UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D C 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-1463
UNION CARBIDE CORPORATION
(Exact name of registrant as specified in its charter)
New York 13-1421730
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
39 Old Ridgebury Road, Danbury, CT 06817-0001
(Address of principal executive offices) (Zip Code)
203-794-2000
Registrant's telephone number, including area code
Union Carbide Chemicals and Plastics Company Inc.
_____________________________________________________________________________
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No _______
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at April 30, 1994
Common Stock, $1 par value 151,266,328 shares
Total number of sequentially numbered pages in this filing,
including exhibits thereto: 16
INDEX
PART I. FINANCIAL INFORMATION
PAGE
Financial Statements
Condensed Consolidated Statement of Income -
Union Carbide Corporation and Subsidiaries -
Quarter Ended March 31, 1994 and 1993........................ 3
Condensed Consolidated Balance Sheet - Union Carbide
Corporation and Subsidiaries - March 31, 1994 and
December 31, 1993............................................ 4
Condensed Consolidated Statement of Cash Flows -
Union Carbide Corporation and Subsidiaries -
Quarter Ended March 31, 1994 and 1993......................... 5
Notes to Condensed Consolidated Financial Statements -
Union Carbide Corporation and Subsidiaries................... 6-8
Discussion and Analysis of Results of Operations
and Financial Condition........................................ 9-10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings....................................... 11
Item 4. Submission of Matters to a Vote of Security Holders..... 11-13
Item 6. Exhibits and Reports on Form 8-K........................ 13
Signature........................................................ 14
Exhibit Index.................................................... 15
PART I. FINANCIAL INFORMATION
UNION CARBIDE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
Millions of dollars
(Except per share figures)
Quarter ended March 31,
1994 1993(a)
NET SALES $ 1,126 $ 1,193
Deductions
Cost of sales, exclusive of depreciation and
amortization shown separately below 856 892
Research and development 32 37
Selling, administration and other expenses(b) 72 91
Depreciation and amortization 67 76
Interest on long-term and short-term debt 16 25
Other expense (income) - net 7 12
INCOME BEFORE PROVISION FOR INCOME TAXES 76 60
Provision for income taxes 23 20
INCOME OF CONSOLIDATED COMPANIES 53 40
Plus: UCC share of net income from
corporate investments carried at equity 10 2
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE 63 42
Cumulative effect of change in accounting principle - (97)
NET INCOME (LOSS) 63 (55)
Preferred stock dividend, net of taxes 2 2
NET INCOME (LOSS) - COMMON STOCKHOLDERS $ 61 $ (57)
Earnings per common share
Primary
- Income $ 0.39 $ 0.28
- Cumulative effect of change in accounting principle $ - $ (0.69)
- Net income $ 0.39 $ (0.41)
Fully diluted(c) $ 0.37 $ (0.41)
Cash dividends per common share $ 0.1875 $ 0.1875
(a) Restated to reflect the adoption of Statement of Financial Accounting
Standards 112.
(b) Selling, administration and other expenses include:
Selling $ 30 $ 34
Administration 27 32
Other expenses 15 25
$ 72 $ 91
(c) Fully diluted per share amounts for 1993 are antidilutive and accordingly,
primary and fully diluted per share amounts are identical.
The Notes to Condensed Consolidated Financial Statements on Pages 6 through
8 should be read in conjunction with this statement.
UNION CARBIDE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
Millions of dollars
March 31, Dec. 31,
1994 1993
ASSETS
Cash and cash equivalents $ 71 $ 108
Notes and accounts receivable 905 689
Inventories:
Raw materials and supplies 104 104
Work in process 44 52
Finished goods 252 229
400 385
Prepaid expenses 201 247
Total current assets 1,577 1,429
Property, plant and equipment 5,690 5,626
Less: Accumulated depreciation 3,267 3,206
Net fixed assets 2,423 2,420
Companies carried at equity 448 437
Other investments and advances 85 137
Total investments and advances 533 574
Other assets 341 266
Total assets $4,874 $4,689
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 316 $ 310
Short-term debt 162 24
Payments to be made within one year on
long-term debt 12 11
Accrued income and other taxes 163 189
Other accrued liabilities 622 662
Total current liabilities 1,275 1,196
Long-term debt 899 931
Postretirement benefit obligation 499 489
Other long-term obligations 486 379
Deferred credits 216 230
Convertible preferred stock 148 150
Unearned employee compensation (110) (114)
UCC stockholders' equity:
Common stock authorized - 500,000,000 shares
Common stock issued - 154,609,669 shares 155 155
Additional paid-in capital 355 366
Equity adjustment from foreign currency
translation (79) (84)
Retained earnings 1,099 1,067
1,530 1,504
Less: Treasury stock, at cost-3,487,318 shares
(4,062,189 shares in 1993) 69 76
Total UCC stockholders' equity 1,461 1,428
Total liabilities and stockholders' equity $4,874 $4,689
The Notes to Condensed Consolidated Financial Statements on Pages 6 through
8 should be read in conjunction with this statement.
UNION CARBIDE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Millions of dollars
Quarter ended March 31,
1994 1993
Increase (decrease) in
cash and cash equivalents
OPERATIONS
Income from continuing operations $ 63 $ 42
Noncash charges (credits) to net income
Depreciation and amortization 67 76
Deferred income taxes 19 12
Other noncash charges (credits) 18 (1)
Investing debits to net income (16) (2)
Working capital(a) (185) (183)
Long-term assets and liabilities 39 23
Cash Flow From (Used for) Operations 5 (33)
INVESTING
Capital expenditures (80) (50)
Investments (34) -
Sale of investments - -
Sale of fixed and other assets - 13
Cash Flow Used for Investing (114) (37)
FINANCING
Change in short-term debt (three months or less) 138 56
Repayment of long-term debt (30) (100)
Issuance of common stock 23 25
Repurchase of common stock (28) -
Payments of dividends (31) (28)
Other - (2)
Cash Flow From (Used for) Financing 72 (49)
Effect of exchange rate changes on cash and
cash equivalents - -
Change in cash and cash equivalents (37) (119)
Cash and cash equivalents beginning-of-period 108 171
Cash and cash equivalents end-of-period $ 71 $ 52
Cash paid for interest and income taxes
Interest (net of amount capitalized) $ 9 $ 35
Income taxes $ 5 $ 21
_____________
(a) Net change in working capital by component (excluding cash and cash
equivalents, deferred income taxes and short-term debt):
(Increase) decrease in current assets
Notes and accounts receivable $(107) $ (51)
Inventories (20) (23)
Prepaid expenses 6 11
Decrease in payables and accruals (64) (120)
Working capital $(185) $(183)
The Notes to Condensed Consolidated Financial Statements on Pages 6 through
8 should be read in conjunction with this statement.
UNION CARBIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Consolidated Financial Statements
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements include all adjustments necessary for a
fair statement of the results for the interim periods. These adjustments
consisted of only normal recurring adjustments. On April 27, 1994,
stockholders voted to approve the merger of Union Carbide Corporation
into Union Carbide Chemicals and Plastics Company Inc. (UCC&P). The
merger was effective May 1, 1994. Immediately after the merger, UCC&P
had the same consolidated assets, liabilities and stockholders' equity as
the corporation. UCC&P has changed its name to Union Carbide
Corporation. All references to Union Carbide Corporation, the
corporation or UCC after the periods starting May 1, 1994 shall be a
reference to the merged company. The accompanying statements should be
read in conjunction with the Notes to Financial Statements of Union
Carbide Corporation and Subsidiaries ("the corporation") in the 1993
annual report to stockholders.
2. Union Carbide Chemicals and Plastics Company Inc.
UCC has unconditionally guaranteed the payment of principal and interest
on all debt of UCC&P registered with the Securities and Exchange
Commission. As of March 31, 1994, UCC had guaranteed $992 million of
UCC&P debt.
The following is a financial summary of UCC&P and its consolidated
subsidiaries:
Quarter Ended March 31,
Millions of dollars 1994 1993
Net sales $1,126 $1,193
Cost of sales 856 880
Depreciation and amortization 67 76
Income before accounting change 67 40
Cumulative effect of change in accounting
principle - (97)
Net income (loss) $ 67 $ (57)
March 31, Dec. 31,
1994 1993
Current assets $1,576 $1,428
Noncurrent assets 3,296 3,256
Total assets $4,872 $4,684
Current liabilities $1,464 $1,418
Noncurrent liabilities 2,021 1,916
Net assets $1,387 $1,350
3. Common Stock
In the first quarter of 1993 the Board of Directors announced that it had
authorized the repurchase of up to 10 million shares of UCC common stock
over an unlimited period in order to minimize future earnings dilution due
to common stock requirements under certain employee benefit plans.
Through March 31, 1994, the corporation had repurchased 4,839,700 shares
at an average effective price of $20.07 per share.
In conjunction with the corporation's common stock buyback program, put
options were sold in a series of private placements entitling the holders
to sell 3,050,000 shares of common stock to UCC, at specified prices if
the holders exercise the options. Since the inception of this program,
through March 31, 1994, options representing 2,775,000 common shares
expired unexercised, while options representing 275,000 shares remain
outstanding. Premiums received on these options reduced the average price
of repurchased shares to $20.07 per share from $20.42 per share.
4. Commitments and Contingencies
The corporation has entered into three agreements for the purchase of
ethylene related products and two agreements for the availability of
terminal storage from facilities located in the U.S. and Canada. The net
present value of the fixed and determinable portion of these obligations
at March 31, 1994 totaled $465 million.
The corporation is subject to loss contingencies resulting from
environmental laws and regulations, which include obligations to remove or
mitigate the effects on the environment of the disposal or release of
certain wastes and substances at various sites. 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 be reasonably
estimated. The reliability and precision of the loss estimates are
affected by numerous factors, such as different stages of site evaluation,
the allocation of responsibility among potentially responsible parties and
the assertion of additional claims. The corporation adjusts its accruals
as new remediation requirements are defined, as information becomes
available permitting reasonable estimates to be made, and to reflect new
and changing facts.
At March 31, 1994, the corporation had established environmental
remediation accruals in the amount of $272 million. Approximately
30 percent of the corporation's environmental accrual at March 31, 1994
pertained to closure and postclosure costs for both operating and closed
facilities. In addition, the corporation had environmental loss
contingencies of $122 million.
The corporation had additional contingent obligations at March 31, 1994 of
$102 million, principally related to discounted receivables from
customers, guarantees of debt and litigation.
During the first quarter of 1994, the corporation reduced the carrying
value of its stock in Union Carbide India Ltd. to zero. See Note 17 of
Notes to Financial Statements in the corporation's 1993 Annual Report to
Stockholders for information about suits and proceedings arising from or
related to the December 3, 1984 methyl isocyanate incident at the plant at
Bhopal, India, owned and operated by Union Carbide India Limited.
The corporation has provisionally joined the recent multi-billion dollar
silicone breast implant litigation settlement agreement. Union Carbide's
contribution to the settlement will be $138 million over the next several
years. The corporation has previously taken before-tax charges
aggregating $35 million for this litigation. Although insurance coverage
is subject to issues as to scope and application of policies, retention
limits, exclusions and policy limits, and the insurers have reserved their
rights to deny coverage, the corporation believes that after probable
insurance recoveries, the settlement will not have a material effect on
the company's earnings in the future. The corporation was not a
manufacturer of breast implants but did supply generic bulk silicone
materials to the industry.
The settlement is subject to fairness hearings and possible challenges
that might delay implementation or require settlement terms to be
reconsidered. Both the corporation and the other companies which are
parties to the agreement have the right to withdraw from the settlement
if, in their individual judgment, there are too few recipients of breast
implants covered by the final settlement.
In addition to the above, the corporation and its consolidated subsidiaries
are involved in a number of legal proceedings and claims with both private
and governmental parties. These cover a wide range of matters including,
but not limited to: product liability; governmental regulatory proceedings;
health, safety and environmental matters; employment; patents; contracts and
taxes. In some of these legal proceedings and claims, the remedies that may
be sought or damages claimed are substantial.
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 in the future.
DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Overview
For the quarter ended March 31, 1994 the corporation reported net income
available to common stockholders of $61 million, or $0.39 per share primary
($0.37 per share fully diluted). Improved volumes for the corporation's major
businesses were largely offset by slight margin declines in commodity
products. The corporation continued to benefit from its cost reduction
efforts and improved results in its joint ventures.
Results of Operations
Net income available to common shareholders was $61 million for the first
quarter of 1994, compared to $40 million for the same period last year. In
addition, the corporation recorded a noncash after-tax charge of $97 million
in the first quarter of 1993 as a result of adopting FAS 112. As a result a
net loss of $57 million was reported in the first quarter of 1993.
Sales decreased 6 percent in the first quarter of 1994 to $1.126 billion from
$1.193 billion in the first quarter of 1993 largely due to the absence of
sales from the OSi business, sold in July, 1993. On a comparative basis,
quarter to quarter, volumes improved for all the corporation's businesses,
especially ethylene oxide derivatives and polyethylene resins.
The corporation's variable margin was 46.7 percent in the first quarter 1994
versus 47.4 percent in the first quarter last year. Despite an increase in
volumes, lower prices in all businesses kept variable margin virtually the
same when the OSi business is excluded from first quarter 1993. Similarly,
gross margin in the first quarter of 1994 of 24.0 percent was lower than the
previous year's rate, but essentially flat excluding the OSi business.
Selling, administration and other expenses decreased $19 million, almost half
of which is attributable to the absence of the OSi business.
Other expense (income) - net for the first quarter of 1994 included the
following items: a $24 million charge for the writeoff of the corporation's
investment in India and associated costs; a $12 million loss on the proposed
sale of the corporation's uranium mill and certain uranium mines to Energy
Fuels, Ltd; a $24 million gain on the sale of its preferred stock investment
in OSi Specialties, Inc. Income from partnerships rose $16 million in the
first quarter of 1994 over the same period last year.
Interest expense decreased 36 percent in the first quarter of 1994 compared
with the first quarter 1993 as a result of slightly lower debt levels and
lower interest rates.
Earnings from the corporation's investments carried at equity totaled
$10 million in the current quarter versus $2 million in the comparable quarter
last year due primarily to an increase in UCC's share of earnings from UCAR
International, Inc.
Estimates of future expenses related to environmental protection for
compliance with Federal, state and local laws regulating solid and hazardous
wastes and discharge of materials to air and water, as well as for waste site
remedial activities, and of future capital expenditures relating to
environmental protection, have not changed materially since December 31, 1993.
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 has provisionally joined the recent multi-billion dollar
silicone breast implant litigation settlement agreement. This litigation is
discussed in more detail in the "Commitments and Contingencies" footnote to
the financial statements on page 8 of this report on Form 10-Q.
Financial Condition - March 31, 1994
The corporation continued to benefit from its cost reduction efforts, improved
results from joint ventures and lower interest expense, all of which
contributed to positive cash flow from operations of $5 million in the first
quarter of 1994. In the first quarter of 1993 $33 million was used in
operations.
Cash flow used for investing of $114 million was significantly higher in 1994
due primarily to increased capital spending plus an investment in a Brazilian
ethylene company.
Cash flow from financing was $72 million for the first quarter 1994 as
compared to $49 million used for 1993. Significant activities in the first
quarter 1994 included the redemption of outstanding 5.3 percent sinking fund
debentures due 1997 for $26 million and the repurchase of $28 million in
common stock. Short-term borrowings increased by $110 million. In the first
quarter of 1993, the corporation redeemed, for $12 million, its 15 percent
senior debentures and $84 million of the outstanding $345 million of
7.5 percent convertible subordinated debentures with the remaining $261
million converted into common stock.
The corporation's ratio of debt to capital increased to 42.3 percent at
March 31, 1994 from 40.3 percent at December 31, 1993. At March 31, 1994
there were no outstanding borrowings under the existing major bank credit
agreement of $600 million.
Cash dividends to UCC common stockholders amounted to $28 million in the first
quarter 1994 and $25 million in the first quarter of 1993.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See Note 4 to the corporation's consolidated financial statements
on page 7 and 8 of this 10-Q Report.
On March 31, 1994, the U.S. Environmental Protection Agency (EPA)
issued an administrative Complaint, Compliance Order and Notice
of Opportunity for Hearing to the corporation alleging violations
of the Resource Conservation and Recovery Act, as amended, and the
Texas Solid Waste Disposal Act at the corporation's Texas City,
Texas plant. EPA proposes to assess a civil penalty of $139,000.
The corporation has requested a hearing and is contesting the alleged
violations and proposed penalty.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) Annual Meeting - April 27, 1994
(b) Proxies for the meeting were solicited pursuant to Regulation
14A. There was no solicitation in opposition to the
management's nominees as listed in the proxy statement. All of
the management's nominees as listed in the proxy statement were
elected, the vote on said proposal being as follows:
Shares Voted
Directors Shares For Shares Withheld
John J. Creedon 131,990,427 1,696,792
C. Fred Fetterolf 132,104,509 1,582,710
Joseph E. Geoghan 132,131,971 1,555,248
Rainer E. Gut 132,108,367 1,578,852
James M. Hester 131,946,875 1,740,344
Vernon E. Jordan, Jr. 131,730,158 1,957,061
William H. Joyce 131,965,025 1,722,194
Robert D. Kennedy 131,873,912 1,813,307
Ronald L. Kuehn, Jr. 132,124,298 1,562,921
C. Peter McColough 131,945,553 1,741,666
Rozanne L. Ridgway 132,071,127 1,616,092
William S. Sneath 130,382,563 3,304,656
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (Continued)
(c) Other matters voted upon.
Proposal to Eliminate Holding Company
Shareholders approved the merger of the corporation into its
wholly owned subsidiary, Union Carbide Chemicals and Plastics
Company Inc.
The vote was:
FOR - 132,002,261 or 78.44 percent of the shares outstanding
(99.39 percent of the shares voted).
AGAINST - 805,782 or 0.48 percent of the shares outstanding
(0.61 percent of the shares voted).
ABSTAIN - 879,176 shares.
Approval required an affirmative vote of two-thirds of the
shares outstanding.
Proposal to Ratify the Appointment of Auditors
Shareholders ratified the appointment of KPMG Peat Marwick to
conduct the annual audit of the financial statements of the
corporation and its consolidated subsidiary companies for the
year ending December 31, 1994.
The vote was:
FOR - 131,802,714 or 99.15 percent of the shares voted.
AGAINST - 1,129,114 or 0.85 percent of the shares voted.
ABSTAIN - 755,391 shares.
Proposal on the 1994 Union Carbide Long-Term Incentive Plan
Shareholders approved management's proposal to adopt the 1994
Union Carbide Long-Term Incentive Plan.
The vote was:
FOR - 99,900,451 or 59.36 percent of the shares outstanding
(75.62 percent of the shares voted).
AGAINST - 32,202,274 or 19.14 percent of the shares
outstanding (24.38 percent of the shares voted).
ABSTAIN - 1,584,494 shares.
Approval required an affirmative vote of a majority of the
shares outstanding.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (Continued)
Proposal on CERES Principles
Shareholders voted against a shareholder proposal requesting the
corporation to endorse the CERES Principles for corporate
environmental accountability.
The vote was:
FOR - 6,154,284 shares or 6.16 percent of the shares voted.
AGAINST - 93,772,755 shares or 93.84 percent of the shares
voted.
ABSTAIN - 7,765,467 shares.
BROKER NON-VOTE - 25,994,713 shares.
Proposal on Environment/Safety Hazards
Shareholders voted against a shareholder proposal that the
shareholders request the corporation to make publicly available
a report (prepared at reasonable cost, omitting proprietary
information, and made available by September 1994), sufficiently
comprehensive to permit interested persons to assess:
(a) environmental and safety hazards to the communities
surrounding its chemical plants, such as risks and consequences
of chemical accidents, preventative measures, and plans to
reduce the use of toxics; (b) communities' rights to inspect
facilities with regard to these hazards; (c) corporate policy
and procedures in these areas.
The vote was:
FOR - 12,299,874 shares or 12.25 percent of the shares voted.
AGAINST - 88,087,879 shares or 87.75 percent of the shares
voted.
ABSTAIN - 7,304,753 shares.
BROKER NON-VOTE - 25,994,713 shares.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
The following exhibit is filed as part of this report:
11 - Computation of Earnings Per Share.
(b) No reports on Form 8-K were filed for the three-months ended
March 31, 1994.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNION CARBIDE CORPORATION
(Registrant)
Date: May 12, 1994 By: John K. Wulff
JOHN K. WULFF
Vice-President, Controller
and Principal Accounting
Officer
EXHIBIT INDEX
Exhibit Page
No. Exhibit No.
11 Computation of Earnings Per Share