UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D C 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-1463
UNION CARBIDE CORPORATION
(Exact name of registrant as specified in its charter)
New York 13-1421730
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
39 Old Ridgebury Road, Danbury, CT 06817-0001
(Address of principal executive offices) (Zip Code)
203-794-2000
Registrant's telephone number, including area code
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No _______
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at October 31, 1996
Common Stock, $1 par value 127,341,593 shares
Total number of sequentially numbered pages in this filing,
including exhibits thereto: 86
INDEX
PART I. FINANCIAL INFORMATION
PAGE
Financial Statements
Condensed Consolidated Statement of Income -
Union Carbide Corporation and Subsidiaries -
Quarter Ended September 30, 1996 and 1995.................... 3
Condensed Consolidated Statement of Income -
Union Carbide Corporation and Subsidiaries -
Nine Months Ended September 30, 1996 and 1995................ 4
Condensed Consolidated Balance Sheet -
Union Carbide Corporation and Subsidiaries -
September 30, 1996 and December 31, 1995..................... 5
Condensed Consolidated Statement of Cash Flows -
Union Carbide Corporation and Subsidiaries -
Nine Months Ended September 30, 1996 and 1995................ 6
Notes to Condensed Consolidated Financial Statements -
Union Carbide Corporation and Subsidiaries................... 7-10
Discussion and Analysis of Results of Operations
and Financial Condition........................................ 11-15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings....................................... 16
Item 6. Exhibits and Reports on Form 8-K........................ 16
Signature........................................................ 17
Exhibit Index.................................................... 18
PART I. FINANCIAL INFORMATION
UNION CARBIDE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
Millions of dollars
(Except per share figures)
Quarter ended Sept. 30,
1996 1995
NET SALES $ 1,538 $ 1,495
Cost of sales, exclusive of depreciation and
amortization 1,145 1,038
Research and development 39 36
Selling, administration and other expenses(a) 80 148
Depreciation and amortization 81 72
Interest expense 18 23
Partnership income (43) (26)
Other income - net (6) (171)
INCOME BEFORE PROVISION FOR INCOME TAXES 224 375
Provision for income taxes 63 122
INCOME OF CONSOLIDATED COMPANIES 161 253
Income from corporate investments
carried at equity - 24
NET INCOME 161 277
Preferred stock dividend, net of income taxes 2 2
NET INCOME - COMMON STOCKHOLDERS $ 159 $ 275
Earnings per common share
Primary $ 1.19 $ 1.96
Fully diluted $ 1.08 $ 1.77
Cash dividends declared per common share $ 0.1875 $ 0.1875
(a) Selling, administration and other expenses include:
Selling $ 32 $ 32
Administration 32 96
Other expenses 16 20
$ 80 $ 148
The Notes to Condensed Consolidated Financial Statements on Pages 7 through 10
should be read in conjunction with this statement.
UNION CARBIDE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
Millions of dollars
(Except per share figures)
Nine Months ended Sept. 30,
1996 1995
NET SALES $ 4,598 $ 4,489
Cost of sales, exclusive of depreciation and
amortization 3,394 3,140
Research and development 115 106
Selling, administration and other expenses(a) 239 306
Depreciation and amortization 235 227
Interest expense 55 64
Partnership income (106) (121)
Other income - net (25) (216)
INCOME BEFORE PROVISION FOR INCOME TAXES 691 983
Provision for income taxes 194 303
INCOME OF CONSOLIDATED COMPANIES 497 680
Income (loss) from corporate investments
carried at equity (6) 55
NET INCOME 491 735
Preferred stock dividend, net of income taxes 7 7
NET INCOME - COMMON STOCKHOLDERS $ 484 $ 728
Earnings per common share
Primary $ 3.52 $ 5.11
Fully diluted $ 3.20 $ 4.61
Cash dividends declared per common share $ 0.5625 $ 0.5625
(a) Selling, administration and other expenses include:
Selling $ 96 $ 95
Administration 91 159
Other expenses 52 52
$ 239 $ 306
The Notes to Condensed Consolidated Financial Statements on Pages 7 through 10
should be read in conjunction with this statement.
UNION CARBIDE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
Millions of dollars
Sept. 30, Dec. 31,
1996 1995
ASSETS
Cash and cash equivalents $ 111 $ 449
Notes and accounts receivable 1,058 996
Inventories 528 544
Other current assets 213 207
Total current assets 1,910 2,196
Property, plant and equipment 6,993 6,357
Less: Accumulated depreciation 3,698 3,549
Net fixed assets 3,295 2,808
Companies carried at equity 761 739
Other investments and advances 85 84
Total investments and advances 846 823
Other assets 467 429
Total assets $6,518 $6,256
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 254 $ 316
Short-term debt and current portion of
long-term debt 263 38
Accrued income and other taxes 175 259
Other accrued liabilities 749 725
Total current liabilities 1,441 1,338
Long-term debt 1,295 1,285
Postretirement benefit obligation 473 480
Other long-term obligations 858 834
Deferred credits 288 201
Minority stockholders' equity in consolidated
subsidiaries 28 24
Convertible preferred stock - ESOP 144 146
Unearned employee compensation - ESOP (93) (97)
Stockholders' equity:
Common stock authorized - 500,000,000 shares
Common stock issued - 154,609,669 shares 155 155
Additional paid-in capital 352 343
Translation and other equity adjustments (19) (15)
Retained earnings 2,555 2,145
3,043 2,628
Less: Treasury stock, at cost-27,170,602 shares
(19,501,701 shares in 1995) 959 583
Total stockholders' equity 2,084 2,045
Total liabilities and stockholders' equity $6,518 $6,256
The Notes to Condensed Consolidated Financial Statements on Pages 7 through 10
should be read in conjunction with this statement.
UNION CARBIDE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Millions of dollars
Nine Months ended Sept. 30,
1996 1995
Increase (decrease) in
cash and cash equivalents
OPERATIONS
Income $ 491 $ 735
Noncash charges (credits) to net income
Depreciation and amortization 235 227
Deferred income taxes 48 (47)
Other noncash charges (10) 183
Net gains on investing transactions - (382)
Increase in working capital(a) (117) (233)
Long-term assets and liabilities 17 44
Cash Flow From Operations 664 527
INVESTING
Capital expenditures (531) (364)
Investments and acquisitions (excluding
cash acquired) (267) (378)
Sale of investments - 552
Sale of fixed and other assets 13 36
Cash Flow Used for Investing (785) (154)
FINANCING
Change in short-term debt (three months or less) 239 (10)
Proceeds from short-term debt 21 -
Repayment of short-term debt (26) -
Proceeds from long-term debt 6 402
Repayment of long-term debt (6) (18)
Issuance of common stock 115 68
Purchase of common stock (483) (343)
Payment of dividends (83) (87)
Other 1 3
Cash Flow From (Used for) Financing (216) 15
Effect of exchange rate changes on cash and
cash equivalents (1) 1
Change in cash and cash equivalents (338) 389
Cash and cash equivalents beginning-of-period 449 109
Cash and cash equivalents end-of-period $ 111 $ 498
Cash paid for interest and income taxes
Interest (net of amount capitalized) $ 41 $ 59
Income taxes $ 150 $ 221
(a) Net change in certain components of working capital (excluding
non-cash transactions):
(Increase) decrease in current assets
Notes and accounts receivable $ (37) $(134)
Inventories 55 (91)
Other current assets (15) 23
Decrease in payables and accruals (120) (31)
Increase in working capital $(117) $(233)
The Notes to Condensed Consolidated Financial Statements on Pages 7 through 10
should be read in conjunction with this statement.
UNION CARBIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Consolidated Financial Statements
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements include all adjustments necessary for a
fair statement of the results for the interim periods. These adjustments
consist of only normal recurring adjustments. The accompanying statements
should be read in conjunction with the Notes to Financial Statements of
Union Carbide Corporation and Subsidiaries ("the corporation" or "UCC") in
the 1995 annual report to stockholders.
2. Acquisitions
On January 18, 1996, the corporation completed the purchase of the
polypropylene assets and business of Shell Oil Company. The purchased
assets, located in the U.S., are comprised of Shell's polypropylene
technology and manufacturing facilities and polypropylene assets previously
held jointly by both companies. Additionally, on February 28, 1996, the
corporation completed the purchase of 95 percent of the outstanding shares of
Companhia Alcoolquimica Nacional, a Brazilian producer of vinyl acetate
monomer. The polypropylene resin business is part of the Basic Chemicals &
Polymers segment, while the polypropylene licensing and catalyst businesses
and the Brazilian vinyl acetate monomer business are included within the
Specialties & Intermediates segment.
3. Common Stock
On July 24, 1996, the board of directors of the corporation increased the
number of shares that may be repurchased under the existing common stock
repurchase program to 50 million shares. Through September 30, 1996, since
inception of its common share repurchase program, the corporation repurchased
40,794,429 shares (11,354,951 during 1996) at an average effective price of
$32.18 per share. The corporation intends to acquire additional shares from
time to time at prevailing market prices, at a rate 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 9,455,081 shares of common stock to UCC, at specified prices upon
exercise of the options. Since inception of this program, through
September 30, 1996, options representing 6,518,881 common shares have expired
unexercised, while options representing 1,886,200 shares were exercised for
$68 million, or an average price of $36.26 per share. Options representing
1,050,000 shares remain outstanding at September 30, 1996. Premiums received
since the inception of the program have reduced the average price of
repurchased shares from $32.42 per share to $32.18 per share.
4. Inventories
Millions of dollars
Sept. 30, Dec. 31,
1996 1995
Raw materials and supplies $ 121 $ 117
Work in process 64 46
Finished goods 343 381
$ 528 $ 544
5. Commitments and Contingencies
The corporation has entered into 3 major agreements for the purchase of
ethylene-related products and 2 other purchase agreements in the U.S. and
Canada. The net present value of the fixed and determinable portion of these
obligations at September 30, 1996 totaled $363 million.
The corporation is subject to loss contingencies resulting from environmental
laws and regulations, which include obligations to remove or remediate the
effects on the environment of the disposal or release of certain wastes and
substances at various sites. The corporation has established accruals in
current dollars for those hazardous waste sites where it is probable that a
loss has been incurred and the amount of the loss can be reasonably
estimated. The reliability and precision of the loss estimates are affected
by numerous factors, such as different stages of site evaluation, the
allocation of responsibility among potentially responsible parties and the
assertion of additional claims. The corporation adjusts its accruals as new
remediation requirements are defined, as information becomes available
permitting reasonable estimates to be made, and to reflect new and changing
facts.
At September 30, 1996, the corporation had established environmental
remediation accruals in the amount of $324 million. These accruals have two
components, estimated future expenditures for site investigation/cleanup and
estimated future expenditures for closure/postclosure activities. In addition,
the corporation had environmental loss contingencies of $161 million.
The corporation has sole responsibility for the remediation of approximately
half of its environmental sites. These sites are well advanced in the
investigation/cleanup stage. The corporation's environmental accruals at
September 30, 1996 included $244 million for these sites, of which
$113 million was for estimated future expenditures for site
investigation/cleanup and $131 million was for estimated future expenditures
for closure/postclosure activities. In addition, $75 million of the
corporation's environmental loss contingencies related to these sites. The
site with the largest total potential cost to the corporation is a
non-operating site. Of the above accruals, this site accounted for
$33 million, of which $19 million was for estimated future expenditures for
site investigation/cleanup and $14 million was for estimated future
expenditures for closure/postclosure activities. In addition, $23 million of
the above environmental loss contingencies related to this site.
The corporation does not have sole responsibility at the remainder of its
environmental sites. All of these sites are in the investigation/cleanup
stage. The corporation's environmental accruals at September 30, 1996
included $80 million for estimated future expenditures for site
investigation/cleanup at these sites. In addition, $86 million of the
corporation's environmental loss contingencies related to these sites. The
largest two of these sites are also non-operating sites. Of the above
accruals, these sites accounted for $23 million for estimated future
expenditures for site investigation/cleanup. In addition, $27 million of the
above environmental loss contingencies related to these sites.
In 1995, 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 $138 million. Expenses in 1994
and 1993 were $153 million and $149 million, respectively. While estimates
of the costs of environmental protection for 1996 are necessarily imprecise,
the corporation estimates that the level of these expenses will decline
somewhat as the result of favorable experience associated with remedial
activities.
In 1995, the corporation and two Kuwaiti corporations formed Equate
Petrochemical Company, a joint venture for development of a world-scale
petrochemical complex in Kuwait. The cost of design, construction and
initial working capital is expected to approximate $2 billion by July 1997,
the planned start-up date. As of September 30, 1996, the corporation's
investment in Equate was approximately $126 million, representing its
45 percent equity investment in Equate. The corporation anticipates making
an additional investment of $12 million by early 1997.
By September 30, 1996, Equate had completed its long-term financing
arrangements for construction and operating funds. The corporation has
agreed to severally guarantee 45 percent (approximately $608 million at
September 30, 1996) of Equate's debt and working capital financing needs
until certain completion tests and certain minimum sales volume targets are
achieved; the guarantee is expected to ultimately decline to approximately
$54 million. The corporation has also pledged its shares in Equate as
security for Equate's debt. The corporation has political risk insurance
coverage for substantially all of its guarantee of Equate's debt and its
equity investment. During the month of October, Equate drew down
$600 million under its debt facilities, and utilized a portion to repay
previously outstanding borrowings. The debt is expected to reach its maximum
level by July 1997.
The corporation had additional contingent obligations at September 30, 1996
of $62 million, principally related to guarantees of debt, obligations
assumed by purchasers of UCC facilities for which UCC is primarily liable,
discounted receivables from customers and performance agreements.
The corporation is one of a number of defendants named in approximately
4,400 lawsuits, some of which have more than one plaintiff, involving
silicone breast implants. The corporation was not a manufacturer of breast
implants but did supply generic bulk silicone materials to certain
manufacturers. Also, the corporation in 1990 acquired and in 1992 divested
the stock of a small specialty silicones company that, among other things,
supplied silicone gel intermediates and silicone dispersions for breast
implants. In 1993, most of the suits that were brought in Federal courts
were consolidated for pre-trial purposes in the United States District
Court, Northern District of Alabama. In 1994, the corporation
provisionally joined a multi-billion dollar settlement of the claims
consolidated in that Court.
The District Court later determined that the total amount of current claims
likely to be approved for payment under the original settlement schedule
would substantially exceed the funds available. Consequently, the defendants
and the Plaintiffs' Negotiating Committee, at the request of the court,
initiated negotiations to reconsider the structure and funding of the
settlement. Subsequently, certain defendants, including the corporation,
proposed, and the court approved, a revised settlement program. While the
corporation cannot predict the number of claimants who will participate in
the settlement, based on sample data prepared under supervision of the court,
the corporation estimates that its maximum expenditures under the revised
agreement should not exceed $100 million prior to insurance recovery.
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 litigation
outside the settlement will have a material adverse effect on the
consolidated financial position of the corporation.
In addition to the above, the corporation and its consolidated subsidiaries
are involved in a number of legal proceedings and claims with both private
and governmental parties. These cover a wide range of matters including, but
not limited to: product liability; governmental regulatory proceedings;
health, safety and environmental matters; employment; patents; contracts and
taxes. In some of these legal proceedings and claims, the remedies that may
be sought or damages claimed is substantial.
The corporation has recorded nonenvironmental litigation accruals of
$216 million, and related insurance recovery receivables of $134 million,
resulting in net before-tax charges of $82 million for nonenvironmental
litigation. At September 30, 1996, the corporation had nonenvironmental
litigation loss contingencies of $53 million.
While it is impossible at this time to determine with certainty the ultimate
outcome of any legal proceedings and claims referred to in this note,
management believes that adequate provisions have been made for probable
losses with respect thereto and that such ultimate outcome, after provisions
therefor, will not have a material adverse effect on the consolidated
financial position of the corporation but could have a material effect on
consolidated results of operations in a given quarter or year. Should any
losses be sustained in connection with any of such legal proceedings and
claims, in excess of provisions therefor, they will be charged to income in
the future.
6. Long-Term Debt
On October 2, 1996 the corporation issued $200 million of 7.75 percent
debentures maturing in 2096. The maturity of the debentures may be shortened
under certain circumstances in order to preserve the deductibility of the
interest payments for Federal income tax purposes.
DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Overview
The corporation reported third quarter 1996 net income available to common
stockholders of $159 million, or $1.08 per share, fully diluted ($1.19 per
share, primary). For the first nine months of 1996 net income available to
common stockholders was $484 million, or $3.20 per share, fully diluted ($3.52
per share, primary).
For the corresponding quarter in 1995, the corporation reported earnings of
$275 million, or $1.77 per share, fully diluted ($1.96 per share, primary).
For the first nine months of 1995, net income available to common stockholders
was $728 million, or $4.61 per share, fully diluted ($5.11 per share,
primary).
The corporation's earnings for the quarter ending September 30, 1996 were
affected by higher feedstock costs and lower average selling prices as
compared to those of the corresponding prior year quarter. Earnings for the
nine month period ending September 30, 1996 were further impacted by weather-
related problems that affected first quarter operations. As a result, third
quarter and nine month margins were lower than those of the comparable periods
of 1995. Increased volumes in both business segments served to mitigate the
impact of these declining margins.
Specialties & Intermediates operating profit in the fourth quarter of 1996 is
anticipated to decrease somewhat from third quarter 1996 levels because of
normal seasonal weakness in demand, primarily in the coatings area, and the
Basic Chemicals & Polymers segment results are expected to be impacted
adversely in the fourth quarter, mainly by increasing average feedstock costs.
Results of Operations
Increased volumes in the current year were partially offset by a decline in
average selling prices, resulting in a sales increase of 2.9 percent in the
third quarter and 2.4 percent in the first nine months of 1996 compared to the
same periods in 1995. Third quarter volumes increased 10.9 percent versus the
comparable 1995 period, while volumes for the first nine months of 1996
increased by 10.1 percent versus the first nine months of 1995. Average
selling prices declined by 7.3 percent and 6.9 percent for the three and nine
month periods, respectively.
Increasing feedstock cost coupled with the declines in average selling prices
caused the corporation's margins to decline from similar periods in the prior
year. The corporation's variable margin for the third quarter of 1996 was
43.0 percent, compared to 48.5 percent in the third quarter of 1995. For the
first nine months of 1996, variable margin was 44.5 percent as opposed to
48.2 percent in the same period last year. Gross margin (variable margin less
fixed manufacturing and distribution costs) declined to 25.6 percent for the
third quarter of 1996 from 30.6 percent for the third quarter of 1995, and
declined to 26.2 percent for the nine months ending September 30, 1996 from
30.1 percent for the nine months ending September 30, 1995. Fixed
manufacturing and distribution costs remained stable in the third quarter, and
increased 3.2 percent in the first nine months of 1996, compared to the same
periods of 1995. The increase in the nine months ended September 30, 1996
versus the same period of 1995 is primarily due to the acquisition of Shell
Oil Company's polypropylene assets and business.
Industry Segments
The company's operations are classified into two main business segments,
Specialties & Intermediates and Basic Chemicals & Polymers. The Specialties &
Intermediates segment includes the corporation's specialty chemicals and
specialty polymers product lines, licensing, solvents and chemical
intermediates. The Basic Chemicals & Polymers segment includes the
corporation's ethylene and propylene manufacturing operations as well as the
production of first level ethylene and propylene derivatives - polyethylene,
ethylene oxide/glycol and polypropylene. The corporation's non-core
operations and financial transactions are included in "Other".
Information about the corporation's operations in its business segments for
the third quarter and nine month periods of 1996 and 1995 follows. Sales of
the Basic Chemicals & Polymers segment include intersegment sales, principally
ethylene oxide, which are made at the estimated market value of the products
transferred. Operating profit represents income before interest expense and
the provision for income taxes.
Quarter ended Nine Months ended
September 30, September 30,
Millions of dollars 1996 1995 1996 1995
Sales
Specialties & Intermediates $1,055 $1,014 $3,241 $3,117
Basic Chemicals & Polymers 552 565 1,598 1,590
Intersegment Eliminations (69) (84) (241) (218)
Total $1,538 $1,495 $4,598 $4,489
Operating Profit
Specialties & Intermediates $ 202 $ 115 $ 585 $ 532
Basic Chemicals & Polymers 40 121 145 329
Other - 162 16 186
Total $ 242 $ 398 $ 746 $1,047
Quarter ended Nine Months ended
September 30, September 30,
Millions of dollars 1996 1995 1996 1995
Depreciation and Amortization
Specialties & Intermediates $ 50 $ 45 $ 144 $ 145
Basic Chemicals & Polymers 31 27 91 82
Total $ 81 $ 72 $ 235 $ 227
Capital Expenditures
Specialties & Intermediates $ 121 $ 114 $ 387 $ 266
Basic Chemicals & Polymers 47 39 144 98
Total $ 168 $ 153 $ 531 $ 364
Sales of the Specialties & Intermediates segment increased 4.0 percent to
$1,055 million in the third quarter of 1996 over that of 1995, and increased
4.0 percent to $3,241 million in the first nine months of 1996 compared to the
first nine months of 1995. Operating profit for the third quarter of 1996 was
$202 million, as compared to $115 million for the same quarter of 1995;
operating profit was $585 million for the nine months ended September 30,
1996, versus $532 million for the nine months ended September 30, 1995.
Included in operating profit for 1995 were a $48 million charge for
postemployment benefits in the third quarter and a $12 million increase in
depreciation expense related to a reduction in the depreciable lives of
certain computer equipment in the nine month period. For the three and nine
month periods ended September 30, 1996, this segment benefited from an
11.3 percent and 8.5 percent increase in volume, respectively, compared to
similar periods in 1995, and experienced a decline in average selling prices
of 6.7 percent and 4.3 percent, respectively.
Sales of the Basic Chemicals & Polymers segment declined 2.3 percent to
$552 million in the third quarter of 1996 versus that of 1995, and increased
0.5 percent to $1,598 million in the nine months ended September 30, 1996
versus the comparable period of 1995. Operating profit for the third quarter
of 1996 declined to $40 million from $121 million for the third quarter of
1995, which included a $20 million charge for postemployment benefits, and
declined on a year-to-date basis to $145 million from $329 million in the
corresponding period of the prior year. This decline reflects the combination
of weak pricing for ethylene glycol and the rapid rise in feedstock costs,
partly offset by an improvement in polyethylene prices.
Selling, administrative and other expenses were $80 million and $239 million
in the three and nine month periods of 1996, respectively, compared to
$148 million and $306 million in the same periods of 1995. Excluding a
$68 million charge for postemployment benefits recognized in the third quarter
of 1995, selling, administrative and other expenses were essentially unchanged
for both periods.
Partnership income increased $17 million in the third quarter of 1996,
compared to the same quarter of 1995, primarily as the result of improved
catalyst sales by UOP to the petroleum refinery industry. Partnership income
declined $15 million in the first nine months of 1996 versus 1995 as a result
of a decline in the earnings of Petromont due to lower polyethylene prices and
higher feedstock costs and the elimination of the earnings of the
polypropylene partnership with Shell Oil Company, which was acquired in
January 1996 and is now included in consolidated earnings, partially offset by
UOP's increased earnings.
Other income - net for the first nine months of 1995 included the following
items: a $381 million gain on the corporation's sale of its equity interest
in UCAR, of which $161 million was recognized in the third quarter, and a non-
cash charge of $191 million for future lease payments on unused office space,
primarily at the corporation's Danbury headquarters.
Interest expense declined by $5 million to $18 million in the quarter ended
September 30, 1996 versus the comparable 1995 quarter, and declined $9 million
to $55 million in the first nine months of 1996 versus the same period of
1995, due to an increase in capitalized interest associated with the
corporation's increased capital program.
Income from corporate investments carried at equity declined to breakeven in
the third quarter of 1996 from $24 million in the third quarter of 1995, and
to a loss of $6 million for the first nine months of 1996 from income of
$55 million in the first nine months of 1995, due to a decline in the earnings
of Polimeri Europa as the result of increased raw material prices and
decreased polyethylene selling prices, and the recognition by Equate
Petrochemical Company of preliminary operating expenses, which will continue
until plant start-up in mid-1997.
Future expenses related to environmental protection for compliance with
Federal, state and local laws regulating solid and hazardous wastes and
discharge of materials to air and water, as well as for waste site remedial
activities, are expected to decline somewhat as the result of favorable
experience associated with remedial activities. The reliability and precision
of the loss estimates are affected by numerous factors, such as different
stages of site evaluation, the allocation of responsibility among potentially
responsible parties and the assertion of additional claims. The corporation's
environmental exposures are discussed in more detail in the Commitments and
Contingencies footnote to the financial statements on pages 8 through 10 of
this report on Form 10-Q.
The corporation continues to be named as one of a number of defendants in
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" footnote to the financial statements on pages 8 through 10 of
this report on Form 10-Q.
Financial Condition - September 30, 1996
Cash flow from operations was $664 million for the first nine months of 1996,
compared to $527 million for the comparable period of 1995. Decreased
earnings in the first nine months of 1996 versus the comparable period of 1995
were offset by lower working capital requirements as well as reduced tax
payments. Net gains on investing transactions were higher for the nine months
ended September 30, 1995 because of the $381 million gain on the sale of the
corporation's equity interest in UCAR International Inc. Other noncash
charges of $183 million in the first nine months of 1995 included a
$191 million charge for future lease payments on unused office space and a
$68 million charge for postemployment benefits.
Cash flow used for investing totaled $785 million and $154 million for the
first nine months of 1996 and 1995, respectively. In the first nine months of
1996, the corporation purchased the polypropylene assets and business of Shell
Oil Company and 95 percent of the outstanding shares of Companhia
Alcoolquimica Nacional, a Brazilian producer of vinyl acetate monomer.
Investments and acquisitions in the prior year's first nine months included
the acquisition of the ethylene oxide derivatives businesses of ICI and a
50 percent equity interest in Polimeri Europa, while sale of investments
reflected the sale of the corporation's 50 percent equity interest in
UCAR International Inc.
Capital expenditures increased to $531 million in the first nine months of
1996 in comparison to $364 million for the comparable period of 1995. Major
1996 projects include an ethylene propylene rubber project at Seadrift, Tex.,
within the Specialties & Intermediates Segment; a cogeneration facility at
Taft, La., within both business segments; and an upgrade to the information
technology infrastructure, which involves all segments.
Cash flow used for financing in the first nine months of 1996 was
$216 million, as compared to cash flow provided from financing of $15 million
in the comparable 1995 period. The 1996 period included net common stock
repurchases of $368 million under the existing common stock repurchase
program, while net common stock repurchases during the 1995 period totaled
$275 million. For the nine month period ended September 30, 1996 the
corporation purchased approximately 11.4 million shares of common stock for
$483 million. Since 1993, the corporation has purchased 40.8 million shares
of common stock for $1.315 billion. On July 24, 1996, the corporation's board
of directors authorized an increase of 10 million in the number of shares that
may be repurchased under the existing common stock repurchase program to a
total of 50 million shares from the inception of the program. The corporation
intends to acquire additional shares from time to time at prevailing market
rates consistent with the combination of corporate cash flow and market
conditions. Cash dividends to common stockholders amounted to $83 million and
$87 million for the nine month periods ended September 30, 1996 and 1995,
respectively. In the first nine months of 1995, the corporation completed a
$400 million, two-part public offering of debt securities which was used in
part to refinance existing short term debt.
On October 2, 1996 the corporation issued $200 million of 7.75 percent
debentures maturing in 2096, the proceeds of which were used to refinance
existing short term debt.
At September 30, 1996, there were no outstanding borrowings under the existing
bank credit agreement aggregating $1 billion.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See Note 5 to the corporation's condensed consolidated financial
statements on pages 8 through 10 of this 10-Q Report.
In June 1991 the corporation registered with the U.S. Environmental
Protection Agency ("EPA") to participate in a compliance audit
program to determine compliance under Section 8(e) of the Toxic
Substances Control Act. On October 3, 1996, the EPA Environmental
Appeals Board approved a settlement of this matter pursuant to which
the corporation paid a stipulated penalty of $1 million.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
The following exhibits are filed as part of this report:
10.1 - Completion Guarantee dated September 15, 1996 between
Petrochemical Industries Company K.S.C. and Union
Carbide Corporation as Guarantors, National Bank of
Kuwait S.A.K. as Intercreditor Agent, and Citicorp
Trustee Company Limited as Debt Trustee.
10.2 - Definitions Agreement dated September 15, 1996
between Equate Petrochemical Co. K.S.C. (Closed) as
the Company, Petrochemical Industries Company
K.S.C., Union Carbide Corporation as the Sponsors,
National Bank of Kuwait S.A.K. as Intercreditor
Agent and Project Assets Security Trustee, and
Citicorp Trustee Company Limited as Debt Trustee.
11 - Computation of Earnings Per Share
27 - Financial Data Schedule.
(b) The corporation's Form 8-K dated October 2, 1996, contained
the legal opinion of Cahill Gordon & Reindel regarding the
issuance of $200 million of 7.75 percent debentures maturing
in 2096.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNION CARBIDE CORPORATION
(Registrant)
Date: November 14, 1996 By: /s/John K. Wulff
JOHN K. WULFF
Vice-President and
Chief Financial Officer
EXHIBIT INDEX
Exhibit Page
No. Exhibit No.
10.1 Completion Guarantee dated September 15, 1996
between Petrochemical Industries Company K.S.C.
and Union Carbide Corporation as Guarantors,
National Bank of Kuwait S.A.K. as Intercreditor
Agent, and Citicorp Trustee Company Limited as
Debt Trustee. 19
10.2 Definitions Agreement dated September 15, 1996
between Equate Petrochemical Co. K.S.C. (Closed)
as the Company, Petrochemical Industries Company
K.S.C., Union Carbide Corporation as the Sponsors,
National Bank of Kuwait S.A.K. as Intercreditor
Agent and Project Assets Security Trustee, and
Citicorp Trustee Company Limited as Debt Trustee. 34
11 Computation of Earnings Per Share 85
27 Financial Data Schedule 86