingencies related to these sites.
The largest two of these sites are also nonoperating sites. Of the above
accruals, these sites accounted for $33 million for estimated future
expenditures for site investigation and cleanup. In addition, $16 million
of the above environmental loss contingencies related to these sites.
In 1996, 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 $110
million. Expenses in 1995 and 1994 were $138 million and $153 million,
respectively. While estimates of the costs of environmental protection
for 1997 are necessarily imprecise, the corporation estimates that the
level of these expenses will be somewhat greater than that experienced in
1996.
The corporation has severally guaranteed 45 percent (approximately
$608 million at June 30, 1997) of EQUATE Petrochemical Company's
("EQUATE") debt and working capital financing needs until certain
completion tests are achieved; thereafter, a $54 million several guarantee
will provide ongoing support. The corporation also severally guaranteed
certain sales volume targets until EQUATE's sales capabilities are proved.
In addition, the corporation has pledged its shares in EQUATE as security
for EQUATE's debt. The corporation has political risk insurance coverage
for its equity investment and, until the completion tests are concluded,
substantially all of its guarantee of EQUATE's debt. EQUATE is
considering the possible refinancing of its debt.
The corporation had additional contingent obligations at June 30, 1997 of
$69 million, of which $33 million related to guarantees of debt.
The corporation is one of a number of defendants named in approximately
4,500 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 1995, after the District Court rejected an initial settlement proposal,
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 cost of
remedies that may be sought or damages claimed is substantial.
The corporation has recorded nonenvironmental litigation accruals of
$182 million, and related insurance recovery receivables of $135 million.
At June 30, 1997, 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.
5. Minority Interest
On January 30, 1997, a newly formed real estate investment trust
subsidiary issued $250 million of preferred stock bearing a current
dividend yield of 14 percent for 10 years and 1 percent thereafter. On
July 25, 1997, the corporation mortgaged domestic real estate with a fair
market value of approximately $500 million in conjunction with this
transaction. The preferred stock may be redeemed if, as a result of a
change in tax laws, rules or regulations, dividends on the preferred stock
or interest paid on the mortgage note is not fully deductible for Federal
income tax purposes. As of June 30, 1997, the effect of any such
redemption on the corporation's results of operations would be immaterial.
DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Overview
The corporation reported second quarter 1997 net income available to common
stockholders of $188 million, or $1.28 per common share, fully diluted ($1.41
per common share, primary). For the first six months of 1997, net income
available to common stockholders was $343 million, or $2.31 per common share,
fully diluted ($2.54 per common share, primary).
For the corresponding quarter in 1996, the corporation reported earnings of
$170 million, or $1.12 per common share, fully diluted ($1.23 per common
share, primary). For the first six months of 1996, net income available to
common stockholders was $325 million, or $2.13 per common share, fully diluted
($2.34 per common share, primary).
The corporation's earnings for the quarter and six month periods ended June
30, 1997 increased compared to the same periods in 1996. For the second
quarter, net sales increased compared to the prior year period as a result of
improved sales volumes in both of the corporation's segments. In addition,
the Basic Chemicals & Polymers segment benefited from increased polyethylene
prices. In contrast, average selling prices for the Specialties &
Intermediates segment were lower than in the second quarter of 1996. Raw
material costs continued to decline from very high levels at the beginning of
1997 to levels which, in the second quarter of 1997, were comparable to those
of the prior year period. For the first half of 1997, the positive impact of
improved volumes in both segments and improved polyethylene pricing in the
Basic Chemicals & Polymers segment was partially offset by the effect of
higher average raw material costs.
Looking ahead to the third quarter, the corporation anticipates continued
strong demand and improved pricing for ethylene glycol coupled with stable raw
material costs in the Basic Chemicals & Polymers segment. Average selling
prices should improve in the Specialties & Intermediates segment. However,
the impact of these price increases in the Specialties & Intermediates segment
is likely to be mitigated by the effect of higher transfer prices for ethylene
oxide (manufactured by the Basic Chemicals & Polymers segment for the
Specialties & Intermediates segment) and potential tightness in propylene, key
raw materials for the Specialties & Intermediates segment.
Results of Operations
Net sales increased 6.9 percent in the second quarter and 8.0 percent in the
first half of 1997, as compared to the same periods in 1996. These increases
were driven by a 4.6 percent and 8.8 percent increase in customer volume for
the second quarter and six month periods, respectively, as compared to similar
periods in 1996. Average selling prices increased slightly for the second
quarter and decreased slightly for the first half in comparison to the same
periods in 1996.
Variable margin (net sales less variable manufacturing and distribution costs)
was 44.5 percent and 43.4 percent for the current three and six month periods,
respectively, compared to 45.0 percent and 45.2 percent, respectively, for the
same periods in 1996. Although variable margin as a percent of sales declined
in each period, variable margin dollars increased $40 million, or 5.7 percent,
and $51 million, or 3.7 percent, for the second quarter and first six months
of 1997, respectively, as compared to the same periods in 1996. Increased
volumes in both segments and increased polyethylene selling prices in the
Basic Chemical & Polymers segment contributed to the increases in variable
margin dollars for these periods. Increased raw material costs coupled with
decreases in the average selling prices for products in the Specialties
& Intermediates segment, however, limited variable margin improvement for the
first half of 1997 compared to the prior year.
Gross margin (variable margin less fixed manufacturing and distribution
costs), as a percent of sales, remained relatively stable for the second
quarter and six month periods ended June 30, 1997 as compared to the same
periods in 1996.
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
polymers product lines, licensing and 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, polypropylene,
ethylene oxide and ethylene glycol. The corporation's noncore operations and
financial transactions are included in the Other segment.
Information about the corporation's operations in its business segments for
the second quarter and six month periods of 1997 and 1996 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
provision for income taxes.
Quarter ended Six months ended
June 30, June 30,
Millions of dollars 1997 1996 1997 1996
Sales
Specialties & Intermediates $1,139 $1,109 $2,261 $2,186
Basic Chemicals & Polymers 604 527 1,201 1,046
Intersegment Eliminations (77) (77) (158) (172)
Total $1,666 $1,559 $3,304 $3,060
Operating Profit
Specialties & Intermediates $ 191 $ 190 $ 375 $ 383
Basic Chemicals & Polymers 101 47 163 105
Other (1) 8 - 16
Total $ 291 $ 245 $ 538 $ 504
Depreciation and Amortization
Specialties & Intermediates $ 55 $ 48 $ 106 $ 94
Basic Chemicals & Polymers 32 31 63 60
Total $ 87 $ 79 $ 169 $ 154
Capital Expenditures
Specialties & Intermediates $ 103 $ 132 $ 191 $ 266
Basic Chemicals & Polymers 87 45 137 97
Total $ 190 $ 177 $ 328 $ 363
Net sales of the Specialties & Intermediates segment increased $30 million or
2.7 percent in the current quarter over the same quarter in 1996, and
$75 million or 3.4 percent in the current six month period as compared to the
same six months of 1996. Operating profit for the second quarter of 1997 was
$191 million, compared to $190 million for the same quarter of 1996; operating
profit was $375 million for the first half of 1997, versus $383 million for
the comparable period in 1996. For the three and six month periods ended
June 30, 1997, this segment benefited from a 5.2 percent and 9.2 percent
increase in volume, respectively, compared to similar periods in 1996,
partially offset by a decline in average selling prices of 2.5 percent and
5.3 percent, respectively.
Net sales of the Basic Chemicals & Polymers segment increased $77 million, or
14.6 percent in the current quarter over the same quarter of 1996 and
$155 million or 14.8 percent in the first half of 1997 over the first half of
1996. Operating profit showed considerable improvement of $54 million and
$58 million, respectively, in the current quarter and six month periods ended
June 30, 1997 compared to the same periods in 1996. These increases were the
result of a 12.4 percent and 9.9 percent increase in average selling prices in
the quarter and six months of 1997, respectively, versus the comparable
periods of 1996. In addition to the growth in the average selling prices,
customer volume levels increased 3.9 percent and 8.3 percent for the same
periods.
Selling, administration and other expenses declined $3 million and $4 million
in the second quarter and the first six months of 1997, respectively, versus
comparable periods of 1996.
Partnership income in the second quarter of 1997 was consistent with the
second quarter of 1996. For the first half of 1997 partnership income
increased $9 million, as compared to the same period in 1996 due to increased
earnings of Petromont and UOP.
Other income (expense) - net increased $15 million in the second quarter of
1997, and decreased $1 million in the first half of 1997, as compared to the
same periods in 1996, largely due to decreased interest income offset in the
second quarter by lack of a charge comparable to that taken in 1996 for the
discontinuance of the high density polyethylene recycle resin operation.
Interest expense increased $5 million to $19 million for the second quarter of
1997 compared to the second quarter a year ago and remained stable for the
first half of 1997 compared to the first half of 1996. The increase from the
second quarter of 1996 to the second quarter of 1997 was the result of a
decrease in capitalized interest associated with the corporation's capital
program and an increase in the corporation's long-term debt.
Income (loss) from corporate investments carried at equity decreased
$4 million from income of $7 million in the second quarter of 1996 to income
of $3 million in the same period of 1997. Lower earnings quarter to quarter
are the result of an increase in preliminary operating expenses associated
with EQUATE Petrochemical Company ("EQUATE") which are expected to continue
until plant start-up in the second half of 1997. For the first half of 1997,
income (loss) from corporate investments carried at equity increased by
$8 million to $1 million due to improved Polimeri Europa results partially
offset by the preliminary operating expenses being incurred by EQUATE.
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 have not changed materially since December 31, 1996. 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 7 through 10 of this report on Form 10-Q.
The corporation continues to be named as one of a number of defendants in
lawsuits 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 7 through 10 of this report on Form 10-Q.
Accounting Changes
Statement of Financial Accounting Standards No. 128 ("Statement 128"),
"Earnings Per Share", will require presentation of "basic" and "diluted"
earnings per share for periods ending after December 15, 1997. Had
Statement 128 been in effect, "basic" and "diluted" earnings per common share
would have been $1.46 and $1.28, respectively, in the second quarter of 1997
($1.27 and $1.12 per common share, respectively, in the second quarter of
1996) and $2.63 and $2.31, respectively, for the six months ended June 30,
1997 ($2.42 and $2.13 per common share, respectively, for the six months ended
June 30, 1996).
Financial Condition - June 30, 1997
Cash flow from operations for the first six months of 1997 was $403 million,
down from $424 million in the first six months of 1996. Increased working
capital requirements more than offset the effect of higher net income and
non-cash charges (credits) to net income.
Cash flow used for investing totaled $370 million, down from $613 million in
the comparable period of 1996. The majority of this decline is due to
decreases of $219 million in investments, advances and acquisitions.
Significant investments and acquisitions in the first half of 1996 included
the purchases of 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.
Major capital projects in progress in the first half of 1997 included a new
CARBOWAX polyethylene glycol and TERGITOL surfactants facility, an
ethanolamine unit and an olefins expansion, all at Taft, La., as well as an
upgrade of information technology infrastructure. Capital expenditures are
expected to approximate 1996 levels by the end of 1997. Major capital
projects in 1996 included an ethylene propylene rubber facility at Seadrift,
Tex., as well as new cogeneration facilities at Texas City, Tex. and Taft,
La., and an upgrade of information technology infrastructure.
The upgrade of information technology systems, expected to be completed by
1999, will also address technological issues related to the year 2000. The
corporation is reviewing all internal processes and hardware and software
issues, and is also discussing with its vendors and customers the possibility
of any interface difficulties which may affect the corporation. To date, no
significant concerns have been identified.
Cash flow used for financing in the first half of 1997 was $11 million in
comparison to $182 million in the first half of 1996. The first half of 1997
included common stock repurchases of 3.7 million shares for cash of
$176 million under the existing common stock repurchase program. On July 23,
1997, the corporation's board of directors authorized an increase in the
number of shares that may be repurchased under the existing common stock
repurchase program by 10 million shares to an aggregate of 60 million shares
since the inception of the program. 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. On January 30,
1997, a newly formed real estate investment trust subsidiary issued
$250 million of preferred stock bearing a current dividend yield of 14 percent
for 10 years and 1 percent thereafter. Cash dividends, including those paid
to preferred shareholders of the real estate investment trust subsidiary,
totaled $66 million, while net repayments of debt totaled $27 million.
The corporation's ratio of debt to total capital decreased to 38.5 percent at
June 30, 1997 from 42.7 percent at December 31, 1996. At June 30, 1997 there
were no outstanding borrowings under the existing major bank credit agreement
aggregating $1 billion.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See Note 4 to the corporation's consolidated financial statements
on pages 7 through 10 of this report on Form 10-Q.
Item 2. Changes in Securities
(c) Sales of Unregistered Securities
During the first half of 1997, put options were sold to
institutional investors in a series of private placements exempt
from registration under Section 4(2) of the Securities Act of
1933, entitling the holders to sell 1,300,000 shares of Union
Carbide Corporation common stock to the corporation, at prices
ranging from $44.50 to $45.00 per share. Premiums received for
the sales of the options totaled $1,465,000.
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
June 30, 1997.
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, 1997 By: /s/John K. Wulff
JOHN K. WULFF
Vice-President, Chief
Financial Officer and
Controller
EXHIBIT INDEX
Exhibit Page
No. Exhibit No.
11 Computation of Earnings Per Share 19
27 Financial Data Schedule 20
<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,
1997 1996
Earnings Per Share - Primary
<S> <C> <C>
Net Income $ 191 $ 173
Less: Preferred stock dividend 3 3
Appreciation on redeemed preferred stock 6 -
Net income for primary income calculation $ 182 $ 170
Weighted average number of common
and common equivalent shares applicable
to primary earnings per share calculation
Weighted average number of shares outstanding 124,687,095 133,389,682
Dilutive effect of stock options 4,074,872 4,593,584
128,761,967 137,983,266
Earnings per share - primary $ 1.41 $ 1.23
Earnings Per Share - Fully Diluted
Net income for primary income calculation $ 182 $ 170
Add back: Preferred stock dividend 3 3
Net income for fully diluted income calculation $ 185 $ 173
Weighted average number of common
and common equivalent shares applicable to
fully diluted earnings per share calculation
Weighted average number of shares outstanding 124,687,095 133,389,682
Dilutive effect of stock options 4,074,872 4,593,584
Shares issuable upon conversion of UCC
convertible preferred stock 15,593,263 16,134,750
144,355,230 154,118,016
Earnings per share - fully diluted $ 1.28 $ 1.12
<CAPTION>
Six Months Ended June 30,
1997 1996
Earnings Per Share - Primary
<S> <C> <C>
Net Income $ 348 $ 330
Less: Preferred stock dividend 6 6
Appreciation on redeemed preferred stock 12 -
Net income for primary income calculation $ 330 $ 324
Weighted average number of common
and common equivalent shares applicable
to primary earnings per share calculation
Weighted average number of shares outstanding 125,542,213 133,946,048
Dilutive effect of stock options 4,153,873 4,667,864
129,696,086 138,613,912
Earnings per share - primary $ 2.54 $ 2.34
Earnings Per Share - Fully Diluted
Net income for primary income calculation $ 330 $ 324
Add back: Preferred stock dividend 6 6
Net income for fully diluted income calculation $ 336 $ 330
Weighted average number of common
and common equivalent shares applicable to
fully diluted earnings per share calculation
Weighted average number of shares outstanding 125,542,213 133,946,048
Dilutive effect of stock options 4,202,843 4,667,864
Shares issuable upon conversion of UCC
convertible preferred stock 15,722,461 16,167,454
145,467,517 154,781,366
Earnings per share - fully diluted $ 2.31 $ 2.13
</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 JUNE 30, 1997, 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-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 115
<SECURITIES> 0
<RECEIVABLES> 1079
<ALLOWANCES> 0
<INVENTORY> 544
<CURRENT-ASSETS> 1923
<PP&E> 7424
<DEPRECIATION> 3855
<TOTAL-ASSETS> 6770
<CURRENT-LIABILITIES> 1131
<BONDS> 1467
140
0
<COMMON> 155
<OTHER-SE> 2053
<TOTAL-LIABILITY-AND-EQUITY> 6770
<SALES> 3304
<TOTAL-REVENUES> 3304
<CGS> 2451
<TOTAL-COSTS> 2451
<OTHER-EXPENSES> 250<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 38
<INCOME-PRETAX> 500
<INCOME-TAX> 145
<INCOME-CONTINUING> 348
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 348
<EPS-PRIMARY> 2.54
<EPS-DILUTED> 2.31
<FN>
<F1>OTHER EXPENSES ARE EQUAL TO RESEARCH AND DEVELOPMENT OF 81 AND DEPRECIATION
AND AMORTIZATION OF 169.
</FN>
</TABLE>
