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 March 31, 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 April 30, 1998
Common Stock, $1 par value 136,191,099 shares
Total number of sequentially numbered pages in this filing,
including exhibits thereto: 20
<PAGE>
INDEX
PART I. FINANCIAL INFORMATION
PAGE
Financial Statements
Condensed Consolidated Statement of Income -
Union Carbide Corporation and Subsidiaries -
Quarter Ended March 31, 1998 and 1997........................ 3
Condensed Consolidated Balance Sheet - Union Carbide
Corporation and Subsidiaries - March 31, 1998 and
December 31, 1997............................................ 4
Condensed Consolidated Statement of Cash Flows -
Union Carbide Corporation and Subsidiaries -
Quarter Ended March 31, 1998 and 1997......................... 5
Notes to Condensed Consolidated Financial Statements -
Union Carbide Corporation and Subsidiaries................... 6-10
Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................... 11-15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings....................................... 16
Item 4. Submission of Matters to a Vote of Security Holders..... 16
Item 6. Exhibits and Reports on Form 8-K........................ 17
Signature........................................................ 18
Exhibit Index.................................................... 19
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.
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<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 March
31,
1998 1997
<S> <C> <C>
NET SALES $ 1,561 $ 1,638
Cost of sales, exclusive of depreciation and
amortization 1,161 1,231
Research and development 37 40
Selling, administration and other expenses(a) 84 80
Depreciation and amortization 95 82
Partnership income 37 35
Other income - net 11 7
INCOME BEFORE INTEREST EXPENSE AND PROVISION FOR
INCOME TAXES 232 247
Interest expense 27 19
INCOME BEFORE PROVISION FOR INCOME TAXES 205 228
Provision for income taxes 59 66
INCOME OF CONSOLIDATED COMPANIES 146 162
Minority interest 1 3
Loss from corporate investments carried at equity 3 2
NET INCOME 142 157
Preferred stock dividend, net of income taxes - 2
NET INCOME - COMMON STOCKHOLDERS $ 142 $ 155
Earnings per common share
Basic $ 1.03 $ 1.17
Diluted $ 1.01 $ 1.03
Cash dividends declared per common share $ 0.2250 $ 0.1875
(a) Selling, administration and other expenses include:
Selling $ 26 $ 31
Administration 29 29
Other expenses 29 20
$ 84 $ 80
<FN>
The Notes to Condensed Consolidated Financial Statements on Pages
6 through 10 should be read in conjunction with this statement.
</TABLE>
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<TABLE>
UNION CARBIDE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
<CAPTION>
Millions of dollars
March 31, Dec. 31,
1998 1997
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 37 $ 20
Notes and accounts receivable 1,057 993
Inventories 609 604
Other current assets 255 249
Total current assets 1,958 1,866
Property, plant and equipment 7,837 7,707
Less: Accumulated depreciation 3,998 3,927
Net fixed assets 3,839 3,780
Companies carried at equity 715 690
Other investments and advances 72 73
Total investments and advances 787 763
Other assets 493 555
Total assets $7,077 $6,964
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 271 $ 273
Short-term debt and current portion of
long-term debt 516 429
Accrued income and other taxes 42 75
Other accrued liabilities 658 727
Total current liabilities 1,487 1,504
Long-term debt 1,456 1,458
Postretirement benefit obligation 461 464
Other long-term obligations 707 738
Deferred credits 465 419
Minority stockholders' equity in consolidated
subsidiaries 34 33
Stockholders' equity:
Common stock - authorized - 500,000,000 shares
- issued - 154,609,669 shares 155 155
Additional paid-in capital 61 47
Other equity adjustments (2) (3)
Retained earnings 3,186 3,074
Accumulated other comprehensive loss (87) (101)
Unearned employee compensation - ESOP (72) (80)
Less: Treasury stock, at cost-18,183,360 shares
(17,666,164 shares in 1997) 774 744
Total stockholders' equity 2,467 2,348
Total liabilities and stockholders' equity $7,077 $6,964
<FN>
The Notes to Condensed Consolidated Financial Statements on Pages 6
through 10 should be read in conjunction with this statement.
</TABLE>
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<TABLE>
UNION CARBIDE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
Millions of dollars
Quarter ended March 31,
1998 1997
Increase (decrease) in
cash and cash equivalents
OPERATIONS
<S> <C> <C>
Net income $ 142 $ 157
Noncash charges (credits) to net income
Depreciation and amortization 95 82
Deferred income taxes 40 17
Other noncash charges 14 (2)
Increase in working capital(a) (151) (81)
Long-term assets and liabilities (4) 3
Cash Flow From Operations 136 176
INVESTING
Capital expenditures (146) (138)
Investments, advances and acquisitions
(excluding cash acquired) (5) (45)
Sale of fixed and other assets 3 -
Cash Flow Used for Investing (148) (183)
FINANCING
Change in short-term debt (3 months or less) 80 (35)
Proceeds from short-term debt 7 -
Proceeds from long-term debt - 14
Repayment of long-term debt (1) (7)
Issuance of common stock 13 18
Purchase of common stock (49) (73)
Proceeds from subsidiary preferred stock - 246
Payment of dividends (30) (27)
Other 9 (10)
Cash Flow From Financing 29 126
Effect of exchange rate changes on cash and
cash equivalents - (1)
Change in cash and cash equivalents 17 118
Cash and cash equivalents beginning-of-period 20 57
Cash and cash equivalents end-of-period $ 37 $ 175
Cash paid for interest and income taxes
Interest (net of amount capitalized) $ 18 $ 10
Income taxes $ 8 $ 7
<FN>
(a) Net change in certain components of working capital (excluding non-cash
expenditures):
(Increase) decrease in current assets
Notes and accounts receivable $ (61) $ (35)
Inventories (5) (12)
Other current assets 2 3
Decrease in payables and accruals (87) (37)
Increase in working capital $(151) $ (81)
The Notes to Condensed Consolidated Financial Statements on Pages 6
through 10 should be read in conjunction with this statement.
</TABLE>
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<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 June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("Statement") No. 130, "Reporting
Comprehensive Income." This Statement, which the corporation adopted in the
first quarter of 1998, 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 March 31,
1998 1997
Net income $ 142 $ 157
Other comprehensive income/(loss):
Unrealized gains and losses on available-for-sale
securities, net of reclassification adjustment,
net of tax 6 (2)
Foreign currency translation adjustments 8 (17)
Total comprehensive income $ 156 $ 138
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3. Earnings Per Share
(In millions of dollars
except per share amounts) Quarter Ended March 31,
1998 1997
Basic -
Net income $ 142 $ 157
Less: Dividends on ESOP shares, pre-tax - 3
Appreciation on ESOP shares redeemed
for cash - 6
Net income - common stockholders,
for basic calculation $ 142 $ 148
Weighted average number of shares
outstanding for basic calculation 136,875,966 126,406,832
Earnings per share $1.03 $1.17
Diluted -
Net income - common stockholders,
for basic calculation $ 142 $ 148
Add: Dividends on ESOP shares, pre-tax - 3
Net income - common stockholders,
for diluted calculation $ 142 $ 151
Weighted average number of shares
outstanding for basic calculation 136,875,966 126,406,832
Add: Effect of stock options 3,534,250 4,227,498
Shares issuable upon conversion of
UCC's convertible ESOP shares - 15,853,095
140,410,216 146,487,425
Earnings per share $1.01 $1.03
4. Inventories
Millions of dollars
Mar. 31, Dec. 31,
1998 1997
Raw materials and supplies $ 165 $ 135
Work in process 55 62
Finished goods 389 407
$ 609 $ 604
5. Common Stock
Since inception of its 60 million common share repurchase program through
March 31, 1998, the corporation has repurchased 50.4 million shares
(1.1 million during the first quarter of 1998) at an average effective price
of $34.94 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.
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<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 March 31,
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 March 31, 1998.
Premiums received since the inception of the program recorded as additional
paid-in capital have reduced the average price of repurchased shares from
$35.21 per share to $34.94 per share.
6. Commitments and Contingencies
The corporation has entered into 3 major agreements for the purchase of
ethylene-related products and 2 other purchase agreements in the U.S. and
Canada. The net present value of the fixed and determinable portion of these
obligations at March 31, 1998 totaled $282 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 March 31, 1998, the corporation had established environmental remediation
accruals in the amount of $247 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
March 31, 1998 included $190 million for these sites, of which $75 million
was for estimated future expenditures for site investigation and cleanup and
$115 million was for estimated future expenditures for closure and
postclosure activities. In addition, $85 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.
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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 March 31, 1998 included
$57 million for estimated future expenditures for site investigation and
cleanup at these sites. In addition, $66 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, $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
$606 million at March 31, 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 had additional contingent obligations at March 31, 1998 of
$57 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.
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<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
$135 million, and related insurance recovery receivables of $107 million. At
March 31, 1998, the corporation had nonenvironmental litigation loss
contingencies of $62 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.
7. 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 April 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 year
of adoption.
Also in April 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 change in accounting principle. The corporation is currently
evaluating the effect this SOP will have on its financial position and
results of operations in the year of adoption.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
The corporation reported first quarter 1998 net income available to common
stockholders of $142 million, or $1.01 per diluted share ($1.03 per basic
share). For the corresponding quarter in 1997 the corporation reported net
income available to common stockholders of $155 million, or $1.03 per diluted
share ($1.17 per basic share).
Operating profit of the Specialties & Intermediates segment increased $18
million or 9.8 percent, compared to the first quarter of 1997, largely the
result of lower raw material and energy costs, increased volumes, improved
partnership income and strong licensing and catalyst revenues. Specialties
and Intermediates average selling prices declined 2.4 percent while volume
improved in most product lines, notwithstanding declining Asian demand.
Operating profit of the Basic Chemicals & Polymers segment declined $26
million, as compared to the same quarter in 1997, due to decreases of
7.9 percent in average customer selling prices and 7.4 percent in customer
volume, the effects of which were partially offset by a decline in feedstock
costs. This segment experienced declining polyethylene and polypropylene
selling prices, a decline in demand from Asian markets and constrained
shipments due to U.S. Gulf Coast rail problems.
Given the uncertainties associated with the economic crisis in Asia and
railroad distribution problems in the U.S. Gulf Coast region, discussion
regarding near term operating performance is particularly difficult. In the
second quarter of 1998, we anticipate that Specialties & Intermediates
operating profit should continue to benefit from reduced raw material and
energy costs, improved volumes and tight cost controls. However, it is
likely that licensing and partnership results will decrease from the strong
results recorded in the first quarter of this year. Basic Chemicals &
Polymers average selling prices are expected to continue to decline
throughout the second quarter of 1998. The effect of these declines on the
operating profit of the Basic Chemicals & Polymers segment should be
mitigated somewhat by improved shipments, assuming improvement in U.S.
Gulf Coast rail distribution, as well as by modest feedstock cost reductions.
Results of Operations
Sales decreased 4.7 percent, or $77 million, in the first quarter, compared
to the same period of 1997, as the result of a 2.2 percent decrease in volume
coupled with a 2.6 percent decline in average selling prices. Volume
improvement in the Specialties & Intermediates segment was more than offset
by decreases in Basic Chemicals and Polymers segment shipments due to
railroad service distribution problems in the U.S. Gulf Coast region and
declining Asian demand. Average selling prices declined in both segments,
with the most significant deterioration in polyethylene and polypropylene
resins.
The corporation's variable margin (revenues less variable manufacturing and
distribution costs) for the first quarter of 1998 was 45.0 percent,
increasing 2.8 percentage points from 42.2 percent in the first quarter of
1997, principally due to lower cost of raw materials in both segments. The
current quarter's gross margin (variable margin less fixed manufacturing and
distribution costs) as a percentage of sales increased from 24.8 percent in
the first quarter of 1997 to 25.6 percent in the current quarter.
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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 first quarter 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.
Millions of dollars
Quarter ended March 31,
1998 1997
Sales
Specialties & Intermediates $1,120 $1,122
Basic Chemicals & Polymers 518 597
Intersegment Eliminations (77) (81)
Total $1,561 $1,638
Operating Profit
Specialties & Intermediates $ 202 $ 184
Basic Chemicals & Polymers 36 62
Other (6) 1
Total $ 232 $ 247
Depreciation and Amortization
Specialties & Intermediates $ 60 $ 51
Basic Chemicals & Polymers 35 31
Total $ 95 $ 82
Capital Expenditures
Specialties & Intermediates $ 90 $ 88
Basic Chemicals & Polymers 56 50
Total $ 146 $ 138
Net sales of the Specialties & Intermediates segment remained relatively flat
for the first quarter of 1998 as compared to the first quarter of 1997. A
2.4 percent improvement in volume was offset by a 2.4 percent decline in
average selling prices. This segment's operating profit increased $18 million
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or 9.8 percent, compared to the first quarter of 1997. While volume increases
were experienced in most product lines, volume in solvents, intermediates &
monomers and latex products was adversely affected by declines in Asian
demand. Operating profit benefited from lower energy and raw material costs,
increased volumes, improved partnership income and strong licensing and
catalyst revenue.
Net sales of the Basic Chemicals & Polymers segment for the first three months
of 1998 declined $79 million or 13.2 percent over the same period in 1997,
while segment operating profit declined $26 million. A decline of 7.9 percent
in average selling prices was the result of price decreases for polyethylene
and polypropylene, partially offset by modestly higher selling prices for
ethylene glycol. Additionally, operations of the Basic Chemicals & Polymers
segment reflected a customer volume decrease of 7.4 percent related to
railroad shipping constraints in the U.S. Gulf Coast region and a decrease in
Asian demand for ethylene glycol. Feedstock cost decreases in the first
quarter of 1998, compared with the same quarter of 1997, mitigated the effects
of reduced selling prices and shipments.
Selling, administration and other expenses were $84 million in the first
quarter of 1998, versus $80 million in the first quarter of 1997.
Depreciation and amortization increased $13 million to $95 million in the
first quarter of 1998 compared to the same period in 1997. The increase is
principally the result of depreciation associated with completed capital
projects.
Partnership income increased $2 million, or 5.7 percent, in the first quarter
of 1998 versus the comparable quarter in 1997, principally as the result of
increased earnings of UOP due to normal variations in quarterly sales
activity, offset by certain costs, principally research and development,
assumed by Univation.
Interest expense increased $8 million in the first quarter of 1998,
reflecting the cost of increased short-term borrowings coupled with a
decrease in capitalized interest associated with completed capital projects.
Loss from corporate investments carried at equity increased from $2 million
in the first quarter of 1997 to $3 million in the current quarter.
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 8 through 10 of this report on Form 10-Q.
The corporation continues to be named as one of a number of defendants in
lawsuits involving silicone gel breast implants. The corporation supplied
bulk silicone materials to certain companies that at various times were
involved in the manufacture of breast implants. These cases are discussed in
more detail in the "Commitments and Contingencies" footnote to the financial
statements on pages 8 through 10 of this report on Form 10-Q.
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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 6 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 April 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 year of
adoption.
Also in April 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 the adoption is required to be accounted
for as a cumulative change in accounting principle. The corporation is
currently evaluating the effect this SOP will have on its financial position
and results of operations in the year of adoption.
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.
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 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 commenced operation in 1998. The remaining parts are scheduled
for operation by year-end. The corporation is reviewing the balance of its
domestic and international internal processes, including hardware, software
and control systems, and is assessing its external relationships to address
potential impacts arising from interfaces with customers, suppliers and
service providers. Priorities have been set and required system modifications
are progressing. The corporation estimates its worldwide expenses related to
the year 2000 project could range between $20 and $50 million over the next
two years. 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
- 14 -
<PAGE>
adversely affect the corporation's ability to complete its systems
modifications 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 effect on future
operating results or financial condition.
Financial Condition - March 31, 1998
Cash flow from operations for the first quarter of 1998 was $136 million, a
decrease of $40 million from the first quarter of 1997, principally caused by
an increase in working capital resulting from increased notes and accounts
receivable and decreased payables and accruals offset by an increase in the
total of net income and non-cash charges.
Cash flow used for investing totaled $148 million, down from $183 million in
the comparable period of 1997, principally due to lower investments, advances
and acquisitions in 1998, offset by increased capital expenditures. Funding
of major capital projects in the first quarter of 1998 include continuing work
on an olefins expansion, a new butanol unit and a new CARBOWAX polyethylene
glycol and TERGITOL surfactants facility, all at Taft, La.; a new olefins
facility, being built jointly with NOVA Chemicals Ltd., and a polyolefins
project, both in Canada; continuing work on an ethylene oxide/glycol expansion
at Wilton, U.K., and the upgrade of information technology infrastructure.
Major capital projects funded during the first quarter of 1997 included a new
CARBOWAX polyethylene glycol and TERGITOL surfactants facility, an
ethanolamine unit and an olefins expansion, all at Taft, La., as well as an
upgrade of information technology infrastructure.
Cash flow from financing was $29 million for the first quarter of 1998, as
compared with $126 million for the first quarter of 1997. The first quarter
of the prior year included proceeds from the issuance, by a subsidiary,
of $246 million in preferred stock. These shares were redeemed in the fourth
quarter of 1997. The first quarter of 1998 included common stock repurchases
of 1.1 million shares for cash of $49 million under the existing common stock
repurchase program. The corporation intends to acquire additional shares
from time to time at prevailing market rates, at a rate consistent with the
combination of corporate cash flow and market conditions. For the first
quarter of 1998, cash dividends totaled $30 million, while net cash borrowings
were $86 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, external debt and project financing.
The corporation's ratio of debt to total capital was 44.1 percent at March 31,
1998 as compared to 44.2 percent at December 31, 1997. At March 31, 1998
there were no outstanding borrowings under the existing major bank credit
agreement aggregating $1 billion or the corporation's $500 million medium-term
note program.
- 15 -
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See Note 6 "Commitments and Contingencies" to the corporation's
consolidated financial statements on pages 8 through 10 of this
report on Form 10-Q.
Item 4. Submission of Matters to a Vote of Security Holders
(a) Annual Meeting - April 22, 1998
(b) Election of Directors
Proxies for the meeting were solicited pursuant to
Regulation 14A. There was no solicitation in opposition to
the management's nominees as listed in the proxy statement.
All of the management's nominees as listed in the proxy
statement were elected.
(c) Matters voted upon.
Election of Directors
Shares Voted
Directors Shares For Shares Withheld
C. Fred Fetterolf 105,648,021 1,259,800
Joseph E. Geoghan 105,818,156 1,089,665
Rainer E. Gut 104,328,237 2,579,584
Vernon E. Jordan, Jr. 101,456,601 5,451,220
William H. Joyce 105,615,509 1,292,312
Robert D. Kennedy 105,425,829 1,481,992
Ronald L. Kuehn, Jr. 105,804,795 1,103,026
Rozanne L. Ridgway 105,676,405 1,231,416
James M. Ringler 105,730,999 1,176,822
Election required a plurality of the common shares voted.
Proposal to Ratify the Appointment of Auditors
Shareholders ratified the appointment of KPMG Peat Marwick LLP
to conduct the annual audit of the financial statements of the
corporation and its consolidated subsidiary companies for the
year ending December 31, 1998.
The vote was:
FOR - 105,698,853 shares or 99.40 percent of the shares voted.
AGAINST - 635,509 shares or 0.60 percent of the shares voted.
ABSTAIN - 573,459 shares.
Ratification required an affirmative vote of a majority of the
common shares voted.
- 16 -
<PAGE>
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
March 31, 1998.
- 17 -
<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: May 14, 1998 By: /s/John K. Wulff
JOHN K. WULFF
Vice-President, Chief
Financial Officer and
Controller
- 18 -
<PAGE>
EXHIBIT INDEX
Exhibit Page
No. Exhibit No.
27 Financial Data Schedule 20
- 19 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Union
Carbide Corporation's Form 10-Q fo the quarter ended March 31, 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 37
<SECURITIES> 0
<RECEIVABLES> 1057
<ALLOWANCES> 0
<INVENTORY> 609
<CURRENT-ASSETS> 1958
<PP&E> 7837
<DEPRECIATION> 3998
<TOTAL-ASSETS> 7077
<CURRENT-LIABILITIES> 1487
<BONDS> 1456
0
0
<COMMON> 155
<OTHER-SE> 2312
<TOTAL-LIABILITY-AND-EQUITY> 7077
<SALES> 1561
<TOTAL-REVENUES> 1561
<CGS> 1161
<TOTAL-COSTS> 1161
<OTHER-EXPENSES> 132<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27
<INCOME-PRETAX> 205
<INCOME-TAX> 59
<INCOME-CONTINUING> 142
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 142
<EPS-PRIMARY> 1.03<F2>
<EPS-DILUTED> 1.01<F2>
<FN>
<F1>Other expenses are equal to research and development of 37 and depreciation
and amortization of 95.
<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>
