Securities and Exchange Commission, Washington, D.C. 20549
Annual Report on Form 10-K for the year ended December 31, 1998.
Filed pursuant to Section 13 of the Securities Exchange Act of 1934.
Commission file number 1-1463
Union Carbide Corporation
1998 10-K
Union Carbide Corporation Tel. (203) 794-2000
39 Old Ridgebury Road State of incorporation: New York
Danbury, Connecticut 06817-0001 IRS identification number: 13-1421730
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock ($1 par value) New York Stock Exchange
Chicago Stock Exchange, Incorporated
The Pacific Stock Exchange Incorporated
Share Purchase Rights Plan New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
At February 28, 1999, 132,990,557 shares of common stock were outstanding.
Non-affiliates held 132,302,868 of those shares. The aggregate market value of
the non-affiliate shares was $5.821 billion.
Documents incorporated by reference:
Annual report to stockholders for the year ended December 31, 1998 (Parts I
and II)
Proxy statement for the annual meeting of stockholders to be held on April 28,
1999 (Part III)
<PAGE>
Table of Contents
Part I
Item 1: Business 1
Item 2: Properties 3
Item 3: Legal Proceedings 5
Item 4: Submission of Matters to a Vote of Security Holders 5
Part II
Item 5: Market for Registrant's Common Equity and Related Stockholder
Matters 6
Item 6: Selected Financial Data 6
Item 7: Management's Discussion and Analysis of Financial Condition and
Results of Operations 6
Item 7a: Quantitative and Qualitative Disclosures About Market Risk 6
Item 8: Financial Statements and Supplementary Data 6
Item 9: Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 6
Part III
Item 10: Directors and Executive Officers of the Registrant 7
Item 11: Executive Compensation 8
Item 12: Security Ownership of Certain Beneficial Owners and Management 8
Item 13: Certain Relationships and Related Transactions 8
Part IV
Item 14: Exhibits, Financial Statement Schedules and Reports on Form 8-K 9
Signatures 12
Exhibit Index 13
Cautionary statement: All statements in this Annual Report on Form 10-K that
do not reflect historical information are forward-looking statements, within
the meaning of the Private Securities Litigation Reform Act of 1995 (as
amended). Forward-looking statements include statements concerning plans;
objectives; strategies; anticipated future events or performance; sales; cost,
expense and earnings expectations; the Year 2000 issue; the euro; interest
rate and currency risk management; the chemical markets in 1999 and beyond;
cost reduction targets; the corporation's share price; earnings and
profitability targets; development, production and acceptance of new products
and process technologies; ongoing and planned capacity additions and
expansions; joint ventures; Management's Discussion & Analysis; and any other
statements that do not reflect historical information. These include
statements incorporated herein by reference to the 1998 annual report to
stockholders. 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 availability and costs;
changes in industry production capacities and operating rates; currency
exchange rates; interest rates; global economic conditions, particularly in
Asia and Latin America; disruption in transportation facilities; competitive
technology positions; failure by the corporation to achieve technology
objectives, achieve cost reduction targets or complete projects on schedule
and on budget; and inability to obtain new customers or retain existing ones.
Some of these factors are discussed further in Part I, Item 1: Business.
Definition of Terms: See page 48 of the 1998 annual report to stockholders.
Terms defined there are used herein.
Printed on Recycled, Recyclable Paper
<PAGE>
Part I
Item 1. Business
General-Union Carbide operates in two business segments of the chemicals and
plastics industry, Specialties & Intermediates and Basic Chemicals & Polymers.
Specialties & Intermediates converts basic and intermediate chemicals into a
diverse portfolio of chemicals and polymers serving industrial customers in
many markets. This segment also provides technology services, including
licensing, to the oil and gas and petrochemicals industries. The Basic
Chemicals & Polymers segment converts hydrocarbon feedstocks, principally
liquefied petroleum gas and naphtha, into ethylene or propylene used to
manufacture polyethylene, polypropylene, ethylene oxide and ethylene glycol
for sale to third-party customers, as well as propylene, ethylene, ethylene
oxide and ethylene glycol for consumption by the Specialties & Intermediates
segment. The profitability of the Basic Chemicals & Polymers segment of the
chemicals and plastics industry is highly cyclical, whereas that of the
Specialties & Intermediates segment is less cyclical. Consequently, Union
Carbide's results are subject to the swings of the business cycle in both the
highly volatile Basic Chemicals & Polymers segment and the less volatile
Specialties & Intermediates segment. In addition to its business segments, the
corporation's Other segment includes its noncore operations and financial
transactions other than derivatives designated as hedges, which are included
in the same segment as the item being hedged. See pages 1, 4, 5, and "Results
of Operations" on pages 7 through 13 of the 1998 annual report to stockholders
for further information about Union Carbide's businesses, and Note 6 on pages
30 and 31 of the 1998 annual report to stockholders for financial information
about Union Carbide's business segments.
Union Carbide does not produce against a backlog of firm orders; production is
geared primarily to the level of incoming orders and to projections of future
demand. Inventories of finished products, work in process and raw materials
are maintained to meet delivery requirements of customers and Union Carbide's
production schedules.
At year-end 1998, 11,627 people were employed in the manufacturing facilities,
laboratories and offices of the corporation and its consolidated subsidiaries
around the world.
Raw Materials, Products and Markets-See information herein and in the 1998
annual report to stockholders on pages 4 and 5. All products and services are
marketed throughout the world by the corporation's direct sales force, and
where appropriate, augmented by a network of Union Carbide authorized
distributors.
Union Carbide believes it has contracts or commitments for, or readily
available sources of, hydrocarbon feedstocks and fuel supplies to meet its
anticipated needs in all major product areas. The corporation's operations are
dependent upon the availability of hydrocarbon feedstocks and fuels which are
purchased from diverse domestic and international sources, including
independent oil and gas producers as well as integrated oil companies.
The availability and price of hydrocarbon feedstocks, energy and finished
products are subject to plant interruptions and outages and to market and
political conditions in the U.S. and elsewhere. Operations and products at
times may be adversely affected by legislation, government regulations,
shortages, or international or domestic events.
The business segments of Union Carbide are not dependent to a significant
extent upon a single customer or a few customers.
Patents; Trademarks; Research and Development-Union Carbide owns a large
number of United States and foreign patents that relate to a wide variety of
products and processes, has pending a substantial number of patent
applications throughout the world and is licensed under a number of patents.
These patents expire at various times over the next 20 years. Such patents and
patent applications in the aggregate are material to Union Carbide's
competitive position. No one patent is considered to be material; however, the
patent portfolio relating to the UNIPOL process technology is, in the
aggregate, considered to be material to the Specialties & Intermediates
segment and the corporation as a whole. Union Carbide also has a large number
of trademarks. The UNION CARBIDE, UCAR and UNIPOL trademarks are material; no
other single trademark is material.
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<PAGE>
Part I (Cont.)
Essentially all of Union Carbide's research and development activities are
company-sponsored. The principal research and development facilities of Union
Carbide are indicated in the discussion of Properties (Item 2) of this Form
10-K report. In addition to the facilities specifically indicated there,
product development and process technology laboratories are maintained at some
plants. Union Carbide expensed $143 million in 1998, $157 million in 1997, and
$159 million in 1996 on company-sponsored research activities to develop new
products, processes, or services, or to improve existing ones. Certain of
Union Carbide's joint ventures conduct research and development within their
business fields.
Environment-See Costs Relating to Protection of the Environment on pages 13
and 14 of the 1998 annual report to stockholders and Note 17 on pages 42 and
43 thereof.
Insurance-Union Carbide's policy is to obtain public liability and other
insurance coverage at terms and conditions and at a cost that management
considers fair and reasonable. Union Carbide's management believes it has a
prudent risk management policy in effect and it periodically reviews its
insurance coverage as to scope and amount and makes adjustments as deemed
necessary. There is no assurance, however, that Union Carbide will not incur
losses beyond the limits, or outside the coverage, of its insurance. Such
insurance is subject to substantial corporate retentions.
Competition-Each of the major product and service areas in which Union Carbide
participates is highly competitive. In some instances competition comes from
manufacturers of the same products as those produced by Union Carbide and in
other cases from manufacturers of different products which may serve the same
markets as those served by Union Carbide's products. Some of Union Carbide's
competitors, such as companies principally engaged in petroleum operations,
have more direct access to hydrocarbon feedstocks and some have greater
financial resources than Union Carbide.
The Specialties & Intermediates segment is characterized by differentiated
products and is less subject to external changes in supply/demand
relationships than the Basic Chemicals & Polymers segment. In the Specialties
& Intermediates segment, competition is based primarily on product
functionality and quality, with the more unique products commanding
significant price premiums.
Products manufactured by the Specialties & Intermediates segment may compete
with a few competitors in many products to many competitors in selected
products. In all, approximately 40 other major specialty chemical companies
manufacture products competitive with those of the Specialties & Intermediates
segment.
The Basic Chemicals & Polymers segment is characterized by large volume
commodity products and is subject to external changes in supply/demand
relationships, including changes in the strength of the overall economy,
customer inventory levels, industry manufacturing capacity and operating rates
and raw material feedstock costs. Participants in this segment compete for
business primarily on the basis of price and efficient delivery systems.
The Basic Chemicals & Polymers segment competes with at least 12 other major
producers of basic chemicals.
See pages 4 and 5 of the 1998 annual report to stockholders for information
about each segment's principal products.
Union Carbide is a major marketer of petrochemical products throughout the
world. Products that the corporation markets are largely produced in the
United States, while products marketed by the corporation's joint ventures are
principally produced outside the United States. Competitive products are
produced throughout the world.
Union Carbide's international operations face competition from local producers
and global competitors and a number of risks inherent in carrying on business
outside the United States, including regional and global economic conditions,
risks of nationalization, expropriation, restrictive action by local
governments and changes in currency exchange rates.
See Note 6 on pages 30 and 31 of the 1998 annual report to stockholders for a
summary of business and geographic segment information.
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<PAGE>
Part I (Cont.)
Item 2. Properties
In management's opinion, current facilities, together with planned expansions,
will provide adequate production capacity to meet Union Carbide's planned
business activities. Capital expenditures are discussed on pages 16 and 17 of
the 1998 annual report to stockholders.
Listed below are the principal manufacturing facilities operated by Union
Carbide worldwide. Research and engineering facilities are noted within each
of the domestic and international descriptions below. Most of the domestic
properties are owned in fee. Union Carbide maintains numerous domestic sales
offices and warehouses, the majority of which are leased premises, whose lease
terms are scheduled to expire in five years or less. All principal
international manufacturing properties are owned or held under long-term
leases. International administrative offices, technical service laboratories,
sales offices and warehouses are owned in some instances and held under
relatively short-term leases in other instances. The corporation's
headquarters is located in Danbury, Connecticut and is leased.
Principal domestic manufacturing facilities and the principal products
manufactured there are as follows:
Location City Principal Product(s)
Specialties & Intermediates Segment
California Torrance Latexes
Georgia Tucker Latexes
Illinois Alsip Latexes
Louisiana Greensburg Hydroxyethyl cellulose derivatives
Louisiana Norco (Cypress Plant) Polypropylene catalysts
Louisiana Taft Acrolein and derivatives,
acrylic monomers, caprolactone,
UV-curing resins, cycloaliphatic
epoxides, glycol ethers, ethyleneamines,
surfactants, ethanolamines, oxo alcohols
Louisiana Taft (Star Plant) Polyethylene catalysts
New Jersey Bound Brook Polyethylene compounds
New Jersey Edison Lanolin and glucose derivatives
New Jersey Somerset Latexes
Puerto Rico Bayamon Latexes
Texas Garland Latexes
Texas Seadrift Ethanolamines, glycol ethers, ethylene-
propylene rubber, polyethylene compounds
for wire & cable, polyethylene catalysts
Texas Texas City Organic acids and esters, alcohols,
aldehydes, ketones, vinyl acetate,
solution vinyl resins, heat transfer
fluids
West Virginia Institute Caprolactone derivatives, polyethylene
glycol, hydroxyethyl cellulose,
polyethylene oxide, surfactants,
ethylidene norbornene, glutaraldehyde,
ethylene oxide catalysts, acetone and
derivatives
West Virginia South Charleston Alkyl alkanolamines, miscellaneous
specialty products, polyalkylene
glycols, surfactants, specialty ketones,
polyvinyl acetate resins, heat transfer
fluids, aircraft deicing fluids,
polyethylene catalysts
Basic Chemicals & Polymers Segment
Louisiana Norco (Cypress Plant) Polypropylene
Louisiana Taft Ethylene oxide and glycol, olefins
Louisiana Taft (Star Plant) Polyethylene
Texas Seadrift Ethylene oxide and glycol, olefins,
polyethylene, polypropylene
Texas Texas City Olefins
- 3 -
<PAGE>
Part I (Cont.)
Research and development for the Specialties & Intermediates segment is
carried on at technical centers in Bound Brook, Edison and Somerset, New
Jersey; Tarrytown, New York; Cary, North Carolina; Houston and Texas City,
Texas; and South Charleston, West Virginia. Research and development for the
Basic Chemicals & Polymers segment is carried on at technical centers in Bound
Brook and Somerset, New Jersey; Houston, Texas; and South Charleston, West
Virginia. Process and design engineering for both segments is conducted at
technical centers in South Charleston, West Virginia and in Houston, Texas, in
support of domestic and foreign projects.
Principal international manufacturing facilities and the principal products
manufactured there are as follows:
Country City Principal Product(s)
Specialties & Intermediates Segment
Belgium Vilvoorde Lanolin derivatives
Belgium Zwijndrecht Hydroxyethyl cellulose
Brazil Aratu Hydroxyethyl cellulose
Brazil Cabo Vinyl acetate
Brazil Cubatao Polyethylene
Ecuador Guayaquil Latex
Indonesia Jakarta Latex
Malaysia Seremban Latex
People's Republic of China Guangdong Latex, hydroxyethyl cellulose
derivatives
People's Republic of China Shanghai Latex
Philippines Batangas Latex
Sri Lanka Colombo Latex
Thailand Rayong Latex
United Arab Emirates Dubai Latex
United Kingdom Wilton Glycol ethers, ethanolamines
Basic Chemicals & Polymers Segment
Canada Prentiss Ethylene glycol
United Kingdom Wilton Ethylene oxide and glycol
Research and development for the Specialties & Intermediates segment is
carried on at international facilities in Zwijndrecht, Belgium; Cubatao,
Brazil; Montreal East, Canada; Jurong, Singapore; and Meyrin (Geneva),
Switzerland.
Principal locations of the corporation's partnerships and corporate
investments carried at equity and the principal products manufactured by those
entities are as follows:
Specialties and Intermediates:
UOP LLC - a joint venture with Allied Signal Inc., accounted for as a
partnership, which is a leading worldwide supplier of process technology,
catalysts, molecular sieves and adsorbents to the petrochemical and gas-
processing industries. UOP LLC has manufacturing facilities in Mobile,
Alabama; Des Plaines and McCook, Illinois; Shreveport, Louisiana; Tonawanda,
New York; Leverkusen, Germany; Reggio di Calabria, Italy; and Brimsdown,
United Kingdom. UOP has several joint ventures with
manufacturing sites in Hiratsuka and Yokkaichi, Japan and Shanghai, China.
Research and development is performed at locations in Des Plaines, Illinois
and Mobile, Alabama.
Nippon Unicar Company Limited - a Japan-based producer of polyethylene and
specialty polyethylene compounds and specialty silicone products. This joint
venture with Tonen Chemical Corporation has manufacturing facilities in
Kawasaki and Komatsu, Japan.
- 4 -
<PAGE>
Part I (Cont.)
Aspell Polymeres SNC - a France-based producer of polyethylene and specialty
polyethylene compounds. This partnership with Elf Atochem S.A., a subsidiary
of Elf Aquitaine, has a manufacturing facility in Gonfreville, France.
World Ethanol Company - a U.S.-based partnership with Archer Daniels Midland
Company that supplies ethanol worldwide. This partnership has manufacturing
facilities in Texas City, Texas and Peoria, Illinois.
Univation Technologies, LLC - a U.S.-based joint venture, accounted for as a
partnership, with Exxon Chemical Company, a division of Exxon Corporation, for
the licensing of polyethylene technology and research, development and
commercialization of process technology and single site and other advanced
catalysts for the production of polyethylene. The venture is also the sales
agent for licensing of Union Carbide's UNIPOL technology. The company's
headquarters is located in Houston, Texas. Research and development and
engineering are performed at locations in Bound Brook, New Jersey; Baytown,
Texas; Houston, Texas; and South Charleston, West Virginia. A catalyst
manufacturing facility is located in Mont Belvieu, Texas.
Asian Acetyls, Co. Ltd. - a South Korea-based producer of vinyl acetate
monomers used in the production of emulsion resins by customers in the
coatings and adhesives industries. This corporate joint venture with BP
Chemicals and Samsung Fine Chemicals Company has a manufacturing facility in
Ulsan, South Korea.
Basic Chemicals and Polymers:
Polimeri Europa S.r.l. - a Europe-based producer of olefins and polyethylene
resins. This corporate joint venture with EniChem S.p.A. of Italy operates
facilities at Brindisi, Ferrara, Gela, Priolo and Ragusa, Italy; Dunkirk,
France; and Oberhausen, Germany. The venture is headquartered in Milan,
Italy.
EQUATE Petrochemical Company K.S.C. - a corporate joint venture with
Petrochemical Industries Company and Boubyan Petrochemical Company, which
manufactures ethylene, polyethylene and ethylene glycol at its world-scale
petrochemicals complex in Shuaiba, Kuwait.
Petromont and Company, Limited Partnership - a Canada-based olefins and
polyethylene resins producer owned jointly with Ethylec Inc. This partnership
has manufacturing facilities at Montreal and Varennes, Quebec, Canada.
Alberta & Orient Glycol Company Limited - a corporate joint venture with
Mitsui & Co., Ltd., Japan, and Far Eastern Textile Ltd., Taiwan. This Canada-
based producer of ethylene glycol has a manufacturing facility in Prentiss,
Alberta, Canada.
Item 3. Legal Proceedings
See Note 17 of Notes to Financial Statements on pages 42 and 43 of the 1998
annual report to stockholders.
On November 23, 1998, the West Virginia Division of Environmental Protection
issued a Proposed Order to the corporation alleging violations of hazardous
waste regulations at the corporation's South Charleston, West Virginia plant.
The Proposed Order seeks a civil penalty of $359,200. The corporation is
contesting the alleged violations and proposed penalty.
Item 4. Submission of Matters to a Vote of Security Holders
The corporation did not submit any matters to a stockholder vote during the
last quarter of 1998.
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<PAGE>
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Market and dividend information for the corporation's common stock is
contained on pages 18, 19 and 45 of the 1998 annual report to stockholders.
Information about the stock exchanges where the stock is traded in the United
States is listed on page 46 of the 1998 annual report to stockholders. The
declaration of dividends is a business decision made from time to time by the
Board of Directors based on the corporation's earnings and financial condition
and other factors the Board considers relevant.
The number of stockholders of record of the corporation's common stock is
contained on page 1 of the 1998 annual report to stockholders.
Item 6. Selected Financial Data
Information pertaining to consolidated operations is included under the
captions "From the Income Statement" and "From the Balance Sheet" and dividend
information is included under the caption "Other Data" in the Selected
Financial Data on pages 18 and 19 of the 1998 annual report to stockholders.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
See the information in the 1998 annual report to stockholders on pages 7
through 17.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
Information pertaining to Quantitative and Qualitative Disclosures About
Market Risk is included under the caption "Interest Rate and Currency Risk
Management" and "Foreign Operations" in Management's Discussion and Analysis
on pages 8 and 9 of the 1998 annual report to stockholders.
Item 8. Financial Statements and Supplementary Data
The consolidated balance sheet of Union Carbide Corporation and subsidiaries
at December 31, 1998 and 1997 and the consolidated statements of income,
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1998, together with the report thereon of KPMG LLP
dated January 22, 1999, are contained on pages 20 through 44 of the 1998
annual report to stockholders.
Quarterly income statement data are contained on page 45 of the 1998 annual
report to stockholders.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Union Carbide has not had any disagreements covered by this item with
KPMG LLP, its independent auditors.
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<PAGE>
Part III
Item 10. Directors and Executive Officers of the Registrant
For background information on the Directors of Union Carbide Corporation whose
terms are expected to continue after the annual meeting of stockholders and
persons nominated to become Directors, see pages 7 through 10 of the proxy
statement for the annual meeting of stockholders to be held on April 28, 1999.
The principal executive officers of the corporation are as follows. Data is as
of March 25, 1999.
Year
First
Name Age Position Elected
William H. Joyce 63 Chairman of the Board, President and Chief
Executive Officer 1993
Joseph S. Byck 57 Vice-President 1991
Bruce D. Fitzgerald 59 Vice-President, General Counsel and Secretary 1999
James F. Flynn 56 Vice-President 1993
Malcolm A. Kessinger 55 Vice-President 1991
Lee P. McMaster 56 Vice-President 1993
Joseph C. Soviero 60 Vice-President 1993
Roger B. Staub 64 Vice-President 1993
John K. Wulff 50 Vice-President, Chief Financial Officer and
Controller 1988
There are no family relationships between any officers or directors of the
corporation. There is no arrangement or understanding between any officer and
any other person pursuant to which the officer was elected an officer. An
officer is elected by the Board of Directors to serve until the next annual
meeting of stockholders and until his successor is elected and qualified.
The table on the next page gives a summary of the positions held during at
least the past five years by each officer. Each of the officers has been
employed by the corporation for the past five years.
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<PAGE>
Part III (Cont.)
Name Position Years Held
William H. Joyce Chairman of the Board, President and
Chief Executive Officer 1996 to present
President and Chief Executive Officer 1995 to 1995
President and Chief Operating Officer 1993 to 1995
Joseph S. Byck Vice-President 1991 to present
Bruce D. Fitzgerald Vice-President, General Counsel and
Secretary 1999 to present
Deputy General Counsel 1987 to 1998
James F. Flynn Vice-President 1993 to present
Malcolm A. Kessinger Vice-President 1991 to present
Lee P. McMaster Vice-President 1993 to present
Joseph C. Soviero Vice-President 1993 to present
Roger B. Staub Vice-President 1993 to present
John K. Wulff Vice-President, Chief Financial Officer
and Controller 1996 to present
Vice-President, Controller and Principal
Accounting Officer 1989 to 1996
See "Section 16(a) Beneficial Ownership Reporting Compliance" on page 21 of
the proxy statement for the annual meeting of stockholders to be held on April
28, 1999.
Item 11. Executive Compensation
See pages 17 through 19 of the proxy statement for the annual meeting of
stockholders to be held on April 28, 1999.
Item 12. Security Ownership of Certain Beneficial Owners and Management
See pages 20 and 21 of the proxy statement for the annual meeting of
stockholders to be held on April 28, 1999.
Item 13. Certain Relationships and Related Transactions
See page 10 of the proxy statement for the annual meeting of stockholders to
be held on April 28, 1999.
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<PAGE>
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
UNION CARBIDE CORPORATION
(a) The following documents are filed as part of this report:
1. The consolidated financial statements set forth on pages 20 through
43 and the Independent Auditors' Report set forth on page 44 of the
1998 annual report to stockholders are incorporated by reference in
this Annual Report on Form 10-K.
2. The Report on Schedule of KPMG LLP appears on page 10 of this Annual
Report on Form 10-K.
3. The following schedule should be read in conjunction with the
consolidated financial statements incorporated by reference in Item 8
of this Annual Report on Form 10-K. Schedules other than those listed
have been omitted because they are not applicable.
Page in this
Form 10-K Report
Valuation and Qualifying Accounts (Schedule II),
three years ended December 31, 1998 11
(b) The corporation filed the following reports on Form 8-K for the three
months ended December 31, 1998.
1. Form 8-K dated September 18, 1998, contained the corporation's
Computation of Ratio of Earnings to Fixed Charges for the six months
ended June 30, 1998 and the years ended December 31, 1997, 1996,
1995, 1994 and 1993 and the corporation's press release dated
September 18, 1998.
2. Form 8-K dated December 8, 1998, contained the corporation's press
release dated December 8, 1998.
(c) Exhibits-See Exhibit Index on pages 13 through 16 for exhibits filed with
this Annual Report on Form 10-K.
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<PAGE>
Part IV (Cont.)
Report of Independent Auditors
The Board of Directors
Union Carbide Corporation
Under date of January 22, 1999, we reported on the consolidated balance sheets
of Union Carbide Corporation and subsidiaries as of December 31, 1998 and
1997, and the related consolidated statements of income, stockholders' equity
and cash flows for each of the years in the three-year period ended December
31, 1998, as contained on pages 20 through 43 in the 1998 annual report to
stockholders. These consolidated financial statements and our report thereon
are incorporated by reference in the Annual Report on Form 10-K for the year
1998. In connection with our audits of the aforementioned consolidated
financial statements, we also have audited the related financial statement
schedule as listed in Item 14(a)3. This financial statement schedule is the
responsibility of the corporation's management. Our responsibility is to
express an opinion on this financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
KPMG LLP
Stamford, Conn.
January 22, 1999
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<PAGE>
Part IV (Cont.)
Schedule II-Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Union Carbide Corporation and Consolidated Subsidiaries
Deductions
Items determined
to be uncollectible,
Additions less recovery
Balance at Charged to Reclassified of amounts Balance at
beginning costs and from other previously end of
of period expenses accounts written off period
Millions of dollars, year ended December 31, 1998
<S> <C> <C> <C> <C> <C>
Allowance for
doubtful accounts $11 $ 3 $ 8 $ - $22
Millions of dollars, year ended December 31, 1997
Allowance for
doubtful accounts $10 $ 3 $ - $ 2 $11
Millions of dollars, year ended December 31, 1996
Allowance for
doubtful accounts $11 $ 1 $ - $ 2 $10
</TABLE>
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<PAGE>
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the corporation has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Union Carbide Corporation
March 25, 1999
/s/ John K. Wulff
by: John K. Wulff
Vice-President, Chief Financial
Officer and Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
corporation and in the capacities indicated on March 25, 1999.
/s/William H. Joyce /s/C. Fred Fetterolf /s/Ronald L. Kuehn, Jr.
William H. Joyce C. Fred Fetterolf Ronald L. Kuehn, Jr.
Director, Chairman of Director Director
the Board, President and
Chief Executive Officer
/s/John K. Wulff /s/Rainer E. Gut /s/Rozanne L. Ridgway
John K. Wulff Rainer E. Gut Rozanne L. Ridgway
Vice-President, Chief Director Director
Financial Officer
and Controller
/s/Vernon E. Jordan, Jr. /s/James M. Ringler
Vernon E. Jordan, Jr. James M. Ringler
Director Director
/s/Robert D. Kennedy /s/Paul J. Wilhelm
Robert D. Kennedy Paul J. Wilhelm
Director Director
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<PAGE>
Exhibit Index
Exhibit No.
3.1 Amended and Restated Certificate of Incorporation as filed June 25,
1998 (See Exhibit 3 of the corporation's June 30, 1998 Form 10-Q).
3.2 By-Laws of the corporation, amended as of December 3, 1996 (See
Exhibit 3.2.1 of the corporation's 1996 Form 10-K).
4.1 Indenture dated as of June 1, 1995, between the corporation and the
Chase Manhattan Bank (formerly Chemical Bank), Trustee (See Exhibit
4.1.2 to the corporation's Form S-3 effective October 13, 1995, Reg.
No. 33-60705).
4.2 The corporation will furnish to the Commission upon request any other
debt instrument referred to in item 601(b)(4)(iii) (A) of Regulation
S-K.
4.3.1 Rights Agreement, dated as of July 26, 1989, as amended and restated
as of May 27, 1992, between the corporation and Chase Mellon
Shareholder Services Inc. (successor to Manufacturers Hanover Trust
Company), as Rights Agent (See Exhibit 4(a) to the corporation's
Form 8 filed with the Commission on June 1, 1992, file number
1-10297).
4.3.2 Amendment to Rights Agreement, dated as of December 3, 1996, between
the corporation and Chase Mellon Shareholder Services Inc. as
Successor Rights Agent (See Exhibit 99.1 of the corporation's Form 8-K
dated December 3, 1996).
10.1 Indemnity Agreement dated as of December 8, 1997, between the
corporation and James F. Flynn. The Indemnity Agreement filed with the
Commission is substantially identical in all material respects, except
as to the parties thereto and dates thereof, with Indemnity Agreements
between the corporation and each other person who is a director or
executive officer of the corporation (See Exhibit 10.1 of the
corporation's 1997 Form 10-K).
10.2.1 1988 Union Carbide Long-Term Incentive Plan.
10.2.2 Amendment to the 1988 Union Carbide Long-Term Incentive Plan effective
June 1, 1989 (See Exhibit 10.14.2 of the corporation's 1994 Form
10-K).
10.2.3 Amendment to the 1988 Union Carbide Long-Term Incentive Plan effective
August 1, 1989 (See Exhibit 10.14.3 of the corporation's 1994 Form
10-K).
10.2.4 Resolutions adopted by the Board of Directors of the corporation on
February 26, 1992, with respect to stock options granted under the
1988 Union Carbide Long-Term Incentive Plan (See Exhibit 10.2.4 of the
corporation's 1997 Form 10-K).
10.2.5 Resolutions adopted by the Compensation and Management Development
Committee of the Board of Directors of the corporation on June 30,
1992, with respect to the 1988 Union Carbide Long-Term
Incentive Plan (See Exhibit 10.2.5 of the corporation's 1997
Form 10-K).
10.2.6 Amendment to the 1988 Union Carbide Long-Term Incentive Plan effective
October 1, 1997 (See Exhibit 10.2.6 of the corporation's 1997
Form 10-K).
10.3.1 1983 Union Carbide Bonus Deferral Program (See Exhibit 10.4.1 of the
corporation's 1996 Form 10-K).
10.3.2 Amendment to the 1983 Union Carbide Bonus Deferral Program effective
January 1, 1992 (See Exhibit 10.3.2 of the corporation's 1997
Form 10-K).
10.4.1 1984 Union Carbide Cash Bonus Deferral Program (See Exhibit 10.5.1 of
the corporation's 1996 Form 10-K).
10.4.2 Amendment to the 1984 Union Carbide Cash Bonus Deferral Program
effective January 1, 1986 (See Exhibit 10.5.2 of the corporation's
1996 Form 10-K).
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<PAGE>
Exhibit Index (Cont.)
Exhibit No.
10.4.3 Amendment to the 1984 Union Carbide Cash Bonus Deferral Program
effective January 1, 1992 (See Exhibit 10.4.3 of the corporation's
1997 Form 10-K).
10.5.1 Equalization Benefit Plan for Participants of the Retirement Program
Plan for Employees of Union Carbide Corporation and its Participating
Subsidiary Companies (See Exhibit 10.6.1 of the corporation's 1996
Form 10-K).
10.5.2 Amendment to the Equalization Benefit Plan effective January 1, 1994
(See Exhibit 10.18.2 of the corporation's 1994 Form 10-K).
10.6.1 Supplemental Retirement Income Plan (See Exhibit 10.7.1 of the
corporation's 1996 Form 10-K).
10.6.2 Amendment to the Supplemental Retirement Income Plan effective January
1, 1994 (See Exhibit 10.19.3 of the corporation's 1994 Form 10-K).
10.6.3 Amendment to the Supplemental Retirement Income Plan effective January
1, 1995 (See Exhibit 10.18.3 of the corporation's 1995 Form 10-K).
10.7 Union Carbide Non-Employee Directors' Compensation Deferral Plan
effective February 1, 1997 (See Exhibit 10.7 of the corporation's
1997 Form 10-K).
10.8 Severance Compensation Agreement, dated February 10, 1998, between the
corporation and Ron J. Cottle. The Severance Compensation Agreement
filed with the Commission is substantially identical in all material
aspects, except as to the parties thereto and dates thereof, with
Agreements between the corporation and other officers and employees of
the corporation (See Exhibit 10.8 of the corporation's 1997
Form 10-K).
10.9 Resolution adopted by the Board of Directors of the corporation on
November 30, 1988, with respect to an executive life insurance program
for officers and certain other employees.
10.10 1997 Union Carbide Variable Compensation Plan effective July 1, 1997
(See Exhibit 10.10 of the corporation's 1997 Form 10-K).
10.11.1 Union Carbide Corporation Benefits Protection Trust, amended and
restated effective August 29, 1997 (See Exhibit 10.11.1 of the
corporation's 1997 Form 10-K).
10.11.2 Amendment to the Union Carbide Corporation Benefits Protection Trust
effective November 1, 1997 (See Exhibit 10.11.2 of the corporation's
1997 Form 10-K).
10.12 Resolutions adopted by the Board of Directors of the corporation on
February 24, 1988, with respect to the purchase of annuities to cover
liabilities of the corporation under the Equalization Benefit Plan for
Participants of the Retirement Program Plan for Employees of Union
Carbide Corporation and its Participating Subsidiary Companies and the
Supplemental Retirement Income Plan (See Exhibit 10.25 of the
corporation's 1994 Form 10-K).
10.13 Resolutions adopted by the Board of Directors of the corporation on
June 28, 1989, with respect to the purchase of annuities to cover
liabilities of the corporation under the Supplemental Retirement
Income Plan (See Exhibit 10.26 of the corporation's 1994 Form 10-K).
10.14.1 Union Carbide Corporation Non-Employee Directors' Retirement Plan (See
Exhibit 10.27 of the corporation's 1994 Form 10-K).
10.14.2 Amendment to the Union Carbide Corporation Non-Employee Directors'
Retirement Plan effective May 1, 1997 (See Exhibit 10.14.2 of the
corporation's 1997 Form 10-K).
10.15.1 1994 Union Carbide Long-Term Incentive Plan (See Exhibit 10.28 of the
corporation's 1994 Form 10-K).
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<PAGE>
Exhibit Index (Cont.)
Exhibit No.
10.15.2 Amendment to the 1994 Union Carbide Long-Term Incentive Plan effective
October 1, 1997 (See Exhibit 10.15.2 of the corporation's 1997
Form 10-K).
10.16.1 Amendment and Restatement to Union Carbide Compensation Deferral
Program effective October 1, 1995 (See Exhibit 10.28 of the
corporation's 1995 Form 10-K).
10.16.2 Amendment to Union Carbide Compensation Deferral Program effective
January 1, 1995 (See Exhibit 10.17.2 of the corporation's 1996 Form
10-K).
10.16.3 Amendment to Union Carbide Compensation Deferral Program effective
December 31, 1996 (See Exhibit 10.17.3 of the corporation's 1996 Form
10-K).
10.17 Excess Long-Term Disability Plan effective January 1, 1994 (See
Exhibit 10.30 of the corporation's 1994 Form 10-K).
10.18 1995 Union Carbide Performance Incentive Plan (See Appendix A of the
corporation's proxy statement for the annual meeting of stockholders
held on April 26, 1995).
10.19.1 1997 Union Carbide Long-Term Incentive Plan (See Appendix A of the
corporation's proxy statement filed with the Commission March 12,
1997, file number: 001-01463).
10.19.2 Amendment to the 1997 Union Carbide Long-Term Incentive Plan effective
April 23, 1997 (See Exhibit 10.19.2 of the corporation's 1997
Form 10-K).
10.20 1997 Stock Option Plan for Non-Employee Directors of Union Carbide
Corporation (See Appendix B of the corporation's proxy statement filed
with the Commission March 12, 1997, file number: 001-01463).
10.21 1997 Union Carbide Corporation EPS Incentive Plan (See Exhibit 10.21
of the corporation's 1997 Form 10-K).
10.22 The Mid-Career Hire Plan for Employees of Union Carbide Corporation
and Its Participating Subsidiary Companies, effective December 3,
1996 (See Exhibit 10.22 of the corporation's 1997 Form 10-K).
10.23.1 Completion Guarantee dated September 15, 1996 by the corporation and
its partner, Petrochemical Industries Company K.S.C., for the benefit
of certain banks with respect to construction of a petrochemicals
complex in Kuwait (See Exhibit 10.1 of the corporation's Form 10-Q for
the quarter ended September 30, 1996).
10.23.2 Definitions Agreement dated September 15, 1996 among the corporation
and various parties relating to Exhibit 10.23.1 (See Exhibit 10.2 of
the corporation's Form 10-Q for the quarter ended September 30, 1996).
13 The corporation's 1998 annual report to stockholders (such report,
except for those portions which are expressly referred to in this Form
10-K, is furnished for the information of the Commission and is not
deemed "filed" as part of the Form 10-K).
21 Subsidiaries of the corporation.
23 Consent of KPMG LLP.
27.1 Financial Data Schedule for the year ended December 31, 1998.
27.2 Restated Financial Data Schedule for the years ended December 31, 1997
and 1996.
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<PAGE>
27.3 Restated Financial Data Schedule for the three months ended March 31,
1997, the six months ended June 30, 1997 and the nine months ended
September 30, 1997.
Wherever an exhibit listed above refers to another exhibit or document (e.g.,
"See Exhibit 6 of . . ."), that exhibit or document is incorporated herein by
such reference.
A copy of any exhibit listed above may be obtained on written request to the
Secretary's Department, Union Carbide Corporation, 39 Old Ridgebury Road,
Danbury, CT 06817-0001. The charge for furnishing any exhibit is 25 cents per
page plus mailing costs.
- 16 -
<PAGE>
UC-1729
Printed in USA
<PAGE>
Exhibit 10.2.1
1988 UNION CARBIDE
LONG-TERM INCENTIVE PLAN
1988 UNION CARBIDE LONG-TERM INCENTIVE PLAN
Section 1: Purpose. The purpose of the 1988 Union Carbide Long-Term
Incentive Plan (hereinafter referred to as the "Plan") is to (a) provide
incentives and rewards to those employees who are in a position to contribute
to the long-term growth and profitability of the Corporation; (b) assist the
Corporation and its subsidiaries and affiliates in attracting, retaining, and
motivating employees with experience and ability; and (c) make the
Corporation's compensation program competitive with those of other major
employers.
Section 2: Administration. The Plan shall be administered by a Committee of
the Board of Directors (hereinafter referred to as the "Committee") appointed
by the Board. Members of the Committee are not eligible to participate in the
Plan and no member may have been eligible within one year prior to serving on
the Committee. The Committee shall interpret the Plan, establish
administrative regulations to further the purpose of the Plan, authorize
awards to eligible participants and take any other action necessary for the
proper operation of the Plan. All decisions and acts of the Committee shall
be final and binding upon all participants. The Committee may set the option
price, the number of options to be awarded and the number of shares to be
awarded out of the total number of shares available for award, and delegate to
the Chief Executive Officer of the Corporation the right to allocate awards
among Employees who are not officers or directors of the Corporation within
the meaning of the Exchange Act, such delegation to be subject to such terms
and conditions as the Committee in its discretion shall determine.
Section 3: Participation. This Plan is for Union Carbide Corporation and its
subsidiaries and affiliates. Any Employee of Union Carbide Corporation or a
subsidiary or affiliate serving in a managerial, administrative, or
professional position which is recommended to, and authorized by, the
Committee shall be eligible to participate in the Plan.
Section 4: Awards. Awards under this Plan may be stock option awards, stock
appreciation rights, exercise payment rights, grants of stock, or performance
awards. The total number of shares of stock (including Restricted Stock, if
any) optioned or granted under this Plan during the five year period of the
Plan shall not exceed 15,000,000 shares. No participant may be granted, in
the aggregate, awards which would result in the participant receiving more
than 10% of the maximum number of shares available for award under the Plan.
Solely for the purpose of computing the total number of shares of stock
optioned or granted under this Plan, there shall not be counted any shares
which have been forfeited and any shares covered by an option which, prior to
such computation, has terminated in accordance with its terms or has been
cancelled by the Participant or the Corporation. In the event of any change
in the outstanding shares of the Corporation by reason of any stock split,
stock dividend, recapitalization, merger, consolidation, combination or
exchange of shares or other similar corporate change or in the event of any
special distribution to the stockholders, the Committee shall make such
equitable adjustments in the number of shares and prices per share applicable
to options then outstanding and in the number of shares which are available
thereafter for Stock Option Awards or other awards, both under the Plan as a
whole and with respect to individuals, as the Committee determines are
necessary and appropriate. Any such adjustment shall be conclusive and
binding for all purposes of the Plan.
Section 5: Stock Options.
5.1: The Corporation may award options to purchase common stock or
Restricted Stock of the Corporation (hereinafter referred to as "Stock Option
Awards") to such eligible Employees as the Committee, or the Chief Executive
Officer of the Corporation, if the Committee in its discretion delegates the
right to allocate awards pursuant to Section 2, authorizes and under such
terms as the Committee establishes. The Committee shall determine with respect
to each Stock Option Award whether a participant is to receive an Incentive
Stock Option or a Non-Qualified Stock Option.
5.2: The option price of each share of stock subject to a Stock
Option Award shall be the closing price of the common stock of the Corporation
on the date the award is authorized as reported in the New York Stock
Exchange-Composite Transactions.
5.3: A stock option by its terms shall not be transferable by the
participant other than by will or the laws of descent and distribution, shall
be of no more than 10 years' duration, and shall be exercisable only after the
earlier of: (i) such period of time as the Committee shall determine but in no
event less than one year following the date of grant of such award; (ii) the
participant's death; (iii) the participant's Retirement; or (iv) a Change in
Control of the Corporation, but only to the extent permitted under Section
5.5. An option is exercisable during a participant's lifetime only by the
participant or the participant's legal guardian or legal representative.
An option is only exercisable by a participant while the participant
is in active employment with the Corporation except (i) during a nine-month
period commencing on the date of a participant's death, (ii) in the case of a
participant's Retirement, (iii) during a three-year period commencing on the
date of a participant's termination of employment by the Corporation other
than for cause, but only to the extent permitted under Section 5.5, (iv)
during a three-year period commencing on the date of termination, by the
participant or the Corporation, of employment after a Change in Control of the
Corporation, unless such termination of employment is for cause, but only to
the extent permitted under Section 5.5, or (v) if the Committee decides that
it is in the best interest of the Corporation to permit individual exceptions.
An option may not be exercised pursuant to this paragraph after the expiration
date of the option.
5.4: An option may be exercised with respect to part or all of the
shares subject to the option by giving written notice to the Corporation of
the exercise of the option. The option price for the shares for which an
option is exercised shall be paid on or within ten business days after the
date of exercise in cash, in whole shares of common stock of the Corporation
owned by the participant prior to exercising the option, or in a combination
of cash and such shares of common stock. The value of any share of common
stock delivered in payment of the option price shall be its Market Price on
the date the option is exercised.
5.5: Clause (iv) of the first sentence and clauses (iii) and (iv)
of the third sentence of Section 5.3 herein shall not apply to a stock option
held by a 'disqualified individual' within the meaning of Section 280G(c) of
the Code who is a party to an employment contract with the Corporation that
grants such person severance benefits in the event that the employment is
terminated subsequent to a change in control of the Corporation, or who is
entitled to receive benefits pursuant to a severance plan in the event that
the participant's employment is terminated after a change in control to the
extent that the exercise of the option would cause such person to incur the
tax prescribed in Section 4999 of the Code on 'excess parachute payments'
within the meaning of Section 280G(b) of the Code.
5.6: In order to enable the Corporation to meet any applicable
federal, state or local withholding tax requirements arising as a result of
the exercise of a stock option, a participant shall pay the Corporation the
amount of tax to be withheld or may elect to satisfy such obligation as
follows: (i) in the case of a participant who is subject to Section 16(b) of
the Exchange Act and who does not make an election under Section 83(b) of the
Code, by delivering to the Corporation whole shares of common stock of the
Corporation which were delivered to the participant pursuant to the exercise
of the option for which the tax is being withheld, other shares of common
stock of the Corporation owned by the participant prior to exercising the
option, or a combination of cash and such shares of common stock, or (ii) in
the case of all other participants, by having the Corporation withhold shares
that otherwise would be delivered to the participant pursuant to the exercise
of the option for which the tax is being withheld, by delivering to the
Corporation other shares of common stock of the Corporation owned by the
participant prior to exercising the option, or by making a payment to the
Corporation consisting of a combination of cash and such shares of common
stock. Such an election shall be subject to the following: (a) the election
shall be made in such manner as may be prescribed by the Committee and the
Committee shall have the right, in its discretion, to disapprove such
election; (b) the election shall he made prior to the date to be used to
determine the tax to be withheld and shall be irrevocable; (c) if the
participant is a person subject to Section 16 of the Exchange Act, the
election shall not be made within six months after the grant of the option,
except that this limitation shall not apply in the event that the participant
dies or becomes disabled prior to the expiration of such six month period, and
shall be made either at least six months prior to the date to be used to
determine the tax to be withheld or during a ten day period of the same type
as is described in Section 6.5 hereof. The value of any share of common stock
to be withheld by the Corporation or delivered to the Corporation pursuant to
this Section 5.6 shall be the Market Price on the date to be used to determine
the amount of tax to be withheld.
5.7: The Committee may, in its discretion, grant to holders of
stock options the right to receive with respect to each share covered by an
option payments of amounts equal to the regular cash dividends paid to holders
of the Company's common stock during the period that the option is outstanding
(such payments are hereinafter referred to as "Dividend Payments").
5.8: The aggregate fair market value of all shares of stock with
respect to which Incentive Stock Options are exercisable for the first time by
a participant in any one calendar year, under this Plan or any other stock
option plan maintained by the Corporation (or by any subsidiary or parent of
the Corporation), shall not exceed $100,000. The fair market value of such
shares of stock shall be the mean of the high and low prices of the common
stock of the Corporation as reported in the New York Stock Exchange -
Composite Transactions on the date the related stock option is granted (or on
the next preceding day such stock was traded on a stock exchange included in
the New York Stock Exchange - Composite Transactions if it was not traded on
any such exchange on the date the related stock option is granted).
Section 6: Stock Appreciation Rights.
6.1: The Committee may, in its discretion, grant stock appreciation
rights to Employees who have received a Stock Option Award. The stock
appreciation rights may relate to such number of shares, not exceeding the
number of shares that the Employee may acquire upon exercise of a related
stock option, as the Committee determines in its discretion. Upon exercise of
a stock option by an Employee, the stock appreciation rights relating to the
shares covered by such exercise shall terminate. Upon termination or
expiration of a stock option, any unexercised stock appreciation rights
related to that option shall also terminate. Upon exercise of stock
appreciation rights, such rights and the related option to the extent of an
equal number of shares shall terminate.
6.2: The Committee at its discretion may revoke at any time any
unexercised stock appreciation rights granted to an Employee under this Plan,
without compensation to such Employee. Revocation of an Employee's stock
appreciation rights under this section shall not affect any related stock
options granted to the Employee under this Plan.
6.3: Upon an Employee's exercise of some or all of the Employee's
stock appreciation rights, the Employee shall receive an amount equal to the
value of the Stock Appreciation for the number of rights exercised, payable in
cash, common stock, Restricted Stock, or a combination thereof, at the
discretion of the Committee.
6.4: The Committee shall have the discretion either to determine
the form in which payment of a stock appreciation right will be made, or to
consent to or disapprove the election of the Employee to receive cash in full
or partial settlement of the right. Such consent or disapproval may be given
at any time before or after the election to which it relates. Notwithstanding
the foregoing provision, if an Employee exercises a stock appreciation right
during the 60-day period commencing on the date of a Change in Control of the
Corporation, the form of payment of such stock appreciation right shall be
cash provided that such stock appreciation right was granted at least six
months prior to the date of exercise, and shall be common stock if such stock
appreciation right was granted six months or less prior to the date of
exercise. Provided, however, that the previous sentence shall not apply to a
'disqualified individual' within the meaning of Section 280G(c) of the Code
who is a party to an employment contract with the Corporation that grants such
person severance benefits in the event that his employment is terminated
subsequent to a Change in Control of the Corporation or who is entitled to
receive benefits pursuant to a severance plan in the event that his employment
is terminated after a Change in Control of the Corporation, to the extent that
the exercise of the stock appreciation right would cause such participant to
incur the tax prescribed in Section 4999 of the Code on 'excess parachute
payments' within the meaning of Section 280G(b) of the Code.
6.5: Except in the case of a stock appreciation right that was
granted at least six months prior to exercise and that is exercised for cash
during the 60-day period commencing on the date of a Change in Control of the
Corporation, any election by the Employee to receive cash in full or partial
settlement of the stock appreciation right, as well as any exercise by the
Employee of the Employee's stock appreciation right for such cash, shall be
made only during the period beginning on the third business day following the
date of release of the quarterly or annual summary statements of sales and
earnings and ending on the twelfth business day following such date.
6.6: Settlement for exercised stock appreciation rights may be
deferred by the Committee in its discretion to such date and under such terms
and conditions as the Committee may determine.
6.7: A stock appreciation right is only exercisable during the
period when the stock option to which it is related is also exercisable.
Section 7: Exercise Payments.
7.1: The Committee may, in its discretion, grant to holders of
stock options the right to receive Exercise Payments relating to such number
of shares covered by the holder's stock options as the Committee determines in
its discretion. Exercise Payments shall be reduced by the total amount which
may have been received as Dividend Payments pursuant to Section 5.7 with
respect to the stock option that is being exercised.
7.2: At the discretion of the Committee, the Exercise Payment may
be made in cash, common stock, Restricted Stock, or a combination thereof;
provided, however, Exercise Payments may be made in cash to participants
subject to Section 16(b) of the Exchange Act only if they exercise the related
stock option during a period beginning on the third business day following the
date of release of the quarterly or annual summary statements of sales and
earnings and ending on the twelfth business day following such date. Exercise
Payments shall be paid within 20 business days following the exercise of a
related stock option; provided, however, that payment may be deferred by the
Committee in its discretion to such date and under such terms and conditions
as the Committee may determine.
7.3: Exercise Payments shall be paid only upon the exercise of
related stock options which are exercised by the holder while an active
Employee; provided, however, that in the case of an option holder's death or
Retirement, Exercise Payments will be paid if such related stock options are
exercised within nine months after death or three months after Retirement, as
the case may be, but before the expiration of the stock option's term.
Section 8: Grants of Stock.
8.1: The Committee may grant, either alone or in addition to other
awards granted under the Plan, shares of stock or Restricted Stock to such
eligible Employees as the Committee, or the Chief Executive Officer of the
Corporation, if the Committee in its discretion delegates the right to
allocate awards pursuant to Section 2, authorizes and under such terms as the
Committee establishes. The Committee, in its discretion, may also make a cash
payment to a participant granted shares of stock or Restricted Stock under the
Plan to allow such Participant to satisfy tax obligations arising out of
receipt of the stock or Restricted Stock.
Section 9: Performance Awards.
9.1: The Committee may grant, either alone or in addition to other
awards granted under the Plan, awards of stock and other awards that are
valued in whole or in part by reference to, or are otherwise based on, the
market value of the common stock, Restricted Stock or other securities of the
Corporation ("Performance Awards") to such eligible Employees as the
Committee, or the Chief Executive officer of the Corporation, if the Committee
in its discretion delegates the right to allocate awards pursuant to Section
2, authorizes and under such terms as the Committee establishes. Performance
Awards may be paid in common stock, Restricted Stock or other securities of
the Company, cash or any other form of property as the Committee shall
determine. Performance Awards shall entitle the participant to receive an
award if the measures of performance established by the Committee are met.
The measures of performance shall be established by the Committee in its
absolute discretion.
9.2: The Committee shall determine the times at which Performance
Awards are to be made and all conditions of such awards.
9.3: The participant shall not be permitted to sell, assign,
transfer, pledge or otherwise encumber shares received pursuant to this
Section 9 prior to the date on which any applicable restriction or performance
period established by the Committee lapses.
Section 10: General Provisions.
10.1: Any assignment or transfer of any awards without the written
consent of the Corporation shall be null and void.
10.2: Nothing contained herein shall require the Corporation to
segregate any monies from its general funds, or to create any trusts, or to
make any special deposits for any immediate or deferred amounts payable to any
participant for any year.
10.3: Participation in this Plan shall not affect the Corporation's
right to discharge a participating Employee.
10.4: Restricted Stock may not be sold or transferred by the
participant until any restrictions that have been established by the Committee
have lapsed.
10.5: The participant shall have, with respect to Restricted Stock,
all of the rights of a stockholder of the Corporation, including the right to
vote the shares and the right to receive any dividends, unless the Committee
shall otherwise determine.
10.6: Upon a participant's termination of employment during the
period any restrictions are in effect, all Restricted Stock shall be forfeited
without compensation to the participant unless the Committee decides that it
is in the best interest of the Corporation to permit individual exceptions.
Section 11: Definitions.
11.1: A 'Change in Control of the Corporation' shall be deemed to
occur in the event that any of the following circumstances have occurred:
(i) if a change in control of the Corporation would
be required to be reported in response to Item 1(a) of the Current Report on
Form 8-X, as in effect on the date hereof, pursuant to Sections 13 or 15(d) of
the Exchange Act whether or not the Corporation is then subject to such
reporting requirement;
(ii) any 'person' or 'group' within the meaning of
Sections 13(d) and 14(d) (2) of the Exchange Act (x) becomes the 'beneficial
owner' as defined in Rule 13d-3 under the Exchange Act of more than 35% of the
then outstanding voting securities of the Corporation, otherwise than through
a transaction or transactions arranged by, or consummated with the prior
approval of, the Board or (y) acquires by proxy or otherwise the right to vote
for the election of directors, for any merger or consolidation of the
Corporation or for any other matter or question, more than 35% of the then
outstanding voting securities of the Corporation, otherwise than through an
arrangement or arrangements consummated with the prior approval of the Board;
(iii) if during any period of twenty-four consecutive
months (not including any period prior to the adoption of this section),
Present Directors and/or New Directors cease for any reason to constitute a
majority of the Board. For purposes of this subsection (iii), 'Present
Directors' shall mean individuals who at the beginning of such consecutive
twenty-four month period were members of the Board and 'New Directors' shall
mean any director whose election by the Board or whose nomination for election
by the Corporation's stockholders was approved by a vote of at least two-
thirds of the Directors then still in office who were Present Directors or New
Directors; or
(iv) any 'person' or 'group' within the meaning of
Sections 13(d) and 14(d) (2) of the Exchange Act that is the 'beneficial
owner' as defined in Rule 13d-3 under the Exchange Act of 20% or more of the
then outstanding voting securities of the Corporation commences soliciting
proxies.
11.2: "Code" means the Internal Revenue Code of 1986, as now or
hereafter amended.
11.3: "Employee" means all employees of the Corporation or of a
subsidiary or affiliate of the Corporation participating in the Plan,
including officers of the Corporation, as well as officers of the Corporation
who are also directors of the Corporation. However, an individual who is a
member of the Committee shall not be an "employee" for purposes of this Plan.
11.4: "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
11.5: "Exercise Payment" is a payment upon the exercise of a stock
option of an amount determined by the Committee in its discretion, which
amount shall not be greater than 60% of the excess of the Market Price over
the option price of the stock acquired upon the exercise of the option.
11.6: "Incentive Stock Option" means any stock option granted
pursuant to this Plan which is designated as such by the Committee and which
complies with Section 422A of the Code.
11.7: "Market Price" is the mean of the high and low prices of the
common stock of the Corporation as reported in the New York Stock Exchange-
Composite Transactions on the date the option or stock appreciation right is
exercised (or on the next preceding day such stock was traded on a stock
exchange included in the New York Stock Exchange-Composite Transactions if it
was not traded on any such exchange on the date the option or stock
appreciation right is exercised), except that in the case of a stock
appreciation right that is exercised for cash during the first three days of
the ten-day period set forth in Section 6.5, "Market Price" is the highest
daily closing price of the common stock of the Corporation as reported in the
New York Stock Exchange-Composite Transactions during such ten-day period.
Notwithstanding the foregoing provisions, if a stock appreciation right is
exercised during the 60-day period commencing on the date of a change in
control of the Corporation, the Market Price for purposes of determining the
stock appreciation shall be the highest of (1) the market price of the common
stock of the Corporation, as determined under the preceding sentence; (2) the
highest market price of a share of the common stock of the Corporation during
the period commencing on the ninetieth day preceding the date of exercise of
the stock appreciation right and ending on the date of exercise of the stock
appreciation right; (3) the highest price per share of common stock of the
Corporation shown on Schedule 13D or an amendment thereto filed pursuant to
Section 13(d) of the Securities Exchange Act of 1934 by any person holding 35%
of the combined voting power of the Corporation's then outstanding voting
securities; or (4) the highest price paid or to be paid per share of common
stock of the Corporation pursuant to a tender or exchange offer as determined
by the Committee. Provided, however, that the previous sentence shall not
apply to a 'disqualified individual' within the meaning of Section 280G(c) of
the Code if the exercise of the stock appreciation right would cause such
participant to incur the tax prescribed in Section 4999 of the Code on 'excess
parachute payments' within the meaning of Section 280G(b) of the Code.
11.8: "Non-Qualified Stock Option" means any stock option granted
pursuant to this Plan which is not an Incentive Stock Option.
11.9: "Retirement" shall mean retirement from employment by the
Corporation or a subsidiary or affiliate with the right to receive immediately
a non-actuarially reduced pension under the Corporation's Retirement Program.
11.10: "Restricted Stock" means stock of the Corporation subject to
restrictions on the transfer of such stock, conditions of forfeitability of
such stock, or any other limitations or restrictions as determined by the
Committee.
11.11: "Stock Appreciation" shall be based on the excess of the
Market Price of the common stock over the option price of the related option
stock, as determined by the Committee.
Section 12: Amendment, Suspension, or Termination.
12.1: The Board of Directors may suspend, terminate, or amend the
Plan, including but not limited to such amendments as may be necessary or
desirable resulting from changes in the federal income tax laws and other
applicable laws, but may not, without approval by the holders of a majority of
all outstanding shares entitled to vote on the subject at a meeting of
stockholders of Union Carbide Corporation, increase the total number of shares
of stock that may be optioned or granted under this Plan.
12.2: This Plan is intended to comply with the requirements of Rule
16b-3 under the Exchange Act, as applicable during the term of the Plan.
Should the requirements of Rule 16b-3 change, the Board of Directors may amend
this Plan to comply with the requirements of that rule or its successor
provision or provisions.
Section 13: Effective Date and Duration of the Plan.
This Plan shall be effective following approval by the stockholders of the
Corporation. No award shall be granted under this Plan for any year
commencing on or after January l, 1994.
Exhibit 10.9
RESOLUTIONS ADOPTED BY THE BOARD OF DIRECTORS OF
UNION CARBIDE CORPORATION ON NOVEMBER 30, 1988
WITH RESPECT TO AN EXECUTIVE LIFE INSURANCE PROGRAM
FOR OFFICERS AND CERTAIN OTHER EMPLOYEES
RESOLVED, that the proper officers of the Corporation be, and they
hereby are, authorized to adopt an executive life insurance program for
officers and certain other employees effective on or after January 1, 1989
providing for the following: a death benefit during active employment equal
to one or two times such employee's current salary and a post-retirement
death benefit equal to one or two times salary depending upon the
organizational position occupied by the participant immediately prior to
retirement with the death benefit adjusted periodically to reflect increases
in the employee's salary; the payment by the employee of that portion of the
annual premium for the insurance policy issued pursuant to the program equal
to the amount that such employee would have paid under the Corporation's
basic life insurance program; the payment by the Corporation of the balance
of the premium; and the right of the Corporation, evidenced by a written
agreement between the Corporation and the employee, to recoup its premium
payments (i) out of the death benefits under the policy in the event the
employee dies while an employee of the Corporation(ii) from the cash value in
the policy after the employee attains age 65 or 10 years have elapsed since
issuance of the policy, whichever is later, or (iii) by surrender of the
policy or through reimbursement by the employee in the event the employee's
participation in the program ceases for some other reason.
Exhibit 13
Union Carbide Corporation
1998 Annual Report
(The cover)
Union Carbide Corporation
1998 Annual Report
<PAGE>
(Inside front cover)
Table of Contents
Financial Highlights/At a Glance
1 Summary comparison of 1998 and 1997 results
Chairman's Letter
2 Bill Joyce on performance in 1998, strategic objectives
and long-term outlook
Principal Products & Services
4 Description of the Specialties & Intermediates and
Basic Chemicals & Polymers segments
Chemical Glossary
6 Chemicals and polymers used in Carbide's businesses
Management's Discussion & Analysis
7 Results of Operations
16 Liquidity, Capital Resources and Other Financial Data
17 Debt Ratios
Selected Financial Data
18 Summary financial history of the past 11 years
Financial Statements
20 Consolidated Balance Sheet
21 Consolidated Statement of Income
22 Consolidated Statement of Stockholders' Equity
24 Consolidated Statement of Cash Flows
25 Notes to Financial Statements
44 Management's Statement of Responsibility
for Financial Statements
44 Independent Auditors' Report
Quarterly Data
45 Summary comparison of quarterly 1998 and 1997 results
Corporate Information
46 Important dates, names, addresses, telephone numbers
and other information
Directors and Corporate Officers
47 List of directors, corporate officers and
other senior management
Union Carbide Around the World
48 List of worldwide locations
Definition of Terms
48 Definition of nonchemical terms
Cautionary statement: All statements in this annual report that do not reflect
historical information are forward-looking statements, within the meaning of
the Private Securities Litigation Reform Act of 1995 (as amended). Forward-
looking statements include statements concerning plans; objectives;
strategies; anticipated future events or performance; sales; cost, expense and
earnings expectations; the Year 2000 issue; the euro; interest rate and
currency risk management; the chemical markets in 1999 and beyond; cost
reduction targets; the corporation's share price; earnings and profitability
targets; development, production and acceptance of new products and process
technologies; ongoing and planned capacity additions and expansions; joint
ventures; Management's Discussion & Analysis; and any other statements that do
not reflect historical information. Such forward-looking statements are
subject to risks and uncertainties. Important factors that could cause actual
results to differ materially from those discussed in such forward-looking
statements include the supply/demand balance for the corporation's products;
customer inventory levels; competitive pricing pressures; feedstock
availability and costs; changes in industry production capacities and
operating rates; currency exchange rates; interest rates; global economic
conditions, particularly in Asia and Latin America; disruption in
transportation facilities; competitive technology positions; failure by the
corporation to achieve technology objectives, achieve cost reduction targets
or complete projects on schedule and on budget; and inability to obtain new
customers or retain existing ones.
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
Dollar amounts in millions
(except per share figures) 1998 1997 % Change
For the Year
<S> <C> <C> <C>
Net sales $5,659 $6,502 (13)
Operating profit 803 1,045 (23)
Income before cumulative effect of
change in accounting principle 403 676 (40)
Per common share - basic 2.98 5.02 (41)
Per common share - diluted 2.91 4.53 (36)
Net income - common stockholders 403 652 (38)
Per common share - basic 2.98 4.89 (39)
Per common share - diluted 2.91 4.41 (34)
Cash dividends on common stock 122 100 22
Per common share 0.90 0.7875 14
Capital expenditures 782 755 4
At Year-End
Total assets $7,291 $6,964 5
Total debt 2,222 1,887 18
Stockholders' equity 2,449 2,348 4
Per common share 18.46 17.15 8
Common shares outstanding (thousands) 132,686 136,944 (3)
Common stockholders of record 45,775 47,713 (4)
Employees 11,627 11,813 (2)
</TABLE>
At a Glance
Union Carbide Corporation is a worldwide chemicals and polymers company. The
company possesses many of the industry's most advanced process and catalyst
technologies and some of the most cost-efficient, large-scale production
facilities in the world. In addition to its consolidated operations, the
corporation participates in partnerships and corporate joint ventures whose
combined net sales totaled approximately $4.1 billion in 1998.
Union Carbide operates two business segments:
Specialties & Intermediates, which accounted for 73 percent of customer
revenues in 1998, produces a broad range of products, including specialty
polyolefins used in wire and cable insulation; surfactants for industrial
cleaners; catalysts for the manufacture of polymers; acrolein and derivatives;
water-soluble polymers; cellulose-, glucose- and lanolin-based materials for
personal care products; specialty coatings; acrylic and vinyl acrylic latex
used in paints and adhesives; solvents; vinyl acetate monomer, and ethylene
oxide derivatives. This segment also licenses olefins-based technologies and
offers other specialized technology licensing and services.
Basic Chemicals & Polymers converts various hydrocarbon feedstocks,
principally liquefied petroleum gases and naphtha, into the basic building-
block chemicals ethylene and propylene (also known as olefins), which are in
turn converted to polyethylene (the world's most widely used plastic),
polypropylene (one of the world's fastest-growing plastics), and ethylene
oxide and ethylene glycol (used to make polyester fiber, film and resin, and
automotive antifreeze). This segment provides ethylene, propylene, ethylene
oxide and ethylene glycol to the Specialties & Intermediates segment.
Union Carbide's leading end markets as a percentage of sales are:
Paints, coatings and adhesives 22
Packaging and consumer plastics 18
Wire and cable 14
Textile 7
Household and personal care 7
Automotive, including antifreeze 5
Agriculture and food 4
Oil and gas 3
Industrial cleaners 2
- 1 -
<PAGE>
(Contained in the left hand margin is a picture of William H. Joyce, Chairman,
President and Chief Executive Officer.)
Chairman's Letter
The year just ended was a tough one to be in the chemical business. The
cyclical downturn already under way as the year began accelerated faster in
1998 than many had anticipated.
At year-end 1998, prices of commodity chemicals and plastics had fallen more
than 30 percent from the beginning of the year. Margins for those products
declined during the year, and so did earnings. By year-end, average commodity
chemical margins had shrunk to levels not seen since 1993, the trough of the
last chemical industry business cycle.
Asia's already foundering economies curtailed chemical exports to that key
market in 1998, further aggravating the global supply/demand imbalance. A
strong dollar only worsened the export picture.
Union Carbide's results reflected the problems. Net sales declined 13
percent from the prior year, to $5.7 billion. Net income available to common
stockholders declined 38 percent, to $403 million, and diluted earnings per
share fell 34 percent, to $2.91.
After strong, double-digit earnings improvement in the early through mid-
90s, growth of our Specialties & Intermediates (S&I) segment lost momentum.
Segment earnings from operations showed little improvement in 1998, due mainly
to the Asian crisis. This greatly affected Wall Street's outlook for our
stock. Although Carbide stock substantially under-performed the major stock
averages, its performance, virtually flat for the year, exceeded the S&P
chemicals index, which fell 8.3 percent.
No one can say for certain when chemical markets will recover. But in the
meantime, Carbiders will be working hard to repeat the dramatic turnaround
they achieved in the early 90s, when Wall Street was similarly pessimistic
about Carbide's prospects going into the low point of the last chemical
business cycle.
Throughout all of our businesses, Carbide people concentrated on increasing
volume and cutting costs. For several years our performance exceeded
everyone's expectations and our stock performance led the Dow industrials.
Although times have been hard lately across the industry, none of us is
satisfied with Carbide's performance in recent years. We are also convinced
that Carbide has the potential, and the means, for substantial improvement.
First, we have all the capacity we need for rapid volume growth. We've added
nearly 6 billion pounds of capacity since 1994, much of it underused last
year. Moreover, it is highly cost-effective capacity based on Carbide's
proprietary process technologies and should make a substantial contribution to
results when operating rates return to normal.
With this extra capacity already in hand, Carbiders know that we need to
outsell and outperform competitors and to convince customers that, in Carbide,
they have the industry's most efficient and reliable supplier.
Intensified Focus on Cost Reduction
In addition to growth potential, we also believe that our intensified focus on
cost reduction should enable Carbide's earnings to begin their recovery even
before the chemical business cycle turns up. Carbide people have exceeded our
cost reduction expectations in virtually every year since we began to
implement our profit improvement initiatives, and they did so again in 1998.
Our cost reduction and profit improvement program is well ahead of schedule
on the way to our $1.1 billion savings target by the year 2000. Our redoubled
efforts to control expenses should see more of those savings reach the bottom
line, and we continue to look for new opportunities to raise the target.
Carbide will be operating in a very tough business environment for the next
year or two. Although we've not abandoned our Year 2000 earnings target of
$4.00 per share, reaching it will be a considerable challenge. And barring
some dramatic upturn in world chemical markets, which few expect to happen
soon, Carbide does not expect to earn the target $4.00 in 1999. But we'll be
in a much better position to make the most of the difficult conditions we
anticipate, having dealt with several issues and projects whose costs were a
further drain on 1998 earnings.
For one, our new ethylene propylene rubber (EPR) facility, which had been
out of service for the year for major engineering modifications, was up and
running at year-end. Given the facility's unique competitive advantages, we
expect EPR sales to grow rapidly and the business to begin generating
operating profits by year-end.
Our Taft olefins facility, which was out of service for much of the second
half of 1998 to complete an expansion and scheduled maintenance, should be
operating for the full year in 1999. And we believe we have the operating
problems behind us that extended startup and curtailed production at our
EQUATE joint venture in Kuwait.
Earnings should also benefit in 1999 from a decline in costs for
implementing Powernet, our information technology initiative under way for the
past several years. In addition to correcting Year 2000 systems problems,
Powernet will improve efficiency and reduce costs by integrating planning,
order entry, procurement, production, distribution and financial systems
across the global enterprise. By year-end 1998, Powernet was operational at
all major domestic locations.
- 2 -
<PAGE>
Our Powernet systems conversion appears to be the most comprehensive such
change attempted by any chemical company. When fully operational, it should
enable us to provide a level of service to customers impossible to achieve
before Powernet and unsurpassed in our industry.
The Next Peak
Looking past the cyclical trough, our improved cost base, along with highly
competitive new facilities, should enable earnings to reach new highs in the
next cyclical peak. The new facilities, including our share of joint ventures,
will increase our capacity about 50 percent compared with the 1995 peak.
Our ethylene and polyethylene projects in Alberta are moving ahead on
target. Our 1.3 billion-pound-capacity UNIPOL polyethylene plant at Prentiss,
Alberta, is scheduled for completion in 2000. With its large size, leading-
edge process technology and access to low-cost ethylene from the 2.8 billion-
pound-capacity facility we are building nearby with NOVA Chemicals Ltd., the
Prentiss plant should be a highly competitive supplier in its North American
target markets.
Construction of our joint venture petrochemical complex in Malaysia is
scheduled for completion in late 2001. We expect the venture, with Petroliam
Nasional Berhad, the national oil company of Malaysia, to be Southeast Asia's
most competitively advantaged producer of a broad range of chemicals, with the
potential for excellent returns when growth resumes in the region.
Prospects for the venture, recently named the OPTIMAL Group, are further
enhanced as other companies have canceled or postponed their own Southeast
Asian chemical projects that would not have had OPTIMAL's feedstock or other
advantages. Given OPTIMAL's strengths and the favorable competitive
environment we expect, we remain confident that our Asian joint venture is the
right one in the right place at the right time.
We are also enthusiastic about the progress of Univation Technologies, LLC,
our polyolefins technology joint venture with Exxon Chemical Company. The
venture has announced that, since its inception in 1997, five companies
worldwide have selected the UNIPOL Process for polyethylene and two for
polypropylene. And some of the polyethylene projects include the venture's
proprietary metallocene catalysis and capacity expansion technologies.
Advanced catalysts such as metallocenes offer polyethylene producers
extraordinary control of the molecular architecture of their products and the
ability to meet the needs of almost any plastics market with the right cost
and combination of toughness and other properties. The ability to tailor
polymers for a range of new uses opens new markets and new opportunities for
growth.
We were pleased in November to have the Court of Appeal of England affirm
the proprietary nature of Union Carbide's "condensing mode" technology, which
is employed in our UNIPOL polyethylene process to significantly boost reactor
performance. The favorable ruling affirms that UNIPOL remains the industry's
leading polyethylene technology.
So despite the hard times in 1998, in many areas we made progress that
should ensure a more productive and profitable future. Yet all of us in the
chemical business and, we believe, most stockholders, understand that progress
means little in our business unless accompanied by progress in safety and
environmental performance.
Carbide registered some gains in 1998 and substantially improved over
performance of the early 90s. But we would have liked to have done better.
For the seventh year in a row, there were no major process incidents at any
of our facilities. While the number of accidental releases matched our lowest
on record, the volume of material in those incidents was unacceptably high.
Tragically, we also suffered a fatality, our first at a U.S. facility in more
than six years, when an employee at our plant in Taft, La., died from nitrogen
asphyxiation.
We are giving high priority under our RESPONSIBLE CARE commitment to
improving our personnel safety performance and reducing the volume and number
of accidental releases.
We take our health, safety and environmental responsibilities seriously and
I am pleased to report that Carbide received an Environmental Partnership
award in 1998 from the U.S. Environmental Protection Agency for our work with
Federal and state environmental protection agencies to clean up a Superfund
site in Marietta, Ohio.
Finally, I would like to note two changes in the composition of our board of
directors.
Joseph E. Geoghan, who was also vice president, general counsel and
secretary, retired at year-end 1998 after a distinguished 41-year career with
Union Carbide. Joe is a supremely capable corporate lawyer whose devoted
service to Carbide and wise counsel to management will be sorely missed.
I am pleased to welcome Paul J. Wilhelm, president of the U.S. Steel Group
of USX Corporation and a USX director, who was elected to the Carbide board,
effective Dec. 1, 1998.
William H. Joyce
February 25, 1999
- 3 -
<PAGE>
Principal Products & Services
Specialties & Intermediates
Union Carbide's Specialty Polymers and Products group manufactures and
markets numerous specialty products. Many of its technologies are targeted for
sharply defined market segments.
Specialty Polymers and Products
- - Specialty Industrial Products produces acrolein and derivatives, important
in a range of products from biocides to animal feed supplements; ethylidene
norbornene (ENB), used in the production of ethylene propylene rubber for
roofing and automotive parts; and specialty ketones, used as solvents and
intermediates in herbicide, drug and vitamin manufacture.
- - Performance Polymers produces POLYOX water-soluble resins, used in personal
care products, drug formulations, inks, textiles and plastics. The business
also produces polyvinyl acetate resins, used in such widely diverse
applications as chewing gum, molded automotive body parts, bathroom fixtures,
business-machine housings, coatings and adhesives.
- - Coating Materials produces, among other products, UCAR solution vinyl
resins, used in coatings for beverage and food cans, bottle caps and closures;
in maintenance coatings used on bridges, storage tanks and oceangoing vessels;
in printing inks for vinyl shower curtains, wallpaper and furniture; and in
magnetic recording tape. Products also include CELLOSIZE hydroxyethyl
cellulose thickeners, used in interior and exterior paints and personal care
products; TONE caprolactone-based materials, used in fabric coatings,
orthopedic cast and splint materials, automotive primers and topcoats and
biodegradable bags for compostable materials; cycloaliphatic epoxides for
electric utility equipment such as insulators and transformers; CYRACURE
products for ultraviolet-cured coatings and inks; and FLEXOL plasticizers,
made from soybean and linseed oils, used to keep plastic products
soft and pliable.
- - Amerchol Corporation, a Union Carbide subsidiary, manufactures and sells a
wide variety of cellulose-, glucose- and lanolin-based materials for shampoos,
skin lotions and other personal care products.
UCAR Emulsion Systems makes products used in interior and exterior house
paints, adhesives and sealants. They include UCAR POLYPHOBE rheology
modifiers, used to thicken coatings, and UCAR latex products, used as binders
and to improve exterior durability, scrub and stain resistance and adhesion.
Specialty Polyolefins manufactures a variety of performance polyolefin
products marketed worldwide. Chief among these are polyolefin-based compounds
for high-performance insulation, semiconductives and jacketing systems for
power distribution, telecommunications and flame-retardant wire and cable.
Other Specialty Polyolefins products are used in adhesives, laminating film
and flexible tubing.
UNIPOL Systems develops and licenses UNIPOL Process technology - the
industry's most versatile method of manufacturing polyethylene and
polypropylene - for producers worldwide. The business also develops new
process technology for the manufacture of other olefins-based polymers, such
as ethylene propylene rubber, which it produces and markets to rubber products
manufacturers, and sells catalysts to UNIPOL Process licensees worldwide.
Licensing of the UNIPOL PE and PP Processes, as well as the development of new
polyethylene technologies, such as metallocene catalysts and Super Condensed
Mode Technology, is handled through Univation Technologies, LLC, a joint
venture of Union Carbide and Exxon Chemical Company.
Industrial Performance Chemicals manufactures and sells a broad range of
ethylene oxide derivatives and formulated glycol products for specialty
applications. These include CARBOWAX polyethylene glycols, nontoxic,
biodegradable, water-soluble products with a wide range of applications in the
pharmaceutical, personal care, household, textile-processing, wood
preservation, ceramic and industrial markets; ethanolamines, for detergents,
personal care products such as bath soap, agricultural products and natural
gas conditioning and refining; ethyleneamines, for fuel, lubricant and motor-
oil additives, adhesives, corrosion inhibitors, cleaning materials and many
industrial uses; TRITON and TERGITOL specialty and commodity surfactants, for
use in institutional, industrial and household cleaning products; formulations
for personal care products, and in industrial processes for textiles, paper,
paints and coatings and many other products; UCON fluids and lubricants, for
use in brake fluids and fire-resistant hydraulic fluids, used in heavy-duty
machinery and off-highway equipment and in automotive air conditioning systems
with non-ozone-depleting coolants; alkyl alkanolamines for water-treating
chemicals, surfactants, fabric softeners, pharmaceuticals, and natural-gas and
boiler-water conditioning; and gas-treating
- 4 -
<PAGE>
chemicals, including SELEXOL and UCARSOL solvents, used to lower corrosion
rates and increase efficiency in removing carbon dioxide and sulfur
derivatives from natural and refinery gases. Formulated glycol products
include UCAR aircraft and runway deicing and anti-icing fluids, which remove
or prevent formation of ice, snow and frost on aircraft and runway surfaces;
UCARTHERM heat-transfer fluids, which help to distribute heat and cooling
effects and inhibit corrosion in heating, ventilation and refrigeration
systems; and NORKOOL industrial products, used as coolants, corrosion
inhibitors and cleaners in gas compressor stations, generators and large
engines.
Solvents, Intermediates and Monomers supplies one of the chemical industry's
broadest product lines to the paints and coatings markets and also serves the
cosmetics and personal care, adhesives, household and institutional products,
pharmaceuticals and agricultural markets. Products include oxo aldehydes,
acids and alcohols, used as chemical intermediates and industrial solvents and
in herbicides, plasticizers, paint dryers, jet-turbine lubricants, lube oil
additives, perfumes and food and feed preservatives; esters, which serve as
solvents in industrial coatings and printing inks and in the manufacturing
processes for pharmaceuticals and polymers; CARBITOL and CELLOSOLVE solvents,
used in high-technology coatings applications such as primers and industrial
finishes for the automotive, packaging and furniture markets, as jet-fuel
additives and grease cutters for household and industrial cleaners and in UCON
and EMKADIXOL brake fluids; ketones, including methyl isobutyl ketone, used as
solvents for vinyl resins, industrial lacquers and pharmaceuticals and as
intermediates for dyes and rubbers chemicals; monomers, such as vinyl acetate,
and acrylic esters, widely used in the production of latex paints, paper
coatings, adhesives, textile binders and floor and shoe polishes; alcohols,
such as ethanol and isopropanol, used as solvents and intermediates in
materials used to produce coatings, inks, herbicides, petroleum additives and
synthetic lubricants, and also widely used as solvents for personal care
products such as perfumes, deodorants and hair sprays, and in the preparation
of mouthwashes, detergents, disinfectants and polishes; and the UNICARB
System, a pollution-reducing technology that can cut costs and reduce volatile
organic compounds (VOCs) in spray-applied coatings by up to 80 percent.
Basic Chemicals & Polymers
Union Carbide's Hydrocarbons group manufactures about two thirds of the
company's ethylene requirements and almost one third of its propylene
requirements. Ethylene and propylene are the key raw materials for many of
Union Carbide's businesses.
Union Carbide is the world's leading producer of ethylene oxide and ethylene
glycol, supplied by the Ethylene Oxide/Glycol group. Ethylene oxide is a
chemical intermediate primarily used in the manufacture of ethylene glycol,
polyethylene glycol, glycol ethers, ethanolamines, surfactants and other
performance chemicals and polymers; di- and triethylene glycol, used in
natural gas-drying and other moisture-removing applications and as softeners
for paper, cork, glue and bookbinding; and tetraethylene glycol, for removing
impurities from raw materials used in making plastics, synthetic rubber and
dyes. Ethylene glycol is used extensively in the production of polyester
fiber, resin and film, automotive antifreeze and engine coolants, and aircraft
anti-icing and deicing fluids.
Union Carbide is a leading manufacturer of polyethylene, the world's most
widely used plastic. UNIPOL Polymers produces and markets linear low-, medium-
and high-density polyethylenes, used in high-volume applications such as
housewares, milk and water bottles, grocery sacks, trash bags, packaging,
water and gas pipe, and FLEXOMER very low-density resins, used as an impact
modifier in other polymers and to produce flexible hose and tubing, frozen-
food bags and stretch wrap.
Carbide's Polypropylene Resins business manufactures and sells polypropylene,
one of the world's largest-volume, fastest-growing plastics. End-use
applications include carpeting and upholstery, apparel, packaging films, food
containers such as dairy products cups, housewares and appliances, heavy-duty
tapes and ropes, and automobile interior trim and panels.
For a summary of business and geographic segment data, see Note 6 to the
consolidated financial statements and Management's Discussion & Analysis,
beginning on page 7.
For a summary of the corporation's joint ventures, see Note 9 to the
consolidated financial statements and Management's Discussion & Analysis on
pages 10 through 13.
- 5 -
<PAGE>
Chemical Glossary
Alcohols - Chemicals, such as butanol, ethanol and isopropanol, that serve as
solvents and intermediates for the manufacture of personal care products,
pharmaceuticals, paints and coatings, herbicides, petroleum additives and
synthetic lubricants.
Biocides - Chemicals used to control or inhibit the growth of bacteria, algae,
fungi and mold.
Chemical Intermediates - Chemicals formed or introduced as an intermediate
step between the starting material and the final product in chemical
processing. Examples are:
- - Acrolein, used to make biocides, animal feed supplements and coatings
resins.
- - Esters, made by reacting alcohols and acids, used primarily as solvents in
paints and coatings, ink and pharmaceuticals.
- - Ethanolamines, reaction products of ethylene oxide and ammonia, used in
detergents and other cleaning materials, in personal care products,
agricultural products and for removal of sulfur and other impurities from
natural gases.
- - Ethyleneamines, made from ethylene oxide or ethylene dichloride, used in
many industrial products, including fuel, lubricant and motor oil additives,
adhesives, wet-strength paper resins and paints.
Ethylene Glycol - Chemical made from ethylene oxide and water, used to make
polyester resins, film and fiber, automotive antifreeze and engine coolants,
and aircraft deicing/ anti-icing fluids.
Ethylene Oxide - Chemical made from ethylene and oxygen. It combines with
other chemicals to produce a wide range of products, such as ethylene glycol,
water-soluble polymers for personal care products and surfactants for
detergents and cleaning products.
Glycol Ethers - Solvents used in higher-technology coating applications, such
as finishes for the automotive market, and in noncoating applications, such as
hard-surface cleaners, military jet fuels and brake fluids.
Ketones - Chemicals, such as acetone, used as solvents for resins, lacquers
and pharmaceuticals, and as intermediates for resins, dyes and rubber
chemicals.
Monomer - Chemical that can be converted into a polymer. For example, ethylene
is a monomer that is made into polyethylene.
Olefins - Generic name for unsaturated hydrocarbons made from components of
petroleum or natural gas. Examples are:
- - Ethylene and Propylene, chemicals derived from natural gases or petroleum
components, and the starting materials from which most of Union Carbide's
chemicals and polymers are made.
Oxo Alcohols, Aldehydes and Acids - Chemicals Carbide manufactures via its LP
OXO Process, such as butanol and propionic acid, which are used as chemical
intermediates and industrial solvents.
Polymers - Chains or networks of linked monomers. Plastics are polymers.
Examples are:
- - Polyethylene, the world's most widely used plastic, made by the reaction of
ethylene and, optionally, other olefins. It is used in hundreds of consumer
and industrial products, including grocery and trash bags, waste containers,
housewares, bottles, drums, food packaging and wire and cable insulation and
jacketing. Union Carbide produces most of its polyethylene via UNIPOL Process
technology, developed by the corporation in the early 1970s, which is licensed
to polyethylene makers around the world.
- - Polypropylene, a fast-growing, high-volume plastic made from the reaction of
propylene and, optionally, other olefins. The broad range of applications
includes lawn furniture, carpet fiber and backing, food containers, toys,
appliance housings and binding materials. Much of Union Carbide's production
is via the UNIPOL PP Process, also licensed around the world.
Solvents - Chemicals used to dissolve or absorb other chemicals. For example,
ketones, esters, alcohols and glycol ethers are effective solvents commonly
used in paints and coatings.
Surfactants - Chemicals that increase the cleaning and wetting properties of
household and industrial cleaners and detergents. They are used also in
textile and paper processing, paints, agricultural products, cosmetics,
shampoos and other personal care products. Carbide makes most of its
surfactants from ethylene oxide and alcohols.
- 6 -
<PAGE>
Management's Discussion & Analysis
Results of Operations
<TABLE>
<CAPTION>
Millions of dollars (except per share figures),
for the year ended December 31, 1998 1997 1996
<S> <C> <C> <C>
Net sales $5,659 $6,502 $6,106
Operating profit(a) 803 1,045 921
Interest expense 114 79 76
Income before provision for income taxes 689 966 845
Income before cumulative effect of change
in accounting principle 403 676 593
Net income 403 659 593
Net income - common stockholders 403 652 583
Per share - basic
Income before cumulative effect of change
in accounting principle $ 2.98 $ 5.02 $ 4.43
Net income - common stockholders 2.98 4.89 4.43
Per share - diluted
Income before cumulative effect of change
in accounting principle 2.91 4.53 3.90
Net income - common stockholders 2.91 4.41 3.90
<FN>
(a) See Note 6 to the financial statements for a discussion of the special
items included in operating profit.
</FN>
</TABLE>
Union Carbide operates in two business segments. Specialties & Intermediates
(S&I) converts basic and intermediate chemicals into a diverse portfolio of
chemicals and polymers serving industrial customers in many markets. This
segment also provides technology services, including licensing, to the oil and
petrochemicals industries. Basic Chemicals & Polymers (BC&P) converts
hydrocarbon feedstocks, principally liquefied petroleum gas and naphtha, into
ethylene or propylene used to manufacture polyethylene, polypropylene,
ethylene oxide and ethylene glycol for sale to third-party customers, as well
as ethylene, propylene, ethylene oxide and ethylene glycol for consumption by
the S&I segment. In comparison to those of S&I, the revenues and operating
profit of BC&P tend to be more cyclical and very sensitive to a number of
external variables, including overall economic demand, hydrocarbon feedstock
costs, industry capacity increases and plant operating rates.
In addition to its business segments, the corporation's Other segment
includes its noncore operations and financial transactions other than
derivatives designated as hedges, which are included in the same segment as
the item being hedged.
Summary
1998 Compared with 1997
The corporation's 1998 earnings reflected a difficult environment for the
chemical industry coupled with the continuing decline of the Asian economy. On
a consolidated basis, net sales declined 13.0 percent as the result of a 10.1
percent decline in average selling prices and a 3.1 percent decline in
customer volume. Average customer selling prices dropped 22.3 percent in the
BC&P segment, reflecting a deteriorating supply/demand balance in
polyethylene, polypropylene and ethylene oxide/glycol. Average selling prices
in S&I dropped 5.2 percent, due in part to weakness in Asian markets. Volumes
declined in both segments as a result of extended plant shutdowns associated
with planned multiyear olefins unit turnarounds and expansion, distribution
disruptions in the U.S. Gulf Coast region early in 1998 and declining Asian
demand. Fixed cost per pound of products sold (fixed manufacturing and
distribution costs, plus research and development and selling, administration
and other expenses, divided by customer volume) increased from a decade low of
10.8 cents in the prior year to 11.5 cents in the current year, primarily the
result of lower volumes and higher fixed costs related to the extended plant
shutdowns and the implementation of the corporation's information technology
infrastructure system in 1998.
Partnership income declined $100 million due to the recognition of $53
million of before-tax ($38 million after-tax) losses in the third quarter
associated with Aspell Polymeres SNC, the corporation's joint venture in
France; a decline in UOP LLC's (UOP) earnings, related to reduced oil and
petrochemical projects within some of the oil markets in Asia, Russia and the
Middle East; and reduced Petromont and Company, Limited Partnership,
(Petromont) earnings due to declining polyethylene prices. Operating profit
benefited from a $189 million before-tax ($115 after-tax) net gain from two
favorable litigation settlements related to the UNIPOL Systems business. Net
income was reduced by a $69 million decline in earnings of the corporation's
corporate investments carried at equity caused by declining basic chemical
prices in Asia and Europe, as well as startup difficulties experienced by
EQUATE Petrochemical Company (EQUATE).
- 7 -
<PAGE>
1997 Compared with 1996
On a consolidated basis, average selling prices increased 1.2 percent and
customer volume increased 5.1 percent, while fixed cost per pound sold
declined to 10.8 cents, the lowest of the decade. Average selling prices
benefited from increased ethylene glycol prices in the first nine months of
1997 and improved polyethylene pricing in the first half of 1997, partly
offset by the impact of a stronger U.S. dollar against foreign currencies and
increased competition in pricing, primarily in the solvents, intermediates and
monomers (SIM) product lines. Volume increases resulted from stronger demand
in both segments, partially offset by rail distribution problems in the U.S.
Gulf Coast region, particularly toward the last half of 1997. BC&P's customer
unit variable margin (sales less variable manufacturing and distribution costs
divided by customer volume) benefited from a reduction in raw material costs
from prior year levels. This was somewhat offset by higher raw material costs
for S&I products, most significantly ethylene oxide, transferred from the BC&P
segment at approximate market value, and higher energy costs. Partnership
income remained strong, excluding certain costs, principally research and
development, assumed by the corporation's technology venture, Univation
Technologies, LLC (Univation). Additionally, the improved earnings from our
equity companies represented increases in earnings of Polimeri Europa S.r.l.
(Polimeri Europa) partially offset by increased preoperating expenses
associated with EQUATE.
In 1996 the corporation's earnings were adversely impacted by declines in
selling prices, particularly for ethylene glycol, polyethylene and vinyl
acetate monomer, and by high raw material and energy costs. These factors had
a significant impact on BC&P's operating profit and limited S&I operating
profit growth. Sales volumes experienced their largest increase in the past
decade, while productivity, as measured by fixed cost per pound of products
sold, also improved. Partnerships reported strong profits, while equity
company results declined due to the preoperating costs of EQUATE and increased
raw material costs for Polimeri Europa.
Interest Expense
Interest expense increased from $79 million in 1997 to $114 million in 1998,
due to an increase in debt levels from 1997 to 1998 coupled with a reduction
in capitalized interest associated with the corporation's capital program.
Interest expense increased $3 million, from $76 million in 1996 to $79
million in 1997. This increase reflected the effect of a full year's interest
expense associated with the 7.75 percent debentures due in 2096 and an
increase in short-term debt, partially offset by an increase in capitalized
interest associated with the corporation's capital program.
Provision for Income Taxes
The effective tax rate was 31.5 percent in 1998 compared with 28.9 percent
and 27.9 percent in 1997 and 1996, respectively. The corporation's effective
tax rate increased in 1998 as a result of higher tax rates associated with the
corporation's two favorable litigation settlements related to the UNIPOL
Systems business. Excluding these settlements, the effective tax rate would
have been 28.6 percent. The corporation's effective tax rate is less than the
statutory Federal income tax rate principally because of research and
experimentation and foreign sales corporation tax credits.
Corporate Matters
Interest Rate and Currency Risk Management
The corporation selectively uses financial instruments to manage its
exposure to market risk related to changes in foreign currency exchange rates
and interest rates. The corporation does not hold derivative financial
instruments for trading purposes. See Notes 1 and 10 to the consolidated
financial statements for more information about these instruments.
At Dec. 31, 1998, the corporation held open foreign currency forward
contracts and purchased options with net notional amounts of $419 million and
an unrecognized net loss of $1 million ($185 million and an unrecognized net
loss of $2 million, respectively, at Dec. 31, 1997).
- 8 -
<PAGE>
The corporation used sensitivity analysis to evaluate the potential effect
of movements in foreign currency exchange rates and interest rates on the
consolidated financial statements. Based on this analysis, a hypothetical 10
percent weakening in the U.S. dollar across all currencies would have resulted
in a $7 million net loss at Dec. 31, 1998 (no income statement effect at Dec.
31, 1997). Alternatively, a hypothetical 10 percent strengthening in the U.S.
dollar across all currencies would have resulted in a $10 million net loss at
Dec. 31, 1998 ($3 million net gain at Dec. 31, 1997). These gains and losses
would generally be offset by fluctuations in underlying currency transactions.
The corporation held long-term debt of $1,814 million, of which $125 million
was variable-rate debt, at Dec. 31, 1998 ($1,463 million and $15 million,
respectively, at Dec. 31, 1997). At Dec. 31, 1998 and 1997, a hypothetical 10
percent increase or decrease in market interest rates would not have
materially affected interest expense or cash flows related to variable-rate
debt. A 10 percent increase in market interest rates would have decreased the
net fair market value of fixed-rate debt instruments by $96 million at Dec.
31, 1998 ($94 million at Dec. 31, 1997), and a 10 percent decrease in market
interest rates would have increased the net fair market value of fixed-rate
debt instruments by $108 million at Dec. 31, 1998 and 1997.
Foreign Operations
A portion of the financial results of each of the corporation's segments is
derived from activities conducted outside the U.S. and denominated in
currencies other than the U.S. dollar. Because the financial results of the
corporation are reported in U.S. dollars, they are affected by changes in the
value of the various foreign currencies in relation to the U.S. dollar.
Exchange rate risks are lessened, however, by the diversity of the
corporation's foreign operations and the fact that international activities
are not concentrated in any single non-U.S. currency. In addition, the effects
of a strengthening U.S. dollar could cause pricing pressures on worldwide
chemical markets that could result in declines in the corporation's sales
volumes.
The corporation is subject to other risks customarily associated with doing
business in foreign countries, including local labor and economic conditions,
unfavorable changes in foreign tax laws and possible controls on repatriation
of earnings and capital. Future losses associated with such risks, if any,
cannot be predicted.
European Monetary Union
On Jan. 1, 1999, eleven European Union member countries established fixed
conversion rates among their existing currencies (legacy currencies) and one
common currency, the euro. The euro is now trading on currency exchanges and
can be used in business transactions. Beginning in January 2002, euro-
denominated bills and coins will be issued, and legacy currencies will be
withdrawn from circulation. The corporation's European and other international
financial systems and processes were euro-ready on Jan. 1, 1999, and the
corporation anticipates that its domestic financial systems and processes will
be euro-ready by the end of 1999. The corporation is still in the process of
evaluating the potential effects of the euro conversion, and does not expect
the euro to have a material effect on its industry segment businesses,
consolidated results of operations or financial condition.
Outlook-Corporate
In 1997, the corporation adopted an incentive plan designed to grant awards
to a limited number of senior managers if the corporation were to achieve
$4.00 or more diluted earnings per share performance during 1999 and 2000.
While no actual level of earnings can be predicted, it is not likely that the
goal of $4.00 per diluted share is attainable in 1999. There is also
increasing uncertainty as to whether the goal is attainable in 2000.
The corporation regularly reviews its assets with the objective of
maximizing the deployment of resources in core operations. In this regard, UCC
continues to consider strategies and/or transactions with respect to certain
noncore assets and other assets not essential to the operation of the business
that, if implemented, could result in material nonrecurring gains or losses.
(Included on pages 8 and 9 are four bar charts which provide the following
data:
(1) Fixed Cost per Pound - cents/pound
Specialties & Basic Chemicals & Consolidated
Intermediates Polymers Total
1991 20.6 9.2 15.5
1992 19.0 7.7 13.8
1993 17.5 7.5 12.9
1994 15.0 7.0 11.4
1995 15.8 7.2 11.9
1996 14.7 6.7 11.0
1997 14.2 6.8 10.8
1998 14.7 7.5 11.5
(2) Employee Productivity
Number of Thousands of Pounds
Employees Per Employee
1991 16,705 665
1992 15,075 794
1993 13,051 916
1994 12,004 1,064
1995 11,521 1,128
1996 11,745 1,230
1997 11,813 1,286
1998 11,627 1,266
(3) Volume - millions of pounds
Specialties & Basic Chemicals & Consolidated
Intermediates Polymers Total
1991 6,144 4,958 11,102
1992 6,458 5,510 11,968
1993 6,454 5,502 11,956
1994 7,093 5,680 12,773
1995 7,112 5,878 12,990
1996 7,743 6,706 14,449
1997 8,264 6,923 15,187
1998 8,101 6,614 14,715
(4) Unit Variable Margin - cents/pounds
Specialties &
Intermediates
Including the
OrganoSilcon
Specialties & business sold Basic Chemicals &
Intermediates in 1993 Polymers
1991 24.5 27.1 11.8
1992 25.0 27.8 7.7
1993 25.7 27.2 6.6
1994 24.6 - 8.5
1995 26.8 - 16.4
1996 24.7 - 11.0
1997 22.9 - 13.9
1998 24.3 - 9.6 )
- 9 -
<PAGE>
Specialties & Intermediates
<TABLE>
<CAPTION>
Millions of dollars, except as indicated 1998 1997 1996
<S> <C> <C> <C>
Segment revenues $4,139 $4,453 $4,286
Cost of sales, exclusive of depreciation
and amortization 3,007 3,358 3,131
Gross margin 1,132 1,095 1,155
Depreciation and amortization 247 214 188
Partnership income 27 116 134
Operating profit $ 833 $ 667 $ 742
Income from corporate investments carried at equity $ 1 $ 6 $ 9
Customer volume (millions of pounds) 8,101 8,264 7,743
Unit variable margin (cents/pound) 24.3 22.9 24.7
Fixed cost per pound of products sold (cents/pound) 14.7 14.2 14.7
Capital expenditures $ 438 $ 458 $ 522
Investments, advances and acquisitions 42 50 38
Segment assets 4,493 4,146 3,892
</TABLE>
1998 Compared with 1997
During 1998, S&I segment revenues declined 7.1 percent on a 5.2 percent
decline in average selling prices and a 2.0 percent decline in volume. Average
selling prices declined for almost all of S&I's products as a result of
worldwide competitive pricing pressure, particularly on sales in weakening
Asian markets. Volume decreased most significantly in the SIM product lines,
due largely to reduced Asian demand. This decline was somewhat offset by
increased domestic shipments of industrial performance chemicals and UCAR
emulsion systems products.
The S&I unit variable margin increased principally due to declines in raw
material costs. However, fixed cost per pound of products sold increased over
1997 reflecting the combined effect of reduced volumes and increased fixed
costs associated with the extended plant shutdowns and costs associated with
the corporation's information technology project. Increased depreciation and
amortization are principally the result of depreciation associated with
capital projects completed during 1998.
Included in Operating profit for 1998 were two favorable litigation
settlements related to the UNIPOL Systems business representing a total of
$189 million before-tax ($115 after-tax), which occurred in the second half of
the year.
1997 Compared with 1996
The increase in sales of 3.9 percent was the result of a 6.7 percent
increase in volume partially offset by lower average selling prices. Average
selling price reductions were due in part to a strengthening of the U.S.
dollar against currencies such as the German Deutschemark and the Japanese
yen, as well as by increased competition in SIM product lines. Additionally,
shipments for this segment's products were negatively affected by rail
problems in the U.S. Gulf Coast region in the second half of 1997. Unit
variable margin declines resulted from an increase in the cost of raw
materials and energy. A decline in research and development expenditures was
mainly attributable to costs assumed by the corporation's technology venture,
Univation. Increased depreciation and amortization expense reflected the
associated depreciation of projects completed in 1997. Included in 1997's
Operating profit is a charge of $12 million for the write-off of certain
equipment associated with the corporation's ethylene propylene rubber (EPR)
project.
Specialties & Intermediates Joint Ventures
The most significant joint ventures included in the S&I segment are:
UOP LLC (UOP) - a domestic joint venture, accounted for as a partnership, with
AlliedSignal Inc. for the worldwide supply of process technology, catalysts,
molecular sieves and adsorbents to the petrochemical and gas-processing
industries. In addition to its domestic operations, UOP has facilities in
Germany, Italy and the United Kingdom.
- 10 -
<PAGE>
Joint Ventures - Specialties & Intermediates
<TABLE>
<CAPTION>
UCC's
Combined Proportionate Share(a)
Millions of dollars 1998 1997 1996 1998 1997 1996
<S> <C> <C> <C> <C> <C> <C>
Net sales $2,060 $2,246 $2,238 $1,032 $1,109 $1,082
Cost of sales 1,345 1,395 1,456 663 567 680
Depreciation 119 90 86 54 51 39
Income from operations 231 340 322 122 175 187
Interest expense 43 42 31 16 15 12
Provision for income taxes 48 76 63 24 38 32
Net Income $ 141 $ 224 $ 227 $ 81(b) $ 122 $ 143
UCC share of dividends & distributions $ 105 $ 107 $ 101
Total assets $1,981 $1,837 $1,769 $ 881 $ 820 $ 757
Total third-party debt 616 588 577 268 249 212
Net Assets $ 474 $ 451 $ 561 $ 298 $ 277 $ 263
<FN>
(a) Includes U.S. Generally Accepted Accounting Principles adjustments made
by the corporation, such as goodwill and related amortization, and
adjustments needed to conform the accounting policies of the joint
ventures to those of UCC.
(b) Excluding the $53 million loss associated with Aspell in the third
quarter.
</FN>
</TABLE>
Nippon Unicar Company Limited (NUC) - a Japanese corporate joint venture with
Tonen Chemical Corporation to produce polyethylene and specialty polyethylene
compounds and specialty silicone products.
Aspell Polymeres SNC (Aspell) - a French partnership with Elf Atochem S.A., a
subsidiary of Elf Aquitaine, to produce polyethylene and specialty
polyethylene compounds.
World Ethanol Company (World Ethanol)- a domestic partnership with Archer
Daniels Midland Company, to supply ethanol worldwide.
Univation Technologies, LLC (Univation) - a domestic joint venture, accounted
for as a partnership, with Exxon Chemical Company, a division of Exxon
Corporation, for the licensing of polyethylene technology and research,
development and commercialization of process technology and single site and
other advanced catalysts for the production of polyethylene. The venture is
also the sales agent for licensing of Union Carbide's UNIPOL technology.
Asian Acetyls Co., Ltd. (ASACCO) - a South Korean corporate joint venture with
BP Chemicals and Samsung Fine Chemicals Company to produce vinyl acetate
monomers used in the production of emulsion resins by customers in the
coatings and adhesives industries.
1998 Compared with 1997
The corporation's share of S&I partnership income decreased $89 million from
1997. The decrease is primarily related to the recognition of $53 million of
losses associated with Aspell in the third quarter of 1998. Additionally, 1998
included declining earnings from UOP, primarily related to unfavorable market
conditions in Asia, Russia and the Middle East, and a full twelve months of
operating costs, principally related to research and development, associated
with Univation, compared with only eight months in 1997. Income from the
corporation's S&I corporate investments carried at equity decreased $5 million
principally due to reduced earnings at NUC.
1997 Compared with 1996
The corporation's share of S&I partnership income decreased $18 million in
1997 from the prior year. The decline resulted from the assumption of certain
costs, principally research and development, by Univation, and decreased
earnings of World Ethanol, mainly attributable to lower prices and volumes
caused by a different mix of ethanol sales in 1997. Income from corporate
investments carried at equity decreased $3 million principally the result of
reduced earnings at NUC.
Outlook - Specialties & Intermediates
Looking ahead to the first quarter of 1999, the corporation anticipates that
this segment will continue to be negatively affected by weak pricing,
particularly in Asia. This effect may be mitigated by seasonal improvement in
volumes, continued low raw material cost and improved licensing results.
Results from the corporation's S&I joint ventures will continue to be affected
by declines in UOP's earnings due to continuing difficulties in Asia, Russia
and the Middle East.
- 11 -
<PAGE>
Basic Chemicals & Polymers
<TABLE>
<CAPTION>
Millions of dollars, except as indicated 1998 1997 1996
<S> <C> <C> <C>
Segment revenues $1,802 $2,420 $2,125
Cost of sales, exclusive of depreciation
and amortization 1,550 1,816 1,739
Gross margin 252 604 386
Depreciation and amortization 142 126 124
Partnership income 6 17 10
Operating profit $ 20 $ 386 $ 162
(Loss) from corporate investments carried at equity $ (67) $ (3) $ (25)
Customer volume (millions of pounds) 6,614 6,923 6,706
Unit variable margin (cents/pound) 9.6 13.9 11.0
Fixed cost per pound of products sold (cents/pound) 7.5 6.8 6.7
Capital expenditures $ 344 $ 297 $ 199
Investments, advances and acquisitions 69 18 225
Segment assets 2,596 2,540 2,328
</TABLE>
1998 Compared with 1997
During 1998, the BC&P segment was negatively affected by overall
deterioration of the supply/demand balance for basic chemicals. Average
customer selling prices declined 22.3 percent. Prices for ethylene glycol,
polyethylene and polypropylene declined throughout 1998 to levels below those
of the prior cyclical trough in 1993. Customer volume declined 4.5 percent, in
part due to distribution disruptions in the first half of the year and
extended ethylene plant shutdowns for multiyear maintenance, at the
corporation's Taft, La., and Texas City, Tex., facilities, and an expansion,
at Taft, La., all in the second half of the year.
Unit variable margin declined as average selling prices fell at a faster
rate than the cost of raw materials. The increase in this segment's fixed cost
per pound of products sold reflects the combined effect of reduced customer
volumes and higher costs associated with the extended plant shutdowns and the
implementation of the corporation's information technology infrastructure
system. The increase in depreciation and amortization is the result of
depreciation associated with capital projects completed during 1998.
1997 Compared with 1996
Increases in sales resulted from a 9.2 percent increase in average customer
selling prices coupled with a 3.2 percent increase in customer volume. The
increase in average customer selling prices reflected the strong increase in
ethylene glycol pricing during the first three quarters of 1997 and improved
polyethylene pricing throughout the first half of the year. In addition, this
segment's cost of sales and unit variable margin benefited from reduced
average feedstock costs in 1997 versus 1996.
Basic Chemicals & Polymers Joint Ventures
The most significant joint ventures included in the BC&P segment are:
Alberta & Orient Glycol Company Limited (A&OG) - a Canadian corporate joint
venture with Mitsui & Co., Ltd., Japan, and Far Eastern Textile Ltd., Taiwan,
to produce ethylene glycol.
EQUATE Petrochemical Company K.S.C. (EQUATE) - a corporate joint venture in
Kuwait with Petrochemical Industries Company and Boubyan Petrochemical Company
to manufacture ethylene, polyethylene and ethylene glycol.
Petromont and Company, Limited Partnership (Petromont) - a Canadian
partnership with Ethylec Inc. to produce olefins and polyethylene resins.
Polimeri Europa S.r.l. (Polimeri Europa) - an Italian corporate joint venture
with EniChem S.p.A. to produce olefins and polyethylene resins. This joint
venture also has facilities in France and Germany.
1998 Compared with 1997
BC&P's partnership income declined $11 million from 1997 due to the decline
in earnings of Petromont resulting from declining worldwide average chemical
selling prices. Lower earnings for this segment's corporate investments
carried at equity in 1998 are mainly attributable to declining worldwide
average basic chemical selling prices particularly in Asia and Europe.
Additionally, EQUATE experienced startup difficulties during its first full
year of operations, including an interruption in the supply of electric power
from a government-owned power station.
Depreciation within the joint ventures more than doubled in 1998 due to the
startup of the EQUATE facility.
- 12 -
<PAGE>
Joint Ventures - Basic Chemicals & Polymers
<TABLE>
<CAPTION>
UCC's Proportionate
Combined Share(a)
Millions of dollars 1998 1997 1996 1998 1997 1996
<S> <C> <C> <C> <C> <C> <C>
Net sales $1,996 $2,078 $1,930 $ 984 $1,038 $ 965
Cost of sales 1,597 1,661 1,575 790 855 798
Depreciation 253 102 126 113 46 51
Income from operations 50 219 96 36 68 30
Interest expense 206 70 67 86 35 34
Provision for income taxes 27 49 20 12 18 11
Net Income (loss) $ (182) $ 100 $ 9 $ (61) $ 14 $ (15)
UCC share of dividends & distributions $ 18 $ 19 $ 40
Total assets $3,724 $3,980 $3,536 $1,725 $1,797 $1,650
Total third-party debt 1,474 1,595 1,197 691 744 561
Net Assets $ 639 $ 985 $ 972 $ 326 $ 413 $ 432
<FN>
(a) Includes U.S. Generally Accepted Accounting Principles adjustments made by
the corporation, such as goodwill and related amortization, and
adjustments needed to conform the accounting policies of the joint
ventures to those of UCC.
</FN>
</TABLE>
1997 Compared with 1996
The corporation's share of the net income of BC&P partnerships increased $7
million from 1996 to 1997, due to significant improvement in Petromont
earnings. The corporation's share of loss from corporate investments carried
at equity declined $22 million from a loss of $25 million in 1996 to a loss of
$3 million in 1997, as the result of improved earnings of Polimeri Europa
partially offset by increased preoperating expenses of EQUATE. Strong results
of our polyolefins partnerships in 1997 were the result of increases in
worldwide polymer pricing over the prior year.
Joint Venture Commitments
EQUATE commenced operations in the fourth quarter of 1997. Preoperating
losses of $43 million for development of this world-scale petrochemical
complex were recognized by the corporation in 1997 ($23 million in 1996). The
corporation has severally guaranteed 45 percent (approximately $562 million at
Dec. 31, 1998) of EQUATE'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 has also severally guaranteed certain sales volume targets until
EQUATE's sales capabilities are proved. In addition, the corporation has
pledged its shares in EQUATE as security for EQUATE's debt. The corporation
has political risk insurance coverage for its equity investment and, through
March 31, 1999, substantially all of its guarantee of EQUATE's debt. The
corporation is in the process of extending the political risk insurance for
its debt guarantee through March 31, 2001.
Outlook - Basic Chemicals & Polymers
The corporation anticipates that adverse market conditions will continue
throughout 1999. While the corporation announced price increases in ethylene,
polyethylene, polypropylene and ethylene glycol in the first quarter of 1999,
it is too early to determine if the increases will be accepted. Variable
margins should remain relatively flat, with any price increases offset by raw
material cost increases. The corporation anticipates that operating profit
will benefit from the absence of costs associated with the Taft, La., and
Texas City, Tex., olefins plant turnarounds and the Taft expansion, completed
in 1998. The corporation's outlook for its BC&P joint ventures is anticipated
to reflect the same market conditions as those of the corporation's BC&P
segment. While EQUATE is anticipated to operate at its nameplate capacity,
resultant gains are likely to be offset by decreases at Polimeri Europa due to
lower European polyethylene pricing.
Other
<TABLE>
<CAPTION>
Millions of dollars
for the year ended December 31, 1998 1997 1996
<S> <C> <C> <C>
Operating profit (loss) $(50) $ (8) $ 17
</TABLE>
The Other segment includes the operating profit (loss) of noncore activities
and certain financial transactions. Included in 1998 were the net effects of
gains and losses from the resolution of certain legal obligations related to
discontinued businesses, the writedown of a long-term available-for-sale
security and a reclassification, to a discontinued business, of an
environmental accrual.
Costs Relating to Protection of the Environment
Worldwide costs relating to environmental protection continue to be
significant, due primarily to stringent laws and regulations and to the
corporation's commitment to industry
- 13 -
<PAGE>
initiatives such as RESPONSIBLE CARE, as well as to its own internal
standards. In 1998, worldwide 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, totaled $91 million. Expenses in 1997 and 1996 were $100
million and $110 million, respectively. In recent years, such environmental
expenses have decreased as the corporation has made progress toward completing
major remediation projects. In addition, worldwide capital expenditures
relating to environmental protection, including those for new capacity and
cost reduction and replacement, in 1998 totaled $57 million, compared with $68
million and $43 million in 1997 and 1996, respectively.
The corporation, like other companies in the U.S., periodically receives
notices from the U.S. Environmental Protection Agency and from state
environmental agencies, as well as claims from other companies, alleging that
the corporation is a potentially responsible party (PRP) under the
Comprehensive Environmental Response, Compensation and Liability Act and
equivalent state laws (hereafter referred to collectively as Superfund) for
past and future cleanup costs at hazardous waste sites at which the
corporation is alleged to have disposed of, or arranged for treatment or
disposal of, hazardous substances. The corporation is also undertaking
environmental investigation and remediation projects at hazardous waste sites
located on property currently and formerly owned by the corporation pursuant
to Superfund, as well as to the Resource Conservation and Recovery Act and
equivalent state laws.
There are approximately 118 hazardous waste sites at which management
believes it is probable or reasonably possible that the corporation will incur
liability for investigation and/or remediation costs. The corporation has
established accruals for those hazardous waste sites where it is probable that
a loss has been incurred and the amount of the loss can reasonably be
estimated. The reliability and precision of the loss estimates are affected by
numerous factors, such as the stage of site evaluation, the allocation of
responsibility among PRPs 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 Dec. 31, 1998, the corporation's accruals for environmental remediation
totaled $220 million ($264 million in 1997). Approximately 53 percent of the
accrual (55 percent in 1997) pertains to estimated future expenditures for
site investigation and cleanup, and approximately 47 percent (45 percent in
1997) pertains to estimated expenditures for closure and postclosure
activities. See Note 17 to the financial statements for a discussion of the
environmental sites for which the corporation has remediation responsibility.
In addition, the corporation had environmental loss contingencies of $121
million at Dec. 31, 1998.
Estimates of future costs of environmental protection are necessarily
imprecise, due to numerous uncertainties. These include the impact of new laws
and regulations, the availability and application of new and diverse
technologies, the identification of new hazardous waste sites at which the
corporation may be a PRP and, in the case of Superfund sites, the ultimate
allocation of costs among PRPs and the final determination of the remedial
requirements. While estimating such future costs is inherently imprecise,
taking into consideration the corporation's experience to date regarding
environmental matters of a similar nature and facts currently known, the
corporation estimates that worldwide expenses related to environmental
protection, expressed in 1998 dollars, should average about $110 million
annually over the next five years. Worldwide capital expenditures for
environmental protection, also expressed in 1998 dollars, are expected to
average about $50 million annually over the same period. Management
anticipates that future annual costs for environmental protection after 2003
will continue at levels comparable to the five-year average estimates.
Subject to the inherent imprecision and uncertainties in estimating and
predicting future costs of environmental protection, it is management's
opinion that any future annual costs for environmental protection in excess of
the five-year average estimates stated here, plus those costs anticipated to
continue thereafter, would not have a material adverse effect on the
corporation's consolidated financial position.
Litigation
The corporation and its consolidated subsidiaries are involved in a number
of legal proceedings and claims with both private and governmental parties.
These cover a wide range of matters, including, but not limited to: product
liability; governmental regulatory proceedings; health, safety and
environmental matters; employment; patents; contracts; and taxes. In some of
these legal proceedings and claims, the cost of remedies that may be sought or
damages claimed is substantial. While it is impossible at this time to
determine with certainty the ultimate outcome of any such legal proceedings
and claims, 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 when determinable.
- 14 -
<PAGE>
Accounting Changes
1996 through 1998
Effective Jan. 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 therefore had no impact on the corporation's financial
position or results of operations. As required by these Statements, the
respective reporting disclosures have been reflected in the corporation's 1998
consolidated financial statements. Prior periods have been restated to comply
with the provisions of these Statements.
In 1997, the corporation adopted Emerging Issues Task Force consensus on
Issue 97-13, "Accounting for Costs Incurred in Connection with a Consulting
Contract or an Internal Project That Combines Business Process Reengineering
and Information Technology Transformation," requiring companies to expense as
incurred costs associated with business process reengineering activities.
Effective Oct. 1, 1997, the corporation adopted the provisions of Issue 97-13
as a cumulative effect of a change in accounting principle, reversing $28
million ($17 million, after-tax) of costs previously capitalized from 1995
through the third quarter of 1997.
Additionally in 1997, the corporation adopted Statement No. 128, "Earnings
Per Share," and Statement No. 129, "Disclosure of Information about Capital
Structure."
Subsequent to 1998
The corporation prospectively adopted Statement of Position (SOP) 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use," effective Jan. 1, 1999. The effect of this adoption is not
expected to be material to the results of operations in the period of
adoption.
Also effective Jan. 1, 1999, the corporation adopted SOP 98-5, "Reporting on
the Costs of Start-Up Activities." This SOP requires the expensing of certain
costs, such as preoperating expenses and organizational costs associated with
the corporation's startup activities. The effect of adoption is required to be
accounted for as a cumulative effect of change in accounting principle. The
amount to be recognized as a cumulative effect of change in accounting
principle in the first quarter of 1999 is anticipated to be approximately $20
million after-tax.
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 and may consider early
adoption.
Year 2000 Readiness Disclosure
Overview
The corporation has a comprehensive program to address its systems that may
be affected by the Year 2000 problem, including hardware and software, and to
assess the readiness of its customers and suppliers. An inventory of potential
problems and a prioritization of remedial work is complete. Remediation
efforts and further discussions with entities outside the corporation whose
Year 2000 activities could impact Union Carbide are under way.
Internal Activities
Since 1995, the corporation has been working to ready its internal
operations and has expended significant funds to replace most of its U.S.
office information systems with an integrated, advanced system supported by
Systems Applications and Products (SAP) software. This SAP project,
implemented during 1998, made most of the corporation's commercial hardware
and software Year 2000 ready.
At the completion of 1999, all of the corporation's business information
systems are expected to be Year 2000 ready.
Other systems and equipment scheduled for implementation, remediation,
completion or replacement by the end of the third quarter of 1999 include:
- - Commercial computer systems in Human Resources; Health, Safety and
Environment; Engineering; Research and Development; and other functional
areas.
- - Process control systems, logic controllers, process and laboratory
analyzers, embedded devices, and other business systems including office and
medical equipment, building/site systems and applications providing
environmental compliance reporting. Remediation in major manufacturing units
will be coordinated with planned major maintenance shutdowns. Remediation has
already been accomplished at the corporation's Texas City and Taft
hydrocarbons units. In a few cases, remediation will be handled in the fourth
quarter to coordinate with previously scheduled plant shutdowns.
- - International computer infrastructure. Remediation of international
commercial applications began in 1997 and was essentially completed during the
fourth quarter of 1998. Small applications remediation and international
infrastructure will be completed during 1999.
- - Domestic infrastructure upgrades to desktop computers and servers.
- - Selected subsidiary and Canadian operations.
- 15 -
<PAGE>
External Groups
The corporation is reviewing its external relationships to address potential
Year 2000 impacts arising from interfaces with customers, suppliers and
service providers with whom the corporation has a significant relationship, as
well as the corporation's joint ventures.
The corporation continues to communicate with its most significant suppliers
and customers to assess their ability to meet their sales and purchasing
obligations, as well as with its joint ventures to assess their readiness for
the Year 2000.
Interviews with the 200 most critical suppliers have been completed. In
North America, approximately 1,900 inquiries have been answered in writing by
our customers and for 62 major customers more extensive information has been
received through telephone interviews, personal visits or additional
written information. Another 200 inquiries have been similarly addressed
outside North America. The corporation's Year 2000 efforts relative to
customers and suppliers will continue into the Year 2000.
Expenditures
Costs for project work are expected to range between $40 and $45 million,
with potential contingencies raising the overall funding to between $50 and
$60 million. Additionally, internal personnel costs are expected to range
between $30 and $40 million. All costs are expected to be funded through
operations of the corporation. As of Dec. 31, 1998, approximately $12 million
and $6 million had been incurred for costs of project work and internal
personnel, respectively. Approximately 70 percent of the planned external
costs are expected to relate to repairing or upgrading current systems and 30
percent to existing hardware and software replacement. These estimates do not
include costs associated with the replacement of most of the corporation's
U.S. computer systems with SAP, the environmental reporting project,
international information technology infrastructure, or Year 2000 issues which
the corporation's joint ventures may incur, all of which are being implemented
independently of the corporation's Year 2000 project. It is anticipated that
the corporation's share of the cost to address Year 2000 issues of its joint
ventures will range between $10 and $15 million.
Risks and Contingency Plan
Failure to sufficiently remediate the Year 2000 problem in a timely fashion
poses substantial risks for the corporation. Reasonable worst-case scenarios
include, but are not limited to, manufacturing system malfunctions including
shutdowns and failure in the supply chain. The full extent of these risk
scenarios is uncertain at this time and will be better defined during 1999.
Contingency planning is being initiated in the first quarter, and plans should
be in place, as necessary, by the end of the third quarter. Contingency plans
will include, but not be limited to, consideration of alternative sources of
supply, customer communications and plant and business response plans.
The corporation plans to complete its Year 2000 project prior to the new
year. However, considerable work remains to be accomplished, and unforeseen
difficulties may arise that could adversely affect the corporation's ability
to complete systems modifications correctly, on time and/or within cost
estimates. In addition, there can be no assurance that customers, suppliers
and service providers on whom the corporation relies, as well as the
corporation's joint ventures, will resolve their Year 2000 issues accurately,
thoroughly and on time. Failure by the corporation or failure by the
corporation's customers, suppliers, service providers or joint ventures to
complete the Year 2000 project by the new year could have a material adverse
affect on future operating results and financial condition of the corporation.
Liquidity, Capital Resources and Other Financial Data
Cash Flow From Operations
Cash flow from operations increased by $21 million to $928 million in 1998,
as compared to $907 million in 1997, principally the result of an increase in
noncash charges and a reduction in working capital requirements partially
offset by a decline in net income. The increase in noncash charges is mainly
attributable to increases in joint venture losses, depreciation and
amortization and deferred income taxes.
Cash Flow Used for Investing
Cash flow used for investing includes capital expenditures, investments,
advances and acquisitions, and purchases of, and proceeds from, the sale of
securities and assets.
Capital expenditures increased to $782 million in 1998, from $755 million in
1997 and $721 million in 1996. Major capital projects funded during 1998 and
1997 included work on an olefins expansion, a new butanol unit, a new CARBOWAX
polyethylene glycol and TERGITOL surfactants facility and an ethanolamines
unit, all at Taft, La.; a new olefins facility being built jointly with NOVA
Chemicals Ltd., and a polyolefins project, both in Alberta, Canada; as well as
the upgrade of information technology infrastructure. Major capital projects
funded during 1996 included an ethylene propylene rubber facility at Seadrift,
Tex.; an expansion of ethylene production units at Taft, La., as well as new
cogeneration facilities at Texas City, Tex., and Taft, La.; and new
information technology infrastructure.
Over the past three years, 61 percent of capital expenditures was directed
to new capacity, 35 percent to cost reduction and replacement and 4 percent to
environmental, safety and health facilities. Of these expenditures, 86 percent
were in the U.S. and Puerto Rico.
- 16 -
<PAGE>
Investments and acquisitions in 1996 included the purchases of Shell's
polypropylene assets and business and 95 percent of the outstanding shares of
Companhia Alcoolquimica Nacional, a Brazilian producer of vinyl acetate
monomer.
At Dec. 31, 1998, the cost of completing authorized construction projects
was estimated to be $1.160 billion, of which $132 million is covered by firm
commitments. Future construction expenditures are anticipated to be sourced
through operating cash flows and borrowings.
In April 1998, the corporation and Petroliam Nasional Berhad (PETRONAS), the
national oil company of Malaysia, agreed to form three joint venture companies
(the OPTIMAL Group) that will build and operate a 600,000 metric-tons-per-year
ethylene plant, a 385,000 metric-tons-per-year ethylene oxide/glycol plant and
a multiple specialties and 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.
Cash Flow Used for Financing
Cash flow used for financing includes stockholder and minority interest
dividends and funds used to buy back common stock, offset in part by net
proceeds from short- and long-term debt and sales of common stock pursuant to
the corporation's dividend reinvestment plan, its employee savings and
investment programs and its long-term incentive plans.
Cash flow used for financing in 1998 totaled $8 million, compared with $132
million in 1997 and $254 million in 1996. Borrowings in 1998 included net
proceeds of $248 million from the issuance of 6.25 percent notes due in June
2003 and $110 million net proceeds of floating rate public notes, due in April
2000. The floating rate public notes bear interest at a rate which will be
reset quarterly at the three-month London interbank offered rate (LIBOR), plus
0.65 percent. Dividends paid in 1998 totaled $122 million.
Included in cash flow used for financing in 1997 were net proceeds of $250
million from the issuance of preferred stock by the corporation's real estate
investment trust (REIT) subsidiary. The corporation paid $240 million in cash
to redeem the preferred stock shares in the fourth quarter of 1997. Cash
dividends paid to preferred shareholders of the REIT during 1997 totaled $25
million.
In September 1997, the board of directors declared an increase in the
quarterly common stock dividend to $0.225 per share. In October 1997, the
trustee of the Employee Stock Ownership Plan (ESOP) exercised its right to
convert all shares of the corporation's preferred stock held by the ESOP into
the corporation's common stock. This noncash conversion increased the
corporation's common stock outstanding at that time by 15.4 million shares.
In 1996, the corporation issued $200 million of 7.75 percent debentures
maturing in 2096, the proceeds of which were used to finance ongoing share
repurchases and to pay down existing short-term debt.
During 1998, pursuant to its 60 million share repurchase authorization, the
corporation repurchased 6.1 million shares of its common stock for $273
million, at an average effective price of $44.69 per share, bringing the total
amount repurchased since the beginning of 1993 to 55.4 million shares for
$1.986 billion, at an average effective price of $35.82 per share. The
corporation intends to acquire additional shares from time to time at
prevailing market prices, at a rate consistent with the combination of
corporate cash flow and market conditions. In addition to the above
repurchases in 1998, stock was reacquired from employees to satisfy tax
withholding requirements on restricted shares issued under employee benefit
plans.
At Dec. 31, 1998, there were no outstanding borrowings under the existing
major bank credit agreement aggregating $1 billion. The corporation has an
effective shelf registration statement available covering $390 million of
public debt securities at Dec. 31, 1998.
Debt Ratios
<TABLE>
<CAPTION>
Total debt outstanding at year-end for each of the past three years was:
Millions of dollars 1998 1997 1996
<S> <C> <C> <C>
Domestic $2,019 $1,719 $1,492
International 203 168 107
Total $2,222 $1,887 $1,599
</TABLE>
Year-end ratios of total debt to total capital were:
1998 1997 1996
Debt ratio 47.2% 44.2% 42.7%
Total debt consists of short-term debt, long-term debt and the current portion
of long-term debt. Total capital consists of total debt plus minority
stockholders' equity in consolidated subsidiaries and stockholders' equity.
(Included on page 17 is one bar chart which provides the following data:
Shares Repurchased - millions
Net of
Reissuances Total
1993 1.4 3.8
1994 6.1 11.6
1995 9.3 14.1
1996 8.7 12.8
1997 4.9(a) 7.0
1998 4.3 6.1
(a) Does not include 15.4 million shares issued in connection
with the ESOP preferred share conversion.
)
- 17 -
<PAGE>
Selected Financial Data
<TABLE>
<CAPTION>
Union Carbide Corporation and Subsidiaries
Dollar amounts in millions
(except per share figures) 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
From the Income Statement
Net sales $5,659 $6,502 $6,106 $5,888 $4,865
Cost of sales, exclusive of
depreciation and amortization 4,294 4,806 4,568 4,100 3,673
Research and development 143 157 159 144 136
Selling, administration and other expenses 304 324 321 387(f) 290
Depreciation and amortization 389 340 312 306 274
Partnership income (loss) 33(a) 133 144 152 98
Other income (expense) - net 241(b) 37 31 245 (39)
Income before interest expense and
provision for income taxes 803 1,045 921 1,348 551
Interest expense 114 79 76 89 80
Income (loss) before provision for
income taxes - continuing operations 689 966 845 1,259 471
Provision (credit) for income taxes 217 279 236 380 137
Income (loss) from corporate investments
carried at equity (66) 3 (16) 47 55
Income (loss) from continuing operations 403 676 593 925 389
Cumulative effect of change in
accounting principle - (17) - - -
Net income (loss) - common stockholders 403 652 583 915 379
Per common share:
Basic - Income (loss) from
continuing operations $ 2.98 $ 5.02 $ 4.43 $ 6.65 $ 2.51
- Net income (loss) 2.98 4.89 4.43 6.65 2.51
Diluted - Income (loss) from
continuing operations 2.91 4.53 3.90 5.85 2.27
- Net income (loss) 2.91 4.41 3.90 5.85 2.27
From the Balance Sheet
Net current assets of continuing operations $ 436 $ 362 $ 595 $ 858 $ 329
Total assets 7,291 6,964 6,546 6,256 5,028
Long-term debt 1,796 1,458 1,487 1,285 899
Other long-term obligations 602 738 811 834 537
Total capital(c) 4,707 4,268 3,742 3,392 2,479
Stockholders' equity 2,449 2,348 2,114 2,045 1,509
Stockholders' equity per common share 18.46 17.15 16.72 15.14 10.45
Other Data
Cash dividends on common stock $ 122 $ 100 $ 99 $ 103 $ 113
Cash dividends per common share 0.90 0.7875 0.75 0.75 0.75
Special distribution per common share - - - - -
Market price per common share - high(d) 55.75 56.81 49.88 42.75 35.88
Market price per common share - low(d) 36.75 40.50 36.38 25.50 21.50
Common shares outstanding (thousands) 132,686 136,944 126,440 135,108 144,412
Capital expenditures 782 755 721 542 409
Employees - continuing operations 11,627 11,813 11,745 11,521 12,004
Selected Financial Ratios
Total debt/total capital 47.2% 44.2% 42.7% 39.0% 38.2%
Return on capital(c) 11.2% 19.6% 18.6% 39.2% 18.0%
Return on equity(e) 17.2% 30.8% 28.5% 60.6% 26.5%
Income from continuing operations/average
stockholders' equity 16.8% 30.3% 28.5% 52.1% 26.5%
Cash dividends on common stock/income
from continuing operations 30.3% 14.8% 16.7% 11.1% 29.0%
<CAPTION>
Union Carbide Corporation and Subsidiaries
Dollar amounts in millions
(except per share figures) 1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C>
From the Income Statement
Net sales $4,640 $4,872 $4,877 $5,238 $5,613 $5,525
Cost of sales, exclusive of
depreciation and amortization 3,589 3,764 3,787 3,876 3,909 3,696
Research and development 139 155 157 157 143 124
Selling, administration and other expenses 340 383 408 466 442 394
Depreciation and amortization 276 293 287 278 261 255
Partnership income (loss) 67 60 (22) 70 82 95
Other income (expense) - net (66) (13) (135) 103 108 (1)
Income before interest expense and
provision for income taxes 297 324 81 634 1,048 1,150
Interest expense 70 146 228 269 268 172
Income (loss) before provision for
income taxes - continuing operations 227 178 (147) 365 780 978
Provision (credit) for income taxes 78 45 (50) 130 257 381
Income (loss) from corporate investments
carried at equity 16 (14) (21) (42) 27 33
Income (loss) from continuing operations 165 119 (116) 188 530 608
Cumulative effect of change in
accounting principle (97) (361) - - - -
Net income (loss) - common stockholders 58 (187) (28) 308 573 662
Per common share:
Basic - Income (loss) from
continuing operations $ 1.03 $ 0.79 $(1.07) $ 1.34 $ 3.79 $ 4.52
- Net income (loss) 0.37 (1.48) (0.22) 2.19 4.10 4.92
Diluted - Income (loss) from
continuing operations 0.97 0.76 (1.07) 1.32 3.63 4.30
- Net income (loss) 0.41 (1.24) (0.22) 2.16 3.92 4.67
From the Balance Sheet
Net current assets of continuing operations $ 233 $ 66 $ 209 $ 7 $ 22 $ 14
Total assets 4,689 4,941 6,826 7,389 7,355 7,327
Long-term debt 931 1,113 1,160 2,058 2,060 2,271
Other long-term obligations 378 277 428 357 572 594
Total capital(c) 2,395 2,710 4,694 5,338 5,319 4,805
Stockholders' equity 1,428 1,238 2,239 2,373 2,383 1,836
Stockholders' equity per common share 9.49 9.32 17.55 18.88 16.83 13.34
Other Data
Cash dividends on common stock $ 110 $ 114 $ 126 $ 138 $ 140 $ 155
Cash dividends per common share 0.75 0.875 1.00 1.00 1.00 1.15
Special distribution per common share - 15.875 - - - -
Market price per common share - high(d) 23.13 17.13(g) 22.63 24.88 33.25 28.38
Market price per common share - low(d) 16.00 10.88(g) 15.13 14.13 22.75 17.00
Common shares outstanding (thousands) 150,548 132,865 127,607 125,674 141,578 137,602
Capital expenditures 395 359 400 381 483 380
Employees - continuing operations 13,051 15,075 16,705 17,722 18,032 17,258
Selected Financial Ratios
Total debt/total capital 40.3% 54.3% 52.0% 54.0% 49.9% 56.1%
Return on capital(c) 7.7% 6.9% - 8.4% 21.2% 24.5%
Return on equity(e) 4.7% (8.4)% (1.2)% 12.9% 31.2% 53.1%
Income from continuing operations/average
stockholders' equity 12.4% 6.8% - 7.9% 25.1% 39.4%
Cash dividends on common stock/income
from continuing operations 66.7% 95.8% - 73.4% 26.4% 25.5%
<FN>
(a) Includes $53 million in losses associated with Aspell Polymeres SNC, the
corporation's joint venture in France.
(b) Other income (expense) - net in 1998 includes $189 million in favorable
litigation settlements related to the UNIPOL Systems business.
(c) Return on capital is computed by dividing income by beginning-of-year
capital. Income consists of income from continuing operations, less
preferred dividends, plus after-tax interest cost (net of interest income
received from Praxair), plus income attributable to minority interests.
Capital consists of total debt plus minority stockholders' equity in
consolidated subsidiaries and stockholders' equity, adjusted for the
corporation's Praxair-related assets and the cumulative effect of changes
in accounting principles. Total debt consists of short-term debt, long-
term debt and the current portion of long-term debt.
(d) Prices are based on New York Stock Exchange Composite Transactions.
(e) Return on equity is computed by dividing Net income (loss) - common
stockholders by beginning-of-year stockholders' equity.
(f) Selling, administration and other expenses in 1995 include a charge of
$68 million for postemployment benefits.
(g) In 1992 the corporation spun off Praxair, Inc. The high and low presented
in the table for 1992 represent the value of the common stock after the
spin-off. The high and low for 1992 before the spin-off were $29.63 and
$20.13, respectively.
</FN>
</TABLE>
- 18 and 19 -
<PAGE>
Financial Statements
Consolidated Balance Sheet
<TABLE>
<CAPTION>
Union Carbide Corporation and Subsidiaries
Millions of dollars, at December 31, 1998 1997
<S> <C> <C>
Assets
Cash and cash equivalents $ 49 $ 20
Notes and accounts receivable 933 993
Inventories 667 604
Other current assets 257 249
Total Current Assets 1,906 1,866
Property, plant and equipment 8,409 7,707
Less: Accumulated depreciation 4,228 3,927
Net Fixed Assets 4,181 3,780
Companies carried at equity 624 690
Other investments and advances 141 113
Total Investments and Advances 765 803
Other assets 439 515
Total Assets $7,291 $6,964
Liabilities and Stockholders' Equity
Accounts payable $ 264 $ 273
Short-term debt and current portion of long-term debt 426 429
Accrued income and other taxes 110 75
Other accrued liabilities 670 727
Total Current Liabilities 1,470 1,504
Long-term debt 1,796 1,458
Postretirement benefit obligation 450 464
Other long-term obligations 602 738
Deferred credits 488 419
Minority stockholders' equity in
consolidated subsidiaries 36 33
Stockholders' equity
Common stock
Authorized - 500,000,000 shares
Issued - 155,052,017 shares
(154,609,669 shares in 1997) 155 155
Additional paid-in capital 79 47
Other equity adjustments (2) (3)
Accumulated other comprehensive loss (104) (101)
Retained earnings 3,357 3,074
Unearned employee compensation - ESOP (67) (80)
Treasury stock, at cost - 22,366,017 shares
(17,666,164 shares in 1997) (969) (744)
Total Stockholders' Equity 2,449 2,348
Total Liabilities and Stockholders' Equity $7,291 $6,964
<FN>
The Notes to Financial Statements on pages 25 through 43 should be read in
conjunction with this statement.
</FN>
</TABLE>
- 20 -
<PAGE>
Consolidated Statement of Income
<TABLE>
<CAPTION>
Union Carbide Corporation and Subsidiaries
Millions of dollars (except per share figures),
for the year ended December 31, 1998 1997 1996
<S> <C> <C> <C>
Net Sales $5,659 $6,502 $6,106
Cost of sales, exclusive of depreciation
and amortization 4,294 4,806 4,568
Research and development 143 157 159
Selling, administration and other expenses 304 324 321
Depreciation and amortization 389 340 312
Partnership income 33 133 144
Net gains from settlements of UNIPOL Systems
business litigation 189 - -
Other income - net 52 37 31
Income Before Interest Expense and Provision
for Income Taxes 803 1,045 921
Interest expense 114 79 76
Income Before Provision for Income Taxes 689 966 845
Provision for income taxes 217 279 236
Income of Consolidated Companies and Partnerships 472 687 609
Minority interest 3 14 -
Income (loss) from corporate investments
carried at equity (66) 3 (16)
Income Before Cumulative Effect of Change in
Accounting Principle 403 676 593
Cumulative effect of change in
accounting principle - (17) -
Net Income 403 659 593
Preferred stock dividends, net of income taxes - 7 10
Net Income - Common Stockholders $ 403 $ 652 $ 583
Earnings Per Common Share
Basic -
Income Before Cumulative Effect of Change in
Accounting Principle $ 2.98 $ 5.02 $ 4.43
Cumulative effect of change in
accounting principle - (0.13) -
Net Income - Common Stockholders $ 2.98 $ 4.89 $ 4.43
Diluted -
Income Before Cumulative Effect of Change in
Accounting Principle $ 2.91 $ 4.53 $ 3.90
Cumulative effect of change in
accounting principle - (0.12) -
Net Income - Common Stockholders $ 2.91 $ 4.41 $ 3.90
Cash Dividends Declared Per Common Share $ 0.90 $ 0.7875 $ 0.75
<FN>
The Notes to Financial Statements on pages 25 through 43 should be read in
conjunction with this statement.
</FN>
</TABLE>
- 21 -
<PAGE>
Consolidated Statement of Stockholders' Equity
<TABLE>
<CAPTION>
Union Carbide Corporation and Subsidiaries
Additional Other Compre-
Shares Common Paid-In Equity hensive
Millions of dollars (shares in thousands) Common Treasury Stock Capital Adjustments Income
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 154,610 19,502 $ 155 $ 343 $ (5)
Put options, net 8
Issued:
For the Dividend Reinvestment and Stock Purchase Plan (212) 2
For employee savings and incentive plans (3,942) 17
Common stock repurchase program 12,821
Comprehensive income
Net income $ 593
Other comprehensive income (loss), net of income taxes
Unrealized losses on securities, net of
reclassification adjustments (4)
Foreign currency translation adjustments (11)
Other comprehensive loss (15)
Comprehensive income $ 578
Preferred stock dividends, net of income taxes
Cash dividends on common stock
Restricted stock - Long-Term Incentive Program (3)
Balance at December 31, 1996 154,610 28,169 $ 155 $ 370 $ (8)
Put options, net 26
Issued:
For the Dividend Reinvestment and Stock Purchase Plan (189) 2
For employee savings and incentive plans (1,979) (66)
Common stock repurchase program 7,071
Effect of conversion of preferred shares held by ESOP (15,406) (285)
Comprehensive income
Net income $ 659
Other comprehensive income (loss), net of income taxes
Unrealized gains on securities, net of
reclassification adjustments 5
Foreign currency translation adjustments (81)
Other comprehensive loss (76)
Comprehensive income $ 583
Preferred stock dividends, net of income taxes
Cash dividends on common stock
Shares allocated to ESOP participants
Restricted stock - Long-Term Incentive Program 5
Balance at December 31, 1997 154,610 17,666 $ 155 $ 47 $ (3)
Issued:
For the Dividend Reinvestment and Stock Purchase Plan 58 (161) 4
For employee savings and incentive plans 384 (1,213) 28
Common stock repurchase program 6,074
Comprehensive income
Net income $ 403
Other comprehensive income (loss), net of income taxes
Unrealized gains on securities, net of
reclassification adjustments 5
Foreign currency translation adjustments (8)
Other comprehensive loss (3)
Comprehensive income $ 400
Cash dividends on common stock
Tax on unallocated ESOP shares
Shares allocated to ESOP participants
Restricted stock - Long-Term Incentive Program 1
Balance at December 31, 1998 155,052 22,366 $ 155 $ 79 $ (2)
<CAPTION>
Union Carbide Corporation and Subsidiaries
Accumulated Unearned Total
Other Employee Stock-
Comprehensive Retained Compensation Treasury holders'
Millions of dollars (shares in thousands) Loss Earnings -ESOP Stock Equity
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $ (10) $ 2,145 $ - $ (583) $ 2,045
Put options, net 8
Issued:
For the Dividend Reinvestment and Stock Purchase Plan 7 9
For employee savings and incentive plans 119 136
Common stock repurchase program (550) (550)
Comprehensive income
Net income 593
Other comprehensive income (loss), net of income taxes
Unrealized losses on securities, net of
reclassification adjustments
Foreign currency translation adjustments
Other comprehensive loss (15)
Comprehensive income 578
Preferred stock dividends, net of income taxes (10) (10)
Cash dividends on common stock (99) (99)
Restricted stock - Long-Term Incentive Program (3)
Balance at December 31, 1996 $ (25) $ 2,629 $ - $(1,007) $ 2,114
Put options, net 26
Issued:
For the Dividend Reinvestment and Stock Purchase Plan 7 9
For employee savings and incentive plans 66 -
Common stock repurchase program (340) (340)
Effect of conversion of preferred shares held by ESOP (107) (81) 530 57
Comprehensive income
Net income 659
Other comprehensive income (loss), net of income taxes
Unrealized gains on securities, net of
reclassification adjustments
Foreign currency translation adjustments
Other comprehensive loss (76)
Comprehensive income 583
Preferred stock dividends, net of income taxes (7) (7)
Cash dividends on common stock (100) (100)
Shares allocated to ESOP participants 1 1
Restricted stock - Long-Term Incentive Program 5
Balance at December 31, 1997 $ (101) $ 3,074 $ (80) $ (744) $ 2,348
Issued:
For the Dividend Reinvestment and Stock Purchase Plan 6 10
For employee savings and incentive plans 42 70
Common stock repurchase program (273) (273)
Comprehensive income
Net income 403
Other comprehensive income (loss), net of income taxes
Unrealized gains on securities, net of
reclassification adjustments
Foreign currency translation adjustments
Other comprehensive loss (3)
Comprehensive income 400
Cash dividends on common stock (122) (122)
Tax on unallocated ESOP shares 2 2
Shares allocated to ESOP participants 13 13
Restricted stock - Long-Term Incentive Program 1
Balance at December 31, 1998 $(104) $ 3,357 $ (67) $ (969) $ 2,449
<FN>
The Notes to Financial Statements on pages 25 through 43 should be read in
conjunction with this statement.
</FN>
</TABLE>
- 22 and 23 -
<PAGE>
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
Union Carbide Corporation and Subsidiaries
Increase (decrease) in cash and cash equivalents
Millions of dollars, for the year ended December 31, 1998 1997 1996
<S> <C> <C> <C>
Operations
Income before cumulative effect of change
in accounting principle $ 403 $ 676 $ 593
Noncash charges (credits) to net income
Depreciation and amortization 389 340 312
Deferred income taxes 118 86 82
Net gains on investing transactions - - (3)
Equity in earnings/losses of joint ventures,
net of dividends received 156 (10) 13
Other 6 12 3
Increase in working capital(a) (86) (144) (92)
Long-term assets and liabilities (58) (53) (47)
Cash Flow From Operations 928 907 861
Investing
Capital expenditures (782) (755) (721)
Investments, advances and acquisitions,
excluding cash acquired (111) (68) (263)
Proceeds from available-for-sale securities 39 37 29
Purchase of available-for-sale securities (47) (38) (42)
Sale of fixed and other assets 11 13 22
Cash Flow Used for Investing (890) (811) (975)
Financing
Change in short-term debt (3 months or less) (23) 271 96
Proceeds from short-term debt 22 51 21
Repayment of short-term debt (14) - (37)
Proceeds from long-term debt 358 14 203
Repayment of long-term debt (4) (30) (10)
Issuance of common stock 41 44 129
Purchase of common stock (276) (337) (544)
Proceeds from subsidiary preferred stock - 250 -
Purchase of subsidiary preferred stock - (240) -
Payment of dividends (122) (134) (111)
Other 10 (21) (1)
Cash Flow Used for Financing (8) (132) (254)
Effect of exchange rate changes on cash and
cash equivalents (1) (1) (1)
Change in cash and cash equivalents 29 (37) (369)
Cash and cash equivalents, beginning-of-year 20 57 426
Cash and cash equivalents, end-of-year $ 49 $ 20 $ 57
Cash paid for interest and income taxes:
Interest (net of amount capitalized) $ 117 $ 77 $ 66
Income taxes 43 121 169
<FN>
(a) Net change in certain components of working capital
(excluding noncash transactions):
(Increase) decrease in current assets
Notes and accounts receivable $ 77 $ 53 $ (26)
Inventories (63) (63) 43
Other current assets (3) - 25
Increase (decrease) in payables and accruals (97) (134) (134)
(Increase) in working capital $ (86) $(144) $ (92)
The Notes to Financial Statements on pages 25 through 43 should be read in
conjunction with this statement.
</FN>
</TABLE>
- 24 -
<PAGE>
Notes to Financial Statements
Index Page
1 Summary of Significant Accounting Policies 25
2 Supplementary Balance Sheet Detail 27
3 Supplementary Income Statement Detail 28
4 Other Comprehensive Income (Loss) 28
5 Earnings Per Share 29
6 Business and Geographic Segment Information 30
7 Income Taxes 32
8 Leases 33
9 Joint Ventures 34
10 Financial Instruments 35
11 Long-Term Debt 36
12 Minority Interest 36
13 Stockholders' Equity 37
14 Employee Stock Ownership Plan 37
15 Incentive Plans 38
16 Retirement Programs 40
17 Commitments and Contingencies 42
1 Summary of Significant Accounting Policies
Nature of Operations - Union Carbide Corporation is engaged in two segments of
the chemicals and plastics industry, Specialties & Intermediates and Basic
Chemicals & Polymers. See Note 6.
Principles of Consolidation - The consolidated financial statements include
the accounts of all significant subsidiaries. All significant intercompany
transactions have been eliminated in consolidation. Investments in 20 percent-
to 50 percent-owned partnerships and corporate investments (joint ventures)
are reported under the equity method of accounting. Other investments are
generally carried at cost.
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles, which require the corporation to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Accounting Changes -
1996 through 1998
Effective Jan. 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 therefore had no impact on the corporation's financial
position or results of operations. As required by these Statements, the
respective reporting disclosures have been reflected in the corporation's 1998
consolidated financial statements. Prior periods have been restated to comply
with the provisions of these Statements.
In 1997, the corporation adopted Emerging Issues Task Force consensus on
Issue 97-13, "Accounting for Costs Incurred in Connection with a Consulting
Contract or an Internal Project That Combines Business Process Reengineering
and Information Technology Transformation," requiring companies to expense as
incurred costs associated with business process reengineering activities.
Effective Oct. 1, 1997, the corporation adopted the provisions of Issue 97-13
as a cumulative effect of a change in accounting principle, reversing $28
million ($17 million, after-tax) of costs previously capitalized from 1995
through the third quarter of 1997.
Additionally in 1997, the corporation adopted Statement No. 128, "Earnings
Per Share," and Statement No. 129, "Disclosure of Information about Capital
Structure."
Subsequent to 1998
The corporation prospectively adopted Statement of Position (SOP) 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use," effective Jan. 1, 1999. The effect of this adoption is not
expected to be material to the results of operations in the period of
adoption.
Also effective Jan. 1, 1999, the corporation adopted SOP 98-5, "Reporting on
the Costs of Start-Up Activities." This SOP requires the expensing of certain
costs, such as preoperating expenses and organizational costs associated with
the corporation's startup activities. The effect of adoption is required to be
accounted for as a cumulative effect of change in accounting principle. The
amount to be recognized as a cumulative effect of change in accounting
principle in the first quarter of 1999 is anticipated to be approximately $20
million after-tax.
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 and may consider early
adoption.
Foreign Currency Translation - Unrealized gains and losses resulting from
translating foreign subsidiaries' assets and
- 25 -
<PAGE>
liabilities into U.S. dollars generally are recognized as part of Other
comprehensive income (loss), as described in Note 4, and are included in
Accumulated other comprehensive loss on the Consolidated Balance Sheet until
such time as the subsidiary is sold or substantially or completely liquidated.
Translation gains and losses relating to those 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
Consolidated Statement of Income. As required by Statement No. 52, Brazil was
no longer considered a hyperinflationary economy, effective Jan. 1, 1998.
Financial Instruments - Financial instruments are used to hedge financial risk
caused by fluctuating interest and currency rates. The amounts to be paid or
received on interest rate risk instruments that hedge debt, accrue and are
recognized over the lives of the instruments. Gains and losses on foreign
currency risk instruments used to hedge firm commitments are deferred and
recognized as part of the related foreign currency transactions. Gains on
foreign currency purchased options used to hedge the identified cash flows of
anticipated transactions are deferred and matched against the cash flows of
the foreign currency transactions as they occur.
Foreign currency instruments that are designated to offset fluctuations in
the dollar value of foreign currency accounts receivable and payable and from
earnings fluctuations in anticipated foreign currency cash flows are marked to
market and the results recognized immediately in Other income-net.
Cash Equivalents - The corporation considers as cash equivalents all highly
liquid investments that are readily convertible to known amounts of cash and
are so near their maturity that they present insignificant risk of changes in
value because of changes in interest rates.
Inventories - Inventories are stated at cost or market, whichever is lower.
These amounts do not include depreciation and amortization, the impact of
which is not significant to the financial statements.
Approximately 65 percent of inventory amounts before application of the LIFO
method at Dec. 31, 1998 (67 percent at Dec. 31, 1997) have been valued on the
LIFO basis; the "average cost" method is used for the balance. It is estimated
that if inventories had been valued at current costs, they would have been
approximately $224 million and $348 million higher than reported at Dec. 31,
1998 and 1997, respectively.
Fixed Assets - Fixed assets are carried at cost. Expenditures for replacements
are capitalized, and the replaced items are retired. Gains and losses from the
sale of property are included in income.
Depreciation is calculated on a straight-line basis. The corporation and its
subsidiaries generally use accelerated depreciation methods for tax purposes
where appropriate.
Patents, Trademarks and Goodwill - Amounts paid for purchased patents,
trademarks and newly acquired businesses in excess of the fair value of the
net assets of such businesses have been charged to patents, trademarks and
goodwill. The portion of such amounts determined to be attributable to patents
is amortized over their remaining lives, while trademarks and goodwill are
amortized over the estimated period of benefit, generally 5 to 20 years.
Research and Development - Research and development costs are charged to
expense as incurred. Depreciation expense applicable to research and
development facilities and equipment is included in Depreciation and
amortization in the Consolidated Statement of Income ($11 million in 1998, $12
million in 1997 and $11 million in 1996).
Income Taxes - Provisions have been made for deferred income taxes based on
differences between financial statement and tax bases of assets and
liabilities using currently enacted tax rates and regulations.
Environmental Costs - Environmental expenditures are expensed or capitalized
as appropriate, depending on their future economic benefit. Expenditures
relating to an existing condition caused by past operations and having no
future economic benefits are expensed. Environmental expenditures include site
investigation, physical remediation, operation and maintenance, and legal and
administrative costs. Environmental accruals are established for sites where
it is probable that a loss has been incurred and the amount of the loss can
reasonably be estimated. Where the estimate is a range and no amount within
the range is a better estimate than any other amount, the corporation accrues
the minimum amount in the range and includes the balance of the range in its
reported contingencies.
Retirement Programs - The cost of pension benefits under the U.S. Retirement
Program is determined by an independent actuarial firm using the projected
unit credit actuarial cost method, with an unrecognized net asset at Jan. 1,
1986, amortized over 15 years. Contributions to this program are made in
accordance with the regulations of the Employee Retirement Income Security Act
of 1974.
The cost of postretirement benefits is recognized on the accrual basis over
the period in which employees become eligible for benefits.
Incentive Plans - The corporation measures compensation cost for the stock
purchase plan and the stock option portion of its employee compensation plan
using the intrinsic value based method of accounting prescribed by Accounting
Principles Board Opinion 25, and makes pro forma disclosures of net income and
earnings per share as if the fair value based method of accounting defined in
Statement No. 123 had been applied. Compensation expense is recognized for
other stock-based incentives issued under the long-term incentive plan and
other programs.
Reclassifications - Certain prior year amounts have been reclassified to
conform with the current year's presentation.
- 26 -
<PAGE>
2 Supplementary Balance Sheet Detail
<TABLE>
<CAPTION>
Millions of dollars, at December 31, 1998 1997
<S> <C> <C>
Notes and accounts receivable
Trade $ 783 $ 826
Other 172 178
955 1,004
Less: Allowance for doubtful accounts 22 11
$ 933 $ 993
Inventories
Raw materials and supplies $ 187 $ 135
Work in process 41 62
Finished goods 439 407
$ 667 $ 604
Property, plant and equipment
Land and improvements $ 345 $ 328
Buildings 437 407
Machinery and equipment 7,080 6,230
Construction in progress and other 547 742
$8,409 $7,707
Other assets
Deferred charges $ 228 $ 223
Insurance recovery receivables 104 147
Long-term receivables 27 49
Patents, trademarks and goodwill 80 96
$ 439 $ 515
Other accrued liabilities
Accrued accounts payable $ 314 $ 301
Payrolls 56 55
Environmental remediation costs 60 68
Postretirement benefit obligation 38 34
Employee profit sharing 16 55
Other 186 214
$ 670 $ 727
Other long-term obligations
Environmental remediation costs $ 160 $ 196
Product liability costs 107 174
Impairment of unused office space 115 136
Postemployment benefits 63 72
Other 157 160
$ 602 $ 738
Accumulated other comprehensive loss
Foreign currency translation adjustments(a) $ (111) $ (103)
Unrealized gains on available-for-sale
securities, net of tax(b) 7 2
$ (104) $ (101)
<FN>
(a) The corporation does not record deferred income tax on foreign currency
translation adjustments.
(b) Net of $4 million and $2 million of deferred income tax at Dec. 31, 1998
and 1997, respectively.
</FN>
</TABLE>
- 27 -
<PAGE>
3 Supplementary Income Statement Detail
<TABLE>
<CAPTION>
Millions of dollars, for the year ended December 31, 1998 1997 1996
<S> <C> <C> <C>
Selling, administration and other expenses
Selling $ 99 $124 $130
Administration 107 126 121
Other expenses 98 74 70
$304 $324 $321
Other income (expense) - net
Investment and interest income $ 26 $ 27 $ 32
Foreign currency adjustments (20) (8) (7)
Other 46 18 6
$ 52 $ 37 $ 31
Interest expense
Interest incurred(a) $157 $130 $121
Less: Interest capitalized and other adjustments 43 51 45
$114 $ 79 $ 76
<FN>
(a) Includes $12 million in 1998, 1997 and 1996, representing the interest
component of certain leases.
</FN>
</TABLE>
4 Other Comprehensive Income (Loss)
Comprehensive income is defined as any change in the corporation's equity from
transactions and other events originating from non-owner sources. For the
corporation, those changes are comprised of reported net income, changes in
the unrealized appreciation or depreciation of the corporation's available-
for-sale securities and changes in unrealized foreign currency translation
adjustments. The following summary presents the components of comprehensive
income, other than net income:
<TABLE>
<CAPTION>
Income Tax
Millions of dollars Pre-Tax Effect After-Tax
<S> <C> <C> <C>
Balance at December 31, 1995 $ (10) $ - $ (10)
Foreign currency translation adjustments (11) - (11)
Unrealized gains (losses) on securities:
Unrealized holding gains (losses)
arising during period (5) (1) (4)
Reclassification adjustment for
(gains) losses realized in net income - - -
Net unrealized losses (16) (1) (15)
Balance at December 31, 1996 $ (26) $ (1) $ (25)
Foreign currency translation adjustments (81) - (81)
Unrealized gains (losses) on securities:
Unrealized holding gains (losses)
arising during period 8 3 5
Reclassification adjustment for
(gains) losses realized in net income - - -
Net unrealized losses (73) 3 (76)
Balance at December 31, 1997 $ (99) $ 2 $ (101)
Foreign currency translation adjustments (8) - (8)
Unrealized gains (losses) on securities:
Unrealized holding gains (losses)
arising during period - - -
Reclassification adjustment for
(gains) losses realized in net income 7 2 5
Net unrealized losses (1) 2 (3)
Balance at December 31, 1998 $ (100) $ 4 $ (104)
</TABLE>
- 28 -
<PAGE>
5 Earnings Per Share
Basic and diluted earnings per share (EPS) are calculated as follows:
<TABLE>
<CAPTION>
Millions of dollars (except share and per share amounts),
for the year ended December 31, 1998 1997 1996
<S> <C> <C> <C>
Basic -
Income before cumulative effect of change in
accounting principle $ 403 $ 676 $ 593
Less: Dividends on ESOP shares, pre-tax - (9) (13)
Appreciation on ESOP shares redeemed for cash - (23) -
Income before cumulative effect of change in
accounting principle, adjusted for basic calculation 403 644 580
Cumulative effect of change in accounting principle - (17) -
Net income-common stockholders, adjusted
for basic calculation $ 403 $ 627 $ 580
Weighted average shares outstanding for basic calculation 135,028,100 128,185,093 131,029,621
Earnings per share -
Income before cumulative effect of
change in accounting principle $ 2.98 $ 5.02 $ 4.43
Cumulative effect of change in accounting principle - (0.13) -
Net income-common stockholders $ 2.98 $ 4.89 $ 4.43
Diluted -
Income before cumulative effect of change in
accounting principle, adjusted for basic calculation $ 403 $ 644 $ 580
Plus: Dividends on ESOP shares, pre-tax - 9 13
Less: Additional ESOP contribution resulting from
assumed conversion of ESOP shares - (1) (1)
Income before cumulative effect of change in
accounting principle, adjusted for diluted calculation 403 652 592
Cumulative effect of change in accounting principle - (17) -
Net income-common stockholders, adjusted for
diluted calculation $ 403 $ 635 $ 592
Weighted average shares outstanding for basic calculation 135,028,100 128,185,093 131,029,621
Add: Effect of stock options 3,381,795 4,034,969 4,495,656
Effect of equity put options - - 403
Shares issuable upon conversion of the
corporation's convertible ESOP shares - 11,739,036 16,120,754
Weighted average shares outstanding, adjusted for
diluted calculation 138,409,895 143,959,098 151,646,434
Earnings per share -
Income before cumulative effect of change in
accounting principle, adjusted for diluted calculation $ 2.91 $ 4.53 $ 3.90
Cumulative effect of change in accounting principle - (0.12) -
Net income-common stockholders, adjusted for
diluted calculation $ 2.91 $ 4.41 $ 3.90
</TABLE>
- 29 -
<PAGE>
6 Business and Geographic Segment Information
The corporation has two operating segments, Specialties & Intermediates (S&I)
and Basic Chemicals & Polymers (BC&P). The S&I segment includes the
corporation's specialty chemicals and polymers product lines, licensing, and
solvents and chemical intermediates. The BC&P 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. Each operating segment is a
strategic business unit that offers products and services with different
functionalities. They are managed separately because of the significant
differences that exist in their products and services and in the methods
required to produce, market and distribute them. In addition to its operating
segments, the corporation's Other segment includes its non-core operations and
financial transactions other than derivatives designated as hedges, which are
included in the same segment as the item being hedged.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. Sales of the BC&P segment
include intersegment sales, principally ethylene oxide, which are made at the
estimated market value of the products transferred. Administrative costs were
allocated between the segments via a formula based on sales in 1998, and a
formula based on capital, overhead and sales in 1997 and 1996; no significant
difference in allocations between the segments resulted from the change in
formula. Other costs and shared assets are principally allocated on the basis
of pounds produced, gross fixed asset values or headcount, as appropriate. The
corporation evaluates performance based on Income before interest expense and
provision for income taxes (operating profit).
Sales are attributed to countries based on customer ship-to addresses. Long-
lived assets are principally composed of Net Fixed Assets, Companies carried
at equity, and certain Other assets. Investments of the corporation are
assigned to the country in which the investee has its principal offices. Net
sales and long-lived assets by country and geographic area were as follows:
<TABLE>
<CAPTION>
Millions of dollars
for the year ended December 31, 1998 1997 1996
<S> <C> <C> <C>
Net sales
United States, including
Puerto Rico $3,355 $3,784 $3,613
Canada 211 247 210
Europe & Middle East 802 924 858
Latin America 408 431 362
Far East & Other 883 1,116 1,063
Total International Operations $2,304 $2,718 $2,493
$5,659 $6,502 $6,106
</TABLE>
<TABLE>
<CAPTION>
Millions of dollars
at December 31, 1998 1997 1996
<S> <C> <C> <C>
Long-lived assets
United States, including
Puerto Rico $4,290 $4,021 $3,645
Canada 284 201 207
Europe & Middle East 401 456 423
Latin America 91 111 114
Far East & Other 127 122 122
Total International Operations $ 903 $ 890 $ 866
Total long-lived assets 5,193 4,911 4,511
Current and other assets $2,098 $2,053 $2,035
Total Assets $7,291 $6,964 $6,546
</TABLE>
- 30 -
<PAGE>
<TABLE>
<CAPTION>
Millions of dollars S&I BC&P Other Totals
<S> <C> <C> <C> <C>
1998
Net sales $4,139 $1,520 $ - $5,659
Intersegment revenues - 282 - 282
Segment revenues 4,139 1,802 - 5,941
Depreciation and amortization 247 142 - 389
Partnership income 27 6 - 33
Operating profit (loss) 833 20 (50) 803
Interest expense - - 114 114
Income (loss) from corporate investments
carried at equity 1 (67) - (66)
Segment assets 4,493 2,596 202 7,291
Companies carried at equity 298 326 - 624
Expenditures for segment assets 480 413 - 893
1997
Net sales $4,453 $2,049 $ - $6,502
Intersegment revenues - 371 - 371
Segment revenues 4,453 2,420 - 6,873
Depreciation and amortization 214 126 - 340
Partnership income 116 17 - 133
Operating profit (loss) 667 386 (8) 1,045
Interest expense - - 79 79
Income (loss) from corporate investments
carried at equity 6 (3) - 3
Segment assets 4,146 2,540 278 6,964
Companies carried at equity 277 413 - 690
Expenditures for segment assets 508 315 - 823
1996
Net sales $4,286 $1,820 $ - $6,106
Intersegment revenues - 305 - 305
Segment revenues 4,286 2,125 - 6,411
Depreciation and amortization 188 124 - 312
Partnership income 134 10 - 144
Operating profit 742 162 17 921
Interest expense - - 76 76
Income (loss) from corporate investments
carried at equity 9 (25) - (16)
Segment assets 3,892 2,328 326 6,546
Companies carried at equity 263 432 - 695
Expenditures for segment assets 560 424 - 984
</TABLE>
The operating profit of the S&I segment for 1998 includes a nonrecurring net
gain of $189 million related to favorable settlements of UNIPOL Systems
business litigation in the third and fourth quarters of 1998 and a $53 million
reduction in earnings related to losses associated with Aspell Polymeres SNC
in the third quarter of 1998.
The operating profit of the S&I segment for 1997 includes a $12 million
charge for the write-off of certain equipment associated with the
corporation's ethylene propylene rubber project.
- 31 -
<PAGE>
7 Income Taxes
The following is a summary of the U.S. and non-U.S. components of Income
Before Provision for Income Taxes:
<TABLE>
<CAPTION>
Millions of dollars
for the year ended December 31, 1998 1997 1996
<S> <C> <C> <C>
U.S. $646 $897 $766
Non-U.S. 43 69 79
$689 $966 $845
</TABLE>
The following is an analysis of income tax expense:
<TABLE>
<CAPTION>
1998 1997 1996
Millions of dollars, for the year ended December 31, Current Deferred Current Deferred Current Deferred
<S> <C> <C> <C> <C> <C> <C>
U.S. Federal income taxes $100 $ 86 $154 $ 80 $107 $ 79
U.S. business and research and
experimentation tax credits (27) - (14) - (8) -
U.S. state and local taxes based on income 6 31 1 4 1 2
Non-U.S. income taxes 20 1 52 2 54 1
99 118 193 86 154 82
Provision for income taxes $217 $279 $236
</TABLE>
The tax effects of temporary differences that gave rise to significant
portions of the deferred tax assets and deferred tax liabilities
are as follows:
<TABLE>
<CAPTION>
1998 1997
Deferred Deferred Deferred Deferred
Millions of dollars, at December 31, Assets Liabilities Assets Liabilities
<S> <C> <C> <C> <C>
Depreciation and amortization $ - $553 $ - $495
Postretirement and postemployment benefits 215 - 226 -
Environmental and litigation costs 81 - 113 -
Sale/leaseback and related deferrals 90 - 101 -
Other 223 278 174 242
Gross deferred tax assets and liabilities 609 831 614 737
Net deferred tax liability $222 $123
</TABLE>
- 32 -
<PAGE>
Net noncurrent deferred tax liabilities of $347 million ($263 million in
1997) are included in Deferred credits in the Consolidated Balance Sheet. Net
current deferred tax assets of $125 million ($135 million in 1997) are
included in Other current assets. Net noncurrent deferred tax assets are zero
in 1998 ($5 million in 1997 which were included in Other assets). In 1998
there was no benefit from non-U.S. net operating loss carryforwards ($2
million in 1997 which was included in deferred tax assets above).
Undistributed earnings of affiliates intended to be reinvested indefinitely
amounted to approximately $488 million at Dec. 31, 1998 ($469 million at Dec.
31, 1997). Determination of deferred taxes related to these earnings is not
practicable.
An analysis of the difference between Provision for income taxes and the
amount computed by applying the statutory Federal income tax rate to Income
Before Provision for Income Taxes is as follows:
<TABLE>
<CAPTION>
Percentage of
Pre-Tax Income
For the year ended December 31, 1998 1997 1996
<S> <C> <C> <C>
Tax at statutory Federal rate 35.0% 35.0% 35.0%
Taxes related to operations
outside the U.S. 0.7 (0.7) (1.0)
U.S. state and local taxes
based on income 3.4 0.3 0.3
Foreign sales corporation (1.5) (2.9) (3.0)
Business credits (3.9) (1.5) (0.9)
Other, net (2.2) (1.3) (2.5)
Consolidated effective
income tax rate 31.5% 28.9% 27.9%
</TABLE>
8 Leases
Leases that meet the criteria for capitalization have been classified and
accounted for as capital leases. For operating leases, primarily involving
facilities and distribution equipment, the future minimum rental payments
under leases with remaining noncancelable terms in excess of one year are:
<TABLE>
<CAPTION>
Millions of dollars
for the year ending December 31,
<S> <C>
1999 $ 61
2000 57
2001 54
2002 59
2003 58
Subsequent to 2003 140
Total minimum payments 429
Future sublease rentals 75
Net minimum rental commitments $354
</TABLE>
The present value of the net minimum rental payments amounts to $275
million, of which $187 million pertains to the corporation's headquarters
lease. Total lease and rental payments (net of sublease rental of $9 million
in 1998, $21 million in 1997 and $20 million in 1996) were $56 million, $54
million and $53 million for 1998, 1997 and 1996, respectively.
- 33 -
<PAGE>
9 Joint Ventures
The following are financial summaries of 33 percent- to 50 percent-owned joint
ventures included in Companies carried at equity. The corporation's most
significant joint ventures, classified as partnerships, include UOP LLC;
Petromont and Company, Limited Partnership; Aspell Polymeres SNC; World
Ethanol Company and Univation Technologies, LLC (formed in 1997).
<TABLE>
<CAPTION>
Partnerships
Millions of dollars 1998 1997 1996
<S> <C> <C> <C>
Net sales(a) $1,905 $2,076 $2,109
Cost of sales 1,210 1,242 1,338
Depreciation 116 83 83
Partnership income 154 249 242
UCC share of partnership
income $ 33(b) $ 133 $ 144
Current assets $ 799 $ 746 $ 704
Noncurrent assets 937 886 806
Total assets 1,736 1,632 1,510
Current liabilities 430 451 608
Noncurrent liabilities 828 711 385
Total liabilities 1,258 1,162 993
Net assets 478 470 517
UCC equity $ 286 $ 278 $ 251
<FN>
(a) Includes $140 million net sales to the corporation in 1998
($208 million in 1997 and $159 million in 1996).
(b) Includes $53 million of losses associated with Aspell Polymeres SNC.
</FN>
</TABLE>
The corporation's joint ventures, classified as corporate investments,
include Polimeri Europa S.r.l.; EQUATE Petrochemical Company K.S.C.; Nippon
Unicar Company Limited; Alberta & Orient Glycol Company Limited; Asian Acetyls
Co., Ltd. and several smaller entities.
<TABLE>
<CAPTION>
Corporate Investments
Millions of dollars 1998 1997 1996
<S> <C> <C> <C>
Net sales(a) $2,151 $2,248 $2,059
Cost of sales 1,732 1,814 1,693
Depreciation 256 109 129
Net income (loss) (195) 75 (6)
UCC share of net
income (loss) $ (66) $ 3 $ (16)
Current assets $1,037 933 $ 877
Noncurrent assets 2,932 3,252 2,918
Total assets 3,969 4,185 3,795
Current liabilities 963 872 888
Noncurrent liabilities 2,371 2,347 1,891
Total liabilities 3,334 3,219 2,779
Net assets 635 966 1,016
UCC equity $ 338 $ 412 $ 444
<FN>
(a) Includes $157 million net sales to the corporation in 1998
($156 million in 1997 and $153 million in 1996).
</FN>
</TABLE>
Dividends and distributions received from joint ventures and partnerships
aggregated $123 million in 1998 ($126 million in 1997 and $141 million in
1996).
- 34 -
<PAGE>
10 Financial Instruments
Fair values of financial instruments are estimated by using a method that
indicates the amount at which the instrument could be exchanged in a current
transaction between willing parties, other than in a forced or liquidation
sale. The fair values of the financial instruments included on the
Consolidated Balance Sheet were estimated as follows:
Cash, Short-Term Receivables and Accounts Payable - At Dec. 31, 1998 and 1997,
the carrying amounts approximate fair values because of the short maturity of
these instruments.
Outstanding foreign currency forward contracts and options used as a means
of offsetting fluctuations in the dollar value of other foreign currency
accounts receivable and payable and earnings fluctuations from anticipated
foreign currency cash flows totaled $220 million at Dec. 31, 1998 ($185
million at Dec. 31, 1997). In addition to the above, at Dec. 31, 1998, the
corporation held foreign currency options in the amount of $199 million (U.S.
dollar equivalent) to hedge a commitment to lend money to fund construction of
operating facilities at specific future dates by one of its foreign
subsidiaries. Such commitment is supported by commitments to third parties.
The premiums on the options and any gains or losses are being capitalized as
part of the intercompany loan and amortized to income as an adjustment to the
effective interest yield of such loan over its repayment term. At Dec. 31,
1998, $3 million had been capitalized. Recognized net gains and losses
associated with all foreign currency purchased options and forward contracts
held during 1998 and 1997, and the average fair market value of those
contracts, were not material. These gains and losses were generally offset by
changes in the U.S. dollar value equivalents of underlying foreign currency
transactions.
Investments - The corporation's investments in joint ventures and other
businesses generally involve entities for which it is not practicable to
determine fair values.
Long-Term Receivables - The fair values of long-term receivables are
calculated using current interest rates and consideration of underlying
collateral where appropriate. The fair values, which approximate the carrying
values of $27 million and $49 million, are included in Other assets in the
Consolidated Balance Sheet at Dec. 31, 1998 and 1997, respectively.
Debt - The corporation uses various types of financial instruments, including
interest rate swaps and forward rate agreements, to manage exposure to
financial market risk caused by interest rate fluctuations. An interest rate
swap held at Dec. 31, 1998 and 1997, had a nominal carrying amount and fair
value.
Carrying Amounts and Fair Values - The carrying amounts and fair values of the
corporation's investments, long-term receivables and debt financial
instruments at Dec. 31, 1998 and 1997, are summarized in the table below. Fair
values are based on quoted market values, where available, or discounted cash
flows (principally long-term debt).
<TABLE>
<CAPTION>
Millions of dollars
at December 31, 1998 1997
Carrying Fair Carrying Fair
Assets (Liabilities) Amount Value Amount Value
<S> <C> <C> <C> <C>
Investments and
receivables $168 $168 $162 $162
Short- and
long-term debt (2,222) (2,266) (1,887) (1,956)
</TABLE>
- 35 -
<PAGE>
11 Long-Term Debt
<TABLE>
<CAPTION>
Millions of dollars, at December 31, 1998 1997
<S> <C> <C>
6.25% Notes due 2003 $ 250 $ -
6.75% Notes due 2003 125 125
6.79% Debentures due 2025(a) 250 250
7.00% Notes due 1999 175 175
7.50% Debentures due 2025 150 150
7.75% Debentures due 2096(b) 200 200
7.875% Debentures due 2023 175 175
8.75% Debentures due 2022(c) 117 117
Floating Rate Public Notes due 2000 110 -
Pollution control and other
facility obligations 239 242
Other debt - various maturities
and interest rates 23 29
1,814 1,463
Less: Payments to be made within 1 year 18 5
$1,796 $1,458
<FN>
(a) Holders may request redemption of these debentures from the corporation
on June 1, 2005.
(b) The maturity may be shortened under certain circumstances to preserve
the deductibility of interest payments for Federal income tax purposes.
(c) Redeemable at the option of the corporation on or after Aug. 1, 2002.
</FN>
</TABLE>
The corporation has a credit agreement with a group of banks permitting the
corporation to borrow up to $1 billion at any time through January 2002 with
the option, subject to certain conditions, to increase the available credit by
$250 million and to extend the maturity date of the agreement to maintain a
five year term. The credit agreement permits the corporation to borrow funds
under several different programs, including the euro-dollar, Certificate of
Deposit (CD), Base Rate or Money Market London Interbank Offered Rate (LIBOR)
programs. Maturity dates for these programs range from 30 days to twelve
months. The interest rate for each of these programs is contingent on either
the euro-dollar, CD rate, Federal funds rate or LIBOR and is determined based
on a calculation included in the agreement. The corporation must pay an annual
facility fee based on the rating of the corporation's long-term debt
securities by either Moody's Investors Service, Inc. or Standard and Poor's
Rating Service as indicated in the agreement. As of Dec. 31, 1998, there were
no outstanding amounts against this agreement. The corporation intends to
refinance the 7.00% Notes maturing in August 1999 either by borrowing under
this credit agreement or under a prospective borrowing. Accordingly, such
amount has been classified as long-term debt.
The corporation has an effective shelf registration statement available
covering $390 million of public debt securities at Dec. 31, 1998, which may be
used under a medium-term-note program.
In 1998, the corporation issued $250 million of 6.25% Notes due in June
2003, and $110 million of floating rate public notes due in April 2000. The
floating rate public notes bear interest at a rate which will be reset
quarterly at the three-month LIBOR plus 0.65 percent. At Dec. 31, 1998
the interest rate on these notes was 5.84 percent.
The corporation's credit agreement and the indentures under which notes and
debentures are issued contain covenants normal for these types of instruments.
These covenants place certain limits on the corporation's ability to merge
with another entity, sell assets, engage in sale-leaseback transactions, incur
debt or create liens on assets. In addition, the credit agreement requires the
corporation to meet leverage and interest coverage tests.
Pollution control and other facility obligations represent state,
commonwealth and local governmental bond financing of pollution control and
other facilities and are treated for accounting and tax purposes as debt of
the corporation. These tax-exempt obligations mature at various dates from
1999 through 2023 and had an average annual effective interest rate of 7.2
percent in 1998 and 1997.
The weighted average and effective interest rates in 1998 on the
corporation's fixed-rate debt, excluding pollution control and other facility
obligations, were 7.5 percent in 1998 (7.7 percent in 1997). The corporation's
weighted average interest rate on short-term borrowings outstanding as of Dec.
31, 1998 was 6.0 percent (6.4 percent at Dec. 31, 1997).
Payments due on long-term debt in the four years following 1999 are: 2000,
$117 million; 2001, $21 million; 2002, $189 million, and 2003, $381 million.
12 Minority Interest
In January 1997, a newly formed real estate investment trust subsidiary issued
$250 million of preferred stock bearing a current dividend yield of 14 percent
for 10 years and 1 percent thereafter. In October 1997, the preferred shares
were redeemed for $240 million.
- 36 -
<PAGE>
13 Stockholders' Equity
Subject to the following discussion, each outstanding share of common stock
has identical rights in voting on corporate matters, dividends when declared,
liquidation and other corporate matters.
Each outstanding share of common stock bears one Right entitling its holder,
under certain circumstances, to buy a share of common stock at a purchase
price of $37.67 (subject to adjustment). The Rights may not be exercised until
10 days after a person or group acquires 20 percent or more of UCC's common
stock, or until a date determined by the board of directors following
announcement of a tender offer that, if consummated, would result in 20
percent or more ownership of the common stock. Until then, separate Rights
certificates will not be issued, nor will the Rights be traded separately
from the stock.
Should an acquirer become the beneficial owner of 20 percent of the common
stock, and under certain additional circumstances, the corporation's
stockholders (other than the acquirer) would have the right to buy common
stock in Union Carbide Corporation, or in the surviving enterprise if the
corporation is acquired, having a value equal to two times the purchase price
of the Right then in effect.
The Rights will expire on Aug. 31, 1999, unless redeemed prior to that date.
The redemption price is $0.01 per Right.
Since inception of its share repurchase authorization in 1993 through Dec.
31, 1998, the corporation has repurchased 55.4 million shares (6.1 million
shares during 1998) out of a total authorization of 60 million shares, at an
average effective price of $35.82 per share. The corporation will continue to
acquire additional shares from time to time at prevailing market prices, at a
rate consistent with the combination of corporate cash flow and market
conditions.
In conjunction with the corporation's common stock buyback program, put
options were sold in a series of private placements entitling the holders to
sell 12.9 million shares of common stock to UCC at specified prices upon
exercise of the options. Since inception of this program through Dec. 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 options issued during
1998, nor were there any outstanding options at Dec. 31, 1998. Premiums
received since inception of the program, which are recorded as Additional
paid-in capital, have reduced the average price of repurchased shares to
$35.82 per share from $36.07.
14 Employee Stock Ownership Plan
The Union Carbide Corporation Employee Stock Ownership Plan (ESOP) is an
integral part of the Savings and Investment Program (the Program) for
employees. Prior to October 1997, each share of the corporation's preferred
stock held by the ESOP was convertible into and had the same voting rights as
one share of the corporation's common stock. The annual preferred dividend was
$0.794 per share. In October 1997, the trustee of the ESOP exercised its right
to convert all outstanding ESOP preferred stock into shares of the
corporation's common stock (ESOP shares). As a result of the conversion, the
corporation's common stock outstanding at that date was increased by 15.4
million shares.
Substantially all full-time employees in the U.S. are eligible to
participate in the ESOP through the allocation of ESOP shares equivalent to
the corporation's matching contribution of 75 percent of eligible employee
contributions to the Program. In addition, eligible employees can receive the
equivalent of up to twenty days pay in ESOP shares through the corporation's
ESOP profit sharing plan.
Common shares held by the ESOP generally are sold in the open market when
employees make withdrawals or sell ESOP shares within their account.
The cost of the ESOP is recognized as incurred and was $7 million in 1998
($7 million and $2 million in 1997 and 1996, respectively). The increase in
1998 and 1997 costs, compared to 1996, was principally due to the allocation
of more shares to participants through the corporation's ESOP profit sharing
plan. At Dec. 31, 1998, 14.6 million common shares held by the ESOP were
outstanding, 7.1 million of which were allocated to employees' accounts.
During 1998, 1.4 million ESOP shares were allocated to employees' accounts.
- 37 -
<PAGE>
15 Incentive Plans
In 1997, stockholders approved the 1997 Union Carbide Long-Term Incentive Plan
for key employees. The Plan provides for granting incentive and nonqualified
stock options; exercise payment rights; grants of stock, including restricted
stock, and performance awards. Holders of options may be granted the right to
receive payments of amounts equal to the regular cash dividends paid to
holders of the corporation's common stock during the period an option is
outstanding. The number of shares granted or subject to options cannot exceed
six million under the Plan. Option prices are equal to the closing price of
the corporation's common stock on the date of the grant, as listed on the New
York Stock Exchange Composite Transactions. Options generally become
exercisable two years after such date. Options may not have a duration of more
than ten years. The option price may be settled in cash, common shares of the
corporation currently owned by a participant, withholding stock shares from
the exercise or a combination of these alternatives. Restricted stock award
shares are entitled to vote and dividends are credited to the holder's
account, but these shares are generally nontransferable for varying periods
after the grant date. Once the vesting conditions are met, the shares become
fully transferable. Performance awards may be paid in common stock, cash or
other forms of property. No dividend-equivalent payment rights or performance
awards were granted in 1998 or 1997.
No awards were made in 1998 or 1997, and no further awards can be made,
under previous plans. Prior plans still have options outstanding and
restricted stock not yet vested, whose terms are generally similar to
nonqualified stock options and restricted stock grants under the 1997 plan.
Changes in outstanding fixed price options were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
Weighted Weighted Weighted
Average Average Average
Shares in thousands Shares Exercise Price Shares Exercise Price Shares Exercise Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding at January 1 12,533 $25.48 12,782 $21.45 13,350 $18.54
Granted 1,472 43.88 1,508 46.31 1,166 45.55
Exercised (1,141) 15.60 (1,717) 13.45 (1,569) 13.05
Canceled or expired (114) 46.21 (40) 38.47 (165) 36.00
Outstanding at December 31 12,750 $28.31 12,533 $25.48 12,782 $21.45
Options exercisable at December 31 9,874 9,889 10,460
</TABLE>
Options were exercised during 1998 at prices ranging from $6.70 to $40.38
per share ($6.70 to $45.63 per share during 1997 and $6.70 to $28.63 per share
during 1996).
- 38 -
<PAGE>
The following table summarizes information about fixed price option shares
outstanding at Dec. 31, 1998:
<TABLE>
<CAPTION>
Weighted Average
Shares Remaining Weighted Average
Shares in thousands Outstanding Contractual Life Exercise Price
<S> <C> <C> <C>
Range of Exercise Prices
$ 6.70 to $ 9.54 2,296 2.3 years $ 8.38
$11.37 to $16.75 1,908 3.8 years 16.38
$21.63 to $28.63 3,466 5.4 years 24.81
$39.88 to $46.31 5,080(a) 8.6 years 44.18
12,750
<FN>
(a) At Dec. 31, 1998, 2.204 million options were exercisable at an average
price of $43.02.
</FN>
</TABLE>
Had compensation cost related to the fixed price options been recorded at fair
value on the dates of grant in accordance with Statement No. 123, the effect
on the corporation's net income and EPS amounts would have been as follows:
<TABLE>
<CAPTION>
Millions of dollars
(except per share figures)
for the year ended December 31, 1998 1997 1996
<S> <C> <C> <C>
Net income -
common stockholders
As reported $ 403 $ 652 $ 583
Pro forma $ 388 $ 639 $ 576
Basic EPS
As reported $2.98 $4.89 $4.43
Pro forma $2.87 $4.79 $4.37
Diluted EPS
As reported $2.91 $4.41 $3.90
Pro forma $2.80 $4.32 $3.86
</TABLE>
The Black-Scholes Option Pricing Model was used to estimate the fair values
of options granted during 1998, 1997 and 1996. The assumptions used for these
grants included a seven-year average expected life for 1998 (six-year average
for 1997 and 1996), and zero-coupon U.S. government risk free interest rates
of 4.41%, 5.92%, and 5.95%; current dividend yields of 2.22%, 1.73%, and
1.78%, and volatility of 29.47%, 28.77%, and 28.00% for the years ended Dec.
31, 1998, 1997 and 1996, respectively. The weighted average fair values of
options granted during the years 1998, 1997 and 1996 were $15.15, $15.54 and
$15.31, respectively.
In 1997, the board of directors approved the 1997 Union Carbide Corporation
EPS Incentive Plan for a limited number of senior managers. It is designed to
grant awards if the corporation achieves $4.00 or more diluted earnings per
share performance during 1999 and 2000. The plan requires these senior
managers to put an amount equivalent to a portion of one year's annual base
pay at risk, up to 100 percent, should diluted earnings per share not equal or
exceed $4.00 in the year 2000. The amount at risk will be deducted from
compensation over three years and converted to units equivalent to common
stock using a $47.75 share price, the closing price of the corporation's
common stock on the date the plan was approved by the board of directors.
Participants could be awarded up to four times the number of units at
risk for each of the years 1999 and 2000, depending on the extent to which the
goals of the plan are exceeded. Participants will also be credited with
dividend-equivalents in the form of additional units. Awards, if any, under
the plan will be in cash and paid in 2002, 2003 and 2004. Failure to meet the
requirements of the plan will result in forfeiture of the amounts at risk.
- 39 -
<PAGE>
16 Retirement Programs
The noncontributory defined benefit retirement program of Union Carbide
Corporation (U.S. Retirement Program) covers substantially all U.S. employees
and certain employees in other countries. Pension benefits are based primarily
on years of service and compensation levels prior to retirement. Pension
coverage for employees of the corporation's non-U.S. consolidated subsidiaries
is provided through separate plans, to the extent deemed appropriate.
Obligations under such plans are principally provided for by depositing funds
with trustees.
The corporation provides health care and life insurance benefits (Other
Benefits) for eligible retired employees and their eligible dependents. These
benefits are provided through various insurance companies and health care
providers. The health care plans are contributory with participants'
contributions adjusted annually; the life insurance plans are noncontributory.
The corporation's significant retirement programs are its U.S. and Canadian
plans. The funded status, actuarial assumptions, health care cost trends, and
components of net periodic benefit costs of these plans combined is as
follows:
<TABLE>
<CAPTION>
Pension Other
Benefits Benefits
Millions of dollars,
for the year ended December 31, 1998 1997 1998 1997
<S> <C> <C> <C> <C>
Change in plan assets
Fair value of plan assets, beginning of year $3,769 $3,118 $ 17 $ 17
Actual gain (loss) on plan assets 736 821 6 8
Foreign currency exchange rate changes (12) (6) - -
Employer contribution - 10 - -
Benefits paid (182) (174) (9) (8)
Fair value of plan assets, end of year $4,311 $3,769 $ 14 $ 17
Change in benefit obligation
Benefit obligation, beginning of year $3,278 $2,927 $ 503 $ 465
Service cost 60 51 14 14
Interest cost 205 206 30 33
Amendments - 1 (93) 2
Plan participants' contributions - - 22 21
Foreign currency exchange rate changes (7) (3) (1) (1)
Actuarial loss 129 278 27 27
Benefits paid(a) (193) (182) (59) (58)
Benefit obligation, end of year $3,472 $3,278 $ 443 $ 503
Funded status $ 839 $ 491 $ (429) $ (486)
<FN>
(a) Includes nonfunded plan benefits paid directly by the corporation.
</FN>
</TABLE>
The funded status is composed of the following elements:
<TABLE>
<CAPTION>
Pension Other
Benefits Benefits
Millions of dollars, at December 31, 1998 1997 1998 1997
<S> <C> <C> <C> <C>
Unrecognized net actuarial gain (loss) $ 818 $ 455 $ (34) $ (17)
Unrecognized transition asset 29 42 - -
Unrecognized prior service (cost) credit (14) (17) 93 29
Prepaid benefit cost 30 27 - -
Accrued benefit cost (24) (16) (488) (498)
Funded status $ 839 $ 491 $ (429) $ (486)
</TABLE>
The Other Benefits benefit obligation is net of $99 million at Dec. 31, 1998
($131 million at Dec. 31, 1997), which is reimbursed to the corporation in
part by previously owned businesses under ongoing benefit-sharing agreements.
- 40 -
<PAGE>
Benefit obligations are valued using the 1994 Uninsured Pensioner Mortality
Table. The actuarial assumptions used were as follows:
<TABLE>
<CAPTION>
Pension Other
Benefits Benefits
At December 31, 1998 1997 1998 1997
<S> <C> <C> <C> <C>
Discount rate for determining benefit obligation 6.00% 6.50% 6.00% 6.50%
Expected long-term rate of return on plan assets 8.00% 8.00% 8.00% 8.00%
Rate of increase in compensation levels 3.25% 3.75% - -
</TABLE>
Health care costs are projected to increase as follows:
<TABLE>
<CAPTION>
Medicare Medicare
Pre-Medicare Supplement Plan Alternative Plan
<S> <C> <C> <C>
Immediate 7.50% 8.00% 16.83%
Ultimate 5.00% 5.00% 5.00%
Year ultimate trend is reached 2004 2004 2017
</TABLE>
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
Millions of dollars,
for the year ended December 31, 1998 1997 1996 1998 1997 1996
<S> <C> <C> <C> <C> <C> <C>
Components of net periodic benefit costs
Service cost $ 60 $ 51 $ 49 $ 14 $ 14 $ 13
Interest cost 205 206 194 30 33 31
Expected return on plan assets (242) (233) (215) (1) (2) (2)
Amortization of
transition obligation (12) (12) (12) - - -
Amortization of prior service costs 3 3 3 (29) (21) (21)
Recognized net actuarial (gain) loss (1) (1) 3 - - -
Net periodic benefit costs $ 13 $ 14 $ 22 $ 14 $ 24 $ 21
</TABLE>
The accounting for the health care plans anticipates future cost-sharing
changes to the written plan that are consistent with the company's expressed
intent to control these costs. As of July 1, 1998, the corporation adopted
certain amendments which will be effective Jan. 1, 1999 through Jan. 1, 2001.
These amendments will encourage retirees to transfer their health care
coverage into lower costing plans and usually to choose generic drugs.
Effective Jan. 1, 1999, certain retirees will also pay a greater percentage of
premium contributions. In addition, the plan provides that the corporation's
per individual subsidy for pre-Medicare and Medicare medical coverage is
capped at two times its subsidy to the company-sponsored plans in 2000.
The corporation funded postretirement benefits for certain retirees who
retired prior to Dec. 31, 1988. The funds are invested primarily in common
stocks.
At Dec. 31, 1998, the effect on the accumulated postretirement benefit
obligation of a one-percentage-point change in assumed health care cost trend
rates would be as follows:
<TABLE>
<CAPTION>
1998 1997
1 Percentage Point 1 Percentage Point
Millions of dollars Increase (Decrease) Increase (Decrease)
<S> <C> <C> <C> <C>
Effect on total of service
and interest cost components $ 3 $( 3) $ 4 $( 3)
Effect on post-retirement
benefit obligation 28 (30) 33 (30)
</TABLE>
Deferred Compensation Plan
Since Jan. 1, 1995, the corporation has provided an unfunded, nonqualified
deferred compensation plan to certain key employees, offering them an election
to defer a portion of their gross pay. The corporation's obligation to
employees is adjusted to reflect changes in the market values of employees'
investment choices. With limited exceptions, participants' deferred account
balances are scheduled for payment at or after full retirement.
- 41 -
<PAGE>
17 Commitments and Contingencies
Purchase Agreements - The corporation has three major agreements for the
purchase of ethylene-related products and three other purchase agreements in
the U.S. and Canada (two in 1997 and 1996). Total purchases under these
agreements were $196 million, $245 million and $233 million in 1998, 1997 and
1996, respectively. The net present value of the fixed and determinable
portion of obligations under these purchase commitments at Dec. 31, 1998 (at
current exchange rates, where applicable) is presented in the following table:
<TABLE>
<CAPTION>
Millions of dollars
for the year ending December 31,
<S> <C>
1999 $ 71
2000 39
2001 32
2002 28
2003 19
2004 through 2014 74
Total $263
</TABLE>
Environmental - 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
reasonably be 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 Dec. 31, 1998, the corporation had established environmental remediation
accruals in the amount of $220 million ($264 million in 1997). 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 $121 million at Dec. 31, 1998.
The corporation has sole responsibility for the remediation of approximately
37 percent of its environmental sites for which accruals have been
established. These sites are well advanced in the investigation and cleanup
stage. The corporation's environmental accruals at Dec. 31, 1998, included
$169 million for these sites ($197 million at Dec. 31, 1997), of which $65
million ($79 million at Dec. 31, 1997) was for estimated future expenditures
for site investigation and cleanup and $104 million ($118 million at Dec. 31,
1997) was for estimated future expenditures for closure and postclosure
activities. In addition, $66 million of the corporation's environmental loss
contingencies at Dec. 31, 1998, 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 $39 million ($36 million at Dec. 31,
1997), of which $19 million ($17 million at Dec. 31, 1997) was for estimated
future expenditures for site investigation and cleanup and $20 million ($19
million at Dec. 31, 1997) was for estimated future expenditures for closure
and postclosure activities. In addition, $44 million of the above
environmental loss contingencies related to these sites.
The corporation does not have sole responsibility at the remainder of its
environmental sites for which accruals have been established. All of these
sites are in the investigation and cleanup stage. The corporation's
environmental accruals at Dec. 31, 1998, included $51 million for estimated
future expenditures for site investigation and cleanup at these sites ($67
million at Dec. 31, 1997). In addition, $55 million of the corporation's
environmental loss contingencies related to these sites. The largest of these
sites is a nonoperating site. Of the above accruals, this site accounted for
$10 million ($14 million at Dec. 31, 1997) for estimated future expenditures
for site investigation and cleanup. In addition, $3 million of the above
environmental loss contingencies related to this site.
- 42 -
<PAGE>
Worldwide 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, totaled $91 million in 1998, $100 million in 1997 and $110 million
in 1996.
Other - The corporation has severally guaranteed 45 percent (approximately
$562 million at Dec. 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 has also severally
guaranteed certain sales volume targets until EQUATE's sales capabilities are
proved. In addition, the corporation has pledged its shares in EQUATE as
security for EQUATE's debt. The corporation has political risk insurance
coverage for its equity investment and, through March 31, 1999, substantially
all of its guarantee of EQUATE's debt. The corporation is in the process of
extending the political risk insurance for its debt guarantee through March
31, 2001.
The corporation and its consolidated subsidiaries had additional contingent
obligations at Dec. 31, 1998, totaling $91 million, of which $55 million
related to guarantees of debt.
Litigation - 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 $120
million, and related insurance recovery receivables of $104 million. At Dec.
31, 1998, the corporation had net nonenvironmental litigation loss
contingencies of $51 million.
While it is impossible at this time to determine with certainty the ultimate
outcome of any legal proceedings and claims referred to in this note,
management believes that adequate provisions have been made for probable
losses with respect thereto and that such ultimate outcome, after provisions
therefor, will not have a material adverse effect on the consolidated
financial position of the corporation, but could have a material effect on
consolidated results of operations in a given quarter or year. Should any
losses be sustained in connection with any of such legal proceedings and
claims in excess of provisions therefor, they will be charged to income when
determinable.
- 43 -
<PAGE>
Management's Statement of Responsibility for Financial Statements
Union Carbide Corporation's financial statements are prepared by management,
which is responsible for their fairness, integrity and objectivity. The
accompanying financial statements have been prepared in conformity with
generally accepted accounting principles and, accordingly, include amounts
that are estimates and judgments. All historical financial information in this
annual report is consistent with the accompanying financial statements.
The corporation maintains accounting systems, including internal accounting
controls monitored by a staff of internal auditors, that are designed to
provide reasonable assurance of the reliability of financial records and the
protection of assets. The concept of reasonable assurance is based on
recognition that the cost of a system must not exceed the related benefits.
The effectiveness of those systems depends primarily upon the careful
selection of financial and other managers, clear delegation of authority and
assignment of accountability, inculcation of high business ethics and
conflict-of-interest standards, policies and procedures for coordinating the
management of corporate resources and the leadership and commitment of top
management.
The corporation's financial statements are audited by KPMG LLP, independent
certified public accountants, in accordance with generally accepted auditing
standards. These standards provide for the auditors to consider the
corporation's internal control structure to the extent they deem necessary in
order to issue their opinion on the financial statements.
The Audit Committee of the board of directors, which consists solely of
nonemployee directors, is responsible for overseeing the functioning of the
accounting system and related controls and the preparation of annual financial
statements. The Audit Committee recommends to the board of directors the
selection of the independent auditors, which is submitted to the stockholders
for ratification. The Audit Committee periodically meets with the independent
auditors, management and internal auditors to review and evaluate their
accounting, auditing and financial reporting activities and responsibilities.
The independent and internal auditors have full and free access to the Audit
Committee and meet with the committee, with and without management present.
William H. Joyce John K. Wulff
Chairman, President and Vice-President, Chief Financial
Chief Executive Officer Officer and Controller
Danbury, Conn.
Jan. 22, 1999
Independent Auditors' Report
KPMG LLP
To the Stockholders and Board of Directors of Union Carbide Corporation:
We have audited the accompanying consolidated balance sheet of Union Carbide
Corporation and subsidiaries as of Dec. 31, 1998 and 1997, and the related
consolidated statements of income, stockholders' equity, and cash flows for
each of the years in the three-year period ended Dec. 31, 1998. These
consolidated financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Union
Carbide Corporation and subsidiaries at Dec. 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended Dec. 31, 1998, in conformity with generally accepted
accounting principles.
KPMG LLP
Stamford, Conn.
Jan. 22, 1999
- 44 -
<PAGE>
Quarterly Data
<TABLE>
<CAPTION>
Union Carbide Corporation and Subsidiaries
Millions of dollars 1Q 2Q 3Q 4Q Year
<S> <C> <C> <C> <C> <C>
1998
Net sales $1,561 $1,459 $1,350 $1,289 $5,659
Cost of sales 1,161 1,087 1,036 1,010 4,294
Gross profit 400 372 314 279 1,365
Depreciation and amortization 95 98 95 101 389
Operating profit 232 203 190(b)(c) 178(b) 803
Net income 142 118 76 67 403
Net income - common stockholders 142 118 76 67 403
1997
Net sales $1,638 $1,666 $1,659 $1,539 $6,502
Cost of sales 1,231 1,220 1,199 1,156 4,806
Gross profit 407 446 460 383 1,696
Depreciation and amortization 82 87 87 84 340
Operating profit 247 291 291 216 1,045
Income before cumulative effect of
change in accounting principle 157 191 181 147 676
Cumulative effect of change in
accounting principle - - - (17) (17)
Net income 157 191 181 130 659
Net income - common stockholders 155 188 179 130 652
<FN>
(b) Includes $118 million and $71 million in the third and fourth quarters,
respectively, of favorable litigation settlements related to the UNIPOL
Systems business.
(c) Includes $53 million in losses associated with Aspell Polymeres SNC, the
corporation's joint venture in France.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Dollars per common share 1Q 2Q 3Q 4Q Year
<S> <C> <C> <C> <C> <C>
1998
Basic -
Net income - common stockholders $ 1.03 $ 0.87 $ 0.56 $ 0.50 $ 2.98
Diluted -
Net income - common stockholders 1.01 0.85 0.55 0.49 2.91
Cash dividends declared 0.2250 0.2250 0.2250 0.2250 0.90
Market price - high(a) 50.3125 55.7500 55.6250 46.2500 55.7500
Market price - low(a) 40.1250 45.3125 36.7500 37.4375 36.7500
1997
Basic -
Income before cumulative effect of
change in accounting principle $ 1.17 $ 1.46 $ 1.34 $ 1.07 $ 5.02
Cumulative effect of change in
accounting principle - - - (0.13) (0.13)
Net income - common stockholders 1.17 1.46 1.34 0.94 4.89
Diluted -
Income before cumulative effect of
change in accounting principle 1.03 1.28 1.18 1.04 4.53
Cumulative effect of change in
accounting principle - - - (0.12) (0.12)
Net income - common stockholders 1.03 1.28 1.18 0.92 4.41
Cash dividends declared 0.1875 0.1875 0.4125 - 0.7875
Market price - high(a) 49.3750 50.6250 56.8125 50.1250 56.8125
Market price - low(a) 40.5000 42.5000 46.6875 41.4375 40.5000
<FN>
(a) Prices are based on New York Stock Exchange Composite Transactions.
</FN>
</TABLE>
- 45 -
<PAGE>
Corporate Information
1999 Annual Meeting
The 1999 annual meeting of stockholders will be held on Wednesday, April 28,
at the John C. Creasy Health Education Center, 24 Hospital Ave., Danbury, CT
06810, beginning at 10 A.M.
A notice of the annual meeting, a proxy statement and a proxy voting card
will be mailed to each stockholder in March, together with a copy of this
annual report.
General Offices
The general offices of Union Carbide Corporation are located at 39 Old
Ridgebury Road, Danbury, CT 06817-0001 (Telephone: 203-794-2000).
Stock Exchanges
Union Carbide stock is traded primarily on the New York Stock Exchange
(ticker symbol: UK). The stock is also listed on the Chicago and Pacific Stock
Exchanges in the U.S.
Stock Records and Transfer
The corporation acts as its own stock transfer agent through its Shareholder
Services Department, which maintains stockholder records, transfers stock and
answers questions regarding stockholders' accounts, including dividend
reinvestment accounts. Stockholders wishing to transfer stock or to change the
name on a stock certificate should contact Shareholder Services for
assistance. The registrar is ChaseMellon Shareholder Services.
Dividend Reinvestment
Stockholders of record may purchase shares directly through Union Carbide's
Dividend Reinvestment and Stock Purchase Plan. Under the plan, shares may be
purchased from Union Carbide free of commissions and service charges.
Requests for a prospectus that explains the plan in detail should be
directed to the Shareholder Services Department (Telephone: 800-934-3350).
Form 10-K
A Form 10-K report for the year ended Dec. 31, 1998, will be available in
April 1999. A copy without exhibits may be obtained without charge by writing
to Union Carbide Corporation, Bruce D. Fitzgerald, secretary, 39 Old Ridgebury
Road, Danbury, CT 06817-0001.
Charitable Contributions Booklet
Union Carbide annually publishes a booklet that lists organizations
receiving charitable, educational, cultural or similar grants of $250 or more
from the corporation. The booklet is available on written request to the
secretary.
RESPONSIBLE CARE Progress Report
This report covers health, safety and environmental progress at Union
Carbide. Information includes performance data for U.S. and other worldwide
locations, RESPONSIBLE CARE goals, and progress Carbide made in 1998 as it
completed implementation of RESPONSIBLE CARE management practices. To obtain a
copy, write to Union Carbide Corporation, Public Affairs Department, Section
L4-505, 39 Old Ridgebury Road, Danbury, CT 06817-0001 (Telephone: 800-552-
5272).
Inquiries
- - Inquiries from the public about Union Carbide and its products and services
should be directed to the Corporate Information Center, Union Carbide
Corporation, Section N-0, 39 Old Ridgebury Road, Danbury, CT 06817-0001
(Telephone: 203-794-5300).
- - Inquiries about stockholder accounts and dividend reinvestment should be
directed to Union Carbide Corporation, William H. Smith, manager,
Shareholder Services Department, Section G1-328, 39 Old Ridgebury Road,
Danbury, CT 06817-0001 (Telephone: 203-794-3350).
- - Investors, financial analysts and portfolio managers should direct
questions about Union Carbide to Union Carbide Corporation, D. Nicholas
Thold, director of investor relations, Investor Relations Department,
Section E4-286, 39 Old Ridgebury Road, Danbury, CT 06817-0001 (Telephone:
203-794-6440).
- - Financial journalists should direct questions to Union Carbide Corporation,
David N. Kernis, assistant director, communications, Public Affairs
Department, Section L4-502, 39 Old Ridgebury Road, Danbury, CT 06817-0001
(Telephone: 203-794-6929).
- - Information about Union Carbide also may be found on the company's home
page on the Internet at www.unioncarbide.com. Union Carbide's site provides
information in five categories: general, financial, business, RESPONSIBLE
CARE and recruitment.
- 46 -
<PAGE>
Directors and Corporate Officers
Directors
C. Fred Fetterolf
Retired director, president and chief operating officer of Aluminum Company of
America. A UCC director since 1987, he chairs the Health, Safety &
Environmental Affairs (HS&EA) Committee and serves on the Audit, Compensation
& Management Development and Nominating Committees.
Rainer E. Gut
Chairman of Credit Suisse Group, Zurich, Switzerland, Credit Suisse First
Boston and Credit Suisse. A UCC board member since 1994, he chairs the Finance
and Pension Committee and is a member of the Compensation & Management
Development and Nominating Committees.
Vernon E. Jordan, Jr.
Senior partner of Akin, Gump, Strauss, Hauer & Feld LLP. He is chairman of the
Nominating Committee and a member of the Executive, Finance & Pension and
Public Policy Committees. He has been a board member since 1987.
William H. Joyce
Chairman, president and chief executive officer of Union Carbide Corporation.
A director since 1992, he is chairman of the Executive Committee.
Robert D. Kennedy
Chairman of UCAR International Inc., and retired chairman and chief executive
officer of Union Carbide Corporation. A director since 1985, he serves on the
Audit, Executive, Nominating and Public Policy Committees.
Ronald L. Kuehn, Jr.
Director and chairman, president and chief executive officer of Sonat, Inc. A
UCC board member since 1984, he chairs the Compensation & Management
Development Committee and serves on the Executive, Finance & Pension and HS&EA
Committees.
Rozanne L. Ridgway
Former assistant secretary of state for Europe and Canada. A director since
1990, she chairs the Public Policy Committee and is a member of the Audit,
HS&EA and Nominating Committees.
James M. Ringler
Director and chairman, president and chief executive officer of Premark
International, Inc. He has been a director since 1996 and is chairman of the
Audit Committee and a member of the Compensation & Management Development,
Finance & Pension and HS&EA Committees.
Paul J. Wilhelm
President of the U.S. Steel Group of USX Corporation and a director of that
corporation. Elected a director in 1998, he serves on the HS&EA and Public
Policy Committees.
Corporate Officers
William H. Joyce
Chairman of the Board, President and Chief Executive Officer
Joseph S. Byck
Vice-President, Strategic Planning, Investor Relations and Public Affairs
Bruce D. Fitzgerald
Vice-President, General Counsel and Secretary
James F. Flynn
Vice-President, General Manager, Solvents, Intermediates and Monomers
Malcolm A. Kessinger
Vice-President, Human Resources
Lee P. McMaster
Vice-President, General Manager, Specialty Polymers and Products, UCAR
Emulsion Systems
Joseph C. Soviero
Vice-President, Corporate Ventures
Roger B. Staub
Vice-President, General Manager, UNIPOL Systems
John K. Wulff
Vice-President, Chief Financial Officer and Controller
Other Senior Management
Eugene J. Boros
Vice-President, Research and Development
Ruth E. Bruch
Vice-President, Chief Information Officer
David L. Brucker
Vice-President, Engineering and Operations
Graham S. Cattell
Vice-President, Engineering
Ron J. Cottle
Vice-President, Health, Safety and Environment
R. Duane Dickson
Vice-President, General Manager, Industrial Performance Chemicals
John L. Gigerich
Vice-President, Purchasing, Information Technology and Supply Chain Management
Kevin P. Lynch
Vice-President, General Manager, UNIPOL Polymers
Philip F. McGovern
Vice-President, Tax
Daniel C. Scheid
Vice-President, General Manager, Ethylene Oxide/Glycol
Lee C. Stewart
Vice-President and Treasurer
Vince F. Villani
Vice-President, General Manager, Olefins
Donald R. Wood
Vice-President, Polypropylene Resins
John P. Yimoyines
Vice-President, General Manager, Specialty Polyolefins
- 47 -
<PAGE>
Union Carbide Around the World
United States & Puerto Rico
Alabama* New Jersey
California New York*
Colorado North Carolina
Connecticut Texas*
District of Columbia Vermont
Georgia West Virginia
Illinois* Puerto Rico
Louisiana*
Canada
Alberta* Quebec*
Ontario
Europe
Austria Russia
Belgium Spain
Czech Republic Sweden
France* Switzerland
Germany* Turkey
Italy* United Kingdom*
Poland
Latin America
Argentina Ecuador
Brazil Guatemala
Chile Mexico
Colombia Peru
Costa Rica Venezuela
Far East & other
Australia Morocco
China* Philippines
Egypt Singapore
Hong Kong South Africa
Indonesia South Korea*
Japan* Sri Lanka
Jordan Taiwan
Kuwait* Thailand
Malaysia United Arab Emirates
*Including joint venture locations.
Definition of Terms
Unless the context otherwise requires, the terms below refer to the following:
Union Carbide Corporation, Union Carbide Corporation,
Union Carbide, Carbide, the parent company, and its
the corporation, we, our, consolidated subsidiaries
the company, UCC
Domestic United States and
Puerto Rico
Domestic operations Operations of Union
Carbide in this area,
including exports
International operations Operations of Union
Carbide in areas of the world
other than the United States
and Puerto Rico
Joint ventures Partnerships and corporate
investments of Union
Carbide Corporation
accounted for under the
equity method of accounting
The use of these terms is for convenience of reference only. The consolidated
subsidiaries are separate legal entities that are managed by, and accountable
to, their respective boards of directors.
CARBITOL, CARBOWAX, CELLOSIZE, CELLOSOLVE, CYRACURE, EMKADIXOL, FLEXOL,
FLEXOMER, NEULON, NORKOOL, LP OXO, POLYOX, POLYPHOBE, SELEXOL, TERGITOL, TONE,
TRITON, TUFLIN, UCAR, UCARSOL, UCARTHERM, UCON, UCURE, UNICARB, UNIPOL, and
UNION CARBIDE are trademarks of Union Carbide.
RESPONSIBLE CARE is a registered service mark of the Canadian Chemical
Producers Association and the Chemical Manufacturers Association.
EQUATE is a trademark of EQUATE Petrochemical Company K.S.C. of Kuwait.
- 48 -
<PAGE>
(Inside back cover)
Printed on Recycled, Recylable Paper.
Printed in U.S.A.
<PAGE>
(Back cover)
(The back cover depicts a hexagon containing the words "Union Carbide".)
Union Carbide Corporation
39 Old Ridgebury Road
Danbury, Connecticut 06817-0001
UC-1800
<PAGE>
Exhibit 21
Percentage
of Voting
State or Securities
Sovereign Owned By
Power of Immediate
Name of Company Incorporation Parent
Union Carbide Corporation (the "Corporation") New York - %
Subsidiaries included in the Consolidated Financial Statements except where
noted otherwise:
Amerchol Corporation Delaware 100.00
Benefit Capital Management Corporation Delaware 100.00
Calidria Corporation Delaware 100.00
Catalysts, Adsorbents & Process Systems, Inc. Maryland 100.00
Dexter Realty Corporation Ohio 100.00
JWS Hampshire, Inc. Delaware 100.00
KTI Chemicals, Inc. Delaware 100.00
P.T. Union Carbide Indonesia Indonesia 100.00
Prentiss Glycol Company Delaware 100.00
Seadrift Pipeline Corporation Delaware 100.00
South Charleston Sewage Treatment Co. West Virginia 100.00
UCAR Emulsion Systems International, Inc. Delaware 100.00
UCAR Interm, Inc. Delaware 100.00
UCAR Louisiana Pipeline Company Delaware 100.00
UCAR Pipeline Inc. Delaware 100.00
UCAR, Polimeros y Quimicos C.A. Ecuador 100.00
UCAR Resinas Caribe Inc. Delaware 100.00
UCAR Vanor (Proprietary) Limited South Africa 100.00
UCEX (U.K.) Limited England 100.00
Umetco Minerals Corporation Delaware 100.00
Union Carbide Argentina S.A.I.C.S. Argentina 100.00
Union Carbide Asia Limited Hong Kong 100.00
Union Carbide Asia Pacific, Inc. Delaware 100.00
Union Carbide Benelux N.V. Belgium (1)
Union Carbide do Brasil S/A Brazil 100.00
Union Carbide Caribe LLC Delaware 100.00
Union Carbide Canada Inc. Canada 100.00
Union Carbide Chemicals and Plastics
Technology Corporation Delaware 100.00
Union Carbide Chemicals (Australia) Pty. Ltd. Australia 100.00
Union Carbide Chemicals Korea Limited Korea 100.00
Union Carbide Chemicals (Malaysia) Sdn. Bhd. Malaysia 100.00
Union Carbide Comercial, C.A. Venezuela 100.00
Union Carbide Customer Services Pte. Ltd. Singapore 100.00
Union Carbide Engineering and Hydrocarbons
Service Company, Inc. Delaware 100.00
Union Carbide Ethylene Oxide/Glycol Company Delaware 100.00
Union Carbide (Europe) S.A. Switzerland 100.00
Union Carbide Foreign Sales Corporation US Virgin Is. 100.00
Union Carbide Formosa Co., Ltd. Taiwan 100.00
Union Carbide (Guangdong Zhongshan) Company Limited Peoples .Republic
of China 75.00
(1) 99.83% of the voting securities of Union Carbide Benelux N.V. is owned
by Union Carbide Corporation; and 00.17% by Union Carbide (Europe) S.A.
Percentage
of Voting
State or Securities
Sovereign Owned By
Power of Immediate
Name of Company Incorporation Parent
Union Carbide Corporation. (Continued)
Union Carbide Imaging Systems, Inc. Delaware 100.00
Union Carbide Inter-America Inc. Delaware 100.00
Union Carbide Inter-America Inc. New Jersey 100.00
Union Carbide Japan K.K. Japan 100.00
Union Carbide Limited England 100.00
Union Carbide Pan America, Inc. Delaware 100.00
Union Carbide Philippines (Far East) Inc. Philippines 100.00
Union Carbide Quimica Ltda. Brazil 100.00
Union Carbide Quimicos y Plasticos, S.A. de C.V. Mexico 100.00
Union Carbide South Africa (Proprietary) Limited South Africa 100.00
Union Carbide Subsidiary C, Inc. Delaware 100.00
Union Carbide Subsidiary L, Inc. Delaware 100.00
Union Carbide Subsidiary M, Inc. Delaware 100.00
Union Carbide Subsidiary Y, Inc. Delaware 100.00
Union Carbide Subsidiary Z, Inc. Delaware 100.00
Union Carbide Thailand Limited Thailand 100.00
Union Carbide Wire & Cable Company, Inc. Delaware 100.00
Union Polymers Sdn. Bhd. Malaysia 60.00
Westbridge Insurance Ltd. Bermuda 100.00
Companies reported in the Consolidated Financial Statements on an Equity in
Net Assets Basis included:
Asian Acetyls Rep. of Korea 33.00
Alberta & Orient Glycol Company Limited Canada 50.00
ASPELL Polymeres SNC France 50.00
Commercial Alcohols Limited Canada 50.00
Equate Petrochemical Company K.S.C. Kuwait 45.00
Nippon Unicar Company Limited Japan 50.00
Petromont and Company, Limited Partnership Canada 49.95
Petromont Inc. Canada 50.00
Polimeri Europa S.r.l. Italy 50.00
Seadrift Polypropylene Company Texas 50.00
Shawinigan Pipeline Reg'd. Canada 50.00
Union Carbide Lanka Limited Sri Lanka 49.00
UOP LLC New York 50.00
Univation Technology, LLC Delaware 50.00
Union Showa K.K. Japan 50.00
World Ethanol Company Illinois 50.00
* * * * * * * * * * * *
The names of the Corporation's other consolidated subsidiaries and companies
carried on an equity in net assets basis are not listed. These subsidiaries
and companies, if considered in the aggregate as a single subsidiary, would
not constitute a significant subsidiary. In addition, the Corporation has
investments in other subsidiaries and 20-to-50%-owned companies for which
financial statements are not submitted because all such subsidiaries and
companies, considered in the aggregate as a single subsidiary, would not
constitute a significant subsidiary.
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Union Carbide Corporation
We consent to the incorporation by reference in each of the Registration
Statements of Union Carbide Corporation on Form S-3 (Nos. 33-26185, 33-60705
333-17309 and 333-59635), and on Form S-8 (Nos. 2-90419, 33-22125, 33-38714,
33-53573, 33-58931, 333-02829, 333-38493, 333-38495 and 333-74079) of our
reports dated January 22, 1999, relating to the consolidated balance sheets
of Union Carbide Corporation and subsidiaries as of December 31, 1998 and 1997,
and the related consolidated statements of income, stockholders' equity and
cash flows and related schedule for each of the years in the three-year period
ended December 31, 1998, appearing and incorporated by reference in the Annual
Report on Form 10-K of Union Carbide Corporation for the year ended
December 31, 1998.
KPMG LLP
Stamford, Connecticut
March 25, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNION
CARBIDE CORPORATION'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 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> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 49
<SECURITIES> 0
<RECEIVABLES> 933
<ALLOWANCES> 0
<INVENTORY> 667
<CURRENT-ASSETS> 1906
<PP&E> 8409
<DEPRECIATION> 4228
<TOTAL-ASSETS> 7291
<CURRENT-LIABILITIES> 1470
<BONDS> 1796
0
0
<COMMON> 155
<OTHER-SE> 2294
<TOTAL-LIABILITY-AND-EQUITY> 7291
<SALES> 5659
<TOTAL-REVENUES> 5659
<CGS> 4294
<TOTAL-COSTS> 4294
<OTHER-EXPENSES> 532<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 114
<INCOME-PRETAX> 689
<INCOME-TAX> 217
<INCOME-CONTINUING> 403
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 403
<EPS-PRIMARY> 2.98<F2>
<EPS-DILUTED> 2.91<F2>
<FN>
<F1>Other expenses are equal to Research and development of 143 and Depreciation
and amortization of 389.
<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>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains restated summary financial information extracted from
Union Carbide Corporation's Annual Report on Form 10-K for the years ended
December 31, 1997 and December 31, 1996, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<RESTATED>
<CIK> 0000100790
<NAME> UNION CARBIDE CORPORATION
<MULTIPLIER> 1,000,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> DEC-31-1997 DEC-31-1996
<CASH> 20 57
<SECURITIES> 0 0
<RECEIVABLES> 993 1047
<ALLOWANCES> 0 0
<INVENTORY> 604 541
<CURRENT-ASSETS> 1866 1873
<PP&E> 7707 7159
<DEPRECIATION> 3927 3750
<TOTAL-ASSETS> 6964 6546
<CURRENT-LIABILITIES> 1504 1278
<BONDS> 1458 1487
0 144
0 0
<COMMON> 155 155
<OTHER-SE> 2193 1959
<TOTAL-LIABILITY-AND-EQUITY> 6964 6546
<SALES> 6502 6106
<TOTAL-REVENUES> 6502 6106
<CGS> 4806 4568
<TOTAL-COSTS> 4806 4568
<OTHER-EXPENSES> 497<F1> 471<F1>
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 79 76
<INCOME-PRETAX> 966 845
<INCOME-TAX> 279 236
<INCOME-CONTINUING> 676 593
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 17 0
<NET-INCOME> 659 593
<EPS-PRIMARY> 4.89<F2> 4.43<F2>
<EPS-DILUTED> 4.41<F2> 3.90<F2>
<FN>
<F1>Other expenses in 1997 are equal to research and development of 157 and
depreciation and amortization of 340. Other expenses in 1996 are equal to
research and development of 159 and depreciation and amortization of 312.
<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>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains restated summary financial information extracted from
Union Carbide Corporation's Quarterly Reports on Form 10-Q for the three months
ended March 31, 1997, the six months ended June 30, 1997 and the nine months
ended September 30, 1997, and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<RESTATED>
<CIK> 0000100790
<NAME> UNION CARBIDE CORPORATION
<MULTIPLIER> 1,000,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 JAN-01-1997 JAN-01-1997
<PERIOD-END> MAR-31-1997 JUN-30-1997 SEP-30-1997
<CASH> 175 72 86
<SECURITIES> 0 0 0
<RECEIVABLES> 1082 1079 1064
<ALLOWANCES> 0 0 0
<INVENTORY> 553 544 556
<CURRENT-ASSETS> 2028 1923 1954
<PP&E> 7274 7424 7577
<DEPRECIATION> 3809 3855 3886
<TOTAL-ASSETS> 6795 6770 6975
<CURRENT-LIABILITIES> 1221 1131 1306
<BONDS> 1494 1467 1459
140 140 138
0 0 0
<COMMON> 155 155 155
<OTHER-SE> 1972 2053 2063
<TOTAL-LIABILITY-AND-EQUITY> 6795 6770 6975
<SALES> 1638 3304 4963
<TOTAL-REVENUES> 1638 3304 4963
<CGS> 1231 2451 3650
<TOTAL-COSTS> 1231 2451 3650
<OTHER-EXPENSES> 122<F1> 250<F1> 374<F1>
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 19 38 57
<INCOME-PRETAX> 228 500 772
<INCOME-TAX> 66 145 228
<INCOME-CONTINUING> 157 348 529
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 157 348 529
<EPS-PRIMARY> 1.17<F2> 2.63<F2> 3.97<F2>
<EPS-DILUTED> 1.03<F2> 2.31<F2> 3.49<F2>
<FN>
<F1>Other expenses for the three months ended March 31, 1997 are equal to research
and development of 40 and depreciation and amortization of 82. Other expenses
for the six months ended June 30, 1997 are equal to research and development of
81 and depreciation and amortization of 169. Other expenses for the nine
months ended September 30, 1997 are equal to research and development of 118
and depreciation and amortization of 256.
<F2>The EPS-PRIMARY amount represents basic earnings per share and the EPS-DILUTED
amount represents deiluted earnings per share, computed in accordance with
Statement of Financial Accounting Standards No. 128 "Earnings Per Share."
</FN>
</TABLE>
