UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D C 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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 October 31, 1999
Common Stock, $1 par value 133,857,750 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 September 30, 1999 and 1998.............. 3
Condensed Consolidated Statement of Income -
Nine months ended September 30, 1999 and 1998.......... 4
Condensed Consolidated Balance Sheet -
September 30, 1999 and December 31, 1998............... 5
Condensed Consolidated Statement of Cash Flows -
Nine months ended September 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;
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; raw
material availability and costs; changes in industry production capacities
and operating rates; currency exchange rates; interest rates; global economic
conditions; competitive technology positions; failure by the corporation to
achieve technology objectives, complete 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 September 30,
1999 1998
<S> <C> <C>
NET SALES $1,498 $1,350
Cost of sales, exclusive of depreciation and
amortization 1,232 1,036
Research and development 38 34
Selling, administrative and other expenses(a) 72 78
Depreciation and amortization 103 95
Partnership income (loss) 18 (46)
Other income - net 52 129
INCOME BEFORE INTEREST EXPENSE AND PROVISION FOR
INCOME TAXES 123 190
Interest expense 32 28
INCOME BEFORE PROVISION FOR INCOME TAXES 91 162
Provision for income taxes 24 58
INCOME OF CONSOLIDATED COMPANIES AND PARTNERSHIPS 67 104
Minority interest 2 -
Income (loss) from corporate investments
carried at equity 12 (28)
NET INCOME $ 77 $ 76
Earnings per common share
Basic $ 0.58 $ 0.56
Diluted $ 0.57 $ 0.55
Cash dividends declared per common share $ 0.225 $ 0.225
(a) Selling, administrative and other expenses include:
Selling $ 24 $ 25
Administrative 28 26
Other expenses 20 27
$ 72 $ 78
<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)
Nine months ended September 30,
1999 1998
<S> <C> <C>
NET SALES $4,318 $4,370
Cost of sales, exclusive of depreciation and
amortization 3,369 3,284
Research and development 114 107
Selling, administrative and other expenses(a) 199 234
Depreciation and amortization 302 288
Partnership income 20 18
Other income - net 93 150
INCOME BEFORE INTEREST EXPENSE AND PROVISION FOR
INCOME TAXES 447 625
Interest expense 98 84
INCOME BEFORE PROVISION FOR INCOME TAXES 349 541
Provision for income taxes 90 168
INCOME OF CONSOLIDATED COMPANIES AND PARTNERSHIPS 259 373
Minority interest 4 2
Loss from corporate investments carried at equity 38 35
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE 217 336
Cumulative effect of change in accounting principle (20) -
NET INCOME $ 197 $ 336
Earnings per common share
Basic -
Income before cumulative effect of change
in accounting principle $ 1.63 $ 2.47
Cumulative effect of change in accounting principle (0.15) -
Net income 1.48 2.47
Diluted -
Income before cumulative effect of change
in accounting principle $ 1.59 $ 2.41
Cumulative effect of change in accounting principle (0.14) -
Net income 1.45 2.41
Cash dividends declared per common share $ 0.675 $ 0.675
(a) Selling, administrative and other expenses include:
Selling $ 70 $ 74
Administrative 69 84
Other expenses 60 76
$ 199 $ 234
<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
Sept. 30, Dec. 31,
1999 1998
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 36 $ 49
Notes and accounts receivable 1,112 933
Inventories 608 667
Other current assets 257 257
Total current assets 2,013 1,906
Property, plant and equipment 8,872 8,409
Less: Accumulated depreciation 4,444 4,228
Net fixed assets 4,428 4,181
Companies carried at equity 629 624
Other investments and advances 88 141
Total investments and advances 717 765
Other assets 502 439
Total assets $7,660 $7,291
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 267 $ 264
Short-term debt and current portion of
long-term debt 634 426
Accrued income and other taxes 30 110
Other accrued liabilities 693 670
Total current liabilities 1,624 1,470
Long-term debt 1,868 1,796
Postretirement benefit obligation 434 450
Other long-term obligations 608 602
Deferred credits 562 488
Minority stockholders' equity in consolidated
subsidiaries 40 36
Stockholders' equity:
Common stock - authorized - 500,000,000 shares
- issued - 157,226,880 shares 157 155
(155,052,017 shares in 1998)
Additional paid-in capital 128 79
Other equity adjustments (1) (2)
Accumulated other comprehensive loss (150) (104)
Retained earnings 3,466 3,357
Unearned employee compensation - ESOP (57) (67)
Treasury stock, at cost- 23,414,857 shares
(22,366,017 shares in 1998) (1,019) (969)
Total stockholders' equity 2,524 2,449
Total liabilities and stockholders' equity $7,660 $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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<TABLE>
UNION CARBIDE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
Millions of dollars
Nine months ended Sept. 30,
1999 1998
Increase (decrease) in
cash and cash equivalents
OPERATIONS
<S> <C> <C>
Income before cumulative effect of change in
accounting principle $ 217 $ 336
Noncash charges (credits) to net income:
Depreciation and amortization 302 288
Deferred income taxes 99 93
Equity in (earnings) losses of joint ventures,
net of cash received 53 104
Other 36 32
Increase in working capital(a) (211) (49)
Long-term assets and liabilities (77) (55)
Cash Flow From Operations 419 749
INVESTING
Capital expenditures (559) (571)
Investments, advances and acquisitions (91) (30)
Proceeds from the sale of
available-for-sale securities 28 33
Purchase of available-for-sale securities (35) (39)
Sale of fixed and other assets 26 7
Cash Flow Used For Investing (631) (600)
FINANCING
Change in short-term debt (3 months or less) 243 (70)
Proceeds from short-term debt 2 22
Repayments of short-term debt (17) (11)
Proceeds from long-term debt 285 248
Repayments of long-term debt (227) (5)
Issuance of common stock 41 34
Purchase of common stock (50) (258)
Payment of dividends (90) (92)
Other 11 9
Cash Flow From (Used For) Financing 198 (123)
Effect of exchange rate changes on cash and
cash equivalents 1 (1)
Change in cash and cash equivalents (13) 25
Cash and cash equivalents beginning-of-period 49 20
Cash and cash equivalents end-of-period $ 36 $ 45
Cash paid for interest and income taxes
Interest (net of amount capitalized) $ 93 $ 73
Income taxes $ 31 $ 34
_____________
<FN>
(a) Net change in certain components of working capital (excluding
non-cash expenditures):
(Increase) decrease in current assets
Notes and accounts receivable $(176) $ 71
Inventories 62 2
Other current assets (21) (21)
Decrease in payables and accruals (76) (101)
Increase in working capital $(211) $ (49)
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 in the Condensed Consolidated Statement of Cash Flows
for the nine months ended September 30, 1998 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 Nine Months Ended
Sept. 30 Sept. 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net income $77 $ 76 $197 $336
Other comprehensive income (loss):
Unrealized gains and losses on
available-for-sale securities, net of
reclassification adjustment, net of tax (1) (3) 1 1
Foreign currency translation adjustments 8 (26) (47) (34)
Total comprehensive income $84 $ 47 $151 $303
</TABLE>
3. Inventories
<TABLE>
<CAPTION>
Sept. 30, Dec. 31,
Millions of dollars 1999 1998
<S> <C> <C>
Raw materials and supplies $150 $187
Work in process 68 41
Finished goods 390 439
$608 $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
quarter ended
<S> <C> <C> <C> <C>
September 30, 1999
Net sales $1,057 $441 $ - $1,498
Intersegment revenues - 81 - 81
Segment revenues 1,057 522 - 1,579
Depreciation and amortization 67 36 - 103
Partnership income (loss) 17 1 - 18
Operating profit (loss) 134 (7) (4) 123
Interest expense - - 32 32
Income (loss) from corporate
investments carried at equity - 12 - 12
September 30, 1998
Net sales $ 995 $355 $ - $1,350
Intersegment revenues - 66 - 66
Segment revenues 995 421 - 1,416
Depreciation and amortization 61 34 - 95
Partnership income (loss) (49) 3 - (46)
Operating profit (loss) 233 (13) (30) 190
Interest expense - - 28 28
Income (loss) from corporate
investments carried at equity (3) (25) - (28)
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
S&I BC&P Other Total
Millions of dollars
nine months ended
<S> <C> <C> <C> <C>
September 30, 1999
Net sales $3,127 $1,191 $ - $4,318
Intersegment revenues - 188 - 188
Segment revenues 3,127 1,379 - 4,506
Depreciation and amortization 192 110 - 302
Partnership income 19 1 - 20
Operating profit (loss) 530 (82) (1) 447
Interest expense - - 98 98
Income (loss) from corporate
investments carried at equity 4 (42) - (38)
September 30, 1998
Net sales $3,175 $1,195 $ - $4,370
Intersegment revenues - 224 - 224
Segment revenues 3,175 1,419 - 4,594
Depreciation and amortization 182 106 - 288
Partnership income 12 6 - 18
Operating profit (loss) 601 65 (41) 625
Interest expense - - 84 84
Income (loss) from corporate
investments carried at equity 2 (37) - (35)
</TABLE>
Operating profit of the S&I segment includes $38 million and $50 million
in net gains from litigation settlements related to the licensing
business for the quarter and nine months ended September 30, 1999,
respectively.
Operating profit of the S&I segment includes a net gain of $118 million
related to the favorable settlement of UNIPOL Systems business litigation
and a $53 million reduction in partnership earnings related to losses
associated with Aspell Polymeres SNC for the quarter and nine months
ended September 30, 1998.
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<PAGE>
5. Earnings Per Share
<TABLE>
<CAPTION>
Millions of dollars, Quarter Ended Sept. 30, Nine Months Ended Sept. 30,
except per share amounts 1999 1998 1999 1998
<S> <C> <C> <C> <C>
Basic -
Income before cumulative effect of change
in accounting principle $ 77 $ 76 $ 217 $ 336
Cumulative effect of change in accounting
principle - - (20) -
Net income $ 77 $ 76 $ 197 $ 336
Weighted average number of shares
outstanding for basic calculation 133,464,524 134,286,957 133,135,986 135,755,666
Earnings per share -
Income before cumulative effect of change
in accounting principle $0.58 $0.56 $1.63 $2.47
Cumulative effect of change in accounting
principle - - (0.15) -
Net income $0.58 $0.56 $1.48 $2.47
Diluted -
Income before cumulative effect of change
in accounting principle $ 77 $ 76 $ 217 $ 336
Cumulative effect of change in accounting
principle - - (20) -
Net income $ 77 $ 76 $ 197 $ 336
Weighted average number of shares
outstanding for basic calculation 133,464,524 134,286,957 133,135,986 135,755,666
Add: Effect of stock options 3,434,248 3,258,418 3,220,422 3,521,861
Weighted average number of shares
outstanding for diluted calculation 136,898,772 137,545,375 136,356,408 139,277,527
Earnings per share -
Income before cumulative effect of change
in accounting principle $0.57 $0.55 $1.59 $2.41
Cumulative effect of change in accounting
principle - - (0.14) -
Net income $0.57 $0.55 $1.45 $2.41
</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.
The corporation intends to refinance its $110 million of Floating Rate
Public Notes due in April 2000 by either borrowing under its existing
major bank credit agreement aggregating $1 billion or under a prospective
borrowing. Accordingly, such amount has been classified as non-current
debt.
7. Common Stock
On August 3, 1999, the Board of Directors rescinded the corporation's
authorization to repurchase shares under the common stock repurchase
authorization, subsequent to that date. Since inception of its
repurchase
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<PAGE>
authorization in 1993 through August 3, 1999, the corporation repurchased
56.4 million shares (1.0 million during the first nine months of 1999)
out of a total authorization of 60 million shares, at an average
effective price of $36.26 per share.
8. 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 September 30, 1999 totaled $206 million.
The corporation is subject to loss contingencies resulting from
environmental laws and regulations, which include obligations to remove
or remediate the effects on the environment of the disposal or release of
certain wastes and substances at various sites. The corporation has
established accruals in current dollars for those hazardous waste sites
where it is probable that a loss has been incurred and the amount of the
loss can be reasonably estimated. The reliability and precision of the
loss estimates are affected by numerous factors, such as different stages
of site evaluation, the allocation of responsibility among potentially
responsible parties and the assertion of additional claims. The
corporation adjusts its accruals as new remediation requirements are
defined, as information becomes available permitting reasonable estimates
to be made, and to reflect new and changing facts.
At September 30, 1999, the corporation had established environmental
remediation accruals in the amount of $198 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
$120 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 September 30, 1999 included $158 million for
these sites, of which $58 million was for estimated future expenditures
for site investigation and cleanup and $100 million was for estimated
future expenditures for closure and postclosure activities. In addition,
$81 million of the corporation's environmental loss contingencies related
to these sites. The two sites with the largest total potential cost to
the corporation are nonoperating sites. Of the above accruals, these
sites accounted for $36 million, of which $18 million was for estimated
future expenditures for site investigation and cleanup and $18 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.
The corporation does not have sole responsibility at the remainder of its
environmental sites. All of these sites are in the investigation and
cleanup stage. The corporation's environmental accruals at September 30,
1999 included $40 million for estimated future expenditures for site
investigation and cleanup at these sites. In addition, $39 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.
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<PAGE>
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
$641 million at September 30, 1999) of EQUATE Petrochemical Company's
("EQUATE") debt and working capital financing needs. Of this amount,
approximately $474 million is severally guaranteed until certain
completion and financial tests are achieved. 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 September 30,
1999 of $123 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 $112 million.
At September 30, 1999, the corporation had nonenvironmental litigation
loss contingencies of $66 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.
9. 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.
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<PAGE>
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 Statement No. 133 will
have on its financial position and results of operations in the period of
adoption.
10. The Dow Merger
On August 3, 1999 the corporation and The Dow Chemical Company ("Dow")
entered into a definitive Agreement and Plan of Merger. Under the
agreement the corporation's shareholders will receive 0.537 of a share of
Dow common stock for each share of UCC common stock they own as of the
date of the merger. The merger is subject to certain conditions including
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 third quarter net income of $77 million, or $0.57 per
diluted share ($0.58 per basic share). For the same quarter of 1998 the
corporation reported net income of $76 million, or $0.55 per diluted share
($0.56 per basic share). Net income for the first nine months of 1999 was
$197 million, or $1.45 per diluted share ($1.48 per basic share) after a
charge for the cumulative effect of a 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. Net income for the first nine months of 1998 was $336
million, or $2.41 per diluted share ($2.47 per basic share).
Consolidated net sales for the third quarter of 1999 increased $148 million,
or 11.0 percent from $1,350 million in the third quarter of 1998. This
increase was the result of a 4.3 percent decrease in average customer selling
prices offset by a 15.8 percent increase in customer volume. Consolidated net
sales for the first nine months of 1999 decreased $52 million, or 1.2 percent
over the same period in 1998. The decline in the year-to-date amounts is the
result of a 12.5 percent decrease in average customer selling prices partially
offset by a 12.9 percent increase in customer volume. Volume increases in
both segments, for the three and nine month periods ended September 30, 1999
compared with the same periods in 1998, reflected an increase in current year
demand, as well as an increase in the production and sale of hydrocarbon
co-products. In the third quarter of 1998, production and sale of hydrocarbon
co-products were reduced as the result of a longer than anticipated plant
shutdown at Taft, La. in connection with a scheduled plant turnaround and
expansion. Additionally, shipments for the prior year nine month period were
adversely affected by transportation delays in the U.S. Gulf Coast.
Consolidated unit variable margin (revenues less variable manufacturing and
distribution costs divided by customer volume) declined from 17.5 cents per
pound in the third quarter of 1998 to 14.1 cents per pound in the comparable
period of 1999 mainly due to rising raw material costs. Consolidated unit
variable margin for the first nine months of 1998 was 18.0 cents per pound
- 14 -
<PAGE>
compared with 15.0 cents per pound for the same period of 1999. Declines in
unit variable margin for the nine month period reflected falling average
selling prices coupled with rising raw material costs, particularly ethane.
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) declined from 11.9 cents per pound in
the third quarter of 1998 to 10.4 cents per pound for the same quarter of
1999. For the nine months ended September 30, 1999, consolidated fixed cost
per pound of products sold decreased from 11.3 cents per pound in the same
period of 1998 to 9.9 cents per pound. Overall, declines are primarily due to
higher volumes over relatively stable fixed costs in each of the comparable
periods. Fixed costs in 1999 included costs associated with a plant
turnaround in Canada and a fire at the corporation's plant in Wilton, U.K.
Fixed costs in 1998 included costs related to the longer than anticipated
plant turnaround at the Taft, La. facility.
Partnership income increased from a loss of $46 million in the third quarter
of 1998 to income of $18 million in the third quarter of 1999. Partnership
income for the nine months ended September 30, 1999 increased $2 million to
$20 million over the same nine months of 1998. Increases for the three and
nine month periods reflect lower losses from Aspell Polymeres, SNC ("Aspell")
in 1999 than those recognized by the corporation in the same periods of 1998.
Additionally, the nine month period includes lower income from the
corporation's UOP,LLC ("UOP") joint venture. Throughout the end of 1998 and
into the beginning of 1999, UOP experienced lower sales in areas with weak
economies such as Russia, Asia and the Middle East.
Other income - net for the quarter and nine months ended September 30, 1999
includes $38 million and $50 million, respectively, of net gains from
favorable litigation settlements related to the licensing business. Other
income - net for the third quarter and first nine months of 1998 included a
net gain from a favorable litigation settlement related to the licensing
business of $118 million.
Interest expense increased $4 million and $14 million for the three and nine
month periods ended September 30, 1999, respectively, as compared to similar
periods in 1998. These increases are due to additional debt outstanding
throughout 1999 as compared to 1998.
The effective tax rate was 26.4 percent and 25.8 percent for the three and
nine month periods ended September 30, 1999, respectively. The corporation's
effective tax rate for the same three and nine month periods in 1998 was 35.8
percent and 31.1 percent, respectively. The effective tax rate for 1998 was
increased as the result of higher tax rates associated with the corporation's
favorable litigation settlement in the third quarter of 1998. Excluding this
settlement, the effective tax rates would have been 27.3 percent and 28.8
percent for the three and nine month periods ended September 30, 1998.
Declines in the 1999 rates from the adjusted 1998 rates principally reflect
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
- 15 -
<PAGE>
interest rates. The corporation does not hold derivative financial
instruments for trading purposes.
At September 30, 1999, the corporation held open foreign currency forward
contracts and purchased options with net notional amounts of $253 million and
an unrecognized net loss of $1.0 million.
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 $0.2 million net loss at September 30, 1999.
Alternatively, a hypothetical 10 percent strengthening in the U.S. dollar
across all currencies would have resulted in a $4.9 million net gain at
September 30, 1999. These types of gains and losses, if any, would generally
be offset by fluctuations in underlying currency transactions.
The corporation's long-term debt totaled $1,869 million at September 30, 1999,
of which $125 million was variable-rate debt. The corporation held short-term
debt of $633 million at September 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
$103 million at September 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 $116 million at September 30, 1999.
Outlook - Corporate
The corporation anticipates that fourth quarter results will reflect recently
announced increases in average selling prices for polyethylene, polypropylene
and for ethylene glycol. Although volume is expected to be similar to the
third quarter, cost of sales is expected to be negatively affected by raw
material cost increases which are anticipated to continue into the fourth
quarter. Licensing income, excluding the litigation settlement received in the
third quarter, is expected to increase slightly from third quarter levels.
Partnership income could decline, as a result of increased expenses associated
with cost reduction programs at UOP; however, income from corporate
investments carried at equity should show improvement. Excluding the
litigation gain in the third quarter of 1999, the combination of improved
results for BC&P and corporate investments carried at equity are anticipated
to more than offset any decline in the S&I results for overall improved fourth
quarter net income.
On August 3, 1999 the corporation and The Dow Chemical Company ("Dow") entered
into a definitive Agreement and Plan of Merger. Under the agreement the
corporation's shareholders will receive 0.537 of a share of Dow common stock
for each share of UCC common stock they own as of the date of the merger. The
merger is subject to certain conditions including 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.
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 assets not essential
to the operation of the business that, if implemented, could result in material
nonrecurring gains or losses.
- 16 -
<PAGE>
<TABLE>
<CAPTION>
Specialties and Intermediates
Quarter Ended Nine Months Ended
Millions of dollars, Sept. 30, Sept. 30, Sept. 30, Sept. 30,
except as indicated 1999 1998 1999 1998
<S> <C> <C> <C> <C>
Segment revenues $1,057 $ 995 $3,127 $3,175
Depreciation and amortization 67 61 192 182
Partnership income (loss) 17 (49) 19 12
Operating profit 134 233 530 601
Income (loss) from corporate
investments carried at equity - (3) 4 2
Unit variable margin (cents/pound) 20.1 25.3 22.9 24.2
Fixed cost per pound of products
sold (cents/pound) 14.1 14.7 13.7 14.3
Capital expenditures 58 111 220 332
</TABLE>
Segment revenues for the S&I segment increased 6.2 percent for the third
quarter of 1999, the result of a 6.4 percent decline in average selling prices
which was offset by a 13.3 percent increase in customer volume, compared with
the same quarter in 1998. S&I segment revenues for the first nine months of
1999 declined 1.5 percent, reflecting a 9.9 percent decline in average selling
prices, partially offset by a 9.3 percent increase in customer volume.
Declines in average selling prices for the current periods reflect worldwide
competitive pricing pressure in solvent, intermediate, monomer, industrial
performance chemical and wire and cable products. Volume increases for the
quarter and year-to-date periods ended September 30, 1999 reflected an
increase in demand, partly in Asia, over the same periods in 1998.
For the quarter and nine months ended September 30, 1999, unit variable margin
decreased 20.6 percent and 5.4 percent, respectively, as compared with the
same periods in 1998, as average selling prices declined while raw material
costs increased. Throughout 1999, raw material costs have steadily been
rising to the high levels experienced in the third quarter. Historically,
average selling price increases for products in the S&I segment have generally
lagged raw material cost increases.
Fixed cost per pound of products sold decreased for the three and nine month
periods ended September 30, 1999 compared to the same periods in 1998
primarily due to an increase in volume which more than offset higher fixed
costs.
Increases in partnership income for the three and nine month periods ended
September 30, 1999 as compared with the same periods in 1998, resulted from
the recognition of lower losses related to Aspell in 1999. Additionally, the
nine month period was negatively impacted by poor results experienced by UOP
due to a decline in projects coming from markets in Russia, Asia and the
Middle East.
Operating profit for the quarter and nine months ended September 30, 1999
included $38 million and $50 million of net gains from litigation settlements
related to the licensing business, respectively. Operating profit for the
same periods in 1998 included the above mentioned $53 million of losses
associated with Aspell and a $118 million net gain related to a favorable
litigation settlement for the licensing business.
Outlook - Specialties and Intermediates
Looking into the fourth quarter, the corporation expects that margins will
continue to suffer as increases in average selling prices will continue to lag
- 17 -
<PAGE>
increases in raw material costs. Excluding the reported litigation gain,
licensing income is anticipated to increase slightly from third quarter 1999
levels. Partnership income may decline as a result of increased expenses
associated with cost reduction programs at UOP.
<TABLE>
<CAPTION>
Basic Chemicals & Polymers
Quarter Ended Nine Months Ended
Millions of dollars, Sept. 30, Sept. 30, Sept. 30, Sept. 30,
except as indicated 1999 1998 1999 1998
<S> <C> <C> <C> <C>
Segment revenues $ 522 $ 421 $1,379 $1,419
Depreciation and amortization 36 34 110 106
Partnership income (loss) 1 3 1 6
Operating profit (loss) (7) (13) (82) 65
Income (loss) from corporate
investments carried at equity 12 (25) (42) (37)
Unit variable margin (cents/pound) 7.1 8.2 5.8 10.3
Fixed cost per pound of products
sold (cents/pound) 5.9 7.8 5.4 7.4
Capital expenditures 120 103 339 239
</TABLE>
Segment revenues for the third quarter of 1999 as compared with the same
quarter of 1998 reflected a 4.1 percent increase in average selling prices and
an 18.9 percent increase in customer volume. Segment revenues for the first
nine months of 1999 reflected a 14.9 percent decline in average selling prices
and a 17.4 percent increase in customer volume. Average customer selling
prices declined steadily throughout 1998, experienced a slower decline in the
first quarter of 1999 and showed growing improvement in the second and third
quarters of 1999. Although pricing in the third quarter of 1999 was higher
than in the same quarter of 1998, the overall average for the nine months is
much lower due to weak pricing in the first half of 1999 as compared with the
first half of 1998. Volume increases in both the three and nine month periods
reflected an increase in current year demand and an increase in the production
and sale of hydrocarbon co-products in the current year. In the third quarter
of 1998, production and sale of hydrocarbon co-products were reduced as a
result of the longer than anticipated plant shutdown at Taft, La. in
connection with a scheduled plant turnaround and expansion. Additionally,
shipments for the prior year nine month period were adversely affected by
transportation delays in the U.S. Gulf Coast region.
Unit variable margin for the third quarter of 1999, as compared with the same
quarter of 1998, declined as increases in average selling prices were unable
to offset the increases in raw material costs. Unit variable margin for the
nine month period ended September 30, 1999, as compared to the same period in
1998, declined as average customer selling prices fell while the cost of raw
materials increased. 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 same periods in 1998.
Income from corporate investments carried at equity was $12 million in the
third quarter of 1999, a significant improvement over the loss of $25 million
reported in the same quarter of 1998. This improvement was mainly
attributable to the corporation's joint venture based in Kuwait, EQUATE
Petrochemical Company K.S.C. ("EQUATE"). In addition to strong manufacturing
operations, this venture benefited from rising basic chemical prices coupled
with advantaged raw material supply arrangements. In addition, losses in 1998
reflected the effects of EQUATE's plant shutdown due to a power supply
disruption. Losses from corporate investments carried at equity totaled $42
million in the nine month period ended September 30, 1999 compared with $37
- 18 -
<PAGE>
million in the same period of 1998. Increased losses in the year-to-date
period reflected lower average basic chemical prices in the first half of 1999
versus the same period of 1998.
Outlook - Basic Chemicals and Polymers
The corporation anticipates that announced fourth quarter price increases in
polyethylene, polypropylene and ethylene glycol could offset any anticipated
increase in raw material costs. Additionally, it is expected that the
corporation's companies carried at equity will continue to show improved
profitability.
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 condensed
consolidated 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 Statement No. 133 will have on its financial position and results of
operations in the period of adoption.
- 19 -
<PAGE>
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 the remainder of 1999.
Remediation efforts 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. SAP was implemented at selected
U.S. subsidiaries and Canadian operations in early November. Additionally, in
1998 a total upgrade of the principal integrated business software application
used outside of North America was completed, which made that system Year 2000
ready.
As of September 30, 1999, the Year 2000 remediation program is essentially
complete, with only minor work remaining. The applications supporting payroll
systems, employee benefits, select Health, Safety and Environmental systems,
select engineering systems, select Process IT Applications, electronic
interchange and the local and wide area network systems have been made Year
2000 ready.
Year 2000 readiness for the following systems and equipment will be finalized
in the fourth quarter of 1999:
- - Commercial computer systems in Health, Safety and Environmental Management
and Engineering Research and Development. A few implementations remain to be
completed by the middle of November.
- - Process control systems, logic controllers, process and laboratory
analyzers, embedded devices, office and medical equipment and building/site
systems. A few minor items will be completed in the fourth quarter.
- - International computer infrastructure was essentially completed in October
of this year. All major sites have been completed and only two minor sites
remain.
The corporation has addressed the Year 2000 project with resources of more
than 300 employees around the world at the peak in midyear. This staffing has
been substantially reduced since the midyear peak. At the end of 1999, all of
the corporation's business information systems are expected to be Year 2000
ready.
Business Continuity Planning
Business continuity planning was essentially completed during the third
quarter. The contingency and recovery plans for the corporation's business
-20 -
<PAGE>
operations were developed, reviewed and approved. The implementation of these
plans will be finalized during the fourth quarter.
The objectives of business continuity planning are to guide the business in
managing risks resulting from potential Year 2000 events, provide a work
process flow to businesses, geographic areas, and common services for
integration of Year 2000 business continuity plans, and to institute a process
for dealing with potential unforeseen Year 2000 problems.
Finally, Event Management design, communications strategy and plans have been
developed. The Event Management team will be staffed 24 hours a day during the
Year 2000 changeover and will serve as an information clearinghouse and will
facilitate business and operational decisions as required during any
communication outage.
External Groups
While business applications and commercial computing are essentially Year 2000
compliant, 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, including 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 regarding their Year 2000 readiness.
It is anticipated that less than 2 percent of these suppliers will require
contingency plans to be implemented during the fourth quarter. Additionally,
the corporation is continually assessing approximately 1,000 vendors supplying
other products, such as office equipment, to assess their Year 2000 readiness.
At this time we are not anticipating any business continuity issues with these
1,000 vendors.
The corporation has completed written responses to approximately 6,500
inquiries sent by its customers: 4,500 in North America and 2,000 outside
North America. The corporation's Year 2000 efforts to monitor customers and
suppliers will continue into the early part of the Year 2000. The corporation
has assessed its 500 most critical domestic and select international customers
as to their Year 2000 readiness and based on this assessment, the corporation
does not anticipate Year 2000 issues with these customers.
Expenditures
Costs for project work are expected to range between $47 and $49 million.
Additionally, internal personnel costs are expected to range between $31 and
$33 million. All costs are expected to be funded through operations of the
corporation. As of September 30, 1999, approximately $43 million and $29
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 North
American computer systems with SAP, the environmental reporting project,
international information technology infrastructure, or Year 2000 issues that
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
- 21 -
<PAGE>
the corporation's share of the internal and external cost incurred by its
joint ventures to address Year 2000 issues will range between $9 and $10
million.
Risks and Contingency Plan
Failure to remediate newly identified Year 2000 problems would pose 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 exposure
through business continuity planning.
The corporation has essentially completed its Year 2000 project. However,
unforeseen difficulties may arise that could adversely affect the
corporation's operations. 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 year end could have a material adverse
effect on future operating results and the financial condition of the
corporation.
Financial Condition - September 30, 1999
Cash flow from operations for the first nine months of 1999 was $419 million,
a decrease of $330 million from the same period in 1998. The decline
primarily results from an increase in working capital coupled with decreases
in income before the cumulative effect of change in accounting principle and
equity in (earnings)/losses of joint ventures. The increase in working
capital is attributable to increases in notes and accounts receivable and a
decrease in payables and accruals, partly offset by a decrease in inventory.
Cash flow used for investing totalled $631 million, an increase of $31 million
from $600 million in the comparable period of 1998. The majority of cash flow
used for investing related to capital expenditures. Funding of major capital
projects in the first nine months 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 same nine
months 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 September 30, 1999, the corporation had approximately $244 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 was $198 million for the first nine months of 1999
compared with cash flow used for financing of $123 million in the same period
of 1998. The first nine months 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 $50 million, cash dividends paid of $90 million and net
increases in debt, excluding the April 1999 issuance of Public Notes, of $36
million. The first nine months of 1998 included net proceeds of $248 million
from the issuance of 6.25 percent public debentures due in June 2003, common
stock repurchases of $258 million, cash dividends paid of $92 million and net
- 22 -
<PAGE>
repayments of debt, excluding the June 1998 issuance of public debentures, of
$64 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 that 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 start-
up date with internally generated funds and external debt. At September 30,
1999, the corporation had invested approximately $79 million, and was firmly
committed to an additional $76 million.
The corporation's ratio of debt to total capital was 49.4 percent at September
30, 1999 compared to 47.2 percent at December 31, 1998. At September 30, 1999
there were no outstanding borrowings under the existing major bank credit
agreement aggregating $1 billion.
- 23 -
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See Note 8 to the corporation's condensed consolidated financial
statements on pages 11 and 12 of this report on Form 10-Q.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following exhibits are filed as part of this report:
2 Agreement and Plan of Merger dated as of August 3, 1999
among the corporation, The Dow Chemical Company
and Transition Sub Inc. (See Exhibit 2 of the
corporation's Current Report on Form 8-K dated
August 3, 1999).
3.2 By-Laws of Union Carbide Corporation, amended as of
September 22, 1999. (See Exhibit 3 of the corporation's
Current Report on Form 8-K dated September 22, 1999).
27 Financial Data Schedule.
99 Stock Option Agreement dated as of August 3, 1999
between the corporation and The Dow Chemical Company
(See Exhibit 99.1 of the corporation's Current Report
on Form 8-K dated August 3, 1999).
(b) The corporation filed the following current reports on Form 8-K
for the quarter ended September 30, 1999:
1. Form 8-K dated July 26, 1999, contained the corporation's
press release dated July 26, 1999.
2. Form 8-K dated August 3, 1999, contained:
a. an Agreement and Plan of Merger, dated August 3, 1999,
by and among the corporation, The Dow Chemical Company
and Transition Sub Inc.;
b. a Stock Option Agreement, dated August 3, 1999, by and
between the corporation and The Dow Chemical Company;
and
c. the text of a joint press release, dated August 4, 1999,
issued by the corporation and The Dow Chemical Company.
3. Form 8-K dated September 22, 1999, contained the By-Laws
of the corporation and the corporation's press release
dated September 22, 1999.
4. Form 8-K dated September 23, 1999, contained the
corporation's press release dated September 23, 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: November 9, 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 as of August 3, 1999
among the corporation, The Dow Chemical Company
and Transition Sub Inc. (See Exhibit 2 of the
corporation's Current Report on Form 8-K dated
August 3, 1999).
3.2 By-Laws of Union Carbide Corporation, amended as of
September 22, 1999. (See Exhibit 3 of the corporation's
Current Report on Form 8-K dated September 22, 1999).
27 Financial Data Schedule.
99 Stock Option Agreement dated as of August 3, 1999
between the corporation and The Dow Chemical Company
(See Exhibit 99.1 of the corporation's Current Report
on 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 September 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 36
<SECURITIES> 0
<RECEIVABLES> 1112
<ALLOWANCES> 0
<INVENTORY> 608
<CURRENT-ASSETS> 2013
<PP&E> 8872
<DEPRECIATION> 4444
<TOTAL-ASSETS> 7660
<CURRENT-LIABILITIES> 1624
<BONDS> 1868
0
0
<COMMON> 157
<OTHER-SE> 2367
<TOTAL-LIABILITY-AND-EQUITY> 7660
<SALES> 4318
<TOTAL-REVENUES> 4318
<CGS> 3369
<TOTAL-COSTS> 3369
<OTHER-EXPENSES> 416<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 98
<INCOME-PRETAX> 349
<INCOME-TAX> 90
<INCOME-CONTINUING> 217
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 20
<NET-INCOME> 197
<EPS-BASIC> 1.48
<EPS-DILUTED> 1.45
<FN>
<F1>Other expenses are equal to research and development of 114 and depreciation
and amortization of 302.
</FN>
</TABLE>
