EXHIBIT 13
1994 Annual Report to Stockholders
Contents
1 Financial Highlights
Summary comparison of 1994 and 1993 results.
2 Chairman's Letter
Bob Kennedy recaps 1994 performance and discusses Carbide's strategic
objectives and long-term outlook.
4 President's Report
Bill Joyce reviews 1994 operations and the major initiatives taken during
the year to advance Carbide's business strategy.
8 Principal Products and Services
Carbide's products, services, major site locations and competitors.
10 Financial Index
Management's discussion and analysis, financial statements and notes.
38 Corporate Information
Important dates, names, addresses, telephone numbers and other
information.
39 Directors, Corporate Officers
Information on directors, corporate officers and other senior corporate
staff.
40 A Chemical Glossary, Definition of Terms
Definitions of chemical and nonchemical terms used in this report.
At a Glance
Union Carbide Corporation is a basic chemicals company with many of the
industry's most advanced process technologies and some of the most cost-
efficient, large-scale production facilities in the world. The company also
produces and markets numerous specialty chemicals from manufactured or
purchased chemicals, and targets sharply defined market segments for many of
its technologies.
Union Carbide buys liquefied petroleum gas and naphtha to make ethylene
and propylene - basic building-block chemicals (also known as olefins). The
company then uses state-of-the-art process technologies to convert
manufactured and purchased ethylene and propylene into products that include
polyethylene (the world's most widely used plastic); ethylene oxide/glycol and
derivatives for surfactants, polyester fiber, resin and film, and automobile
antifreeze; and one of the industry's broadest lines of resins, intermediates,
emulsions and additives for the paints and coatings, cosmetic and personal
care, adhesives, household, pharmaceutical, fuel and lube oil additives and
agricultural products markets.
Union Carbide also licenses certain of its key olefins-based technologies
and offers other specialized technology licensing and services.
The leading Union Carbide end markets as a percentage of sales are:
Paints, coatings and adhesives 23%
Packaging and consumer plastics 19%
Wire and cable 10%
Textile 8%
Household and personal care 7%
Automotive, including antifreeze 6%
Agricultural and food 4%
Oil and gas 4%
Industrial cleaners 3%
On the Cover
The linear low-density polyethylene molecule. Union Carbide is among the
largest manufacturers of polyethylene, the world's most widely used plastic,
and is the industry's leading licenser of polyethylene process technology.
Financial Highlights
Dollar amounts in millions (except per share figures) 1994 1993
For the Year
Net sales $ 4,865 $ 4,640
Income available to common stockholders before
accounting change 379 155
Per common share - Primary 2.44 1.00
Cumulative effect of change in accounting principle - (97)
Per common share - Primary - (0.64)
Net income - common stockholders 379 58
Per common share - Primary 2.44 0.36
Per common share - Fully diluted(a) 2.27 -
Cash dividends 113 110
Per common share 0.75 0.75
Capital expenditures 409 395
At Year-End
Total assets $ 5,028 $ 4,689
Total debt 946 966
UCC stockholders' equity 1,509 1,428
Per common share 10.45 9.49
Common shares outstanding (thousands) 144,412 150,548
Common stockholders of record 55,049 58,795
Employees 12,004 13,051
a) Fully diluted per share amounts are not presented where amounts are
antidilutive.
Chairman's Letter
Volume Growth, Competitive Advantage Spell Bright Prospects for the Decade
Nothing beats performance for validating a business strategy, and I'm pleased
to report that Carbide's strategy of backing businesses with significant
competitive advantage got a ringing endorsement from our 1994 performance.
Net income available to shareholders from continuing operations rose 145
percent from the prior year to $379 million, and per share income climbed to
$2.44 from $1.00.
Stockholders had another good year as well. Carbide's share price rose
more than 31 percent for the year to close at $29.38. The increase put our
stock performance at the top of the Dow Jones list of 30 industrials for the
second time in the past three years.
As stockholders know, we've made progress over several years in the teeth
of the worst chemical industry downturn in memory. We did it mainly through
massive cost reductions - approaching $575 million at year-end - made possible
by the drive and initiative of Carbide people, who worked long and hard to
streamline our major work processes.
In mid-1994 we began to get help from the marketplace. As supply and
demand came into better balance in the second half, stronger pricing signaled
that the worst of the cyclical downturn was behind us. But I'm confident that
today's Carbide can post highly competitive financial results regardless of
conditions in the chemical markets.
Our operations are lean and efficient. Our people are working flat out,
with a will to win bred of success. And we're keeping the pressure on costs
through further work process improvements.
With costs in line, our financial condition sound and returns exceeding
our cost of capital, it is clearly time to expand in growing markets for our
core operations.
By spreading fixed costs over larger volumes, and further reducing
variable costs, we reduce our total cost per pound of product. And when
billions of pounds of product are involved, shaving just a little off the cost
of each pound can mean significantly improved profitability and greater
shareholder value.
Several internal expansions underway will help. And large productivity
gains will come from joint ventures, acquisitions and business extensions that
accelerate growth. We've announced several that will add substantial capacity
around the world, for an average investment cost far below the cost of
building new, "greenfield" capacity.
Our planned joint venture with Petrochemical Industries Company of
Kuwait, for example, will have a total of more than 3 billion pounds of
ethylene, polyethylene and ethylene glycol capacity when completed in 1997.
With an advantaged feedstock position and the benefit of Carbide process
technologies - so highly prized that they formed part of our equity - venture
production costs should be among the lowest in the world.
Two European joint ventures announced in 1994 will add substantial
volumes in key operations.
In one, we're joining with EniChem of Italy, Europe's co-leader in
polyethylene production. The venture, which is subject to approval of the
European Union, will own all of EniChem's polyethylene operations. Combined
capacity of these facilities in Italy, France and Germany is about 3 billion
pounds a year.
In another venture, we've joined with Elf Atochem of France to produce
and market specialty polyethylene compounds primarily for the wire and cable
industry. The venture will operate about 600 million pounds per year of
capacity in France by the end of 1995, plus new compounding capacity for wire
and cable products.
In a business extension we think has considerable potential for
profitable growth, we announced plans to build a 200 million-pounds-per-year-
capacity plant in Texas to produce ethylene/propylene rubber. The business is
a new one for Carbide, but one we enter with a product and cost advantage
based on our UNIPOL Process technology that could reshape the industry.
And as the year ended, we agreed to purchase ethylene oxide derivatives
operations with 330 million pounds of capacity - which we'll expand to about
600 million pounds - from Imperial Chemical Industries in London. The purchase
will solidify our position as the industry's leading producer of these
chemicals, used in fibers, resins, paints and personal care products.
The combination of internal expansions and joint ventures will increase
our polyethylene and ethylene glycol capacity by more than 50 percent to 10
billion pounds by 1997. All the additions will benefit our customers and fit
neatly with our strategy. All support or extend operations in which Carbide
already has a significant competitive advantage. All will be advantaged in
their own right. And all are going forward when the chemical business cycle
appears to be trending upward.
Those who recall the deep pessimism many felt about Carbide's future
after the tragedy in Bhopal, India, in 1984, and the takeover attempt a year
later that shrank the company by half, will appreciate how much has changed
since then. We are in some of the same basic businesses, but we are a
different company in virtually everything but name.
Dec. 3 marked the 10th anniversary of that terrible event, the result of
sabotage by a disgruntled employee. Carbide only recently was allowed to sell
its shares in its former Indian affiliate. Part of the proceeds will be used
to build and operate a hospital in Bhopal. This is beyond the $470 million
settlement paid to the Indian government in 1989.
Another outcome, important for every community where chemicals are made,
is the RESPONSIBLE CARE initiative adopted by Union Carbide and other chemical
companies in 35 countries around the world. RESPONSIBLE CARE commits signatory
companies to a rigorous set of codes and practices designed to improve
environmental and safety performance.
Carbide operating policies, safety and environmental reporting, and work
with community advisory panels all reflect our commitment to those codes and
practices. Write to our Public Affairs Department for a copy of Carbide's 1994
RESPONSIBLE CARE progress report.
On a personal note, C. Peter McColough, who has served on the board with
distinction since 1979, will not stand for reelection in accordance with the
board's retirement policy. His wisdom, experience and unswerving support will
be greatly missed.
Also, as this report went to press I announced that I'll be ending my
long and satisfying career with Union Carbide at the end of 1995. In passing
the baton to President Bill Joyce, who will become chief executive officer in
April and chairman of the board when I retire, I could not entrust the future
of this great company to more capable hands.
Robert D. Kennedy
Feb. 22, 1995
(Contained within the Chairman's Letter is a picture of Robert D. Kennedy,
Chairman and Chief Executive Officer and William H. Joyce, President and Chief
Operating Officer, as well as a separate depiction of an ethylene oxide
molecule.)
President's Report
Carbide Boosts Profitability, Accelerates Growth
As 1994 began, the chemical business cycle was still in the cellar, with
prices and margins near their historic lows. Producers got some modest price
relief in the second quarter for the simple reason that they could no longer
withstand the huge losses of the past two years in their commodity operations.
As the year wore on, the economies of the U.S. and other major markets
picked up steam, driving up the demand for chemicals and boosting prices.
At the same time, operating problems at several ethylene production
facilities in the U.S. tightened raw material supplies, causing prices of
polyethylene and ethylene glycol, the two highest-volume downstream chemicals,
to move up in earnest. And Union Carbide, with substantial help from cost
reductions and operating improvements, benefited handsomely as margins
improved and sales volumes rose.
Several years of declining margins in our largest ethylene-based
commodity chemical operations - ethylene glycol and commodity polyethylene
resins - overwhelmed even the massive cost reductions Carbide had achieved.
But results improved substantially as margins began to rebound in the second
half of the year. The businesses, which had been losing money, were profitable
in the third and fourth quarters. Sales volume for the ethylene-based
commodities group rose 6 percent compared to the prior year.
Carbide's less cyclical businesses, which prospered during the downturn,
also benefited from the improved economy. They accounted for 56 percent of
volume and 75 percent of revenues in 1994. The group - consisting of
industrial performance chemicals, solvents and intermediates, UCAR emulsion
systems, specialty polymers and products, UNIPOL licensing and specialty
polyolefins - continued to post a rate of return substantially above the cost
of capital, a sure sign of robust health.
Not enough can be said about the contribution Carbide people made to our
improved performance. They are largely responsible for Carbide successfully
completing our $575 million cost reduction program by year-end 1994. And at
year-end they were operating our businesses with great efficiency, introducing
promising new products and doing more for our customers, while further
improving Carbide's environmental and safety performance.
Better Work Processes
Over the past several years, continuous improvement - the notion that
things can be done better and more efficiently no matter how well they were
done before - has become ingrained in the Carbide culture. And several new
initiatives were under way as 1994 ended.
In one, we eliminated more than $70 million of engineering support and
installation costs by simplifying the design and construction process, and by
sharply curtailing engineering work that did not directly support the
strategies of our individual businesses. The Engineering Excellence initiative
is targeting additional reductions in engineering support costs, and has a
capital cost reduction target for 1995 of about $100 million.
In one such project, associated with our entry into the ethylene/
propylene rubber business, we expect to save nearly $30 million in capital
costs by simplifying product handling systems and using off-the-shelf designs
where possible instead of starting from scratch, among other improvements.
Another initiative, called Pathfinder, seeks to reduce product
distribution costs. Pathfinder eliminated $8 million of annualized costs in
1994 by finding more efficient ways of getting our products from the
manufacturing plant to the customer. In one example, we expect to save $6
million a year through better scheduling and routing, and by ensuring optimum
loads for the 37,000 railcar shipments Carbide makes each year. Optimum loads
will mean fewer cars and trips, less cleaning and handling, and lower total
freight costs.
We are also applying the reengineering concept to Carbide's research and
development work. Our scientists and technicians are exploring ways to reduce
by nearly one-third the time it takes to get newly developed products to the
marketplace. And they are looking at ways to test product viability at early
stages of development, so they can halt work quickly when the market outlook
is doubtful.
Because we expect work process improvement to be a long-term effort, we
have formed a team of Carbide people who are permanently assigned as
reengineering consultants. Their job is to help any group in our system
identify new opportunities to improve efficiency and reduce costs. With
Carbide people replacing outside consultants, the cost of doing the
reengineering will itself be reduced by some 55 percent.
Along with improved efficiency and lower costs in 1994, many of our
operations made important advances during the year.
Examples include:
Several value-added polyethylene products introduced by UNIPOL Polymers,
including a new line of TUFLIN-PLUS film resins with superior puncture- and
tear-resistance for garbage bags and stretch wrap.
An 18 percent increase in export sales of telecommunications and power
cable compounds (by Specialty Polyolefins) mainly to the fast-growing markets
of the Pacific Rim. And a 40 percent increase in sales of flame-retardant
cable jacketing and insulation compounds to the maritime and building
industries.
Signing of another licensee in Asia (by our UNIPOL Systems group) for our
UNIPOL Process technology, bringing the new total of Asian licensees to 28 and
the new worldwide total to 67. Eleven licensees - in Indonesia, China, France,
Ukraine and the U.S. - are scheduled to start up operations in the 1995-96
period. When they do, it is estimated that UNIPOL will account for 18.5
billion pounds of world polyethylene operating capacity, or 18 percent, and
5.6 billion pounds, or 11 percent, of world polypropylene capacity.
Introduction in North America by Industrial Performance Chemicals of an
aircraft anti-icing fluid, called UCAR AAF Ultra. Independent laboratory
simulations have shown that UCAR Ultra can prevent ice formation on aircraft
surfaces for at least 90 minutes, nearly three times as long as competing
materials. A great benefit to aircraft facing long takeoff delays in bad
weather, UCAR Ultra increased Carbide's share of the anti-icing fluid market
in 1994 from less than 10 percent to an estimated 50 percent.
A 9 percent increase in sales volumes of latex emulsions to the
architectural coatings and waterborne adhesives markets by UCAR Emulsion
Systems, the result of sharper marketing focus on the industry's fastest-
growing companies. An intensified marketing campaign in the Middle East and
Southeast Asia that expanded sales volumes in those fast-growing markets by
more than 10 percent.
Completion of a plant in South Charleston, W.Va., for the manufacture of
our line of TRITON specialty surfactants - chemicals that put the cleaning
power in household and industrial detergents, and ensure even dispersal of
color in paints and coatings. This state-of-the-art plant, operated by
Industrial Performance Chemicals, nearly triples the number of specialty
surfactants Carbide can produce.
Capacity Expansion
With results improved, our strategies opening new opportunities, and
employees working hard to make Carbide the preferred supplier in our industry,
we are accelerating expansion of those operations in which we have a clear
competitive advantage.
For example, the new 650 million-pounds-per-year UNIPOL II polyethylene
production facility under construction at Taft, La., is scheduled to come on
stream in the second quarter of 1995. Its new resins will enable fabricators
of industrial liner bags and construction film to make their products with 15
percent less raw material, or to make products 15 percent stronger with the
same amount of raw material. And they can do so without costly modifications
of their fabricating equipment.
To help customers meet the growing demand for paints and cleaning
compounds, we completed a 50 percent expansion of production capacity for
Butyl CARBITOL and Butyl CELLOSOLVE solvents at Seadrift, Tex. We accomplished
the expansion through technology modifications, with little capital expense.
We increased capacity for making isophorone at our Institute, W.Va.,
plant by 30 percent. Isophorone is a specialty chemical used in paint and
agricultural chemicals.
We're building a new butanol facility at our Taft, La., plant that will
incorporate the industry's lowest-cost technology and increase our total
butanol capacity by more than 50 percent. Butanol is a key ingredient in
paints, coatings and plasticizers. And to help customers keep up with growing
demand for coatings and adhesives, we began an expansion of our vinyl acetate
facility in Texas City, Tex., that will increase capacity by 25 percent when
completed in 1995.
Other significant expansions include: acrolein derivatives for animal
feed supplements, fragrances and industrial chemicals; POLYOX water-soluble
resins used in personal care products, pharmaceuticals and adhesives;
polyvinyl acetate used for chewing-gum resins and thermoplastic additives;
specialty ketones used in agricultural chemicals; and alkyl alkanolamines used
in gas treating, pharmaceuticals and other markets.
UOP, a company owned equally by Carbide and AlliedSignal, also made a
good contribution to 1994 results, broadening its product line while
positioning itself for further growth. UOP provides technology, catalysts and
related products and services to the oil refining, petrochemical and gas
industries.
UOP is doubling worldwide capacity for beaded adsorbents - products that
selectively adsorb many compounds - through a recently completed expansion at
its facility in Reggio, Italy, and another expansion under way in Mobile, Ala.
UOP also acquired Separex Membrane Systems from Hoechst Celanese in 1994,
expanding its gas processing technology offerings. And in January 1995 it
acquired UNOCAL's licensing business for process technology.
All of these initiatives and expansions are occurring in operations with
strong technology-based competitive advantages. Technology is also a key to
the advantaged position we believe our new joint ventures will have at start-
up.
New Ventures
The largest of these, our planned joint venture with Petrochemical
Industries Company of Kuwait, would combine a substantial raw materials
advantage with our state-of-the-art polyethylene and ethylene glycol
processing technologies. The combination will make the venture a formidable
competitor in world markets. The Kuwait-based venture would have posted
returns exceeding its cost of capital even at the lowest point of this latest
cycle, which covered a span of about 7 years.
Planning and financing for the venture are in the final stages. A Carbide
management team is in place, contractors have been named and teams of Carbide
and Kuwaiti engineers are making good progress on design and engineering of
key units of the world-scale petrochemical complex. The venture is expected to
start up in 1997.
Our joint venture with EniChem of Italy, combining UNIPOL Process
technology with EniChem's European production facilities and marketing
network, will have all the earmarks of becoming Europe's leading and lowest-
cost polyolefins producer. In February 1995 we announced board-of-director
approval of the formation of the joint venture company, Polimeri Europa. The
venture is subject to European Union approval.
At year-end we completed a joint venture with Elf Atochem of France that
also combines our technology and experience with our partner's manufacturing
facilities. In this case we will license the venture to use our UNIPOL Process
technology, which will double the output of existing facilities. Carbide will
license other technology to the venture to produce compounds for the wire and
cable industry in Europe.
Our customers had asked us to establish a manufacturing presence in
Europe, so along with the venture's competitive strength, we expect it will
have a warm welcome. Carbide sales people in Europe will market the wire and
cable compounds, while Atochem will market the venture's other products.
A fourth joint venture, with Mitsui of Japan and Far Eastern Textile
Limited of Taiwan, started up glycol production in September at a new, world-
scale unit at our plant in Alberta, Canada. Production will supply Asia's
fast-growing textile market. The unit combines raw material and technology
advantages with a highly efficient distribution system.
We are also expanding through acquisitions, and through entry into related
businesses.
In October we announced that Carbide would enter the ethylene/ propylene
rubber (EPDM) business with a substantial competitive advantage based on our
UNIPOL Process technology. We expect that manufacturing costs, excluding
monomer costs, will be about half of competitors', with investment cost well
under half. In addition, substituting our granular product for the big blocks
of material supplied by competitors using conventional technology will reduce
customers' handling and processing costs several cents a pound. Production is
scheduled to start up at our new, 200 million-pounds-per-year plant at
Seadrift, Tex., in 1996.
And at year-end 1994, Carbide announced its intention to acquire certain
ethylene oxide derivatives operations in Europe from Imperial Chemical
Industries of London. Carbide is the leading producer of oxide derivatives
used in polyester fibers and film, paints, solvents, personal care products
and detergents. The acquisition, completed in February 1995, establishes a
strong presence for us in Europe, with potential for further expansion in a
growing market. The newly acquired operations also double Carbide's brake
fluid capacity, making us one of the world's leading suppliers.
Carbide reduced its 50 percent interest in UCAR International, a noncore
business, by half in January 1995.
The advances and expansions of 1994, and the hard work of the past several
years that made them possible, have brought us measurably closer to our vision
of Carbide as the low-cost, preferred supplier in our segment of the industry.
Although Carbide's financial results will continue to reflect turns in
the chemical business cycle, our performance in 1994 is solid evidence that we
are a stronger company, better able to withstand the downturns and to profit
from strong markets.
William H. Joyce
Feb. 22, 1995
(Contained within the President's Report is a depiction of a butanol
molecule.)
Principal Products and Services
Olefins/Ethylene Oxide/Glycol/Derivatives
L.P. McMaster - Corporate VP, General Mgr., Ethylene Oxide/Glycol
G.D. Mounts - VP, General Mgr., Industrial Performance Chemicals
V.F. Villani - VP, General Mgr., Hydrocarbons
Sales (in millions)
1994 1993 1992
($) 1,253 1,093 1,100
(%) 26 24 23
Union Carbide manufactures about three-quarters of its ethylene
requirements and more than one-half of its propylene requirements. Ethylene
and propylene are the key raw materials for Union Carbide's olefins-chain
businesses.
Union Carbide is the world's leading producer of ethylene oxide/glycol
and manufactures a broad range of derivatives. Ethylene oxide is a chemical
intermediate primarily used in the manufacture of ethylene glycol,
polyethylene glycol, glycol ethers, ethanolamines, surfactants, antimicrobials
and cold-sterilants. Ethylene glycol is used extensively in the production of
polyester fiber, resin and film; automotive antifreeze and engine coolants;
and a variety of freeze/thaw stabilizers, including UCAR aircraft and runway
deicing and anti-icing fluids and NORKOOL coolants and UCARTHERM heat-transfer
fluids. Other ethylene oxide-based glycol products include di-, tri-, and
tetraethylene glycols used as chemical intermediates and in dehydrating
natural gas. Ethylene oxide derivative products include CARBOWAX polyethylene
glycols, with hundreds of uses as a processing aid in nearly all industries;
ethanolamines for detergents, personal care products and in natural gas
conditioning and refining; ethyleneamines for many industrial uses; TERGITOL
and TRITON specialty surfactants for industrial and household cleaning
products and personal care products; UCON fluids and lubricants; alkyl
alkanolamines, and gas treating products, including UCARSOL and SELEXOL
solvents.
Manufacturing Sites
Institute, W.Va. Taft, La.
Prentiss, Alberta, Canada Texas City, Tex.
Seadrift, Tex. Washougal, Wash.
South Charleston, W.Va. Wilton, U.K. (2/1/95)
Major Competitors
Saudi Basic Industries Dow Chemical
Occidental Chemical Huntsman
Shell Chemical
Polyolefins
F.D. Ryan - VP, General Mgr., Specialty Polyolefins
R.B. Staub - Corporate VP, General Mgr., UNIPOL Systems
P.T. Wright - Corporate VP, General Mgr., UNIPOL Polymers
Sales (in millions)
1994 1993 1992
($) 1,562 1,477 1,461
(%) 32 32 30
Union Carbide is a leading manufacturer of polyethylene, the world's most
widely used plastic. The company also licenses its UNIPOL Process technology,
the most cost-efficient and versatile method of manufacturing polyethylene and
polypropylene.
UNIPOL Polymers produces and markets linear low-density (LLDPE), medium-
density (MDPE) and high-density (HDPE) polyethylenes used in high-volume
applications such as housewares, milk and water bottles, grocery sacks, trash
bags, packaging and industrial liners, and FLEXOMER very low-density resins,
used to produce hose and tubing, and frozen-food bags and stretch wrap. UNIPOL
Polymers also processes and markets postconsumer recycled polyethylene resins
(under the CURBSIDE BLEND and PRISMA trademarks) used to produce plastic
garbage cans and personal care product, bleach and detergent bottles.
Specialty Polyolefins manufactures and markets worldwide polyolefin-based
insulation, semiconducting and jacketing compounds for wire and cable
applications. These include power distribution, telecommunications and flame-
retardant power and control cables. UNIPOL Systems licenses UNIPOL Process
technology to polyethylene and polypropylene producers worldwide, and it
develops new process technology for the manufacture of other olefins-based
polymers, such as ethylene/propylene rubber.
Manufacturing Sites
Boucherville, Quebec, Canada Seadrift, Tex.
Bound Brook, N.J. Taft (Star Plant), La.
Cubatao, Brazil
Major Competitors
Quantum Chemicals Chevron Chemical
Dow Chemical Exxon Chemical
Novacor Chemical
Solvents, Intermediates and Emulsion Systems
J.F. Flynn - Corporate VP, General Mgr., Solvents and Intermediates
G.E. Playford - Corporate VP, General Mgr., UCAR Emulsion Systems
Sales (in millions)
1994 1993 1992
($) 1,344 1,226 1,289
(%) 27 26 26
Union Carbide supplies one of the industry's broadest product lines of
solvents, resins, intermediates, emulsions and additives.
Solvents and Intermediates products include aldehydes, acids and
alcohols, including high-quality synthetic and fermentation ethanol; esters;
glycol ethers (CARBITOL and CELLOSOLVE solvents); ketones, and monomers (vinyl
acetate and acrylics for waterborne coatings). Its principal customers are the
paints and coatings industries, and many of its products are also used widely
in cosmetics and personal care preparations, adhesives, household and
institutional products, drugs and pharmaceuticals, fuel and lube oil
additives, and agricultural products. The company's UNICARB System is a
pollution-reducing, supercritical fluid technology that can cut costs and
reduce volatile organic compounds in spray-applied coatings by up to 80
percent. Emulsion Systems products, found in exterior and interior house
paints, include UCAR latex products (acrylics and vinyl-acrylics that impart
enhanced staining, weather and scrub resistance to paints) and POLYPHOBE
thickeners.
Manufacturing Sites
Alsip, Ill. Jebel Ali Free Trade Zone,
Batangas, Philippines Dubai, United Arab Emirates
Bayamon, P.R. Nonthaburi, Thailand
Ekala, Sri Lanka Seadrift, Tex.
Garland, Tex. Seremban, Malaysia
Guangdong Province, Somerset, N.J.
People's Republic of China Taft, La.
Guayaquil, Ecuador Texas City, Tex.
Institute, W.Va. Torrance, Calif.
Jakarta, Indonesia Tucker, Ga.
Wilton, U.K. (2/1/95)
Major Competitors
Eastman Chemical Shell Chemical
Hoechst Celanese Rohm & Haas
BASF
Specialty Polymers and Products and UOP
E.J. Boros - VP, General Mgr., Specialty Polymers and Products
J.C. Soviero - Corporate VP and Chairman of UOP
Sales (in millions)(a)
1994 1993 1992
($) 706 844 1,022
(%) 15 18 21
(a) The OrganoSilicon business was included in results for the full year 1992
and in 1993 until its sale in July.
Carbide manufactures and markets numerous specialty products. It targets
sharply defined market segments for many of its technologies.
Specialty Industrial Products includes acrolein derivatives,
glutaraldehyde, vinyl methyl ether, ethylidene norbornene (ENB), specialty
ketones and biocides used to control microorganisms in applications such as
sterilants, water treatment, papermaking, metalworking, oil field operations
and industrial preservatives. Performance Polymers includes POLYOX water-
soluble resins used in personal care products, pharmaceuticals, inks and
thermoplastics; and polyvinyl acetate resins used in chewing-gum resins, low-
profile additives, NEULON polyester modifiers, fast-cure additives and
pigmentable systems, and UCURE reactive modifiers. Coating Materials reaches
markets for paints, coatings, inks, substrates and other materials for
magnetic tape, food and beverage packaging, plastics and orthopedic materials.
Its products include CELLOSIZE hydroxyethyl cellulose (HEC); UCAR solution
vinyl resins; TONE caprolactone-based materials; and cycloaliphatic epoxides,
including CYRACURE UV-curing products and FLEXOL plasticizers. Amerchol
Corporation, a Union Carbide subsidiary, manufactures and sells a wide variety
of lanolin-, glucose- and cellulose-based materials for personal care
products.
UOP, a company owned equally by Carbide and AlliedSignal Inc., is a
leading international supplier of process technology, catalysts, molecular
sieves and adsorbents to the petrochemical and gas processing industries.
Manufacturing Sites
Antwerp, Belgium Mamaroneck, N.Y.
Aratu, Brazil South Charleston, W.Va.
Edison, N.J. Taft, La.
Greensburg, La. Texas City, Tex.
Henderson, Ky. Vilvoorde, Belgium
Institute, W.Va.
Major Competitors
Union Carbide's competitive position varies widely from one
product/market segment to another. Competitors include a number of domestic
and foreign companies, both diversified and specialized.
(Within the Principal Products and Services section, next to each table is a
pie chart depicting each principal products and services' share of the total
consolidated 1994 sales.)
Financial Index
11 Management's Discussion and Analysis
11 Results of Operations
16 Liquidity, Capital Resources and Other Financial Data
18 Quarterly Data
19 Selected Financial Data
20 Consolidated Statement of Income
21 Consolidated Balance Sheet
22 Consolidated Statement of Cash Flows
23 Consolidated Statement of Stockholders' Equity
24 Notes to Financial Statements
24 Note 1 - Summary of Significant Accounting Policies
25 Note 2 - Financial Instruments
27 Note 3 - Geographic Segment Information
27 Note 4 - Other Expense - Net
27 Note 5 - Spin-off of Praxair, Inc.
28 Note 6 - Income Taxes
29 Note 7 - Supplementary Balance Sheet Detail
30 Note 8 - Interest Costs
30 Note 9 - Companies Carried at Equity
30 Note 10 - Long-Term Debt
31 Note 11 - Convertible Preferred Stock
32 Note 12 - UCC Stockholders' Equity
32 Note 13 - Leases
33 Note 14 - Retirement Programs
35 Note 15 - Incentive Plans
35 Note 16 - Commitments and Contingencies
36 Note 17 - Subsequent Events
37 Management's Statement of Responsibility for Financial Statements
37 Independent Auditors' Report
Management's Discussion and Analysis
RESULTS OF OPERATIONS
Dollar amounts in millions
(except per share figures) 1994 1993 1992
Net sales $4,865 $4,640 $4,872
Operating profit(a) 551 297 324
Interest expense 80 70 146
Pre-tax income from
continuing operations 471 227 178
Income from continuing
operations 389 165 119
Income from discontinued
operations - - 67
Cumulative effect of change
in accounting principles(b) - (97) (361)
Net income (loss) -
common stockholders 379 58 (187)
Per share, primary:
Continuing operations 2.44 1.00 0.76
Discontinued operations - - 0.51
Cumulative effect of change in
accounting principles - (0.64) (2.73)
Net Income (Loss) 2.44 0.36 (1.46)
Per Share, Fully Diluted(c) 2.27 - -
a) On April 27, 1994, stockholders voted to approve the merger of Union
Carbide Corporation into Union Carbide Chemicals and Plastics Company Inc. As
a result, operating profit is now calculated on a total consolidated basis.
Prior years' totals have been restated to reflect this change.
b) Effective Jan. 1, 1993, the corporation adopted Financial Accounting
Standard (FAS) 112, "Employers' Accounting for Postemployment Benefits."
Effective Jan. 1, 1992, the corporation adopted FAS 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," and FAS 109,
"Accounting for Income Taxes."
c) Fully diluted per share amounts are not presented where amounts are
antidilutive.
Summary and Outlook
In 1994, as well as in the preceding 2 years, Union Carbide's
profitability benefited from on-going cost reduction programs, increasing
sales volumes (exclusive of divestitures) and improved partnership and
corporate joint venture results. Throughout most of the 3-year period,
however, corporate results were negatively affected by record low margins in
ethylene oxide/glycol and in polyethylene, the corporation's two largest
volume products. Strong U.S. and world economic demand, as well as shortages
in ethylene, caused selling prices for these product lines to increase
beginning in the third quarter of 1994. These price increases, coupled with
relatively stable raw material feedstock costs, led to improved margins in the
second half of 1994.
Highlights of 1994 included:
Completion of the corporation's $575 million cost reduction program.
Start up of new ethylene oxide/glycol production facilities in Alberta (a
joint venture with Asian partners) and new surfactant manufacturing facilities
in South Charleston, W.Va.
Formation of a 50-50 joint venture with Elf Atochem of Paris to
manufacture and sell specialty polyethylene compounds for the European wire
and cable industry.
Announcement of a 50-50 joint venture with EniChem of Italy to develop,
manufacture and sell polyethylene resins in Europe. The venture is subject to
European Union approval.
Announcement of the acquisition of certain ethylene oxide derivatives
businesses from Imperial Chemical Industries of London. This transaction was
finalized on Feb. 1, 1995.
Reduction by one-half of the corporation's 50 percent interest in UCAR
International for before-tax cash proceeds of $347 million received in January
1995.
Doubling the corporation's borrowing capacity to $1.2 billion through new
lines of credit.
The increased commodity product margins experienced in the second half of
1994 are expected to continue through at least the first half of 1995. Whether
these trends continue beyond that will depend on the strength of U.S. and
global economies as well as on the availability of ethylene supplies.
Nonethylene chain businesses should continue to perform well, although any
slowness in the overall economy may affect their profitability. The reduction
of the corporation's interest in UCAR International will result in a material
nonrecurring gain to be recorded in the first quarter of 1995. However, the
corporation's share of ongoing future earnings from UCAR will be essentially
eliminated.
The corporation regularly reviews its assets with the objective of
maximizing the deployment of resources in core operations. In this regard, UCC
continues to consider strategies and/or transactions with respect to certain
noncore assets and other assets not essential to the operation of the business
that, if implemented, could result in material nonrecurring gains or losses.
Dollar amounts in millions 1994 1993 1992
Employees (year-end) 12,004 13,051 15,075
Employment costs
(wages, benefits,
payroll taxes) $820 $886 $983
1994 Compared with 1993
Sales revenues increased almost 5 percent from 1993 levels to $4.865
billion, based on a 7 percent increase in volumes. After decreasing through
mid-year, average selling prices increased through the third and fourth
quarters while raw material feedstock prices remained relatively stable
throughout the year (averaging slightly less than in 1993). Export revenues
from domestic operations have averaged approximately $565 million in each of
the past 3 years.
The corporation's variable margin (sales revenues less variable
manufacturing and distribution costs) as a percentage of sales rose to 45.8
percent from 45.6 percent in 1993 reflecting an improvement in ethylene/glycol
and polyethylene margins in the second half of 1994. Excluding the
OrganoSilicon business (OSi), sold in July 1993, the 1993 variable margin
would have been 45.0 percent. The corporation's gross margin (variable margin
less fixed manufacturing and distribution costs) as a percentage of sales rose
to 24.5 percent in 1994 as compared with 22.7 percent in 1993 (22.1 percent
excluding OSi). Fixed manufacturing and distribution costs, excluding OSi,
remained level versus 1993, notwithstanding the year-to-year increases in
volume.
Selling, administration and other expenses (SA&O) continued their
downward trend as the corporation benefited from its ongoing cost
reduction/work process improvement programs. SA&O decreased nearly 15 percent
in 1994 (a 10 percent decline excluding OSi from the 1993 totals) and
represented less than two-thirds of 1990 spending levels. Research and
development expenses increased 5 percent (excluding OSi) as a result of a
number of new developmental projects, including the ethylene/propylene rubber
program.
Operating profit in 1994 increased to $551 million from $297 million in
1993. Nonrecurring gains in 1994 of $81 million on the sale of a manufacturing
site and distribution terminal in Hong Kong and $24 million on the sale of the
corporation's preferred stock investment in its former OSi business offset
charges of $24 million on the write-down and sale of the corporation's
stockholding in Union Carbide India Limited, a $12 million loss on the sale of
interests in a uranium mill and mines, and $74 million of litigation costs and
other costs related to divested operations.
1993 Compared with 1992
Sales revenues fell 5 percent from 1992 levels to $4.640 billion, largely
a result of the sale of the OSi business in midyear 1993. The impact of a
slight improvement in overall volume, excluding the OSi business, was offset
by weaker pricing, particularly in ethylene glycol and polyethylene.
The corporation's variable margin as a percentage of sales rose slightly
in 1993 to 45.6 percent, from 45.5 percent in 1992. Weaker pricing in
commodity product lines and the absence of margins from the OSi business in
the second half of 1993 were offset by strong licensing results as well as
reduced feedstock costs. The corporation's gross margin as a percentage of
sales was 22.7 percent in 1993, the same as in 1992. After excluding the
effect of the OSi sale, fixed manufacturing costs decreased 1 percent versus
the prior year, more than offsetting inflation.
SA&O continued to decline as a result of ongoing cost reduction/work
process improvement programs. In 1993 SA&O totaled $340 million, down 11
percent compared with 1992 (a 5 percent decline excluding the OSi sale).
Excluding OSi, research and development expenses declined modestly compared
with 1992. In general, the corporation sought to use work process initiatives
to improve research and development productivity rather than increasing
expenditures.
Operating profit fell 8 percent in 1993 to $297 million. This included a
gain of $54 million from the sale of the OSi business and a gain of $8 million
from the sale of a corporate aircraft, offset by a charge of $46 million from
the shutdown of an ethylene oxide/glycol manufacturing facility at Montreal
East, Quebec, Canada, a loss of $9 million on the sale of Vitaphore
Corporation, a medical device company, and a loss of $9 million on the write-
down of a Canadian business.
1992 Compared with 1991
Sales of $4.872 billion were essentially flat compared with prior year
sales of $4.877 billion. The impact of increasing volumes in most product
lines, including ethylene glycol and polyethylene, was more than offset by
declining prices.
The corporation's variable margin decreased from 46.1 percent in 1991 to
45.5 percent in 1992 due to higher feedstock costs. Gross margin as a
percentage of sales increased from 22.3 percent in 1991 to 22.7 percent in
1992, due to lower fixed manufacturing costs. In addition, the corporation
realized overhead cost savings through tight cost controls and work process
improvements in concert with the profit improvement program.
Operating profit for 1992 was $324 million. This included a charge of $35
million for additional severance expense associated with the corporation's
profit improvement program, and income of $25 million from the settlement of a
patent infringement case. Operating profit for 1991 totaled $81 million,
including charges of $165 million for severance and relocation costs, joint
venture charges, legal costs and the sale and wind-down of the transformer
retrofill service business of the Unison Transformer Services subsidiary.
Below is the data contained on the bar graphs on pages 12, 13 and
14 of Management's Discussion & Analysis.
(1) Selling Price Fixed Cost (cents/pound)
1991 43.9 15.5
1992 40.7 13.8
1993 38.8 12.9
1994 38.1 11.5
(2) Variable Margin
Millions of Dollars Percent of Sales
1990 2,507 47.8
1991 2,248 46.1
1992 2,219 45.5
1993 2,116 45.6
1994 2,228 45.8
(3) Fixed Costs - Millions of Dollars
As Reported Constant 1990 Dollars
1990 1,768 1,768
1991 1,723 1,660
1992 1,649 1,545
1993 1,544 1,409
1994 1,462 1,299
(4) Total Volume Employee Productivity
(Millions of Pounds) (Thousands of Pounds per Employee)
1991 11,102 665
1992 11,968 794
1993 11,956 916
1994 12,773 1,064
(5) Manufacturing and Distribution Period Costs
As Reported Constant 1990 Dollars
1990 1,145 1,145
1991 1,158 1,116
1992 1,110 1,040
1993 1,065 972
1994 1,037 921
(6) Selling, Administration and Other Expenses
As Reported Constant 1990 Dollars
1990 466 466
1991 408 393
1992 383 359
1993 340 310
1994 290 257
Costs Relating to Protection of the Environment
Worldwide costs relating to environmental protection continue to be
significant, due primarily to increasingly 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 1994 worldwide expenses of
continuing operations related to environmental protection for compliance with
Federal, state and local laws regulating solid and hazardous wastes and
discharge of materials to air and water, as well as for waste site remedial
activities, totaled $153 million. Expenses in 1993 and 1992 were $149 million
and $150 million, respectively. In addition, worldwide capital expenditures
relating to environmental protection in 1994 totaled $57 million, compared
with $51 million and $82 million in 1993 and 1992, 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 arranged for treatment or disposal of hazardous
substances. The corporation is also undertaking environmental investigation
and remediation projects at hazardous waste sites located on property
currently and formerly owned by the corporation pursuant to Superfund, as well
as to the Resource Conservation and Recovery Act and equivalent state laws.
There are approximately 130 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, 1994, the corporation's accruals for environmental
remediation totaled $297 million ($265 million in 1993). Approximately 46
percent of the accrual pertains to closure and postclosure costs for both
operating and closed facilities. Additionally, environmental loss
contingencies of $147 million in excess of amounts accrued existed at Dec. 31,
1994 ($115 million in 1993).
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 1994 dollars, should average about $152 million
annually over the next 5 years.
Worldwide capital expenditures for environmental protection, also
expressed in 1994 dollars, are expected to average about $53 million annually
over the same period. Management anticipates that future annual costs for
environmental protection after 1999 will continue at levels comparable to the
5-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 5-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. However, such excess costs, if
any, could have a material adverse effect on consolidated results of
operations in a given quarter or year.
Litigation
The corporation and its consolidated subsidiaries are involved in a
number of legal proceedings and claims with both private and governmental
parties. These cover a wide range of matters, including, but not limited to,
product liability; governmental regulatory proceedings; health, safety and
environmental matters; employment; patents; contracts and taxes. In addition,
the corporation is one of a number of defendants named in an increasing number
of lawsuits, some of which have more than one plaintiff, involving silicone
gel breast implants. The corporation supplied bulk silicone materials to
certain companies that at various times were involved in the manufacture of
breast implants. These cases are discussed in more detail in the Commitments
and Contingencies note to the financial statements. 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 in
the future.
Interest Expense
Interest expense rose $10 million in 1994 to $80 million due to rising
interest rates. In 1993 interest expense totaled $70 million, a decrease of
$76 million from 1992. The decrease resulted primarily from reduction and
refinancing of debt and benefits of lower rates from interest rate hedging
activity.
Partnerships and Corporate Joint Ventures
The corporation has for many years participated in a number of businesses
through 50 percent-owned partnerships and corporate joint ventures. On a
combined basis, the unconsolidated sales of these entities exceeded $2.8
billion in 1994. The most significant of these businesses include:
Partnerships:
UOP - a worldwide supplier of process technology catalysts, molecular sieves
and adsorbents.
Petromont - a Canadian polyolefins producer.
Union Carbide/Shell Polypropylene - a U.S.-based producer of specialty
polypropylene and licenser of polypropylene technology.
World Ethanol - a U.S.-based supplier of ethanol.
Corporate Joint Ventures:
UCAR International - a worldwide supplier of carbon and graphite electrodes
and carbon specialties. Effective Jan. 26, 1995, the corporation's ownership
interest in UCAR International was reduced to 25 percent.
Nippon Unicar - a Japan-based producer of commodity and specialty polyolefins.
Following is a summary of partnership and corporate joint venture results
for the past 3 years.
Dollar amounts in millions Partnerships Corporate Joint Ventures
1994 1993 1992 1994 1993 1992
Combined sales $1,616 $1,445 $1,527 $1,206 $1,144 $1,061
UCC share of
partnership income 98 67 60 - - -
UCC share of net income
(loss)of corporate
joint ventures - - - 55 16 (14)
UCC share of dividends
and distributions 83 82 64 45 10 -
Partnership income increased during the 3-year period, largely due to
improved results from the polyethylene and polypropylene partnerships.
Earnings from UOP, our largest partnership, remained relatively stable over
the period. The significant improvement in UCC share of net income of
corporate ventures was largely due to improved results from UCAR.
On Dec. 31, 1994, the corporation and Elf Atochem of Paris concluded the
formation of a new partnership to produce and sell specialty polyolefins in
Europe. The corporation has also announced a planned joint venture with
Petrochemical Industries of Kuwait to produce ethylene, polyethylene and
ethylene oxide/glycol in Kuwait, as well as approval of the formation, subject
to European Union approval, of a joint venture with EniChem of Italy to
produce ethylene and polyethylene in Italy, France and Germany. In addition,
in late 1994, a new joint venture with Mitsui of Japan and Far Eastern Textile
Limited of Taiwan started up a 660 million-pound-per-year-capacity ethylene
glycol plant in Alberta, Canada.
Provision for Income Taxes
The effective tax rate for 1994 decreased to 29.1 percent from 34.4
percent in 1993 as a result of lower taxes for operations outside the U.S.
(1993 was unusually high due to taxes provided on the sale of certain OSi
international subsidiaries) and a reduction for state and local income taxes.
The corporation's tax rate of 25.3 percent in 1992 reflected research and
development credits, foreign sales corporation benefits, reduced taxes from
joint venture partnerships and income from foreign affiliates taxed at lower
than statutory rates.
Income from Discontinued Operations
Income from discontinued operations for 1992 included the net income of
Praxair for the first six months of 1992, prior to the June 30 spin-off. At
that time Praxair became a separate public company.
Accounting Changes
In 1994 the corporation adopted FAS 115, "Accounting for Certain
Investments in Debt and Equity Securities." The effect of the adoption was
immaterial. In 1993 the corporation recorded a noncash after-tax charge of $97
million as a result of adopting FAS 112. The charge represents the cumulative
effect of the accounting standard and is set forth separately in the
Consolidated Statement of Income. In 1992 the corporation recorded a noncash
after-tax charge of $360 million as a result of adopting FAS 106 and a tax
charge of $1 million as a result of adopting FAS 109.
LIQUIDITY, CAPITAL RESOURCES AND OTHER FINANCIAL DATA
Cash Flow from Operations
Cash flow from operations increased by $104 million to $561 million in
1994, as compared with 1993, primarily due to a significant increase in
operating earnings partially offset by working capital increases consistent
with increased sales.
Cash Flow from (Used for) Investing
Cash flow from (used for) investing includes capital expenditures,
investments, proceeds from the sale of assets and businesses and net cash
received from Praxair.
Capital expenditures totaled $409 million in 1994, compared with $395
million in 1993 and $359 million in 1992. Major domestic capital projects in
1994 include the UNIPOL II unit at Taft (Star Plant), La., the butanol unit at
Taft, La., a bulk chemicals storage facility in Bedford Park, Ill., and the
TRITON surfactants unit at the South Charleston, W.Va., facility.
Over the past 3 years, 34 percent of capital expenditures was directed at
new capacity, 48 percent to cost reduction and replacement, and 18 percent to
environmental, safety and health facilities. Of these expenditures, 90 percent
were in the U.S. and Puerto Rico.
Investments during 1994 totaling $16 million included a $26 million
investment in a Brazilian ethylene company and a return of investment of $30
million from a financing affiliate. Investments during 1993 totaled $39
million, including a $13 million investment in Petromont. Investments in 1992
included $30 million to a financing affiliate.
Proceeds from sale of fixed and other assets in 1994 of $138 million
include $84 million from the sale of the Hong Kong terminal property and $13
million from the divestiture of the corporation's specialty electronic
materials business and its interest in a Zimbabwe mining and smelting
operation. Proceeds from the sale of investments included $86 million from the
sale of the corporation's preferred stock investment in OSi.
In 1993 proceeds from the sale of fixed and other assets included $220
million related to the sale of the OSi business and $18 million from the sale
of a corporate aircraft. In 1992 proceeds included receipt of $50 million from
a licensee in settlement of a receivable and $9 million relating to the sale
of an aircraft. Proceeds from the sale of investments in 1992 included $44
million from the sale of the corporation's investment in a casualty insurance
company, $32 million from the sale of a Canadian investment and $17 million
from the remaining interest in KEMET Electronics.
At Dec. 31, 1994, the cost of completing authorized construction projects
was estimated to be $406 million, of which $30 million is covered by firm
commitments. Future construction expenditures are anticipated to be sourced
through operating cash flows and borrowings.
During 1995 the corporation will make significant investments in joint
ventures. The cost of these investments is expected to be funded from
operating cash flows as well as proceeds from the UCAR transaction.
Cash Flow Used for Financing
Cash flow used for financing includes stockholder dividends, funds used
to buy back common stock and debt reduction, offset in part by proceeds from
sales of common stock pursuant to the corporation's dividend reinvestment plan
and its employee savings and incentive programs.
Cash flow used for financing in 1994 totaled $360 million compared to
$378 million in 1993 and $1.041 billion in 1992. Over the past 3 years, cash
totaling $1.233 billion was used to reduce debt to its present level of $946
million. In addition, pursuant to resolutions of the board of directors, the
corporation has periodically repurchased shares of its common stock. In 1994,
11.6 million shares were repurchased for $337 million at an average effective
price of $29.03 per share. In the previous year, 3.7 million shares were
repurchased for $70 million at an average effective price of $18.87 per share.
On Nov. 4, 1994, the corporation entered into 2 new credit agreements
with a group of banks, replacing an existing $600 million agreement. One of
the new agreements provides the corporation with $1 billion in credit for the
next 5 years, and the other agreement provides $200 million for 364 days.
Several options are available to borrow at various rates on a revolving basis.
At Dec. 31, 1994, there were no outstanding borrowings under the credit
agreements.
Debt Ratios
Total debt outstanding at year-end for the past 3 years was:
Dollar amounts in millions 1994 1993 1992
Domestic $862 $895 $1,274
International 84 71 197
Total $946 $966 $1,471
Year-end ratios of total debt to total capital were:
1994 1993 1992
Debt ratio 38.2% 40.3% 54.3%
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 UCC stockholders'
equity.
Quarterly Data
Union Carbide Corporation and Subsidiaries
Millions of dollars 1Q 2Q 3Q 4Q Year
1994
Net sales $1,126 $ 1,177 $1,252 $1,310 $4,865
Cost of sales 856 906 953 958 3,673
Gross profit 270 271 299 352 1,192
Depreciation and amortization 67 67 69 71 274
Net income 63 73 96 157 389
Net income - common stockholders 61 70 94 154 379
1993
Net sales $1,193 $1,244 $1,130 $1,073 $4,640
Cost of sales 892 969 889 839 3,589
Gross profit 301 275 241 234 1,051
Depreciation and amortization 76 68 66 66 276
Net income before accounting change 42 41 38 44 165
Cumulative effect of change in
accounting principle (97) - - - (97)
Net income (loss) - common
stockholders (57) 38 36 41 58
Dollars per common share 1Q 2Q 3Q 4Q Year
1994
Primary net income $ 0.39 $ 0.44 $ 0.61 $ 1.01 $ 2.44
Fully diluted net income 0.37 0.42 0.57 0.93 2.27
Cash dividends 0.1875 0.1875 0.1875 0.1875 0.75
Market price - high(a) 26.13 28.63 35.88 35.13 35.88
Market price - low(a) 21.75 21.50 26.00 26.38 21.50
1993
Primary income from continuing
operations $ 0.28 $ 0.24 $ 0.23 $ 0.26 $ 1.00
Cumulative effect of change in
accounting principle (0.69) - - - (0.64)
Primary net income (loss) (0.41) 0.24 0.23 0.26 0.36
Fully diluted net income(b) - 0.24 0.22 0.25 -
Cash dividends 0.1875 0.1875 0.1875 0.1875 0.75
Market price - high(a) 18.00 20.63 19.50 23.13 23.13
Market price - low(a) 16.00 17.63 17.63 19.25 16.00
a) Prices are based on New York Stock Exchange Composite Transactions.
b) Fully diluted per share amounts are not presented where amounts are
antidilutive.
Selected Financial Data
Union Carbide Corporation and Subsidiaries
Dollar amounts in millions (except per share figures),
year ended December 31,(a) 1994 1993 1992
From the Income Statement
Net sales $4,865 $4,640 $4,872
Cost of sales 3,673 3,589 3,764
Research and development 136 139 155
Selling, administration and other expenses 290 340 383
Depreciation and amortization 274 276 293
Interest on long-term and short-term debt 80 70 146
Partnership income (loss) 98 67 60
Pre-tax income (loss) from continuing operations 471 227 178
Provision (credit) for income taxes 137 78 45
UCC share of net income (loss) from
corporate investments carried at equity 55 16 (14)
Income (loss) from continuing operations 389 165 119
Income from discontinued operations - - 67
Cumulative effect of change in accounting
principles - (97) (361)
Net income (loss) - common stockholders 379 58 (187)
Per common share
Primary - Income (loss) from
continuing operations $ 2.44 $ 1.00 $ 0.76
- Net income (loss) 2.44 0.36 (1.46)
Fully diluted(b) - Income from
continuing operations $ 2.27 $ - $ -
- Net income 2.27 - -
From the Balance Sheet (At Year-End)
Net current assets of continuing operations $ 329 $ 233 $ 66
Total assets 5,028 4,689 4,941
Long-term debt 899 931 1,113
Other long-term obligations 537 378 277
Total capital 2,479 2,395 2,710
UCC stockholders' equity 1,509 1,428 1,238
UCC stockholders' equity per common share 10.45 9.49 9.32
Other Data
Cash dividends on common stock $ 113 $ 110 $ 114
Cash dividends per common share 0.75 0.75 0.875
Special distribution per common share - - 15.875
Market price per common share - high(c) 35.88 23.13 17.13(d)
Market price per common share - low(c) 21.50 16.00 10.88(d)
Common shares outstanding (thousands) 144,412 150,548 132,865
Capital expenditures 409 395 359
Employees - continuing operations 12,004 13,051 15,075
Selected Financial Ratios
Total debt/total capital 38.2% 40.3% 54.3%
Return on capital(e) 18.0% 7.7% 6.9%
Income from continuing operations/
average UCC stockholders' equity 26.5% 12.4% 6.8%
Cash dividends on common stock/income
from continuing operations 29.0% 66.7% 95.8%
Dollar amounts in millions (except per share figures),
year ended December 31,(a) 1991 1990
From the Income Statement
Net sales $4,877 $5,238
Cost of sales 3,787 3,876
Research and development 157 157
Selling, administration and other expenses 408 466
Depreciation and amortization 287 278
Interest on long-term and short-term debt 228 269
Partnership income (loss) (22) 70
Pre-tax income (loss) from continuing operations (147) 365
Provision (credit) for income taxes (50) 130
UCC share of net income (loss) from
corporate investments carried at equity (21) (42)
Income (loss) from continuing operations (116) 188
Income from discontinued operations 107 120
Cumulative effect of change in accounting principles - -
Net income (loss) - common stockholders (28) 308
Per common share
Primary - Income (loss) from
continuing operations $(1.06) $ 1.34
- Net income (loss) (0.22) 2.19
Fully diluted(b) - Income from
continuing operations $ - $ 1.34
- Net income - 2.13
From the Balance Sheet (At Year-End)
Net current assets of continuing operations $ 209 $ 7
Total assets 6,826 7,389
Long-term debt 1,160 2,058
Other long-term obligations 428 357
Total capital 4,694 5,338
UCC stockholders' equity 2,239 2,373
UCC stockholders' equity per common share 17.55 18.88
Other Data
Cash dividends on common stock $ 126 $ 138
Cash dividends per common share 1.00 1.00
Special distribution per common share - -
Market price per common share - high(c) 22.63 24.88
Market price per common share - low(c) 15.13 14.13
Common shares outstanding (thousands) 127,607 125,674
Capital expenditures 400 381
Employees - continuing operations 16,705 17,722
Selected Financial Ratios
Total debt/total capital 52.0% 54.0%
Return on capital(e) - 8.4%
Income from continuing operations/
average UCC stockholders' equity - 7.9%
Cash dividends on common stock/income
from continuing operations - 73.4%
Dollar amounts in millions (except per share figures),
year ended December 31,(a) 1989 1988
From the Income Statement
Net sales $5,613 $5,525
Cost of sales 3,909 3,696
Research and development 143 124
Selling, administration and other expenses 442 394
Depreciation and amortization 261 255
Interest on long-term and short-term debt 268 172
Partnership income (loss) 82 95
Pre-tax income (loss) from continuing operations 780 978
Provision (credit) for income taxes 257 381
UCC share of net income (loss) from
corporate investments carried at equity 27 33
Income (loss) from continuing operations 530 608
Income from discontinued operations 43 54
Cumulative effect of change in accounting principles - -
Net income (loss) - common stockholders 573 662
Per common share
Primary - Income (loss) from
continuing operations $ 3.76 $ 4.48
- Net income (loss) 4.07 4.88
Fully diluted(b) - Income from
continuing operations $ 3.63 $ 4.29
- Net income 3.92 4.66
From the Balance Sheet (At Year-End)
Net current assets of continuing operations $ 22 $ 14
Total assets 7,355 7,327
Long-term debt 2,060 2,271
Other long-term obligations 572 594
Total capital 5,319 4,805
UCC stockholders' equity 2,383 1,836
UCC stockholders' equity per common share 16.83 13.34
Other Data
Cash dividends on common stock $ 140 $ 155
Cash dividends per common share 1.00 1.15
Special distribution per common share - -
Market price per common share - high(c) 33.25 28.38
Market price per common share - low(c) 22.75 17.00
Common shares outstanding (thousands) 141,578 137,602
Capital expenditures 483 380
Employees - continuing operations 18,032 17,258
Selected Financial Ratios
Total debt/total capital 49.9% 56.1%
Return on capital(e) 21.2% 24.5%
Income from continuing operations/
average UCC stockholders' equity 25.1% 39.4%
Cash dividends on common stock/income
from continuing operations 26.4% 25.5%
<FN>
a) The OrganoSilicon business was included in the results of the corporation
until its sale in July 1993. b) Fully diluted per share amounts are not
presented where amounts are antidilutive. c) Prices are based on New York
Stock Exchange Composite Transactions. d) On June 30, 1992, the corporation
completed the spin-off of Praxair, distributing to holders of common stock one
share of Praxair common stock for each share of UCC common stock. The high and
low presented in the table for 1992 represent the value of the common stock
after the spin-off. The high for the year before the spin-off was $29.63; the
low before the spin-off was $20.13. e) 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 from minority
interests. Capital consists of the components described below, adjusted for
the corporation's Praxair-related assets and the cumulative effect of the
changes in accounting principles.
Total debt consists of short-term debt, long-term debt and current portion of
long-term debt. Total capital consists of total debt plus minority
stockholders' equity in consolidated subsidiaries and UCC stockholders'
equity.
Consolidated Statement of Income
Union Carbide Corporation and Subsidiaries
Millions of dollars (except per share figures), year ended December 31, 1994 1993 1992
Net Sales $4,865 $4,640 $4,872
Cost of sales, exclusive of depreciation and amortization
shown separately below 3,673 3,589 3,764
Research and development 136 139 155
Selling, administration and other expenses 290 340 383
Depreciation and amortization 274 276 293
Interest on long-term and short-term debt 80 70 146
Partnership income 98 67 60
Other expense - net 39 66 13
Income Before Provision for Income Taxes - Continuing Operations 471 227 178
Provision for income taxes 137 78 45
Income of Consolidated Companies - Continuing Operations 334 149 133
Plus: UCC share of net income (loss) from
corporate investments carried at equity 55 16 (14)
Income from Continuing Operations $ 389 $ 165 $ 119
Income from discontinued operations, net of income taxes and
minority interest - - 67
Net Income Before Cumulative
Effect of Change in Accounting Principles $ 389 $ 165 $ 186
Cumulative effect of change in accounting principles - (97) (361)
Net Income (Loss) 389 68 (175)
Preferred stock dividends, net of income taxes 10 10 12
Net Income (Loss) - Common Stockholders $ 379 $ 58 $ (187)
Earnings per Common Share
Primary - Income from continuing operations $ 2.44 $ 1.00 $ 0.76
- Income from discontinued operations $ - $ - $ 0.51
- Cumulative effect of change in accounting principles $ - $(0.64) $(2.73)
- Net income (loss) - common stockholders $ 2.44 $ 0.36 $(1.46)
Fully diluted(a) $ 2.27 $ - $ -
Cash Dividends Declared per Common Share $ 0.75 $ 0.75 $0.875
<FN>
a) Fully diluted per share amounts are not presented where amounts are antidilutive.
The Notes to Financial Statements on pages 24 through 36 should be read in conjunction with this
statement.
Consolidated Balance Sheet
Union Carbide Corporation and Subsidiaries
Millions of dollars at December 31, 1994 1993
Assets
Cash and cash equivalents $ 109 $ 108
Notes and accounts receivable 898 689
Inventories 390 385
Prepaid expenses 217 247
Total Current Assets 1,614 1,429
Property, plant and equipment 5,889 5,626
Less: Accumulated depreciation 3,347 3,206
Net Fixed Assets 2,542 2,420
Companies carried at equity 418 437
Other investments and advances 88 137
Total Investments and Advances 506 574
Other assets 366 266
Total Assets $5,028 $4,689
Liabilities and Stockholders' Equity
Accounts payable $ 326 $ 310
Short-term debt 28 24
Payments to be made within 1 year on long-term debt 19 11
Accrued income and other taxes 179 189
Other accrued liabilities 733 662
Total Current Liabilities 1,285 1,196
Long-term debt 899 931
Postretirement benefit obligation 488 489
Other long-term obligations 537 378
Deferred credits 242 230
Minority stockholders' equity in consolidated subsidiaries 24 1
Convertible preferred stock - ESOP 148 150
Unearned employee compensation - ESOP (104) (114)
UCC stockholders' equity
Common stock
Authorized - 500,000,000 shares
Issued - 154,609,669 shares 155 155
Additional paid-in capital 369 366
Equity adjustment from foreign currency translation (59) (84)
Retained earnings 1,333 1,067
1,798 1,504
Less: Treasury stock, at cost - 10,197,367 shares
(4,062,189 in 1993) 289 76
Total UCC Stockholders' Equity 1,509 1,428
Total Liabilities and Stockholders' Equity $5,028 $4,689
The Notes to Financial Statements on pages 24 through 36 should be read in
conjunction with this statement.
Consolidated Statement of Cash Flows
Union Carbide Corporation and Subsidiaries
Increase (Decrease) in Cash and Cash Equivalents
Millions of dollars, year ended December 31, 1994 1993 1992
Operations
Income from continuing operations $ 389 $ 165 $ 119
Noncash charges (credits) to net income
Depreciation and amortization 274 276 293
Deferred income taxes 31 (34) (44)
Other noncash charges 88 65 8
Investing debits to net income (100) (52) (59)
Working capital(a) (151) (9) 2
Long-term assets and liabilities 30 46 (39)
Cash Flow from Operations 561 457 280
Investing
Capital expenditures (409) (395) (359)
Investments (16) (39) (69)
Sale of investments 87 29 101
Sale of fixed and other assets 138 266 132
Net cash transferred from Praxair, Inc. - - 1,066
Cash Flow from (Used for) Investing (200) (139) 871
Financing
Change in short-term debt (3 months or less) 8 (263) (260)
Proceeds from short-term debt 43 - 203
Repayment of short-term debt (48) (36) (222)
Proceeds from long-term debt 18 320 324
Repayment of long-term debt (36) (262) (1,022)
Issuance of common stock 111 57 73
Purchase of common stock (337) (70) -
Repurchase of convertible preferred stock - - (202)
Repayment of loan by ESOP - - 202
Payment of dividends (126) (124) (130)
Other 7 - (7)
Cash Flow Used for Financing (360) (378) (1,041)
Effect of exchange rate changes on cash
and cash equivalents - (3) (3)
Change in cash and cash equivalents 1 (63) 107
Cash and cash equivalents beginning-of-year 108 171 64
Cash and Cash Equivalents End-of-Year $ 109 $ 108 $ 171
Cash Paid for Interest and Income Taxes
Interest (net of amount capitalized) $ 89 $ 67 $ 174
Income taxes $ 74 $ 44 $ 59
a) Net change in working capital by component (excluding cash and cash
equivalents, and due from Praxair, deferred income taxes and short-term
debt):
1994 1993 1992
(Increase) decrease in current assets
Notes and accounts receivable $ (206) $ 5 $ 73
Inventories (22) 11 71
Prepaid expenses (19) 16 (13)
Increase (decrease) in payables and accruals 96 (41) (129)
Working capital $ (151) $ (9) $ 2
The Notes to Financial Statements on pages 24 through 36 should be read in
conjunction with this statement.
Consolidated Statement of Stockholders' Equity
Union Carbide Corporation and Subsidiaries
1994 1993 1992
Shares Millions Shares Million Shares Millions
(in thousands) of dollars (in thousands) of dollars (in thousands) of dollars
Common Stock
Balance at January 1 154,610 $ 155 135,513 $ 136 130,256 $ 130
Issued:
For the Dividend Reinvestment
and Stock Purchase Plan - 134 - 483 1
For employee savings
and incentive plans - 2,463 2 4,742 5
Conversion of debentures - 16,500 17 32 -
Balance at December 31 154,610 $ 155 154,610 $ 155 135,513 $ 136
Additional Paid-in Capital
Balance at January 1 $ 366 $ 100 $ 33
Proceeds from the sale of put options 3 1 -
Reclassification of put option obligations (3) (2) -
Issued:
For the Dividend Reinvestment and
Stock Purchase Plan 1 2 9
For employee savings and incentive plans 2 19 58
Conversion of debentures - 246 -
Balance at December 31 $ 369 $ 366 $ 100
Equity Adjustment from Foreign
Currency Translation
Balance at January 1 $ (84) $ (71) $ (8)
Translation and other adjustments 7 (11) (47)
Praxair spin-off - - (16)
Sale of businesses 18 (2) -
Balance at December 31 $ (59) $ (84) $ (71)
Retained Earnings
Balance at January 1 $1,067 $1,119 $2,130
Net income (loss) - common stockholders 379 58 (187)
Dividends on spin-off of Praxair - - (710)
Cash dividends on common stock (113) (110) (114)
Balance at December 31 $1,333 $1,067 $1,119
Less: Treasury Stock
Balance at January 1 4,062 $ 76 2,649 $ 46 2,649 $ 46
Common Stock repurchase program 11,624 337 3,688 71 - -
Issued:
For the Dividend Reinvestment and
Stock Purchase Plan (275) (6) (322) (6) - -
For employee savings and incentive plans (5,214) (118) (1,953) (35) - -
Balance at December 31 10,197 $ 289 4,062 $ 76 2,649 $ 46
Total Stockholders' Equity $1,509 $1,428 $1,238
<FN>
The Notes to Financial Statements on pages 24 through 36 should be read in conjunction with this statement.
Notes to Financial Statements
1. Summary of Significant Accounting Policies
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 companies and partnerships are carried at equity in net
assets. Other investments are carried generally at cost.
On April 27, 1994, stockholders voted to approve the merger of Union
Carbide Corporation (UCC) 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 changed its name to Union Carbide
Corporation.
Accounting and Reporting Changes - Effective Jan. 1, 1994, the corporation
adopted Financial Accounting Standard (FAS) 115, "Accounting for Certain
Investments in Debt and Equity Securities." The effect of the adoption of FAS
115 was immaterial. Effective Jan. 1, 1993, the corporation adopted FAS 112,
"Employers' Accounting for Postemployment Benefits." The cumulative effect of
the change in the method of accounting for postemployment benefits is reported
in the 1993 Consolidated Statement of Income. Effective Jan. 1, 1992, the
corporation adopted FAS 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions," and FAS 109, "Accounting for Income Taxes." The
cumulative effects of the changes in the method of accounting for
postretirement benefits and income taxes are reported in the 1992 Consolidated
Statement of Income.
Foreign Currency Translation - Unrealized gains and losses resulting from
translating foreign subsidiaries' assets and liabilities into U.S. dollars
generally are accumulated in an equity account on the balance sheet until such
time as the subsidiary is sold or substantially or completely liquidated,
except for Latin America. Translation gains and losses relating to operations
located in Latin American countries, where hyperinflation exists, are included
in the income statement until hyperinflation ceases.
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 swap agreements and forward rate agreements (FRAs)
that hedge debt accrue and are recognized over the lives of the agreements.
Gains and losses on foreign currency forward contracts and foreign currency
options used to hedge firm commitments are deferred and recognized as part of
the related foreign currency transactions.
Interest rate swaps and FRAs, which are designated to offset earnings
fluctuations due to cyclical business conditions, and foreign currency forward
contracts, which are designated to offset earnings fluctuations from
anticipated foreign currency cash flows, are marked to market and the results
recognized immediately as other income or other expense.
Cash Equivalents - The corporation considers as cash equivalents all highly
liquid investments that are readily convertible to known amounts of cash and
are so near their maturity that they present insignificant risk of changes in
value because of changes in interest rates.
Inventories - Inventories are stated at cost or market, whichever is lower.
These amounts do not include depreciation and amortization, the impact of
which is not significant to the financial statements.
Approximately 65 percent of inventory amounts before application of the
LIFO method at Dec. 31, 1994 (66 percent at Dec. 31, 1993) 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 $275 million and $287 million higher than reported at
Dec. 31, 1994, and Dec. 31, 1993, 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 and
newly acquired businesses in excess of the fair value of the net assets of
such businesses have been charged to patents, trademarks and goodwill. The
portion of such amounts determined to be attributable to patents is amortized
over their remaining lives, while trademarks and goodwill are amortized over
the estimated period of benefit, generally 5 to 20 years.
Research and Development - Research and development costs are charged to
expense as incurred. Depreciation expense applicable to research and
development facilities and equipment is included in Depreciation and
amortization in the Consolidated Statement of Income ($13 million in 1994, $12
million in 1993 and $13 million in 1992).
Income Taxes - Provisions have been made, pursuant to FAS 109, 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.
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.
Pursuant to FAS 106, the cost of postretirement benefits are recognized
on the accrual basis over the period in which employees become eligible for
benefits.
Earnings per Common Share - Primary earnings per common share is computed by
dividing net income (loss) - common stockholders, excluding tax benefits
related to unallocated preferred stock dividends, by the weighted average
number of common shares outstanding during the year and common stock
equivalents related to dilutive stock options. Fully diluted earnings per
common share is computed by dividing adjusted net income (loss) - common
stockholders by the weighted average number of common shares outstanding,
common stock equivalents related to dilutive stock options, and common shares
issuable upon conversion of debentures and convertible preferred stock.
2. 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, 1994 and 1993,
the carrying amounts approximate fair value because of the short maturity of
these instruments. The corporation had foreign currency forward contracts of
$67 million at Dec. 31, 1994, hedging fluctuations in short-term foreign
currency receivables and payables by offsetting the effects of currency
changes in these accounts. Deferred gains and losses on these contracts are
not material.
Investments - The corporation's investments in equity companies, partnerships
and other businesses generally involve joint ventures for which it is not
practicable to determine fair values. The corporation purchased a currency
option ($50 million notional amount, expiring March 1995) to hedge partially a
committed foreign currency transaction related to an investment in a joint
venture.
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 value
of $200 million and $96 million reported in the Consolidated Balance Sheet at
Dec. 31, 1994 and 1993, respectively.
Debt - The corporation uses various types of financial instruments to manage
exposure to financial market risk caused by interest rate fluctuations. Such
instruments include interest rate swaps and FRAs. See Note 10 for a discussion
of debt instruments.
Other Financial Instruments - Interest rate swaps and FRAs, which were
designated to offset earnings fluctuations due to cyclical business
conditions, were carried at fair market value. At Dec. 31, 1993, the net
notional amount of interest rate swaps was $615 million and the net notional
amount of related FRAs was $1.3 billion. In the first half of 1994, as the
risk of cyclically higher interest rates increased, the corporation unwound
its positions in these instruments, resulting in a before-tax charge to Other
expense - net of $9 million.
Outstanding foreign currency forward contracts used as a means of
offsetting earnings fluctuations from anticipated foreign currency cash flows
totaled $182 million at Dec. 31, 1994 ($269 million at Dec. 31, 1993). During
1994 their fair values averaged a $1 million loss. Total net losses associated
with these contracts were $6 million.
Carrying and Fair Values - The carrying values and fair values of the
corporation's investments, receivables and debt financial instruments at Dec.
31, 1994 and 1993 are summarized in the table below. Fair values are based on
quoted market values, where available, or discounted cash flows (principally
long-term debt). Individually and in total, other derivative positions,
interest rate swaps, FRAs and open forward currency contracts and options had
a nominal carrying amount and fair value. Put stock options on equity
securities are discussed in Note 12.
At December 31, 1994 1993
Millions of dollars
Carrying Fair Carrying Fair
Assets (liabilities) Amount Value Amount Value
Investments and receivables $ 288 $ 288 $ 233 $ 237
Debt(a)
Short and long-term debt $(946) $(896) $(966) $(991)
Debt-related derivative
instruments -
Swap positions - (1) - 30
FRA positions - - - 2
Net debt $(946) $(897) $(966) $(959)
a) See Note 10.
3. Geographic Segment Information
Millions of dollars
Net Sales 1994 1993 1992
United States & Puerto Rico(a) $3,535 $3,443 $3,529
Canada 136 130 137
Europe 474 454 550
Latin America 218 241 222
Far East & Other 502 372 434
International operations 1,330 1,197 1,343
Total UCC Consolidated $4,865 $4,640 $4,872
a) Includes export sales of $532 million in 1994 ($604 million in 1993 and
$560 million in 1992).
Operating Profit (Loss)(a) 1994 1993 1992
United States & Puerto Rico $ 433 $ 299 $ 285
Canada 14 (53) (16)
Europe 12 18 13
Latin America 16 6 8
Far East & Other 74(b) 28 31
International operations 116 (1) 36
Inter-segment eliminations 2 (1) 3
Total Operating Profit $ 551 $ 297 $ 324
Less: Interest Expense (80) (70) (146)
Income Before Provision
for Income Taxes $ 471 $ 227 $ 178
a) Due to the merger between UCC & UCC&P (see Note 1), operating profit is
calculated on a total consolidated basis; prior years' totals have been
restated to reflect this change.
b) Includes an $81 million gain on the sale of a manufacturing facility and
distribution terminal in Hong Kong and a $24 million charge from the write-
down and sale of the corporation's stockholding in Union Carbide India
Limited.
Identifiable Assets 1994 1993 1992
United States & Puerto Rico $3,777 $3,579 $3,575
Canada 259 263 367
Europe 305 255 316
Latin America 203 140 151
Far East & Other 272 210 213
International operations 1,039 868 1,047
Inter-segment eliminations (7) (28) (53)
Total Identifiable Assets $4,809 $4,419 $4,569
Other 219 270 372
Total Assets $5,028 $4,689 $4,941
4. Other Expense - Net
The following is an analysis of Other expense - net:
Millions of dollars 1994 1993 1992
(Gains) losses on sales and
disposals of businesses
and other assets(a) $(67) $ 14 $(45)
Foreign currency adjustments 16 31 24
Severance - - 35
Interest income from Praxair - - (31)
Other(b) 90 21 30
$ 39 $ 66 $ 13
a) Includes for 1994 an $81 million gain on the sale of a manufacturing
facility and distribution terminal in Hong Kong; a $24 million gain on a
preferred stock investment in OSi; a $24 million charge from the write-down
and sale of the corporation's stockholding in Union Carbide India Limited; and
a $12 million loss on the sale of the corporation's interest in a uranium mill
and certain uranium mines. Includes for 1993 a $54 million gain from the sale
of OSi; a $46 million charge from the shut-down of an ethylene oxide/glycol
manufacturing facility at Montreal East, Quebec, Canada; a $9 million loss on
the sale of a medical device company; a $9 million loss on the write-down of a
Canadian business; and a gain of $8 million on the sale of a corporate
aircraft. Includes for 1992 gains of $34 million on the sale of the
corporation's investments in a casualty insurance company and $8 million on
the sale of a corporate aircraft.
b) Includes for 1994 $74 million for litigation costs and other costs related
to divested operations. Includes $7 million, $10 million and $21 million, in
1994, 1993 and 1992, respectively, related to discontinued and noncore
businesses.
5. Spin-off of Praxair, Inc.
On June 30, 1992, the corporation completed the spin-off of its industrial
gases subsidiary, Praxair, Inc. Under the terms of the spin-off, UCC
distributed to its holders of common stock 1 share of Praxair common stock and
an associated Praxair common stock purchase right for each share of UCC common
stock. The conversion prices of the corporation's convertible preferred stock
and common stock purchase rights were adjusted for the dilutive effects of the
spin-off (see Notes 11 and 12). For the first 6 months of 1992, Praxair had
sales of $1.315 billion, provision for income taxes of $43 million and net
income of $67 million.
6. Income Taxes
The following is a summary of the U.S. and non-U.S. components of Income
before provision for income taxes - continuing operations:
Millions of dollars 1994 1993 1992
Income (loss) before provision
for income taxes:
U.S. $362 $235 $147
Non-U.S. 109 (8) 31
$471 $227 $178
The following is an analysis of income tax expense:
1994 1993 1992
Millions of dollars Current Deferred Current Deferred Current Deferred
U.S. Federal income taxes $ 77 $46 $ 60 $(21) $45 $(28)
U.S. business and research and
experimentation tax credits (10) - (9) - (5) -
U.S. state and local taxes based on income 4 (2) 19 2 18 (4)
Non-U.S. income taxes 35 (13) 42 (15) 31 (12)
$106 $31 $112 $(34) $89 $(44)
Provision for Income Taxes -
Continuing Operations $137 $78 $45
The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets
and deferred tax liabilities are as follows:
1994 1993
Deferred Deferred Deferred Deferred
Millions of dollars Assets Liabilities Assets Liabilities
Depreciation and amortization $ - $354 $ - $320
Postretirement benefits other than pensions 221 - 214 -
Postemployment benefits and severance costs 25 - 62 -
Environmental and litigation 147 - 124 -
Sale/leaseback and related deferrals 45 - 47 -
Other 177 216 170 205
Gross deferred tax assets and liabilities $615 $570 $617 $525
Net Deferred Tax Asset $45 $92
Net noncurrent deferred tax liabilities of $91 million ($78 million in
1993) are included in Deferred credits in the Consolidated Balance Sheet. Net
current deferred tax assets of $129 million ($170 million in 1993) are
included in Prepaid expenses. Net noncurrent deferred tax assets of $7 million
(none in 1993) are included in Other assets. In 1994 there were $6 million in
non-U.S. net operating loss carryforwards included in the deferred tax assets
above. There were $8 million at Dec. 31, 1993, offset by a valuation allowance
of $2 million. There were no alternate minimum tax credit carryforwards in
1994 ($10 million were included in deferred tax assets in 1993).
Undistributed earnings of affiliates intended to be reinvested
indefinitely amounted to approximately $374 million at Dec. 31, 1994 ($350
million at Dec. 31, 1993). Determination of deferred taxes related to these
earnings is not practicable.
The consolidated effective income tax rate was 29.1 percent in 1994, 34.4
percent in 1993 and 25.3 percent in 1992. 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
- - continuing operations is as follows:
Percent of pre-tax income
1994 1993 1992
Tax at statutory Federal rate 35.0% 35.0% 34.0%
Taxes related to operations
outside the U.S. - 3.1 (0.4)
U.S. state and local taxes
based on income 0.2 5.7 5.6
Foreign sales corporation (2.8) (4.0) (6.7)
Business credits (2.1) (4.0) (2.8)
Other, net (1.2) (1.4) (4.4)
29.1% 34.4% 25.3%
7. Supplementary Balance Sheet Detail
Millions of dollars at December 31, 1994 1993
Notes and Accounts Receivable
Trade $ 726 $ 555
Other 183 146
909 701
Less: Allowance for doubtful accounts 11 12
$ 898 $ 689
Inventories
Raw materials and supplies $ 103 $ 104
Work in process 41 52
Finished goods 246 229
$ 390 $ 385
Property, Plant and Equipment
Land and improvements $ 296 $ 287
Buildings 351 338
Machinery and equipment 4,847 4,656
Construction in progress and other 395 345
$5,889 $5,626
Other Assets
Deferred charges $ 129 $ 126
Insurance recoveries 103 -
Long-term receivables 97 96
Patents, trademarks and goodwill 37 44
$ 366 $ 266
Other Accrued Liabilities
Accrued accounts payable $ 266 $ 213
Payrolls 61 57
Severance and relocation costs 36 94
Environmental remediation costs 62 51
Postretirement benefit obligation 34 30
Other 274 217
$ 733 $ 662
Other Long-term Obligations
Environmental remediation costs $ 235 $ 214
Product liability costs 138 35
Postemployment benefits 42 63
Other 122 66
$ 537 $ 378
Equity Adjustment from Foreign
Currency Translation
Canada $ (48) $ (38)
Europe (17) (39)
Far East & Other 6 (7)
$ (59) $ (84)
8. Interest Costs
The following is an analysis of Interest on long-term and short-term debt:
Millions of dollars 1994 1993 1992
Interest incurred on debt $ 93 $ 84 $164
Less: Interest capitalized
and other adjustments 13 14 18
$ 80 $ 70 $146
9. Companies Carried at Equity
The following are financial summaries of partnerships and 20 percent- to 50
percent-owned corporate investments carried at equity. The corporation's most
significant partnerships include UOP, Petromont and Company Limited
Partnership, World Ethanol Company and a Union Carbide/Shell polypropylene
partnership. In 1994 the corporation and Elf Atochem completed the formation
of a partnership, located in France, to produce and market specialty
polyethylene compounds for the wire and cable industry. It began operations on
Dec. 31, 1994.
Partnerships
Millions of dollars 1994 1993 1992
Net sales(a) $1,616 $1,445 $1,527
Cost of sales 954 863 902
Depreciation 51 50 59
Partnership income 229 199 194
Union Carbide Share of
Partnership Income $ 98 $ 67 $ 60
Current assets $ 494 $ 450
Noncurrent assets 735 673
Total assets $1,229 $1,123
Current liabilities $ 309 $ 248
Noncurrent liabilities 455 435
Total liabilities $ 764 $ 683
Net assets $ 465 $ 440
Union Carbide Equity $ 220 $ 234
a) Includes $209 million net sales to Union Carbide Corporation in 1994
($175 million in 1993 and $171 million in 1992).
Corporate investments carried at equity include UCAR International Inc.,
Nippon Unicar Company Limited, Alberta & Orient Glycol Company Limited and
several smaller entities.
20% - 50%
Corporate Investments
Millions of dollars 1994 1993 1992
Net sales(a) $1,206 $1,144 $1,061
Cost of sales 817 823 834
Depreciation 58 55 58
Net income (loss) 109 36 (82)(b)
Union Carbide Share
of Net Income (Loss) $ 55 $ 16 $ (14)
Current assets $ 622 $ 572
Noncurrent assets 920 879
Total assets $1,542 $1,451
Current liabilities $ 457 $ 594
Noncurrent liabilities 676 407
Total liabilities $1,133 $1,001
Net assets $ 409 $ 450
Union Carbide Equity $ 198 $ 203
a) Includes $73 million net sales to the corporation in 1994 ($46 million in
1993 and $63 million in 1992).
b) Includes $55 million after-tax charge representing UCAR's adoption of FAS
106 and FAS 109.
10. Long-Term Debt
Millions of dollars at December 31, 1994 1993
Domestic
5.30% Sinking fund debentures, with equal
annual sinking fund payments to 1997 $ - $ 25
6.75% Notes due 2003 125 125
7.00% Notes due 1999 175 175
7.875% Debentures due 2023 175 175
8.75% Debentures due 2022 125 125
Pollution control and other facility obligations 248 249
Obligations under capital leases 14 19
Other - 2
International Subsidiaries
Obligations under capital leases 39 40
Other debt - various maturities and
interest rates 17 7
918 942
Less: Payments to be made within 1 year 19 11
$899 $931
On Nov. 4, 1994, the corporation entered into 2 new credit agreements
with a group of banks, replacing an existing $600 million agreement. One of
the new agreements provides the corporation with $1 billion in credit for the
next 5 years, and the other agreement provides $200 million for 364 days.
Several options are available to borrow at various rates on a revolving basis.
At Dec. 31, 1994, there were no outstanding borrowings under the credit
agreements. Interest rates on credit agreements are floating interest rates
based on LIBOR (London Interbank Offered Rate), CD (Certificate of Deposit),
or Bank Reference Rate. There were no borrowings under the credit agreements
in 1994 and 1993.
The bank credit agreements contain covenants, normal for this type of
agreement, that place certain limits on the ability of UCC to merge with
another entity, incur debt or create liens on assets, and that require the
corporation to meet net worth, leverage and interest coverage tests. Other
indentures also restrict the corporation from incurring liens to secure debt.
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
1996 through 2023, and have an average annual effective rate of 7.3 percent.
During the first half of 1994, to reduce exposure to rising interest
rates, the corporation terminated substantially all of its interest rate swaps
and FRAs used as hedges to manage exposure to financial market risk caused by
interest rate fluctuations on debt. A net charge of $19 million ($13 million
after-tax) resulting from these terminations was deferred and is being
amortized to interest expense over the remaining terms of the underlying
instruments, which have various maturity dates through the year 2002. At Dec.
31, 1994, $16 million of the deferred loss remained, and it will be amortized
as follows: $7 million in 1995, $3 million in 1996, and the balance from 1997
through 2002.
At Dec. 31, 1994, the corporation had 2 open swap positions totaling $48
million ($625 million at Dec. 31, 1993) for which the corporation receives a
fixed rate and pays a floating rate. The corporation had no open FRAs at Dec.
31, 1994 ($1.7 billion at Dec. 31, 1993). The corporation's exposure to
counterparty creditworthiness is not material.
The average and effective interest rates in 1994 on the corporation's
fixed rate debt, other than pollution control and other facility obligations,
were 7.5 percent.
At Dec. 31, 1994, $40 million of consolidated assets were pledged as
security for $36 million of subsidiaries' debt.
Payments due on long-term debt in the 4 years following 1995 are: 1996, $20
million; 1997, $5 million; 1998, $5 million; and 1999, $180 million.
11. Convertible Preferred Stock
The Union Carbide Corporation Employee Stock Ownership Plan (ESOP) is an
integral part of the Savings Program for employees. On Jan. 1, 1991, the Trust
for the ESOP purchased 15.1 million shares of a new series of convertible
preferred stock (ESOP stock) from the corporation for $325 million. Each share
of ESOP stock is convertible into and has the same voting rights as 1 share of
the corporation's common stock, and is protected from dilution. The annual
preferred dividend is $0.794 per share.
Prior to the spin-off of Praxair in 1992, the corporation repurchased and
retired 7.5 million shares of unallocated ESOP stock from the ESOP's trustee
for $202 million, and unearned employee compensation was reduced accordingly.
Also in connection with the spin-off, approximately 1 million shares of the
ESOP stock held by individuals who became employees of Praxair were redeemed
for Union Carbide Corporation common stock.
At the date of the spin-off of Praxair, the conversion price, liquidation
price and annual preferred dividend of the ESOP stock were adjusted and a
special ESOP stock dividend of 10.5 million shares was issued so that the
interests of the ESOP stockholders were not diluted.
Substantially all full-time employees in the U.S. are eligible to
participate in the ESOP through the corporation's matching contribution of 50
percent (75 percent beginning Jan. 1, 1995) on eligible employee
contributions. At the corporation's option, ESOP shares may be redeemed either
in cash or the corporation's common stock when employees make withdrawals from
their accounts. It has been UCC's policy to redeem ESOP shares with cash.
The cost of the ESOP is recognized as incurred and was $6 million in 1994
($6 million in 1993 and $16 million in 1992). Reductions in ESOP costs in 1993
were due primarily to appreciation in the corporation's common stock and to
the spin-off of Praxair. At Dec. 31, 1994, 16.4 million preferred shares were
outstanding, 4.8 million of which were credited to employees' accounts,
including 0.8 million credited during 1994.
12. UCC Stockholders' Equity
At Dec. 31, 1994, Retained earnings included $134 million ($108 million at
Dec. 31, 1993), representing the corporation's share of undistributed earnings
of 20 percent- to 50 percent-owned companies accounted for by the equity
method. Dividends received from companies carried at equity aggregated $128
million in 1994 ($92 million in 1993 and $64 million in 1992). At Dec. 31,
1994, restrictions on the transfer of funds from consolidated subsidiaries to
the parent were not material.
In July 1989 the board of directors adopted a stockholder rights plan and
declared a dividend, payable on Aug. 31, 1989, of one Right for each
outstanding share of common stock. Each Right entitles its holder, under
certain circumstances, to buy a share of common stock at a purchase price of
$37.67 (subject to adjustment).
The Rights may not be exercised until 10 days after a person or group
acquires 20 percent or more of UCC's common stock, or announces a tender offer
that, if consummated, would result in 20 percent or more ownership of the
common stock.
Until then, separate Rights certificates will not be issued, nor will the
Rights be traded separately from the stock.
Should an acquirer become the beneficial owner of 20 percent of the
common stock, and under certain additional circumstances, Union Carbide
Corporation stockholders (other than the acquirer) would have the right to buy
common stock in Union Carbide Corporation, or in the surviving enterprise if
the corporation is acquired, having a value equal to 2 times the purchase
price of the Right then in effect.
The Rights will expire on Aug. 31, 1999, unless redeemed prior to that
date. The redemption price is $0.01 per Right. The corporation's independent
directors may redeem the Rights by a majority vote during the 10-day period
following public announcement that a person or group has acquired 20 percent
of UCC's common stock.
On July 27, 1994, the board of directors announced that it had authorized the
repurchase of an additional 10 million shares of UCC common stock, bringing to
20 million shares the total number authorized for repurchase. The repurchase
program, which began in the first quarter of 1993 with an initial
authorization of 10 million shares, was carried out to minimize future
earnings dilution due to common stock requirements under certain employee
benefit plans. Through Dec. 31, 1994, the corporation had repurchased
15,312,260 shares at an average effective price of $26.59 per share. On Feb.
6, 1995, the board of directors increased the number of shares that may be
repurchased under the program to an aggregate of 30 million shares. Additional
share repurchases under the repurchase program will be made over an unlimited
period in a manner consistent with the combination of corporate cash flow and
market conditions.
In conjunction with the corporation's common stock buyback program, put
options were sold in a series of private placements entitling the holders to
sell 4.8 million shares of common stock to UCC, at specified prices upon
exercise of the options. Since inception of this program through Dec. 31,
1994, options representing 3,663,800 common shares have expired unexercised,
and options representing 986,200 shares were exercised for $30 million, or an
average of $30.88 per share. Options representing 150,000 shares remain
outstanding at Dec. 31, 1994. Premiums received since inception of the program
have reduced the average price of repurchased shares to $26.59 per share from
$26.84 per share.
13. 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 1 year are:
Year ending Millions of dollars
1995 $ 84
1996 68
1997 67
1998 55
1999 52
Subsequent to 1999 338
Total minimum payments 664
Future sublease rentals 130
Net Minimum Rental Commitments $534
The present value of the net minimum rental commitments amounts to $335
million. Total lease and rental payments (net of sublease rental of $20
million in 1994, and $10 million in 1993 and 1992) were $65 million, $98
million and $92 million for 1994, 1993 and 1992, respectively. The corporation
is contingently required to pay certain domestic lease obligations assigned to
Praxair, in the event of Praxair's default, the present value of which totals
$21 million. If such a payment is required, the corporation has a legal right
to set off any such amounts paid against amounts it may owe to Praxair.
14. Retirement Programs
Pension Benefits
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.
Worldwide Retirement Program net pension cost applicable to continuing
operations amounted to $21 million in 1994, $20 million in 1993 and $22
million in 1992. Net pension cost for discontinued operations amounted to $8
million through June 30, 1992 (see Note 5).
The components of net pension cost for the U.S. Retirement Program and
non-U.S. plans are as follows:
Millions of dollars 1994 1993 1992(a)
Service cost - benefits
earned during the
period $ 51 $ 48 $ 61
Interest cost on
projected benefit
obligation 180 182 191
Return on plan assets
(gain) loss
- Actual $154 $(430) $(150)
- Unrecognized
return (355) (201) 229 (201) (64) (214)
Amortization of
net gain (9) (9) (8)
Net Pension Cost $ 21 $ 20 $ 30
a) Includes net pension costs for Praxair through June 30, 1992.
The funded status of the U.S. Retirement Program and non-U.S. plans was as
follows:
Millions of dollars at December 31, 1994 1993
Actuarial present value of plan benefits:
Accumulated benefit obligation,
including vested benefits
of $2,037 million at Dec. 31,
1994, and $2,261 million at
Dec. 31, 1993 $(2,150) $(2,404)
Projected benefit obligation $(2,398) $(2,652)
Fair value of plan assets, primarily
invested in common stocks and
fixed income securities $ 2,414 $ 2,747
Plan assets in excess of
projected benefit obligation $ 16 $ 95
Unamortized net asset at transition (80) (92)
Unamortized prior service cost 25 30
Unrecognized (gains) losses - net 35 (20)
Prepaid (Accrued) Pension Cost $ (4) $ 13
Pension obligations are valued using the 1983 Group Annuity Mortality
Table. The actuarial assumptions used were as follows:
1994 1993
Discount rate for determining projected
benefit obligation 8.50% 7.00%
Rate of increase in compensation levels 5.75% 4.25%
Expected long-term rate of return on
plan assets 8.50% 8.25%
Postretirement Benefits Other Than Pensions
The corporation and certain of its consolidated subsidiaries provide health
care and life insurance benefits for eligible retired employees and their
eligible dependents. These benefits are provided through various insurance
companies and health care providers.
FAS 106 was adopted in the fourth quarter of 1992, effective Jan. 1,
1992, for U.S. and international employees. The standard requires employers to
account for retiree benefit obligations on an accrual basis rather than on a
"pay-as-you-go" basis. The cumulative effect of adopting FAS 106 as of Jan. 1,
1992, resulted in a charge of $360 million to 1992 earnings, net of $205
million of income taxes ($2.72 per share).
The obligation is determined by application of the terms of health and
life insurance plans, together with relevant actuarial assumptions and health
care cost trends that are projected to increase annually at rates of 13.5
percent in 1994, 12.5 percent in 1995, reduced incrementally to 7 percent in
2004 and thereafter.
The effect of a 1 percent annual increase in the assumed health care cost
trend rates would increase the accumulated postretirement benefits obligation
at Dec. 31, 1994, by $15 million and the aggregate of service and interest
cost components of net periodic postretirement benefit costs by $2 million.
Measurement of the accumulated postretirement benefit obligation was based on
the same assumptions used in the pension calculations referred to on page 33.
During 1993 the corporation made changes to its health care programs,
principally related to plan eligibility requirements for active employees.
These changes resulted in a reduction of the accumulated postretirement
benefit obligations.
The corporation has funded postretirement benefits for certain retirees
who retired prior to Dec. 31, 1988. The funds are invested primarily in common
stocks and fixed income securities.
The following tables provide information on the status of the plans.
The components of net periodic postretirement benefit cost are as
follows:
Millions of dollars 1994 1993 1992
Service cost-benefits
earned during
the period $ 12 $ 12 $ 11
Interest cost 32 32 42
Return on plan assets
(gain) loss
- Actual $ 1 $(5) $(3)
- Unrecognized return (3) (2) 3 (2) 1 (2)
Net amortization and
deferral (21) (21) -
Net Periodic
Postretirement
Benefit Cost $ 21 $ 21 $ 51
The status of the postretirement benefit obligation was as follows:
Millions of dollars at December 31, 1994 1993
Accumulated postretirement benefit
obligations:
Retirees $354 $347
Fully eligible active plan participants 78 88
Other active plan participants 20 23
Accumulated postretirement
benefit obligations $452 $458
Fair value of plan assets (19) (26)
Accumulated postretirement benefits
in excess of plan assets 433 432
Unrecognized gains - net 89 87
Accrued Unfunded Postretirement
Benefit Obligations $522 $519
The accumulated postretirement benefit obligation for retirees is net of
$130 million at Dec. 31, 1994 ($145 million at Dec. 31, 1993) related to all
retirees, which is reimbursed to the corporation in part from Praxair and UCAR
under benefit-sharing agreements.
Deferred Compensation Plan
During 1994 the board of directors approved an unfunded, nonqualified deferred
compensation plan for certain key employees, who may defer a portion of their
gross pay beginning Jan. 1, 1995. The corporation's obligation to employees
will be 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.
Postemployment Benefits
The cumulative effect of adopting FAS 112 as of Jan. 1, 1993, resulted in a
$97 million after-tax charge to 1993 earnings ($0.64 per common share). FAS
112 requires that postemployment benefits expected to be paid before
retirement, principally severance, be accrued over employees' working lives.
This charge includes postemployment benefits based on normal year-to-year
attrition rates, giving effect to the corporation's cost reduction program as
of Jan. 1, 1993. Prior year financial statements were not restated.
15. Incentive Plans
In 1994 stockholders approved the 1994 Union Carbide Long-Term Incentive Plan
for key employees, which replaced the 1988 Union Carbide Long-Term Incentive
Plan. The new incentive plan, effective until the 1997 shareholders' meeting,
provides for granting incentive and nonqualified stock options, stock
appreciation rights, 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 7.5 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 2 years after such date. Options may not have a duration of more
than 10 years. Restricted stock award shares to be issued in 1995 will be
entitled to vote and dividends will be credited to the holder's account, but
these shares will be nontransferable for 3 years after the grant date. These
restricted stock awards and accumulated dividends are subject to forfeiture if
matching employee-owned stock on deposit with the corporation is withdrawn or
if other conditions are not met. Performance awards may be paid in common
stock, cash or any other form of property. No stock appreciation rights or
performance awards were granted in 1994.
No further awards can be made under either the 1988 or 1984 plan
programs. Options granted under both plans are still outstanding and have
terms similar to nonqualified stock options under the 1994 plan.
Changes during 1994 in outstanding shares under option were as follows:
Shares (in thousands)
1994 Total
Outstanding at January 1 14,112
Granted 1,930
Exercised (2,213)
Canceled or expired (22)
Outstanding at
December 31 13,807
Options outstanding at Dec. 31, 1994, ranged in price from $1.00 to
$28.625 per share with a weighted average price of $15.702 per share, as
adjusted for the distribution of Praxair stock in accordance with the terms of
the plan, for options outstanding prior to July 1, 1992. At Dec. 31, 1994, 6.5
million options were generally exercisable at prices ranging from $1.00 to
$11.368 per share, with a weighted average price of $9.089 per share. Options
were exercised during 1994 at prices ranging from $1.00 to $16.75 per share.
16. Commitments and Contingencies
Purchase Agreements - The corporation has 3 major agreements for the purchase
of ethylene-related products and 3 other purchase agreements in the U.S. and
Canada. The net present value of the fixed and determinable portion of
obligations under these purchase commitments at Dec. 31, 1994 (at current
exchange rates, where applicable) are presented in the following table.
Millions of dollars
1995 $ 80
1996 71
1997 61
1998 54
1999 47
2000 to expiration of contracts 132
Total $445
Environmental - 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 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, 1994, the corporation had established environmental
remediation accruals in the amount of $297 million ($265 million in 1993), of
which $235 million is classified as Other long-term obligations ($214 million
in 1993). Approximately 46 percent of the corporation's environmental accrual
at Dec. 31, 1994, pertained to closure and postclosure costs for both
operating and closed facilities. In addition, the corporation had
environmental loss contingencies of $147 million at Dec. 31, 1994 ($115
million at Dec. 31, 1993).
Other - The corporation sold certain receivables with recourse to various
banks for proceeds of $101 million in 1994 ($270 million in 1993). At Dec. 31,
1994, approximately $11 million remained due ($47 million in 1993). The fair
value of the recourse provisions at Dec. 31, 1994, approximates the carrying
value.
The corporation and its consolidated subsidiaries had additional
contingent obligations at Dec. 31, 1994, totaling $83 million, of which $35
million related to guarantees of debt.
Litigation - The corporation's stock in Union Carbide India Limited (UCIL) has
been sold for the Indian rupee equivalent of $92 million. Of that amount the
equivalent of approximately $15 million went to The Bhopal Hospital Trust,
which, with other funding from unremitted dividends and UCIL, discharged the
corporation's and UCIL's commitment for funding, in the amount of
approximately $19 million, a hospital to be built in Bhopal by the Government
of India. The remainder of the proceeds of the sale of the stock, after
payment of certain expenses of the transaction, is subject to attachment in
the pending criminal proceedings against the corporation in Bhopal, in which
the corporation has not appeared. The corporation had earlier reduced the
carrying value of its stock in UCIL to zero. In the opinion of counsel for the
corporation, under generally recognized legal principles, the criminal
proceedings in India should not have adverse financial consequences for the
corporation outside of India.
The corporation provisionally joined a multibillion-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 right to deny coverage, the
corporation believes that after probable insurance recoveries neither the
settlement nor ongoing litigation outside the settlement will have a material
adverse effect on the consolidated financial position of the corporation. The
corporation was not a manufacturer of breast implants but did supply generic
bulk silicone materials to the industry. Also, in 1990 the corporation
acquired and in 1992 divested the stock of a small specialty silicones company
which, among other things, supplied silicone gel intermediates and silicone
dispersions for breast implants.
The settlement has been approved by the United States District Court,
Northern District of Alabama. A number of appeals have been filed that will
delay implementation and might 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, among other
factors, in their individual judgment, there are too few recipients of breast
implants covered by the final settlement.
In addition, the corporation and its consolidated subsidiaries are
involved in a number of legal proceedings and claims with both private and
governmental parties. These cover a wide range of matters, including, but not
limited to: product liability; governmental regulatory proceedings; health,
safety and environmental matters; employment; patents; contracts; and taxes.
In some of these legal proceedings and claims, the cost of remedies that may
be sought or damages claimed is substantial.
While it is impossible at this time to determine with certainty the
ultimate outcome of any 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.
17. Subsequent Events
The corporation regularly reviews its assets with the objective of maximizing
the deployment of resources in core operations. In this regard, UCC continues
to consider strategies and/or transactions with respect to certain noncore
assets and other assets not essential to the operation of the business that,
if implemented, could result in material nonrecurring gains or losses. As part
of this process, on Jan. 26, 1995, the corporation and Mitsubishi Corporation
reached an agreement for the sale of newly issued common stock of UCAR
International Inc. to a new company formed by Blackstone Capital Partners II
Merchant Banking Fund L.P. and a repurchase of certain shares by UCAR that
resulted in Blackstone acquiring a 75 percent interest in UCAR. The
corporation received $347 million in cash proceeds and retained a 25 percent
equity interest in UCAR. This transaction resulted in a nonrecurring material
gain to be recorded in the first quarter of 1995 and essentially eliminates
the corporation's share of ongoing future earnings from UCAR.
On Feb. 1, 1995, the corporation purchased certain ethylene oxide
derivative businesses from Imperial Chemical Industries of London.
On Feb. 9, 1995, the corporation and EniChem of Milan, Italy, announced
that their boards of directors had approved the formation of Polimeri Europa,
S.r.l., a 50-50 joint venture company to produce and market polyethylene in
Europe. The formation is subject to the approval of the European Union.
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 Peat Marwick
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, subject to the approval of
stockholders. 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.
Robert D. Kennedy John K. Wulff
Chairman and Vice President, Controller and
Chief Executive Officer Principal Accounting Officer
Danbury, Conn.
Jan. 19, 1995
Independent Auditors' Report
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, 1994 and 1993, 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, 1994. 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, 1994 and 1993, and the
results of their operations and their cash flows for each of the years in the
three-year period ended Dec. 31, 1994, in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the consolidated financial statements, in 1993
the company changed its method of accounting for postemployment benefits and
in 1992 its methods of accounting for postretirement benefits other than
pensions and income taxes.
KPMG Peat Marwick LLP
Stamford, Conn.
Jan. 19, 1995
Corporate Information
1995 Annual Meeting
The 1995 annual meeting of stockholders will be held on Wednesday, April 26,
in the Grand Ballroom of the Danbury Hilton and Towers, 18 Old Ridgebury Road,
Danbury, CT 06810, beginning at 8:30 A.M.
A notice of the annual meeting, a proxy statement and a proxy voting card
are mailed to each stockholder in March, together with a copy of the current
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).
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).
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., and overseas on the exchanges in Amsterdam, Basel,
Brussels, Frankfurt, Geneva, Lausanne, London, Paris and Zurich.
Stockholder Inquiries
Inquiries about stockholder accounts and dividend reinvestment should be
directed to Union Carbide Corporation, William H. Smith, manager, Shareholder
Services Department, Section G-1328, 39 Old Ridgebury Road, Danbury, CT 06817-
0001 (Telephone: 203-794-3350).
Stock Records and Transfer
The corporation acts as its own stock transfer agent through Shareholder
Services, which also maintains stockholder records, transfers stock and
answers questions regarding stockholders' accounts, including dividend
reinvestment accounts. Stockholders wishing to transfer stock to someone else
or to change the name on a stock certificate should contact Shareholder
Services for assistance. The Registrar is Chemical Bank.
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 UCC free of commissions and service charges.
Requests for a prospectus that explains the plan in detail should be
directed to Shareholder Services (Telephone: 800-934-3350).
Form 10-K/Charitable Contributions Booklet
A Form 10-K Report for the year ended Dec. 31, 1994, will be available in
April 1995. A copy without exhibits may be obtained without charge by writing
to Union Carbide Corporation, Joseph E. Geoghan, secretary, Section E-4, 39
Old Ridgebury Road, Danbury, CT 06817-0001.
Union Carbide annually publishes a booklet that lists organizations
receiving charitable, educational, cultural or similar grants of $500 or more.
The booklet is available to any stockholder on written request to the
secretary.
RESPONSIBLE CARE Progress Report
This reports covers health, safety and environmental progress at Union
Carbide. Information includes performance data for U.S. and international
locations, goals, and progress toward full implementation of RESPONSIBLE CARE
management practices in the U.S. To obtain a copy, write to Union Carbide
Corporation, Scott L. Brier, business communications manager, Public Affairs
Department, Section L-4503, 39 Old Ridgebury Road, Danbury, CT 06817-0001
(Telephone: 203-794-7011).
Inquiries
Institutional 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
E-4286, 39 Old Ridgebury Road, Danbury, CT 06817-0001 (Telephone 203-794-
6440).
Financial journalists should direct questions to Union Carbide
Corporation, Tomm F. Sprick, assistant manager, financial communications,
Public Affairs Department, Section L-4505, 39 Old Ridgebury Road, Danbury, CT
06817-0001 (Telephone: 203-794-6992).
Directors
John J. Creedon is retired president and chief executive officer of
Metropolitan Life Insurance Company. A Carbide director since 1984, he chairs
the Audit Committee and serves on the Compensation & Management Development,
Executive and Health, Safety and Environmental Affairs (HS&EA) Committees.
C. Fred Fetterolf is a retired director, president and chief operating officer
of Aluminum Company of America. A UCC director since 1987, he chairs the HS&EA
Committee and serves on the Audit, Compensation & Management Development and
Nominating Committees.
Joseph E. Geoghan is vice-president, general counsel and secretary of Union
Carbide, and has been a director since 1990. He serves on the Executive and
Public Policy Committees.
Rainer E. Gut is chairman of Credit Suisse and CS Holding, Zurich,
Switzerland. A UCC board member since 1994, he is a member of the Finance &
Pension and Nominating Committees.
James M. Hester is president of The Harry Frank Guggenheim Foundation. A
director since 1963, he is chairman of the Public Policy Committee and serves
on the Audit, Executive and Nominating Committees.
Vernon E. Jordan, Jr. is a partner with Akin, Gump, Strauss, Hauer & Feld. He
is chairman of the Nominating Committee and a member of the Compensation &
Management Development, Finance & Pension and Public Policy Committees. He has
been a board member since 1987.
William H. Joyce is president and chief operating officer of Union Carbide
Corporation. He serves on the Executive and Finance & Pension Committees and
has been a director since 1992.
Robert D. Kennedy is chairman and chief executive officer of Union Carbide
Corporation and has been a director since 1985. He is chairman of the
Executive Committee.
Ronald L. Kuehn, Jr. is a director and chairman, president and chief executive
officer of Sonat, Inc. A UCC board member since 1984, he chairs the
Compensation & Management Development Committee and serves on the Finance &
Pension, HS&EA and Nominating Committees.
C. Peter McColough is a director and retired chairman of the board of Xerox
Corporation. He has been a Carbide director since 1979 and is a member of the
Compensation & Management Development, Executive, HS&EA and Public Policy
Committees.
Rozanne L. Ridgway is co-chair of the Atlantic Council of the United States.
Appointed to the board in 1990, she is a member of the Audit, HS&EA,
Nominating and Public Policy Committees.
William S. Sneath is a director of various corporations and retired chairman
and chief executive officer of Union Carbide Corporation. He chairs the
Finance & Pension Committee and serves on the Executive, HS&EA and Nominating
Committees. He has been a director since 1969.
In accordance with the board's retirement policy, Mr. McColough, who has
served on the board with distinction for more than 15 years, will not stand
for reelection.
Corporate Officers
Robert D. Kennedy
Chairman of the Board and Chief Executive Officer
William H. Joyce
President and Chief Operating Officer
Joseph S. Byck
Vice-President, Strategic Planning, Investor Relations and Public Affairs
James F. Flynn
Vice-President, General Manager, Solvents and Intermediates
Joseph E. Geoghan
Vice-President, General Counsel and Secretary
Thomas D. Jones
Vice-President and Treasurer
Malcolm A. Kessinger
Vice-President, Human Resources
Lee P. McMaster
Vice-President, General Manager, Ethylene Oxide/Glycol
Gilbert E. Playford
Vice-President and Principal Financial Officer
Joseph C. Soviero
Vice-President, Corporate Ventures and Purchasing
Roger B. Staub
Vice-President, General Manager, UNIPOL Systems
Ronald Van Mynen
Vice-President, Health, Safety and Environment
Philip T. Wright
Vice-President, General Manager, UNIPOL Polymers
John K. Wulff
Vice-President, Controller and Principal Accounting Officer
Other Senior Corporate Staff
David L. Brucker
Vice-President, Engineering and Operations
John L. Gigerich
Vice-President, Information Systems
William Lindner
Vice-President, Purchasing
Philip F. McGovern
Vice-President, Tax
John P. Yimoyines
Vice-President, Venture Management
A Chemical Glossary
Monomer - a reactive chemical that can be converted into a polymer. For
example, ethylene is a monomer that is made into polyethylene.
Polymer - a chain or network made up of many monomer units, such as ethylene.
All plastics are polymers.
Ethylene - a reactive chemical made from natural gas or crude oil components.
In Carbide's olefins units, ethylene is the starting material from which many
of the company's chemical products are made.
Propylene - a basic chemical made from crude oil or natural gas components. It
is used as a starting material to produce many of Carbide's chemical products.
Olefins - the generic name for ethylene, propylene and other unsaturated
hydrocarbons made from components of crude oil or natural gas. Olefins are the
starting material from which most of Union Carbide's chemical products are
made.
Ethylene Oxide - a chemical made from ethylene and oxygen. It combines with
other chemicals to produce a wide range of products, such as ethylene glycol,
and surfactants for detergents and cleaning products.
Ethylene Glycol - a chemical made from ethylene oxide and water. It is used to
make polyester fiber, resin and film, and automobile antifreeze and engine
coolants.
Polyethylene - the world's most widely used plastic, made by reacting ethylene
and other olefins to form polymers. Union Carbide uses its low-pressure UNIPOL
Process technology to make most of its polyethylene.
Solvent - a liquid chemical used to dissolve other chemicals. For example,
butyl alcohol and related solvents are manufactured, starting from propylene,
using Union Carbide's low-pressure Oxo process.
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
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.