Exhibit 13
UNION CARBIDE CORPORATION
1996 ANNUAL REPORT
(The cover depicts two partially overlapping hexagons. One of them is labeled
"Specialties & Intermediates" and the other is labeled "Basic Chemicals and
Plastics".)
Contents
Financial Highlights - Summary comparison of 1996 and 1995 results 1
Chairman's Letter - Bill Joyce on 1996 performance, strategic
objectives and long-term outlook 2
Principal Products &
Services - Description of Specialties & Intermediates
and Basic Chemicals & Polymers segments,
including competitors 6
- Partnerships and Corporate Joint Ventures 8
Chemical Glossary - Chemicals and polymers central to Carbide's
businesses 9
Management's Discussion
& Analysis - Results of Operations 10
Liquidity, Capital Resources and Other
Financial Data 18
Selected Financial Data 20
Quarterly Data 21
Financial Statements - Consolidated Statement of Income 22
Consolidated Balance Sheet 23
Consolidated Statement of Cash Flows 24
Consolidated Statement of Stockholders'
Equity 25
Notes to Financial Statements 26
Management's Statement of Responsibility
for Financial Statements 42
Independent Auditors' Report 42
Corporate Information - Important dates, names, addresses,
telephone numbers and other information 43
Directors and Corporate
Officers - List of directors, corporate officers
and other senior management 44
Around the World - Listing of worldwide locations Inside Back Cover
Definition of Terms - Definition of nonchemical terms Inside Back Cover
Cautionary statement for the purposes of the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995: All statements in this
annual report that do not reflect historical information are forward looking
statements. These include statements about the chemical markets in 1997; cost
reduction targets; the corporation's share price; earnings and profitability
targets; development, production and acceptance of new products and process
technologies; ongoing and planned capacity additions and expansions; joint
ventures, and Management's Discussion & Analysis. Important factors that could
cause actual results to differ materially from those discussed in such forward
looking statements include the supply/demand balance for the corporation's
products, customer inventory levels, competitive pricing pressures, feedstock
costs, changes in industry production capacities and operating rates,
competitive technology positions and failure to achieve the corporation's cost
reduction targets or complete construction projects on schedule.
Financial Highlights
Dollar amounts in millions
(except per share figures) 1996 1995 % Change
For the Year -
Net sales - $ 6,106 $ 5,888 4
Operating profit - 921 1,348 (32)
Net income - common stockholders - 583 915 (36)
Per common share - primary - 4.28 6.44 (34)
Per common share - fully diluted - 3.90 5.83 (33)
Cash dividends on common stock - 99 103 (4)
Per common share - 0.75 0.75 -
Capital expenditures - 721 542 33
At Year-End -
Total assets - $ 6,546 $ 6,256 5
Total debt - 1,599 1,323 21
Stockholders' equity - 2,114 2,045 3
Per common share - 16.72 15.14 10
Common shares outstanding (thousands) - 126,440 135,108 (6)
Common stockholders of record - 51,023 53,648 (5)
Employees - 11,745 11,521 2
At a Glance
Union Carbide Corporation is a worldwide chemicals and polymers company.
The company possesses many of the industry's most advanced process and
catalyst technologies and some of the most cost efficient large-scale
production facilities in the world. In addition to its consolidated
operations, the corporation participates in partnerships and corporate joint
ventures whose combined revenues totaled more than $4.1 billion in 1996.
Union Carbide operates two business segments:
Specialties & Intermediates, which accounted for 70 percent of revenues
and 81 percent of operating profit in 1996, produces a broad range of
products, including specialty polyolefins used in wire and cable insulation;
surfactants for industrial cleaners; catalysts for the manufacture of
polymers; acrolein and derivatives; water soluble polymers; cellulose-,
glucose- and lanolin-based materials for personal care products; specialty
coatings; acrylic and vinyl acrylic latex used in paints and adhesives;
solvents; vinyl acetate monomer, and ethylene oxide derivatives. This segment
also licenses olefins-based technologies and offers other specialized
technology licensing and services.
Basic Chemicals & Polymers converts various hydrocarbon feedstocks,
principally liquefied petroleum gases and naphtha, into the basic building-
block chemicals ethylene and propylene (also known as olefins) that are in
turn converted to polyethylene (the world's most widely used plastic),
polypropylene (one of the world's fastest-growing plastics), and ethylene
oxide and ethylene glycol (used to make polyester fiber, film and resin, and
automotive antifreeze). This segment provides ethylene, propylene, ethylene
oxide and ethylene glycol to the Specialties & Intermediates segment.
Union Carbide's leading end markets as a percentage of sales are:
Paints, coatings and adhesives 22%
Packaging and consumer plastics 21%
Wire and cable 12%
Textile 9%
Household and personal care 7%
Automotive, including antifreeze 4%
Agriculture and food 4%
Oil and gas 2%
Industrial cleaners 2%
Good Progress in a Demanding Year
(Contained within this section is a picture of William H. Joyce, Chairman,
President and Chief Executive Officer.)
I am pleased to report that our company had a good year in 1996, under market
conditions that made a good year a real achievement. Had we been operating in
similar market conditions just a few years ago, Carbide would almost certainly
have lost money.
Worldwide sales for 1996 rose 3.7 percent to $6.1 billion. Net income
available to common stockholders of $583 million declined 36.3 percent
compared to the record $915 million earned in 1995.
Soaring raw material costs in 1996, and weak pricing in key products,
drove variable margin as a percent of sales below even the very low levels
reached at the bottom of the last chemical business cycle in 1993. Carbide's
ability to earn $3.90 per fully diluted share in those circumstances confirms
that our profit improvement program has been a huge success.
We also maintained a strong balance sheet in 1996, and generated
sufficient funds to invest for the future and buy back 12.8 million common
shares, continuing a practice that has brought the total number of shares
repurchased since 1993 to 42.3 million.
Carbiders are proud of our profit improvement success, and rightly so,
since it was their hard work and innovative thinking, and the work process
improvements they engineered, that reduced costs, raised productivity and
generated returns on invested capital that rank Carbide among the most
profitable companies in our industry.
We are nevertheless disappointed that solid performance in a demanding
year was not reflected in the price of Carbide stock, which appreciated only 9
percent in 1996, closing the year at $40.88 per share ($47.00 at the close of
business on Feb. 26, 1997).
But we believe Carbide's value will be recognized once we demonstrate
that our company can post superior results through all phases of the chemical
cycle: that our Basic Chemicals & Polymers (BC&P) segment will not only be
very profitable over the business cycle, but also break even in the worst year
of the cycle; and, most important, that our much larger Specialties &
Intermediates (S&I) segment can show a longer history of double digit earnings
growth.
Although the industry outlook is for commodity prices to begin weakening
toward the end of 1997 as substantial additional capacity begins to come on
line, Carbide will see increasing benefits over the course of the chemical
cycle from our continuing, ambitious profit improvement initiatives and from
our investments aimed at promoting the profitable growth of our less cyclical
S&I segment.
For the longer term, we also anticipate a strong contribution from our
joint ventures on several continents, and from new businesses based on our
chemical process technologies.
One new business we think has excellent potential (ethylene propylene
rubber) was well into start-up at this writing, while four others we've yet to
announce are still in the development stage.
We also completed the purchase, at the start of 1996, of the
polypropylene business and assets of Shell Oil Company and expanded our
polypropylene production facilities at Seadrift, Tex., and Norco, La.
Polypropylene is one of the world's fastest-growing, large-volume plastics.
Although growth is vitally important to our success, our solid position
as a low-cost producer is fundamental.
We are mindful that the success of our long-range strategy depends in
large part on our ability to keep improving productivity in both our
specialties and intermediates and our basic chemicals businesses. We have made
considerable progress over the past several years, and we are planning a good
deal more.
In 1996 we passed the halfway mark - ahead of schedule - toward our
announced target of $637 million of profit improvement by year-end 2000 (in
then-current dollars) compared to costs in 1993, and we are looking for other
opportunities to raise the target.
Among the profit improvement projects completed during the year was
Pathfinder, a project cutting across nearly all of our businesses. Pathfinder
reduced our costs for delivering product to customers by about $85 million, a
permanent annual saving that exceeded Pathfinder's target by nearly $5
million.
Carbide also has moved aggressively to reduce the cost of energy at two
Gulf Coast plants. A new cogeneration (steam and electric power) unit that
went on line at our Texas City, Tex., plant in May has cut the plant's energy
bill by some $50,000 a day. A $140 million cogeneration unit at our Taft, La.,
plant, under construction since October 1995 and scheduled to start-up in
March 1997, will slash much more from energy costs.
Through a combination of new technology and advantageous location, a new
butanol unit in our Solvents, Intermediates and Monomers (SIM) business, built
for 25 percent less than if prior technology had been used, achieved estimated
annual savings of $4 million in operating and logistics costs in its first
full year of operation.
In commodity operations, a program of our Hydrocarbons group aimed at
boosting the efficiency of Carbide's Gulf Coast olefins units is 70 percent of
the way toward its $126 million a year profit improvement target.
In this latest round of profit improvement initiatives we expect our S&I
segment to enlarge its contribution to our target. And we shouldn't have to
commit as much of those savings to lower prices as we did initially with the
savings in our BC&P segment, since many chemical specialties and intermediates
tend to compete less on price than on performance. That means more S&I savings
can fall directly to the bottom line.
S&I accounted for 70 percent of sales in 1996 and 81 percent of operating
profit. Although segment performance fell short of our double digit earnings
growth target for the first time in several years, we saw a number of
important developments in 1996 that, along with a more determined effort to
widen margins, should strengthen the businesses in this segment and create for
them an even larger role in Carbide's overall financial performance. Among the
developments:
- - Industrial Performance Chemicals (IPC) introduced a line of remarkable new
TRITON SP surfactants - chemicals used in industrial cleaners and metalworking
fluids, and potentially as process aids in paper and textile manufacturing -
that permit rapid separation of pollutants from process wastewater.
Our new surfactants were the subject of the first industry partnership
with the Environmental Protection Agency under its Environmental Technology
Initiative for Chemicals, a nonregulatory alternative for managing
environmental risk.
- - Our plant at Seadrift, Tex., added 45 million pounds of capacity for
producing butyl glycol ethers, raising our total worldwide capacity to more
than 320 million pounds - the largest of any company. Butyl glycol ethers are
used as solvents in industrial coatings and cleaners.
- - UNIPOL Systems licensees in South Korea, the Philippines and Saudi Arabia
announced major expansions, as well as new UNIPOL Process facilities
representing a total of 2.5 billion pounds of polyethylene and 1.2 billion
pounds of polypropylene.
Ten licensees, including 3 in China, started up UNIPOL polyethylene and
polypropylene units during the year with combined capacities of nearly 2.1
billion pounds and 1.5 billion pounds, respectively.
- - Our UCAR Emulsions Systems business began construction of a joint venture
plant in China to manufacture latex for the growing paint industry in the
Shanghai area.
- - Amerchol Corporation, a Union Carbide subsidiary, began construction on the
site of our plant in Guangdong, China, of a joint venture plant to manufacture
cellulosic polymers to help meet the rapidly growing demand there for hair
care and other personal care products. Amerchol started up a similar plant at
Greensburg, La., to meet the growing worldwide demand for these products.
- - IPC also began two major capital projects during the year, both at our Taft
plant: a 330 million-pounds-per-year facility for producing our CARBOWAX
polyethylene glycols and TERGITOL surfactants, and a 200 million-pounds-per-
year facility for producing ethanolamines, used in detergents and personal
care products, and in natural gas processing.
- - SIM acquired a Brazilian producer of vinyl acetate monomer along with its
175 million-pounds-per-year plant, and started up a 330 million-pounds-per-
year vinyl acetate unit in South Korea, part of a joint venture with BP
Chemicals and Samsung Fine Chemicals Co. Vinyl acetate is used in the coatings
and adhesives industries in the production of emulsion resins.
Our BC&P segment also gained competitive strength in 1996. Among
developments:
- - Operating improvements at our Texas City plant resulted in an increase in
refining capacity for higher glycols, along with productivity improvements and
inventory reductions worth $7 million.
- - We announced a major modernization of the olefins production unit at Taft
that will increase ethylene capacity by 665 million pounds per year to 2.2
billion pounds and add new flexibility for switching feedstocks to gain
maximum advantage from raw material price changes.
We also made good progress in 1996 toward expanding the contribution of
partnerships and joint ventures to Carbide's growth and profitability.
We announced plans with Nova Corporation of Canada to jointly build and
share the output of an expandable 2 billion-pounds-per-year olefins cracker in
Alberta, scheduled for start-up in 2000. A new UNIPOL polyethylene plant to be
built in Alberta at the same time would use Carbide's share of the olefins
plant output for feedstock.
In a new Asian venture, we signed a letter of intent with Petronas (the
national oil company of Malaysia) to form a joint venture to build a major
petrochemical complex in Malaysia scheduled for completion in 2000.
The output of the joint venture would include ethylene glycol and a
number of chemical specialties and intermediates, such as oxo alcohols and
derivatives, ethanolamines and surfactants. The complex, which would have
access to advantaged raw materials from nearby natural gas resources, would
serve Southeast Asia, the world's fastest growing market for petrochemicals.
And in August Carbide and Exxon Chemical announced an agreement to form a
50/50 joint venture to research, develop, market and license leading edge
technologies and catalysts for the production of polyethylene. We expect the
combination of Carbide's UNIPOL Process technology and Exxon's metallocene
catalyst and operating technologies to set the worldwide standard for
polyethylene production well into the next century.
Construction of the EQUATE petrochemical complex, our Kuwait joint
venture, continues on schedule toward midyear 1997 completion, and Polimeri
Europa, our joint venture in Italy, made good progress with cost reduction
efforts in a year when performance was hurt by very high raw material costs.
Summing up, 1996 was a demanding year, but one in which we did well,
gaining competitive strength and making substantial progress toward our target
of becoming the low-cost, preferred supplier in all of our core businesses.
Proud as we are of our progress, Carbiders know that advancing our
business agenda must be accompanied by solid, responsible environmental and
safety performance, and that is exactly what they delivered again in 1996.
We marked our fifth consecutive year without a fatality or major process
related accident, and we reduced key spills by 16 percent and reduced lost-
workday injuries by 32 percent compared to 1995.
We believe this record has a strong connection to the fact that in 1996
we completed implementing all 106 management practices of the industry's
Responsible Care initiative, and that employees at all levels have accepted a
high degree of personal accountability for meeting our Responsible Care goals.
(For more information about our environmental and safety performance,
write to Carbide's Public Affairs Department for our Responsible Care progress
report.)
I would like to note that in addition to our solid business and
Responsible Care performance, Carbide, and the chemical industry as a whole,
again contributed to the U.S. balance of trade in 1996. Exports accounted for
some 17 percent of sales from Carbide's U.S. production. Fair and open trade
is important to us, and to the nation, and we hope the Administration and the
Congress will keep trade high on their list of economic priorities.
I am pleased to report that we have added two highly accomplished
individuals to our board of directors, bringing total membership to 12: James
M. Ringler, president and CEO of Premark International, Inc. was elected to
the board in December, and Dr. Thomas P. Gerrity, dean of the Wharton School
at the University of Pennsylvania, became a board member in February 1997.
We welcome them and look forward to their contributions.
William H. Joyce
Feb. 26, 1997
(Within the preceding section, the following three phrases are set in larger
type within colored ovals:
- - Growth is vitally important, but our low-cost position is fundamental
- - We made good progress toward expanding the contribution of partnerships
and joint ventures
- - Business progress must be accompanied by responsible environmental and
safety performance)
Principal Products & Services
Customer Sales(a)
(Dollar amounts in millions)
1996 1995 1994
S&I BC&P S&I BC&P S&I BC&P
($) 4,286 1,820 4,123 1,765 3,636 1,229
(%) 70 30 70 30 75 25
(a) After intersegment eliminations. See Note 5 to the financial statements.
Operating Profit (Loss)(a)
(Dollar amounts in millions)
1996 1995 1994
S&I BC&P S&I BC&P S&I BC&P
($) 742 162 709 444 634 (22)
(%) 82 18 61 39 104 (4)
(a) Excludes Other segment. See Note 5 to the financial statements.
Specialties & Intermediates Segment
Union Carbide's Specialty Polymers and Products group manufactures and
markets numerous specialty products. Many of its technologies are targeted for
sharply defined market segments.
- Specialty Industrial Products produces acrolein and derivatives such as
glutaraldehyde, a biocide; ethylidene norbornene (ENB), used in the production
of ethylene propylene rubber; and specialty ketones.
- Performance Polymers produces POLYOX water-soluble resins, used in
personal care products, pharmaceuticals, inks and thermoplastics. It also
produces 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; cycloaliphatic epoxides, including CYRACURE ultraviolet-curing
products, and FLEXOL plasticizers.
- Amerchol Corporation, a Union Carbide subsidiary, manufactures and
sells a wide variety of cellulose-, glucose- and lanolin-based materials for
personal care products.
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, including
BASF, Hercules, Wacker, Solvay, DeGussa and National Starch & Chemical.
UCAR Emulsion Systems products are used in interior and exterior house
paints, adhesives and sealants. They include UCAR POLYPHOBE Rheology Modifiers
(used to thicken or thin coatings) and UCAR latex products (acrylics and
vinyl-acrylics that impart enhanced staining, weather and scrub resistance to
paints, and acrylic latexes for caulks and sealants).
Major Competitors - Rohm & Haas, Air Products, Reichhold Chemicals
Specialty Polyolefins manufactures and markets worldwide a variety of
performance polyolefin products. Chief among these are polyolefin-based
compounds for sophisticated insulation, semiconductives, and jacketing systems
for power distribution, telecommunications and flame-retardant wire and cable.
Other Specialty Polyolefins products are used in adhesives, laminating film
and flexible tubing.
Major Competitors - AT Plastics, Borealis AS, Mitsui Petrochemical, Millennium
Chemicals, Ube Industries
UNIPOL Systems licenses UNIPOL Process technology, the most cost-
efficient and versatile method of manufacturing polyethylene and
polypropylene, to producers of these products worldwide. It also develops new
process technology for the manufacture of other olefins-based polymers, such
as ethylene propylene rubber, and sells catalysts to UNIPOL Process licensees
worldwide.
Major Competitors - BASF, British Petroleum, Mitsui Petrochemical, Montell
Polyolefins, Phillips Chemicals.
Industrial Performance Chemicals manufactures and sells a broad range of
ethylene oxide derivatives and formulated glycol products for specialty
applications. These include CARBOWAX polyethylene glycols, with a wide range
of applications in pharmaceutical, personal care, household and industrial
markets; ethanolamines, for detergents, personal care products and in natural
gas conditioning and refining; ethyleneamines, for many industrial uses;
TERGITOL and TRITON specialty and commodity surfactants for institutional and
household cleaning products and other industrial applications; UCON fluids and
lubricants, and alkyl alkanolamines for water-treating chemicals. Formulated
glycol products include UCAR and UCAR ULTRA+ deicing and anti-icing fluids for
the aviation industry, UCARTHERM and NORKOOL heat-transfer fluids, and gas-
treating products, including UCARSOL and SELEXOL solvents.
Major Competitors - BASF, Dow Chemical, Huntsman, Rhone-Poulenc
Solvents, Intermediates and Monomers supplies one of the industry's
broadest product lines of solvents, intermediates and monomers. Its products
include aldehydes, acids and alcohols, including high-quality industrial-grade
synthetic and fermentation ethanol; esters; glycol ethers
(CARBITOL and CELLOSOLVE solvents); ketones, and monomers (vinyl acetate and
acrylics for waterborne coatings). Principal customers are the paints and
coatings industries, and many of SIM's 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 UNICARB System is a pollution reducing,
supercritical fluid technology that can cut costs and reduce volatile organic
compounds (VOCs) in spray-applied coatings by up to 80 percent.
Major Competitors - Eastman Chemical, Hoechst Celanese, BASF, Shell Chemical
Basic Chemicals & Polymers Segment
Union Carbide's Hydrocarbons group manufactures about two thirds of the
company's ethylene requirements and almost one third of its propylene
requirements. Ethylene and propylene are the key raw materials for many of
Union Carbide's businesses.
Union Carbide is the world's leading producer of ethylene oxide and
ethylene glycol. Ethylene oxide is a chemical intermediate primarily used in
the manufacture of ethylene glycol, polyethylene glycol, glycol ethers,
ethanolamines, surfactants and other performance chemicals and polymers.
Ethylene glycol is used extensively in the production of polyester fiber,
resin and film, automotive antifreeze and engine coolants, and aircraft anti-
icing and deicing fluids. Other ethylene oxide-based glycol products include
di-, tri-, and tetraethylene glycols, used as chemical intermediates and in
dehydrating natural gas.
Major Competitors - Dow Chemical, Huntsman, Occidental Chemical, Saudi Basic
Industries, Shell Chemical
Union Carbide is a leading manufacturer of polyethylene, the world's most
widely used plastic. UNIPOL Polymers produces and markets linear low-, medium-
and high-density polyethylenes, used in high-volume applications such as
housewares, milk and water bottles, grocery sacks, trash bags, packaging,
water and gas pipe, and FLEXOMER very low-density resins, used as a polymer
modifier in other polyolefins and to produce flexible hose and tubing, frozen-
food bags and stretch wrap.
Major Competitors - Exxon Chemical, Dow Chemical, Mobil Chemical, Nova
Chemicals, Phillips Chemicals
Carbide's Polypropylene Resins operations manufacture and sell
polypropylene, one of the world's large-volume, fastest-growing plastics. End
use applications include carpeting and upholstery, apparel, packaging films,
food containers, housewares and appliances and automobile interior trim and
panels.
Major Competitors - Montell Polyolefins, Amoco, Exxon Chemical, Fina, Huntsman
For a summary of geographic segment data, see Note 5 to the financial
statements.
Partnerships and Corporate Joint Ventures
The corporation has for many years participated in a number of businesses
through partnerships and corporate joint ventures. These affiliations have
enabled Union Carbide to combine its competitive strengths in technology,
project engineering and operational know-how with complementary strengths of
its partners.
The most significant partnerships and corporate joint ventures of the
Specialties & Intermediates segment include:
UOP - this partnership with AlliedSignal Inc. is a leading worldwide
supplier of process technology, catalysts, molecular sieves and adsorbents to
the petrochemical and gas-processing industries. UOP has facilities in Mobile,
Ala.; Anaheim and Eldorado Hills, Calif.; Des Plaines and McCook, Ill.;
Shreveport, La.; Tonawanda, N.Y.; Shanghai, China; Reggio di Calabria, Italy,
and Brimsdown, U.K.
Nippon Unicar Company Limited - Japan-based producer of commodity and
specialty polyethylene resins and specialty silicone products. This joint
venture with Tonen Corporation has a facility in Kawasaki, Japan.
Aspell Polymeres SNC - French producer of specialty polyethylenes. This
partnership with Elf Atochem has a facility in Gonfreville, France.
World Ethanol Company - this U.S.-based partnership with Archer Daniels
Midland Company supplies ethanol worldwide.
Asian Acetyls Co., Ltd. - South Korea-based producer of vinyl acetate
monomers used in the production of emulsion resins by customers in the
coatings and adhesives industries. This joint venture with BP Chemicals and
Samsung Fine Chemicals Company has a facility in Ulsan, South Korea.
The most significant partnerships and corporate joint ventures of the
Basic Chemicals & Polymers segment include:
Polimeri Europa S.r.l. - Europe-based producer of ethylene and
polyethylene resins. This joint venture with EniChem S.p.A. of Italy has
facilities at Dunkirk, France; Oberhausen, Germany; and Brindisi, Ferrara,
Gela, Priolo and Ragusa, Italy.
EQUATE Petrochemical Company K.S.C. - this joint venture with
Petrochemical Industries Company and Boubyan Petrochemical Company, both of
Kuwait, is building a world-scale petrochemicals complex in Shuaiba, Kuwait,
for the manufacture of polyethylene and ethylene glycol, scheduled for
completion at mid-year 1997.
Petromont and Company Limited Partnership - Canada-based olefins and
polyethylene resins producer owned jointly with Ethylec, a subsidiary of SGF
in Quebec, Canada. This partnership has facilities at Montreal and Varennes,
Canada.
Alberta & Orient Glycol Company Limited - joint venture with Mitsui &
Co., Ltd., Japan, and Far Eastern Textile Ltd., Taiwan. This Canada-based
producer of ethylene glycol has a facility in Prentiss, Alberta, Canada.
For a summary of partnership and corporate joint venture results for the
past three years, see page 16 and Note 8 to the financial statements.
Chemical Glossary
Acrolein - chemical intermediate used mainly to produce glutaraldehyde, animal
feed supplements and cycloaliphatic epoxides for coatings.
Alcohols - chemicals, such as butanol, ethanol and isopropanol, that serve as
solvents and intermediates for the manufacture of personal care products,
pharmaceuticals, esters, ketones, monomers for latexes, herbicides, petroleum
additives and synthetic lubricants.
Biocide - chemical used to control or inhibit the growth of bacteria, algae,
fungi and mold.
Esters - chemical intermediates, such as ethyl acetate and butyl acrylate,
made by reacting alcohols and acids. Esters are used in a wide range of
solvent applications and as monomers.
Ethanolamines - chemical intermediates made from ethylene oxide and ammonia.
They are used in detergents, personal care and agricultural products, and in
gas purification for the delivery of consistently high-quality natural gas to
homes.
Ethylene - reactive chemical made from natural gas or crude oil components.
Ethylene is the starting material from which Carbide makes many of the
company's chemical and polymer products.
Ethyleneamines - chemical intermediates made from ethylene oxide or ethylene
dichloride that are used in fuel, lubricants and motor oil additives,
adhesives, wet strength paper resins inhibitors and epoxy curing agents.
Ethylene glycol - chemical made from ethylene oxide and water. It is used to
make polyester fiber, resin and film, and automotive antifreeze and engine
coolants.
Ethylene oxide - chemical made from ethylene and oxygen. It combines with
other chemicals to produce a wide range of products, such as ethylene glycol,
water soluble polymers for personal care products and surfactants for
detergents and cleaning products.
Glutaraldehyde - an acrolein derivative predominantly used as a biocide for
applications such as industrial water treatment, the manufacture of paper,
secondary oil recovery, and as a disinfectant and a sanitizer.
Glycol ethers - solvents used in higher-technology coating applications, such
as waterborne industrial finishes for the automotive market, and noncoating
applications, such as in hard surface cleaners, military jet fuels and brake
fluids.
Ketones - chemicals, such as acetone, used as solvents for vinyl resins,
industrial lacquers and pharmaceuticals, and as an intermediate for resins,
dyes and rubber chemicals.
Monomer - reactive chemical that can be converted into a polymer. For example,
ethylene is a monomer that is made into polyethylene.
Olefins - generic name for ethylene, propylene and other unsaturated
hydrocarbons (carbon atoms with double bonds) made from components of crude
oil or natural gas. Olefins are the starting material from which most of Union
Carbide's chemical and polymer products are made.
Oxo alcohols, aldehydes and acids - chemicals Carbide manufactures via its Oxo
Process, such as butanol and propionic acid, which are used as chemical
intermediates and industrial solvents.
Polyethylene - 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.
Polymer - chain or network made by linking monomer units, such as ethylene.
All plastics are polymers.
Polypropylene - one of the world's large-volume, fastest-growing plastics,
made by reacting propylene and other olefins to form polymers. Union Carbide
uses its low-pressure UNIPOL Process technology to make much of its
polypropylene.
Propylene - basic chemical made from crude oil and natural gas components. It
is used as a starting material to produce many of Carbide's chemical and
polymer products.
Solvent - liquid chemical used to dissolve or absorb other chemicals. For
example, ketones, esters, alcohols and glycol ethers are effective solvents
commonly used in coatings.
Surfactants - chemicals that increase the cleaning and wetting properties of
household and industrial cleaners and detergents, textile wet processing and
paper-processing products. Surfactants also are present in cosmetics, shampoos
and other personal care products. Carbide makes its surfactants primarily from
ethylene oxide and alcohols.
Management's Discussion & Analysis
Results of Operations
Millions of dollars
for the year ended December 31,
(except per share figures) 1996 1995 1994
Net sales - $6,106 $5,888 $4,865
Operating profit(a) - 921 1,348 551
Interest expense - 76 89 80
Pre-tax income - 845 1,259 471
Net income - 593 925 389
Net income -
common stockholders - 583 915 379
Per share, primary - $ 4.28 $ 6.44 $ 2.44
Per share, fully diluted - 3.90 5.83 2.27
a) See Note 5 to the financial statements for a discussion of the special
items included in operating profit.
(Included within this section are seven bar charts which provide the following
data:
(1) Average Customer Selling Price (Cents/pound)
S&I BC&P
1991 56.7 28.2
1992 56.0 22.7
1993 54.0 21.0
1994 51.3 21.6
1995 58.0 30.0
1996 55.3 27.1
(2) Variable Margin (Millions of dollars)
S&I BC&P Total
1991 1663 585 2248
1992 1794 425 2219
1993 1754 362 2116
1994 1748 480 2228
1995 1906 965 2871
1996 1910 735 2645
(3) Volume (Millions of pounds)
S&I BC&P Total
1991 6144 4958 11102
1992 6458 5510 11968
1993 6454 5502 11956
1994 7093 5680 12773
1995 7112 5878 12990
1996 7743 6706 14449
(4) Unit Variable Margin (Cents/pound)
S&I excluding the
OrganoSilicon
business sold
S&I in 1993 BC&P
1991 27.1 24.5 11.8
1992 27.8 25.0 7.7
1993 27.2 25.7 6.6
1994 24.6 24.6 8.5
1995 26.8 26.8 16.4
1996 24.7 24.7 11.0
(5) Fixed Costs (Millions of dollars)
S&I BC&P Total
1991 1267 456 1723
1992 1225 424 1649
1993 1130 414 1544
1994 1067 395 1462
1995(a) 1122 423 1545
1996 1140 447 1587
Totals in 1990 constant dollars:
1991-$1,660; 1992-$1,545; 1993-$1,409; 1994-$1,299; 1995-$1,349; 1996-$1,358
(6) Fixed Costs per Pound (Cents/pound)
S&I BC&P
1991 20.6 9.2
1992 19.0 7.7
1993 17.5 7.5
1994 15.0 7.0
1995(a) 15.8 7.2
1996 14.7 6.7
Below the preceding two tables appears the following:
a) Excludes charge of $68 million for postemployment benefits.
(7) Employee Productivity
Number of Thousands of pounds
Employees per employee
1991 16705 665
1992 15075 794
1993 13051 916
1994 12004 1064
1995 11521 1128
1996 11745 1230 )
Summary and Outlook
Union Carbide operates two business segments. Specialties & Intermediates
converts basic and intermediate chemicals into a diverse portfolio of
chemicals and polymers serving industrial customers in many markets. This
segment also provides technology services, including licensing, to the oil and
petrochemicals industries. Basic Chemicals & Polymers converts hydrocarbon
feedstocks, principally liquefied petroleum gas and naphtha, into ethylene or
propylene and then into polyethylene, polypropylene, ethylene oxide and
ethylene glycol for sale to third-party customers, as well as ethylene,
propylene, ethylene oxide and ethylene glycol for consumption by the
Specialties & Intermediates segment. In contrast to those of Specialties &
Intermediates, the revenues and operating profit of Basic Chemicals & Polymers
tend to be more cyclical and very sensitive to a number of external variables,
including overall economic demand, hydrocarbon feedstock costs, industry
capacity increases and plant operating rates.
In 1996 the corporation's earnings were adversely impacted by declines in
selling prices, particularly in ethylene glycol, polyethylene and vinyl
acetate monomer, and by high raw material and energy costs. These factors
significantly impacted Basic Chemicals & Polymers operating profit, which
decreased by 63.5 percent versus 1995, and limited Specialties & Intermediates
operating profit growth to only 4.7 percent. Sales volumes increased by 11.2
percent versus the prior year, the largest volume increase in the past decade,
while productivity improved by 7.7 percent, as measured by fixed cost per
pound of product sold. Partnerships continued to report strong profits, while
equity company results declined due to preoperating costs of the Kuwait joint
venture and increased raw material costs of Polimeri Europa, the corporation's
European polyethylene joint venture.
In 1995 the corporation's profitability benefited from improved pricing
in virtually all product groups, with particular strength in polyethylene
through midyear and in ethylene oxide and ethylene glycol throughout the year,
modest volume increases, lower average feedstock costs, continued benefits
from ongoing productivity improvement programs and strong partnership
earnings. In addition, 1995 net income was enhanced by a nonrecurring after-
tax gain associated with the sales of the corporation's investment in UCAR
International Inc., partially offset by a number of nonrecurring after-tax
losses.
Corporate results in 1994 were negatively affected by low margins in
ethylene oxide, ethylene glycol and polyethylene, leading, in turn, to an
operating loss in the Basic Chemicals & Polymers segment. Specialties &
Intermediates reported an increased 1994 operating profit, reflecting the
benefits of improved volumes, cost reduction programs and good partnership
results.
Highlights of 1996 included:
- Completion of a new ethylene propylene rubber production facility in
Seadrift, Tex., with start-up in early 1997.
- Acquisition of Shell Oil Company's polypropylene business.
- Acquisition of 95 percent of Companhia Alcoolquimica Nacional, a
Brazilian manufacturer of vinyl acetate monomer.
- Start-up of a new 330 million-pounds-per-year vinyl acetate monomer
production unit in Ulsan, South Korea, by a joint venture with BP
Chemicals and Samsung Fine Chemicals Company.
- Formation of two joint ventures in the People's Republic of China, one to
manufacture and market latex polymer emulsions, and the other to
manufacture and market cellulosic polymers for the personal care
industry.
- Announcement of a planned 50-50 joint venture with Exxon Chemical Company
to research, develop, market and license leading-edge technologies and
catalysts for the production of polyethylene.
- Sale of $200 million of 7.75 percent debentures maturing in the year
2096.
- Completion of $1.2 billion of long-term financing by the EQUATE joint
venture; construction of the EQUATE facility is on schedule for mid-1997
completion.
- Repurchase of 12.8 million common shares, bringing the total number of
shares repurchased since the beginning of 1993 to 42.3 million.
- Continued progress toward achievement of the annual net savings target of
$637 million by year-end 2000.
As 1997 progresses, raw material and energy costs are expected to decline
from fourth quarter 1996 levels. This trend, coupled with continuation of the
improvement in ethylene glycol demand, which commenced in the fourth quarter
of 1996, should result in an improvement in the 1997 operating profit of Basic
Chemicals & Polymers at least through the first three quarters of the year;
thereafter, profits may be impacted by anticipated capacity increases.
Specialties & Intermediates operating profit should also improve over 1996
levels reflecting continued strong demand and lower energy costs. Earnings
from partnerships should remain strong, while earnings from corporate joint
ventures are expected to improve after start-up of the EQUATE facility,
scheduled for the second half of 1997.
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.
Specialties & Intermediates
Millions of dollars 1996 1995 1994
Sales - $4,286 $4,123 $3,636
Depreciation and amortization - 188 194 169
Operating profit - 742 709 634
Capital expenditures - 522 392 253
Identifiable assets - 3,892 3,527 3,111
1996 Compared with 1995
Revenues of the Specialties & Intermediates segment increased 4.0 percent, as
the result of an 8.9 percent increase in volume partially offset by a 4.7
percent decline in average selling prices. The reduction in average selling
prices reflects the combined effect of increases in sales of lower priced
products and declines in prices of certain products from unusually high levels
experienced in 1995. Variable margin (revenues less variable manufacturing and
distribution costs) as a percentage of sales dropped by 1.6 percentage points,
from 46.2 percent in 1995 to 44.6 percent in 1996, while gross margin
(variable margin less fixed manufacturing and distribution costs) as a
percentage of sales declined by 0.8 percentage points, to 27.0 percent in 1996
from 27.8 percent in 1995. Fixed manufacturing and distribution costs were
held at 1995 levels.
The segment's 1996 selling, administration and other expenses (SA&O)
decreased $45 million, or 15.1 percent, because of the inclusion in 1995 SA&O
of a nonrecurring $48 million charge for postemployment benefits. Excluding
this charge, SA&O increased $3 million, or 1.2 percent. Research and
development expenditures increased $14 million to $128 million.
Operating profit increased in 1996 to $742 million from $709 million in
1995.
1995 Compared with 1994
The segment's revenues increased 13.4 percent, almost entirely because of
increased average selling prices, primarily in the solvents and intermediates
area. Volumes increased slightly. Although variable margin increased by 9.0
percent from 1994 to 1995, it declined as a percentage of sales, from 48.1
percent to 46.2 percent, the result of increased raw material costs. Gross
margin as a percentage of sales remained stable at 27.8 percent in 1995
compared to 27.9 percent in 1994. Fixed manufacturing and distribution costs
rose $23 million, or 3.1 percent, compared to 1994, because of expenses
related to new growth projects, start-up costs related to new manufacturing
facilities and increased profit sharing.
Excluding the 1995 charge of $48 million for postemployment benefits, the
segment's SA&O increased by $27 million, or 12.1 percent, reflecting increased
profit sharing and the costs of new ventures and currency effects. Research
and development expenditures increased by $6 million to $114 million.
Operating profit increased in 1995 to $709 million from $634 million in
1994. In addition to the postemployment benefit charge, operating profit in
1995 included an increase in depreciation expense of $12 million, representing
the cumulative effect of a reduction in the lives of certain computer
equipment.
Basic Chemicals & Polymers
Millions of dollars 1996 1995 1994
Sales - $2,125 $2,080 $1,411
Depreciation and amortization - 124 112 105
Operating profit (loss) - 162 444 (22)
Capital expenditures - 199 150 156
Identifiable assets - 2,328 2,095 1,511
1996 Compared with 1995
Revenues of the Basic Chemicals & Polymers segment increased 2.2 percent, due
to a 14.1 percent increase in customer volume, 11.5 percent of which was due
to the acquisition of the polypropylene business of Shell Oil Company in
January of 1996, offset by a 9.7 percent decrease in selling prices. Variable
margin as a percent of sales declined from 46.4 percent in 1995 to 34.6
percent in 1996. Ethylene glycol selling prices declined throughout the first
three quarters of 1996. While polyethylene prices began to improve in the
second quarter of 1996, they nonetheless averaged below 1995 levels for the
full year. Raw material and energy costs rose during 1996, especially in the
fourth quarter. Gross margin as a percentage of sales declined to 18.2 percent
in 1996 as compared to 30.8 percent in 1995. Fixed manufacturing and
distribution costs increased $24 million, or 7.4 percent, from 1995 to 1996,
principally due to the acquisition of Shell's polypropylene assets and
business.
SA&O decreased $20 million, or 23.0 percent, versus 1995. Prior year SA&O
included a nonrecurring $20 million charge for postemployment benefits.
Research and development expenditures increased $1 million to $31 million.
Operating profit declined to $162 million in 1996 from $444 million in
1995.
1995 Compared with 1994
The segment's revenues increased 47.4 percent, primarily due to a 38.9 percent
increase in average customer selling prices and 3.5 percent higher volumes.
Variable margin as a percentage of sales rose to 46.4 percent in 1995 from
34.0 percent in 1994. Ethylene oxide and ethylene glycol margins improved
through the third quarter of 1995 and remained stable thereafter, while
polyethylene margins improved in the first half of the year and declined
thereafter due to falling prices. Gross margin as a percentage of sales rose
to 30.8 percent in 1995, as compared to 12.7 percent in 1994. Fixed
manufacturing and distribution costs increased by $24 million, or 8.0 percent,
compared to 1994, due to acquired businesses, start-up costs related to new
facilities and profit sharing.
SA&O included a charge of $20 million for postemployment benefits.
Excluding this charge, SA&O increased by 1.7 percent to $67 million from 1994
to 1995 after absorbing the cost of increased profit sharing and acquired
businesses. Research and development expenditures remained stable on a year-
to-year basis.
Operating profit in 1995, including the $20 million postemployment
benefit charge, was $444 million, compared to an operating loss of $22 million
in 1994.
Other
Millions of dollars
for the year ended December 31, 1996 1995 1994
Operating profit (loss) - $17 $195 $(61)
The Other segment includes the operating profit (loss) of noncore
activities and financial transactions. The 1995 operating profit included a
nonrecurring pre-tax gain of $381 million from the sales of the corporation's
remaining interest in UCAR International Inc., partially offset by a $191
million charge for unused office space, principally at the corporation's
headquarters. The 1994 operating loss included a $24 million charge on the
write-down and sale of the corporation's stockholding in Union Carbide India
Limited and a $12 million loss on the sale of interests in a uranium mill and
mines.
Costs Relating to Protection of the Environment
Worldwide costs relating to environmental protection continue to be
significant, due primarily to stringent laws and regulations and to the
corporation's commitment to industry initiatives such as Responsible Care, as
well as to its own internal standards. In 1996 worldwide expenses related to
environmental protection for compliance with Federal, state and local laws
regulating solid and hazardous wastes and discharge of materials to air and
water, as well as for waste site remedial activities, totaled $110 million.
Expenses in 1995 and 1994 were $138 million and $153 million, respectively.
Such expenses were material to operating results in 1996, 1995 and 1994, and
will be material to operating results in future years. In recent years, such
environmental expenses have decreased as the corporation has made progress
toward completing major remediation projects. In addition, worldwide capital
expenditures relating to environmental protection in 1996 totaled $43 million,
compared with $49 million and $57 million in 1995 and 1994, respectively.
The corporation, like other companies in the U.S., periodically receives
notices from the U.S. Environmental Protection Agency and from state
environmental agencies, as well as claims from other companies, alleging that
the corporation is a potentially responsible party (PRP) under the
Comprehensive Environmental Response, Compensation and Liability Act and
equivalent state laws (hereafter referred to collectively as Superfund) for
past and future cleanup costs at hazardous waste sites at which the
corporation is alleged to have disposed of, or arranged for treatment or
disposal of, hazardous 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 124 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, 1996, the corporation's accruals for environmental
remediation totaled $310 million ($327 million in 1995). Approximately 58
percent of the accrual (59 percent in 1995) pertains to estimated future
expenditures for site investigation and cleanup, and approximately 42 percent
(41 percent in 1995) pertains to estimated expenditures for closure and
postclosure activities. See Note 15 to the financial statements for a
discussion of the environmental sites for which the corporation has
remediation responsibility. In addition, the corporation had environmental
loss contingencies of $134 million at Dec. 31, 1996.
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 1996 dollars, should average about $125 million
annually over the next five years.
Worldwide capital expenditures for environmental protection, also
expressed in 1996 dollars, are expected to average about $50 million annually
over the same period. Management anticipates that future annual costs for
environmental protection after 2001 will continue at levels comparable to the
five-year average estimates.
Subject to the inherent imprecision and uncertainties in estimating and
predicting future costs of environmental protection, it is management's
opinion that any future annual costs for environmental protection in excess of
the five-year average estimates stated here, plus those costs anticipated to
continue thereafter, would not have a material adverse effect on the
corporation's consolidated financial position.
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 continues to be named as one of a number of defendants in
lawsuits involving silicone 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 Note 15 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.
Partnerships and Corporate Joint Ventures
As described on page 8, the corporation's most significant partnerships and
corporate joint ventures are UOP, Nippon Unicar, Aspell Polymeres, World
Ethanol and Asian Acetyls within the Specialties & Intermediates segment, and
Polimeri Europa, EQUATE Petrochemical Company, Petromont and Alberta & Orient
Glycol within the Basic Chemicals & Polymers segment.
The combined results and net assets of the partnerships and corporate
joint ventures in each segment, and the corporation's proportionate share
thereof, are presented in the following tables.
Specialties & Intermediates
Combined UCC's Proportionate
Share(a)
Millions of dollars 1996 1995 1994 1996 1995 1994
Net sales - $2,238 $2,311 $1,823 $1,082 $1,114 $855
Cost of sales - 1,456 1,486 1,142 680 720 526
Depreciation - 86 67 49 39 35 25
Income from operations - 322 338 302 187 175 133
Interest expense - 31 32 21 12 15 11
Provision for income taxes - 63 54 36 32 27 18
Net Income - $ 227 $ 257 $ 248 $ 143 $ 136 $104
UCC share of dividends
and distributions - $ 101 $ 92 $ 84
Total assets - $1,769 $1,707 $ 757 $ 762
Total third party debt - 577 550 212 229
Net Assets - $ 561 $ 567 $ 263 $ 258
Basic Chemicals & Polymers
Combined UCC's Proportionate
Share(a)
Millions of dollars 1996 1995 1994 1996 1995 1994
Net sales - $1,930 $1,512 $ 242 $ 965 $ 756 $121
Cost of sales - 1,575 1,014 151 798 507 76
Depreciation - 126 115 20 51 58 10
Income from operations - 96 209 9 30 105 2
Interest expense - 67 61 12 34 30 6
Provision for income taxes - 20 36 1 11 17 1
Net Income (Loss) - $ 9 $ 114 $ (7) $ (15) $ 58 $ (5)
UCC share of dividends
and distributions - $ 40 $ 0 $ 0
Total assets - $3,536 $2,413 $1,650 $1,168
Total third party debt - 1,197 294 561 147
Net Assets - $ 972 $ 994 $ 432 $ 481
a) Includes U.S. GAAP adjustments made by the corporation, such as goodwill
and related amortization, and adjustments needed to conform the accounting
policies of the partnerships and corporate joint ventures to those of UCC.
Specialties & Intermediates
The corporation's share of the net income of Specialties & Intermediates
partnerships and corporate joint ventures increased slightly in 1996 as
compared to 1995, as the result of increased earnings from UOP being partially
offset by the elimination of earnings of the polypropylene partnership with
Shell Oil Company. Earnings from the polypropylene business are now included
in consolidated results. The corporation's share of the net income of S&I
partnerships and corporate joint ventures in 1995 increased by 31.7 percent
over the prior year due to improved UOP results.
Basic Chemicals & Polymers
The corporation's share of the net income of Basic Chemicals & Polymers
partnerships and corporate joint ventures declined $73 million from 1995 to
1996 due to losses from Polimeri Europa and decreased earnings from Petromont,
caused by lower polyethylene prices and higher raw material costs, and the
recognition of preoperating expenses of EQUATE. The increase of $63 million
from 1994 to 1995 was the result of improved results from Petromont and the
addition of the Polimeri Europa joint venture.
In 1995 the corporation and two Kuwaiti corporations formed a joint
venture, EQUATE Petrochemical Company, 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 the planned start-up
date. As of Dec. 31, 1996, the corporation had invested approximately $138
million in EQUATE, representing its 45 percent equity interest. The
corporation anticipates making an additional $12 million investment in early
1997. The corporation recognized losses related to EQUATE's preliminary
operating expenses of $23 million in 1996 ($3 million in 1995). These expenses
are expected to continue until start-up.
In September 1996 EQUATE completed its long-term financing arrangements
for construction and operating funds. The corporation has severally guaranteed
45 percent (approximately $608 million at Dec. 31, 1996) of EQUATE's debt and
working capital needs until certain completion tests are achieved. Thereafter,
a $54 million several guarantee will provide ongoing support. The corporation
also severally guaranteed certain sales volume targets until EQUATE's sales
capabilities are proved. In addition, the corporation has pledged its shares
in EQUATE as security for EQUATE's debt. The corporation has political risk
insurance coverage for its equity investment and, until the completion tests
are concluded, substantially all of its debt guarantee of EQUATE's debt.
EQUATE's debt is expected to reach its maximum level by the end of 1997.
Other
The corporation's remaining interest in UCAR International Inc., a
manufacturer of carbon and graphite products, was sold in 1995. Income (loss)
from corporate investments carried at equity included $4 million and $54
million in 1995 and 1994, respectively, representing the corporation's share
of UCAR's earnings in those years. Additionally, the corporation's share of
dividends and distributions from UCAR was $5 million and $44 million in 1995
and 1994, respectively.
Interest Expense
Interest expense decreased $13 million to $76 million in 1996 as a result of
increased capitalized interest. The 1995 increase of $9 million to $89 million
was due to increased borrowings, partially offset by increased capitalized
interest and lower interest rates.
Provision for Income Taxes
The effective tax rate was 27.9 percent in 1996 as compared to 30.2 percent
and 29.1 percent in 1995 and 1994, respectively. In each of these years, the
corporation's effective tax rate was reduced as a result of foreign sales
corporation income taxed at a preferential rate and development tax credits.
The 1995 effective tax rate was increased as a result of taxes provided on the
sale of UCAR International Inc.
Accounting Changes
In 1996 the corporation adopted Financial Accounting Standard (FAS) 123,
"Accounting for Stock-Based Compensation," under which the corporation elected
to continue following Accounting Principles Board Opinion 25. In 1995 the
corporation adopted FAS 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." In 1994 the corporation
adopted FAS 115, "Accounting for Certain Investments in Debt and Equity
Securities." The effects of the adoptions of FAS 121 and FAS 115 were not
material.
Liquidity, Capital Resources and Other Financial Data
(Included within this section are two bar charts which provide the following
data:
(1) Capital Expenditures (Millions of dollars)
S&I BC&P Total
1991 158 242 400
1992 143 216 359
1993 240 155 395
1994 253 156 409
1995 392 150 542
1996 522 199 721
(2) Shares Repurchased (Millions)
Net of
Reissuances Total
1993 1.4 3.8
1994 6.1 11.6
1995 9.3 14.1
1996 8.7 12.8 )
Cash Flow From Operations
Cash flow from operations increased by $99 million to $862 million in 1996, as
compared to $763 million in 1995. Decreased earnings for the year were offset
by lower tax payments and the improved turnover of accounts receivable and
inventory. Net gains on investing transactions decreased from 1995, which
included a $381 million gain on the sales of the corporation's interest in
UCAR International Inc. Other noncash charges also declined, due to the
inclusion in 1995 of a $191 million charge for future lease payments on unused
office space.
Cash Flow Used for Investing
Cash flow used for investing includes capital expenditures, investments and
acquisitions, and proceeds from the sale of investments and assets.
Capital expenditures increased to $721 million in 1996 from $542 million
in 1995 and $409 million in 1994. Major projects in 1996 included an ethylene
propylene rubber facility at Seadrift, Tex. (Specialties & Intermediates),
expansion of ethylene production units at Taft, La. (Basic Chemicals &
Polymers), as well as new cogeneration facilities at Texas City, Tex. and
Taft, La., and new information technology infrastructure throughout the
company (applicable to both segments). Major Specialties & Intermediates
projects in 1995 and 1994 included a new butanol unit at Taft, La., an energy
systems upgrade at Texas City, Tex., and new TRITON surfactants production
facilities at South Charleston, W.Va. A new UNIPOL II polyethylene production
facility was completed in 1995 at Taft, La., in the Basic Chemicals & Polymers
segment.
Over the past three years 48 percent of capital expenditures was directed
to new capacity, 47 percent to cost reduction and replacement, and 5 percent
to environmental, safety and health facilities. Of these expenditures, 95
percent was in the U.S. and Puerto Rico.
Investments and acquisitions in 1996 included the purchases of Shell's
polypropylene assets and business and of 95 percent of the outstanding shares
of Companhia Alcoolquimica Nacional, a Brazilian producer of vinyl acetate
monomer. Investments and acquisitions during 1995 included the $216 million
acquisition of a 50 percent interest in Polimeri Europa, a $134 million
investment in the EQUATE joint venture, and the $71 million purchase of
certain ethylene oxide derivative businesses in the U.K.
Net proceeds from the sale of investments in 1995 included $542 million
from the sales of the corporation's remaining interest in UCAR International
Inc. In 1994 proceeds from the sale of investments included $86 million from
the sale of the corporation's preferred stock investment in the OrganoSilicon
business (OSi).
Proceeds from the sale of fixed and other assets of $138 million in 1994
included $84 million from the sale of a manufacturing facility and
distribution terminal in Hong Kong and $13 million from the divestiture of the
corporation's specialty electronic materials business and its interest in a
Zimbabwe mining and smelting operation.
At Dec. 31, 1996, the cost of completing authorized construction projects
was estimated to be $1.074 billion, of which $17 million is covered by firm
commitments. Future construction expenditures are anticipated to be sourced
through operating cash flows and borrowings.
Cash Flow Used for Financing
Cash flow used for financing includes stockholder dividends and funds used to
buy back common stock and for debt reduction, offset in part by proceeds from
long-term debt and sales of common stock pursuant to the corporation's
dividend reinvestment plan and its employee savings and investment programs.
Cash flow used for financing in 1996 totaled $254 million, compared to
$57 million in 1995 and $360 million in 1994. In October 1996 the corporation
issued $200 million of 7.75 percent debentures maturing in 2096, the proceeds
of which were used to finance ongoing share repurchases and to pay down
existing short-term debt. In 1995 the corporation completed a $400 million,
two-part public offering of debt securities. During 1996, pursuant to a share
repurchase program authorized by the board of directors, the corporation
repurchased 12.8 million shares of its common stock for $544 million, at an
average effective price of $42.46 per share, bringing the total amount
repurchased since the beginning of 1993 to 42.3 million shares for $1.376
billion, at an average effective price of $32.53 per share.
At Dec. 31, 1996, there were no outstanding borrowings under the
corporation's then-existing $1 billion bank credit agreement. In January 1997
the corporation entered into a new bank credit agreement, which also provides
the corporation with $1 billion in credit for the next five years, but with
the option, subject to certain conditions, to increase the available credit by
$250 million and to extend the maturity date of the agreement by one year on a
rolling basis. Several options are available to borrow at floating interest
rates.
In January 1997 the corporation established a medium term note program
that allows for borrowings of up to $500 million. Notes issued under the
program will have a maturity of nine months or longer and will bear interest
at either a fixed or a floating rate determined by reference to interest rate
formulas. Also in January 1997, the corporation formed a real estate
investment trust subsidiary that issued $250 million of preferred stock
bearing a current dividend yield of 14 percent for 10 years and 1 percent
thereafter. Domestic real estate with a fair market value of approximately
$500 million will be mortgaged via intercompany debt in conjunction with this
transaction. The preferred stock may be redeemed if, as a result of a change
in tax laws, rules or regulations, dividends on the preferred stock or
interest paid on the mortgage note is not fully deductible for Federal income
tax purposes.
Debt Ratios
Total debt outstanding at year-end for the past three years was:
Millions of dollars 1996 1995 1994
Domestic - $1,492 $1,254 $862
International - 107 69 84
Total - $1,599 $1,323 $946
Year-end ratios of total debt to total capital were:
1996 1995 1994
Debt ratio - 42.7% 39.0% 38.2%
Total debt consists of short-term debt, long-term debt and the current
portion of long-term debt. Total capital consists of total debt plus minority
stockholders' equity in consolidated subsidiaries and stockholders' equity.
Selected Financial Data
Union Carbide Corporation and Subsidiaries
Millions of dollars
(except per share figures) 1996 1995 1994
From the Income Statement -
Net sales - $ 6,106 $ 5,888 $ 4,865
Cost of sales - 4,568 4,100 3,673
Research and development - 159 144 136
Selling, administration and other expenses - 321 387(a) 290
Depreciation and amortization - 312 306 274
Partnership (income) loss - (144) (152) (98)
Other (income) expense - net - (31) (245) 39
Income before interest expense and -
provision for income taxes - 921 1,348 551
Interest expense - 76 89 80
Pre-tax income (loss)
from continuing operations - 845 1,259 471
Provision (credit) for income taxes - 236 380 137
Income (loss) from corporate
investments carried at equity - (16) 46 55
Income (loss) from continuing operations - 593 925 389
Net income (loss) - common stockholders - 583 915 379
Per common share
Primary - Income (loss)
from continuing operations - $ 4.28 $ 6.44 $ 2.44
- Net income (loss) - 4.28 6.44 2.44
Fully diluted(b) - Income (loss)
from continuing operations - 3.90 5.83 2.27
- Net income (loss) - 3.90 5.83 2.27
From the Balance Sheet -
Net current assets of continuing operations - $ 595 $ 858 $ 329
Total assets - 6,546 6,256 5,028
Long-term debt - 1,487 1,285 899
Other long-term obligations - 811 834 537
Total capital(c) - 3,742 3,392 2,479
Stockholders' equity - 2,114 2,045 1,509
Stockholders' equity per common share - 16.72 15.14 10.45
Other Data -
Cash dividends on common stock - $ 99 $ 103 $ 113
Cash dividends per common share - 0.75 0.75 0.75
Special distribution per common share - - - -
Market price per common share - high(d) - 49.88 42.75 35.88
Market price per common share - low(d) - 36.38 25.50 21.50
Common shares outstanding (thousands) - 126,440 135,108 144,412
Capital expenditures - 721 542 409
Employees - continuing operations - 11,745 11,521 12,004
Selected Financial Ratios -
Total debt/total capital - 42.7% 39.0% 38.2%
Return on capital(c) - 18.6% 39.2% 18.0%
Return on equity(f) - 28.5% 60.6% 26.5%
Income from continuing operations/
average stockholders' equity - 28.5% 52.1% 26.5%
Cash dividends on common stock/income
from continuing operations - 16.7% 11.1% 29.0%
Millions of dollars
(except per share figures) 1993 1992 1991
From the Income Statement -
Net sales - $ 4,640 $ 4,872 $ 4,877
Cost of sales - 3,589 3,764 3,787
Research and development - 139 155 157
Selling, administration and other expenses - 340 383 408
Depreciation and amortization - 276 293 287
Partnership (income) loss - (67) (60) 22
Other (income) expense - net - 66 13 135
Income before interest expense and -
provision for income taxes - 297 324 81
Interest expense - 70 146 228
Pre-tax income (loss)
from continuing operations - 227 178 (147)
Provision (credit) for income taxes - 78 45 (50)
Income (loss) from corporate
investments carried at equity - 16 (14) (21)
Income (loss) from continuing operations - 165 119 (116)
Net income (loss) - common stockholders - 58 (187) (28)
Per common share
Primary - Income (loss)
from continuing operations - $ 1.00 $ 0.76 $ (1.06)
- Net income (loss) - 0.36 (1.46) (0.22)
Fully diluted(b) - Income (loss)
from continuing operations - 1.00 0.76 (1.06)
- Net income (loss) - 0.36 (1.46) (0.22)
From the Balance Sheet -
Net current assets of continuing operations - $ 233 $ 66 $ 209
Total assets - 4,689 4,941 6,826
Long-term debt - 931 1,113 1,160
Other long-term obligations - 378 277 428
Total capital(c) - 2,395 2,710 4,694
Stockholders' equity - 1,428 1,238 2,239
Stockholders' equity per common share - 9.49 9.32 17.55
Other Data -
Cash dividends on common stock - $ 110 $ 114 $ 126
Cash dividends per common share - 0.75 0.875 1.00
Special distribution per common share - - 15.875 -
Market price per common share - high(d) - 23.13 17.13(e) 22.63
Market price per common share - low(d) - 16.00 10.88(e) 15.13
Common shares outstanding (thousands) - 150,548 132,865 127,607
Capital expenditures - 395 359 400
Employees - continuing operations - 13,051 15,075 16,705
Selected Financial Ratios -
Total debt/total capital - 40.3% 54.3% 52.0%
Return on capital(c) - 7.7% 6.9% -
Return on equity(f) - 4.7% (8.4)% (1.2)%
Income from continuing operations/
average stockholders' equity - 12.4% 6.8% -
Cash dividends on common stock/income
from continuing operations - 66.7% 95.8% -
Millions of dollars
(except per share figures) 1990 1989 1988
From the Income Statement -
Net sales - $ 5,238 $ 5,613 $ 5,525
Cost of sales - 3,876 3,909 3,696
Research and development - 157 143 124
Selling, administration and other expenses - 466 442 394
Depreciation and amortization - 278 261 255
Partnership (income) loss - (70) (82) (95)
Other (income) expense - net - (103) (108) 1
Income before interest expense and -
provision for income taxes - 634 1,048 1,150
Interest expense - 269 268 172
Pre-tax income (loss)
from continuing operations - 365 780 978
Provision (credit) for income taxes - 130 257 381
Income (loss) from corporate
investments carried at equity - (42) 27 33
Income (loss) from continuing operations - 188 530 608
Net income (loss) - common stockholders - 308 573 662
Per common share
Primary - Income (loss)
from continuing operations - $ 1.34 $ 3.76 $ 4.48
- Net income (loss) - 2.19 4.07 4.88
Fully diluted(b) - Income (loss)
from continuing operations - 1.34 3.63 4.29
- Net income (loss) - 2.13 3.92 4.66
From the Balance Sheet -
Net current assets of continuing operations - $ 7 $ 22 $ 14
Total assets - 7,389 7,355 7,327
Long-term debt - 2,058 2,060 2,271
Other long-term obligations - 357 572 594
Total capital(c) - 5,338 5,319 4,805
Stockholders' equity - 2,373 2,383 1,836
Stockholders' equity per common share - 18.88 16.83 13.34
Other Data -
Cash dividends on common stock - $ 138 $ 140 $ 155
Cash dividends per common share - 1.00 1.00 1.15
Special distribution per common share - - - -
Market price per common share - high(d) - 24.88 33.25 28.38
Market price per common share - low(d) - 14.13 22.75 17.00
Common shares outstanding (thousands) - 125,674 141,578 137,602
Capital expenditures - 381 483 380
Employees - continuing operations - 17,722 18,032 17,258
Selected Financial Ratios -
Total debt/total capital - 54.0% 49.9% 56.1%
Return on capital(c) - 8.4% 21.2% 24.5%
Return on equity(f) - 12.9% 31.2% 53.1%
Income from continuing operations/
average stockholders' equity - 7.9% 25.1% 39.4%
Cash dividends on common stock/income
from continuing operations - 73.4% 26.4% 25.5%
<FN>
a) Selling, administration and other expenses in 1995 include a charge of $68
million for postemployment benefits.
b) Fully diluted per share amounts are shown equal to primary per share
amounts when antidilution occurs.
c) Return on capital is computed by dividing income by beginning-of-year
capital. Income consists of income from continuing operations, less
preferred dividends, plus after-tax interest cost (net of interest income
received from Praxair), plus income attributable to minority interests.
Capital consists of total debt plus minority stockholders' equity in
consolidated subsidiaries and stockholders' equity, adjusted for the
corporation's Praxair-related assets and the cumulative effect of changes
in accounting principles. Total debt consists of short-term debt, long-term
debt and the current portion of long-term debt.
d) Prices are based on New York Stock Exchange Composite Transactions.
e) In 1992 the corporation spun off Praxair, Inc. The high and low presented
in the table for 1992 represent the value of the common stock after the
spin-off. The high and low for 1992 before the spin-off were $29.63 and
$20.13, respectively.
f) Return on equity is computed by dividing net income-common stockholders by
beginning-of-year stockholders' equity.
Quarterly Data
Union Carbide Corporation and Subsidiaries
Millions of dollars 1Q 2Q 3Q 4Q Year
1996 -
Net sales - $1,501 $1,559 $1,538 $1,508 $6,106
Cost of sales - 1,099 1,150 1,145 1,174 4,568
Gross profit - 402 409 393 334 1,538
Depreciation and amortization - 75 79 81 77 312
Operating profit - 259 245 242 175 921
Net income - 157 173 161 102 593
Net income - -
common stockholders - 155 170 159 99 583
1995 -
Net sales - $1,453 $1,541 $1,495 $1,399 $5,888
Cost of sales - 999 1,103 1,038 960 4,100
Gross profit - 454 438 457 439 1,788
Depreciation and amortization - 83 72 72 79 306
Operating profit - 341 308 398 301 1,348
Net income(a) - 230 228 277 190 925
Net income -
common stockholders - 228 225 275 187 915
Dollars per common share 1Q 2Q 3Q 4Q Year
1996 -
Primary net income - $ 1.11 $ 1.23 $ 1.19 $ 0.74 $ 4.28
Fully diluted net income - 1.01 1.12 1.08 0.68 3.90
Cash dividends - 0.1875 0.1875 0.1875 0.1875 0.75
Market price - high(b) - 49.88 49.63 46.25 47.00 49.88
Market price - low(b) - 36.63 39.00 36.38 39.00 36.38
1995 -
Primary net income - $ 1.57 $ 1.59 $ 1.96 $ 1.33 $ 6.44
Fully diluted net income - 1.43 1.44 1.77 1.21 5.83
Cash dividends - 0.1875 0.1875 0.1875 0.1875 0.75
Market price - high(b) - 32.00 33.63 42.75 41.38 42.75
Market price - low(b) - 25.50 28.38 33.00 36.38 25.50
a) Net income for the first quarter of 1995 included an after-tax net gain of
$12 million, or $0.07 per share fully diluted, due to a gain on the sale of
a portion of the corporation's interest in UCAR International Inc.; a
charge for future lease payments on unused office space, primarily at the
corporation's headquarters, and an increase in depreciation expense related
to a reduction in the depreciable lives of certain computer equipment. Net
income for the third quarter of 1995 included an after-tax net gain of $50
million, or $0.32 per share fully diluted, due to a gain on the sale of the
corporation's remaining interest in UCAR International Inc. and a charge
for postemployment benefits.
b) Prices are based on New York Stock Exchange Composite Transactions.
Consolidated Statement of Income
Union Carbide Corporation and Subsidiaries
Millions of dollars (except per share figures),
year ended December 31, 1996 1995 1994
Net Sales - $6,106 $5,888 $4,865
Cost of sales, exclusive of
depreciation and amortization - 4,568 4,100 3,673
Research and development - 159 144 136
Selling, administration and other expenses - 321 387 290
Depreciation and amortization - 312 306 274
Partnership income - (144) (152) (98)
Other (income) expense - net - (31) (245) 39
Income Before Interest Expense and Provision
for Income Taxes - 921 1,348 551
Interest expense - 76 89 80
Income Before Provision for Income Taxes - 845 1,259 471
Provision for income taxes - 236 380 137
Income of Consolidated Companies - 609 879 334
Income (loss) from corporate investments
carried at equity - (16) 46 55
Net Income - 593 925 389
Preferred stock dividends, net of income taxes - 10 10 10
Net Income - Common Stockholders - $ 583 $ 915 $ 379
Earnings per Common Share
Primary - $ 4.28 $ 6.44 $ 2.44
Fully diluted - 3.90 5.83 2.27
Cash Dividends Declared per Common Share - $ 0.75 $ 0.75 $ 0.75
The Notes to Financial Statements on pages 26 through 41 should be read in
conjunction with this statement.
Consolidated Balance Sheet
Union Carbide Corporation and Subsidiaries
Millions of dollars at December 31, 1996 1995
Assets -
Cash and cash equivalents - $ 94 $ 449
Notes and accounts receivable - 1,047 996
Inventories - 541 544
Other current assets - 191 207
Total Current Assets - 1,873 2,196
Property, plant and equipment - 7,159 6,357
Less: Accumulated depreciation - 3,750 3,549
Net Fixed Assets - 3,409 2,808
Companies carried at equity - 695 739
Other investments and advances - 77 84
Total Investments and Advances - 772 823
Other assets - 492 429
Total Assets - $6,546 $6,256
Liabilities and Stockholders' Equity -
Accounts payable - $ 268 $ 316
Short-term debt and current portion
of long-term debt - 112 38
Accrued income and other taxes - 133 259
Other accrued liabilities - 765 725
Total Current Liabilities - 1,278 1,338
Long-term debt - 1,487 1,285
Postretirement benefit obligation - 473 480
Other long-term obligations - 811 834
Deferred credits - 301 201
Minority stockholders' equity in
consolidated subsidiaries - 29 24
Convertible preferred stock - ESOP - 144 146
Unearned employee compensation - ESOP - (91) (97)
Stockholders' equity -
Common stock
Authorized - 500,000,000 shares
Issued - 154,609,669 shares - 155 155
Additional paid-in capital - 370 343
Translation and other equity adjustments - (33) (15)
Retained earnings - 2,629 2,145
Less: Treasury stock, at cost -
28,169,324 shares (19,501,701 in 1995) - (1,007) (583)
Total Stockholders' Equity - 2,114 2,045
Total Liabilities and Stockholders' Equity - $6,546 $6,256
The Notes to Financial Statements on pages 26 through 41 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, 1996 1995 1994
Operations -
Net income - $ 593 $ 925 $ 389
Noncash charges (credits) to net income
Depreciation and amortization - 312 306 274
Deferred income taxes - 82 (29) 31
Other noncash charges - 16 186 88
Net gains on investing transactions - (3) (379) (100)
Increase in working capital(a) - (92) (242) (151)
Long-term assets and liabilities - (46) (4) 30
Cash Flow From Operations - 862 763 561
Investing -
Capital expenditures - (721) (542) (409)
Investments and acquisitions
(excluding cash acquired) - (263) (431) (16)
Sale of investments - - 552 87
Sale of fixed and other assets - 22 54 138
Cash Flow Used for Investing - (962) (367) (200)
Financing -
Change in short-term debt (3 months or less) - 96 (11) 8
Proceeds from short-term debt - 21 6 43
Repayment of short-term debt - (37) - (48)
Proceeds from long-term debt - 203 402 18
Repayment of long-term debt - (10) (22) (36)
Issuance of common stock - 129 116 111
Purchase of common stock - (544) (425) (337)
Payment of dividends - (111) (116) (126)
Other - (1) (7) 7
Cash Flow Used for Financing - (254) (57) (360)
Effect of exchange rate changes on cash
and cash equivalents - (1) 1 -
Change in cash and cash equivalents - (355) 340 1
Cash and cash equivalents beginning-of-year - 449 109 108
Cash and Cash Equivalents End-of-Year - $ 94 $ 449 $ 109
Cash paid for interest and income taxes
Interest (net of amount capitalized) - $ 66 $ 68 $ 89
Income taxes - 169 329 74
a) Net change in certain components of working
capital (excluding noncash transactions):
(Increase) decrease in current assets
Notes and accounts receivable - $ (26) $(111) $(206)
Inventories - 43 (144) (22)
Other current assets - 25 8 (19)
Increase (decrease) in payables and accruals - (134) 5 96
(Increase) in working capital - $ (92) $(242) $(151)
The Notes to Financial Statements on pages 26 through 41 should be read in
conjunction with this statement.
Consolidated Statement of Stockholders' Equity
Union Carbide Corporation and Subsidiaries
1996
Shares Millions
(in thousands) of dollars
Common Stock -
Balance at December 31 - 154,610 $ 155
Additional Paid-In Capital -
Balance at January 1 - $ 343
Put options, net - 8
Issued:
For the Dividend Reinvestment
and Stock Purchase Plan - 2
For employee savings and
incentive plans - 17
Balance at December 31 - $ 370
Translation and Other
Equity Adjustments -
Balance at January 1 - $ (15)
Translation and other adjustments - (18)
Sale of businesses - -
Balance at December 31 - $ (33)
Retained Earnings -
Balance at January 1 - $2,145
Net income - common stockholders - 583
Cash dividends on common stock - (99)
Balance at December 31 - $2,629
Treasury Stock -
Balance at January 1 - 19,502 $ 583
Common stock repurchase program - 12,821 550
Issued:
For the Dividend Reinvestment
and Stock Purchase Plan - (212) (7)
For employee savings and
incentive plans - (3,942) (119)
Balance at December 31 - 28,169 $1,007
Total Stockholders' Equity - $2,114
1995
Shares Millions
(in thousands) of dollars
Common Stock -
Balance at December 31 - 154,610 $ 155
Additional Paid-In Capital -
Balance at January 1 - $ 369
Put options, net - (19)
Issued:
For the Dividend Reinvestment
and Stock Purchase Plan - 1
For employee savings and
incentive plans - (8)
Balance at December 31 - $ 343
Translation and Other
Equity Adjustments -
Balance at January 1 - $ (59)
Translation and other adjustments - (11)
Sale of businesses - 55
Balance at December 31 - $ (15)
Retained Earnings -
Balance at January 1 - $1,333
Net income - common stockholders - 915
Cash dividends on common stock - (103)
Balance at December 31 - $2,145
Treasury Stock -
Balance at January 1 - 10,197 $ 289
Common stock repurchase program - 14,127 426
Issued:
For the Dividend Reinvestment
and Stock Purchase Plan - (322) (9)
For employee savings and
incentive plans - (4,500) (123)
Balance at December 31 - 19,502 $ 583
Total Stockholders' Equity - $2,045
1994
Shares Millions
(in thousands) of dollars
Common Stock -
Balance at December 31 - 154,610 $ 155
Additional Paid-In Capital -
Balance at January 1 - $ 366
Put options, net - -
Issued:
For the Dividend Reinvestment
and Stock Purchase Plan - 1
For employee savings and
incentive plans - 2
Balance at December 31 - $ 369
Translation and Other
Equity Adjustments -
Balance at January 1 - $ (84)
Translation and other adjustments - 7
Sale of businesses - 18
Balance at December 31 - $ (59)
Retained Earnings -
Balance at January 1 - $1,067
Net income - common stockholders - 379
Cash dividends on common stock - (113)
Balance at December 31 - $1,333
Treasury Stock -
Balance at January 1 - 4,062 $ 76
Common stock repurchase program - 11,624 337
Issued:
For the Dividend Reinvestment
and Stock Purchase Plan - (275) (6)
For employee savings and
incentive plans - (5,214) (118)
Balance at December 31 - 10,197 $ 289
Total Stockholders' Equity - $1,509
The Notes to Financial Statements on pages 26 through 41 should be read in
conjunction with this statement.
Notes to Financial Statements
Index
The Notes to Financial Statements are found on the following pages:
1. Summary of Significant Accounting Policies.....26
2. Financial Instruments.....28
3. Supplementary Income Statement Detail.....29
4. Supplementary Balance Sheet Detail.....29
5. Business and Geographic Segment Information.....30
6. Acquisitions and Divestitures.....31
7. Income Taxes.....32
8. Partnerships and Corporate Joint Ventures.....33
9. Long-Term Debt.....34
10. Convertible Preferred Stock - ESOP.....34
11. Stockholders' Equity.....35
12. Leases.....35
13. Retirement Programs.....36
14. Incentive Plans.....38
15. Commitments and Contingencies.....39
16. Subsequent Events.....41
1. Summary of Significant Accounting Policies
Nature of Operations - Union Carbide Corporation is engaged in two segments of
the chemicals and plastics industry, Specialties & Intermediates and Basic
Chemicals & Polymers. See Note 5.
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.
The consolidated financial statements have been prepared in conformity
with generally accepted accounting principles, which require the corporation
to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Accounting Changes - The corporation adopted Financial Accounting Standard
(FAS) 123, "Accounting for Stock-Based Compensation," in 1996, under which the
corporation elected to continue following Accounting Principles Board (APB)
Opinion 25. The corporation adopted FAS 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," in 1995, and
adopted FAS 115, "Accounting for Certain Investments in Debt and Equity
Securities," in 1994. The effects of the adoptions of FAS 121 and FAS 115 were
not material.
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.
Translation gains and losses relating to operations located in Latin American
countries, where hyperinflation exists, and to international operations using
the U.S. dollar as their functional currency are included in the income
statement.
Financial Instruments - Financial instruments are used to hedge financial risk
caused by fluctuating interest and currency rates. The amounts to be paid or
received on interest rate risk instruments that hedge debt accrue and are
recognized over the lives of the instruments. Gains and losses on foreign
currency risk instruments used to hedge firm commitments are deferred and
recognized as part of the related foreign currency transactions.
Foreign currency instruments that 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 63 percent of inventory amounts before application of the
LIFO method at Dec. 31, 1996 (59 percent at Dec. 31, 1995) 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 $329 million and $340 million higher than reported at
Dec. 31, 1996 and 1995, 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 ($11 million in 1996, $14
million in 1995 and $13 million in 1994).
Income Taxes - Provisions have been made for deferred income taxes based on
differences between financial statement and tax bases of assets and
liabilities using currently enacted tax rates and regulations.
Environmental Costs - Environmental expenditures are expensed or capitalized
as appropriate, depending on their future economic benefit. Expenditures
relating to an existing condition caused by past operations and having no
future economic benefits are expensed. Environmental expenditures include site
investigation, physical remediation, operation and maintenance, and legal and
administrative costs. Environmental accruals are established for sites where
it is probable that a loss has been incurred and the amount of the loss can
reasonably be estimated. Where the estimate is a range and no amount within
the range is a better estimate than any other amount, the corporation accrues
the minimum amount in the range and includes the balance of the range in its
reported contingencies.
Retirement Programs - The cost of pension benefits under the U.S. Retirement
Program is determined by an independent actuarial firm using the projected
unit credit actuarial cost method, with an unrecognized net asset at Jan. 1,
1986, amortized over 15 years. Contributions to this program are made in
accordance with the regulations of the Employee Retirement Income Security Act
of 1974.
The cost of postretirement benefits is recognized on the accrual basis
over the period in which employees become eligible for benefits.
Incentive Plans - The corporation applies APB Opinion 25 in accounting for the
stock option portion of its employee compensation and stock purchase plans.
Compensation expense is recognized for other stock-based incentives issued
under the long-term incentive plan.
Earnings per Common Share - Primary earnings per common share is computed by
dividing Net income - 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 Net income by the weighted average number of common shares
outstanding, common stock equivalents related to dilutive stock options and
convertible preferred stock.
The number of common shares used to compute earnings per share amounts
was:
1996 1995 1994
Primary - 135,521,904 141,663,656 154,174,788
Fully diluted - 151,642,658 158,380,545 170,886,405
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, 1996 and 1995,
the carrying amounts approximate fair value because of the short maturity of
these instruments. The corporation had foreign currency forward contracts of
$38 million at Dec. 31, 1996 ($32 million at Dec. 31, 1995), to hedge
fluctuations in the dollar value of short-term foreign currency receivables
and payables. Deferred gains or losses on these contracts were not material.
Other outstanding foreign currency forward contracts and options used as
a means of offsetting fluctuations in the dollar value of other foreign
currency accounts receivable and payable and earnings fluctuations from
anticipated foreign currency cash flows totaled $188 million at Dec. 31, 1996
($173 million at Dec. 31, 1995). During 1996 and 1995 the average fair values
of, and the resultant losses and gains associated with, these contracts were
nominal.
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.
Long-Term Receivables - The fair values of long-term and insurance recovery
receivables are calculated using current interest rates and consideration of
underlying collateral where appropriate. The fair values approximate the
carrying values of $186 million and $200 million included in Other assets in
the Consolidated Balance Sheet at Dec. 31, 1996 and 1995, respectively.
Debt - The corporation uses various types of financial instruments, including
interest rate swaps and forward rate agreements, to manage exposure to
financial market risk caused by interest rate fluctuations. An interest rate
swap held at Dec. 31, 1996 and 1995, had a nominal carrying amount and fair
value.
Carrying and Fair Values - The carrying values and fair values of the
corporation's investments, receivables and debt financial instruments at Dec.
31, 1996 and 1995, are summarized in the table below. Fair values are based on
quoted market values, where available, or discounted cash flows (principally
long-term debt).
Millions of dollars
at December 31, 1996 1995
Carrying Fair Carrying Fair
Assets (Liabilities) Amount Value Amount Value
Investments and
receivables - $ 263 $ 263 $ 284 $ 286
Short- and
long-term debt - (1,599) (1,619) (1,323) (1,389)
3. Supplementary Income Statement Detail
Millions of dollars
for the year ended December 31, 1996 1995 1994
Selling, Administration
and Other Expenses -
Selling - $130 $128 $126
Administration(a) - 121 186 99
Other expenses - 70 73 65
$321 $387 $290
Other (Income) Expense - Net -
Gains on sales and
disposals of businesses and
other assets(b) - $ - $(387) $(67)
Investment and
interest income - (32) (19) (11)
Foreign currency adjustments - 7 6 16
Unused space charge(c) - - 191 -
Other(d) - (6) (36) 101
$(31) $(245) $ 39
Interest Expense -
Interest incurred(e) - $121 $119 $ 93
Less: Interest capitalized
and other adjustments - 45 30 13
$ 76 $ 89 $ 80
a) Includes a charge of $68 million for postemployment benefits in 1995.
b) Includes for 1995 a $381 million gain from the sales of the corporation's
remaining interest in UCAR International Inc. 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 the sale of 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 mines.
c) See Note 12.
d) Includes for 1994 $68 million for litigation costs and other costs related
to divested operations. Includes income of $5 million in 1995 and charges
of $7 million in 1994 related to discontinued and noncore businesses.
e) Includes $12 million, $12 million and $17 million in 1996, 1995 and 1994,
respectively, representing the interest component of certain leases.
4. Supplementary Balance Sheet Detail
Millions of dollars at December 31, 1996 1995
Notes and Accounts Receivable -
Trade - $ 846 $ 824
Other - 211 183
1,057 1,007
Less: Allowance for doubtful accounts - 10 11
$1,047 $ 996
Inventories -
Raw materials and supplies - $ 114 $ 117
Work in process - 54 46
Finished goods - 373 381
$ 541 $ 544
Property, Plant and Equipment -
Land and improvements - $ 326 $ 307
Buildings - 393 380
Machinery and equipment - 5,795 5,221
Construction in progress and other - 645 449
$7,159 $6,357
Other Assets -
Deferred charges - $ 193 $ 163
Insurance recovery receivables - 135 145
Long-term receivables - 51 55
Patents, trademarks and goodwill - 113 66
$ 492 $ 429
Other Accrued Liabilities -
Accrued accounts payable - $ 335 $ 241
Payrolls - 56 53
Environmental remediation costs - 58 65
Postretirement benefit obligation - 33 28
Employee profit sharing - 51 85
Other - 232 253
$ 765 $ 725
Other Long-Term Obligations -
Environmental remediation costs - $ 252 $ 262
Product liability costs - 170 180
Impairment of unused office space - 151 158
Postemployment benefits - 83 87
Other - 155 147
$ 811 $ 834
Translation and Other
Equity Adjustments -
Canada - $ (44) $ (43)
Europe - 18 15
Far East & Other - (7) 13
$ (33) $ (15)
5. Business and Geographic Segment Information
The company's operations are classified into two business segments. The
Specialties & Intermediates segment includes the corporation's specialty
chemicals and polymers product lines, licensing, and 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,
polypropylene, ethylene oxide and ethylene glycol. The corporation's noncore
operations and financial transactions are included in the Other segment.
Millions of dollars 1996 1995 1994
Net Sales -
Specialties & Intermediates - $4,286 $4,123 $3,636
Basic Chemicals & Polymers - 2,125 2,080 1,411
Intersegment eliminations - (305) (315) (182)
Total - $6,106 $5,888 $4,865
Partnership Income (Loss) -
Specialties & Intermediates - $ 134 $ 130 $ 102
Basic Chemicals & Polymers - 10 22 (4)
Total - $ 144 $ 152 $ 98
Depreciation and Amortization -
Specialties & Intermediates - $ 188 $ 194 $ 169
Basic Chemicals & Polymers - 124 112 105
Total - $ 312 $ 306 $ 274
Operating Profit (Loss) -
Specialties & Intermediates - $ 742 $ 709 $ 634
Basic Chemicals & Polymers - 162 444 (22)
Other - 17 195 (61)
Total - $ 921 $1,348 $ 551
Capital Expenditures -
Specialties & Intermediates - $ 522 $ 392 $ 253
Basic Chemicals & Polymers - 199 150 156
Total - $ 721 $ 542 $ 409
Identifiable Assets -
Specialties & Intermediates - $3,892 $3,527 $3,111
Basic Chemicals & Polymers - 2,328 2,095 1,511
Other - 326 634 406
Total - $6,546 $6,256 $5,028
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 is Income before interest
expense and provision for income taxes.
The operating profit of the Specialties & Intermediates segment for 1995
includes a $48 million charge for postemployment benefits and an increase of
$12 million in depreciation expense related to a reduction in the depreciable
lives of certain computer equipment. The operating profit of the Basic
Chemicals & Polymers segment for 1995 includes a $20 million charge for
postemployment benefits. Other operating profit for 1995 includes a gain of
$381 million on the sales of the corporation's interest in UCAR International
Inc. and a charge of $191 million for future lease costs on unused office
space, primarily at the corporation's headquarters.
The 1994 operating profit of the Specialties & Intermediates segment
includes an $81 million gain on the sale of a manufacturing facility and
distribution terminal in Hong Kong, a $68 million charge for litigation costs
and other costs primarily related to divested operations and a $24 million
gain on the sale of a preferred stock investment in the OrganoSilicon business
(OSi). Other 1994 operating profit includes 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 mines.
Net sales, operating profit (loss) and identifiable assets by geographic
area were as follows:
Millions of dollars 1996 1995 1994
Net Sales -
United States & Puerto Rico(a) - $4,336 $4,071 $3,535
Canada - 147 142 136
Europe - 664 719 474
Latin America - 228 227 218
Far East & Other - 731 729 502
International operations - 1,770 1,817 1,330
Total - $6,106 $5,888 $4,865
a) Includes export sales of $743 million in 1996 ($732 million in 1995 and
$532 million in 1994).
Operating Profit (Loss) -
United States & Puerto Rico - $ 820 $1,228 $ 433
Canada - 28 36 14
Europe - 41 50 12
Latin America - (11) 12 16
Far East & Other - 37 29 74
International operations - 95 127 116
Intersegment eliminations - 6 (7) 2
Total - $ 921 $1,348 $ 551
Identifiable Assets -
United States & Puerto Rico - $4,977 $4,433 $3,670
Canada - 305 277 244
Europe - 408 404 281
Latin America - 224 191 190
Far East & Other - 312 322 244
International operations - 1,249 1,194 959
Intersegment eliminations - (6) (5) (7)
Other - 326 634 406
Total - $6,546 $6,256 $5,028
6. Acquisitions and Divestitures
On Jan. 18, 1996, the corporation purchased the polypropylene assets and
business of Shell Oil Company. The purchased assets, located in the U.S.,
consist of Shell's polypropylene technology and manufacturing facilities and
polypropylene assets previously held jointly by both companies.
On Feb. 29, 1996, the corporation purchased 95 percent of the outstanding
shares of Companhia Alcoolquimica Nacional, a Brazilian producer of vinyl
acetate monomer.
In July 1995 the corporation and two Kuwaiti corporations, Petrochemical
Industries Company and Boubyan Petrochemical Company, 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 the planned start-up
date in 1997. At Dec. 31, 1996, the corporation had invested approximately
$138 million in EQUATE, representing its 45 percent equity investment in
EQUATE. The corporation anticipates making an additional investment of $12
million in early 1997. The corporation has political risk insurance coverage
for its equity investment.
In March 1995 the corporation acquired 50 percent of the equity of
Polimeri Europa S.r.l., from EniChem S.p.A. for $216 million. EniChem retained
the other 50 percent. In anticipation of the corporation's acquisition,
EniChem had transferred to Polimeri Europa all of its polyethylene business,
excluding its wire and cable compounds business.
In February 1995 the corporation purchased certain ethylene oxide
derivative businesses from Imperial Chemical Industries of London for $71
million.
In January 1995 the corporation and Mitsubishi Corporation concluded 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 $343 million in net cash
proceeds and retained a 25 percent equity interest in UCAR. This transaction
resulted in a gain of $220 million ($154 million after-tax). In August 1995
the corporation joined in UCAR's initial public offering to sell its remaining
equity interest in UCAR for net cash proceeds of $199 million. This sale
resulted in a gain of $161 million ($99 million after-tax).
7. Income Taxes
The following is a summary of the U.S. and non-U.S. components of Income
before provision for income taxes:
Millions of dollars
for the year ended
December 31, 1996 1995 1994
U.S. - $ 766 $1,137 $ 362
Non-U.S. - 79 122 109
$ 845 $1,259 $ 471
The following is an analysis of income tax expense:
Millions of dollars 1996 1995
for the year ended December 31, Current Deferred Current Deferred
U.S. Federal income taxes - $107 $ 79 $332 $(24)
U.S. business and research and
experimentation tax credits - (8) - (17) -
U.S. state and local taxes
based on income - 1 2 47 (7)
Non-U.S. income taxes - 54 1 47 2
154 82 409 (29)
Provision for Income Taxes - $236 $380
Millions of dollars 1994
for the year ended December 31, Current Deferred
U.S. Federal income taxes - $77 $46
U.S. business and research and
experimentation tax credits - (10) -
U.S. state and local taxes
based on income - 4 (2)
Non-U.S. income taxes - 35 (13)
106 31
Provision for Income Taxes - $137
The tax effects of temporary differences that gave rise to significant
portions of the deferred tax assets and deferred tax liabilities are as
follows:
1996
Deferred Deferred
Millions of dollars at December 31, Assets Liabilities
Depreciation and amortization - $ - $435
Postretirement and postemployment benefits - 229 -
Environmental and litigation costs - 133 -
Sale/leaseback and related deferrals - 103 -
Other - 199 246
Gross deferred tax assets and liabilities - 664 681
Net Deferred Tax (Liability) Asset - $(17)
1995
Deferred Deferred
Millions of dollars at December 31, Assets Liabilities
Depreciation and amortization - $ - $392
Postretirement and postemployment benefits - 249 -
Environmental and litigation costs - 147 -
Sale/leaseback and related deferrals - 109 -
Other - 153 191
Gross deferred tax assets and liabilities - 658 583
Net Deferred Tax (Liability) Asset - $75
Net noncurrent deferred tax liabilities of $142 million ($62 million in
1995) are included in Deferred credits in the Consolidated Balance Sheet. Net
current deferred tax assets of $118 million ($132 million in 1995) are
included in Other current assets. Net noncurrent deferred tax assets of $7
million ($5 million in 1995) are included in Other assets. In 1996 there were
$2 million in non-U.S. net operating loss carryforwards included in the
deferred tax assets above ($6 million in 1995).
Undistributed earnings of affiliates intended to be reinvested
indefinitely amounted to approximately $403 million at Dec. 31, 1996 ($393
million at Dec. 31, 1995). Determination of deferred taxes related to these
earnings is not practicable.
An analysis of the difference between Provision for income taxes and the
amount computed by applying the statutory Federal income tax rate to Income
before provision for income taxes is as follows:
Percentage of
Pre-Tax Income
Year ended December 31, 1996 1995 1994
Tax at statutory Federal rate - 35.0% 35.0% 35.0%
Taxes related to operations
outside the U.S. - (1.0) 0.1 -
U.S. state and local taxes
based on income - 0.3 1.0 0.2
Foreign sales corporation - (3.0) (1.4) (2.8)
Business credits - (0.9) (1.4) (2.1)
Other, net - (2.5) (3.1) (1.2)
Consolidated effective
income tax rate - 27.9% 30.2% 29.1%
8. Partnerships and Corporate Joint Ventures
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, Aspell Polymeres SNC, and World Ethanol Company. The corporation
purchased the balance of the Union Carbide/Shell polypropylene partnership in
January 1996 (see Note 6).
Partnerships
Millions of dollars 1996 1995 1994
Net sales(a) - $2,109 $2,146 $1,616
Cost of sales - 1,338 1,312 954
Depreciation - 83 66 51
Partnership income - 242 283 229
UCC Share of
Partnership Income - $ 144 $ 152 $ 98
Current assets - $ 704 $ 599
Noncurrent assets - 806 824
Total assets - 1,510 1,423
Current liabilities - 608 483
Noncurrent liabilities - 385 441
Total liabilities - 993 924
Net assets - 517 499
UCC Equity - $ 251 $ 243
a) Includes $159 million net sales to the corporation in 1996
($177 million in 1995 and $209 million in 1994).
Corporate investments carried at equity include Polimeri Europa S.r.l.,
EQUATE Petrochemical Company K.S.C., Nippon Unicar Company Limited, Alberta &
Orient Glycol Company Limited, Asian Acetyls Co., Ltd. and several smaller
entities and, in 1995 and 1994, UCAR International Inc.
20%- to 50%-Owned
Corporate Investments
Millions of dollars 1996 1995 1994
Net sales(a) - $2,059 $1,731 $1,206
Cost of sales - 1,693 1,221 817
Depreciation - 129 119 58
Net income (loss) - (6) 96 109
UCC Share of
Net Income (Loss) - $ (16) $ 46 $ 55
Current assets - $ 877 $ 811
Noncurrent assets - 2,918 1,886
Total assets - 3,795 2,697
Current liabilities - 888 713
Noncurrent liabilities - 1,891 922
Total liabilities - 2,779 1,635
Net assets - 1,016 1,062
UCC Equity - $ 444 $ 496
a) Includes $153 million net sales to the corporation in 1996
($167 million in 1995 and $73 million in 1994).
Dividends and distributions received from partnerships and corporate
joint ventures aggregated $141 million in 1996 ($97 million in 1995 and $128
million in 1994).
9. Long-Term Debt
Millions of dollars at December 31, 1996 1995
6.75% Notes due 2003 - $ 125 $ 125
6.79% Debentures due 2025 - 250 250
7.00% Notes due 1999 - 175 175
7.50% Debentures due 2025 - 150 150
7.75% Debentures due 2096 - 200 -
7.875% Debentures due 2023 - 175 175
8.75% Debentures due 2022 - 125 125
Pollution control and other
facility obligations - 243 246
Other debt - various maturities and
interest rates - 54 53
1,497 1,299
Less: Payments to be made
within 1 year - 10 14
$1,487 $1,285
On Oct. 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 to preserve the deductibility of interest payments
for Federal income tax purposes.
At Dec. 31, 1996, there were no outstanding borrowings under the
corporation's then existing $1 billion credit agreement. On Jan. 20, 1997, the
corporation entered into a replacement credit agreement. See Note 16.
The indentures under which the corporation's notes and debentures are
issued contain convenants, normal for these types of instruments, that place
certain limits on the corporation's ability to merge with another entity or
encumber assets.
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
1998 through 2023 and have an average annual effective rate of 7.3 percent.
The average and effective interest rates in 1996 on the corporation's
fixed-rate debt, other than pollution control and other facility obligations,
were 7.4 percent. The corporation's weighted average interest rate on short-
term borrowings outstanding as of Dec. 31, 1996, was 5.7 percent (4.0 percent
as of Dec. 31, 1995).
Payments due on long-term debt in the four years following 1997 are:
1998, $14 million; 1999, $184 million; 2000, $21 million, and 2001, $23
million.
10. Convertible Preferred Stock - ESOP
The Union Carbide Corporation Employee Stock Ownership Plan (ESOP) is an
integral part of the Savings and Investment Program for employees. Each share
of ESOP stock is convertible into and has the same voting rights as one share
of the corporation's common stock, and is protected from dilution. The annual
preferred dividend is $0.794 per share.
Substantially all full-time employees in the U.S. are eligible to
participate in the ESOP through the corporation's matching contribution of 75
percent (50 percent in 1994) 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 the corporation's policy to redeem ESOP shares with
cash.
The cost of the ESOP is recognized as incurred and was $2 million in 1996
($4 million in 1995 and $6 million in 1994). Reductions in ESOP costs in 1996
and 1995 were due primarily to appreciation in the corporation's common stock.
At Dec. 31, 1996, 16.0 million preferred shares were outstanding, 5.8 million
of which were credited to employees' accounts, including 0.6 million credited
during 1996.
11. Stockholders' Equity
Each outstanding share of common stock bears one Right entitling 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 until a date determined by the board of directors following
announcement of 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, the corporation's
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 two 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.
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 Dec. 31, 1996, the
corporation had repurchased 42.3 million shares since inception of the program
in 1993 (12.8 million during 1996) at an average effective price of $32.53 per
share. The corporation will continue 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 10.2 million shares of common stock to UCC, at specified prices upon
exercise of the options. Since inception of this program through Dec. 31,
1996, options representing 7.6 million common shares have expired unexercised,
while options representing 2.1 million shares were exercised for $79 million,
or an average price of $37.05 per share. Options representing 0.5 million
shares remain outstanding at Dec. 31, 1996. Premiums received since inception
of the program, which are recorded as Additional paid-in capital, have reduced
the average price of repurchased shares to $32.53 per share from $32.77.
12. Leases
Leases that meet the criteria for capitalization have been classified and
accounted for as capital leases. For operating leases, primarily involving
facilities and distribution equipment, the future minimum rental payments
under leases with remaining noncancelable terms in excess of one year are:
Millions of dollars,
year ending December 31,
1997 - $ 74
1998 - 61
1999 - 56
2000 - 52
2001 - 50
Subsequent to 2001 - 246
Total minimum payments 539
Future sublease rentals - 94
Net Minimum Rental Commitments - $445
The present value of the net minimum rental payments amounts to $319
million, of which $220 million pertains to the corporation's headquarters
lease. Total lease and rental payments (net of sublease rental of $20 million
in 1996, 1995 and 1994) were $53 million, $67 million and $65 million for
1996, 1995 and 1994, respectively.
During 1995 the corporation recognized a nonrecurring, noncash charge of
$191 million ($134 million after-tax) for future minimum lease payments on
unused office space, primarily at the corporation's headquarters. The
headquarters charge reflects the pro rata costs of unused office space over
the remaining term of the lease, which runs to 2006, less anticipated net
sublease income. Neither the expected future costs nor expected net sublease
revenues were discounted.
13. 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.
The components of net periodic pension cost for the plans combined are as
follows:
Millions of dollars
for the year ended December 31, 1996 1995 1994
(Gain) loss on plan assets -
Actual - $(190) $(904) $ 154
Deferred - (31) 692 (355)
(221) (212) (201)
Service cost - benefits
earned during the period - 54 44 51
Interest cost on projected
benefit obligation - 196 197 180
Amortization - (3) (6) (9)
Net Periodic Pension Cost - $ 26 $ 23 $ 21
The funded status of the plans combined is as follows:
Millions of dollars at December 31, 1996 1995
Actuarial present value
of plan benefits -
Accumulated benefit obligation
Vested - $2,599 $2,596
Nonvested - 132 127
2,731 2,723
Projected benefit obligation - 3,001 2,986
Fair value of plan assets, primarily
invested in common stocks and
fixed-income securities - 3,180 3,173
Plan assets in excess of
projected benefit obligation - 179 187
Unamortized net asset at transition - (64) (77)
Unamortized prior service cost - 19 22
Unrecognized gains - net - (127) (103)
Prepaid Pension Cost - $ 7 $ 29
Pension obligations are valued using the 1983 Group Annuity Mortality
Table. The actuarial assumptions used were as follows:
At December 31, 1996 1995
Discount rate for determining
projected benefit obligation - 7.25% 6.75%
Rate of increase in
compensation levels - 4.50% 4.00%
Expected long-term rate of return
on plan assets - 8.50% 8.25%
Postretirement Benefits Other Than Pensions
The corporation provides 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.
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 projected to increase annually at rates of 9.25 percent in
1997 and 8.75 percent in 1998, falling incrementally to a 5.75 percent annual
increase 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, 1996 by $29 million, and the aggregate of service and interest
cost components of net periodic postretirement benefit costs by $3 million.
Measurement of the accumulated postretirement benefit obligation was based on
the same actuarial assumptions used in the pension calculations.
The corporation has funded postretirement benefits for certain retirees
who retired prior to Dec. 31, 1988. The funds are invested primarily in common
stocks.
The components of net periodic postretirement benefit cost are as
follows:
Millions of dollars
for the year ended December 31, 1996 1995 1994
(Gain) loss on plan assets -
Actual - $ (4) $ (8) $ 1
Deferred - 2 6 (3)
(2) (2) (2)
Service cost - benefits
earned during the period - 13 11 12
Interest cost - 31 35 32
Amortization - (21) (21) (21)
Net Periodic
Postretirement Benefit Cost - $ 21 $ 23 $ 21
The funded status of the postretirement benefit obligation is as follows:
Millions of dollars at December 31, 1996 1995
Accumulated postretirement
benefit obligations -
Retirees - $366 $361
Fully eligible active
plan participants - 79 75
Other active plan participants - 27 26
472 462
Fair value of plan assets - 17 21
Accumulated postretirement
benefits in excess of plan assets - 455 441
Unrecognized gains - net - 51 67
Accrued Unfunded Postretirement
Benefit Obligations - $506 $508
The accumulated postretirement benefit obligation for retirees is net of
$130 million at Dec. 31, 1996 ($134 million at Dec. 31, 1995), which is
reimbursed to the corporation in part by previously owned businesses under
ongoing benefit-sharing agreements.
Deferred Compensation Plan
Since Jan. 1, 1995, the corporation has provided an unfunded, nonqualified
deferred compensation plan to certain key employees, offering them an election
to defer a portion of their gross pay. The corporation's obligation to
employees is adjusted to reflect changes in the market values of employees'
investment choices. With limited exceptions, participants' deferred account
balances are scheduled for payment at or after full retirement.
Postemployment Benefits
During 1995 the corporation recorded a charge of $68 million ($49 million
after-tax) for postemployment benefits. The charge includes severance costs
relating to future staff reductions associated with work process
simplification efforts and changes in the corporation's severance benefits.
14. Incentive Plans
The 1994 Union Carbide Long-Term Incentive Plan for key employees, which is
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 two
years after such date. Options may not have a duration of more than 10 years.
Restricted stock award shares are entitled to vote and dividends are credited
to the holder's account, but these shares are generally nontransferable for
three years after the grant date. These restricted stock awards and
accumulated dividends are generally 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 1996.
No further awards can be made under previous plans, which still have
options outstanding whose terms are similar to nonqualified stock options
under the 1994 plan.
Changes in outstanding fixed price options were as follows:
1996 1995
Weighted Weighted
Average Average
Shares in thousands Shares Exercise Price Shares Exercise Price
Outstanding at January 1 - 13,350 $18.54 13,807 $15.70
Granted - 1,166 45.55 1,270 40.38
Exercised - (1,569) 13.05 (1,667) 11.37
Canceled or expired - (165) 36.00 (60) 27.25
Outstanding at December 31 - 12,782 $21.45 13,350 $18.54
Options exercisable
at December 31 - 10,460 10,200
1994
Weighted
Average
Shares in thousands Shares Exercise Price
Outstanding at January 1 - 14,112 $12.94
Granted - 1,930 28.63
Exercised - (2,213) 9.33
Canceled or expired - (22) 19.94
Outstanding at December 31 - 13,807 $15.70
Options exercisable
at December 31 - 6,488
Options were exercised during 1996 at prices ranging from $6.70 to $28.63
per share ($1.00 to $21.63 per share during 1995 and $1.00 to $16.75 per share
during 1994).
The following table summarizes information about fixed price option
shares outstanding at Dec. 31, 1996:
Weighted
Average
Shares Remaining Weighted Average
Shares in thousands Outstanding Contractual Life Exercise Price
Range of Exercise Prices -
$ 6.70 to $ 9.69 - 3,363 4.0 years $ 8.31
$11.27 to $16.75 - 3,074 4.8 years $15.21
$21.63 to $28.63 - 4,023 7.4 years $24.78
$39.88 to $45.63 - 2,322(a) 9.4 years $42.97
12,782
a) Not exercisable at Dec. 31, 1996.
Had compensation cost related to the fixed price option and certain
employee plans been recorded at fair value on the date of grant in accordance
with FAS 123, the effect on the corporation's net income and earnings per
share amounts would have been immaterial.
15. Commitments and Contingencies
Purchase Agreements - The corporation has three major agreements for the
purchase of ethylene-related products and two other purchase agreements in the
U.S. and Canada. Total purchases under these agreements were $233 million,
$251 million and $187 million in 1996, 1995 and 1994, respectively. The net
present value of the fixed and determinable portion of obligations under these
purchase commitments at Dec. 31, 1996 (at current exchange rates, where
applicable), is presented in the following table.
Millions of dollars,
year ending December 31,
1997 - $ 75
1998 - 65
1999 - 56
2000 - 30
2001 - 22
2002 to expiration of contracts - 103
Total - $351
Environmental - The corporation is subject to loss contingencies resulting
from environmental laws and regulations, which include obligations to remove
or remediate the effects on the environment of the disposal or release of
certain wastes and substances at various sites. The corporation has
established accruals in current dollars for those hazardous waste sites where
it is probable that a loss has been incurred and the amount of the loss can
reasonably be estimated. The reliability and precision of the loss estimates
are affected by numerous factors, such as different stages of site evaluation,
the allocation of responsibility among potentially responsible parties and the
assertion of additional claims. The corporation adjusts its accruals as new
remediation requirements are defined, as information becomes available
permitting reasonable estimates to be made, and to reflect new and changing
facts.
At Dec. 31, 1996, the corporation had established environmental
remediation accruals in the amount of $310 million ($327 million in 1995), of
which $252 million is classified as Other long-term obligations ($262 million
in 1995). These accruals have two components, estimated future expenditures
for site investigation and cleanup and estimated future expenditures for
closure and postclosure activities. In addition, the corporation had
environmental loss contingencies of $134 million at Dec. 31, 1996.
The corporation has sole responsibility for the remediation of
approximately 40 percent of its environmental sites for which accruals have
been established. These sites are well advanced in the investigation and
cleanup stage. The corporation's environmental accruals at Dec. 31, 1996,
included $222 million for these sites ($245 million at Dec. 31, 1995), of
which $92 million ($109 million at Dec. 31, 1995) was for estimated future
expenditures for site investigation and cleanup and $130 million ($136 million
at Dec. 31, 1995) was for estimated future expenditures for closure and
postclosure activities. In addition, $67 million of the corporation's
environmental loss contingencies at Dec. 31, 1996, related to these sites. The
site with the largest total potential cost to the corporation is a
nonoperating site. Of the above accruals, this site accounted for $32 million
($47 million at Dec. 31, 1995), of which $18 million ($26 million at Dec. 31,
1995) was for estimated future expenditures for site investigation and cleanup
and $14 million ($21 million at Dec. 31, 1995) was for estimated future
expenditures for closure and postclosure activities. In addition, $24 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 for which accruals have been established. All of these
sites are in the investigation and cleanup stage. The corporation's
environmental accruals at Dec. 31, 1996, included $88 million for estimated
future expenditures for site investigation and cleanup at these sites ($82
million at Dec. 31, 1995). In addition, $67 million of the corporation's
environmental loss contingencies related to these sites. The largest two of
these sites are also nonoperating sites. Of the above accruals, these sites
accounted for $37 million ($24 million at Dec. 31, 1995) for estimated future
expenditures for site investigation and cleanup. In addition, $12 million of
the above environmental loss contingencies related to these sites.
Worldwide expenses related to environmental protection for compliance
with Federal, state and local laws regulating solid and hazardous wastes and
discharge of materials to air and water, as well as for waste site remedial
activities, totaled $110 million in 1996, $138 million in 1995 and $153
million in 1994.
Other - The corporation has severally guaranteed 45 percent (approximately
$608 million at Dec. 31, 1996) of EQUATE Petrochemical Company's debt and
working capital financing needs until certain completion tests are achieved;
thereafter, a $54 million guarantee will provide ongoing support. The
corporation also severally guaranteed certain sales volume targets until
EQUATE's sales capabilities are proved. In addition, the corporation has
pledged its shares in EQUATE as security for EQUATE's debt. The corporation
has political risk insurance coverage for its equity investment and, until the
completion tests are concluded, substantially all of its guarantee of EQUATE's
debt.
The corporation and its consolidated subsidiaries had additional
contingent obligations at Dec. 31, 1996, totaling $64 million, of which $36
million related to guarantees of debt.
Litigation - The corporation is one of a number of defendants named in
approximately 4,500 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 pretrial purposes in the United States District Court,
Northern District of Alabama. In 1994 the corporation provisionally joined a
multibillion-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 cost
of remedies that may be sought or damages claimed is substantial.
The corporation has recorded nonenvironmental litigation accruals of $194
million, and related insurance recovery receivables of $135 million. At Dec.
31, 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.
16. Subsequent Events
On Jan. 20, 1997, the corporation entered into a new credit agreement with a
group of banks, replacing an existing $1 billion credit agreement. The new
agreement also provides the corporation with $1 billion in credit for the next
five years, but with the option, subject to certain conditions, to increase
the available credit by $250 million and to extend the maturity date of the
agreement by one year on a rolling basis. Several options are available to
borrow at floating interest rates based on LIBOR (London Interbank Offered
Rate) or CD (Certificate of Deposit Rate) on a revolving basis. The credit
agreement contains covenants that place certain limits on the corporation's
ability to merge with another entity, incur debt or create liens on assets. In
addition, the credit agreement requires the corporation to meet leverage and
interest coverage tests.
On Jan. 22, 1997, the corporation established a medium term note program
that allows for borrowings of up to $500 million. Notes issued under the
program will have a maturity of nine months or longer and will bear interest
at either a fixed or floating rate determined by reference to interest rate
formulas. The notes will be subject to covenants that place certain limits on
the corporation's ability to create liens on assets, engage in sale-leaseback
transactions, and incur secured debt.
On Jan. 30, 1997, a newly formed real estate investment trust subsidiary
issued $250 million of preferred stock bearing a current dividend yield of 14
percent for 10 years and 1 percent thereafter. Domestic real estate with a
fair market value of approximately $500 million will be mortgaged via
intercompany debt in conjunction with this transaction. The preferred stock
may be redeemed if, as a result of a change in tax laws, rules or regulations,
dividends on the preferred stock or interest paid on the mortgage note is not
fully deductible for Federal income tax purposes.
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.
/s/William H. Joyce /s/John K. Wulff
William H. Joyce John K. Wulff
Chairman, President and Vice-President, Chief Financial
Chief Executive Officer Officer and Controller
Danbury, Conn.
Jan. 17, 1997
Independent Auditors' Report
KPMG Peat Marwick LLP
To the Stockholders and Board of Directors of
Union Carbide Corporation:
We have audited the accompanying consolidated balance sheet of Union Carbide
Corporation and subsidiaries as of Dec. 31, 1996 and 1995, 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, 1996. 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, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended Dec. 31, 1996, in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Stamford, Conn.
Jan. 17, 1997
Corporate Information
1997 Annual Meeting
The 1997 annual meeting of stockholders will be held on Wednesday, April 23,
at the John C. Creasy Health Education Center, 24 Hospital Ave., Danbury, CT
06810, beginning at 10 a.m.
A notice of the annual meeting, a proxy statement and a proxy voting card
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.
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 Chase Mellon Shareholder Service.
Dividend Reinvestment
Stockholders of record may purchase shares directly through Union Carbide's
Dividend Reinvestment and Stock Purchase Plan. Under the plan, shares may be
purchased from Union Carbide free of commissions and service charges.
Requests for a prospectus that explains the plan in detail should be
directed to Shareholder Services (Telephone: 800-934-3350).
Form 10-K
A Form 10-K report for the year ended Dec. 31, 1996, will be available in
April 1997. A copy without exhibits may be obtained without charge by writing
to Union Carbide Corporation, Joseph E. Geoghan, secretary, 39 Old Ridgebury
Road, Danbury, CT 06817-0001.
Charitable Contributions Booklet
Union Carbide annually publishes a booklet that lists organizations receiving
charitable, educational, cultural or similar grants of $250 or more from the
corporation. The booklet is available on written request to the secretary.
Responsible Care Progress Report
This reports covers health, safety and environmental progress at Union
Carbide. Information includes performance data for U.S. and other worldwide
locations, Responsible Care goals and progress Carbide made in 1996 as it
completed full implementation of Responsible Care management practices in the
U.S. To obtain a copy, write to Union Carbide Corporation, Public Affairs
Department, Section L-4505, 39 Old Ridgebury Road, Danbury, CT 06817-0001
(Telephone: 800-552-5272).
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, David N. Kernis, assistant director, communications, Public
Affairs Department, Section L-4502, 39 Old Ridgebury Road, Danbury, CT 06817-
0001 (Telephone: 203-794-6929).
Information on Union Carbide also may be found on the company's home page
on the Internet at www.unioncarbide.com. Union Carbide's site provides
information in five categories: general, financial, business, Responsible Care
and recruitment.
Directors and Corporate Officers
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 & 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.
Thomas P. Gerrity has been dean at the Wharton School of the University of
Pennsylvania since 1990. He became a board member in February 1997 and is a
member of the Audit Committee.
Rainer E. Gut is chairman of Credit Suisse Group, Zurich, Switzerland, and
Credit Suisse First Boston. A UCC board member since 1994, he is a member of
the Compensation & Management Development, Finance & Pension 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 Executive, Finance
& Pension and Public Policy Committees. He has been a board member since 1987.
William H. Joyce is chairman, president and chief executive officer of Union
Carbide Corporation. A director since 1992, he is chairman of the Executive
Committee.
Robert D. Kennedy is retired chairman and chief executive officer of Union
Carbide Corporation and has been a director since 1985. He serves on the
Audit, Executive, Nominating and Public Policy Committees.
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 and HS&EA Committees.
Rozanne L. Ridgway is former assistant secretary of state for Europe and
Canada. A director since 1990, she chairs the Public Policy Committee and is a
member of the Audit, HS&EA and Nominating Committees.
James M. Ringler is a director, president and chief executive officer of
Premark International, Inc. Elected a director in 1996, he is a member of the
Finance & Pension Committee.
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.
Corporate Officers
William H. Joyce
Chairman of the Board, President and Chief Executive Officer
Joseph S. Byck
Vice-President, Strategic Planning, Investor Relations and Public Affairs
James F. Flynn
Vice-President, General Manager, Solvents, Intermediates and Monomers
Joseph E. Geoghan
Vice-President, General Counsel and Secretary
Malcolm A. Kessinger
Vice-President, Human Resources
Lee P. McMaster
Vice-President, General Manager, Ethylene Oxide/Glycol
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
John K. Wulff
Vice-President, Chief Financial Officer and Controller
Other Senior Management
Eugene J. Boros
Vice-President, General Manager, Specialty Polymers and Products, UCAR
Emulsion Systems
David L. Brucker
Vice-President, Engineering and Operations
John L. Gigerich
Vice-President, Information Systems
W. William Lindner
Vice-President, Purchasing
Kevin P. Lynch
Vice-President, General Manager, UNIPOL Polymers
Philip F. McGovern
Vice-President, Tax
Gordon D. Mounts
Vice-President, General Manager, Industrial Performance Chemicals
F. Don Ryan
Vice-President, General Manager, Specialty Polyolefins
Lee C. Stewart
Vice-President and Treasurer
Vince F. Villani
Vice-President, General Manager, Olefins
Donald R. Wood
Vice-President, Polypropylene Resins
John P. Yimoyines
Vice-President, Venture Management
Union Carbide Around the World
(Excluding partnership or corporate joint venture locations)
United States & Puerto Rico
California
Costa Mesa
Torrance
Colorado
Grand Junction
Connecticut
Danbury (headquarters)
District of Columbia
Washington
Georgia
Atlanta
Tucker
Illinois
Alsip
Lisle
Louisiana
Greensburg
Napoleonville
Norco
Taft
New Jersey
Bound Brook
Carteret
Edison
Somerset
New York
Tarrytown
North Carolina
Cary
Texas
Clear Lake
Dallas
Garland
Houston
Markham
Seadrift
Texas City
Vermont
Morrisville
Washington
Washougal
West Virginia
Charleston
Institute
South Charleston
Puerto Rico
Bayamon
Ponce
San Juan
Canada
Alberta
Calgary
Prentiss
Quebec
Anjou
Boucherville
Montreal
Ontario
Toronto
Willowdale
Europe
Austria
Vienna
Belgium
Antwerp
Vilvoorde
Zwijndrecht
France
Rungis
Germany
Dusseldorf
Italy
Milan
Russia
Moscow
Spain
Barcelona
Sweden
Stockholm
Switzerland
Geneva
United Kingdom
Wilton
Latin America
Argentina
Avellaneda
Buenos Aires
Brazil
Aratu
Cabo
Cubatao
Sao Paulo
Chile
Santiago
Colombia
Barranquilla
Bogota
Medellin
Costa Rica
San Jose
Ecuador
Guayaquil
Quito
Guatemala
Guatemala City
Mexico
Mexico City
Monterrey
Tultitlan
Peru
Lima
Venezuela
Caracas
Valencia
Far East & Other
Australia
Gladesville
Melbourne
Sydney
China
Beijing
Guangdong
Shanghai
Egypt
Cairo
Hong Kong
Tsimshatsui
Indonesia
Cimanggis
Jakarta
Japan
Shibuya-ku
Jordan
Amman
Malaysia
Petaling Jaya
Morocco
Casablanca
Philippines
Batangas
Manila
Singapore
Jurong
South Africa
Durban
Johannesburg
South Korea
Seoul
Sri Lanka
Colombo
Taiwan
Taipei
Thailand
Bangkok
Nonthaburi
Turkey
Istanbul
United Arab Emirates
Dubai
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.
CARBITOL, CARBOWAX, CELLOSIZE, CELLOSOLVE, CYRACURE, FLEXOL, FLEXOMER, NEULON,
NORKOOL, POLYOX, POLYPHOBE, SELEXOL, TERGITOL, TONE, TRITON, TUFLIN, UCAR,
UCARSOL, UCARTHERM, UCON, UCURE, UCAR ULTRA+, UNICARB, UNIPOL and
UNION CARBIDE are registered trademarks of Union Carbide Corporation.
RESPONSIBLE CARE is a registered service mark of the Canadian Chemical
Producers Association and the Chemical Manufacturers Association.
EQUATE is a trademark of the EQUATE Petrochemical Company K.S.C. of Kuwait.
Printed on Recycled, Recyclable Paper.
(The back cover depicts a hexagon containing the words "Union Carbide".)
UNION CARBIDE CORPORATION
39 Old Ridgebury Road
Danbury, CT. 06817-0001
UC-1564