EXHIBIT 13
Union Carbide Corporation
1999 Annual Report
(The cover)
Union Carbide Corporation Annual Report
(with 1999 written vertically up the right hand side)
(Inside front cover)
TABLE OF CONTENTS
Financial Highlights/At a Glance
1 Summary comparison of 1999 and 1998 results
Chairman's Letter
2 Bill Joyce on performance in 1999, strategic objectives
and long-term outlook
Principal Products & Services
4 Description of the Specialties & Intermediates and
Basic Chemicals & Polymers segments
Chemical Glossary
6 Chemicals and polymers used in Carbide's businesses
Management's Discussion and Analysis
7 Results of Operations
16 Liquidity, Capital Resources and Other Financial Data
17 Debt Ratios
Selected Financial Data
18 Summary financial history of the past 11 years
Financial Statements
20 Consolidated Balance Sheet
21 Consolidated Statement of Income
22 Consolidated Statement of Stockholders' Equity
24 Consolidated Statement of Cash Flows
25 Notes to Financial Statements
44 Management's Statement of Responsibility
for Financial Statements
44 Independent Auditors' Report
Quarterly Data
45 Summary comparison of quarterly 1999 and 1998 results
Corporate Information
46 Important dates, names, addresses, telephone numbers
and other information
Directors & Corporate Officers
47 List of directors, corporate officers and
other senior management
Union Carbide around the World
48 List of worldwide locations
Definition of Terms
48 Definition of non-chemical terms
Cautionary statement: All statements in this annual report that
do not reflect historical information are forward-looking
statements, within the meaning of the Private Securities
Litigation Reform Act of 1995 (as amended). Forward-looking
statements include statements concerning the pending merger with
The Dow Chemical Company (and, with regard to the merger, 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 2000 and beyond; development, production
and acceptance of new products and process technologies; ongoing
and planned capacity additions and expansions; joint ventures;
Management's Discussion and 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,
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.
FINANCIAL HIGHLIGHTS
Dollar amounts in millions (except per share figures)
For the Year 1999 1998 % Change
Net sales $5,870 $5,659 4
Operating profit 555 803 (31)
Income before cumulative effect of
change in accounting principle 311 403 (23)
Per common share - basic 2.33 2.98 (22)
Per common share - diluted 2.27 2.91 (22)
Net income - common stockholders 291 403 (28)
Per common share - basic 2.18 2.98 (27)
Per common share - diluted 2.13 2.91 (27)
Cash dividends on common stock 120 122 (2)
Per common share 0.90 0.90 -
Capital expenditures 764 782 (2)
At Year-End
Total assets $7,957 $7,291 9
Total debt 2,651 2,222 19
Stockholders' equity 2,617 2,449 7
Per common share 19.51 18.46 6
Common shares outstanding (thousands) 134,144 132,686 1
Common stockholders of record 42,386 45,775 (7)
Employees 11,569 11,627 -
AT A GLANCE
Union Carbide Corporation is a worldwide chemicals and polymers
company. The company possesses many of the industry's most
advanced process and catalyst technologies and some of the most
cost-efficient, large-scale production facilities in the world.
In addition to its consolidated operations, the corporation
participates in partnerships and corporate joint ventures whose
combined net sales totaled approximately $4.1 billion in 1999.
Union Carbide operates two business segments: Specialties &
Intermediates, which accounted for 71 percent of customer
revenues, produces a broad range of products, including specialty
polyolefins used in wire and cable insulation; surfactants for
industrial cleaners; catalysts for the manufacture of polymers;
acrolein and derivatives; water-soluble polymers; cellulose-,
glucose- and lanolin-based materials for personal care products;
specialty coatings; acrylic and vinyl acrylic latex used in
paints and adhesives; solvents; vinyl acetate and acrylic
monomers, and ethylene oxide derivatives. This segment also
licenses olefins-based technologies and offers other specialized
technology licensing and services.
Basic Chemicals & Polymers converts various hydrocarbon
feedstocks, principally liquefied petroleum gases and naphtha,
into the basic building-block chemicals ethylene and propylene
(also known as olefins), which are in turn converted to
polyethylene (the world's most widely used plastic),
polypropylene (one of the world's fastest-growing plastics), and
ethylene oxide and ethylene glycol (used to make polyester fiber,
film and resin, and automotive antifreeze). This segment provides
ethylene, propylene, ethylene oxide and ethylene glycol to the
Specialties & Intermediates segment.
Union Carbide's leading end markets as a percentage of sales are:
Paints, coatings and adhesives 22
Packaging and consumer plastics 20
Wire and cable 11
Textile 7
Household and personal care 7
Automotive, including antifreeze 5
Agriculture and food 4
Oil and gas 2
Industrial cleaners 2
Page 1
CHAIRMAN'S LETTER
The most significant day in Union Carbide's recent history was
August 4, 1999, when plans to merge with The Dow Chemical Company
were announced.
I have said that in a consolidating chemical industry, the
combination of Dow and Union Carbide sets the gold standard. With
leading technologies and outstanding facilities, the new Dow will
offer superb long-term prospects for profitable growth and
enhanced shareholder value. Both employee and independent Carbide
shareholders overwhelmingly approved the merger.
Looking to Carbide's businesses in the decade ahead, we
anticipate higher sales volumes and improved earnings from our
joint ventures and partnerships, plus prospects for higher
earnings and better returns at both the top and bottom of the
next industry cycle. The new Dow should be positioned to reach
those heights and higher in spite of new, and more difficult,
global economic forces.
Consumer demands for equal or higher quality products at
lower prices have led to a rapidly consolidating industry in
which fewer companies of greater size and resources serve the
global needs of customers. The growing importance of technology,
global reach and world-class production capabilities are creating
some strong corporate combinations, such as Exxon-Mobil, Total-
Petrofina and BP-Amoco.
Recognizing that change was afoot within the industry, we
could not ignore the opportunity to combine organizations with
Dow; the proposed merger was too beneficial to employees,
shareholders and our customers. Since the announcement, I have
been asked what will Union Carbide contribute to the new Dow. I
believe Carbide's contribution will be driven by three
initiatives instituted earlier in the 1990's that will contribute
to achieving some of Dow's stated objectives for the merger.
First, we applied extensive capital to repair or upgrade the
physical infrastructure of our production facilities, as well as
to transform our Information Technology systems through the most
comprehensive SAP R/3 implementation attempted in a process
industry. The infrastructure improvements, which were nearly
complete in 1999, improved operating reliability and helped
reduce costs by making us a low-cost producer of power and steam.
Second, but concurrently, we changed the basic cost
structure of the company. Proof of our success is the fact that
our unit fixed cost decreased to 10.2 cents per pound in 1999
from 15.5 cents per pound in 1991. Throughout all of our
businesses, Carbiders concentrated on increasing volume while
cutting costs by eliminating work that did not add value.
Finally, we began laying the foundation for long-term growth
by adding nearly 6 billion pounds of capacity since 1994, helping
our earnings per share to more than double from the bottom of the
last trough.
Prospects of additional sales and earnings from added
capacity coupled with more efficiently run operations
strengthened by infrastructure improvements and the SAP
implementation clearly made a combination with Carbide attractive
to Dow. While we made significant progress by bringing much of
this new capacity to market during the past year, the added
capacity and modernized infrastructure will make substantial long-
term contributions to the new Dow's financial results beyond the
current trough in the industry cycle.
Carbide shareholders have already benefited from the planned
merger. Our total shareholder return of 59.8 percent during 1999
put us at the top of our industry, well ahead of both the
Standard & Poor's 500 and Chemicals indexes. Since the spin-off
of the industrial gases business in mid-1992, we have delivered
600 percent total shareholder return, and more than 1,000 percent
total shareholder return since the end of November 1991, just
before the spin-off was announced.
One of the key messages to employees since the merger
announcement has been the need to give highest priority to
working safely while meeting our business goals and preparing to
deliver the strongest possible organization to the new company. I
am happy to report that Carbiders worldwide are living up to that
request, as they have achieved or exceeded most of the corporate
safety goals for the year while producing quality products and
providing excellent service to our customers.
Customer sales volume in 1999 was the highest ever for our
current businesses, reaching 16.8 billion pounds by year-end, a
gain of 13.9 percent over 1998. Infrastructure improvements
strengthened production reliability as capacity utilization
increased by 9.4 percent. Additionally, worldwide sales rose 3.7
percent, to $5.9 billion. Before the cumulative effect of a
change in accounting principle, income available to stockholders
fell to $311 million, and income per diluted share decreased to
$2.27.
(included on this page is a picture of William H. Joyce,
Chairman, President and Chief Executive Officer)
Page 2
Clearly, the current cyclical trough, coupled with a major
downturn in Asia that put the industry in a situation of over-
supply, depressed the earnings of companies like Carbide. Our
financial performance improved as the year progressed and the
Asian economic crisis lessened, providing Carbide with a
significant opportunity for increased sales in the region.
Fueling future growth in the Asian market is the OPTIMAL
joint venture with Petroliam Nasional Berhad (PETRONAS), the
national oil company of Malaysia. Construction of the new
complex remains on schedule, with completion expected
around the end of 2001. With its technology and feedstock
advantages, OPTIMAL will be Southeast Asia's most competitively
advantaged producer of a broad range of chemicals.
A source of concern this year has been reduced earnings in
Specialties & Intermediates (S&I), the larger of Carbide's two
business segments. Although delivering more than twice the
earnings the segment generated at the start of the decade, S&I
earnings were down in 1999 from higher levels achieved during the
prior four years. S&I continued to be hurt by the impact of the
Asian economic situation and by rapidly rising raw material costs
that could not be passed along quickly enough through higher
selling prices. These factors, including continued depressed
business activity at our UOP joint venture, more than offset the
favorable impact of a nearly 10.4 percent increase in customer
volume compared with 1998. Income from our licensing businesses,
while down from 1998, remained strong, and further benefited from
litigation gains that occurred in both years.
The Basic Chemicals & Polymers (BC&P) segment realized
increased prices through most of the year. Average unit variable
margins declined, however, as selling price increases were
insufficient to offset steeply rising feedstock costs.
After correcting defects in warrantied equipment that had
hampered its performance, EQUATE improved production and earnings
as the year progressed. With the ethylene, polyethylene and
ethylene glycol units each demonstrating greater-than-nameplate
capacity, the site's higher production volumes and sales are
beginning to produce anticipated long-term returns.
Projects for ethylene and polyethylene in Alberta remain on
target. Our 1.4 billion-pound-capacity UNIPOL Process
polyethylene plant at Prentiss, Alberta, is scheduled for
completion in the fall of 2000. With its large size, leading-edge
process technology and access to low-cost ethylene from the 2.8
billion-pound-capacity facility we are building nearby with Nova
Chemicals Corporation, the Prentiss plant should be a highly
competitive supplier in its target markets.
Powernet, our information technology initiative, replaced
more than 700 software applications housed in legacy computer
systems that were over 20 years old. The outcome was improved
efficiency and reduced costs through the integration of planning,
order entry, procurement, production, distribution and financial
systems, in addition to addressing Year 2000 problems existing in
the systems it replaced. By year-end 1999, Powernet was
operational at all remaining North American locations not
converted in 1998 and helped to establish a higher on-time
customer delivery percentage than before the November 1998
changeover.
Health, safety and environmental performance was very good.
There were no fatalities in 1999, and for the eighth consecutive
year we experienced no major process safety incidents. The number
of accidental releases was reduced by about 38 percent from 1998,
and the amount of material lost was reduced by more than 80
percent. Worker safety also improved, as the recordable work-
caused injury and illness rates decreased 19 percent and 14
percent, respectively.
For more information about our 1999 environmental and safety
performance, either write to Carbide's Public Affairs Department
for our RESPONSIBLE CARE Progress Report or access the report on
the Internet (at www.unioncarbide.com).
With the merger approaching, I am more inclined to look to
the future than dwell on the past. Just as Carbide made Leo
Baekeland's Bakelite Company, acquired in 1939, a noted part of
Carbide's heritage, I am confident that the new Dow will honor
and build on Union Carbide's exceptional history of technological
achievements.
In conclusion, I want to thank our shareholders, our
customers and, especially, Carbide employees for their support
and continuing commitment to our success.
Sincerely,
/s/ William H. Joyce
William H. Joyce
February 23, 2000
Page 3
PRINCIPAL PRODUCTS & SERVICES
Specialties & Intermediates
Union Carbide's Specialty Polymers and Products group
manufactures and markets numerous specialty products. Many of its
technologies are targeted for sharply defined market segments.
- -Water Soluble Polymers produces polymers used in a wide range of
applications for their unique properties in aqueous systems. Key
product lines include CELLOSIZE hydroxyethyl cellulose, POLYOX
water soluble resins, and a variety of cellulose, glucose and
lanolin-based materials supplied to the personal care industry by
Amerchol Corporation, a Union Carbide subsidiary. Other key
markets for Water Soluble Polymers include paints,
pharmaceuticals, oil fields, paper and industrial adhesives and
binders.
- -Performance Polymers produces coatings and plastic materials,
including UCAR solution vinyl resins, used in coatings for
beverage and food cans, bottle caps and closures; maintenance
coatings on bridges, storage tanks and oceangoing vessels;
printing inks for vinyl shower curtains, wallpaper and furniture;
and magnetic recording tape; TONE caprolactone-based materials,
used in fabric coatings, orthopedic cast and splint materials,
automotive primers and topcoats, plus biodegradable bags for
compostable materials; cycloaliphatic epoxides for electric
utility equipment such as insulators and transformers; CYRACURE
products for ultraviolet-cured coatings and inks; FLEXOL
plasticizers, made from soybean and linseed oils, used to keep
plastic products soft and pliable; and polyvinyl acetate resins,
used in such widely diverse applications as chewing-gum, molded
automotive body parts, bathroom fixtures, business-machine
housings, coatings and adhesives.
- -Specialty Industrial Products produces acrolein and derivatives,
important in a range of products from biocides to animal feed
supplements; ethylidene norbornene (ENB), used in the production
of ethylene propylene rubber roofing and automotive parts; and
specialty ketones, used as solvents and intermediates in
herbicide, drug and vitamin manufacture.
UCAR Emulsion Systems makes products used in interior and
exterior house paints, adhesives and sealants. They include UCAR
POLYPHOBE rheology modifiers, used to thicken coatings, and UCAR
latex products, used as binders and to improve exterior paint
durability, scrub and stain resistance and adhesion.
Specialty Polyolefins manufactures a variety of performance
polyolefin products marketed worldwide. Chief among these are
polyolefin-based compounds for high-performance insulation,
semiconductives and jacketing systems for power distribution,
telecommunications and flame-retardant wire and cable. Other
Specialty Polyolefins products are used in adhesives, laminating
film and flexible tubing.
UNIPOL Systems develops and licenses UNIPOL Process technology -
the industry's most versatile method of manufacturing
polyethylene and polypropylene - for producers worldwide. The
business also develops new process technology for the manufacture
of other olefins-based polymers, such as ELASTOFLO ethylene
propylene rubber, which the business produces and markets to
rubber products manufacturers, and sells catalysts to UNIPOL
Process licensees worldwide. Licensing of UNIPOL PE and PP
processes, as well as development of new polyethylene
technologies, is handled through Univation Technologies, LLC, a
joint venture of Union Carbide and ExxonMobil Chemical Company.
Industrial Performance Chemicals manufactures and sells a broad
range of ethylene oxide derivatives and formulated glycol
products for specialty applications. Ethylene oxide derivatives
include CARBOWAX polyethylene glycols, nontoxic, biodegradable,
water-soluble products with a wide range of applications in the
pharmaceutical, personal care, household, textile processing,
wood preservation, ceramic and industrial markets; ethanolamines,
for detergents, personal care products such as bath soap,
agricultural products and natural gas conditioning and refining;
ethyleneamines, for fuel, lubricant and motor-oil additives,
adhesives, corrosion inhibitors, cleaning materials and many
other industrial uses; TRITON and TERGITOL specialty and
commodity surfactants, for use in institutional, industrial and
household cleaning products; formulations for personal care
products; and in industrial processes for textiles, paper, paints
and coatings and many other products; UCON fluids and lubricants,
for use in brake fluids and fire-resistant hydraulic fluids used
in heavy-duty machinery and off-highway equipment and in
automotive air-conditioning systems with non-ozone-depleting
coolants; alkyl alkanolamines for water-treating chemicals,
surfactants, fabric softeners, pharmaceuticals and natural-gas
and boiler-water conditioning; and gas-treating chemicals,
including SELEXOL and UCARSOL solvents, used to lower corrosion
rates and increase efficiency in removing carbon dioxide and
sulfur deriva-
Page 4
tives from natural and refinery gases. Formulated glycol products
include UCAR aircraft and runway deicing and anti-icing fluids,
which remove or prevent formation of ice, snow and frost on
aircraft and runway surfaces; UCARTHERM heat-transfer fluids,
which help to distribute heating and cooling effects and inhibit
corrosion in heating, ventilation and refrigeration systems; and
NORKOOL industrial products, used as coolants, corrosion
inhibitors and cleaners in gas compressor stations, generators
and large engines.
Solvents, Intermediates & Monomers supplies one of the chemical
industry's broadest product lines to the paints and coatings
market and also serves the cosmetics and personal care,
adhesives, household and institutional products, pharmaceuticals
and agricultural markets. Products include oxo aldehydes, acids
and alcohols, used as chemical intermediates and industrial
solvents and in herbicides, plasticizers, paint dryers, jet-
turbine lubricants, lube oil additives, perfumes and food and
feed preservatives; esters, which serve as solvents in industrial
coatings and printing inks and in the manufacturing processes for
pharmaceuticals and polymers; CARBITOL and CELLOSOLVE solvents,
used in high-technology coatings applications, such as primers
and industrial finishes for the automotive, packaging and
furniture markets, as jet-fuel additives and as grease cutters
for household and industrial cleaners and in UCON and EMKADIXOL
brake fluids; ketones, including methyl isobutyl ketone, used as
solvents for vinyl resins, industrial lacquers and
pharmaceuticals and as intermediates for dyes and rubber
chemicals; monomers, such as vinyl acetate and acrylic esters,
widely used in the production of latex paints, paper coatings,
adhesives, textile binders and floor and shoe polishes; alcohols,
such as ethanol and isopropanol, which act as solvents and
intermediates in materials used to produce coatings, inks,
herbicides, petroleum additives and synthetic lubricants and also
widely used as solvents for personal care products, such as
perfumes, deodorants and hair sprays, and in the preparation of
mouthwashes, detergents, disinfectants and polishes; and the
UNICARB System, a pollution-reducing technology that can cut
costs and reduce volatile organic compounds (VOCs) in spray-
applied coatings by up to 80 percent.
Basic Chemicals & Polymers
Union Carbide's Hydrocarbons group manufactures about three
quarters of the company's ethylene requirements and almost one
third of its propylene requirements. Ethylene and propylene are
the key raw materials for many of Union Carbide's businesses.
Union Carbide, the leading producer of ethylene oxide and
ethylene glycol, is supplied by the Ethylene Oxide/Glycol group.
Ethylene oxide is a chemical intermediate primarily used in the
manufacture of ethylene glycol, polyethylene glycol, glycol
ethers, ethanolamines, surfactants and other performance
chemicals and polymers; di- and triethylene glycol, used in a
variety of applications, including boat construction, shoe
manufacturing, natural gas-drying and other moisture-removing
applications and plasticizers for safety glasses; and
tetraethylene glycol, used predominantly in the production of
plasticizers for automotive windows. Ethylene glycol is used
extensively in the production of polyester fiber, resin and film,
automotive antifreeze and engine coolants, and aircraft anti-
icing and deicing fluids.
Union Carbide is a leading manufacturer of polyethylene, the
world's most widely used plastic. UNIPOL Polymers produces and
markets linear low-, medium- and high-density polyethylenes, used
in high-volume applications such as housewares, milk and water
bottles, grocery sacks, trash bags, packaging, water and gas
pipe, and FLEXOMER very low-density polyethylene resins, used as
an impact modifier in other polymers and to produce flexible hose
and tubing, frozen-food bags and stretch wrap.
Carbide's Polypropylene Resins business manufactures and sells
polypropylene, one of the world's largest-volume, fastest-growing
plastics. End-use applications include carpeting and upholstery;
apparel; packaging films; food containers, such as dairy-products
cups; housewares and appliances; heavy-duty tapes and ropes, and
automobile interior panels and trim.
For a summary of business and geographic segment data, see Note 6
to the consolidated financial statements and Management's
Discussion and Analysis, beginning on page 7.
For a summary of the corporation's Joint ventures, see Note 9 to
the consolidated financial statements and those sections of
Management's Discussion and Analysis beginning on page 10.
Page 5
CHEMICAL GLOSSARY
Alcohols - Chemicals, such as butanol, ethanol and isopropanol,
that serve as solvents and intermediates for the manufacture of
personal care products, pharmaceuticals, paints and coatings,
herbicides, petroleum additives and synthetic lubricants.
Biocides - Chemicals used to control or inhibit the growth of
bacteria, algae, fungi and mold.
Chemical Intermediates - Chemicals formed or introduced as an
intermediate step between the starting material and the final
product in chemical processing. Examples are:
- -Acrolein, used to make biocides, animal feed supplements and
coatings resins.
- -Ethanolamines, reaction products of ethylene oxide and ammonia,
used in detergents and other cleaning materials, personal care
and agricultural products and for removal of sulfur and other
impurities from natural gases.
- -Ethyleneamines, made from ethylene oxide or ethylene dichloride,
used in many industrial products, including fuel, lubricant and
motor oil additives, adhesives, wet-strength paper resins and
paints.
Esters - Chemicals made by reacting alcohols and acids, used as
solvents in paints and coatings, ink and pharmaceuticals.
Ethylene Glycol - Chemical made from ethylene oxide and water,
used to make polyester resins, film and fiber, automotive
antifreeze and engine coolants and aircraft deicing/anti-icing
fluids.
Ethylene Oxide - Chemical made from ethylene and oxygen. It
combines with other chemicals to produce a wide range of
products, such as ethylene glycol, water-soluble polymers for
personal care products and surfactants for detergents and
cleaning products.
Glutaraldehyde - Acrolein derivative predominantly used as a
biocide for industrial water treatment and in oil field
applications, animal housing sanitizers, surgical instrument
sterilants and paper manufacturing.
Glycol Ethers - Solvents used in higher-technology coating
applications, such as finishes for the automotive market, and in
noncoating applications, such as hard-surface cleaners, military
jet fuels and brake fluids.
Ketones - Chemicals, such as acetone, used as solvents for
resins, lacquers and pharmaceuticals, and as intermediates for
resins, dyes and rubber chemicals.
Monomers - Chemicals that can be converted into polymers. For
example, ethylene is a monomer that is made into polyethylene.
Olefins - Generic name for unsaturated hydrocarbons made from
components of petroleum or natural gas. Examples are:
- -Ethylene and Propylene, chemicals derived from natural gases or
petroleum components, and the starting materials from which most
of Union Carbide's chemicals and polymers are made.
Oxo Alcohols, Aldehydes and Acids - Chemicals Carbide
manufactures via its LP OXO Process, such as butanol and
propionic acid, which are used as chemical intermediates and
industrial solvents.
Polymers - Chains or networks of linked monomers. Plastics are
polymers. Examples are:
- -Polyethylene, the world's most widely used plastic, made by the
reaction of ethylene and, optionally, other olefins. It is used
in hundreds of consumer and industrial products, including
grocery and trash bags, waste containers, housewares, bottles,
drums, food packaging and wire and cable insulation and
jacketing. Union Carbide produces most of its polyethylene via
UNIPOL Process technology, developed by the corporation in the
early 1970's, which is licensed to polyethylene makers around the
world.
- -Polypropylene, a high-volume plastic made from the reaction of
propylene and, optionally, other olefins. The broad range of
applications includes lawn furniture, carpet fiber and backing,
food containers, toys, appliance housings and binding materials.
Much of Union Carbide's production is via the UNIPOL PP Process,
also licensed around the world.
Solvents - Chemicals used to dissolve or absorb other chemicals.
For example, ketones, esters, alcohols and glycol ethers are
effective solvents commonly used in paints and coatings.
Surfactants - Chemicals that increase the cleaning and wetting
properties of household and industrial cleaners and detergents.
They are also used in textile and paper processing, paints,
agricultural products and cosmetics, shampoos and other personal
care products. Carbide makes most of its surfactants from
ethylene oxide and alcohols
Page 6
MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
Millions of dollars (except per share figures), for the year ended December 31, 1999 1998 1997
Net sales $5,870 $5,659 $6,502
Operating profit(a) 555 803 1,045
Interest expense 133 114 79
Income before provision for income taxes 422 689 966
Income before cumulative effect of change in accounting principle 311 403 676
Net income 291 403 659
Net income - common stockholders 291 403 652
Per share - basic
Income before cumulative effect of change in accounting principle $ 2.33 $ 2.98 $ 5.02
Net income - common stockholders 2.18 2.98 4.89
Per share - diluted
Income before cumulative effect of change in accounting principle 2.27 2.91 4.53
Net income - common stockholders 2.13 2.91 4.41
<FN>
(a) See Note 6 to the financial statements for a discussion of the special items
included in operating profit.
</FN>
Union Carbide operates in two business segments. Specialties &
Intermediates (S&I) converts basic and intermediate chemicals
into a diverse portfolio of chemicals and polymers serving
industrial customers in many markets. This segment also provides
technology services, including licensing, to the oil and
petrochemicals industries. Basic Chemicals & Polymers (BC&P)
converts hydrocarbon feedstocks, principally liquefied petroleum
gas and naphtha, into ethylene or propylene used to manufacture
polyethylene, polypropylene, ethylene oxide and ethylene glycol
for sale to third-party customers, as well as ethylene,
propylene, ethylene oxide and ethylene glycol for consumption by
the S&I segment. In comparison with those of S&I, the revenues
and operating profit of BC&P tend to be more cyclical and very
sensitive to a number of external variables, including overall
economic demand, hydrocarbon feedstock costs, industry capacity
increases and plant operating rates.
In addition to its business segments, the corporation's
Other segment includes its noncore operations and financial
transactions other than derivatives designated as hedges, which
are included in the same segment as the item being hedged.
Summary
1999 Compared with 1998
On a consolidated basis, net sales improved by 3.7 percent, the
result of an increase in customer volume of 13.9 percent offset
by a decrease in average customer selling prices of 9.1 percent.
Although average customer selling prices in the BC&P segment fell
6.1 percent from the prior year, they showed steady quarterly
improvement from a two-year low in the first quarter of 1999.
Competitive pricing pressures in solvents, intermediates,
monomers, industrial performance chemicals and wire and cable
products caused average customer selling prices for the S&I
segment to decline in the first half of 1999 with some
improvement in the remainder of the year. Volume increases in
both segments reflected an increase in current year demand and
improved operating reliability coupled with the absence of
extended plant shutdowns and distribution disruptions in the U.S.
Gulf Coast region, both of which occurred in 1998. Increases in
raw material costs throughout 1999 were only partially absorbed
in the form of increases in average selling prices. Unit variable
margin (sales less variable manufacturing and distribution costs
divided by customer volume) decreased by 13.6 percent. Fixed
costs increased $27 million, or 1.6 percent, as a result of
increased costs associated with Year 2000 compliance efforts and
environmental remediation as well as the increased level of
shipments, partially offset by a reduction in plant turnaround
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) declined to a decade low of 10.2 cents, from 11.5 cents
in 1998.
The decline of $22 million in partnership income from 1998
primarily was the result of a decline in earnings of UOP LLC
(UOP), which was partially offset by lower losses of Aspell
Polymeres SNC (Aspell). During the latter part of 1998 and
continuing throughout most of 1999, UOP was affected by a
reduction in oil and petrochemical projects within some of the
oil markets in Asia, Russia and the Middle East. Additionally, in
the third quarter of 1998, the corporation recognized $53 million
of before-tax ($38 million after-tax) losses associated with
Aspell.
Page 7
Over the past several years, the fair value of the
corporation's pension plan assets has grown at a faster rate than
the projected pension benefit obligation primarily as the result
of high market returns on the corporation's pension plan assets.
As a result, operating income in 1999 includes $9 million of
pension income, compared with pension expense of $13 million and
$14 million in 1998 and 1997, respectively.
Other income (expense), net in 1999 includes two favorable
litigation settlements related to the licensing business
totalling $50 million before-tax ($38 million after-tax),
compared with gains of $189 million before-tax ($115 million
after-tax) associated with favorable litigation settlements
related to the licensing business in 1998.
The corporation's corporate investments carried at equity
showed marked improvement as earnings increased from a loss of
$66 million in 1998 to income of $2 million in 1999. The increase
is primarily related to EQUATE Petrochemical Company K.S.C.'s
(EQUATE) results in the second half of the year and increased
earnings of Polimeri Europa.
1998 Compared with 1997
The corporation's 1998 earnings reflected a difficult environment
for the chemical industry coupled with a continuing decline of
the Asian economy. On a consolidated basis, net sales declined
13.0 percent as the result of a 10.1 percent decline in average
selling prices and a 3.1 percent decline in customer volume.
Average customer selling prices dropped 22.3 percent in the BC&P
segment, reflecting a deteriorating supply/demand balance in
polyethylene, polypropylene and ethylene oxide/glycol. Average
selling prices in S&I dropped 5.2 percent, due in part to
weakness in Asian markets. Volumes declined in both segments as a
result of extended plant shutdowns associated with planned
multiyear olefins unit turnarounds and expansion, distribution
disruptions in the U.S. Gulf Coast region early in 1998 and
declining Asian demand. Fixed cost per pound of products sold
increased from 10.8 cents in 1997 to 11.5 cents in 1998,
primarily the result of lower volumes and higher fixed costs
related to the extended plant shutdowns and the implementation of
the corporation's information technology infrastructure system
during 1998.
Partnership income declined $100 million due to the
recognition of $53 million of before-tax losses in the third
quarter associated with Aspell; a decline in UOP earnings,
related to reduced oil and petrochemical projects within some of
the oil markets in Asia, Russia and the Middle East and reduced
Petromont and Company, Limited Partnership (Petromont) earnings
due to declining polyethylene prices. Operating profit benefited
from a $189 million before-tax net gain from two favorable
litigation settlements related to the licensing business. Net
income was reduced by a $69 million decline in earnings of the
corporation's corporate investments carried at equity caused by a
decline in basic chemical prices in Asia and Europe, as well as
startup difficulties experienced by EQUATE.
Interest Expense
Interest expense increased from $79 million in 1997 to $114
million in 1998 and $133 million in 1999 as average debt
outstanding throughout these periods increased. Additionally, in
1998, compared with 1997, there was a reduction in capitalized
interest associated with the corporation's capital program.
Provision for Income Taxes
The effective tax rate was 25.6 percent in 1999 compared with
31.5 percent and 28.9 percent in 1998 and 1997, respectively. The
corporation's effective tax rate increased in 1998 as a result of
higher tax rates associated with the corporation's two favorable
litigation settlements related to the licensing business.
Excluding these settlements, the effective tax rate would have
been 28.6 percent. Generally, the corporation's effective tax
rate is less than the statutory Federal income tax rate because
of research and experimentation and foreign sales corporation tax
credits, both of which were higher in 1999.
(Included on this page are two charts detailing the following
information:
Fixed Cost per Pound - cents/pound
1992 1993 1994 1995 1996 1997 1998 1999
Specialties & Intermediates 19.0 17.5 15.0 15.8 14.7 14.2 14.7 13.9
Basic Chemicals & Polymers 7.7 7.5 7.0 7.2 6.7 6.8 7.5 5.8
Consolidated Total 13.8 12.9 11.4 11.9 11.0 10.8 11.5 10.2
Employee Productivity
1992 1993 1994 1995 1996 1997 1998 1999
Number of Employees 15,075 13,051 12,004 11,521 11,745 11,813 11,627 11,569
Thousands of Pounds/Employee 794 916 1,064 1,128 1,230 1,286 1,266 1,449
)
Page 8
Corporate Matters
Interest Rate and Currency Risk Management
The corporation selectively uses financial instruments to manage
its exposure to market risk related to changes in foreign
currency exchange rates and interest rates. The corporation does
not hold derivative financial instruments for trading purposes.
See Notes 1 and 10 to the consolidated financial statements for
more information about these instruments.
At Dec. 31, 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 less than $1
million (net notional amount of $419 million and an unrecognized
net loss of $1 million at Dec. 31, 1998).
The corporation used sensitivity analysis to evaluate the
potential effect of movements in foreign currency exchange rates
and interest rates on the consolidated financial statements.
Based on this analysis, a hypothetical 10 percent weakening in
the U.S. dollar across all currencies would have resulted in a
$0.5 million net gain at Dec. 31, 1999 ($7 million net loss at
Dec. 31, 1998). Alternatively, a hypothetical 10 percent
strengthening in the U.S. dollar across all currencies would have
resulted in a $5 million net gain at Dec. 31, 1999 ($10 million
net loss at Dec. 31, 1998). These gains and losses would
generally be offset by fluctuations in underlying currency
transactions. The corporation held long-term debt of $1,869
million, of which $125 million was variable-rate debt, at Dec.
31, 1999 (total long-term debt of $1,814 million and variable-
rate debt of $125 million at Dec. 31, 1998). At Dec. 31, 1999 and
1998, a hypothetical 10 percent increase or decrease in market
interest rates would not have materially affected interest
expense or cash flows related to variable-rate debt. A 10 percent
increase in market interest rates would have decreased the net
fair market value of fixed-rate debt instruments by $102 million
at Dec. 31, 1999 ($96 million at Dec. 31, 1998), and a 10 percent
decrease in market interest rates would have increased the net
fair market value of fixed-rate debt instruments by $120 million
at Dec. 31, 1999 ($108 million at Dec. 31, 1998).
Foreign Operations
A portion of the financial results of each of the corporation's
segments is derived from activities conducted outside the U.S.
and denominated in currencies other than the U.S. dollar. Because
the financial results of the corporation are reported in U.S.
dollars, they are affected by changes in the value of the various
foreign currencies in relation to the U.S. dollar. Exchange rate
risks are lessened, however, by the diversity of the
corporation's foreign operations and the fact that international
activities are not concentrated in any single non-U.S. currency.
In addition, the effects of a strengthening U.S. dollar could
cause pricing pressures on worldwide chemical markets that could
result in declines in the corporation's sales volumes. The
corporation is subject to other risks customarily associated with
doing business in foreign countries, including local labor and
economic conditions, unfavorable changes in foreign tax laws and
possible controls on repatriation of earnings and capital. Future
losses associated with such risks, if any, cannot be predicted.
Outlook - Corporate
On Aug. 3, 1999, the corporation and The Dow Chemical Company
(Dow) entered into an Agreement and Plan of Merger providing for
the merger of a subsidiary of Dow with and into the corporation.
As a result of the merger, the corporation will become a wholly-
owned subsidiary of Dow and 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. On Dec.
1, 1999, UCC shareholders approved the merger agreement. The
merger is subject to certain conditions including 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.
(Included on this page are two charts detailing the following
information:
Volume - millions of pounds
1992 1993 1994 1995 1996 1997 1998 1999
Specialties & Intermediates 6,458 6,454 7,093 7,112 7,743 8,264 8,101 8,946
Basic Chemicals & Polymers 5,510 5,502 5,680 5,878 6,706 6,923 6,614 7,817
Consolidated Total 11,968 11,956 12,773 12,990 14,449 15,187 14,715 16,763
)
Unit Variable margin - cents/pound
1992 1993 1994 1995 1996 1997 1998 1999
Specialties & Intermediates 25.0 25.7 24.6 26.8 24.7 22.9 24.3 22.5
Including the OrganoSilicon business
sold in 1993 27.8 27.2 - - - - - -
Basic Chemicals & Polymers 7.7 6.6 8.5 16.4 11.0 13.9 9.6 7.2
)
Page 9
Specialties & Intermediates
Millions of dollars, except as indicated 1999 1998 1997
Segment revenues $4,182 $4,139 $4,453
Cost of sales, exclusive of depreciation and amortization 3,100 3,007 3,358
Gross margin 1,082 1,132 1,095
Depreciation and amortization 262 247 214
Partnership income 6 27 116
Operating profit $ 607 $ 833 $ 667
Income (loss) from corporate investments carried at equity $ (1) $ 1 $ 6
Customer volume (millions of pounds) 8,946 8,101 8,264
Unit variable margin (cents/pound) 22.5 24.3 22.9
Fixed cost per pound of products sold (cents/pound) 13.9 14.7 14.2
Capital expenditures $ 291 $ 438 $ 458
Investments, advances and acquisitions 64 42 50
Segment assets $4,603 $4,403 $4,146
Specialties & Intermediates Operations
1999 Compared with 1998
In 1999, S&I segment revenues increased 1.0 percent, reflecting a
10.4 percent increase in customer volumes offset by an 8.6
percent decline in average customer selling prices. Due to
competitive pricing pressures, average customer selling prices
declined in the first half of 1999 with some recovery in the
latter part of the year; however, in no quarter of 1999 did the
average customer selling price exceed any quarter of 1998.
Although most of S&I's products were affected, solvents,
intermediates, monomers, industrial performance chemicals and
wire and cable products experienced the most dramatic declines.
Increased capacity associated with new manufacturing units
started up in 1998 and 1999, coupled with generally strong
demand, particularly in solvents, intermediates and monomers,
enabled the segment to substantially increase shipments over
prior year levels.
The decline in S&I's unit variable margin was principally
the result of the year's overall decline in average selling
prices coupled with an increase in raw material and energy costs
throughout the year. The segment benefited from decreases in
fixed cost per pound of products sold. These declines reflected
the combined effect of increased volumes in 1999 coupled with the
absence of costs associated with the 1998 extended plant
shutdowns. Increased depreciation and amortization represented a
full year's worth of depreciation for capital projects completed
throughout 1998.
Included in S&I's 1999 operating profit were two favorable
litigation settlements related to the licensing business totaling
$50 million, which occurred in the second and third quarters.
Segment operating profit in 1998 included $189 million in gains
during the second half of 1998 from favorable litigation
settlements related to the licensing business.
1998 Compared with 1997
During 1998, S&I segment revenues declined 7.1 percent on a 5.2
percent decline in average selling prices and a 2.0 percent
decline in volume. Average selling prices declined for almost all
of S&I's products as a result of worldwide competitive pricing
pressure, particularly on sales in Asian markets which weakened
throughout 1998. Volume decreased most significantly in the
solvents, intermediates and monomers product lines, due largely
to reduced Asian demand. This decline was somewhat offset by
increased domestic shipments of industrial performance chemicals
and UCAR Emulsion Systems products.
S&I's unit variable margin increased principally due to
declines in raw material costs. However, fixed cost per pound of
products sold in 1998 increased over 1997 reflecting the combined
effect of reduced volumes and increased fixed costs associated
with extended plant shutdowns and costs associated with the
corporation's information technology project occurring in 1998.
Increased depreciation and amortization in 1998 compared with
1997 are principally the result of depreciation associated with
capital projects completed throughout 1998.
Specialties & Intermediates Joint Ventures
The most significant joint ventures included in the S&I segment
are:
UOP LLC (UOP) - a Domestic joint venture, accounted for as a
partnership, with Honeywell International, Inc. for the worldwide
supply of process technology, catalysts, molecular sieves and
adsorbents to the petrochemical and gas-processing industries. In
addition to its domestic operations, UOP has facilities in
Germany, Italy and the United Kingdom.
Page 10
Specialties & Intermediates Joint Ventures
Combined UCC's Proportionate Share (a)
Millions of dollars 1999 1998 1997 1999 1998 1997
Net sales $2,000 $2,060 $2,246 $990 $1,032 $1,109
Cost of sales 1,334 1,345 1,395 657 663 567
Depreciation 104 119 90 47 54 51
Income from operations 92 231 340 53 122 175
Interest expense 40 43 42 19 16 15
Provision for income taxes 61 48 76 30 24 38
Net Income (Loss) $ (7) $ 141 $ 224 $ 5 $ 81(b) $ 122
UCC share of dividends & distributions $ 64 $ 105 $ 107
Total assets $2,086 $1,981 $1,837 $923 $ 881 $ 820
Total third-party debt 786 616 588 330 268 249
Net Assets $ 606 $ 474 $ 451 $314 $ 298 $ 277
<FN>
(a) Includes U.S. Generally Accepted Accounting Principles adjustments made by
the corporation, such as goodwill and related amortization, and adjustments
needed to conform the accounting policies of the joint ventures to those of
UCC.
(b) Excluding the $53 million loss associated with Aspell in the third quarter.
</FN>
Nippon Unicar Company Limited (NUC) - a Japanese corporate
joint venture with Tonen Chemical Corporation to produce
polyethylene and specialty polyethylene compounds and specialty
silicone products.
Aspell Polymeres SNC (Aspell) - a French partnership with
Elf Atochem S.A., a subsidiary of Elf Aquitaine, to produce
polyethylene and specialty polyethylene compounds.
World Ethanol Company (World Ethanol) - a Domestic
partnership with Archer Daniels Midland Company, to supply
ethanol worldwide.
Univation Technologies, LLC (Univation) - a Domestic joint
venture, accounted for as a partnership, with ExxonMobil Chemical
Company, a division of Exxon Mobil Corporation, for the licensing
of polyethylene technology and research, development and
commercialization activities on process technology and single
site and other advanced catalysts for the production of
polyethylene. The venture is also the sales agent for licensing
of Union Carbide's UNIPOL technology.
Asian Acetyls Co., Ltd. (ASACCO) - a South Korean corporate
joint venture with BP Chemicals and Samsung Fine Chemicals
Company to produce vinyl acetate monomer used in the production
of emulsion resins by customers in the coatings and adhesives
industries.
OPTIMAL Chemicals (Malaysia) Sdn Bhd (OPTIMAL-S&I) - a
Malaysian corporate joint venture with Petroliam Nasional Berhad
(PETRONAS) that is building a facility for the production of
ethylene and propylene derivatives within a world-scale,
integrated chemical complex in Kerteh, Terengganu, Malaysia. This
corporate joint venture, along with two joint ventures in the
corporation's BC&P segment, form the OPTIMAL Group.
1999 Compared with 1998
The corporation's share of S&I's partnership income decreased $21
million from 1998. The majority of this decline relates to
reduced earnings from UOP partly offset by lower losses
associated with Aspell. During the latter part of 1998 and
continuing throughout most of 1999, UOP was affected by a
reduction in oil and petrochemical projects within some of the
oil markets in Asia, Russia and the Middle East. Additionally,
earnings from World Ethanol declined due to an oversupply of
ethanol in the domestic marketplace and increases in distribution
costs.
1998 Compared with 1997
The corporation's share of S&I partnership income decreased $89
million from 1997. The decrease was primarily related to the
recognition of $53 million of losses associated with Aspell in
the third quarter of 1998. Additionally, 1998 income included
declining earnings from UOP, primarily related to unfavorable
market conditions in Asia, Russia and the Middle East, and a full
twelve months of operating costs, principally related to research
and development, associated with Univation, compared with only
eight months in 1997. Income from the corporation's S&I corporate
investments carried at equity decreased $5 million, mostly due to
reduced earnings at NUC.
Outlook - Specialties & Intermediates
The corporation anticipates that unit variable margins will
continue to suffer into the first quarter of 2000 as anticipated
increases in average selling prices will most likely continue to
lag raw material cost increases. Volumes are anticipated to
remain strong, especially in the solvents, intermediates and
monomers products. It is anticipated that the segment will
benefit from improvements in partnership income over fourth-
quarter 1999 levels and from lower fixed cost per pound of
products sold.
Page 11
Basic Chemicals & Polymers
Millions of dollars, except as indicated 1999 1998 1997
Segment revenues $1,976 $1,802 $2,420
Cost of sales, exclusive of depreciation and amortization 1,765 1,550 1,816
Gross margin 211 252 604
Depreciation and amortization 146 142 126
Partnership income 5 6 17
Operating profit (loss) $ (21) $ 20 $ 386
Income (loss) from corporate investments carried at equity $ 3 $ (67) $ (3)
Customer volume (millions of pounds) 7,817 6,614 6,923
Unit variable margin (cents/pound) 7.2 9.6 13.9
Fixed cost per pound of products sold (cents/pound) 5.8 7.5 6.8
Capital expenditures $ 473 $ 344 $ 297
Investments, advances and acquisitions 85 69 18
Segment assets $3,137 $2,686 $2,540
Basic Chemicals & Polymers Operations
1999 Compared with 1998
Segment revenues increased 9.7 percent on a 6.1 percent decline
in average customer selling prices and an 18.2 percent increase
in customer volume. Average customer selling prices, which
declined steadily throughout 1998, reached a low in the first
quarter of 1999 and showed improvement throughout the remainder
of the year. Customer volume improvements reflected an increase
in current year demand and improved operating reliability coupled
with the absence of volume losses due to extended plant shutdowns
and distribution disruptions, both of which occurred in 1998.
Declines in BC&P's unit variable margin occurred as the
modest increases in average customer selling prices during 1999
failed to offset increases in raw material costs. Declining fixed
cost per pound of products sold was due to both higher capacity
utilization and lower fixed costs. Reductions in fixed costs, a
majority of which were in fixed manufacturing and distribution
costs, reflected the absence of the costs related to plant
turnarounds that occurred in 1998.
1998 Compared with 1997
During 1998, the BC&P segment was negatively affected by overall
deterioration of the supply/demand balance for basic chemicals.
Average customer selling prices declined 22.3 percent. Prices for
ethylene glycol, polyethylene and polypropylene declined
throughout 1998 to levels below those of the prior cyclical
trough in 1993. Customer volume declined 4.5 percent, in part due
to distribution disruptions in the first half of the year and
extended ethylene plant shutdowns for multiyear maintenance, at
the corporation's Taft, La., and Texas City, Tex., facilities,
and an expansion, at Taft, La., all in the second half of the
year.
Unit variable margin declined as average selling prices fell
at a faster rate than the cost of raw materials. The increase in
this segment's fixed cost per pound of products sold reflected
the combined effect of reduced customer volumes and higher costs
associated with the extended plant shutdowns and the
implementation of the corporation's information technology
infrastructure system in 1998. The increase in depreciation and
amortization in 1998 compared with 1997 is the result of
depreciation associated with capital projects completed
throughout 1998.
Basic Chemicals & Polymers Joint Ventures
The most significant joint ventures included in the BC&P segment
are:
Alberta & Orient Glycol Company Limited (A&OG) - a Canadian
corporate joint venture with Mitsui & Co., Ltd., Japan, and Far
Eastern Textile Ltd., Taiwan, to produce ethylene glycol.
EQUATE Petrochemical Company K.S.C. (EQUATE) - a corporate
joint venture in Kuwait with Petrochemical Industries Company and
Boubyan Petrochemical Company to manufacture ethylene,
polyethylene and ethylene glycol.
Petromont and Company, Limited Partnership (Petromont) - a
Canadian partnership with Ethylec Inc. to produce olefins and
polyethylene resins.
Polimeri Europa S.r.l. (Polimeri Europa) - an Italian
corporate joint venture with EniChem S.p.A. to produce olefins
and polyethylene resins. This joint venture also has facilities
in France and Germany.
Page 12
Basic Chemicals & Polymers Joint Ventures
Combined UCC'S Proportionate Share(a)
Millions of dollars 1999 1998 1997 1999 1998 1997
Net sales $2,135 $1,996 $2,078 $1,047 $ 984 $1,038
Cost of sales 1,649 1,597 1,661 815 790 855
Depreciation 244 253 102 93 113 46
Income from operations 155 50 219 100 36 68
Interest expense 157 206 70 78 86 35
Provision for income taxes 26 27 49 13 12 18
Net Income (Loss) $ (27) $ (182) $ 100 $ 8 $ (61) $ 14
UCC share of dividends & distributions $ 11 $ 18 $ 19
Total assets $3,548 $3,724 $3,980 $1,508 $1,725 $1,797
Total third-party debt 1,241 1,474 1,595 581 691 744
Net Assets $1,232 $ 639 $ 985 $ 442 $ 326 $ 413
<FN>
(a) Includes U.S. Generally Accepted Accounting Principles adjustments made by
the corporation, such as goodwill and related amortization, and adjustments
needed to conform the accounting policies of the joint ventures to those of
UCC.
</FN>
OPTIMAL Olefins (Malaysia) Sdn Bhd and OPTIMAL Glycols
(Malaysia) Sdn Bhd (OPTIMAL-BC&P) - Malaysian corporate joint
ventures (part of the OPTIMAL Group) with PETRONAS that are
building an ethane/propane cracker and an ethylene oxide/glycol
facility, within a world-scale, integrated chemical complex in
Kerteh, Terengganu, Malaysia.
1999 Compared with 1998
The corporation's income (loss) from BC&P's corporate investments
carried at equity increased from a loss of $67 million in 1998 to
income of $3 million in 1999. The increase is primarily related
to EQUATE's results in the second half of the year when the
venture benefited from strong manufacturing operations, rising
basic chemical prices, advantaged raw material supply
arrangements and a recapitalization of debt. Additionally,
increased earnings from Polimeri Europa, related to improvements
in average selling prices and volumes, partly offset charges for
preliminary operating expenses of OPTIMAL-BC&P.
1998 Compared with 1997
BC&P's partnership income in 1998 declined $11 million from 1997
due to the decline in earnings of Petromont, the result of
declining worldwide average chemical selling prices. Increased
losses of this segment's corporate investments carried at equity
in 1998 were mainly attributable to declining worldwide average
basic chemical selling prices, particularly in Asia and Europe.
Additionally, EQUATE experienced startup difficulties in 1998,
its first full year of operations, including an interruption in
the supply of electric power from a government-owned power
station. Depreciation within the joint ventures more than doubled
in 1998 due to the startup of the EQUATE facility.
Joint Venture Commitments
EQUATE commenced operations in the fourth quarter of 1997. The
corporation recognized preoperating losses of $43 million in 1997
for development of this world-scale petrochemical complex. The
corporation severally guaranteed 45 percent (approximately $603
million at Dec. 31, 1999) of EQUATE's debt and working capital
financing needs. Certain completion and financial tests
supporting the corporation's guarantee were achieved and on Feb.
4, 2000, a substantial portion of this guarantee was released.
Subsequent to this date, the corporation's continuing several
debt guarantee has been reduced to an amount of up to $184
million. The corporation has also severally guaranteed certain
sales volume targets until EQUATE's sales capabilities are
proved. In addition, the corporation has pledged its shares in
EQUATE as security for EQUATE's debt. The corporation has
political risk insurance coverage for its equity investment and
most of its remaining several guarantee of EQUATE's debt.
Outlook - Basic Chemicals & Polymers
Although recent volatility in raw material prices makes first
quarter forecasting difficult, it is anticipated that BC&P will
be negatively impacted by falling average customer selling prices
and increasing raw material costs. BC&P joint ventures should
experience similar selling price and raw material pressure
resulting in an earnings decline in the first quarter of 2000.
Page 13
Other
Millions of dollars,
for the year ended December 31, 1999 1998 1997
Operating profit (loss) $(31) $(50) $(8)
The Other segment includes profit and loss from noncore
activities and certain financial transactions. Operating loss for
1999 included environmental expenses of $27 million related to a
discontinued business. Included in 1998's operating loss were the
net effects of gains and losses from the resolution of certain
legal obligations related to discontinued businesses, the
writedown of a long-term available-for-sale security and a
reclassification, to a discontinued business, of an environmental
accrual.
Costs Relating to Protection of the Environment
Worldwide costs relating to environmental protection continue to
be significant, due primarily to stringent laws and regulations
and to the corporation's commitment to industry initiatives such
as RESPONSIBLE CARE, as well as to its own internal standards. In
1999, worldwide expenses related to environmental protection for
compliance with Federal, state and local laws regulating solid
and hazardous wastes and discharge of materials to air and water,
as well as for waste site remedial activities, totaled $118
million. Expenses in 1998 and 1997 were $91 million and $100
million, respectively. In addition, worldwide capital
expenditures relating to environmental protection, including
those for new capacity and cost reduction and replacement, in
1999 totaled $35 million, compared with $57 million and $68
million in 1998 and 1997, respectively.
The corporation, like other companies in the U.S.,
periodically receives notices from the U.S. Environmental
Protection Agency and from state environmental agencies, as well
as claims from other companies, alleging that the corporation is
a potentially responsible party (PRP) under the Comprehensive
Environmental Response, Compensation and Liability Act and
equivalent state laws (hereafter referred to collectively as
Superfund) for past and future cleanup costs at hazardous waste
sites at which the corporation is alleged to have disposed of, or
arranged for treatment or disposal of, hazardous sub-stances. The
corporation is also undertaking environmental investigation and
remediation projects at hazardous waste sites located on property
currently and formerly owned by the corporation pursuant to
Superfund, as well as to the Resource Conservation and Recovery
Act and equivalent state laws.
There are approximately 111 hazardous waste sites at which
management believes it is probable or reasonably possible that
the corporation will incur liability for investigation and/or
remediation costs. The corporation has established accruals for
those hazardous waste sites where it is probable that a loss has
been incurred and the amount of the loss can reasonably be
estimated. The reliability and precision of the loss estimates
are affected by numerous factors, such as the stage of site
evaluation, the allocation of responsibility among PRPs and the
assertion of additional claims. The corporation adjusts its
accruals as new remediation requirements are defined, as
information becomes available permitting reasonable estimates to
be made, and to reflect new and changing facts.
At Dec. 31, 1999, the corporation's accruals for
environmental remediation totaled $208 million ($220 million in
1998). Approximately 45 percent of the accrual (53 percent in
1998) pertains to estimated future expenditures for site
investigation and cleanup, and approximately 55 percent (47
percent in 1998) pertains to estimated future expenditures for
closure and postclosure activities. See Note 17 to the financial
statements for a discussion of the environmental sites for which
the corporation has remediation responsibility. In addition, the
corporation had environmental loss contingencies of $108 million
at Dec. 31, 1999.
Estimates of future costs of environmental protection are
necessarily imprecise, due to numerous uncertainties. These
include the impact of new laws and regulations, the availability
and application of new and diverse technologies, the
identification of new hazardous waste sites at which the
corporation may be a PRP and, in the case of Superfund sites, the
ultimate allocation of costs among PRPs and the final
determination of the remedial requirements. While estimating such
future costs is inherently imprecise, taking into consideration
the corporation's experience to date regarding environmental
matters of a similar nature and facts currently known, the
corporation estimates that worldwide expenses related to
environmental protection, expressed in 1999 dollars, should
average about $105 million annually over the next five years.
Worldwide capital expenditures for environmental protection, also
expressed in 1999 dollars, are expected to average about $30
million annually over the same period. Management anticipates
that future annual costs for environmental protection after 2004
will continue at levels comparable to the five-year average
estimates. Subject to the inherent imprecision and uncertainties
in estimating and predicting future costs of environmental
protection, it is management's opinion that any future annual
costs for environmental protection in excess of the five-year
average estimates stated here, plus those costs anticipated to
continue thereafter, would not have a material adverse effect on
the corporation's consolidated financial position.
Page 14
Litigation
The corporation and its consolidated subsidiaries are involved in
a number of legal proceedings and claims with both private and
governmental parties. These cover a wide range of matters,
including, but not limited to: product liability; trade
regulation; governmental regulatory proceedings; health, safety
and environmental matters; employment; patents; contracts; and
taxes. In some of these legal proceedings and claims, the cost of
remedies that may be sought or damages claimed is substantial.
While it is impossible at this time to determine with certainty
the ultimate outcome of any such legal proceedings and claims,
management believes that adequate provisions have been made for
probable losses with respect thereto and that such ultimate
outcome, after provisions therefor, will not have a material
adverse effect on the consolidated financial position of the
corporation, but could have a material effect on consolidated
results of operations in a given quarter or year. Should any
losses be sustained in connection with any of such legal
proceedings and claims in excess of provisions therefor, they
will be charged to income when determinable
Accounting Changes
1997 through 1999
Effective Jan. 1, 1999, the corporation adopted the provisions of
the American Institute of Certified Public Accountants' Statement
of Position (SOP) 98-5, "Reporting on the Costs of Start-Up
Activities." This SOP requires the expensing of certain costs,
such as preoperating expenses and organizational costs associated
with an entity's startup activities. In accordance with this
SOP's provisions, on Jan. 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 Jan. 1, 1999, the corporation prospectively
adopted the provisions of 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
financial position or results of operations in the period of
adoption.
In 1998, the corporation adopted Statement of Financial
Accounting Standards (Statement) No. 130, "Reporting
Comprehensive Income," Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information," and Statement
No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits."
In 1997, the corporation adopted Emerging Issues Task Force
consensus on Issue 97-13, "Accounting for Costs Incurred in
Connection with a Consulting Contract or an Internal Project That
Combines Business Process Reengineering and Information
Technology Transformation." Effective Oct. 1, 1997, the
corporation adopted the provisions of Issue 97-13 as a cumulative
effect of change in accounting principle, reversing $28 million
($17 million after-tax) of costs previously capitalized from 1995
through the third quarter of 1997.
Subsequent to 1999
In 1998, the Financial Accounting Standards Board issued
Statement No. 133, "Accounting for Derivative Instruments and
Hedging Activities." It requires that an entity recognize all
derivative instruments as either assets or liabilities in the
statement of financial position and measure those instruments at
fair value. This Statement, 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 evaluating the effect Statement
No. 133 will have on its financial position and results of
operations in the period of adoption.
In 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) 101, "Revenue Recognition in Financial
Statements," which summarizes the staff's views regarding the
application of generally accepted accounting principles to
selected revenue recognition issues. The corporation is
evaluating whether SAB 101 will cause any change in its revenue
recognition policies and procedures.
Year 2000 Readiness Disclosure
The corporation implemented a comprehensive program to address
its hardware and software systems that might have been affected
by the Year 2000 transition and to assess the readiness of its
customers and suppliers. This remediation program was completed
during 1999.
The Jan. 1, 2000 crossover was uneventful for the
corporation. No system-related interruptions to operations,
public infrastructure, customers or suppliers were experienced
related to the date change. All major business, manufacturing,
logistics and financial systems were unaffected. Mission-critical
applications, infrastructure and services were maintained with a
few minor events experienced only in non-critical systems. No
outages occurred as a result of these experiences. No RESPONSIBLE
CARE, health, safety or environmental events occurred as a result
of the Year 2000 transition. Critical customers and suppliers
appear to have been unaffected by the date transition. No unusual
changes in business volume or responsiveness have been
experienced.
Normal business management practices will be used to monitor
and verify critical suppliers and customers during the Feb. 29,
2000 transition, which is expected to be uneventful.
Page 15
Through Dec. 31, 1999, costs for Year 2000 project work were
$49 million, with internal personnel costs contributing an
additional $30 million. Less than $1 million of these costs
remain to be expended. All costs were funded through operations
of the corporation. Approximately 75 percent of the external
costs related 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 costs that the
corporation's joint ventures incurred, all of which are being or
have been implemented independently of the corporation's Year
2000 project. The corporation's share of the internal and
external costs incurred by its joint ventures was $9 million
through Dec. 31, 1999.
Liquidity, Capital Resources
and Other Financial Data
Cash Flow From Operations
Cash flow from operations decreased by $369 million to $559
million in 1999, as compared to $928 million in 1998. The 1999
decline was principally the result of an increase in working
capital requirements and declines in income before cumulative
effect of change in accounting principle and equity in
earnings/losses of joint ventures.
Cash Flow Used for Investing
Cash flow used for investing includes capital expenditures,
investments, advances and acquisitions, and purchases of, and
proceeds from the sale of, securities and assets. Capital
expenditures were $764 million in 1999, compared with $782
million in 1998 and $755 million in 1997. Major capital projects
funded during 1999 included continued work at a new olefins
facility being built jointly with Nova Chemicals Corporation, and
a polyolefins project, both in Alberta, Canada. Major capital
projects funded during 1998 and 1997 included work on an olefins
expansion, a new butanol unit, a new CARBOWAX polyethylene glycol
and TERGITOL surfactants facility and an ethanolamines unit, all
at Taft, La.; the new olefins facility and polyolefins project;
as well as the upgrade of information technology infrastructure.
Over the past three years, 67 percent of capital
expenditures was directed to new capacity, 29 percent to cost
reduction and replacement and 4 percent to environmental, safety
and health facilities. Of these expenditures, 45 percent were in
the U.S. and Puerto Rico.
At Dec. 31, 1999, the cost of completing authorized
construction projects was estimated to be $633 million, of which
$299 million is covered by firm commitments. Future construction
expenditures are anticipated to be sourced through operating cash
flows and borrowings.
In April 1998, the corporation and PETRONAS agreed to form
the OPTIMAL Group, which will build and operate a 600,000 metric-
tons-per-year ethylene plant, a 385,000 metric-tons-per-year
ethylene oxide/glycol plant and a multiple specialties and
intermediates derivatives facility 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 Dec. 31, 1999, the corporation had invested
approximately $134 million, and was firmly committed to an
additional $68 million.
Page 16
Cash Flow From Financing
Cash flow from/used for financing includes stockholder and
minority interest dividends and funds used to buy back common
stock, offset in part by net proceeds from short- and long-term
debt and sales of common stock pursuant to the corporation's
dividend reinvestment plan, its employee savings and investment
programs and its long-term incentive plans.
Cash flow from financing in 1999 totaled $324 million,
compared with cash flow used for financing of $8 million in 1998
and $132 million in 1997. Cash flow from financing in 1999
includes net proceeds of $250 million from the April issuance of
6.70% Public Notes due in April 2009 and net increases in debt,
excluding this issuance, of $183 million partially offset by cash
dividends paid of $120 million. Borrowings in 1998 included net
proceeds of $248 million from the issuance of 6.25% Notes due in
June 2003 and $110 million net proceeds of Floating Rate Public
Notes, due in April 2000. The Floating Rate Public Notes bear
interest at a rate which is reset quarterly at the three-month
London Interbank Offered Rate (LIBOR) plus 0.65 percent.
Dividends paid in 1998 totaled $122 million.
Included in cash flow used for financing in 1997 were net
proceeds of $250 million from the issuance of preferred stock by
the corporation's real estate investment trust (REIT) subsidiary.
The corporation paid $240 million in cash to redeem the preferred
stock shares in the fourth quarter of 1997. Cash dividends paid
to preferred shareholders of the REIT during 1997 totaled $25
million.
In Sept. 1997, the board of directors declared an increase
in the quarterly common stock dividend to $0.225 per share. In
Oct. 1997, the trustee of the Employee Stock Ownership Plan
(ESOP) exercised its right to convert all shares of the
corporation's preferred stock held by the ESOP into the
corporation's common stock. This noncash conversion increased the
corporation's common stock outstanding at that time by 15.4
million shares.
On Aug. 3, 1999, the board of directors rescinded the
corporation's authorization to repurchase up to 60 million shares
of the corporation's common stock. Since inception of its
repurchase authorization in 1993 through Aug. 3, 1999, the
corporation repurchased 56.4 million shares for $2.033 billion,
at an average effective price of $36.01 per share. In addition to
the above repurchases, in 1999 and 1998 stock was reacquired from
employees to satisfy tax withholding requirements on restricted
shares issued under employee benefit plans.
At Dec. 31, 1999, there were no outstanding borrowings under
the existing major bank credit agreement aggregating $1 billion.
Debt Ratios
Total debt outstanding at year-end for each of the past three
years was:
Millions of dollars 1999 1998 1997
Domestic $2,568 $2,019 $1,719
International 83 203 168
Total $2,651 $2,222 $1,887
Year-end ratios of total debt to total capital were:
1999 1998 1997
Debt Ratio 49.9% 47.2% 44.2%
<FN>
Total debt consists of short-term debt, long-term debt and the
current portion of long-term debt. Total capital consists of
total debt plus minority stockholders' equity in consolidated
subsidiaries and stockholders' equity.
</FN>
Page 17
SELECTED FINANCIAL DATA
Union Carbide Corporation and Subsidiaries
Dollar amounts in millions (except per share figures) 1999 1998 1997 1996 1995
From the Income Statement
Net Sales $5,870 $5,659 $6,502 $6,106 $5,888
Cost of sales, exclusive of depreciation and amortization 4,609 4,294 4,806 4,568 4,100
Research and development 154 143 157 159 144
Selling, administrative and other expenses 257 304 324 321 387(d)
Depreciation and amortization 408 389 340 312 306
Partnership income (loss) 11 33(b) 133 144 152
Other income (expense) - net 102(a) 241(c) 37 31 245
Income before interest expense and provision for income taxes 555 803 1,045 921 1,348
Interest expense 133 114 79 76 89
Income (loss) before provision for
income taxes - continuing operations 422 689 966 845 1,259
Provision (credit) for income taxes 108 217 279 236 380
Income (loss) from corporate investments carried at equity 2 (66) 3 (16) 47
Income (loss) from continuing operations 311 403 676 593 925
Cumulative effect of change in accounting principle (20) - (17) - -
Net income (loss) - common stockholders 291 403 652 583 915
Per common share:
Basic - Income (loss) from continuing operations $ 2.33 $ 2.98 $ 5.02 $ 4.43 $ 6.65
- Net income (loss) 2.18 2.98 4.89 4.43 6.65
Diluted - Income (loss) from continuing operations 2.27 2.91 4.53 3.90 5.85
- Net income (loss) 2.13 2.91 4.41 3.90 5.85
From the Balance Sheet
Net current assets of continuing operations $ 361 $ 436 $ 362 $ 595 $ 858
Total assets 7,957 7,291 6,964 6,546 6,256
Long-term debt 1,869 1,796 1,458 1,487 1,285
Other long-term obligations 603 602 738 811 834
Total capital(g) 5,310 4,707 4,268 3,742 3,392
Stockholders' equity 2,617 2,449 2,348 2,114 2,045
Stockholders' equity per common share 19.51 18.46 17.15 16.72 15.14
Other Data
Cash dividends on common stock $ 120 $ 122 $ 100 $ 99 $ 103
Cash dividends per common share 0.90 0.90 0.7875 0.75 0.75
Special distribution per common share - - - - -
Market price per common share - high(e) 67.75 55.75 56.81 49.88 42.75
Market price per common share - low(e) 37.13 36.75 40.50 36.38 25.50
Common shares outstanding (thousands) 134,144 132,686 136,944 126,440 135,108
Capital expenditures 764 782 755 721 542
Employees - continuing operations 11,569 11,627 11,813 11,745 11,521
Selected Financial Ratios
Total debt/total capital 49.9% 47.2% 44.2% 42.7% 39.0%
Return on capital(g) 8.4% 11.2% 19.6% 18.6% 39.2%
Return on equity(f) 11.9% 17.2% 30.8% 28.5% 60.6%
Income from continuing operations/average
stockholders' equity 12.3% 16.8% 30.3% 28.5% 52.1%
Cash dividends on common stock/income
from continuing operations 38.6% 30.3% 14.8% 16.7% 11.1%
Dollar amounts in millions (except per share figures) 1994 1993 1992 1991 1990 1989
From the Income Statement
Net Sales $4,865 $4,640 $4,872 $4,877 $5,238 $5,613
Cost of sales, exclusive of depreciation and amortization 3,673 3,589 3,764 3,787 3,876 3,909
Research and development 136 139 155 157 157 143
Selling, administrative and other expenses 290 340 383 408 466 442
Depreciation and amortization 274 276 293 287 278 261
Partnership income (loss) 98 67 60 (22) 70 82
Other income (expense) - net (39) (66) (13) (135) 103 108
Income before interest expense and provision for income taxes 551 297 324 81 634 1,048
Interest expense 80 70 146 228 269 268
Income (loss) before provision for
income taxes - continuing operations 471 227 178 (147) 365 780
Provision (credit) for income taxes 137 78 45 (50) 130 257
Income (loss) from corporate investments carried at equity 55 16 (14) (21) (42) 27
Income (loss) from continuing operations 389 165 119 (116) 188 530
Cumulative effect of change in accounting principle - (97) (361) - - -
Net income (loss) - common stockholders 379 58 (187) (28) 308 573
Per common share:
Basic - Income (loss) from continuing operations $ 2.51 $ 1.03 $ 0.79 $(1.07) $ 1.34 $ 3.79
- Net income (loss) 2.51 0.37 (1.48) (0.22) 2.19 4.10
Diluted - Income (loss) from continuing operations 2.27 0.97 0.76 (1.07) 1.32 3.63
- Net income (loss) 2.27 0.41 (1.24) (0.22) 2.16 3.92
From the Balance Sheet
Net current assets of continuing operations $ 329 $ 233 $ 66 $ 209 $ 7 $ 22
Total assets 5,028 4,689 4,941 6,826 7,389 7,355
Long-term debt 899 931 1,113 1,160 2,058 2,060
Other long-term obligations 537 378 277 428 357 572
Total capital(g) 2,479 2,395 2,710 4,694 5,338 5,319
Stockholders' equity 1,509 1,428 1,238 2,239 2,373 2,383
Stockholders' equity per common share 10.45 9.49 9.32 17.55 18.88 16.83
Other Data
Cash dividends on common stock $ 113 $ 110 $ 114 $ 126 $ 138 $ 140
Cash dividends per common share 0.75 0.75 0.875 1.00 1.00 1.00
Special distribution per common share - - 15.875 - - -
Market price per common share - high(e) 35.88 23.13 17.13(h) 22.63 24.88 33.25
Market price per common share - low(e) 21.50 16.00 10.88(h) 15.13 14.13 22.75
Common shares outstanding (thousands) 144,412 150,548 132,865 127,607 125,674 141,578
Capital expenditures 409 395 359 400 381 483
Employees - continuing operations 12,004 13,051 15,075 16,705 17,722 18,032
Selected Financial Ratios
Total debt/total capital 38.2% 40.3% 54.3 % 52.0 % 54.0% 49.9%
Return on capital(g) 18.0% 7.7% 6.9 % - 8.4% 21.2%
Return on equity(f) 26.5% 4.7% (8.4)% (1.2)% 12.9% 31.2%
Income from continuing operations/average
stockholders' equity 26.5% 12.4% 6.8 % - 7.9% 25.1%
Cash dividends on common stock/income
from continuing operations 29.0% 66.7% 95.8 % - 73.4% 26.4%
<FN>
(a) Other income (expense) - net in 1999 includes $50 million in favorable litigation settlements related to the licensing
business.
(b) Includes $53 million in losses associated with Aspell Polymeres SNC, the corporation's joint venture in France.
(c) Other income (expense) - net in 1998 includes $189 million in favorable litigation settlements related to the licensing
business.
(d) Selling, administrative and other expenses in 1995 include a charge of $68 million for postemployment benefits.
(e) Prices are based on New York Stock Exchange Composite Transactions.
(f) Return on equity is computed by dividing Net income (loss) - common stockholders by beginning-of-year stockholders' equity.
(g) Return on capital is computed by dividing income by beginning-of-year capital. Income consists of income from continuing
operations, less preferred dividends, plus after-tax interest cost (net of interest income received from Praxair), plus income
attributable to minority interests. Capital consists of total debt plus minority stockholders' equity in consolidated
subsidiaries and stockholders' equity, adjusted for the corporation's Praxair-related assets and the cumulative effect of
changes in accounting principles. Total debt consists of short-term debt, long-term debt and the current portion of long-term
debt.
(h) In 1992 the corporation spun off Praxair, Inc. The high and low presented in the table for 1992 represent the value of the
common stock after the spin-off. The high and low for 1992 before the spin-off were $29.63 and $20.13, respectively.
</FN>
Pages 18 and 19
CONSOLIDATED BALANCE SHEET
Union Carbide Corporation and Subsidiaries
Millions of dollars, at December 31, 1999 1998
Assets
Cash and cash equivalents $ 41 $ 49
Notes and accounts receivable 1,132 933
Inventories 680 667
Other current assets 297 257
Total Current Assets 2,150 1,906
Property, plant and equipment 9,057 8,409
Less: Accumulated depreciation 4,536 4,228
Net Fixed Assets 4,521 4,181
Companies carried at equity 756 624
Other investments and advances 75 141
Total Investments and Advances 831 765
Other assets 455 439
Total Assets $7,957 $7,291
Liabilities and Stockholders' Equity
Accounts payable $ 329 $ 264
Short-term debt and current portion of long-
term debt 782 426
Accrued income and other taxes - 110
Other accrued liabilities 678 670
Total Current Liabilities 1,789 1,470
Long-term debt 1,869 1,796
Postretirement benefit obligation 438 450
Other long-term obligations 603 602
Deferred credits 599 488
Minority stockholders' equity in consolidated
subsidiaries 42 36
Stockholders' equity
Common stock
Authorized - 500,000,000 shares
Issued - 157,571,933 shares
(155,052,017 shares in 1998) 158 155
Additional paid-in capital 165 79
Other equity adjustments (1) (2)
Accumulated other comprehensive loss (160) (104)
Retained earnings 3,530 3,357
Unearned employee compensation - ESOP (56) (67)
Treasury stock, at cost - 23,428,229 shares
(22,366,017 shares in 1998) (1,019) (969)
Total Stockholders' Equity 2,617 2,449
Total Liabilities and Stockholders' Equity $ 7,957 $7,291
The Notes to Financial Statements on pages 25 through 43 should be read in
conjunction with this statement.
Page 20
CONSOLIDATED STATEMENT OF INCOME
Union Carbide Corporation and Subsidiaries
Millions of dollars (except per share figures),
for the year ended December 31, 1999 1998 1997
Net Sales $5,870 $5,659 $6,502
Cost of sales, exclusive of depreciation and
amortization 4,609 4,294 4,806
Research and development 154 143 157
Selling, administrative and other expenses 257 304 324
Depreciation and amortization 408 389 340
Partnership income 11 33 133
Other income - net 102 241 37
Income Before Interest Expense and Provision for Income
Taxes 555 803 1,045
Interest expense 133 114 79
Income Before Provision for Income Taxes 422 689 966
Provision for income taxes 108 217 279
Income of Consolidated Companies and Partnerships 314 472 687
Minority interest 5 3 14
Income (loss) from corporate investments carried at
equity 2 (66) 3
Income Before Cumulative Effect of Change in Accounting
Principle 311 403 676
Cumulative effect of change in accounting principle (20) - (17)
Net Income 291 403 659
Preferred stock dividends, net of income taxes - - 7
Net Income - Common Stockholders $ 291 $ 403 $ 652
Earnings Per Share
Basic -
Income Before Cumulative Effect of Change in
Accounting Principle $ 2.33 $ 2.98 $ 5.02
Cumulative effect of change in accounting principle (0.15) - (0.13)
Net Income - Common Stockholders $ 2.18 $ 2.98 $ 4.89
Diluted -
Income Before Cumulative Effect of Change in
Accounting Principle $ 2.27 $ 2.91 $ 4.53
Cumulative effect of change in accounting principle (0.14) - (0.12)
Net Income - Common Stockholders $ 2.13 $ 2.91 $ 4.41
Cash Dividends Declared Per Common Share $ 0.90 $ 0.90 $0.7875
The Notes to Financial Statements on pages 25 through 43 should be read in
conjunction with this statement.
Page 21
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Union Carbide Corporation and Subsidiaries
Additional Other
Shares Common Paid-in Equity
Millions of dollars (shares in thousands) Common Treasury Stock Capital Adjustments
Balance at December 31, 1996 154,610 28,169 $ 155 $ 370 $ (8)
Put options, net 26
Net Issued:
For the Dividend Reinvestment and Stock
Purchase Plan (189) 2
For employee savings and incentive plans (1,979) (66)
Common stock repurchase program 7,071
Effect of conversion of preferred shares held by ESOP (15,406) (285)
Comprehensive income
Net income
Other comprehensive income (loss), net of
income taxes
Unrealized gains on securities, net of
reclassification adjustments
Foreign currency translation adjustments
Other comprehensive loss
Comprehensive income
Preferred stock dividends, net of income taxes
Cash dividends on common stock
Shares allocated to ESOP participants
Restricted stock - Long-Term Incentive Program 5
Balance at December 31, 1997 154,610 17,666 $ 155 $ 47 $ (3)
Net Issued:
For the Dividend Reinvestment and Stock
Purchase Plan 58 (161) 4
For employee savings and incentive plans 384 (1,213) 28
Common stock repurchase program 6,074
Comprehensive income
Net income
Other comprehensive income (loss), net of
income taxes
Unrealized gains on securities, net of
reclassification adjustments
Foreign currency translation adjustments
Other comprehensive loss
Comprehensive income
Cash dividends on common stock
Tax on unallocated ESOP shares
Shares allocated to ESOP participants
Restricted stock - Long-Term Incentive Program 1
Balance at December 31, 1998 155,052 22,366 $ 155 $ 79 $ (2)
Net Issued:
For the Dividend Reinvestment and Stock
Purchase Plan 174 8
For employee savings and incentive plans 2,346 44 3 78
Common stock repurchase program 1,018
Comprehensive income
Net income
Other comprehensive income (loss), net of
income taxes
Unrealized gains on securities, net of
reclassification adjustments
Foreign currency translation adjustments
Other comprehensive loss
Comprehensive income
Cash dividends on common stock
Tax on unallocated ESOP shares
Shares allocated to ESOP participants
Restricted stock - Long-Term Incentive Program 1
Balance at December 31, 1999 157,572 23,428 $ 158 $ 165 $ (1)
Accumulated Unearned
Other Employee Total
Comprehensive Comprehensive Retained Compensation Treasury Stockholders'
Millions of dollars (shares in thousands) Income Loss Earnings - ESOP Stock Equity
Balance at December 31, 1996 $ (25) $2,629 $ - $(1,007) $2,114
Put options, net 26
Net Issued:
For the Dividend Reinvestment and Stock
Purchase Plan 7 9
For employee savings and incentive plans 66 -
Common stock repurchase program (340) (340)
Effect of conversion of preferred shares held by ESOP (107) (81) 530 57
Comprehensive income
Net income $659 659
Other comprehensive income (loss), net of
income taxes
Unrealized gains on securities, net of
reclassification adjustments 5
Foreign currency translation adjustments (81)
Other comprehensive loss (76) (76)
Comprehensive income $583 583
Preferred stock dividends, net of income taxes (7) (7)
Cash dividends on common stock (100) (100)
Shares allocated to ESOP participants 1 1
Restricted stock - Long-Term Incentive Program 5
Balance at December 31, 1997 $(101) $3,074 $(80) $(744) $2,348
Net Issued:
For the Dividend Reinvestment and Stock
Purchase Plan 6 10
For employee savings and incentive plans 42 70
Common stock repurchase program (273) (273)
Comprehensive income
Net income $403 403
Other comprehensive income (loss), net of
income taxes
Unrealized gains on securities, net of
reclassification adjustments 5
Foreign currency translation adjustments (8)
Other comprehensive loss (3) (3)
Comprehensive income $400 400
Cash dividends on common stock (122) (122)
Tax on unallocated ESOP shares 2 2
Shares allocated to ESOP participants 13 13
Restricted stock - Long-Term Incentive Program 1
Balance at December 31, 1998 $(104) $3,357 $(67) $(969) $2,449
Net Issued:
For the Dividend Reinvestment and Stock
Purchase Plan 8
For employee savings and incentive plans (3) 78
Common stock repurchase program (47) (47)
Comprehensive income
Net income $291 291
Other comprehensive income (loss), net of
income taxes
Unrealized gains on securities, net of
reclassification adjustments 1
Foreign currency translation adjustments (57)
Other comprehensive loss (56) (56)
Comprehensive income $235 235
Cash dividends on common stock (120) (120)
Tax on unallocated ESOP shares 2 2
Shares allocated to ESOP participants 11 11
Restricted stock - Long-Term Incentive Program 1
Balance at December 31, 1999 $(160) $3,530 $(56) $(1,019) $2,617
The Notes to Financial Statements on pages 25 through 43 should be read in
conjunction with this statement.
Pages 22 and 23
CONSOLIDATED STATEMENT OF CASH FLOWS
Union Carbide Corporation and Subsidiaries
Increase (decrease) in cash and cash equivalents
Millions of dollars, for the year ended December 31, 1999 1998 1997
Operations
Income before cumulative effect of change in accounting principle $ 311 $ 403 $ 676
Noncash charges (credits) to net income
Depreciation and amortization 408 389 340
Deferred income taxes 106 118 86
Equity in earnings/losses of joint ventures, net of dividends
received 62 156 (10)
Other 58 6 12
Increase in working capital(a) (297) (86) (144)
Long-term assets and liabilities (89) (58) (53)
Cash Flow From Operations 559 928 907
Investing
Capital expenditures (764) (782) (755)
Investments, advances and acquisitions, excluding cash acquired (149) (111) (68)
Proceeds from available-for-sale securities 42 39 37
Purchase of available-for-sale securities (50) (47) (38)
Sale of fixed and other assets 30 11 13
Cash Flow Used for Investing (891) (890) (811)
Financing
Change in short-term debt (3 months or less) 397 (23) 271
Proceeds from short-term debt 2 22 51
Repayment of short-term debt (20) (14) -
Proceeds from long-term debt 285 358 14
Repayment of long-term debt (231) (4) (30)
Issuance of common stock 51 41 44
Purchase of common stock (51) (276) (337)
Proceeds from subsidiary preferred stock - - 250
Purchase of subsidiary preferred stock - - (240)
Payment of dividends (120) (122) (134)
Other 11 10 (21)
Cash Flow From (Used for) Financing 324 (8) (132)
Effect of exchange rate changes on cash and cash equivalents - (1) (1)
Change in cash and cash equivalents (8) 29 (37)
Cash and cash equivalents, beginning-of-year 49 20 57
Cash and cash equivalents, end-of-year $ 41 $ 49 $ 20
Cash paid for interest and income taxes:
Interest (net of amount capitalized) $ 153 $ 117 $ 77
Income taxes 40 43 121
(a) Net change in certain components of working capital
(excluding noncash transactions):
Increase) decrease in current assets
Notes and accounts receivable $ (188) $ 77 $ 53
Inventories (14) (63) (63)
Other current assets (19) (3) -
Decrease in payables and accruals (76) (97) (134)
Increase in working capital $ (297) $ (86) $(144)
The Notes to Financial Statements on pages 25 through 43 should be read in
conjunction with this statement.
Page 24
NOTES TO FINANCIAL STATEMENTS
Index Page
1 Summary of Significant Accounting Policies 25
2 Supplementary Balance Sheet Detail 27
3 Supplementary Income Statement Detail 28
4 Other Comprehensive Income (Loss) 28
5 Earnings Per Share 29
6 Business and Geographic Segment Information 30
7 Income Taxes 32
8 Leases 33
9 Joint Ventures 34
10 Financial Instruments 35
11 Long-Term Debt 36
12 Minority Interest 37
13 Stockholders' Equity 37
14 Employee Stock Ownership Plan 37
15 Incentive Plans 38
16 Retirement Programs 40
17 Commitments and Contingencies 42
18 The Dow Merger 43
NOTE 1
Summary of Significant Accounting Policies
Nature of Operations - Union Carbide Corporation is engaged
in two segments of the chemicals and plastics industry,
Specialties & Intermediates and Basic Chemicals & Polymers. See
Note 6.
Principles of Consolidation - The consolidated financial
statements include the accounts of all significant subsidiaries.
All significant intercompany transactions have been eliminated in
consolidation. Investments in 20 percent- to 50 percent-owned
partnerships and corporate investments (joint ventures) are
reported under the equity method of accounting. Other investments
are generally carried at cost.
The consolidated financial statements have been prepared in
conformity with generally accepted accounting principles, which
require the corporation to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ
from those estimates.
Accounting Changes - 1997 through 1999 - Effective Jan. 1,
1999, the corporation adopted the provisions of the American
Institute of Certified Public Accountants' Statement of Position
(SOP) 98-5, "Reporting on the Costs of Start-Up Activities." This
SOP requires the expensing of certain costs, such as preoperating
expenses and organizational costs associated with an entity's
startup activities. In accordance with this SOP's provisions, on
Jan. 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 Jan. 1, 1999, the corporation prospectively
adopted the provisions of 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
financial position or results of operations in the period of
adoption.
In 1998, the corporation adopted Statement of Financial
Accounting Standards (Statement) No. 130, "Reporting
Comprehensive Income," Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information," and Statement
No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits."
In 1997, the corporation adopted Emerging Issues Task Force
consensus on Issue 97-13, "Accounting for Costs Incurred in
Connection with a Consulting Contract or an Internal Project That
Combines Business Process Reengineering and Information
Technology Transformation." Effective Oct. 1, 1997, the
corporation adopted the provisions of Issue 97-13 as a cumulative
effect of change in accounting principle, reversing $28 million
($17 million after-tax) of costs previously capitalized from 1995
through the third quarter of 1997.
Accounting Changes - Subsequent to 1999 - In 1998, the
Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities."
It requires that an entity recognize all derivative instruments
as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. This
Statement, 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 evaluating the effect Statement No. 133 will
have on its financial position and results of operations in the
period of adoption.
In 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) 101, "Revenue Recognition in Financial
Statements," which summarizes the staff's views regarding the
application of generally accepted accounting principles to
selected revenue recognition issues. The corporation is
evaluating whether SAB 101 will cause any change in its revenue
recognition policies and procedures.
Foreign Currency Translation - Unrealized gains and losses
resulting from translating foreign subsidiaries' assets and
liabilities into U.S. dollars generally are recognized as part of
Other comprehensive income (loss), as described in Note 4, and
are included in Accumulated other comprehensive loss on the
Consolidated Balance Sheet until such time as the subsidiary is
sold or substantially or completely liquidated. Translation
Page 25
gains and losses relating to those operations located in Latin
American countries where hyperinflation exists and to
international operations using the U.S. dollar as their
functional currency are included in the Consolidated Statement of
Income. As required by Statement No. 52, Brazil was no longer
considered a hyperinflationary economy, effective Jan. 1, 1998.
Financial Instruments - Financial instruments are used to
hedge financial risk caused by fluctuating interest and currency
rates. The amounts to be paid or received on interest rate risk
instruments that hedge debt, accrue and are recognized over the
lives of the instruments. Gains and losses on foreign currency
risk instruments used to hedge firm commitments are deferred and
recognized as part of the related foreign currency transactions.
Gains on foreign currency purchased options used to hedge the
identified cash flows of anticipated transactions are deferred
and matched against the cash flows of the foreign currency
transactions as they occur.
Foreign currency instruments that are designated to offset
fluctuations in the dollar value of foreign currency accounts
receivable and payable and from earnings fluctuations in
anticipated foreign currency cash flows are marked to market and
the results recognized immediately in Other income-net.
Cash Equivalents - The corporation considers as cash
equivalents all highly liquid investments that are readily
convertible to known amounts of cash and are so near their
maturity that they present insignificant risk of changes in value
because of changes in interest rates.
Inventories - Inventories are stated at cost or market,
whichever is lower. These amounts do not include depreciation and
amortization, the impact of which is not significant to the
financial statements.
Approximately 68 percent of inventory amounts before
application of the LIFO method at Dec. 31, 1999 (65 percent at
Dec. 31, 1998) have been valued on the LIFO basis; the "average
cost" method is used for the balance. It is estimated that if
inventories had been valued at current costs, they would have
been approximately $293 million and $224 million higher than
reported at Dec. 31, 1999 and 1998, respectively.
Fixed Assets - Fixed assets are carried at cost.
Expenditures for replacements are capitalized, and the replaced
items are retired. Gains and losses from the sale of property are
included in income. Depreciation is calculated on a straight-line
basis. The corporation and its subsidiaries generally use
accelerated depreciation methods for tax purposes where
appropriate.
Patents, Trademarks and Goodwill - Amounts paid for
purchased patents, trademarks and newly acquired businesses in
excess of the fair value of the net assets of such businesses
have been charged to patents, trademarks and goodwill. The
portion of such amounts determined to be attributable to patents
is amortized over their remaining lives, while trademarks and
goodwill are amortized over the estimated period of benefit,
generally 5 to 20 years.
Revenue Recognition - Sales of products and services, and
related costs and allowances, are recognized when title transfers
to the purchaser, generally upon shipment, as services are
rendered, or in relation to licensee production levels.
Research and Development - Research and development costs
are charged to expense as incurred. Depreciation expense
applicable to research and development facilities and equipment
is included in Depreciation and amortization in the Consolidated
Statement of Income ($10 million in 1999, $11 million in 1998 and
$12 million in 1997).
Income Taxes - Provisions have been made for deferred income
taxes based on differences between financial statement and tax
bases of assets and liabilities using currently enacted tax rates
and regulations.
Environmental Costs - Environmental expenditures are
expensed or capitalized as appropriate, depending on their future
economic benefit. Expenditures relating to an existing condition
caused by past operations and having no future economic benefits
are expensed. Environmental expenditures include site
investigation, physical remediation, operation and maintenance,
and legal and administrative costs. Environmental accruals are
established for sites where it is probable that a loss has been
incurred and the amount of the loss can reasonably be estimated.
Where the estimate is a range and no amount within the range is a
better estimate than any other amount, the corporation accrues
the minimum amount in the range and includes the balance of the
range in its reported contingencies.
Retirement Programs - The cost of pension benefits under the
U.S. Retirement Program is determined by an independent actuarial
firm using the projected unit credit actuarial cost method, with
an unrecognized net asset at Jan. 1, 1986, amortized over 15
years. Contributions to this program are made in accordance with
the regulations of the Employee Retirement Income Security Act of
1974. The cost of postretirement benefits is recognized on the
accrual basis over the period in which employees become eligible
for benefits.
Incentive Plans - The corporation measures compensation
expense for certain employee stock purchases and the stock option
portion of the Long-Term Incentive Plan using the intrinsic-value-
based method of accounting prescribed by Accounting Principles
Board Opinion 25, and makes pro forma disclosures of net income
and earnings per share as if the fair-value-based method of
accounting defined in Statement No. 123 had been applied.
Compensation expense is recognized for other stock-based
incentives issued under the Long-Term Incentive Plan and other
programs.
Page 26
NOTE 2
Supplementary Balance Sheet Detail
Millions of dollars, at December 31, 1999 1998
Notes and accounts receivable
Trade $ 951 $ 783
Other 200 172
1,151 955
Less: Allowance for doubtful accounts 19 22
$1,132 $ 933
Inventories
Raw materials and supplies $ 152 $ 187
Work in process 45 41
Finished goods 483 439
$ 680 $ 667
Other current assets
Prepaid expenses $ 65 $ 65
Net current deferred income tax assets 137 125
Other 95 67
$ 297 $ 257
Property, plant and equipment
Land and improvements $ 361 $ 345
Buildings 433 437
Machinery and equipment 7,441 7,080
Construction in progress and other 822 547
$9,057 $8,409
Other assets
Deferred charges $ 250 $ 228
Insurance recovery receivables 109 104
Long-term receivables 25 27
Patents, trademarks and goodwill 71 80
$ 455 $ 439
Other accrued liabilities
Accrued accounts payable $ 333 $ 314
Payrolls 62 56
Environmental remediation costs 53 60
Postretirement benefit obligation 41 38
Other 189 202
$ 678 $ 670
Other long-term obligations
Environmental remediation costs $ 155 $ 160
Product liability costs 110 107
Impairment of unused office space 94 115
Postemployment benefits 57 63
Other 187 157
$ 603 $ 602
Accumulated other comprehensive loss
Foreign currency translation adjustments (a) $ (168) $ (111)
Unrealized gains on available-for-sale
securities, net of tax (b) 8 7
$ (160) $ (104)
<FN>
(a) The corporation does not record deferred income tax on foreign
currency translation adjustments.
(b) Net of $4 million of deferred income tax at Dec. 31, 1999 and 1998.
</FN>
Page 27
NOTE 3
Supplementary Income Statement Detail
Millions of dollars, for the year ended December 31, 1999 1998 1997
Selling, administrative and other expenses
Selling $ 94 $ 99 $124
Administrative 90 107 126
Other expenses 73 98 74
$257 $304 $324
Other income (expense) - net
Settlements of licensing business litigation $ 50 $189 $ -
Investment and interest income 36 26 27
Foreign currency adjustments (3) (20) (8)
Other 19 46 18
$102 $241 $ 37
Interest expense
Interest incurred (a) $176 $157 $130
Less: Interest capitalized and other adjustments 43 43 51
$133 $114 $ 79
<FN>
(a) Includes $12 million in 1999, 1998 and 1997, representing the interest
component of certain leases
</FN>
NOTE 4
Other Comprehensive Income (Loss)
Comprehensive income is defined as any change in the
corporation's equity from transactions and other events
originating from non-owner sources. For the corporation, those
changes are comprised of reported net income, changes in the
unrealized appreciation or depreciation of the corporation's
available-for-sale securities and changes in unrealized foreign
currency translation adjustments. The following summary presents
the components of comprehensive income, other than net income:
Income Tax
Millions of dollars Pre-tax Effect After-tax
Balance at December 31, 1996 $ (26) $(1) $ (25)
Foreign currency translation adjustments (81) - (81)
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during period 8 3 5
Reclassification adjustment for (gains) losses realized
in net income - - -
Unrealized gains on securities 8 3 5
Balance at December 31, 1997 $ (99) $ 2 $(101)
Foreign currency translation adjustments (8) - (8)
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during period - - -
Reclassification adjustment for (gains) losses realized
in net income 7 2 5
Unrealized gains on securities 7 2 5
Balance at December 31, 1998 $(100) $ 4 $(104)
Foreign currency translation adjustments (57) - (57)
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during period 11 4 7
Reclassification adjustment for (gains) losses realized
in net income (10) (4) (6)
Unrealized gains on securities 1 - 1
Balance at December 31, 1999 $(156) $ 4 $(160)
Page 28
NOTE 5
Earnings Per Share
Basic and diluted earnings per share (EPS) are calculated as
follows:
Millions of dollars (except share and per share amounts),
for the year ended December 31, 1999 1998 1997
Basic -
Income before cumulative effect of change
in accounting principle $ 311 $ 403 $ 676
Less: Dividends on ESOP shares, pre-tax - - (9)
Appreciation on ESOP shares redeemed for cash - - (23)
Income before cumulative effect of change
in accounting principle, adjusted for basic calculation 311 403 644
Cumulative effect of change in accounting principle (20) - (17)
Net income-common stockholders, adjusted for basic
calculation $ 291 $ 403 $ 627
Weighted average shares outstanding for basic calculation 133,342,112 135,028,100 128,185,093
Earnings per share -
Income before cumulative effect of change
in accounting principle $2.33 $2.98 $5.02
Cumulative effect of change in accounting principle (0.15) - (0.13)
Net income-common stockholders $2.18 $2.98 $4.89
Diluted -
Income before cumulative effect of change in
accounting principle, adjusted for basic calculation $ 311 $ 403 $ 644
Plus: Dividends on ESOP shares, pre-tax - - 9
Less: Additional ESOP contribution resulting from
assumed conversion of ESOP shares - - (1)
Income before cumulative effect of change
in accounting principle, adjusted for diluted calculation 311 403 652
Cumulative effect of change in accounting principle (20) - (17)
Net income-common stockholders, adjusted for diluted
calculation $ 291 $ 403 $ 635
Weighted average shares outstanding for basic calculation 133,342,112 135,028,100 128,185,093
Add: Effect of stock options 3,316,207 3,381,795 4,034,969
Shares issuable upon conversion of the
corporation's convertible ESOP shares - - 11,739,036
Weighted average shares outstanding, adjusted
for diluted calculation 136,658,319 138,409,895 143,959,098
Earnings per share -
Income before cumulative effect of change
in accounting principle $2.27 $2.91 $4.53
Cumulative effect of change in accounting principle (0.14) - (0.12)
Net income-common stockholders $2.13 $2.91 $4.41
Page 29
NOTE 6
Business and Geographic Segment Information
The corporation has two operating segments,
Specialties & Intermediates (S&I) and Basic
Chemicals & Polymers (BC&P). The S&I segment
includes the corporation's specialty chemicals
and polymers product lines, licensing, and
solvents and chemical intermediates. The BC&P
segment includes the corporation's ethylene and
propylene manufacturing operations as well as the
production of first-level ethylene and propylene
derivatives-polyethylene, polypropylene, ethylene
oxide and ethylene glycol. Each operating segment
is a strategic business unit that offers products
and services with different functionalities. They
are managed separately because of the significant
differences that exist in their products and
services and in the methods required to produce,
market and distribute them. In addition to its
operating segments, the corporation's Other
segment includes its non-core operations and
financial transactions other than derivatives
designated as hedges, which are included in the
same segment as the item being hedged.
The accounting policies of the segments are
the same as those described in the summary of
significant accounting policies. Sales of the
BC&P segment include intersegment sales,
principally ethylene oxide, which are made at the
estimated market value of the products
transferred. Administrative costs were allocated
between the segments via a formula based on sales
in 1999 and 1998, and a formula based on capital,
overhead and sales in 1997; no significant
difference in allocations between the segments
resulted from the change in formula. Other costs
and shared assets are principally allocated on
the basis of pounds produced, gross fixed asset
values or headcount, as appropriate. The
corporation evaluates performance based on Income
before interest expense and provision for income
taxes (operating profit).
Sales are attributed to countries based on
customer ship-to addresses. Long-lived assets are
principally composed of Net Fixed Assets,
Companies carried at equity, and certain Other
assets. Investments of the corporation are
assigned to the country in which the investee has
its principal offices. Net sales and long-lived
assets by country and geographic area were as
follows:
Millions of dollars,
for the year ended December 31, 1999 1998 1997
Net Sales
United States, including
Puerto Rico $3,509 $3,355 $3,784
Canada 283 211 247
Europe & Middle East 834 802 924
Latin America 382 408 431
Far East & Other 862 883 1,116
Total International Operations $2,361 $2,304 $2,718
$5,870 $5,659 $6,502
Millions of dollars,
at December 31, 1999 1998 1997
Long-lived assets
United States, including
Puerto Rico $4,229 $4,290 $4,021
Canada 704 284 201
Europe & Middle East 406 401 456
Latin America 79 91 111
Far East & Other 267 127 122
Total International Operations $1,456 $ 903 $ 890
Total Long-lived assets 5,685 5,193 4,911
Current and other assets $2,272 $2,098 $2,053
Total Assets $7,957 $7,291 $6,964
Page 30
Millions of dollars S&I BC&P Other Totals
1999
Net sales $4,182 $1,688 $ - $5,870
Intersegment revenues - 288 - 288
Segment revenues 4,182 1,976 - 6,158
Depreciation and amortization 262 146 - 408
Partnership income 6 5 - 11
Operating profit (loss) 607 (21) (31) 555
Interest expense - - 133 133
Income (loss) from corporate investments
carried at equity (1) 3 - 2
Segment assets 4,603 3,137 217 7,957
Companies carried at equity 314 442 - 756
Expenditures for segment assets 355 558 - 913
1998
Net sales $4,139 $1,520 $ - $5,659
Intersegment revenues - 282 - 282
Segment revenues 4,139 1,802 - 5,941
Depreciation and amortization 247 142 - 389
Partnership income 27 6 - 33
Operating profit (loss) 833 20 (50) 803
Interest expense - - 114 114
Income (loss) from corporate investments
carried at equity 1 (67) - (66)
Segment assets 4,403 2,686 202 7,291
Companies carried at equity 298 326 - 624
Expenditures for segment assets 480 413 - 893
1997
Net sales $4,453 $2,049 $ - $6,502
Intersegment revenues - 371 - 371
Segment revenues 4,453 2,420 - 6,873
Depreciation and amortization 214 126 - 340
Partnership income 116 17 - 133
Operating profit (loss) 667 386 (8) 1,045
Interest expense - - 79 79
Income (loss) from corporate investments
carried at equity 6 (3) - 3
Segment assets 4,146 2,540 278 6,964
Companies carried at equity 277 413 - 690
Expenditures for segment assets 508 315 - 823
The operating profit of the S&I segment for 1999 includes a
nonrecurring net gain of $50 million related to the favorable
settlement of licensing business litigation in the second and
third quarters of 1999.
The operating profit of the S&I segment for 1998 includes a
nonrecurring net gain of $189 million related to favorable
settlements of licensing business litigation in the third and
fourth quarters of 1998 and a $53 million reduction in earnings
related to losses associated with Aspell Polymeres SNC in the
third quarter of 1998.
The operating profit of the S&I segment for 1997 includes a
$12 million charge for the write-off of certain equipment
associated with the corporation's ethylene propylene rubber
project.
Page 31
NOTE 7
Income Taxes
The following is a summary of the U.S. and non-U.S.
components of Income Before Provision for Income Taxes:
Millions of dollars,
for the year ended December 31, 1999 1998 1997
U.S. $329 $646 $897
Non-U.S. 93 43 69
$422 $689 $966
The following is an analysis of income tax expense:
Millions of dollars, for the year 1999 1998 1997
ended December 31, Current Deferred Current Deferred Current Deferred
U.S. Federal income taxes $(31) $99 $100 $ 86 $154 $80
U.S. business and research and
experimentation tax credits - (23) (27) - (14) -
U.S. state and local taxes based on income (5) 26 6 31 1 4
Non-U.S. income taxes 38 4 20 1 52 2
2 106 99 118 193 86
Provision for income taxes $108 $217 $279
The tax effects of temporary differences that gave rise to
significant portions of the deferred tax assets and deferred tax
liabilities are as follows:
1999 1998
Deferred Deferred Deferred Deferred
Millions of dollars, at December 31, Assets Liabilities Assets Liabilities
Depreciation and amortization $ - $ 733 $ - $ 617
Postretirement and postemployment benefits 209 - 218 -
Environmental and litigation costs 86 - 90 -
Sale/leaseback and related deferrals 81 - 94 -
Other 247 219 207 214
Gross deferred tax assets and liabilities 623 952 609 831
Net deferred tax liability $329 $222
Page 32
Net noncurrent deferred tax liabilities of $466 million
($347 million in 1998) are included in Deferred credits on the
Consolidated Balance Sheet. Net current deferred income tax
assets of $137 million ($125 million in 1998) are included in
Other current assets. In 1999 and 1998, there were no benefits
from non-U.S. net operating loss carryforwards.
Undistributed earnings of affiliates intended to be
reinvested indefinitely amounted to approximately $511 million at
Dec. 31, 1999 ($488 million at Dec. 31, 1998). Determination of
deferred taxes related to these earnings is not practicable.
An analysis of the difference between Provision for income
taxes and the amount computed by applying the statutory Federal
income tax rate to Income Before Provision for Income Taxes is as
follows:
Percentage of Pre-Tax Income
For the year ended December 31, 1999 1998 1997
Tax at statutory Federal rate 35.0% 35.0% 35.0%
Taxes related to operations
outside the U.S. (2.6) 0.7 (0.7)
U.S. state and local taxes
based on income 3.3 3.4 0.3
Foreign sales corporation (3.8) (1.5) (2.9)
Business credits (5.4) (3.9) (1.5)
Other, net (0.9) (2.2) (1.3)
Consolidated effective
income tax rate 25.6% 31.5% 28.9%
NOTE 8
Leases
Leases that meet the criteria for capitalization have been
classified and accounted for as capital leases. For operating
leases, primarily involving facilities and distribution
equipment, the future minimum rental payments under leases with
remaining noncancelable terms in excess of one year are:
Millions of dollars,
for the year ended December 31,
2000 $ 77
2001 76
2002 81
2003 74
2004 68
Subsequent to 2004 98
Total minimum payments 474
Future sublease rentals 70
Net minimum rental commitments $404
The present value of the net minimum rental payments amounts
to $309 million, of which $157 million pertains to the
corporation's headquarters lease. Total lease and rental payments
(net of sublease rental income of $10 million in 1999, $9 million
in 1998 and $21 million in 1997) were $66 million for 1999, $64
million for 1998 and $62 million for 1997.
Page 33
NOTE 9
Joint Ventures
The following are financial summaries of 33 percent- to 50
percent-owned joint ventures included in Companies carried at
equity. The corporation's most significant joint ventures
classified as partnerships include UOP LLC; Petromont and
Company, Limited Partnership; Aspell Polymeres SNC; World Ethanol
Company, and Univation Technologies, LLC.
Partnerships
Millions of dollars 1999 1998 1997
Net sales(a) $1,815 $1,905 $2,076
Cost of sales 1,179 1,210 1,242
Depreciation 100 116 83
Partnership income 14 154 249
UCC share of partnership
income $ 11 $ 33(b) $ 133
Current assets $ 867 $ 799 $ 746
Noncurrent assets 893 937 886
Total assets 1,760 1,736 1,632
Current liabilities 488 430 451
Noncurrent liabilities 721 828 711
Total liabilities 1,209 1,258 1,162
Net assets 551 478 470
UCC equity $ 278 $ 286 $ 278
<FN>
(a) Includes $154 million net sales to the corporation in 1999
($140 million in 1998 and $208 million in 1997).
(b) Includes $53 million of losses associated with Aspell
Polymeres SNC.
</FN>
The corporation's joint ventures classified as corporate
investments include Polimeri Europa S.r.l.; EQUATE Petrochemical
Company K.S.C.; Nippon Unicar Company Limited; Alberta & Orient
Glycol Company Limited; Asian Acetyls Co., Ltd.; the OPTIMAL
Group (consisting of OPTIMAL Chemicals (Malaysia) Sdn Bhd,
OPTIMAL Olefins (Malaysia) Sdn Bhd and OPTIMAL Glycols (Malaysia)
Sdn Bhd), and several smaller entities.
Corporate Investments
Millions of dollars 1999 1998 1997
Net sales (a) $2,320 $2,151 $2,248
Cost of sales 1,804 1,732 1,814
Depreciation 248 256 109
Net income (loss) (48) (195) 75
UCC share of net income (loss) $ 2 $ (66) $ 3
Current assets $1,318 $1,037 $ 933
Noncurrent assets 2,556 2,932 3,252
Total assets 3,874 3,969 4,185
Current liabilities 855 963 872
Noncurrent liabilities 1,732 2,371 2,347
Total liabilities 2,587 3,334 3,219
Net assets 1,287 635 966
UCC equity (b) $ 478 $ 338 $ 412
<FN>
(a) Includes $152 million net sales to the corporation in 1999
($157 million in 1998 and $156 million in 1997).
(b) At Dec. 31, 1999, the corporation's investment in EQUATE
Petrochemical Company K.S.C. was $143 million less than its
proportionate share of the company's underlying equity. Such
amount is being amortized into income over the next eight
years.
</FN>
Dividends and distributions received from
joint ventures and partnerships aggregated $75
million in 1999 ($123 million in 1998 and $126
million in 1997).
Page 34
NOTE 10
Financial Instruments
Fair values of financial instruments are estimated by using
a method that indicates the amount at which the instrument could
be exchanged in a current transaction between willing parties,
other than in a forced or liquidation sale. The fair values of
the financial instruments included on the Consolidated Balance
Sheet were estimated as follows:
Cash, Short-Term Receivables and Accounts Payable - At Dec.
31, 1999 and 1998, the carrying amounts approximate fair values
because of the short maturity of these instruments.
Outstanding foreign currency forward contracts and options
used as a means of offsetting fluctuations in the dollar value of
other foreign currency accounts receivable and payable and
earnings fluctuations from anticipated foreign currency cash
flows totaled $186 million at Dec. 31, 1999 ($220 million at Dec.
31, 1998). There were unrealized losses of $1 million and $13
million on these contracts at Dec. 31, 1999 and 1998,
respectively, which were generally offset by changes in the U.S.
dollar value equivalents of underlying foreign currency
transactions.
In addition to the above, at Dec. 31, 1999, the corporation
held foreign currency options in the amount of $67 million ($199
million at Dec. 31,1998)(U.S. dollar equivalent) to hedge a
commitment to lend money to fund construction of operating
facilities at specific future dates by one of its foreign
subsidiaries. Such commitment is supported by commitments to
third parties. The premiums on the options and any gains or
losses are being capitalized as part of the intercompany loan and
amortized to income as an adjustment to the effective interest
yield of such loan over its repayment term. At Dec. 31, 1999, a
$3 million gain ($3 million loss at Dec. 31, 1998) had been
capitalized.
Investments - The corporation's investments in joint
ventures and companies carried under the cost method generally
involve entities for which it is not practicable to determine
fair values.
Long-Term Receivables - The fair values of long-term
receivables are calculated using current interest rates and
consideration of underlying collateral where appropriate. The
fair values approximate the carrying values of $25 million and
$27 million included in Other assets on the Consolidated Balance
Sheet at Dec. 31, 1999 and 1998, respectively.
Debt - The corporation uses various types of financial
instruments, including interest rate swaps and forward rate
agreements, to manage exposure to financial market risk caused by
interest rate fluctuations. The corporation held no such
instruments at Dec. 31, 1999. An interest rate swap held at Dec.
31, 1998 had a nominal carrying amount and fair value.
Carrying Amounts and Fair Values - The carrying amounts and
fair values of the corporation's Other investments and advances
long-term receivables and debt financial instruments at Dec. 31,
1999 and 1998, are summarized in the table below. Fair values are
based on quoted market values, where available, or discounted
cash flows (principally long-term debt).
Millions of dollars,
at December 31, 1999 1998
Carrying Fair Carrying Fair
Assets (Liabilities) Amount Value Amount Value
Investments and
receivables $ 100 $ 100 $ 168 $ 168
Short- and
long-term debt (2,651) (2,592) (2,222) (2,266)
Page 35
NOTE 11
Long-Term Debt
Millions of dollars, at December 31, 1999 1998
6.25% Notes due 2003 $ 250 $ 250
6.70% Notes due 2009 250 -
6.75% Notes due 2003 125 125
6.79% Debentures due 2025(a) 250 250
7.00% Notes due 1999 - 175
7.50% Debentures due 2025 150 150
7.75% Debentures due 2096(b) 200 200
7.875% Debentures due 2023 175 175
8.75% Debentures due 2022(c) 117 117
Floating Rate Public Notes due 2000 110 110
Pollution control and other
facility obligations 238 239
Other debt - various maturities
and interest rates 4 23
1,869 1,814
Less: Payments to be made within 1 year - 18
$1,869 $1,796
<FN>
(a) Holders may request redemption of these debentures from the
corporation on June 1, 2005.
(b) The maturity may be shortened under certain circumstances to
preserve the deductibility of interest payments for Federal
income tax purposes.
(c) Redeemable at the option of the corporation on or after Aug. 1, 2002.
</FN>
The corporation has a credit agreement with a group of banks
permitting the corporation to borrow up to $1 billion at any time
through Jan. 2002 with the option, subject to certain conditions,
to increase the available credit by $250 million and to extend
the maturity date of the agreement to maintain a five year term.
The credit agreement permits the corporation to borrow funds
under several different programs, including the euro-dollar,
Certificate of Deposit (CD), Base Rate or Money Market London
Interbank Offered Rate (LIBOR) programs. Maturity dates for these
programs range from 30 days to twelve months. The interest rate
for each of these programs is contingent on the euro-dollar, CD
rate, Federal funds rate or LIBOR and is determined based on a
calculation included in the agreement. The corporation must pay
an annual facility fee based on the rating of the corporation's
long-term debt securities by either Moody's Investors Service
Inc. or Standard & Poor's Ratings Services, as indicated in the
agreement. As of Dec. 31, 1999, there were no outstanding amounts
against this agreement. The corporation intends to refinance the
Floating Rate Public Notes maturing in April 2000 by borrowing
either under this credit agreement or under a prospective
borrowing. Accordingly, such amount has been classified as long-
term debt.
In 1998, the corporation issued $110 million of Floating
Rate Public Notes due in April 2000. The Floating Rate Public
Notes bear interest at a rate which is reset quarterly at the
three-month LIBOR plus 0.65 percent. At Dec. 31, 1999, the
interest rate on these notes was 6.87 percent.
The corporation has an effective shelf registration
statement available covering $500 million of public debt
securities at Dec. 31, 1999.
The corporation's credit agreement and the indentures under
which notes and debentures are issued contain covenants normal
for these types of instruments. These covenants place certain
limits on the corporation's ability to sell assets, engage in
sale-leaseback transactions, incur debt or create liens on
assets. Furthermore, one covenant limits the corporation's
ability to merge with another entity; however, this covenant
would not be applicable to the way in which the corporation's
merger with The Dow Chemical Company is structured. In addition,
the credit agreement requires the corporation to meet leverage
and interest coverage tests.
Pollution control and other facility obligations represent
state, commonwealth and local governmental bond financing of
pollution control and other facilities and are treated for
accounting and tax purposes as debt of the corporation. These tax-
exempt obligations mature at various dates from 2000 through 2023
and had an average annual effective interest rate of 7.1 percent
in 1999 (7.2 percent in 1998).
The weighted average and effective interest rates on the
corporation's fixed-rate debt, excluding pollution control and
other facility obligations, were 7.3 percent in 1999 (7.5 percent
in 1998). The corporation's weighted average interest rate on
short-term borrowings outstanding as of Dec. 31, 1999 was 6.0
percent (6.0 percent at Dec. 31, 1998).
Payments due on long-term debt in the four years following
2000 are: 2001, $10 million; 2002, $13 million; 2003, $380
million and 2004, $23 million.
Page 36
NOTE 12
Minority Interest
In Jan. 1997, a newly formed real estate investment trust
subsidiary issued $250 million of preferred stock bearing a
current dividend yield of 14 percent for 10 years and 1 percent
thereafter. In Oct. 1997, the preferred shares were redeemed for
$240 million.
NOTE 13
Stockholders' Equity
Each outstanding share of common stock has identical rights
in voting on corporate matters, dividends when declared,
liquidation and other corporate matters.
On Aug. 31, 1999, Rights entitling each holder of common
stock to purchase a share of common stock from the corporation,
under certain circumstances, expired unused.
On Aug. 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 share repurchase authorization in 1993 through
Aug. 3, 1999, the corporation repurchased 56.4 million shares
(1.0 million shares during 1999) out of a total authorization of
60 million shares, at an average effective price of $36.01 per
share.
During the course of the corporation's repurchase
authorization, and in conjunction with it, put options were sold
in a series of private placements entitling the holders to sell
12.9 million shares of common stock to UCC at specified prices
upon exercise of the options. By Dec. 31, 1997, options
representing 9.8 million common shares expired unexercised, while
options representing 3.1 million shares were exercised for $129
million, or an average price of $40.94 per share. Premiums
received during the course of the program were recorded as
Additional paid-in-capital, reducing the average price of
repurchased shares from $36.26 to $36.01 per share.
NOTE 14
Employee Stock Ownership Plan
The Union Carbide Corporation Employee Stock Ownership Plan
(ESOP) is an integral part of the Savings and Investment Program
(the Program) for employees. Substantially all full-time
employees in the U.S. are eligible to participate in the ESOP
through the allocation of shares of the corporation's common
stock (ESOP shares) equivalent to the corporation's matching
contribution of 75 percent of eligible employee contributions to
the Program. In addition, eligible employees can receive the
equivalent of up to twenty days pay in ESOP shares through the
corporation's ESOP profit sharing plan. Participants' accounts
are also allocated ESOP shares with a market value equal to the
amount of dividends paid on their allocated shares.
Under this plan, the corporation sold shares of a new
series of convertible preferred stock to the ESOP for a $325
million note. The receivable from the ESOP is reflected as
Unearned employee compensation - ESOP, a reduction of
stockholders' equity. Dividends on shares held by the ESOP are
paid to the ESOP and, together with company contributions, are
used, in part, by the ESOP to make debt service payments on the
loan. Shares are released for allocation to participants based on
the ratio of the current year's debt service to the sum of the
principal and interest payments over the life of the loan.
Each share of the corporation's preferred stock held by the
ESOP was convertible into and had the same voting rights as one
share of the corporation's common stock. The annual preferred
dividend was $0.794 per share. In Oct. 1997, the trustee of the
ESOP exercised its right to convert all outstanding ESOP
preferred stock into ESOP shares. As a result of the conversion,
the corporation's common stock outstanding at that date was
increased by 15.4 million shares.
Expense associated with the ESOP is recognized as incurred
using the cost method and was $5 million in 1999 ($7 million in
1998 and 1997). At Dec. 31, 1999, 13.6 million common shares held
by the ESOP were outstanding, 7.3 million of which were allocated
to employees' accounts. During 1999, 1.2 million ESOP shares were
allocated to employees' accounts.
Page 37
NOTE 15
Incentive Plans
The 1997 Union Carbide Long-Term Incentive Plan for key
employees provides for granting incentive and nonqualified stock
options; exercise payment rights; grants of stock, including
restricted stock, and performance awards. Holders of options may
be granted the right to receive payments of amounts equal to the
regular cash dividends paid to holders of the corporation's
common stock during the period an option is outstanding. The
number of shares granted or subject to options cannot exceed six
million under the Plan. Option prices are equal to the closing
price of the corporation's common stock on the date of the grant,
as listed on the New York Stock Exchange Composite Transactions.
Options generally become exercisable two years after such date.
Options may not have a duration of more than ten years. The
option price may be settled in cash, common shares of the
corporation currently owned by a participant, withholding stock
shares from the exercise or a combination of these alternatives.
Restricted stock award shares are entitled to vote and dividends
are credited to the holder's account, but these shares are
generally nontransferable for varying periods after the grant
date. Once the vesting conditions are met, the shares become
fully transferable. Performance awards may be paid in common
stock, cash or other forms of property. No dividend-equivalent
payment rights or performance awards were granted in 1999, 1998
or 1997.
Prior plans still have options outstanding, whose terms are
generally similar to nonqualified stock options under the 1997
Plan.
Changes in outstanding fixed price options were as follows:
1999 1998 1997
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares in thousands Shares Price Shares Price Shares Price
Outstanding at January 1 12,792 $28.36 12,533 $25.48 12,782 $21.45
Granted 1,749 60.44 1,514 43.88 1,508 46.31
Exercised (1,829) 16.80 (1,141) 15.60 (1,717) 13.45
Canceled or expired (41) 45.33 (114) 46.21 (40) 38.47
Outstanding at December 31 12,671 $34.40 12,792 $28.36 12,533 $25.48
Options exercisable at December 31 9,422 9,874 9,889
Options were exercised during 1999 at prices ranging from
$6.70 to $46.31 per share ($6.70 to $40.38 per share during 1998
and $6.70 to $45.63 per share during 1997).
Page 38
The following table summarizes information about fixed price
option shares outstanding at Dec. 31, 1999:
Weighted
Weighted Average Average
Shares Remaining Exercise
Shares in thousands Outstanding Contractual Life Price
Range of Exercise Prices
$ 6.70 to $ 9.54 1,456 1.6 years $ 8.49
$16.75 to $21.63 3,134 3.5 years 19.29
$28.63 to $43.88 3,958(a) 6.7 years 37.41
$45.63 to $60.44 4,123(b) 8.5 years 52.13
12,671
<FN>
(a) At Dec. 31, 1999, 2.458 million options were exercisable at
an average price of $33.47.
(b) At Dec. 31, 1999, 2.374 million options were exercisable at
an average price of $46.02.
</FN>
Had compensation cost related to the fixed price options
been recorded at fair value on the dates of grant in accordance
with Statement No. 123, the effect on the corporation's net
income and EPS amounts would have been as follows:
Millions of dollars (except per share figures),
for the year ended December 31, 1999 1998 1997
Net income -
common stockholders
As reported $ 291 $ 403 $ 652
Pro forma $ 274 $ 388 $ 639
Basic EPS
As reported $2.18 $2.98 $4.89
Pro forma $2.06 $2.87 $4.79
Diluted EPS
As reported $2.13 $2.91 $4.41
Pro forma $2.01 $2.80 $4.32
The Black-Scholes Option Pricing Model was used to estimate
the fair values of options granted during 1999, 1998 and 1997.
The assumptions used for these grants included a six-year average
expected life for 1999 (seven-year average for 1998 and six-year
average for 1997), and zero-coupon U.S. government risk free
interest rates of 6.14%, 4.41%, and 5.92%; current dividend
yields of 1.49%, 2.22%, and 1.73%, and volatility of 30.00%,
29.47%, and 28.77% for the years ended Dec. 31, 1999, 1998 and
1997, respectively. The weighted average fair values of options
granted during the years 1999, 1998 and 1997 were $21.57, $15.15
and $15.54, respectively.
In 1997, the board of directors approved the 1997 Union
Carbide Corporation EPS Incentive Plan for a limited number of
senior managers. The plan requires these senior managers to put
an amount equivalent to a portion of one year's annual base pay
at risk, up to 100 percent, should diluted earnings per share not
equal or exceed $4.00 in the year 2000. The amount at risk is
being deducted from compensation over three years. The amounts at
risk have been converted to units equivalent to common stock
using a $47.75 share price, the closing price of the
corporation's common stock on the date the plan was approved by
the board of directors. Participants are being credited with
dividend-equivalents in the form of additional units. The plan is
designed to grant awards if the corporation achieves $4.00 or
more diluted earnings per share performance during 1999 and 2000.
Participants could be awarded up to four times the number of
units at risk for each of the years 1999 and 2000, depending on
the extent to which the goals of the plan are exceeded. Awards,
if any, under the plan will be in cash and paid in 2002, 2003 and
2004. Alternatively under the plan, awards may be granted and the
payment schedule accelerated at the discretion of the
Compensation & Management Development Committee of the board of
directors should a change in control or certain actions or events
occur which significantly affect the corporation's ability to
reach the earnings per share performance goals during the
performance period. Failure to meet the requirements of the plan
will result in forfeiture of the amounts at risk. No award was
earned for the 1999 year.
Page 39
NOTE 16
Retirement Programs
The noncontributory defined benefit retirement program of
Union Carbide Corporation (U.S. Retirement Program) covers
substantially all U.S. employees and certain employees in other
countries. Pension benefits are based primarily on years of
service and compensation levels prior to retirement. Pension
coverage for employees of the corporation's non-U.S. consolidated
subsidiaries is provided through separate plans, to the extent
deemed appropriate. Obligations under such plans are principally
provided for by depositing funds with trustees.
The corporation provides health care and life insurance
benefits (Other Benefits) for eligible retired employees and
their eligible dependents. These benefits are provided through
various insurance companies and health care providers. The health
care plans are contributory with participants' contributions
adjusted annually; the life insurance plans are non-contributory.
The corporation's significant retirement programs are its U.S.
and Canadian plans. The funded status, actuarial assumptions,
health care cost trends and components of net periodic benefit
costs of these plans combined is as follows:
Pension Benefits Other Benefits
Millions of dollars, for the year
ended December 31, 1999 1998 1999 1998
Change in plan assets
Fair value of plan assets,
beginning-of-year $4,311 $3,769 $ 14 $ 17
Actual gain on plan assets 308 736 2 6
Foreign currency exchange
rate changes 10 (12) - -
Employer contribution - - 1 -
Benefits paid (189) (182) (9) (9)
Fair value of plan assets,
end-of-year $4,440 $4,311 $ 8 $ 14
Change in benefit obligation
Benefit obligation,
beginning-of-year $3,472 $3,278 $ 443 $ 503
Service cost 65 60 13 14
Interest cost 204 205 26 30
Amendments/curtailments (1) - - (93)
Plan participants'
contributions - - 23 22
Foreign currency exchange
rate changes 6 (7) - (1)
Actuarial loss (gain) (384) 129 (16) 27
Benefits paid (a) (201) (193) (58) (59)
Benefit obligation, end-of-year $3,161 $3,472 $ 431 $ 443
Funded status $1,279 $ 839 $(423) $(429)
<FN>
(a) Includes nonfunded plan benefits paid directly by the corporation.
</FN>
The funded status is composed of the following elements:
Pension Benefits Other Benefits
Millions of dollars, at December 31, 1999 1998 1999 1998
Unrecognized net actuarial gain (loss) $1,244 $818 $ (20) $ (34)
Unrecognized transition asset 17 29 - -
Unrecognized prior service (cost) credit (10) (14) 70 93
Prepaid benefit cost 38 30 6 -
Accrued benefit cost (10) (24) (479) (488)
Funded status $1,279 $839 $(423) $(429)
The Other Benefits benefit obligation is net of $91 million
at Dec. 31, 1999 ($99 million at Dec. 31, 1998), which is
reimbursed to the corporation in part by previously owned
businesses under ongoing benefit-sharing agreements.
Page 40
Benefit obligations are valued using the 1994 Uninsured Pensioner
Mortality Table. The actuarial assumptions used were as follows:
Pension Benefits Other Benefits
At December 31, 1999 1998 1999 1998
Discount rate for determining benefit
obligation 7.25% 6.00% 7.25% 6.00%
Expected long-term rate of return on
plan assets 9.50% 8.00% 8.00% 8.00%
Rate of increase in compensation levels 5.00% 3.25% - -
Health care costs are projected to increase as follows:
Medicare Medicare
Pre- Supplement Plan Alternative Plan
Medicare
Immediate 7.25% 7.55% 14.75%
Ultimate 5.75% 5.75% 5.75%
Year ultimate trend is reached 2004 2004 2014
Millions of dollars, for the Pension Benefits Other Benefits
year ended December 31, 1999 1998 1997 1999 1998 1997
Components of net periodic
benefit costs
Service cost $ 65 $ 60 $ 51 $ 13 $ 14 $ 14
Interest cost 204 205 206 26 30 33
Expected return on plan assets (269) (242) (233) (1) (1) (2)
Amortization of transition
obligation (12) (12) (12) - - -
Amortization of prior service
costs (credits) 3 3 3 (24) (29) (21)
Recognized net actuarial gains - (1) (1) - - -
Net periodic benefit (credits)
costs $ (9) $ 13 $ 14 $ 14 $ 14 $ 24
The accounting for the health care plans anticipates future
cost-sharing changes to the written plan that are consistent with
the company's expressed intent to control these costs. On July 1,
1998, the corporation adopted certain amendments which become
effective between Jan. 1, 1999 and Jan. 1, 2001. These amendments
encourage retirees to transfer their health care coverage into
lower costing plans and usually to choose generic drugs.
Effective Jan. 1, 1999, certain retirees pay a greater percentage
of premium contributions. In addition, the plan provides that the
corporation's per individual subsidy for pre-Medicare and
Medicare medical coverage is capped at two times its subsidy to
the company-sponsored plans in 2000.
The corporation funded postretirement benefits for certain
retirees who retired prior to Dec. 31, 1988. The funds are
invested primarily in common stocks.
At Dec. 31, 1999, the effect on the accumulated
postretirement benefit obligation of a one-percentage-point
change in assumed health care cost trend rates would be as
follows:
1999 1998
1 Percentage Point 1 Percentage Point
Millions of dollars Increase Decrease Increase Decrease
Effect on total of service and
interest cost components $ 2 $ (2) $ 3 $ (3)
Effect on postretirement
benefit obligation $18 $(20) $28 $(30)
Deferred Compensation
The corporation provides an unfunded, nonqualified deferred
compensation plan to certain key employees, offering them an
election to defer a portion of their gross pay. The corporation's
obligation to employees is adjusted to reflect changes in the
market values of employees' investment choices. With limited
exceptions, participants' deferred account balances are scheduled
for payment at or after full retirement.
Page 41
NOTE 17
Commitments and Contingencies
Purchase Agreements - The corporation has three major
agreements for the purchase of ethylene-related products and two
other purchase agreements in the U.S. and Canada. Total purchases
under these agreements were $229 million, $196 million and $245
million in 1999, 1998 and 1997, respectively. The net present
value of the fixed and determinable portion of obligations under
these purchase commitments at Dec. 31, 1999 (at current exchange
rates, where applicable) is presented in the following table:
Millions of dollars,
for the year ended December 31,
2000 $ 41
2001 29
2002 25
2003 22
2004 17
2005 through 2014 69
Total $203
Environmental - The corporation is subject to loss
contingencies resulting from environmental laws and regulations,
which include obligations to remove or remediate the effects on
the environment of the disposal or release of certain wastes and
substances at various sites. The corporation has established
accruals in current dollars for those hazardous waste sites where
it is probable that a loss has been incurred and the amount of
the loss can reasonably be estimated. The reliability and
precision of the loss estimates are affected by numerous factors,
such as different stages of site evaluation, the allocation of
responsibility among potentially responsible parties and the
assertion of additional claims. The corporation adjusts its
accruals as new remediation requirements are defined, as
information becomes available permitting reasonable estimates to
be made and to reflect new and changing facts.
At Dec. 31, 1999, the corporation had established
environmental remediation accruals in the amount of $208 million
($220 million in 1998). 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 $108 million at Dec. 31, 1999.
The corporation has sole responsibility for the remediation
of approximately 40 percent of its environmental sites for which
accruals have been established. These sites are well advanced in
the investigation and cleanup stage. The corporation's
environmental accruals at Dec. 31, 1999 included $165 million for
these sites ($169 million at Dec. 31, 1998), of which $51 million
($65 million at Dec. 31, 1998) was for estimated future
expenditures for site investigation and cleanup and $114 million
($104 million at Dec. 31, 1998) was for estimated future
expenditures for closure and postclosure activities. In addition,
$65 million of the corporation's environmental loss contingencies
at Dec. 31, 1999 related to these sites. The three sites with the
largest total potential cost to the corporation are nonoperating
sites. Of the above accruals, these sites accounted for $60
million ($50 million at Dec. 31, 1998), of which $21 million ($23
million at Dec. 31, 1998) was for estimated future expenditures
for site investigation and cleanup and $39 million ($27 million
at Dec. 31, 1998) was for estimated future expenditures for
closure and postclosure activities. In addition, $43 million of
the above environmental loss contingencies related to these
sites.
The corporation does not have sole responsibility at the
remainder of its environmental sites for which accruals have been
established. All of these sites are in the investigation and
cleanup stage. The corporation's environmental accruals at Dec.
31, 1999 included $43 million for estimated future expenditures
for site investigation and cleanup at these sites ($51 million at
Dec. 31, 1998). In addition, $43 million of the corporation's
environmental loss contingencies related to these sites. The
largest three of these sites are nonoperating sites. Of the above
accruals, these sites accounted for $15 million ($19 million at
Dec. 31, 1998) for estimated future expenditures for site
investigation and cleanup. In addition, $17 million of the above
environmental loss contingencies related to these sites.
Page 42
Worldwide expenses related to environmental protection for
compliance with Federal, state and local laws regulating solid
and hazardous wastes and discharge of materials to air and water,
as well as for waste site remedial activities, totaled $118
million in 1999, $91 million in 1998 and $100 million in 1997.
Other - The corporation severally guaranteed 45 percent
(approximately $603 million at Dec. 31, 1999) of EQUATE
Petrochemical Company's debt and working capital financing needs.
Certain completion and financial tests supporting the
corporation's guarantee were achieved and on Feb. 4, 2000, a
substantial portion of this guarantee was released. Subsequent to
this date, the corporation's continuing several debt guarantee
has been reduced to an amount of up to $184 million. The
corporation has also severally guaranteed certain sales volume
targets until EQUATE's sales capabilities are proved. In
addition, the corporation has pledged its shares in EQUATE as
security for EQUATE's debt. The corporation has political risk
insurance coverage for its equity investment and most of its
remaining several guarantee of EQUATE's debt.
The corporation and its consolidated subsidiaries had
additional contingent obligations at Dec. 31, 1999, totaling $118
million, of which $34 million related to guarantees of debt.
Litigation - The corporation and its consolidated
subsidiaries are involved in a number of legal proceedings and
claims with both private and governmental parties. These cover a
wide range of matters, including, but not limited to: product
liability; trade regulation; governmental regulatory proceedings;
health, safety and environmental matters; employment; patents;
contracts; and taxes. In some of these legal proceedings and
claims, the cost of remedies that may be sought or damages
claimed is substantial.
The corporation has recorded nonenvironmental litigation
accruals of $129 million and related insurance recovery
receivables of $109 million. At Dec. 31, 1999, the corporation
had net nonenvironmental litigation loss contingencies of $52
million.
While it is impossible at this time to determine with
certainty the ultimate outcome of any legal proceedings and
claims referred to in this note, management believes that
adequate provisions have been made for probable losses with
respect thereto and that such ultimate outcome, after provisions
therefor, will not have a material adverse effect on the
consolidated financial position of the corporation, but could
have a material effect on consolidated results of operations in a
given quarter or year. Should any losses be sustained in
connection with any of such legal proceedings and claims in
excess of provisions therefor, they will be charged to income
when determinable
Note 18
The Dow Merger
On Aug. 3, 1999, the corporation and The Dow Chemical
Company (Dow) entered into an Agreement and Plan of Merger
providing for the merger of a subsidiary of Dow with and into the
corporation. As a result of the merger, the corporation will
become a wholly-owned subsidiary of Dow and 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. On Dec. 1, 1999, UCC shareholders approved the merger
agreement. The merger is subject to certain conditions including
review by antitrust regulatory authorities in the United States,
Europe and Canada.
Page 43
Management's Statement of Responsibility for Financial Statements
Union Carbide Corporation's financial statements are prepared by
management, which is responsible for their fairness, integrity
and objectivity. The accompanying financial statements have been
prepared in conformity with generally accepted accounting
principles and, accordingly, include amounts that are estimates
and judgments. All historical financial information in this
annual report is consistent with the accompanying financial
statements.
The corporation maintains accounting systems, including
internal accounting controls monitored by a staff of internal
auditors, that are designed to provide reasonable assurance of
the reliability of financial records and the protection of
assets. The concept of reasonable assurance is based on
recognition that the cost of a system must not exceed the related
benefits. The effectiveness of those systems depends primarily
upon the careful selection of financial and other managers, clear
delegation of authority and assignment of accountability,
inculcation of high business ethics and conflict-of-interest
standards, policies and procedures for coordinating the management
of corporate resources and the leadership and commitment of top
management.
The corporation's financial statements are audited by KPMG
LLP, independent certified public accountants, in accordance with
generally accepted auditing standards. These standards provide
for the auditors to consider the corporation's internal control
structure to the extent they deem necessary in order to issue
their opinion on the financial statements.
The Audit Committee of the board of directors, which
consists solely of nonemployee directors, is responsible for
overseeing the functioning of the accounting system and related
controls and the preparation of annual financial statements.
The Audit Committee recommends to the board of directors the
selection of the independent auditors, which is submitted to the
stockholders for ratification. The Audit Committee periodically
meets with the independent auditors, management and internal
auditors to review and evaluate their accounting, auditing and
financial reporting activities and responsibilities. The
independent and internal auditors have full and free access to
the Audit Committee and meet with the committee, with and without
management present.
/s/William H. Joyce /s/John K. Wulff
William H. Joyce John K. Wulff
Chairman, President and Vice-President, Chief Financial
Chief Executive Officer Officer and Controller
Danbury, Conn.
Jan. 26, 2000
Independent
Auditors' Report
KPMG LLP
To the Stockholders and Board of Directors of Union Carbide
Corporation:
We have audited the accompanying consolidated balance sheet
of Union Carbide Corporation and subsidiaries as of Dec. 31, 1999
and 1998, and the related consolidated statements of income,
stockholders' equity, and cash flows for each of the years in the
three-year period ended Dec. 31, 1999. These consolidated
financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we plan
and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the
financial position of Union Carbide Corporation and subsidiaries
at Dec. 31, 1999 and 1998, and the results of their operations
and their cash flows for each of the years in the three-year
period ended Dec. 31, 1999, in conformity with
generally accepted accounting principles.
/s/KPMG LLP
KPMG LLP
Stamford, Conn.
Jan. 26, 2000
Page 44
QUARTERLY DATA
Union Carbide Corporation and Subsidiaries
Millions of dollars 1Q 2Q 3Q 4Q Year
1999
Net sales $1,402 $1,418 $1,498 $1,552 $5,870
Cost of sales 1,032 1,105 1,232 1,240 4,609
Gross profit 370 313 266 312 1,261
Depreciation and amortization 104 95 103 106 408
Operating profit 179 145(a) 123(a) 108 555
Income before cumulative
effect of change in
accounting principle 77 63 77 94 311
Cumulative effect of change
in accounting principle (20) - - - (20)
Net income 57 63 77 94 291
1998
Net sales $1,561 $1,459 $1,350 $1,289 $5,659
Cost of sales 1,161 1,087 1,036 1,010 4,294
Gross profit 400 372 314 279 1,365
Depreciation and amortization 95 98 95 101 389
Operating profit 232 203 190(b)(c) 178(b) 803
Net income 142 118 76 67 403
<FN>
(a) Includes $12 million in the second quarter and $38 million in the
third quarter of favorable litigation settlements related to the
licensing business.
(b) Includes $118 million in the third quarter and $71 million in the fourth
quarter of favorable litigation settlements related to the licensing
business.
(c) Includes $53 million in losses associated with Aspell Polymeres SNC, the
corporation's joint venture in France.
</FN>
Dollars per common share 1Q 2Q 3Q 4Q Year
1999
Basic -
Income before cumulative effect of
change in accounting principle $ 0.57 $ 0.47 $ 0.58 $ 0.70 $ 2.33
Cumulative effect of change in
accounting principle (0.14) - - - (0.15)
Net income - common stockholders 0.43 0.47 0.58 0.70 2.18
Diluted -
Income before cumulative effect of
change in accounting principle 0.56 0.46 0.57 0.68 2.27
Cumulative effect of change in
accounting principle (0.14) - - - (0.14)
Net income - common stockholders 0.42 0.46 0.57 0.68 2.13
Cash dividends declared 0.225 0.225 0.225 0.225 0.90
Market price - high(a) 47.7500 56.8750 65.8750 67.7500 67.7500
Market price - low(a) 37.1250 45.3125 44.3750 52.7500 37.1250
1998
Basic -
Net income - common stockholders $ 1.03 $ 0.87 $ 0.56 $ 0.50 $ 2.98
Diluted -
Net income - common stockholders 1.01 0.85 0.55 0.49 2.91
Cash dividends declared 0.2250 0.2250 0.2250 0.2250 0.90
Market price - high(a) 50.3125 55.7500 55.6250 46.2500 55.7500
Market price - low(a) 40.1250 45.3125 36.7500 37.4375 36.7500
<FN>
(a) Prices are based on New York Stock Exchange Composite Transactions.
</FN>
Page 45
CORPORATE INFORMATION
2000 Annual Meeting
The 2000 annual meeting of stockholders will be held on
Wednesday, April 26, at the John C. Creasy Health Education
Center, 24 Hospital Ave., Danbury, CT 06810, beginning at 10 a.m.
A notice of the annual meeting, a proxy statement and a
proxy voting card will be mailed to each stockholder in March,
together with a copy of this annual report.
General Offices
The general offices of Union Carbide Corporation are located at
39 Old Ridgebury Road, Danbury, CT 06817-0001 (Telephone: 203-794-
2000).
Stock Exchanges
Union Carbide stock is traded primarily on the New York Stock
Exchange (ticker symbol: UK). The stock is also listed on the
Chicago and Pacific stock exchanges in the U.S.
Stock Records and Transfer
The corporation acts as its own stock transfer agent through its
Shareholder Services Department, which maintains stockholder
records, transfers stock and answers questions regarding
stockholders' accounts, including dividend reinvestment accounts.
Stockholders wishing to transfer stock or to change the name on a
stock certificate should contact Shareholder Services for
assistance. The registrar is ChaseMellon Shareholder Services.
Dividend Reinvestment
Stockholders of record may purchase shares directly through Union
Carbide's Dividend Reinvestment and Stock Purchase Plan. Under
the plan, shares may be purchased from Union Carbide free of
commissions and service charges. Requests for a prospectus that
explains the plan in detail should be directed to the Shareholder
Services Department (Telephone: 800-934-3350).
Form 10-K
A Form 10-K report for the year ended Dec. 31, 1999, will be
available in April 2000. A copy without exhibits may be obtained
without charge by writing to Union Carbide Corporation, Bruce D.
Fitzgerald, secretary, 39 Old Ridgebury Road, Danbury, CT 06817-
0001.
Charitable Contributions Booklet
Union Carbide annually publishes a booklet that lists
organizations receiving charitable, educational, cultural or
similar grants of $250 or more from the corporation. The booklet
is available on written request to the secretary.
RESPONSIBLE CARE Progress Report
This report covers health, safety and environmental progress
at Union Carbide. Information includes performance data for U.S.
and other worldwide locations, RESPONSIBLE CARE goals, and
progress Carbide made in 1999. To obtain a copy, write to Union
Carbide Corporation, Public Affairs Department, Section L4-505,
39 Old Ridgebury Road, Danbury, CT 06817-0001 (Telephone: 800-552-
5272).
Inquiries
- -Inquiries from the public about Union Carbide and its products
and services should be directed to the Corporate Information
Center, Union Carbide Corporation, Section N-0, 39 Old Ridgebury
Road, Danbury, CT 06817-0001 (Telephone: 203-794-5300).
- -Inquiries about stockholder accounts and dividend reinvestment
should be directed to Union Carbide Corporation, William H.
Smith, manager, Shareholder Services Department, Section G1-328,
39 Old Ridgebury Road, Danbury, CT 06817-0001 (Telephone: 203-794-
3350).
- -Investors, financial analysts and portfolio managers should
direct questions about Union Carbide to Union Carbide
Corporation, D. Nicholas Thold, director of investor relations,
Investor Relations Department, Section E4-286, 39 Old Ridgebury
Road, Danbury, CT 06817-0001 (Telephone: 203-794-6440).
- -Financial journalists should direct questions to Union Carbide
Corporation, Sean Clancy, director, corporate communications,
Public Affairs Department, Section L4-501, 39 Old Ridgebury Road,
Danbury, CT 06817-0001 (Telephone: 203-794-6976).
- -Information about Union Carbide also may be found on the Internet
at www.unioncarbide.com. Union Carbide's site provides
information in six categories: general, financial, business,
investment recovery, RESPONSIBLE CARE and recruitment.
Page 46
DIRECTORS & CORPORATE OFFICERS
Directors
C. Fred Fetterolf
Retired director, president and chief operating officer of
Aluminum Company of America. A UCC director since 1987, he chairs
the Health, Safety & Environmental Affairs (HS&EA) Committee and
serves on the Audit, Compensation & Management Development,
Executive and Nominating Committees.
Rainer E. Gut
Chairman of Credit Suisse Group, Credit Suisse First Boston and
Credit Suisse, all of Switzerland. A UCC board member since 1994,
he chairs the Finance and Pension Committee and is a member of
the Compensation & Management Development and Nominating
Committees.
Vernon E. Jordan, Jr.
Senior managing director of Lazard Freres & Co. He is chairman of
the Nominating Committee and a member of the Executive, Finance &
Pension and Public Policy Committees. He has been a board member
since 1987.
William H. Joyce
Chairman, president and chief executive officer of Union Carbide
Corporation. A director since 1992, he is chairman of the
Executive Committee.
Robert D. Kennedy
Retired chairman and chief executive officer of Union Carbide
Corporation. He serves on the Audit, Executive, Nominating and
Public Policy Committees and has been a director since 1985.
Ronald L. Kuehn, Jr.
Director and chairman of El Paso Energy Corporation. A UCC board
member since 1984, he chairs the Compensation & Management
Development Committee and serves on the Executive, Finance &
Pension and HS&EA Committees.
Rozanne L. Ridgway
Former assistant secretary of state for Europe and Canada. A
director since 1990, she chairs the Public Policy Committee and
is a member of the Audit, HS&EA and Nominating Committees.
James M. Ringler
Vice-Chairman of Illinois Tool Works Inc. He has been a director
since 1996 and is chairman of the Audit Committee and a member of
the Compensation & Management Development, Finance & Pension and
HS&EA Committees.
Paul J. Wilhelm
President of the U.S. Steel Group of USX Corporation and a
director of that corporation. Elected a director in 1998, he
serves on the Audit, Finance & Pension, HS&EA and Public Policy
Committees.
Corporate Officers Other Senior Management
William H. Joyce David L. Brucker
Chairman of the Board, Vice-President, Engineering
President and Chief Executive and Operations
Officer
Graham S. Cattell
Joseph S. Byck Vice-President, Engineering
Vice-President, Strategic
Planning, Investor Relations Ron J. Cottle
and Public Affairs Vice-President, Health,
Safety and Environment
Bruce D. Fitzgerald
Vice-President, General John R. Dearborn
Counsel and Secretary Vice-President, General
Manager, UNIPOL Systems
James F. Flynn
Vice-President, General R. Duane Dickson
Manager, Solvents, Vice-President, General
Intermediates and Monomers Manager, Industrial
Performance Chemicals
Malcolm A. Kessinger
Vice-President, Human Linda A. Koffenberger
Resources Vice-President, General
Manager, UCAR Emulsion
Lee P. McMaster Systems (UES)
Vice-President, General
Manager, Specialty Polymers Kevin P. Lynch
and Products Vice-President, General
Manager, UNIPOL Polymers
Joseph C. Soviero
Vice-President, Corporate Scott C. Mason
Ventures Vice-President, Supply Chain
Logistics
Roger B. Staub
Vice-President Philip F. McGovern
Vice-President, Tax
John K. Wulff
Vice-President, Chief Gregory N. Nelson
Financial Officer and Vice-President, Purchasing
Controller
Daniel C. Scheid
Vice-President, General
Manager, Ethylene
Oxide/Glycol and Information
Technology Services
Lee C. Stewart
Vice-President and Treasurer
Vince F. Villani
Vice-President, General
Manager, Olefins
Donald R. Wood
Vice-President, General
Manager, Polypropylene
Resins and Elastomers
John P. Yimoyines
Vice-President, General
Manager, Specialty
Polyolefins
Page 47
Union Carbide
around the World*
United States & Puerto Rico
California New Jersey
Colorado New York
Connecticut North Carolina
District of Columbia South Carolina
Georgia Texas
Illinois Vermont
Louisiana West Virginia
Puerto Rico
Canada
Alberta Quebec
Ontario
Europe
Austria Spain
Belgium Sweden
France Switzerland
Germany Turkey
Italy United Kingdom
Russia
Latin America
Argentina Ecuador
Brazil Guatemala
Chile Mexico
Colombia Peru
Costa Rica Venezuela
Far East & Other
Australia Philippines
China Singapore
Egypt South Africa
Hong Kong South Korea
Indonesia Sri Lanka
Japan Taiwan
Jordan Thailand
Malaysia United Arab Emirates
Morocco
*Excluding Joint venture locations
Definition of Terms
Unless the context otherwise requires, the terms below refer to
the following:
Union Carbide Corporation, Union Carbide Corporation,
Union Carbide,Carbide, the parent company, and its
the corporation, we, our, consolidated subsidiaries
the company, UCC
Domestic United States and
Puerto Rico
Domestic operations Operations of Union
Carbide in this area,
including exports
International operations Operations of Union Carbide
in areas of the world
other than the United States
and Puerto Rico
Joint ventures Partnerships and corporate
investments of Union
Carbide Corporation
accounted for under the
equity method of accounting
The use of these terms is for convenience of reference only. The
consolidated subsidiaries are separate legal entities that are
managed by, and accountable to, their respective boards of
directors.
CARBITOL, CARBOWAX, CELLOSIZE, CELLOSOLVE, CYRACURE, ELASTOFLO,
FLEXOL, FLEXOMER, NEULON, NORKOOL, LP OXO, POLYOX, POLYPHOBE,
SELEXOL, TERGITOL, TONE, TRITON, TUFLIN, UCAR, UCARSOL,
UCARTHERM, UCON, UCURE, UNICARB, UNIPOL, and UNION CARBIDE are
trademarks of Union Carbide.
RESPONSIBLE CARE is a registered service mark of the Canadian
Chemical Producers Association and the Chemical Manufacturers
Association.
EMKADIXOL is a trademark of ICI France S.A. and licensed to Union
Carbide.
EQUATE is a trademark of EQUATE Petrochemical Company K.S.C. of
Kuwait.
Page 48
(Recycle Symbol) Printed on Recycled, Recyclable Paper
Printed in U.S.A.
(Back Cover)
(UNION CARBIDE LOGO)
Union Carbide Corporation
39 Old Ridgebury Road
Danbury, Connecticut 06817-0001
UC-1970