UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D C 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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 October 31, 1997
Common Stock, $1 par value 137,926,478 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 September 30, 1997 and 1996.................... 3
Condensed Consolidated Statement of Income -
Nine months ended September 30, 1997 and 1996................ 4
Condensed Consolidated Balance Sheet -
September 30, 1997 and December 31, 1996..................... 5
Condensed Consolidated Statement of Cash Flows -
Nine months ended September 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 and Use of Proceeds............... 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 Sept. 30,
1997 1996
NET SALES $ 1,659 $ 1,538
Cost of sales, exclusive of depreciation and
amortization 1,199 1,145
Research and development 37 39
Selling, administration and other expenses(a) 82 80
Depreciation and amortization 87 81
Partnership income 28 43
Other income - net 9 6
INCOME BEFORE INTEREST EXPENSE AND PROVISION FOR
INCOME TAXES 291 242
Interest expense 19 18
INCOME BEFORE PROVISION FOR INCOME TAXES 272 224
Provision for income taxes 83 63
INCOME OF CONSOLIDATED COMPANIES AND PARTNERSHIPS 189 161
Minority interest 5 (1)
Loss from corporate investments carried at equity 3 1
NET INCOME 181 161
Preferred stock dividend, net of income taxes 2 2
NET INCOME - COMMON STOCKHOLDERS $ 179 $ 159
Earnings per common share
Primary $ 1.30 $ 1.19
Fully diluted $ 1.18 $ 1.08
Cash dividends declared per common share $ 0.4125 $ 0.1875
(a) Selling, administration and other expenses include:
Selling $ 31 $ 32
Administration 31 32
Other expenses 20 16
$ 82 $ 80
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)
Nine months ended Sept. 30,
1997 1996
NET SALES $ 4,963 $ 4,598
Cost of sales, exclusive of depreciation and
amortization 3,650 3,394
Research and development 118 115
Selling, administration and other expenses(a) 237 239
Depreciation and amortization 256 235
Partnership income 100 106
Other income - net 27 25
INCOME BEFORE INTEREST EXPENSE AND PROVISION FOR
INCOME TAXES 829 746
Interest expense 57 55
INCOME BEFORE PROVISION FOR INCOME TAXES 772 691
Provision for income taxes 228 194
INCOME OF CONSOLIDATED COMPANIES AND PARTNERSHIPS 544 497
Minority interest 13 (2)
Loss from corporate investments carried at equity 2 8
NET INCOME 529 491
Preferred stock dividends, net of income taxes 7 7
NET INCOME - COMMON STOCKHOLDERS $ 522 $ 484
Earnings per common share
Primary $ 3.84 $ 3.52
Fully diluted $ 3.49 $ 3.20
Cash dividends declared per common share $ 0.7875 $ 0.5625
(a) Selling, administration and other expenses include:
Selling $ 93 $ 96
Administration 94 91
Other expenses 50 52
$ 237 $ 239
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
Sept. 30, Dec. 31,
1997 1996
ASSETS
Cash and cash equivalents $ 132 $ 94
Notes and accounts receivable 1,064 1,047
Inventories 556 541
Other current assets 202 191
Total current assets 1,954 1,873
Property, plant and equipment 7,577 7,159
Less: Accumulated depreciation 3,886 3,750
Net fixed assets 3,691 3,409
Companies carried at equity 699 695
Other investments and advances 68 77
Total investments and advances 767 772
Other assets 563 492
Total assets $6,975 $6,546
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 307 $ 268
Short-term debt and current portion of
long-term debt 93 112
Accrued income and other taxes 141 133
Other accrued liabilities 765 765
Total current liabilities 1,306 1,278
Long-term debt 1,459 1,487
Postretirement benefit obligation 470 473
Other long-term obligations 811 811
Deferred credits 379 301
Minority stockholders' equity in consolidated
subsidiaries 275 29
Convertible preferred stock - ESOP 138 144
Unearned employee compensation - ESOP (81) (91)
Stockholders' equity:
Common stock - authorized - 500,000,000 shares
- issued - 154,609,669 shares 155 155
Additional paid-in capital 285 370
Translation and other equity adjustments (80) (33)
Retained earnings 3,050 2,629
Less: Treasury stock, at cost-31,391,239 shares
(28,169,324 shares in 1996) 1,192 1,007
Total stockholders' equity 2,218 2,114
Total liabilities and stockholders' equity $6,975 $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
Nine months ended Sept. 30,
1997 1996
Increase (decrease) in
cash and cash equivalents
OPERATIONS
Net income $ 529 $ 491
Noncash charges (credits) to net income
Depreciation and amortization 256 235
Deferred income taxes 61 48
Other (35) (10)
Increase in working capital(a) (63) (117)
Long-term assets and liabilities (9) 17
Cash Flow From Operations 739 664
INVESTING
Capital expenditures (543) (531)
Investments, advances and acquisitions
(excluding cash acquired) (54) (267)
Sale of fixed and other assets 4 13
Cash Flow Used for Investing (593) (785)
FINANCING
Change in short-term debt (3 months or less) (48) 239
Proceeds from short-term debt 32 21
Repayment of short-term debt - (26)
Proceeds from long-term debt 14 6
Repayment of long-term debt (28) (6)
Issuance of common stock 36 115
Purchase of common stock (235) (483)
Proceeds from subsidiary preferred stock 246 -
Payment of dividends (103) (83)
Other (21) 1
Cash Flow Used for Financing (107) (216)
Effect of exchange rate changes on cash and
cash equivalents (1) (1)
Change in cash and cash equivalents 38 (338)
Cash and cash equivalents beginning-of-period 94 449
Cash and cash equivalents end-of-period $ 132 $ 111
Cash paid for interest and income taxes
Interest (net of amount capitalized) $ 45 $ 41
Income taxes $ 83 $ 150
_____________
(a) Net change in certain components of working capital (excluding
non-cash expenditures):
(Increase) decrease in current assets
Notes and accounts receivable $ (21) $ (37)
Inventories (15) 55
Other current assets 4 (15)
Decrease in payables and accruals (31) (120)
Increase in working capital $ (63) $(117)
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 September 30, 1997, since inception of its common share repurchase
program, the corporation repurchased 47.4 million shares (5.1 million
during 1997) at an average effective price of $34.18 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 12.6 million shares of common stock to UCC, at specified prices
upon exercise of the options. Through September 30, 1997, since inception
of this program, options representing 9.4 million common shares have
expired unexercised, while options representing 2.2 million shares were
exercised for $84.5 million, or an average price of $37.61 per share.
Options representing 1.0 million shares remain outstanding at September 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 $34.45 per share to $34.18 per share.
3. Inventories
Millions of dollars
Sept. 30, Dec. 31,
1997 1996
Raw materials and supplies $ 129 $ 114
Work in process 56 54
Finished goods 371 373
$ 556 $ 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 September 30, 1997 totaled $313 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 September 30, 1997, the corporation had established environmental
remediation accruals in the amount of $272 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
$137 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 September 30, 1997 included $203 million for
these sites, of which $75 million was for estimated future expenditures for
site investigation and cleanup and $128 million was for estimated future
expenditures for closure and postclosure activities. In addition,
$70 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 are
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 September 30,
1997 included $69 million for estimated future expenditures for site
investigation and cleanup at these sites. In addition, $67 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 $30 million for estimated future
expenditures for site investigation and cleanup. In addition, $19 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 decline as the result of favorable experience associated with
remedial activities.
The corporation has severally guaranteed 45 percent (approximately
$608 million at September 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 September 30, 1997
of $67 million, of which $32 million related to guarantees of debt.
The corporation is one of a number of defendants named in approximately
4,900 lawsuits in both Federal and state courts, 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. In August 1997, the court ruled
that all claims based solely on the supply of bulk silicone materials
should be dismissed against the corporation. That decision is final in
Federal court and no longer subject to appeal. While the corporation
cannot predict the number of claimants who will participate in the revised
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; trade regulation; 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
$187 million, and related insurance recovery receivables of $147 million.
At September 30, 1997, the corporation had nonenvironmental litigation loss
contingencies of $56 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. On
October 21, 1997, the preferred shares were redeemed for a total of
$242 million, including accrued dividends through the redemption date.
The effect of such redemption on the corporation's financial position and
results of operations was immaterial.
6. Subsequent Event
On October 2, 1997 the trustee of the Employee Stock Ownership Plan
("ESOP") exercised its right to convert all shares of the corporation's
preferred stock held by the ESOP into the corporation's common stock. As a
result of the conversion, the corporation's common stock outstanding at
that date was increased by 15,406,191 shares.
DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Overview
The corporation reported third quarter 1997 net income available to common
stockholders of $179 million, or $1.18 per common share, fully diluted ($1.30
per common share, primary). For the first nine months of 1997, net income
available to common stockholders was $522 million, or $3.49 per common share,
fully diluted ($3.84 per common share, primary).
For the corresponding quarter in 1996, the corporation reported earnings of
$159 million, or $1.08 per common share, fully diluted ($1.19 per common
share, primary). For the first nine months of 1996, net income available to
common stockholders was $484 million, or $3.20 per common share, fully diluted
($3.52 per common share, primary).
The corporation's net income available to common shareholders for the three
and nine month periods ended September 30, 1997 increased 12.6 percent and
7.9 percent as compared to the same periods in 1996. Operating profit of the
Basic Chemicals & Polymers segment more than tripled to $125 million, compared
to the third quarter of 1996, and increased $143 million or 98.6 percent on a
year-to-date basis. Improved sales volumes and selling prices for most Basic
Chemicals & Polymers product lines coupled with reduced feedstock costs caused
this operating profit improvement. Operating profit of the Specialties &
Intermediates segment dropped $32 million or 15.8 percent versus the third
quarter of 1996, and decreased $40 million or 6.8 percent on a year-to-date
basis. Although Specialties & Intermediates sales volume was strong, up over
9.0 percent year-to-date, average selling prices decreased for most product
lines. In part, this reflects the impact of a strong U.S. dollar on the
export sales of the segment. Additionally, operating profit comparison of the
Specialties & Intermediates segment, with the third quarter of 1996 was
adversely impacted by a significant increase in the market-related transfer
cost of raw materials, principally ethylene oxide, produced by the Basic
Chemicals & Polymers segment. Finally, results of the Specialties &
Intermediates segment reflected the impact of costs associated with start-up
of the corporation's ethylene propylene rubber project.
Although the corporation cannot predict with certainty, it anticipates that
fourth quarter 1997 results of the Basic Chemicals & Polymers segment will
decline from third quarter 1997 levels as a result of increased average
feedstock costs and selling price declines in polyethylene and polypropylene.
Demand for ethylene glycol should remain high throughout most of the fourth
quarter of 1997. Furthermore, the corporation anticipates that the
Specialties & Intermediates segment may experience some seasonal weakness in
demand but otherwise should perform in line with the third quarter of 1997
assuming no major change in foreign currency exchange rates and no further
deterioration in Gulf Coast rail transportation.
Results of Operations
Net sales increased 7.9 percent in the third quarter and for the nine months
ended September 30, 1997, as compared to the same periods in 1996. Increases
were driven by a 5.3 percent and 7.6 percent increase in customer volume for
the quarter and nine month period of 1997, respectively, as compared to the
three and nine month periods ended September 30, 1996. Average selling prices
increased 2.4 percent from the third quarter of 1996 to the third quarter of
1997 due to increases in polyethylene and ethylene glycol pricing. However,
average selling prices for the nine month period ended September 30, 1997
remained relatively flat when compared to the same nine months of 1996.
Variable margin (net sales less variable manufacturing and distribution costs)
for the third quarter of 1997 was 45.0 percent, compared with 43.0 percent in
the third quarter of 1996. The increase in variable margin is attributable to
lower feedstock costs and higher pricing of polyethylene and ethylene glycol
in the Basic Chemicals & Polymers segment. Variable margin for the first nine
months of 1997 decreased to 43.9 percent from 44.5 percent for the comparable
period in 1996 as a result of lower average selling prices partially offset by
reduced feedstock costs.
Gross margin (variable margin less fixed manufacturing and distribution
costs), as a percent of sales, increased to 27.7 percent for the third quarter
of 1997 from 25.6 percent for the third quarter of 1996. However, gross
margin remained relatively stable at 26.5 percent for the nine month period
ended September 30, 1997 as compared to 26.2 percent for the same nine month
period in 1996, due to the decrease in variable margin being offset by a
5.4 percent fixed cost productivity improvement, as measured by fixed costs
per pound.
Industry Segments
The corporation'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 third quarter and nine month period 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 Nine months ended
Sept. 30, Sept. 30,
Millions of dollars 1997 1996 1997 1996
Sales
Specialties & Intermediates $1,141 $1,055 $3,402 $3,241
Basic Chemicals & Polymers 619 552 1,820 1,598
Intersegment Eliminations (101) (69) (259) (241)
Total $1,659 $1,538 $4,963 $4,598
Operating Profit
Specialties & Intermediates $ 170 $ 202 $ 545 $ 585
Basic Chemicals & Polymers 125 40 288 145
Other (4) - (4) 16
Total $ 291 $ 242 $ 829 $ 746
Depreciation and Amortization
Specialties & Intermediates $ 55 $ 50 $ 161 $ 144
Basic Chemicals & Polymers 32 31 95 91
Total $ 87 $ 81 $ 256 $ 235
Capital Expenditures
Specialties & Intermediates $ 130 $ 121 $ 321 $ 387
Basic Chemicals & Polymers 85 47 222 144
Total $ 215 $ 168 $ 543 $ 531
Net sales of the Specialties & Intermediates segment increased $86 million or
8.2 percent in the current quarter over the same quarter in 1996, and
$161 million or 5.0 percent in the current nine month period as compared to
the same nine months of 1996. Operating profit for the third quarter of 1997
was $170 million, compared to $202 million for the same quarter of 1996;
operating profit was $545 million for the nine months ended September 30,
1997, versus $585 million for the comparable period in 1996. For the three
and nine month periods ended September 30, 1997, this segment benefited from a
9.3 percent and 9.2 percent increase in volume, respectively, compared to the
same three and nine month periods in 1996. This benefit was offset by a
decline in average selling prices for each period, increased transfer cost of
raw material and the strengthening U.S. dollar.
Net sales of the Basic Chemicals & Polymers segment increased $67 million, or
12.1 percent in the current quarter over the same quarter of 1996 and
$222 million or 13.9 percent in the first nine months of 1997 over the first
nine months of 1996. Operating profit showed considerable improvement of
$85 million and $143 million, respectively, in the current quarter and nine
months ended September 30, 1997, respectively, versus the comparable periods
of 1996. The increase in net sales and operating profit for the current
quarter from the same quarter of 1996 are due to a 6.4 percent increase in
average selling prices, significant decreases in all feedstock costs and
stable fixed manufacturing and distribution costs. Customer volumes were only
slightly higher in the third quarter of 1997 versus the third quarter of 1996.
Increases in net sales and operating profit from the nine months ended
September 30, 1996 to the same period in 1997 were the result of an
8.7 percent increase in average selling prices, a 5.7 percent increase in
customer volumes, lower cost of ethane and stable fixed manufacturing and
distribution costs.
Partnership income in the third quarter of 1997 declined to $28 million from
$43 million in the third quarter of 1996. The majority of this decline is due
to decreased earnings of the UOP partnership related to normal variances in
quarterly sales activity. For the first nine months of 1997 partnership
income totaled $100 million, as compared to $106 million for the first nine
months in 1996.
Interest expense remained stable for the quarter and nine month period ended
September 30, 1997, as compared to the same periods in 1996.
Loss from corporate investments carried at equity increased from a loss of
$1 million in the third quarter of 1996 to a loss of $3 million in the same
quarter 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 fourth quarter of 1997. For the first nine months of 1997,
loss from corporate investments carried at equity decreased to $2 million from
a loss of $8 million in 1996, due to improved Polimeri Europa results which
were only 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, are expected to decline somewhat from 1996 levels, as a
result of favorable experience associated with remedial activities. 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 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.
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 $1.34 and $1.18, respectively, in the third quarter of 1997
($1.22 and $1.08 per common share, respectively, in the third quarter of 1996)
and $3.97 and $3.49, respectively, for the nine months ended September 30,
1997 ($3.64 and $3.21 per common share, respectively, for the nine months
ended September 30, 1996).
Financial Condition - September 30, 1997
Cash flow from operations for the first nine months of 1997 increased to
$739 million from $664 million in the first nine months of 1996, principally
due to an increase in net income in the first nine months of 1997 versus the
comparable period of 1996, coupled with a reduction in working capital
requirements.
Cash flow used for investing totaled $593 million, down from $785 million in
the comparable period of 1996. This decline was due to decreases of
$213 million in investments, advances and acquisitions. Significant
investments and acquisitions in the first nine months 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 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. 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 corporation is addressing the Year 2000 issue in several ways.
Domestically, the corporation is continuing work on the upgrade of information
technology systems, expected to be completed by 1999 to enhance the type of
information the corporation will receive and to address technological issues
related to the year 2000. Internationally, the corporation
continues to implement the upgrade of software, including rewriting certain
computer codes to address year 2000 issues. Domestically and internationally,
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. The corporation believes the
upgrade of information technology systems will be completed prior to the year
2000, although there can be no assurance of that. Should the corporation be
unable to complete the upgrade of information technology systems by the year
2000, the reported financial information may not necessarily be indicative
of future operating results and financial condition.
Cash flow used for financing in the first nine months of 1997 was $107 million
in comparison to $216 million in the first nine months of 1996. The first
nine months of 1997 included common stock repurchases of 5.1 million shares
for cash of $235 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, at a rate
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. On October 21, 1997 the
corporation paid $242 million in cash, of which approximately $157 million was
obtained through new debt, to redeem the preferred stock shares and pay
accrued dividends through the redemption date. The effect of the redemption
will increase interest expense by approximately $4 million each quarter it is
outstanding. Had the preferred shares of the real estate investment trust
been redeemed on September 30, 1997, the corporation's ratio of debt to total
capital would have been 43.2 percent (42.7 percent at December 31, 1996).
Cash dividends, including those paid to preferred shareholders of the real
estate investment trust subsidiary, totaled $103 million, while net repayments
of debt totaled $30 million.
On September 24, 1997, the Board of Directors declared an increased common
stock dividend of $.225 per share, payable on December 1, 1997.
On October 2, 1997 the trustee of the Employee Stock Ownership Plan ("ESOP")
exercised its right to convert all shares of the corporation's preferred stock
held by the ESOP into the corporation's common stock. As a result of the
conversion, the corporation's common stock outstanding at that date was
increased by 15,406,191 shares.
At September 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 8 through 10 of this report on Form 10-Q.
Item 2. Changes in Securities and Use of Proceeds
(c) Sales of Unregistered Securities
During the first nine months 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 2,410,469 shares of Union
Carbide Corporation common stock to the corporation, at prices
ranging from $44.50 to $50.00 per share. Premiums received for
the sales of the options totaled $2,728,522.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following exhibits are filed as part of this report:
11 - Computation of Earnings Per Share
27 - Financial Data Schedule.
(b) No reports on Form 8-K were filed for the three months ended
September 30, 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: November 12, 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 Sept. 30,
1997 1996
Earnings Per Share - Primary
<S> <C> <C>
Net income $ 181 $ 161
Less: Preferred stock dividend 3 3
Appreciation on redeemed preferred stock 12 -
Net income for primary income calculation $ 166 $ 158
Weighted average number of common
and common equivalent shares applicable
to primary earnings per share calculation
Weighted average number of shares outstanding 123,957,271 129,104,998
Dilutive effect of stock options 4,195,877 4,331,086
128,153,148 133,436,084
Earnings per share - primary $ 1.30 $ 1.19
Earnings Per Share - Fully Diluted
Net income for primary income calculation $ 166 $ 158
Add back: Preferred stock dividend 3 3
Net income for fully diluted income calculation $ 169 $ 161
Weighted average number of common
and common equivalent shares applicable to
fully diluted earnings per share calculation
Weighted average number of shares outstanding 123,957,271 129,104,998
Dilutive effect of stock options 4,195,877 4,576,637
Put options - -
Shares issuable upon conversion of UCC
convertible preferred stock 15,473,657 16,100,050
143,626,805 149,781,685
Earnings per share - fully diluted $ 1.18 $ 1.08
<CAPTION>
Nine Months Ended Sept. 30,
1997 1996
Earnings Per Share - Primary
<S> <C> <C>
Net income $ 529 $ 491
Less: Preferred stock dividend 9 9
Appreciation on redeemed preferred stock 24 -
Net income for primary income calculation $ 496 $ 482
Weighted average number of common
and common equivalent shares applicable
to primary earnings per share calculation
Weighted average number of shares outstanding 125,008,093 132,320,586
Dilutive effect of stock options 4,188,264 4,554,764
129,196,357 136,875,350
Earnings per share - primary $ 3.84 $ 3.52
Earnings Per Share - Fully Diluted
Net income for primary income calculation $ 496 $ 482
Add back: Preferred stock dividend 9 9
Net income for fully diluted income calculation $ 505 $ 491
Weighted average number of common
and common equivalent shares applicable to
fully diluted earnings per share calculation
Weighted average number of shares outstanding 125,008,093 132,320,586
Dilutive effect of stock options 4,210,746 4,701,880
Put options 3,060 -
Shares issuable upon conversion of UCC
convertible preferred stock 15,638,615 16,144,822
144,860,514 153,167,288
Earnings per share - fully diluted $ 3.49 $ 3.20
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNION
CARBIDE CORPORATION'S FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 132
<SECURITIES> 0
<RECEIVABLES> 1064
<ALLOWANCES> 0
<INVENTORY> 556
<CURRENT-ASSETS> 1954
<PP&E> 7577
<DEPRECIATION> 3886
<TOTAL-ASSETS> 6975
<CURRENT-LIABILITIES> 1306
<BONDS> 1459
138
0
<COMMON> 155
<OTHER-SE> 2063
<TOTAL-LIABILITY-AND-EQUITY> 6975
<SALES> 4963
<TOTAL-REVENUES> 4963
<CGS> 3650
<TOTAL-COSTS> 3650
<OTHER-EXPENSES> 374<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 57
<INCOME-PRETAX> 772
<INCOME-TAX> 228
<INCOME-CONTINUING> 529
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 529
<EPS-PRIMARY> 3.84
<EPS-DILUTED> 3.49
<FN>
<F1>OTHER EXPENSES ARE EQUAL TO RESEARCH AND DEVELOPMENT OF 118 AND DEPRECIATION
AND AMORTIZATION OF 256.
</FN>
</TABLE>
