UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D C 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 July 31, 1998
Common Stock, $1 par value 135,269,257 shares
Total number of sequentially numbered pages in this filing,
including exhibits thereto: 28
<PAGE>
UNION CARBIDE CORPORATION AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
PAGE
Financial Statements
Condensed Consolidated Statement of Income -
Quarter ended June 30, 1998 and 1997......................... 3
Condensed Consolidated Statement of Income -
Six months ended June 30, 1998 and 1997...................... 4
Condensed Consolidated Balance Sheet -
June 30, 1998 and December 31, 1997.......................... 5
Condensed Consolidated Statement of Cash Flows -
Six months ended June 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...................................... 13-20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings....................................... 21
Item 6. Exhibits and Reports on Form 8-K........................ 21
Signature........................................................ 22
Exhibit Index.................................................... 23
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. 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; and failure by the corporation
to achieve cost reduction targets or complete projects on schedule.
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
UNION CARBIDE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
<CAPTION>
Millions of dollars
(Except per share figures)
Quarter ended June 30,
1998 1997
<S> <C> <C>
NET SALES $ 1,459 $ 1,666
Cost of sales, exclusive of depreciation and
amortization 1,087 1,220
Research and development 36 41
Selling, administration and other expenses(a) 72 75
Depreciation and amortization 98 87
Partnership income 27 37
Other income - net 10 11
INCOME BEFORE INTEREST EXPENSE AND PROVISION FOR
INCOME TAXES 203 291
Interest expense 29 19
INCOME BEFORE PROVISION FOR INCOME TAXES 174 272
Provision for income taxes 51 79
INCOME OF CONSOLIDATED COMPANIES AND PARTNERSHIPS 123 193
Minority interest 1 5
Income (loss) from corporate investments
carried at equity (4) 3
NET INCOME 118 191
Preferred stock dividend, net of income taxes - 3
NET INCOME - COMMON STOCKHOLDERS $ 118 $ 188
Earnings per common share
Basic $ 0.87 $ 1.46
Diluted $ 0.85 $ 1.28
Cash dividends declared per common share $ 0.2250 $ 0.1875
(a) Selling, administration and other expenses include:
Selling $ 23 $ 31
Administration 29 34
Other expenses 20 10
$ 72 $ 75
<FN>
The Notes to Condensed Consolidated Financial Statements on Pages 7 through 12
should be read in conjunction with this statement.
</FN>
</TABLE>
<PAGE>
<TABLE>
UNION CARBIDE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
<CAPTION>
Millions of dollars
(Except per share figures)
Six months ended June 30,
1998 1997
<S> <C> <C>
NET SALES $ 3,020 $ 3,304
Cost of sales, exclusive of depreciation and
amortization 2,248 2,451
Research and development 73 81
Selling, administration and other expenses(a) 156 155
Depreciation and amortization 193 169
Partnership income 64 72
Other income - net 21 18
INCOME BEFORE INTEREST EXPENSE AND PROVISION FOR
INCOME TAXES 435 538
Interest expense 56 38
INCOME BEFORE PROVISION FOR INCOME TAXES 379 500
Provision for income taxes 110 145
INCOME OF CONSOLIDATED COMPANIES AND PARTNERSHIPS 269 355
Minority interest 2 8
Income (loss) from corporate investments
carried at equity (7) 1
NET INCOME 260 348
Preferred stock dividend, net of income taxes - 5
NET INCOME - COMMON STOCKHOLDERS $ 260 $ 343
Earnings per common share
Basic $ 1.91 $ 2.63
Diluted $ 1.86 $ 2.31
Cash dividends declared per common share $ 0.450 $ 0.375
(a) Selling, administration and other expenses include:
Selling $ 49 $ 62
Administration 58 63
Other expenses 49 30
$ 156 $ 155
<FN>
The Notes to Condensed Consolidated Financial Statements on Pages 7 through 12
should be read in conjunction with this statement.
</FN>
</TABLE>
<PAGE>
<TABLE>
UNION CARBIDE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
<CAPTION>
Millions of dollars
June 30, Dec. 31,
1998 1997
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 38 $ 20
Notes and accounts receivable 1,002 993
Inventories 619 604
Other current assets 248 249
Total current assets 1,907 1,866
Property, plant and equipment 8,003 7,707
Less: Accumulated depreciation 4,061 3,927
Net fixed assets 3,942 3,780
Companies carried at equity 706 690
Other investments and advances 69 73
Total investments and advances 775 763
Other assets 497 555
Total assets $7,121 $6,964
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 230 $ 273
Short-term debt and current portion of
long-term debt 381 429
Accrued income and other taxes 46 75
Other accrued liabilities 658 727
Total current liabilities 1,315 1,504
Long-term debt 1,705 1,458
Postretirement benefit obligation 457 464
Other long-term obligations 663 738
Deferred credits 475 419
Minority stockholders' equity in consolidated
subsidiaries 35 33
Stockholders' equity:
Common stock - authorized - 500,000,000 shares
- issued - 154,609,669 shares 155 155
Additional paid-in capital 56 47
Other equity adjustments (5) (3)
Retained earnings 3,273 3,074
Accumulated other comprehensive loss (105) (101)
Unearned employee compensation - ESOP (70) (80)
Less: Treasury stock, at cost-19,273,271 shares
(17,666,164 shares in 1997) 833 744
Total stockholders' equity 2,471 2,348
Total liabilities and stockholders' equity $7,121 $6,964
<FN>
The Notes to Condensed Consolidated Financial Statements on Pages 7 through 12
should be read in conjunction with this statement.
</FN>
</TABLE>
<PAGE>
<TABLE>
UNION CARBIDE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
Millions of dollars
Six months ended June 30,
1998 1997
Increase (decrease) in
cash and cash equivalents
<S> <C> <C>
OPERATIONS
Net income $ 260 $ 348
Noncash charges (credits) to net income
Depreciation and amortization 193 169
Deferred income taxes 98 37
Other 44 (10)
Increase in working capital(a) (207) (153)
Long-term assets and liabilities (36) 6
Cash Flow From Operations 352 397
INVESTING
Capital expenditures (357) (328)
Investments, advances and acquisitions
(excluding cash acquired) (23) (43)
Sale of fixed and other assets 6 1
Cash Flow Used for Investing (374) (370)
FINANCING
Change in short-term debt (3 months or less) (73) (41)
Proceeds from short-term debt 25 20
Proceeds from long-term debt 248 14
Repayment of long-term debt (3) (20)
Issuance of common stock 24 25
Purchase of common stock (129) (176)
Proceeds from subsidiary preferred stock - 246
Payment of dividends (61) (66)
Other 9 (13)
Cash Flow From (Used for) Financing 40 (11)
Effect of exchange rate changes on cash and
cash equivalents - (1)
Change in cash and cash equivalents 18 15
Cash and cash equivalents beginning-of-period 20 57
Cash and cash equivalents end-of-period $ 38 $ 72
Cash paid for interest and income taxes
Interest (net of amount capitalized) $ 54 $ 38
Income taxes $ 24 $ 60
_____________
(a) Net change in certain components of working capital (excluding
non-cash expenditures):
(Increase) decrease in current assets
Notes and accounts receivable $ (1) $ (31)
Inventories (15) (3)
Other current assets - 6
Decrease in payables and accruals (191) (125)
Increase in working capital $(207) $(153)
<FN>
The Notes to Condensed Consolidated Financial Statements on Pages 7 through 12
should be read in conjunction with this statement.
</FN>
</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 Six Months Ended
June 30, June 30,
1998 1997 1998 1997
Net income $ 118 $ 191 $ 260 $ 348
Other comprehensive income/(loss):
Unrealized gains/(losses) on
available-for-sale securities, net of
reclassification adjustment, net of tax (2) 2 4 (1)
Foreign currency translation adjustments (16) (1) (8) (17)
Total comprehensive income $ 100 $ 192 $ 256 $ 330
<PAGE>
3. Earnings Per Share
<TABLE>
<CAPTION>
(In millions of dollars Quarter Ended June 30, Six Months Ended June 30,
except per share amounts) 1998 1997 1998 1997
<S> <C> <C> <C> <C>
Basic -
Net income $ 118 $ 191 $ 260 $ 348
Less: Dividends on ESOP shares, pre-tax - 3 - 6
Appreciation on ESOP shares
redeemed for cash - 7 - 12
Net income - common stockholders,
for basic calculation $ 118 $ 181 $ 260 $ 330
Weighted average number of shares
outstanding for basic calculation 136,132,527 124,687,095 136,502,193 125,542,213
Earnings per share $0.87 $1.46 $1.91 $2.63
Diluted -
Net income - common stockholders,
for basic calculation $ 118 $ 181 $ 260 $ 330
Add: Dividends on ESOP shares, pre-tax - 3 - 6
Net income - common stockholders,
for diluted calculation $ 118 $ 184 $ 260 $ 336
Weighted average number of shares
outstanding for basic calculation 136,132,527 124,687,095 136,502,193 125,542,213
Add: Effect of stock options 3,772,915 4,074,872 3,653,583 4,151,185
Shares issuable upon conversion of
UCC's convertible ESOP shares - 15,593,263 - 15,722,461
139,905,442 144,355,230 140,155,776 145,415,859
Earnings per share $0.85 $1.28 $1.86 $2.31
</TABLE>
4. Inventories
Millions of dollars
June 30, Dec. 31,
1998 1997
Raw materials and supplies $ 103 $ 135
Work in process 49 62
Finished goods 467 407
$ 619 $ 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
June 30, 1998, the corporation has repurchased 52.0 million shares
(2.7 million during the first six months of 1998) at an average effective
price of $35.36 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
June 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 June 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 $35.62 per share to $35.36 per share.
7. 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 June 30, 1998 totaled $272 million.
The corporation is subject to loss contingencies resulting from
environmental laws and regulations, which include obligations to remove or
remediate the effects on the environment of the disposal or release of
certain wastes and substances at various sites. The corporation has
established accruals in current dollars for those hazardous waste sites
where it is probable that a loss has been incurred and the amount of the
loss can be reasonably estimated. The reliability and precision of the
loss estimates are affected by numerous factors, such as different stages
of site evaluation, the allocation of responsibility among potentially
responsible parties and the assertion of additional claims. The
corporation adjusts its accruals as new remediation requirements are
defined, as information becomes available permitting reasonable estimates
to be made, and to reflect new and changing facts.
At June 30, 1998, the corporation had established environmental remediation
accruals in the amount of $237 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
$151 million.
The corporation has sole responsibility for the remediation of
approximately 40 percent of its environmental sites. These sites are well
advanced in the investigation and cleanup stage. The corporation's
environmental accruals at June 30, 1998 included $185 million for these
sites, of which $74 million was for estimated future expenditures for site
investigation and cleanup and $111 million was for estimated future
expenditures for closure and postclosure activities. In addition,
$83 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 $36 million, of which $17 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, $51 million of the above environmental loss contingencies
related to these sites.
<PAGE>
The corporation does not have sole responsibility at the remainder of its
environmental sites. All of these sites are in the investigation and
cleanup stage. The corporation's environmental accruals at June 30, 1998
included $52 million for estimated future expenditures for site
investigation and cleanup at these sites. In addition, $68 million of the
corporation's environmental loss contingencies related to these sites.
The largest of these sites is also a nonoperating site. Of the above
accruals, this site accounted for $9 million for estimated future
expenditures for site investigation and cleanup. In addition, $9 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
$582 million at June 30, 1998) of EQUATE Petrochemical Company's 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
September 30, 1998, substantially all of its guarantee of EQUATE's debt.
The corporation is in the process of extending the political risk
insurance for its debt guarantee through March 31, 1999.
The corporation had additional contingent obligations at June 30, 1998 of
$61 million, of which $27 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, 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.
<PAGE>
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
$119 million, and related insurance recovery receivables of $114 million.
At June 30, 1998, the corporation had nonenvironmental litigation loss
contingencies of $68 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.
8. 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 is currently evaluating the effect
this SOP will have on its financial position and results of operations in
the period of adoption.
<PAGE>
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 is still evaluating
the effect of this statement on its results of operations and financial
position. The corporation anticipates that the amount recognized as a
cumulative effect of change in accounting principle may be material to the
results of operations in the quarter in which the SOP is adopted, but should
not be material to the corporation's annual results of operations.
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 second quarter 1998 net income available to common
stockholders of $118 million, or $0.85 per diluted share, ($0.87 per basic
share). For the first six months of 1998, net income available to common
stockholders was $260 million, or $1.86 per diluted share, ($1.91 per basic
share).
For the corresponding quarter in 1997, the corporation reported net income
available to common stockholders of $188 million, or $1.28 per diluted share,
($1.46 per basic share). For the first six months of 1997, net income
available to common stockholders was $343 million, or $2.31 per diluted share,
($2.63 per basic share).
The corporation's earnings for the quarter and six month periods ended June
30, 1998 decreased compared to the same periods in 1997. Decreases in net
sales and operating profit were driven by reduced customer volumes, primarily
in solvents, intermediates and monomers and polyethylene resin product lines,
coupled with declines in Basic Chemicals & Polymers average selling prices.
The effect of reduced average selling prices and volumes was partially offset
by lower raw material costs as compared with the three and six month periods
ended June 30, 1997. Operating profit for both the three and six month
periods ended June 30, 1998 was additionally impacted negatively by variations
in quarterly licensing sales activity both for the corporation as well as the
corporation's UOP joint venture, while net income available to common
stockholders for the same periods was further impacted by additional interest
expense and increased losses associated with the start-up of EQUATE, the
corporation's Kuwait-based petrochemical joint venture.
Average selling prices for the Basic Chemical & Polymers segment are likely to
continue to decline in the third quarter of 1998 reflecting the combined
impact of reduced Asian demand and additional industry capacity. As a result,
the corporation anticipates that Basic Chemicals & Polymers operating profit
will decrease compared with the second quarter of 1998. Operating profit for
the Specialties & Intermediates segment will likely benefit from declines in
raw material costs but will continue to be negatively impacted by the Asian
economic downturn and the effect of a strong dollar. The corporation's share
of earnings for UOP is anticipated to be below prior year levels in the third
quarter, followed by improvement in the fourth quarter. The corporation's
share of loss from corporate investments carried at equity will likely
increase somewhat in the third quarter assuming continued deterioration of
average selling prices of Basic Chemicals & Polymers products.
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.
<PAGE>
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 years 1999 and 2000. Because of the Asian
crisis and other reasons, there is increasing uncertainty as to whether the
goal of $4.00 is attainable, at least for 1999. Therefore, while the
corporation has not ruled out meeting that goal in either 1999 or 2000, there
can be no assurance that the goal will be met. 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 12.4 percent in the second quarter and 8.6 percent in the
first half of 1998, compared to the same periods in 1997. Average selling
prices declined 10.3 percent for the second quarter and 6.3 percent for the
first half of 1998 compared to the same periods in 1997. While average
selling prices decreased most significantly in the Basic Chemicals & Polymers
segment, pricing in the Specialties & Intermediates segment was adversely
affected by Asian economic conditions and the effect of the strengthening U.S.
dollar on foreign exchange rates. Customer volume declined 2.5 percent for
the second quarter and 2.3 percent for the first half of 1998 as compared to
similar periods in 1997 due mainly to declines in polyethylene, attributable
in part to Gulf Coast railroad distribution problems, and to declines in
solvents, intermediates and monomers, resulting from demand weakness in Asia.
Variable margin (net sales less variable manufacturing and distribution costs)
was 45.6 percent and 45.3 percent for the current three and six month periods,
respectively, compared to 44.5 percent and 43.4 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 dropped at a faster rate than raw
material costs.
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 second quarter and six month periods of 1998 and 1997 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.
<PAGE>
Quarter ended Six months ended
June 30, June 30,
Millions of dollars 1998 1997 1998 1997
Sales
Specialties & Intermediates $1,060 $1,139 $2,180 $2,261
Basic Chemicals & Polymers 480 604 998 1,201
Intersegment Eliminations (81) (77) (158) (158)
Total $1,459 $1,666 $3,020 $3,304
Operating Profit
Specialties & Intermediates $ 166 $ 191 $ 368 $ 375
Basic Chemicals & Polymers 42 101 78 163
Other (5) (1) (11) -
Total $ 203 $ 291 $ 435 $ 538
Depreciation and Amortization
Specialties & Intermediates $ 61 $ 55 $ 121 $ 106
Basic Chemicals & Polymers 37 32 72 63
Total $ 98 $ 87 $ 193 $ 169
Capital Expenditures
Specialties & Intermediates $ 131 $ 103 $ 221 $ 191
Basic Chemicals & Polymers 80 87 136 137
Total $ 211 $ 190 $ 357 $ 328
Net sales of the Specialties & Intermediates segment decreased $79 million, or
6.9 percent in the current quarter over the same quarter in 1997, and
$81 million, or 3.6 percent in the current six month period as compared to the
same six months of 1997. Operating profit for the second quarter of 1998
declined 13.1 percent to $166 million, from $191 million for the same quarter
of 1997; operating profit was $368 million for the first half of 1998, versus
$375 million for the comparable period in 1997. For the three month period
ended June 30, 1998, this segment's volume declined 3.1 percent, compared to
the same period in 1997, coupled with a decline in average selling prices of
3.9 percent. For the first six months of 1998, average selling prices
decreased 3.3 percent as compared to the same period of 1997, while volume
remained essentially constant. The most significant declines, for both the
three and six month periods, are related to the solvents, intermediates and
monomers product lines where the effect of the Asian economic downturn has
significantly reduced volumes and average selling prices.
Net sales of the Basic Chemicals & Polymers segment decreased $124 million, or
20.5 percent in the current quarter over the same quarter of 1997 and
$203 million, or 16.9 percent in the first half of 1998 over the first half of
1997. Operating profit declined by $59 million, or 58.4 percent and
$85 million, or 52.1 percent in the current quarter and the six month period
ended June 30, 1998, respectively, compared to the same periods in 1997.
These decreases were the result of a 23.0 percent and 15.7 percent decrease in
average selling prices in the quarter and first six months of 1998,
respectively, versus the comparable periods of 1997. In addition to the
decline in the average selling prices, customer volume levels decreased
<PAGE>
1.6 percent and 4.6 percent for the same periods. Declines in customer
volumes and average selling prices are related to declining market conditions
of the industry coupled with difficulties in transporting commodity
polyethylene resin products, via rail, from the corporation's U.S. Gulf Coast
facilities. Seasonal volume increases in ethylene glycol in North America and
lower raw material costs mitigated the overall effect of these declines.
Partnership income decreased $10 million for the second quarter of 1998
compared to the second quarter of 1997 due to variations in quarterly sales
activity within UOP and continued costs, principally research and development,
of Univation. For the first half of 1998 partnership income decreased
$8 million, as compared to the same period in 1997. This decline represents a
full six months of losses for Univation in 1998, compared to only three months
of losses in 1997, coupled with decreased earnings in Petromont due to
industry declines in average selling prices for polyethylene.
Depreciation and amortization increased $11 million to $98 million for the
second quarter and $24 million to $193 million for the first half of 1998,
compared to similar periods in 1997. The increase is principally the result
of depreciation associated with completed capital projects.
Interest expense increased $10 million to $29 million for the second quarter
of 1998 compared to the second quarter a year ago and increased $18 million in
the first half of 1998 compared to the first half of 1997, as the result of
increased debt levels and a reduction in capitalized interest associated with
the corporation's capital program.
Income (loss) from corporate investments carried at equity decreased
$7 million to a loss of $4 million in the second quarter of 1998, from income
of $3 million in the second quarter of 1997. For the first half of 1998,
income (loss) from corporate investments carried at equity was a loss of
$7 million compared to income of $1 million in the first half of 1997. Lower
earnings in the three and six month periods are mainly attributable to reduced
earnings in Polimeri Europa as lower average selling prices of resin products
more than offset increases in volumes and lower raw material costs.
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.
<PAGE>
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
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 is currently evaluating the effect this SOP will
have on its financial position and results of operations in the period of
adoption.
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 is still evaluating
the effect of this statement on its results of operations and financial
position. The corporation anticipates that the amount recognized as a
cumulative effect of change in accounting principle may be material to the
results of operations in the quarter in which the SOP is adopted, but should
not be material to the corporation's annual results of operations.
The corporation may consider early adoption of one or more of the preceding
pronouncements.
Year 2000 Issue
Most of the corporation's computer and process control systems were designed
to use only two digits to represent years. Thus they may not recognize "00"
as representing the year 2000, but rather 1900, which could result in errors
or system failures. These systems must be corrected in a timely manner to
remain functional.
<PAGE>
The corporation is addressing the year 2000 issue in several ways. Since
1995, the corporation has expended significant funds to upgrade the bulk of
its domestic commercial computer systems to enhance the information available
to the corporation. This upgrade will correct the year 2000 issue for the
computer systems it replaces. The upgrade is being implemented in three
parts, the first of which, covering finance and control, commenced operation
in January 1998. The second part, plant maintenance and material management,
is currently being implemented on a plant by plant basis and is scheduled for
completion by year end. The third part, supply chain, will be implemented in
the fourth quarter of this year. Additionally, the infrastructure to support
the international commercial system upgrade will be implemented in the third
quarter of 1999 and will correct most of the year 2000 international
infrastructure problems.
A project to consolidate environmental compliance reporting is underway, and
is scheduled to be completed in 1999. This new system will also correct year
2000 problems for those systems it replaces.
The corporation is addressing the year 2000 issues in the balance of its
domestic and international internal processes, including hardware, software
and control systems. The corporation has inventoried and prioritized
potentially affected systems and several different repair projects are
underway. For example, repairs to the corporation's international finance and
order management system, which began in 1997, have already been implemented in
many of the corporation's world area offices, with the balance to be completed
by year end. Other projects are at various stages based largely upon the
importance of the system to the corporation and the size and complexity of the
repairs. To a large extent, the path forward is known for systems with
problems and projects have been or are being defined to correct them. The
corporation estimates its external worldwide expenditures related to this year
2000 work could range between $50 and $60 million over the life of the project.
The corporation expects approximately 55 percent of the estimated expenditures
will relate to repairing or upgrading current systems and 45 percent will
relate to replacement of existing hardware and software. To date
approximately $7 million of this amount has been incurred. The estimates
explained in this paragraph do not include the upgrade of commercial systems
and the environmental compliance project noted above. The corporation expects
to have resolved internal systems year 2000 issues that could impact
operational sustainability by the third quarter of 1999.
Union Carbide is also reviewing its external relationships to address
potential year 2000 impacts arising from interfaces with customers, suppliers
and service providers. The corporation is currently communicating with its
significant suppliers and key customers to assess their ability to meet their
sales and purchasing obligations despite the year 2000 issue, and will
continue to monitor this into the year 2000.
Contingency plans are being considered and will be in place, as required, by
the third quarter of 1999 in the event that the corporation is at risk in
regard to suppliers, customers or its own internal hardware and software.
Contingency plans will include, but will not be limited to, consideration of
alternative sources of supply, customer communication plans, and plant and
business response plans.
The corporation believes the year 2000 project will be completed prior to the
year 2000. However, considerable work remains to be accomplished in a limited
period of time and unforeseen difficulties may arise which could adversely
affect the corporation's ability to complete its systems modifications
<PAGE>
correctly, completely, on time and/or within its cost estimate. In addition,
there can be no assurance that customers, suppliers and service providers on
which the corporation relies will resolve their year 2000 issues accurately,
thoroughly and on time. Failure to complete the year 2000 project by the year
2000 could have a material adverse affect on future operating results or
financial condition.
Financial Condition - June 30, 1998
Cash flow from operations for the first six months of 1998 was $352 million,
down from $397 million in the first six months of 1997. The decline results
primarily from an increase in working capital primarily attributable to a
decrease in payables and accruals and an increase in long-term assets and
liabilities partially offset by an increase in the total of net income and
non-cash charges (credits) to net income.
Cash flow used for investing totaled $374 million, an increase of $4 million
from $370 million in the comparable period of 1997 principally due to lower
investments, advances and acquisitions in 1998, offset by an increase in
capital expenditures. Funding of major capital projects in the first half of
1998 included continuing work on an olefins expansion, a new butanol unit and
a new CARBOWAX polyethylene glycol and TERGITOL surfactants facility, an
ethanolamine unit and an olefins expansion, 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 funded in the first six months of 1997
included work on the new CARBOWAX polyethylene glycol and TERGITOL surfactants
facility, an ethanolamine unit and olefins expansion, all at Taft, La., and
the continuing work on the corporation's upgrade of information technology
infrastructure.
Cash flow from financing in the first half of 1998 was $40 million in
comparison to cash flow used for financing of $11 million in the first half of
1997. The first half of 1998 included net proceeds of $248 million from the
issuance of 6.25 percent public debentures, due June 15, 2003, compared to the
first half of 1997 which included $246 million net proceeds from the issuance
of preferred stock of a subsidiary. Common stock repurchases for the first
six months of 1998 totaled 2.7 million shares for cash of $126 million under
the existing common stock repurchase program. Additional common stock
repurchases, not included in the repurchase program, totaled $3 million in
cash. 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 half of 1998 totaled
$61 million, while net repayments of debt, excluding the June 1998 issuance of
public debentures, totaled $51 million.
In April 1998, the corporation and PETRONAS, 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.
<PAGE>
The corporation's ratio of debt to total capital increased to 45.4 percent at
June 30, 1998 from 44.2 percent at December 31, 1997. At June 30, 1998 there
were no outstanding borrowings under the existing major bank credit agreement
aggregating $1 billion. The corporation filed with the Securities and
Exchange Commission a shelf registration statement covering $500 million of
public debentures which became effective on July 31, 1998.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See Note 7 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:
3 - Restated Articles of Incorporation, amended
as of June 25, 1998.
27 - Financial Data Schedule.
(b) No reports on Form 8-K were filed for the three months ended
June 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: August 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.
3 Restated Articles of Incorporation, amended as of
June 25, 1998 24
27 Financial Data Schedule 28
Exhibit 3
RESTATED CERTIFICATE OF INCORPORATION OF
UNION CARBIDE CORPORATION
UNDER SECTION 807 OF THE BUSINESS CORPORATION LAW
The undersigned William H. Joyce and John Macdonald, being
respectively the Chairman of the Board and Assistant Secretary of Union
Carbide Corporation hereby certify as follows:
1. The name of the Corporation is Union Carbide Corporation.
The name under which the Corporation was formed was Union Carbide and
Carbon Corporation.
2. The certificate of incorporation was filed in the Office
of the Secretary of State of the State of New York on November 1, 1917.
3. The certificate of incorporation of the Corporation is
hereby amended to delete in its entirety subparagraph (c) of paragraph 3
thereof which states the number, designation, relative rights,
preferences and limitations of the ESOP Convertible Preferred Stock.
None of the authorized shares of ESOP Convertible Preferred Stock are
outstanding, no shares of ESOP Convertible Preferred Stock will be
issued subject to the certificate of incorporation, and upon the filing
of this certificate the shares will be restored to the status of
authorized but unissued shares of Preferred Stock of the Corporation.
4. This amended and restated certificate of incorporation of
the Corporation was authorized by resolution adopted by the Board of
Directors of the Corporation on June 24, 1998 pursuant to Sections 502
and 807 of the Business Corporation Law.
5. The certificate of incorporation of the Corporation is
hereby restated as amended hereby, to read in its entirety as follows:
<PAGE>
CERTIFICATE OF INCORPORATION
OF
UNION CARBIDE CORPORATION
UNDER SECTION 402 OF THE BUSINESS CORPORATION LAW
1. The name of the Corporation is Union Carbide Corporation.
2. The Corporation may engage in any lawful act or activity
for which corporations may be organized under the Business Corporation
Law provided that the Corporation is not formed to engage in any act or
activity which requires the consent or approval of any state official,
department, board, agency or other body, without such consent or
approval first being obtained.
3. The total number of shares that the Corporation may issue
is 525,000,000 of which 500,000,000 shall be shares of Common Stock, par
value $1.00 each, and 25,000,000 shall be shares of Preferred Stock, par
value $1.00 each.
(a) The holders of the Common Stock shall be
entitled to one vote per share on all matters upon which
stockholders are entitled to vote and shall not be entitled to any
preference in the distribution of dividends or assets.
(b) The Preferred Stock may be issued from time to
time in series. Each share of a series shall be equal to every
other share of the same series. The Board of Directors is
authorized to establish and designate series and to fix the number
of shares and the relative rights, preferences and limitations as
between series, subject to such limitations as may be prescribed
by law. In particular, the Board of Directors may establish,
designate and fix the following with respect to each series of
Preferred Stock:
(1) The distinctive serial designation of the
shares of the series which shall distinguish those shares from the
shares of all other series;
(2) The number of shares included in the series,
which may be increased or decreased from time to time unless
otherwise provided by the Board of Directors in creating the
series;
(3) The annual dividend rate for the shares of the
series and the date or dates upon which such dividends shall be
payable;
(4) Whether dividends on the shares of the series
shall be cumulative and, on the shares of any series having
<PAGE>
cumulative dividend rights, the date or dates or method of
determining the date or dates from which dividends on the shares
of the series shall be cumulative;
(5) The amount or amounts which shall be paid out
of the assets of the Corporation to the holders of the shares of
the series upon the involuntary liquidation, dissolution or
winding up of the Corporation and upon the voluntary liquidation,
dissolution or winding up of the Corporation;
(6) The price or prices at which, the period or
periods within which and the terms and conditions upon which the
shares of the series may be redeemed in whole or in part, at the
option of the Corporation;
(7) The obligation, if any, of the Corporation to
purchase or redeem shares of the series pursuant to a sinking fund
and the price or prices at which, the period or periods within
which and the terms and conditions upon which the shares of the
series shall be redeemed, in whole or in part, pursuant to such
sinking fund;
(8) The period or periods within which and the
terms and conditions, if any, including the price or prices or the
rate or rates of conversion and the terms and conditions of any
adjustments thereof, upon which the shares of the series shall be
convertible at the option of the holder into shares of any class
of stock or into shares of any other series of Preferred Stock,
except into a class of shares having rights or preferences as to
dividends or distributions of assets upon liquidation which are
prior or superior in rank to those of shares being converted;
(9) The voting rights, if any, of the shares of the
series in addition to those required by law, including the number
of votes per share and the transaction of any business or of any
specified item of business in connection with which the shares of
the series shall vote as a class; and
(10) Any other relative rights, preferences, or
limitations of the shares of the series not inconsistent herewith
or with applicable law.
4. The holders of shares of stock of the Corporation shall
have no preemptive rights to purchase any shares of stock or any other
securities of the Corporation.
5. The number of directors of the Corporation shall be fixed
and may from time to time be increased or decreased by resolution or
other action of the Board of Directors, but in no event shall the number
of directors be less than three or more than 19.
6. The office of the Corporation is to be located in the City
of New York, County of New York. The Secretary of State of the State of
<PAGE>
New York is designated as the agent of the Corporation upon whom process
in any action or proceeding against it may be served, and the address
without the State to which the Secretary of State shall mail a copy of
process in any action or proceeding against the Corporation which may be
served upon him is:
Union Carbide Corporation
39 Old Ridgebury Road
Danbury, Connecticut 06817-0001
7. The By-laws may be adopted, amended or repealed by the
stockholders, or by the Board of Directors by a vote of a majority of
the entire Board.
8. A person who is or was a director of the Corporation shall
not be liable to the Corporation or its stockholders for damages for any
breach of duty in such capacity, except to the extent such liability may
not be eliminated or limited by applicable law from time to time in
effect.
IN WITNESS WHEREOF, the undersigned have signed this Restated
Certificate of Incorporation this 24th day of June, 1998 and affirm the
statements contained herein as true under the penalties of perjury.
/s/William H. Joyce
William H. Joyce
Chairman of the Board
/s/ John Macdonald
John Macdonald
Assistant Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Union
Carbide Corporation's Form 10-Q for the quarter ended June 30, 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 38
<SECURITIES> 0
<RECEIVABLES> 1002
<ALLOWANCES> 0
<INVENTORY> 619
<CURRENT-ASSETS> 1907
<PP&E> 8003
<DEPRECIATION> 4061
<TOTAL-ASSETS> 7121
<CURRENT-LIABILITIES> 1315
<BONDS> 1705
0
0
<COMMON> 155
<OTHER-SE> 2316
<TOTAL-LIABILITY-AND-EQUITY> 7121
<SALES> 3020
<TOTAL-REVENUES> 3020
<CGS> 2248
<TOTAL-COSTS> 2248
<OTHER-EXPENSES> 266<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 56
<INCOME-PRETAX> 379
<INCOME-TAX> 110
<INCOME-CONTINUING> 260
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 260
<EPS-PRIMARY> 1.91<F2>
<EPS-DILUTED> 1.86<F2>
<FN>
<F1>Other expenses are equal to research and development of 73 and depreciation and
amortization of 193.
<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>
