UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D C 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-1463
UNION CARBIDE CORPORATION
(Exact name of registrant as specified in its charter)
New York 13-1421730
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
39 Old Ridgebury Road, Danbury, CT 06817-0001
(Address of principal executive offices) (Zip Code)
203-794-2000
Registrant's telephone number, including area code
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No _______
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at July 31, 1999
Common Stock, $1 par value 133,180,727 shares
Total number of sequentially numbered pages in this filing,
including exhibits thereto: 27
<PAGE>
UNION CARBIDE CORPORATION AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
PAGE
Item 1. Financial Statements of Union Carbide Corporation and
Subsidiaries
Condensed Consolidated Statement of Income -
Quarter ended June 30, 1999 and 1998................... 3
Condensed Consolidated Statement of Income -
Six months ended June 30, 1999 and 1998................ 4
Condensed Consolidated Balance Sheet -
June 30, 1999 and December 31, 1998.................... 5
Condensed Consolidated Statement of Cash Flows -
Six months ended June 30, 1999 and 1998................ 6
Notes to Condensed Consolidated Financial Statements..... 7-13
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 14-23
Item 3. Quantitative and Qualitative Disclosure About Market Risk. 15-16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................ 24
Item 6. Exhibits and Reports on Form 8-K......................... 24
Signature.......................................................... 25
Exhibit Index...................................................... 26
Cautionary statement: All statements in this Quarterly Report on Form 10-Q
that do not reflect historical information are forward-looking statements,
within the meaning of the Private Securities Litigation Reform Act of 1995 (as
amended). Forward-looking statements include statements concerning the pending
merger with The Dow Chemical Company (the "Dow Merger"); plans; objectives;
strategies; anticipated future events or performance; sales; cost, expense and
earnings expectations; the Year 2000 issue; interest rate and currency risk
management; the chemical markets in 1999 and beyond; cost reduction targets;
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; disruption in transportation facilities;
competitive technology positions; failure by the corporation to achieve
technology objectives, Year 2000 readiness, achieve cost reduction targets or
complete projects on schedule and on budget; inability to obtain new customers
or retain existing ones; and with respect to the Dow Merger, failure to obtain
necessary regulatory and other governmental approvals and failure to satisfy
conditions of the merger agreement.
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<PAGE>
PART I. FINANCIAL INFORMATION
<TABLE>
UNION CARBIDE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
<CAPTION>
Millions of dollars
(Except per share figures)
Quarter ended June 30,
1999 1998
<S> <C> <C>
NET SALES $1,418 $1,459
Cost of sales, exclusive of depreciation and
amortization 1,115 1,087
Research and development 39 36
Selling, administrative and other expenses(a) 57 72
Depreciation and amortization 95 98
Partnership income (loss) (4) 27
Other income - net 27 10
INCOME BEFORE INTEREST EXPENSE AND PROVISION FOR
INCOME TAXES 135 203
Interest expense 35 29
INCOME BEFORE PROVISION FOR INCOME TAXES 100 174
Provision for income taxes 25 51
INCOME OF CONSOLIDATED COMPANIES AND PARTNERSHIPS 75 123
Minority interest 1 1
Loss from corporate investments carried at equity 18 4
NET INCOME $ 56 $ 118
Earnings per common share
Basic $ 0.42 $ 0.87
Diluted $ 0.41 $ 0.85
Cash dividends declared per common share $ 0.225 $ 0.225
(a) Selling, administrative and other expenses include:
Selling $ 23 $ 23
Administrative 16 29
Other expenses 18 20
$ 57 $ 72
<FN>
The Notes to Condensed Consolidated Financial Statements on Pages 7 through 13
should be read in conjunction with this statement.
</FN>
</TABLE>
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<PAGE>
<TABLE>
UNION CARBIDE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
<CAPTION>
Millions of dollars
(Except per share figures)
Six months ended June 30,
1999 1998
<S> <C> <C>
NET SALES $2,820 $3,020
Cost of sales, exclusive of depreciation and
amortization 2,157 2,248
Research and development 76 73
Selling, administrative and other expenses(a) 127 156
Depreciation and amortization 199 193
Partnership income 2 64
Other income - net 41 21
INCOME BEFORE INTEREST EXPENSE AND PROVISION FOR
INCOME TAXES 304 435
Interest expense 66 56
INCOME BEFORE PROVISION FOR INCOME TAXES 238 379
Provision for income taxes 59 110
INCOME OF CONSOLIDATED COMPANIES AND PARTNERSHIPS 179 269
Minority interest 2 2
Loss from corporate investments carried at equity 50 7
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE 127 260
Cumulative effect of change in accounting principle (20) -
NET INCOME $ 107 $ 260
Earnings per common share
Basic -
Income before cumulative effect of change
in accounting principle $ 0.95 $ 1.91
Cumulative effect of change in accounting principle (0.15) -
Net income 0.80 1.91
Diluted -
Income before cumulative effect of change
in accounting principle $ 0.93 $ 1.86
Cumulative effect of change in accounting principle (0.14) -
Net income 0.79 1.86
Cash dividends declared per common share $ 0.45 $ 0.45
(a) Selling, administrative and other expenses include:
Selling $ 46 $ 49
Administrative 41 58
Other expenses 40 49
$ 127 $ 156
<FN>
The Notes to Condensed Consolidated Financial Statements on Pages 7 through 13
should be read in conjunction with this statement.
</FN>
</TABLE>
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<PAGE>
<TABLE>
UNION CARBIDE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
<CAPTION>
Millions of dollars
June 30, Dec. 31,
1999 1998
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 41 $ 49
Notes and accounts receivable 1,075 933
Inventories 599 667
Other current assets 247 257
Total current assets 1,962 1,906
Property, plant and equipment 8,714 8,409
Less: Accumulated depreciation 4,363 4,228
Net fixed assets 4,351 4,181
Companies carried at equity 561 624
Other investments and advances 119 141
Total investments and advances 680 765
Other assets 472 439
Total assets $ 7,465 $7,291
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 259 $ 264
Short-term debt and current portion of
long-term debt 419 426
Accrued income and other taxes 22 110
Other accrued liabilities 662 670
Total current liabilities 1,362 1,470
Long-term debt 2,044 1,796
Postretirement benefit obligation 439 450
Other long-term obligations 591 602
Deferred credits 550 488
Minority stockholders' equity in consolidated
subsidiaries 38 36
Stockholders' equity:
Common stock - authorized - 500,000,000 shares
- issued - 156,563,343 shares 157 155
(155,052,017 shares in 1998)
Additional paid-in capital 114 79
Other equity adjustments (2) (2)
Accumulated other comprehensive loss (157) (104)
Retained earnings 3,404 3,357
Unearned employee compensation - ESOP (56) (67)
Treasury stock, at cost-23,415,856 shares
(22,366,017 shares in 1998) (1,019) (969)
Total stockholders' equity 2,441 2,449
Total liabilities and stockholders' equity $ 7,465 $7,291
<FN>
The Notes to Condensed Consolidated Financial Statements on Pages 7 through 13
should be read in conjunction with this statement.
</FN>
</TABLE>
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<PAGE>
<TABLE>
UNION CARBIDE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
Millions of dollars
Six months ended June 30,
1999 1998
Increase (decrease) in
cash and cash equivalents
OPERATIONS
<S> <C> <C>
Income before cumulative effect of change in
accounting principle $ 127 $ 260
Noncash charges (credits) to net income
Depreciation and amortization 199 193
Deferred income taxes 81 98
Equity in (earnings) losses of joint ventures,
net of cash received 68 4
Other 21 38
Increase in working capital(a) (215) (200)
Long-term assets and liabilities (33) (36)
Cash Flow From Operations 248 357
INVESTING
Capital expenditures (381) (357)
Investments, advances and acquisitions (62) (23)
Proceeds from the sale of
available-for-sale securities 18 17
Purchase of available-for-sale securities (28) (22)
Sale of fixed and other assets 19 6
Cash Flow Used For Investing (434) (379)
FINANCING
Change in short-term debt (3 months or less) 20 (73)
Proceeds from short-term debt 2 25
Repayments of short-term debt (8) -
Proceeds from long-term debt 285 248
Repayments of long-term debt (52) (3)
Issuance of common stock 30 24
Purchase of common stock (50) (129)
Payment of dividends (60) (61)
Other 11 9
Cash Flow From Financing 178 40
Effect of exchange rate changes on cash and
cash equivalents - -
Change in cash and cash equivalents (8) 18
Cash and cash equivalents beginning-of-period 49 20
Cash and cash equivalents end-of-period $ 41 $ 38
Cash paid for interest and income taxes
Interest (net of amount capitalized) $ 72 $ 54
Income taxes $ 18 $ 24
<FN>
(a) Net change in certain components of working capital (excluding
non-cash expenditures):
(Increase) decrease in current assets
Notes and accounts receivable $(146) $ (1)
Inventories 71 (15)
Other current assets (20) 7
Decrease in payables and accruals (120) (191)
Increase in working capital $(215) $(200)
The Notes to Condensed Consolidated Financial Statements on Pages 7 through 13
should be read in conjunction with this statement.
</FN>
</TABLE>
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<PAGE>
UNION CARBIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Consolidated Financial Statements
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements include all adjustments necessary for a
fair statement of the results for the interim periods. These adjustments
consist of only normal recurring adjustments. The accompanying statements
should be read in conjunction with the Notes to Financial Statements of
Union Carbide Corporation and Subsidiaries ("the corporation" or "UCC") in
the 1998 annual report to stockholders.
Unrealized gains and losses resulting from translating foreign
subsidiaries' assets and liabilities into U.S. dollars generally are
recognized as part of "Comprehensive Income," and are included in
"Accumulated other comprehensive loss" on the Condensed Consolidated
Balance Sheet until such time as the subsidiary is sold or substantially
or completely liquidated. Translation gains and losses relating to 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 Condensed Consolidated Statement of Income.
Certain amounts have been reclassified to conform to the current period's
presentation.
2. Comprehensive Income
The following summary presents the components of comprehensive income:
<TABLE>
<CAPTION>
Millions of dollars Quarter Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net income $56 $118 $107 $260
Other comprehensive income (loss):
Unrealized gains and losses on
available-for-sale securities, net of
reclassification adjustment, net of tax 2 (2) 2 4
Foreign currency translation adjustments (2) (16) (55) (8)
Total comprehensive income $56 $100 $ 54 $256
</TABLE>
3. Inventories
<TABLE>
<CAPTION>
June 30, Dec. 31,
Millions of dollars 1999 1998
<S> <C> <C>
Raw materials and supplies $148 $187
Work in process 50 41
Finished goods 401 439
$599 $667
</TABLE>
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<PAGE>
4. 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. 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.
Sales of the BC&P segment include intersegment sales, principally ethylene
oxide, which are made at the estimated market value of the products
transferred. The corporation evaluates performance based on Income before
interest expense and provision for income taxes (operating profit).
<TABLE>
<CAPTION>
S&I BC&P Other Total
Millions of dollars
three months ended
<S> <C> <C> <C> <C>
June 30, 1999
Net sales $1,036 $382 $ - $1,418
Intersegment revenues - 54 - 54
Segment revenues 1,036 436 - 1,472
Depreciation and amortization 62 33 - 95
Partnership income (loss) (2) (2) - (4)
Operating profit (loss) 182 (46) (1) 135
Interest expense - - 35 35
Income (loss) from corporate
investments carried at equity - (18) - (18)
June 30, 1998
Net sales $1,060 $399 $ - $1,459
Intersegment revenues - 81 - 81
Segment revenues 1,060 480 - 1,540
Depreciation and amortization 61 37 - 98
Partnership income 24 3 - 27
Operating profit (loss) 166 42 (5) 203
Interest expense - - 29 29
Income (loss) from corporate
investments carried at equity 2 (6) - (4)
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
S&I BC&P Other Total
Millions of dollars
six months ended
<S> <C> <C> <C> <C>
June 30, 1999
Net sales $2,070 $750 $ - $2,820
Intersegment revenues - 107 - 107
Segment revenues 2,070 857 - 2,927
Depreciation and amortization 125 74 - 199
Partnership income 2 - - 2
Operating profit (loss) 385 (84) 3 304
Interest expense - - 66 66
Income (loss) from corporate
investments carried at equity 4 (54) - (50)
June 30, 1998
Net sales $2,180 $840 $ - $3,020
Intersegment revenues - 158 - 158
Segment revenues 2,180 998 - 3,178
Depreciation and amortization 121 72 - 193
Partnership income 61 3 - 64
Operating profit (loss) 368 78 (11) 435
Interest expense - - 56 56
Income (loss) from corporate
investments carried at equity 5 (12) - (7)
</TABLE>
The operating profit of the S&I segment for the three and six months ended
June 30, 1999 includes a $12 million net gain from a litigation settlement.
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<PAGE>
5. Earnings Per Share
<TABLE>
<CAPTION>
Millions of dollars, Quarter Ended June 30, Six Months Ended June 30,
except per share amounts 1999 1998 1999 1998
<S> <C> <C> <C> <C>
Basic -
Income before cumulative effect of change
in accounting principle $ 56 $ 118 $ 127 $ 260
Cumulative effect of change in accounting
principle - - (20) -
Net income $ 56 $ 118 $ 107 $ 260
Weighted average number of shares
outstanding for basic calculation 133,088,173 136,132,527 132,968,994 136,502,193
Earnings per share -
Income before cumulative effect of change
in accounting principle $0.42 $0.87 $0.95 $1.91
Cumulative effect of change in accounting
principle - - (0.15) -
Net income $0.42 $0.87 $0.80 $1.91
Diluted -
Income before cumulative effect of change
in accounting principle $ 56 $ 118 $ 127 $ 260
Cumulative effect of change in accounting
principle - - (20) -
Net income $ 56 $ 118 $ 107 $ 260
Weighted average number of shares
outstanding for basic calculation 133,088,173 136,132,527 132,968,994 136,502,193
Add: Effect of stock options 3,365,490 3,772,915 3,113,510 3,653,583
Weighted average number of shares
outstanding for diluted calculation 136,453,663 139,905,442 136,082,504 140,155,776
Earnings per share -
Income before cumulative effect of change
in accounting principle $0.41 $0.85 $0.93 $1.86
Cumulative effect of change in accounting
principle - - (0.14) -
Net income $0.41 $0.85 $0.79 $1.86
</TABLE>
6. Long-Term Debt
In April 1999, the corporation issued $250 million 6.70 percent Public
Notes due April 2009. These notes pay interest semi-annually in April and
October of each year.
7. Common Stock
Since inception of its repurchase authorization in 1993 through June 30,
1999, the corporation has repurchased 56.4 million shares (1.0 million
during the first six months of 1999) out of a total authorization of 60
million shares, at an average effective price of $36.01 per share. On
August 3, 1999, the Board of Directors rescinded the corporation's
authorization to repurchase shares, under the common stock repurchase
authorization, subsequent to this date.
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<PAGE>
In conjunction with the corporation's repurchase authorization put options
were sold in a series of private placements, all of which were either
exercised or expired unexercised prior to December 31, 1997. Premiums
received were recorded as Additional paid-in capital and reduced the average
price of repurchased shares from $36.25 per share to $36.01 per share, since
inception of the repurchase authorization.
7. Commitments and Contingencies
The corporation has entered into three major agreements for the purchase
of ethylene-related products and two other purchase agreements. The net
present value of the fixed and determinable portion of these obligations
at June 30, 1999 totaled $220 million.
The corporation is subject to loss contingencies resulting from
environmental laws and regulations, which include obligations to remove
or remediate the effects on the environment of the disposal or release of
certain wastes and substances at various sites. The corporation has
established accruals in current dollars for those hazardous waste sites
where it is probable that a loss has been incurred and the amount of the
loss can be reasonably estimated. The reliability and precision of the
loss estimates are affected by numerous factors, such as different stages
of site evaluation, the allocation of responsibility among potentially
responsible parties and the assertion of additional claims. The
corporation adjusts its accruals as new remediation requirements are
defined, as information becomes available permitting reasonable estimates
to be made, and to reflect new and changing facts.
At June 30, 1999, the corporation had established environmental remediation
accruals in the amount of $202 million. These accruals have two components,
estimated future expenditures for site investigation and cleanup and
estimated future expenditures for closure and postclosure activities. In
addition, the corporation had environmental loss contingencies of
$119 million.
The corporation has sole responsibility for the remediation of
approximately 40 percent of its environmental sites. These sites are
well advanced in the investigation and cleanup stage. The corporation's
environmental accruals at June 30, 1999 included $161 million for these
sites, of which $58 million was for estimated future expenditures for
site investigation and cleanup and $103 million was for estimated future
expenditures for closure and postclosure activities. In addition,
$68 million of the corporation's environmental loss contingencies related
to these sites. The two sites with the largest total potential cost to
the corporation are nonoperating sites. Of the above accruals, these
sites accounted for $37 million, of which $17 million was for estimated
future expenditures for site investigation and cleanup and $20 million
was for estimated future expenditures for closure and postclosure
activities. In addition, $42 million of the above environmental loss
contingencies related to these sites.
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<PAGE>
The corporation does not have sole responsibility at the remainder of its
environmental sites. All of these sites are in the investigation and
cleanup stage. The corporation's environmental accruals at June 30, 1999
included $41 million for estimated future expenditures for site
investigation and cleanup at these sites. In addition, $51 million of
the corporation's environmental loss contingencies related to these
sites. The largest three of these sites are also nonoperating sites. Of
the above accruals, these sites accounted for $15 million for estimated
future expenditures for site investigation and cleanup. In addition,
$17 million of the above environmental loss contingencies related to
these sites.
In 1998, worldwide expenses of continuing operations related to
environmental protection for compliance with Federal, state and local
laws regulating solid and hazardous wastes and discharge of materials to
air and water, as well as for waste site remedial activities, totaled $91
million. Expenses in 1997 and 1996 were $100 million and $110 million,
respectively. While estimates of the costs of environmental protection
for 1999 are necessarily imprecise, the corporation estimates that the
level of these expenses will be at a level comparable to the average of
the last three years.
The corporation has severally guaranteed 45 percent (approximately
$526 million at June 30, 1999) of EQUATE Petrochemical Company's
("EQUATE") debt and working capital financing needs until certain
completion and financial tests are achieved. If these tests are met, a
$54 million several guarantee will provide ongoing support thereafter.
The corporation also severally guaranteed certain sales volume targets
until EQUATE's sales capabilities are proved. In addition, the
corporation has pledged its shares in EQUATE as security for EQUATE's
debt. The corporation has political risk insurance coverage for its
equity investment and, through March 31, 2001, substantially all of its
guarantee of EQUATE's debt.
The corporation had additional contingent obligations at June 30, 1999 of
$128 million, of which $32 million related to guarantees of debt.
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
$129 million, and related insurance recovery receivables of $113 million.
At June 30, 1999, the corporation had nonenvironmental litigation loss
contingencies of $62 million.
While it is impossible at this time to determine with certainty the
ultimate outcome of any of the legal proceedings and claims referred to
in this note, management believes that adequate provisions have been made
for probable losses with respect thereto and that such ultimate outcome,
after provisions therefor, will not have a material adverse effect on the
consolidated financial position of the corporation, but could have a
material effect on consolidated results of operations in a given quarter
or year. Should any losses be sustained in connection with any of such
legal proceedings and claims, in excess of provisions therefor, they will
be charged to income when determinable.
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<PAGE>
8. Accounting Changes
Effective January 1, 1999, the corporation adopted the provisions of the
American Institute of Certified Public Accountants ("AICPA") Statement of
Position ("SOP") 98-5, "Reporting on the Costs of Start-Up Activities."
This SOP requires the expensing of certain costs, such as pre-operating
expenses and organizational costs associated with an entity's start-up
activities. In accordance with this SOP's provisions, on January 1, 1999,
the corporation recognized a charge of $27 million ($20 million after tax)
as a cumulative effect of change in accounting principle, the majority of
which represented formation costs associated with the corporation's joint
ventures.
Also effective January 1, 1999, the corporation prospectively adopted the
provisions of the AICPA's SOP 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." The effect of this
adoption was not material to the corporation's results of operations or
financial condition in the quarter of adoption and is not expected to be
material to the corporation's results of operations or financial
condition for the year ending December 31, 1999.
In 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("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, as amended by Statement No.
137 "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133," is effective
for all fiscal quarters of fiscal years beginning after June 15, 2000.
The corporation is currently evaluating the effect this Statement will
have on its financial position and results of operations in the period of
adoption.
9. Subsequent Events
In July 1999, the corporation received a favorable licensing litigation
settlement of $38 million, which will be included in Other income of
the S&I segment in the third quarter of 1999.
On August 3, 1999 the corporation and The Dow Chemical Company ("Dow")
entered a definitive Agreement and Plan of Merger. Under the agreement
the corporation's shareholders will receive 0.537 shares of Dow Common
Stock for each share of UCC Common Stock they own as of the date of the
merger, which is not anticipated to occur before the first quarter of
2000. Additionally, the merger is subject to approval by UCC
shareholders, and review by antitrust regulatory authorities in the United
States, Europe and Canada.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Union Carbide operates in two business segments. The Specialties &
Intermediates ("S&I") segment 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. The Basic Chemicals &
Polymers ("BC&P") 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 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 non-core operations and financial transactions other than derivatives
designated as hedges, which are included in the same segment as the item being
hedged.
Summary
The corporation reported second quarter net income of $56 million, or $0.41
per diluted share ($0.42 per basic share). For the corresponding quarter in
1998 the corporation reported net income of $118 million, or $0.85 per diluted
share ($0.87 per basic share). Net income for the six months ended June 30,
1999 was $107 million, or $0.79 per diluted share ($0.80 per basic share)
after the cumulative effect of change in accounting principle of $20 million,
or $0.14 per diluted share ($0.15 per basic share), reported in the first
quarter of 1999. For the same six months of 1998, the corporation reported
net income of $260 million, or $1.86 per diluted share ($1.91 per basic
share). Included in operating profit for the second quarter of 1999 is a net
gain of $12 million ($9 million after-tax) related to a litigation settlement.
Consolidated net sales declined 2.8 percent from $1,459 million for the second
quarter of 1998 to $1,418 million for the second quarter of 1999. This
decline was the result of a 13.8 percent decrease in average selling prices
partially offset by a 12.8 percent increase in customer volume. Consolidated
net sales for the six month period ended June 30, 1999 compared to the same
six months in 1998 decreased 6.6 percent from $3,020 million in 1998 to $2,820
million in 1999. The decline in the six month figures represents a 16.4
percent decline in average selling prices somewhat offset by an 11.5 percent
increase in volume. Declines in average selling prices for the three and six
month periods reflected the continuing declines in average selling prices for
the chemical industry, since 1998, which primarily affected products in the
BC&P segment. However, during the second quarter of 1999, commodity
polyethylene did experience some increase in average selling prices, although
these increases were unable to match the selling price levels experienced in
1998. Both segments benefited from volume increases for the quarter and year-
to-date periods. BC&P experienced the greatest volume benefit due to
increased demand and the absence of transportation delays in the U.S. Gulf
Coast region which occurred during the first half of 1998, while S&I
experienced some increase due to a higher volume of sales to Asia offset
slightly by some seasonal volume declines, particularly in deicers.
- 14 -
<PAGE>
Consolidated unit variable margin (revenues less variable manufacturing and
distribution costs divided by customer volume) declined from 17.9 cents per
pound for the second quarter of 1998 to 14.4 cents per pound for the
comparable period of 1999. Consolidated unit variable margin for the first
half of 1998 was 18.2 cents per pound compared to 15.2 cents per pound in the
first half of 1999. Declines in unit variable margin are largely due to
falling average selling prices, particularly in the BC&P segment, coupled with
rising raw material costs.
Fixed cost per pound of products sold (fixed manufacturing and distribution
costs, plus research and development and selling, administrative and other
expenses, divided by customer volume) dropped from 10.8 cents per pound in the
second quarter of 1998 to 9.5 cents per pound in the second quarter of 1999.
For the first half of 1999, consolidated fixed cost per pound of product sold
was 9.7 cents per pound versus 11.0 cents per pound for the first half of
1998. Declines are primarily due to higher volumes and slightly lower fixed
costs in each of the comparable periods. Decreases in fixed costs, a majority
of which was in selling, administrative and other expenses, reflected lower
spending associated with certain information technology projects and lower
costs of incentive compensation, insurance and taxes.
Partnership income decreased $31 million and $62 million for the three and six
month periods ended June 30, 1999, respectively, as compared to the same
periods in 1998. Declines for each period are principally the result of a
decline in earnings of UOP LLC (UOP), which has been significantly affected by
depressed economic conditions in Asia, Russia and the Middle East since late
1998. The depressed conditions have caused many UOP customers to defer a
number of projects until stronger market conditions exist. Loss from
corporate investments carried at equity increased $14 million and $43 million
for the three and six month periods ended June 30, 1999, respectively,
compared to the same periods in 1998. These increased losses are related to
the decline in worldwide basic chemical and polymer selling prices which began
in 1998, particularly in Asia and Europe, for the comparable periods.
Interest expense increased $6 million and $10 million for the three and six
month periods ended June 30, 1999, respectively, as compared to the three and
six month periods ended June 30, 1998. These increases are the result of
additional debt incurred throughout the periods.
For the quarter and six months ended June 30, 1999, the corporation's tax rate
was 25 percent, a decline of approximately 4 percentage points from the
quarter and six months ended June 30, 1998, principally reflecting the
expected effect of a higher percentage of research and experimentation and
foreign sales corporation tax credits in 1999.
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.
At June 30, 1999, the corporation held open foreign currency forward contracts
and purchased options with net notional amounts of $335 million and an
unrecognized net gain of $2.8 million.
- 15 -
<PAGE>
The corporation used sensitivity analysis to evaluate the potential effect of
movements in foreign currency exchange rates and interest rates on the
condensed 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 $3.4 million net gain at June 30, 1999.
Alternatively, a hypothetical 10 percent strengthening in the U.S. dollar
across all currencies would have resulted in a $9.6 million net gain at June
30, 1999. These types of gains and losses, if any, would generally be offset
by fluctuations in underlying currency transactions.
The corporation's total long-term debt totaled $2,045 million at June 30,
1999, of which $125 million was variable-rate debt. The corporation held
short-term debt of $418 million at June 30, 1999. At that date, 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 or short-term debt. A 10 percent increase in market
interest rates would have decreased the net fair market value of fixed-rate
debt instruments by $104 million at June 30, 1999, and a 10 percent decrease
in market interest rates would have increased the net fair market value of
fixed-rate debt instruments by $117 million at June 30, 1999.
Outlook - Corporate
The corporation anticipates that third quarter results will reflect recently
announced increases in average selling prices for certain of the BC&P
segment's products, which will be partially offset by slight increases in the
cost of raw materials. Customer volume is expected to remain at second
quarter levels. Although licensing income for the third quarter may be lower
than second quarter levels, the corporation anticipates that licensing income
for the year will approximate 1998 levels. Partnership results are expected
to improve in the third quarter, but are unlikely to experience a full
recovery until stability occurs in long-term oil prices and economies in Asia,
Russia and the Middle East improve. Income before interest expense and
provision for income taxes will reflect a favorable litigation settlement of
$38 million. The corporation's share of Losses from corporate investments
carried at equity may decline as increases in worldwide basic chemical and
polymer selling prices and steady demand are expected to continue throughout
1999.
On August 3, 1999 the corporation and The Dow Chemical Company ("Dow") entered a
definitive Agreement and Plan of Merger. Under the agreement the corporation's
shareholders will receive 0.537 shares of Dow Common Stock for each share of
UCC Common Stock they own as of the date of the merger, which is not
anticipated to occur before the first quarter of 2000. Additionally, the
merger is subject to approval by UCC shareholders, and review by antitrust
regulatory authorities in the United States, Europe and Canada. The transaction
is intended to qualify as a tax-free reorganization for United States Federal
income tax purposes and is expected to be accounted for under the pooling-of-
interests method of accounting.
- 16-
<PAGE>
<TABLE>
<CAPTION>
Specialties and Intermediates
Quarter Ended Six Months Ended
Millions of dollars, June 30, June 30, June 30, June 30,
except as indicated 1999 1998 1999 1998
<S> <C> <C> <C> <C>
Segment revenues $1,036 $1,060 $2,070 $2,180
Depreciation and amortization 62 61 125 121
Partnership income (loss) (2) 24 2 61
Operating profit 182 166 385 368
Income from corporate investments
carried at equity - 2 4 5
Unit variable margin (cents/pound) 22.5 23.1 24.1 23.7
Fixed cost per pound of products
sold (cents/pound) 13.0 13.9 13.5 14.2
Capital expenditures 93 131 162 221
</TABLE>
Segment revenues of the S&I segment declined 2.3 percent for the quarter ended
June 30, 1999, the result of a 13.1 percent decline in average selling prices
partially offset by a 12.6 percent increase in volume, versus the same quarter
in 1998. S&I segment revenues for the first half of 1999 declined 5.0
percent, reflecting an 11.5 percent decline in average selling prices and a
7.3 percent increase in volume. Average selling prices, which progressively
declined during 1998 and the first half of 1999, reflected worldwide
competitive pricing pressure, particularly on sales in Asian markets and of
solvents, intermediate and monomer products. Volume increases for the quarter
and year-to-date periods ended June 30, 1999 reflected an increase in demand,
particularly in Asia in the second quarter of 1999, which was partially offset
by a seasonal decline in products such as deicers during the second quarter of
1999.
For the second quarter of 1999 compared to the same quarter of 1998, unit
variable margin decreased 2.6 percent as average selling prices declined at a
faster rate than the direct cost to produce those products. Unit variable
margin for the first half of 1999 improved 1.7 percent over the same period in
1998 reflecting an increase in sales of products with higher variable margin
as well as a reduction in raw material costs in the first quarter, partially
offset by increased raw material costs in the second quarter.
Fixed cost per pound of products sold decreased for the three and six month
periods ended June 30, 1999 compared to the same periods in 1998 primarily due
to an increase in volume partially offset by somewhat higher fixed costs.
The decline in Partnership income is primarily attributable to unfavorable
market conditions in Asia, Russia and the Middle East, which have caused UOP's
customers to defer projects until stronger market conditions are present,
coupled with losses related to Aspell Polymeres, SNC.
Operating profit included a net gain from a litigation settlement of $12
million in the second quarter of 1999.
Outlook - Specialties & Intermediates
For the third quarter of 1999, segment revenues and operating profit for the
S&I segment are anticipated to be below second quarter amounts. In general,
selling prices for most of the S&I products should remain flat, however, some
increases in the corporation's solvent, intermediates and monomer products may
occur. Although licensing income is expected to decline from second quarter
amounts in the third quarter, the corporation anticipates that licensing
income for the year will approximate 1998 levels. Partnership results are
expected to improve in the third quarter, but are unlikely to experience a
- 17 -
<PAGE>
full recovery until stability occurs in long-term oil prices and Asian,
Russian and Middle Eastern economies improve. Additionally, this segment's
operating profit will benefit from a favorable litigation settlement of $38
million in the third quarter.
<TABLE>
<CAPTION>
Basic Chemicals & Polymers
Quarter Ended Six Months Ended
Millions of dollars, June 30, June 30, June 30, June 30,
except as indicated 1999 1998 1999 1998
<S> <C> <C> <C> <C>
Segment revenues $ 436 $ 480 $ 857 $ 998
Depreciation and amortization 33 37 74 72
Partnership income (loss) (2) 3 - 3
Operating profit (loss) (46) 42 (84) 78
Income (loss) from corporate
investments carried at equity (18) (6) (54) (12)
Unit variable margin (cents/pound) 4.5 11.5 4.9 11.4
Fixed cost per pound of products
sold (cents/pound) 5.2 7.2 5.2 7.1
Capital expenditures 115 80 219 136
</TABLE>
Segment revenues for the quarter ended June 30, 1999 reflected a 15.1 percent
decline in customer average selling price partially offset by a 13.1 percent
increase in customer volume, as compared to the same quarter of 1998. Segment
revenues for the first half of 1999 reflected a 23.4 percent decline in
customer average selling prices partially offset by a 16.8 percent increase in
customer volume. Average customer selling prices declined steadily throughout
1998, experienced a smaller decline in the first quarter of 1999 and showed
some recovery in the second quarter of 1999. Volume increases for both
periods are principally attributable to increased demand and the absence of
transportation delays in the U.S. Gulf Coast, which occurred during the first
half of 1998.
Unit variable margin for the three and six month periods ended June 30, 1999,
as compared to the same periods in 1998, declined as average customer selling
prices fell at a far faster rate than did the cost of raw materials. The
reduction in fixed cost per pound of products sold was the result of volume
increases and a decline in fixed costs from levels for the three and six month
periods ended June 30, 1998.
Partnership income decreased minimally for the quarter and six months ended
June 30, 1999 compared to the same periods in 1998, while Loss from corporate
investments carried at equity increased from a loss of $6 million for the 1998
second quarter to $18 million for the 1999 second quarter, and from a loss of
$12 million for the first half of 1998 to a loss of $54 million for the first
half of 1999. The increase in Loss from corporate investments carried at
equity was caused primarily by a decline in worldwide average basic chemical
and polymer selling prices during 1998 and into the first quarter of 1999.
Some recovery of these selling prices was noted in the second quarter of 1999;
however, the increases only partially offset increases in raw material costs.
Outlook - Basic Chemicals & Polymers
The corporation anticipates that third quarter results will benefit from an
increase in ethylene glycol, polyethylene and polypropylene average selling
prices which will be partially offset by some further increases in the cost of
raw materials. Volumes for the third quarter are expected to remain at second
quarter levels. The corporation's share of Loss from corporate investments
carried at equity is expected to decline as worldwide basic chemical and
- 18 -
<PAGE>
polymers selling prices improve and demand remains consistent with levels seen
in the first half of 1999.
Environmental
Estimates of future expenses related to environmental protection for
compliance with Federal, state and local laws regulating solid and hazardous
wastes and discharge of materials to air and water, as well as for waste site
remedial activities, have not changed materially since December 31, 1998. The
reliability and precision of the loss estimates are affected by numerous
factors, such as different stages of site evaluation, the allocation of
responsibility among potentially responsible parties and the assertion of
additional claims. The corporation's environmental exposures are discussed in
more detail in the "Commitments and Contingencies" footnote to the financial
statements on pages 11 and 12 of this report on Form 10-Q.
Accounting Changes
Effective January 1, 1999, the corporation adopted the provisions of the
American Institute of Certified Public Accountants ("AICPA") Statement of
Position ("SOP") 98-5, "Reporting on the Costs of Start-Up Activities."
This SOP requires the expensing of certain costs, such as pre-operating
expenses and organizational costs associated with an entity's start-up
activities. In accordance with this SOP's provisions, on January 1, 1999,
the corporation recognized a charge of $27 million ($20 million after tax)
as a cumulative effect of change in accounting principle, the majority of
which represented formation costs associated with the corporation's joint
ventures.
Also effective January 1, 1999, the corporation prospectively adopted the
provisions of the AICPA's SOP 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." The effect of this adoption
was not material to the corporation's results of operations or financial
condition in the quarter of adoption and is not expected to be material to the
corporation's results of operations or financial condition for the year ending
December 31, 1999.
In 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("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, as amended by Statement No. 137 "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133," is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. The corporation is currently evaluating the
effect this Statement will have on its financial position and results of
operations in the period of 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. Year 2000 readiness
remains one of the corporation's top priorities for 1999. Remediation efforts
- 19 -
<PAGE>
and discussions with entities outside the corporation whose Year 2000
readiness could impact the corporation are continuing.
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 Year 2000 ready the corporation's internal finance, plant
operation and supply chain computer systems. Additionally, in 1998 a total
upgrade of the principal integrated business software application used outside
of North America was completed and made that system Year 2000 ready.
As of June 30, 1999, an inventory of potential problems and a prioritization
of remaining remedial work is complete, and the applications supporting
payroll systems, employee benefits, electronic data interchange and the local
and wide area network systems have been made Year 2000 ready.
The following systems and equipment are scheduled for completion or
replacement during the second half of 1999:
- - Commercial computer systems in Health, Safety and Environment Management
and Engineering Research and Development. Testing is essentially complete
and only system implementation remains.
- - Process control systems, logic controllers, process and laboratory
analyzers, embedded devices, office and medical equipment and building/site
systems. The implementation that remains will be coordinated with planned
major maintenance shutdowns. Remediation has already been accomplished at
the corporation's Texas City, Tex. and Taft, La. hydrocarbons units.
- - 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 is scheduled to be completed by October of
this year.
- - SAP implementation at selected U.S. subsidiaries and Canadian operations.
The corporation is addressing these areas with resources of more than 300
employees around the world. At the completion of 1999, all of the
corporation's business information systems are expected to be Year 2000 ready.
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 conducts ongoing risk assessments and 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. The corporation has
assessed its 500 most critical suppliers as to their Year 2000 readiness.
More than 95 percent of these critical suppliers have
- 20 -
<PAGE>
comprehensive Year 2000 programs and appear to be making progress. The
corporation is closely monitoring the progress of the other 5 percent for
potential inclusion in its contingency planning. Additionally, the
corporation is continually assessing approximately 1000 vendors supplying
other products, such as office equipment, to assess their Year 2000 readiness.
In North America, the corporation has provided written responses to
approximately 3,000 inquiries sent by its customers. The corporation has
responded to another 1,600 customer inquiries outside North America. The
corporation is in the process of assessing its 500 most critical domestic
customers as to their Year 2000 readiness, and a similar program is in place
overseas. This assessment is expected to be completed by the end of the third
quarter. 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.
Additionally, internal personnel costs are expected to range between $30 and
$35 million. All costs are expected to be funded through operations of the
corporation. As of June 30, 1999, approximately $33 million and $25 million
had been incurred for costs of project work and internal personnel,
respectively. Approximately 75 percent of the planned external costs are
expected to relate to repairing or upgrading current systems and 25 percent to
replacement of existing hardware and software. 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 internal and external cost incurred by its
joint ventures to address Year 2000 issues will range between $8 and
$12 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 the corporation is taking extensive
measures to minimize its exposure
The process for contingency planning was 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, some 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
- 21 -
<PAGE>
project by the new year could have a material adverse effect on future
operating results and financial condition of the corporation.
Financial Condition - June 30, 1999
Cash flow from operations for the first six months of 1999 was $248 million,
down from $357 million in the first six months of 1998. The decline results
primarily from a decrease in income before the cumulative effect of change in
accounting principle, partially offset by an increase in noncash charges. The
increase in noncash charges is mainly attributable to increases in joint
venture losses, partially offset by decreases in deferred income taxes and
other noncash charges.
Cash flow used for investing totaled $434 million, an increase of $55 million
from $379 million in the comparable period of 1998 principally due to
increases in capital expenditures and investments, advances and acquisitions.
Funding of major capital projects in the first half of 1999 included a new
olefins facility, being built jointly with NOVA Chemicals Corporation, and a
polyolefins project, both in Canada. Major capital projects funded in the
first half of 1998 included work on an olefins expansion, a new butanol unit
and a new CARBOWAX polyethylene glycol and TERGITOL surfactants facility, all
at Taft, La.; the new olefins facility and polyolefins project, both in
Canada; and the upgrade of information technology infrastructure.
At June 30, 1999, the corporation has approximately $271 million in
commitments related to authorized construction projects. These commitments
are anticipated to be sourced through operating cash flows and borrowings.
Cash flow from financing in the first half of 1999 was $178 million in
comparison to cash flow from financing of $40 million in the first half of
1998. The first half of 1999 included net proceeds of $250 million from the
April issuance of 6.70 percent Public Notes due in April 2009, common stock
repurchases of 1.0 million shares for cash of $47 million under the common
stock repurchase authorization, $3 million of common stock reacquired from
employees to satisfy tax withholding requirements on restricted shares issued
under employee benefit plans, cash dividends paid of $60 million and net
repayments of debt, excluding the April 1999 issuance of Public Notes, of $3
million. The first half of 1998 included net proceeds of $248 million from
the issuance of 6.25 percent public debentures, due June 15, 2003, common
stock repurchases of 2.7 million shares for cash of $126 million under the
common stock repurchase authorization, $3 million of common stock reacquired
from employees to satisfy tax withholding requirements on restricted shares
issued under employee benefit plans, cash dividends paid of $61 million, and
net repayments of debt, excluding the June 1998 issuance of public debentures,
of $51 million.
On August 3, 1999, the Board of Directors rescinded the corporation's
authorization to repurchase shares, under the common stock repurchase
authorization, subsequent to this date.
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 & 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. At June 30, 1999, the
- 22 -
<PAGE>
corporation had invested approximately $49 million, and was firmly committed
to an additional $60 million.
The corporation's ratio of debt to total capital was 49.8 percent at June 30,
1999 compared to 47.2 percent at December 31, 1998. At June 30, 1999 there
were no outstanding borrowings under the existing major bank credit agreement
aggregating $1 billion. The corporation has an effective shelf registration
statement covering $500 million of public debt securities at June 30, 1999.
- 23 -
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See Note 7 to the corporation's consolidated financial statements
on pages 11 and 12 of this report on Form 10-Q.
As reported in the corporation's Form 10-K for the period ended
December 31, 1998, 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 sought a civil penalty of $359,200. On July 15, 1999, the
corporation and WVDEP reached a settlement of this matter pursuant to
which the corporation agreed to pay a penalty of $50,000 and to
perform Supplemental Environmental Projects at a cost of $47,100.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following exhibits are filed as part of this report:
2 - Agreement and Plan of Merger, dated August 3, 1999,
by and among the corporation and The Dow Chemical
Company and Transition Sub Inc. (See Exhibit 2 of the
corporation's Form 8-K dated August 3, 1999).
27 - Financial Data Schedule.
99 - Stock Option Agreement, dated August 3, 1999 by and
between the corporation and The Dow Chemical Company
(See Exhibit 99.1 of the corporation's Form 8-K dated
August 3, 1999).
(b) The corporation filed the following reports on Form 8-K for the
three months ended June 30, 1999:
1. Form 8-K dated April 7, 1999, contained the corporation's
Computation of Ratio of Earnings to Fixed Charges for the
year ended December 31, 1998.
2. Form 8-K dated April 26, 1999, contained the corporation's
press release dated April 26, 1999.
- 24 -
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNION CARBIDE CORPORATION
(Registrant)
Date: August 13, 1999 By: /S/ John K. Wulff
JOHN K. WULFF
Vice-President, Chief
Financial Officer and
Controller
- 25 -
<PAGE>
EXHIBIT INDEX
Exhibit
No. Exhibit
2 Agreement and Plan of Merger, dated August 3, 1999,
by and among the corporation and The Dow Chemical
Company and Transition Sub Inc. (See Exhibit 2 of the
corporation's Form 8-K dated August 3, 1999).
27 Financial Data Schedule
99 Stock Option Agreement, dated August 3, 1999 by and
between the corporation and The Dow Chemical Company
(See Exhibit 99.1 of the corporation's Form 8-K dated
August 3, 1999).
Wherever an exhibit listed above refers to another exhibit (e.g., "See Exhibit
6 of..."), that exhibit or document is incorporated herein by such reference.
- 26 -
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Union
Carbide Corporation's Form 10-Q for the quarter ended June 30, 1999, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000100790
<NAME> UNION CARBIDE CORPORATION
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 41
<SECURITIES> 0
<RECEIVABLES> 1075
<ALLOWANCES> 0
<INVENTORY> 599
<CURRENT-ASSETS> 1962
<PP&E> 8714
<DEPRECIATION> 4363
<TOTAL-ASSETS> 7465
<CURRENT-LIABILITIES> 1362
<BONDS> 2044
0
0
<COMMON> 157
<OTHER-SE> 2284
<TOTAL-LIABILITY-AND-EQUITY> 7465
<SALES> 2820
<TOTAL-REVENUES> 2820
<CGS> 2157
<TOTAL-COSTS> 2157
<OTHER-EXPENSES> 275<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 66
<INCOME-PRETAX> 238
<INCOME-TAX> 59
<INCOME-CONTINUING> 127
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 20
<NET-INCOME> 107
<EPS-BASIC> 0.80<F2>
<EPS-DILUTED> 0.79<F2>
<FN>
<F1>Other expenses are equal to research and development of 76 and depreciation and
amortization of 199.
<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>
