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, 1998
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, 1998
Common Stock, $1 par value 132,885,974 shares
Total number of sequentially numbered pages in this filing,
including exhibits thereto: 26
<PAGE>
UNION CARBIDE CORPORATION AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
PAGE
Financial Statements
Condensed Consolidated Statement of Income -
Quarter ended September 30, 1998 and 1997.................... 3
Condensed Consolidated Statement of Income -
Nine months ended September 30, 1998 and 1997................ 4
Condensed Consolidated Balance Sheet -
September 30, 1998 and December 31, 1997..................... 5
Condensed Consolidated Statement of Cash Flows -
Nine months ended September 30, 1998 and 1997................ 6
Notes to Condensed Consolidated Financial Statements............. 7-12
Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................... 13-22
PART II. OTHER INFORMATION
Item 1. Legal Proceedings....................................... 23
Item 6. Exhibits and Reports on Form 8-K........................ 23
Signature........................................................ 24
Exhibit Index.................................................... 25
Cautionary statement for the purposes of the "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995: All statements in this
quarterly report on Form 10-Q that do not reflect historical information are
forward looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Forward looking statements include statements
concerning plans; objectives; strategies; anticipated future events or
performance; sales, cost, expense and earnings expectations; the Year 2000
issue; the euro and any other statements which do not reflect historical
information. Such forward looking statements are subject to risks and
uncertainties. Important factors that could cause actual results to differ
materially from those discussed in such forward looking statements include the
supply/demand balance for the corporation's products; customer inventory
levels; competitive pricing pressures; feedstock costs; changes in industry
production capacities and operating rates; currency exchange rates; interest
rates; global economic conditions, particularly in Asia; disruption in
railroad and other transportation facilities; competitive technology
positions; failure by the corporation to achieve technology objectives,
achieve cost reduction targets or complete projects on schedule; and inability
to obtain new customers or retain existing ones.
<PAGE>
PART I. FINANCIAL INFORMATION
<TABLE>
UNION CARBIDE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
<CAPTION>
Millions of dollars
(Except per share figures)
Quarter ended Sept. 30,
1998 1997
<S> <C> <C>
NET SALES $ 1,350 $ 1,659
Cost of sales, exclusive of depreciation and
amortization 1,036 1,199
Research and development 34 37
Selling, administration and other expenses(a) 78 82
Depreciation and amortization 95 87
Partnership income (loss) (46) 28
Net gain from settlement of UNIPOL Systems
business litigation 118 -
Other income - net 11 9
INCOME BEFORE INTEREST EXPENSE AND PROVISION FOR
INCOME TAXES 190 291
Interest expense 28 19
INCOME BEFORE PROVISION FOR INCOME TAXES 162 272
Provision for income taxes 58 83
INCOME OF CONSOLIDATED COMPANIES AND PARTNERSHIPS 104 189
Minority interest - 5
Loss from corporate investments carried at equity 28 3
NET INCOME 76 181
Preferred stock dividend, net of income taxes - 2
NET INCOME - COMMON STOCKHOLDERS $ 76 $ 179
Earnings per common share
Basic $ 0.56 $ 1.34
Diluted $ 0.55 $ 1.18
Cash dividends declared per common share $ 0.2250 $ 0.4125
(a) Selling, administration and other expenses include:
Selling $ 25 $ 31
Administration 26 31
Other expenses 27 20
$ 78 $ 82
<FN>
The Notes to Condensed Consolidated Financial Statements on Pages 7 through 12
should be read in conjunction with this statement.
</TABLE>
<PAGE>
<TABLE>
UNION CARBIDE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
<CAPTION>
Millions of dollars
(Except per share figures)
Nine months ended Sept. 30,
1998 1997
<S> <C> <C>
NET SALES $ 4,370 $ 4,963
Cost of sales, exclusive of depreciation and
amortization 3,284 3,650
Research and development 107 118
Selling, administration and other expenses(a) 234 237
Depreciation and amortization 288 256
Partnership income 18 100
Net gain from settlement of UNIPOL Systems
business litigation 118 -
Other income - net 32 27
INCOME BEFORE INTEREST EXPENSE AND PROVISION FOR
INCOME TAXES 625 829
Interest expense 84 57
INCOME BEFORE PROVISION FOR INCOME TAXES 541 772
Provision for income taxes 168 228
INCOME OF CONSOLIDATED COMPANIES AND PARTNERSHIPS 373 544
Minority interest 2 13
Loss from corporate investments carried at equity 35 2
NET INCOME 336 529
Preferred stock dividend, net of income taxes - 7
NET INCOME - COMMON STOCKHOLDERS $ 336 $ 522
Earnings per common share
Basic $ 2.47 $ 3.97
Diluted $ 2.41 $ 3.49
Cash dividends declared per common share $ 0.6750 $ 0.7875
(a) Selling, administration and other expenses include:
Selling $ 74 $ 93
Administration 84 94
Other expenses 76 50
$ 234 $ 237
<FN>
The Notes to Condensed Consolidated Financial Statements on Pages 7 through 12
should be read in conjunction with this statement.
</TABLE>
<PAGE>
<TABLE>
UNION CARBIDE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
<CAPTION>
Millions of dollars
Sept. 30, Dec. 31,
1998 1997
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 45 $ 20
Notes and accounts receivable 920 993
Inventories 602 604
Other current assets 284 249
Total current assets 1,851 1,866
Property, plant and equipment 8,209 7,707
Less: Accumulated depreciation 4,144 3,927
Net fixed assets 4,065 3,780
Companies carried at equity 639 690
Other investments and advances 64 73
Total investments and advances 703 763
Other assets 456 555
Total assets $7,075 $6,964
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 234 $ 273
Short-term debt and current portion of
long-term debt 369 429
Accrued income and other taxes 117 75
Other accrued liabilities 688 727
Total current liabilities 1,408 1,504
Long-term debt 1,703 1,458
Postretirement benefit obligation 447 464
Other long-term obligations 641 738
Deferred credits 468 419
Minority stockholders' equity in consolidated
subsidiaries 36 33
Stockholders' equity:
Common stock - authorized - 500,000,000 shares
- issued - 154,660,805 shares
(154,609,669 shares in 1997) 155 155
Additional paid-in capital 54 47
Other equity adjustments (3) (3)
Retained earnings 3,319 3,074
Accumulated other comprehensive loss (134) (101)
Unearned employee compensation - ESOP (68) (80)
Less: Treasury stock, at cost-21,903,937 shares
(17,666,164 shares in 1997) 951 744
Total stockholders' equity 2,372 2,348
Total liabilities and stockholders' equity $7,075 $6,964
<FM>
The Notes to Condensed Consolidated Financial Statements on Pages 7 through 12
should be read in conjunction with this statement.
</TABLE>
<PAGE>
<TABLE>
UNION CARBIDE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
Millions of dollars
Nine months ended Sept. 30,
1998 1997
Increase (decrease) in
cash and cash equivalents
OPERATIONS
<S> <C> <C>
Net income $ 336 $ 529
Noncash charges (credits) to net income
Depreciation and amortization 288 256
Deferred income taxes 93 61
Other 142 (35)
Increase in working capital(a) (61) (67)
Long-term assets and liabilities (55) (14)
Cash Flow From Operations 743 730
INVESTING
Capital expenditures (571) (543)
Investments, advances and acquisitions
(excluding cash acquired) (30) (54)
Sales of fixed and other assets 7 4
Cash Flow Used for Investing (594) (593)
FINANCING
Change in short-term debt (3 months or less) (70) (48)
Proceeds from short-term debt 22 32
Repayments of short-term debt (11) -
Proceeds from long-term debt 248 14
Repayments of long-term debt (5) (28)
Issuance of common stock 34 36
Purchase of common stock (258) (235)
Proceeds from subsidiary preferred stock - 246
Payment of dividends (92) (103)
Other 9 (21)
Cash Flow Used for Financing (123) (107)
Effect of exchange rate changes on cash and
cash equivalents (1) (1)
Change in cash and cash equivalents 25 29
Cash and cash equivalents beginning-of-period 20 57
Cash and cash equivalents end-of-period $ 45 $ 86
Cash paid for interest and income taxes
Interest (net of amount capitalized) $ 73 $ 45
Income taxes $ 34 $ 83
_____________
(a) Net change in certain components of working capital (excluding
non-cash expenditures):
(Increase) decrease in current assets
Notes and accounts receivable $ 71 $ (21)
Inventories 2 (15)
Other current assets (33) 0
Decrease in payables and accruals (101) (31)
Increase in working capital $ (61) $ (67)
<FN>
The Notes to Condensed Consolidated Financial Statements on Pages 7 through 12
should be read in conjunction with this statement.
</TABLE>
<PAGE>
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 1997 annual report to stockholders.
Unrealized gains and losses resulting from translating foreign
subsidiaries' assets and liabilities into U.S. dollars generally are
recognized as part of "Comprehensive income", as described in Note 2, and
are included in "Accumulated other comprehensive loss" on the Condensed
Consolidated Balance Sheet until such time as the subsidiary is sold or
substantially or completely liquidated. Translation gains and losses
relating to operations located in Latin American countries, where
hyperinflation exists, and to international operations using the U.S.
dollar as their functional currency are included in the Condensed
Consolidated Statement of Income. Effective January 1, 1998, Brazil is
no longer considered a hyperinflationary economy.
Marketable securities have been reclassified from "Cash and cash
equivalents" to "Other current assets" to conform to the current period's
presentation.
2. Comprehensive Income
In the first quarter of 1998, the corporation adopted Statement of
Financial Accounting Standards ("Statement") No. 130, "Reporting
Comprehensive Income," which establishes standards for reporting and
displaying comprehensive income and its components in a full set of
general-purpose financial statements. The financial statements for
earlier periods have been reclassified to reflect application of the
provisions of Statement No. 130.
(In millions of dollars) Quarter Ended Nine Months Ended
Sept. 30, Sept. 30,
1998 1997 1998 1997
Net income $ 76 $ 181 $ 336 $ 529
Other comprehensive income/(loss):
Unrealized gains/(losses) on
available-for-sale securities, net of
reclassification adjustment, net of tax (3) 3 1 2
Foreign currency translation adjustments (26) (35) (34) (52)
Total comprehensive income $ 47 $ 149 $ 303 $ 479
<PAGE>
3. Earnings Per Share
<TABLE>
<CAPTION>
(In millions of dollars Quarter Ended Sept. 30, Nine Months Ended Sept. 30,
except per share amounts) 1998 1997 1998 1997
Basic -
<S> <C> <C> <C> <C>
Net income $ 76 $ 181 $ 336 $ 529
Less: Dividends on ESOP shares, pre-tax - 3 - 9
Appreciation on ESOP shares
redeemed for cash - 12 - 24
Net income - common stockholders,
for basic calculation $ 76 $ 166 $ 336 $ 496
Weighted average number of shares
outstanding for basic calculation 134,286,957 123,957,271 135,755,666 125,008,093
Earnings per share $0.56 $1.34 $2.47 $3.97
Diluted -
Net income - common stockholders,
for basic calculation $ 76 $ 166 $ 336 $ 496
Add: Dividends on ESOP shares, pre-tax - 3 - 9
Net income - common stockholders,
for diluted calculation $ 76 $ 169 $ 336 $ 505
Weighted average number of shares
outstanding for basic calculation 134,286,957 123,957,271 135,755,666 125,008,093
Add: Effect of stock options 3,258,418 4,195,877 3,521,861 4,169,143
Shares issuable upon conversion of
UCC's convertible ESOP shares - 15,473,657 - 15,638,615
137,545,375 143,626,805 139,277,527 144,815,851
Earnings per share $0.55 $1.18 $2.41 $3.49
</TABLE>
4. Inventories
Millions of dollars
Sept. 30, Dec. 31,
1998 1997
Raw materials and supplies $ 110 $ 135
Work in process 42 62
Finished goods 450 407
$ 602 $ 604
5. Long-Term Debt
In June 1998 the corporation completed a $250 million public offering of
6.25 percent debentures due June 15, 2003. These debentures pay interest
semi-annually in June and December.
6. Common Stock
Since inception of its 60 million common share repurchase program through
September 30, 1998, the corporation has repurchased 54.9 million shares
(5.6 million during the first nine months of 1998) at an average effective
price of $35.78 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.
<PAGE>
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 12.9 million shares of common stock to UCC, at specified prices
upon exercise of the options. Since inception of this program, through
September 30, 1998, options representing 9.8 million common shares have
expired unexercised, while options representing 3.1 million shares were
exercised for $129 million, or an average price of $40.94 per share.
There were no outstanding options at September 30, 1998.
Premiums received since the inception of the program, recorded as
additional paid-in capital, have reduced the average price of repurchased
shares from $36.03 per share to $35.78 per share.
7. Settlement of UNIPOL Systems Business Litigation
During the third quarter of 1998, the corporation reached a favorable
settlement on a litigation claim of the UNIPOL Systems business. The
pre-tax gain associated with this settlement was $118 million ($72 million
after-tax), net of related expenses.
8. Partnership Income (Loss)
The corporation recorded a $53 million pre-tax charge ($38 million after-
tax), to recognize losses associated with Aspell Polymeres, SNC, the
corporation's partnership with Elf AtoChem, in France.
9. Commitments and Contingencies
The corporation has entered into 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, 1998 totaled $254 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, 1998, the corporation had established environmental
remediation accruals in the amount of $229 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
$124 million.
<PAGE>
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, 1998 included $187 million for
these sites, of which $82 million was for estimated future expenditures
for site investigation and cleanup and $105 million was for estimated
future expenditures for closure and postclosure activities. In addition,
$69 million of the corporation's environmental loss contingencies related
to these sites. The two sites with the largest total potential cost to
the corporation are nonoperating sites. Of the above accruals, these
sites accounted for $40 million, of which $21 million was for estimated
future expenditures for site investigation and cleanup and $19 million was
for estimated future expenditures for closure and postclosure activities.
In addition, $44 million of the above environmental loss contingencies
related to these sites.
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,
1998 included $42 million for estimated future expenditures for site
investigation and cleanup at these sites. In addition, $55 million of the
corporation's environmental loss contingencies related to these sites.
The largest of these sites is also a nonoperating site. Of the above
accruals, this site accounted for $10 million for estimated future
expenditures for site investigation and cleanup. In addition, $3 million
of the above environmental loss contingencies related to this site.
In 1997, 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 $100
million. Expenses in 1996 and 1995 were $110 million and $138 million,
respectively. While estimates of the costs of environmental protection
for 1998 are necessarily imprecise, the corporation estimates that the
level of these expenses will be similar to that experienced in 1997.
The corporation has severally guaranteed 45 percent (approximately
$596 million at September 30, 1998) of EQUATE Petrochemical Company's
("EQUATE") debt and working capital financing needs until certain
completion and financial tests are achieved. If these tests are met, a
$54 million several guarantee will provide ongoing support thereafter.
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, through March 31, 1999, substantially all of its
guarantee of EQUATE's debt.
The corporation had additional contingent obligations at September 30,
1998 of $54 million, of which $29 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
<PAGE>
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, the District Court approved a settlement program proposed by
certain defendants, including the corporation. In August 1997, the court
ruled that all claims based solely on the supply of generic bulk silicone
materials should be dismissed against the corporation. That decision is
final with respect to cases in Federal courts, but does not affect the
corporation's participation in the settlement program. The corporation
believes that after probable insurance recovery 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
$126 million, and related insurance recovery receivables of $109 million.
At September 30, 1998, the corporation had nonenvironmental litigation
loss contingencies of $72 million.
While it is impossible at this time to determine with certainty the
ultimate outcome of any of the 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.
10. Subsequent Event
On October 26, 1998, the corporation issued $110 million in floating rate
public notes maturing in April 2000. The notes bear interest at a rate
which will be reset quarterly at the three-month London interbank offered
rate, plus 0.65 percent. Interest on the notes will be paid quarterly in
January, April, July and October of each year. The proceeds of this
offering were used for general corporate purposes and to repay certain
short-term debt.
<PAGE>
11. Other Accounting Changes
Effective January 1, 1998 the corporation adopted Statement No. 131,
"Disclosures About Segments of an Enterprise and Related Information," and
Statement No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits." These Statements address presentation and
disclosure matters and will have no impact on the corporation's financial
position or results of operations. As required by Statement 131 and
Statement 132, compliance with the respective reporting disclosures will
be reflected in the corporation's 1998 Annual Report on Form 10-K.
In 1998, the Financial Accounting Standards Board issued Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities."
It requires that an entity recognize all derivative instruments as either
assets or liabilities in the statement of financial position and measure
those instruments at fair value. This statement is effective for all
fiscal quarters of fiscal years beginning after June 15, 1999. The
corporation is currently evaluating the effect this statement will have on
its financial position and results of operations in the period of
adoption.
In 1998, the American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." SOP 98-1 is
effective for financial statements for fiscal years beginning after
December 15, 1998. The corporation anticipates that the effect of this
adoption will not be material to the results of operations in the period
in which the SOP is adopted.
Also in 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of Start-up
Activities." This SOP requires the expensing of certain costs such as pre-
operating expenses and organizational costs associated with the corporation's
start-up activities, and is effective for years beginning after December 15,
1998. The effect of adoption is required to be accounted for as a cumulative
effect of change in accounting principle. The corporation anticipates that
the amount recognized as a cumulative effect of change in accounting principle
could range between $15 million and $25 million, depending on the period of
adoption.
The corporation may consider early adoption of one or more of the
preceding pronouncements.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
The corporation reported third quarter 1998 net income available to common
stockholders of $76 million, or $0.55 per diluted share, ($0.56 per basic
share). For the first nine months of 1998, net income available to common
stockholders was $336 million, or $2.41 per diluted share, ($2.47 per basic
share).
For the corresponding quarter in 1997, the corporation reported net income
available to common stockholders of $179 million, or $1.18 per diluted share,
($1.34 per basic share). For the first nine months of 1997, net income
available to common stockholders was $522 million, or $3.49 per diluted share,
($3.97 per basic share).
The corporation's results were affected most significantly by declining
average selling prices, particularly in the Basic Chemicals & Polymers
segment. These declines reflect the overall deterioration of the
supply/demand balance for the chemical industry, coupled with the global
market's response to the depressed Asian economy. Customer volumes also
declined largely due to a longer than anticipated shutdown of the
corporation's largest olefins facilities at Taft, La. in connection with
planned maintenance (a plant turnaround) and expansion. During the plant
turnaround, the corporation purchased rather than produced ethylene, thereby
eliminating the production and sale of the associated hydrocarbon co-products.
Additionally, the corporation incurred certain costs, not incurred in the
prior year, which were associated with the plant turnaround. In the third
quarter of 1998, Partnership income (loss) was lower than in the same period
of the prior year, principally the result of recognition of losses associated
with Aspell Polymeres, SNC, ("Aspell") and reduced earnings from UOP LLC
("UOP"). Although the corporation's income from operations declined from the
comparable periods in the prior year, results were positively impacted by a
net gain associated with the favorable settlement of a litigation claim
related to the UNIPOL Systems business.
The fourth quarter is anticipated to be a challenge for the corporation due to
continuing deterioration in average selling prices, particularly in the Basic
Chemicals & Polymers segment. Customer volumes will likely reflect some
seasonal weakness in the fourth quarter. Likewise, the corporation expects to
experience some seasonal increases in raw material costs, which would reduce
the variable margin (net sales less variable manufacturing and distribution
costs) close to historic lows for Basic Chemicals & Polymers products. The
Asian economic decline will continue to adversely impact average selling
prices and volumes in the Specialties & Intermediates segment, particularly in
the solvents, intermediates and monomers and latex businesses. Licensing is
expected to remain consistent with third quarter levels. It is anticipated
that some improvement in our partnerships will occur as UOP's earnings improve
modestly from the unusually depressed third quarter 1998 levels. Income from
corporate investments carried at equity is expected to remain close to third
quarter levels with some improvement in EQUATE being offset by continuing
declines in Polimeri Europa as average selling prices decline. The olefins
expansion at the Taft, La. facility is not expected to be complete until the
middle of the fourth quarter and therefore, the fourth quarter will bear some
<PAGE>
additional costs over the same period in 1997. Finally, the corporation is in
the process of implementing the largest and most complex phase of its
information technology systems project. Additional costs and temporary
business interruptions may be experienced as the implementation proceeds
through the fourth quarter of 1998.
The 1997 Union Carbide Corporation EPS Incentive Plan is designed to grant
awards to a limited number of senior managers if the corporation achieves
$4.00 or more diluted earnings per share performance during 1999 and 2000.
The plan requires these senior managers to put an amount equivalent to a
portion of their annual base pay at risk, should diluted earnings per share
not equal or exceed $4.00 in the year 2000. Because of the Asian crisis,
volume and average selling price pressures and other reasons, it is not likely
that the goal of $4.00 per diluted share is attainable in 1999, and there is
increasing uncertainty as to whether the goal is attainable in 2000. Failure
to meet the requirements of the plan will result in forfeiture of the amounts
at risk.
The corporation regularly reviews its assets, including investments, with the
objective of maximizing the deployment of resources. In this regard,
strategies or transactions implemented could result in material nonrecurring
gains and losses.
Results of Operations
Net sales decreased 18.6 percent in the third quarter and 11.9 percent in the
first nine months of 1998, compared to the same periods in 1997. Average
selling prices declined 13.4 percent for the third quarter and 8.8 percent for
the first nine months of 1998 compared to the same periods in 1997. Ethylene
glycol and polyethylene, part of the Basic Chemicals & Polymers segment,
experienced the most significant declines in average selling prices; however,
average selling prices for a majority of the corporation's Specialties &
Intermediates products were also affected by the continued weakness in Asian
markets. Customer volume decreased 5.9 percent in the third quarter of 1998
compared to the third quarter of 1997, principally due to the reduced
production and sale of hydrocarbon co-products. Volumes decreased 3.5 percent
for the first nine months of 1998 as compared to similar periods in 1997,
reflecting reduced shipments in the Basic Chemicals & Polymers segment, due in
part to distribution problems in the first half of the year and reduced
hydrocarbon co-product sales in the third quarter of 1998. Additionally, the
corporation's solvents, intermediates and monomers product lines experienced
lower volume due to reduced Asian demand.
Variable margin was 46.7 percent and 45.7 percent for the current three and
nine month periods, respectively, compared to 45.0 percent and 43.9 percent,
respectively, for the same periods in 1997. These increases are related to
changes in product mix within the Specialties & Intermediates segment toward
the sale of higher margin items, offset by variable margin declines in the
Basic Chemicals & Polymers products as average selling prices declined at a
faster rate than raw material costs.
Gross margin (variable margin less fixed manufacturing and distribution
costs), as a percent of sales, decreased to 23.3 percent from 27.7 percent for
the third quarter of 1998 compared to the same quarter in 1997 and decreased
to 24.9 percent from 26.5 percent for the nine months ended September 30, 1998
compared to the same nine months of 1997. These declines reflect certain
costs associated with the plant turnaround at the Taft, La. facility.
<PAGE>
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 periods of 1998 and 1997 follows. Sales of
the Basic Chemicals & Polymers segment include intersegment sales, principally
ethylene oxide, which are reflected at the estimated market value of the
products transferred. Operating profit (loss) represents income before
interest expense and provision for income taxes.
Quarter ended Nine months ended
Sept. 30, Sept. 30,
Millions of dollars 1998 1997 1998 1997
Sales
Specialties & Intermediates $ 995 $1,141 $3,175 $3,402
Basic Chemicals & Polymers 421 619 1,419 1,820
Intersegment Eliminations (66) (101) (224) (259)
Total $1,350 $1,659 $4,370 $4,963
Operating Profit (Loss)
Specialties & Intermediates $ 233 $ 170 $ 601 $ 545
Basic Chemicals & Polymers (13) 125 65 288
Other (30) (4) (41) (4)
Total $ 190 $ 291 $ 625 $ 829
Depreciation and Amortization
Specialties & Intermediates $ 61 $ 55 $ 182 $ 161
Basic Chemicals & Polymers 34 32 106 95
Total $ 95 $ 87 $ 288 $ 256
Capital Expenditures
Specialties & Intermediates $ 111 $ 130 $ 332 $ 321
Basic Chemicals & Polymers 103 85 239 222
Total $ 214 $ 215 $ 571 $ 543
Net sales of the Specialties & Intermediates segment decreased $146 million,
or 12.8 percent in the current quarter compared to the same quarter in 1997,
and $227 million, or 6.7 percent in the current nine month period as compared
to the same nine months of 1997. For the three month period ended
September 30, 1998, this segment's average selling price decreased 7.2 percent
and volume declined 6.0 percent as compared to the same period in 1997. For
the first nine months of 1998, average selling prices decreased 4.4 percent
while volume declined 2.3 percent as compared to the same period of 1997.
<PAGE>
Volume and average selling prices decreased for both the three and nine month
periods primarily in the solvents, intermediates and monomers product lines,
where the impact of the Asian economic downturn was the greatest. Operating
profit for the third quarter of 1998 improved by $63 million or 37.1 percent
when compared to the same quarter of 1997; and improved $56 million or 10.3
percent for the first nine months of 1998 versus the same nine months in 1997.
Included in operating profit for both the three and nine month periods in 1998
was a nonrecurring net gain of $118 million related to the favorable
settlement of a UNIPOL Systems business litigation and a $53 million reduction
in earnings related to losses associated with Aspell.
Net sales of the Basic Chemicals & Polymers segment decreased $198 million, or
32.0 percent in the current quarter versus the same quarter of 1997 and
$401 million, or 22.0 percent in the first nine months of 1998 compared to the
first nine months of 1997. These decreases were the result of a 27.2 percent
and 19.4 percent decrease in average customer selling price, for the three and
nine month periods ended September 30, 1998, respectively, compared to the
same periods in 1997, as the chemical industry continues to move toward
cyclical trough conditions. Additionally, customer volume declined 5.9
percent and 5.0 percent for the three and nine month periods ended September
30, 1998, respectively, as compared to the same periods in 1997. Operating
profit (loss) declined from an operating profit of $125 million in the third
quarter of 1997 to an operating loss of $13 million in the third quarter of
1998. Operating profit for the nine month period ended September 30, 1998
declined $223 million or 77.4 percent, compared to the same period in 1997.
Although operating profit was directly impacted by the reduction in sales and
costs associated with the plant turnaround at the Taft, La. facility, further
declines in operating profit were mitigated by lower raw material costs in
1998 versus 1997.
The corporation's Other segment included a writedown of a long-term
available-for-sale security and a reclassification, to a discontinued
business, of an environmental accrual.
Depreciation and amortization increased $8 million to $95 million for the
third quarter and $32 million to $288 million for the first nine months of
1998, compared to similar periods in 1997. The increases are principally the
result of depreciation associated with completed capital projects.
Partnership income (loss) decreased $74 million and $82 million for the
quarter and nine month periods ended September 30, 1998 compared to similar
periods in 1997, respectively. This decrease is the result of a decline in
earnings of UOP, primarily related to unfavorable market conditions in Asia,
Russia and the Middle East, decreased earnings in Petromont due to industry
declines in average selling prices and a full nine months of costs,
principally research and development, associated with Univation, compared to
only six months of such costs in 1997. Additionally, in the third quarter of
1998, the corporation recognized losses of $53 million associated with Aspell.
Interest expense increased $9 million to $28 million for the third quarter of
1998 and increased $27 million to $84 million for the first nine months of
1998 compared to the same periods in 1997, as the result of increased debt
levels and a reduction in capitalized interest associated with the
corporation's capital program.
<PAGE>
The corporation's effective income tax rate was 35.8 percent and 31.1 percent
for the third quarter and first nine months of 1998, respectively, compared to
30.5 percent and 29.5 percent for the same periods in 1997, respectively. The
increased rate for 1998 reflects additional tax associated with the net gain
from the settlement of a UNIPOL Systems business litigation.
Loss from corporate investments carried at equity increased $25 million, from
$3 million in the third quarter of 1997 to $28 million in the third quarter of
1998. For the first nine months of 1998 loss from corporate investments
carried at equity was $35 million compared to $2 million for the same period
of 1997. Lower earnings in the three and nine month periods are mainly
attributable to approximately $4 million of costs associated with the
temporary outage of a government-owned transformer which supplies power to the
EQUATE facility, coupled with declining average selling prices for Basic
Chemicals & Polymers products in Asia and Europe, which affected operating
results of both EQUATE and Polimeri Europa.
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, 1997. The
reliability and precision of the loss estimates are affected by numerous
factors, such as different stages of site evaluation, the allocation of
responsibility among potentially responsible parties and the assertion of
additional claims. The corporation's environmental exposures are discussed in
more detail in the "Commitments and Contingencies" footnote to the financial
statements on pages 9 through 11 of this report on Form 10-Q.
The corporation is 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 9 through 11 of this report on Form 10-Q.
Accounting Changes
Effective January 1, 1998 the corporation adopted Statement of Financial
Accounting Standards ("Statement") No. 130, "Reporting Comprehensive Income,"
Statement No. 131, "Disclosures About Segments of an Enterprise and Related
Information," and Statement No. 132, "Employers' Disclosures about Pensions
and Other Postretirement Benefits." These statements address presentation and
disclosure matters and will have no impact on the corporation's financial
position or results of operations. The corporation has complied with the
disclosure requirements of Statement 130 in the "Comprehensive Income"
footnote to the financial statements on page 7 of this report on Form 10-Q.
As required by Statement 131 and Statement 132, compliance with the respective
reporting disclosures will be reflected in the corporation's 1998 Annual
Report on Form 10-K.
In 1998, the Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities." It requires
that an entity recognize all derivative instruments as either assets or
liabilities in the statement of financial position and measure those
instruments at fair value. This statement is effective for all fiscal
<PAGE>
quarters of fiscal years beginning after June 15, 1999. The corporation is
currently evaluating the effect this statement will have on its financial
position and results of operations in the period of adoption.
In 1998, the American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." SOP 98-1 is
effective for financial statements for fiscal years beginning after December
15, 1998. The corporation anticipates that the effect of this adoption will
not be material to the results of operations in the period in which the SOP is
adopted.
Also in 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of Start-up
Activities." This SOP requires the expensing of certain costs such as pre-
operating expenses and organizational costs associated with the corporation's
start-up activities, and is effective for years beginning after December 15,
1998. The effect of adoption is required to be accounted for as a cumulative
effect of change in accounting principle. The corporation anticipates that the
amount recognized as a cumulative effect of change in accounting principle
could range between $15 million and $25 million, depending on the period of
adoption.
The corporation may consider early adoption of one or more of the preceding
pronouncements.
Year 2000 Issue
Many of the corporation's older computer and process control systems use two
digits to represent years, so they may interpret "00" as 1900 instead of 2000.
This could result in errors or system failures. The corporation has a
comprehensive program to address its own systems affected by this issue,
including hardware and software, and to assess the readiness of its customers
and suppliers.
Internal Efforts
The corporation has been working to ready its internal systems for several
years. Since 1995, the corporation has expended significant funds to replace
most of its U.S. commercial computers with a single integrated advanced
information system. This project will make most of the corporation's
commercial hardware and software systems Year 2000 ready and remains on
schedule for completion by the end of 1998.
Finance and control operations of the new system were implemented in January
1998, plant maintenance and material management systems are being implemented
plant by plant, and supply chain operations will be implemented during the
fourth quarter of 1998. Selected subsidiary and Canadian operations are
scheduled to be implemented in the first half of 1999.
In a separate effort, the international computer infrastructure is scheduled
for upgrade by the end of third quarter 1999. Repairs to international
commercial applications began in 1997 and are scheduled to be completed in the
fourth quarter of 1998.
<PAGE>
Applications which provide environmental compliance reporting are scheduled
for replacement by the end of the third quarter 1999.
A strategy for addressing the balance of domestic and international internal
processes, including hardware, software and control systems is progressing.
The corporation has essentially completed an inventory of affected systems.
Necessary remediation work has been defined, prioritized and is underway.
o Commercial Systems
Remediation projects are under way for commercial computer systems in Human
Resources, Health Safety and Environment, Engineering, Research and
Development and other functional areas of the corporation. All are
scheduled for completion by the end of third quarter 1999. Inventory and
design work are complete in these areas.
o Non-IT Systems
- - Manufacturing Units
The Year 2000 inventory of process control systems, logic controllers,
process and laboratory analyzers and embedded devices is complete and
remediation is proceeding. Remediation is expected to be largely
complete by the end of third quarter 1999. In some cases, remediation
will be done in the fourth quarter to avoid unplanned shutdowns.
Manufacturing units are being remediated and tested when planned major
maintenance shutdowns afford such opportunity. During the turnaround at
the Taft, La. facility, potential Year 2000 problems were recently
addressed and solutions tested.
- - Other Business Systems
Other business systems including office and medical equipment and
building/site systems have been inventoried and prioritized. Work to
date indicates that fewer problems are anticipated in this area than
originally expected. Remediation is expected to be complete by the
third quarter of 1999.
External Efforts
The corporation is also reviewing its external relationships to address
potential year 2000 impacts arising from interfaces with customers, suppliers
and service providers with whom the corporation has a significant
relationship, as well as the corporation's partnerships and joint ventures.
The corporation is presently communicating with its most significant suppliers
and customers to assess their ability to meet their sales and purchasing
obligations, as well as with its partnerships and joint ventures to assess
their readiness for the Year 2000, and will continue to monitor this into the
Year 2000.
Expenditures
Expenditures (excluding the cost of internal personnel resources) for internal
Year 2000 work and Year 2000 work associated with the corporation's vendors
and suppliers, is expected to run between $50 and $60 million, over the life
of the project, primarily affecting income in the period incurred. All costs
are anticipated to be funded through operations of the corporation.
Approximately 55% of these costs are expected to relate to repairing or
upgrading current systems and 45% to existing hardware and software
replacement, excluding the commercial systems upgrades and the environmental
<PAGE>
compliance project. As of September 30, 1998, approximately $7 million of
this amount has been incurred. These estimates do not include costs
associated with the replacement of most of the corporation's U.S. and
international commercial computer systems with a single integrated advanced
information system, the environmental reporting project or Year 2000 issues
which the corporation's partnerships and joint ventures may incur.
Risks and Contingency Plans
Failure to sufficiently remediate the Year 2000 problem in a timely fashion
poses substantial risks for the corporation. Reasonable worst-case scenarios
include but are not limited to manufacturing system malfunctions, including
shutdowns, and failure in the supply chain. The extent of these potential
risks is uncertain at this time, and will be better defined as the project
proceeds.
Contingency plans are being discussed, will be developed beginning in the
first quarter of 1999 and are planned to be in place, as required, by the end
of the third quarter of 1999. They will include consideration of alternative
sources of supply, customer communication programs and plant and business
response plans.
The corporation plans to complete its Year 2000 project prior to the
Year 2000. However, considerable work remains to be accomplished and
unforeseen difficulties may arise that could adversely affect the ability to
complete systems modifications correctly, completely, on time and/or within
cost estimates. In addition, there can be no assurance that customers,
suppliers and service providers the corporation relies on, as well as the
corporation's partnerships and joint ventures, will resolve their Year 2000
issues accurately, thoroughly and on time. Failure by the corporation or
failure by the corporation's customers, suppliers, service providers,
partnerships or joint ventures to complete the Year 2000 project by the Year
2000 could have a material adverse affect on future operating results or
financial condition of the corporation.
No significant information technology projects have been delayed due to the
corporation's Year 2000 efforts.
European Monetary Union
On January 1, 1999, eleven European Union member countries are scheduled to
establish fixed conversion rates between their existing currencies ("legacy
currencies") and one common currency, the euro. The euro will then trade on
currency exchanges and can be used in business transactions. Beginning in
January 2002, new euro-denominated bills and coins will be issued, and legacy
currencies will be withdrawn from circulation. The corporation believes that
its financial systems and processes will be euro ready on January 1, 1999 and
that the cost of any system conversions will not be material. Although the
corporation is still in the process of evaluating this conversion, the
corporation does not expect the introduction of the euro to have a material
effect on its industry segment businesses, consolidated results of operations
or financial condition.
<PAGE>
Financial Condition - September 30, 1998
Cash flow from operations for the first nine months of 1998 was $743 million,
up from $730 million in the first nine months of 1997. The increase is
principally the result of an increase in non-cash charges (credits) to
net income, resulting from a $115 million decline in the combined
results of partnerships and corporate investments carried at equity and an
increase in deferred tax expense, which was partially offset by decreases in
net income and cash used for long-term assets and liabilities. Working
capital remained relatively consistent in total; however, increases in other
current assets and decreases in payables and accruals were partially offset by
decreases in notes and accounts receivable and inventories.
Cash flow for investing for the first nine months of 1998 was $594 million, a
slight increase from $593 million in the comparable period of 1997,
principally attributable to lower investment, advances and acquisitions and
higher sales of fixed and other assets partially offset by an increase in
capital expenditures. Major capital projects funded in the first nine months
of 1998 included continuing work on an olefins expansion, a new butanol unit,
a new CARBOWAX polyethylene glycol and TERGITOL surfactants facility and an
ethanolamines unit, all at Taft, La.; a new olefins facility being built
jointly with NOVA Chemicals Ltd., and a polyolefins project, both in Canada;
as well as the upgrade of information technology infrastructure. Major
capital projects in 1997 included a new CARBOWAX polyethylene glycol and
TERGITOL surfactants facility, an ethanolamines unit and an olefins expansion,
all at Taft, La., as well as an upgrade of information technology
infrastructure.
At September 30, 1998, the corporation has approximately $170 million in
commitments related to authorized construction projects and certain
investments. These commitments are anticipated to be sourced through
operating cash flows and borrowings.
Cash flow used for financing in the first nine months of 1998 was
$123 million, an increase of $16 million from $107 million in the first nine
months of 1997. The first nine months of 1998 included net proceeds of $248
million from the issuance of 6.25 percent public debentures due in June 2003.
The first nine months of 1997 included $246 million net proceeds from the
issuance of preferred stock of a subsidiary. Common stock repurchases under
the existing common stock repurchase program totaled 5.6 million shares for
cash of $255 million for the first nine months of 1998. In addition, in 1998
stock was reacquired from employees to satisfy tax withholding requirements on
restricted shares issued under employee benefit plans. 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 for the first nine months of 1998 totaled
$92 million, while net repayments of debt, excluding the June 1998 issuance of
public debentures, totaled $64 million.
On October 26, 1998, the corporation issued $110 million of floating rate
public notes, due in April 2000, under the corporation's $500 million shelf
registration statement covering debt securities. These notes bear interest at
a rate which will be reset quarterly at the three-month London interbank
offered rate, plus 0.65 percent. Interest on the notes will be paid quarterly
beginning in January. The proceeds of this offering were used for general
corporate purposes and to repay certain short-term debt.
<PAGE>
In April 1998, the corporation and Petroliam Nasional Berhad, the national oil
company of Malaysia, agreed to form three joint venture companies that will
build and operate a 600,000 metric-tons-per-year ethylene plant, a 385,000
metric-tons-per-year ethylene oxide plant, and a multiple Specialties &
Intermediates derivatives plant in Kerteh, Terengganu, Malaysia. The joint
ventures' primary marketing focus will be in Southeast Asia. The corporation
anticipates funding its approximate $500 million share of the cost of the
complex through its 2001 planned startup date with internally generated funds
and external debt.
The corporation's ratio of debt to total capital increased to 46.3 percent at
September 30, 1998 from 44.2 percent at December 31, 1997. At September 30,
1998 there were no outstanding borrowings under the existing major bank credit
agreement aggregating $1 billion. The corporation has an effective shelf
registration statement covering $390 million of public debt securities at
October 31, 1998.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See Note 9 to the corporation's consolidated financial statements
on pages 9 through 11 of this report on Form 10-Q.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following exhibits are filed as part of this report:
27 - Financial Data Schedule.
(b) No reports on Form 8-K were filed for the three months ended
September 30, 1998.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNION CARBIDE CORPORATION
(Registrant)
Date: November 13, 1998 By: /s/ John K. Wulff
JOHN K. WULFF
Vice-President, Chief
Financial Officer and
Controller
<PAGE>
EXHIBIT INDEX
Exhibit Page
No. Exhibit No.
27 Financial Data Schedule 26
<PAGE>
<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, 1998, 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-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 45
<SECURITIES> 0
<RECEIVABLES> 920
<ALLOWANCES> 0
<INVENTORY> 602
<CURRENT-ASSETS> 1851
<PP&E> 8209
<DEPRECIATION> 4144
<TOTAL-ASSETS> 7075
<CURRENT-LIABILITIES> 1408
<BONDS> 1703
0
0
<COMMON> 155
<OTHER-SE> 2217
<TOTAL-LIABILITY-AND-EQUITY> 7075
<SALES> 4370
<TOTAL-REVENUES> 4370
<CGS> 3284
<TOTAL-COSTS> 3284
<OTHER-EXPENSES> 395<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 84
<INCOME-PRETAX> 541
<INCOME-TAX> 168
<INCOME-CONTINUING> 336
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 336
<EPS-PRIMARY> 2.47<F2>
<EPS-DILUTED> 2.41<F2>
<FN>
<F1>Other expenses ae equal to research and development of 107 and depreciation and
amortization of 288.
<F2>The EPS-PRIMARY amount represents basic earnings per share and the EPS-DILUTED
amount represents diluted earnings per share, computed in accordance with
Statement of Financial Accounting Standards No. 128, "Earnings Per Share."
</FN>
</TABLE>
