-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, N2bIYQKUOoudcGGr7fUH09YXqrU6iqz8yl1I/ck/hnfkX3JT6yIUUSxMvT52cAwB GySSMq+PhCc+1zZKzAhFdQ== 0000100790-96-000014.txt : 19960809 0000100790-96-000014.hdr.sgml : 19960809 ACCESSION NUMBER: 0000100790-96-000014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960808 SROS: CSX SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNION CARBIDE CORP /NEW/ CENTRAL INDEX KEY: 0000100790 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL ORGANIC CHEMICALS [2860] IRS NUMBER: 131421730 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-01463 FILM NUMBER: 96606273 BUSINESS ADDRESS: STREET 1: 39 OLD RIDGEBURY RD CITY: DANBURY STATE: CT ZIP: 06817-0001 BUSINESS PHONE: 2037942000 MAIL ADDRESS: STREET 1: 39 OLD RIDGEBURY RD CITY: DANBURY STATE: CT ZIP: 06817-0001 FORMER COMPANY: FORMER CONFORMED NAME: UNION CARBIDE CORP DATE OF NAME CHANGE: 19890806 FORMER COMPANY: FORMER CONFORMED NAME: UNION CARBIDE & CARBON CORP DATE OF NAME CHANGE: 19710317 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D C 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1996 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 1-1463 UNION CARBIDE CORPORATION (Exact name of registrant as specified in its charter) New York 13-1421730 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 39 Old Ridgebury Road, Danbury, CT 06817-0001 (Address of principal executive offices) (Zip Code) 203-794-2000 Registrant's telephone number, including area code (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No _______ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at July 31, 1996 Common Stock, $1 par value 129,649,367 shares Total number of sequentially numbered pages in this filing, including exhibits thereto: 19 INDEX PART I. FINANCIAL INFORMATION PAGE Financial Statements Condensed Consolidated Statement of Income - Union Carbide Corporation and Subsidiaries - Quarter Ended June 30, 1996 and 1995......................... 3 Condensed Consolidated Statement of Income - Union Carbide Corporation and Subsidiaries - Six Months Ended June 30, 1996 and 1995...................... 4 Condensed Consolidated Balance Sheet - Union Carbide Corporation and Subsidiaries - June 30, 1996 and December 31, 1995............................................ 5 Condensed Consolidated Statement of Cash Flows - Union Carbide Corporation and Subsidiaries - Six Months Ended June 30, 1996 and 1995...................... 6 Notes to Condensed Consolidated Financial Statements - Union Carbide Corporation and Subsidiaries................... 7-10 Discussion and Analysis of Results of Operations and Financial Condition........................................ 11-14 PART II. OTHER INFORMATION Item 1. Legal Proceedings....................................... 15 Item 5. Other Information....................................... 15 Item 6. Exhibits and Reports on Form 8-K........................ 15 Signature........................................................ 16 Exhibit Index.................................................... 17 PART I. FINANCIAL INFORMATION UNION CARBIDE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF INCOME Millions of dollars (Except per share figures) Quarter ended June 30, 1996 1995 NET SALES $ 1,559 $ 1,541 Cost of sales, exclusive of depreciation and amortization 1,150 1,103 Research and development 40 34 Selling, administration and other expenses(a) 78 83 Depreciation and amortization 79 72 Interest expense 14 22 Partnership income (37) (51) Other expense (income) - net 4 (8) INCOME BEFORE PROVISION FOR INCOME TAXES 231 286 Provision for income taxes 65 84 INCOME OF CONSOLIDATED COMPANIES 166 202 Income from corporate investments carried at equity 7 26 NET INCOME 173 228 Preferred stock dividend, net of income taxes 3 3 NET INCOME - COMMON STOCKHOLDERS $ 170 $ 225 Earnings per common share Primary $ 1.23 $ 1.59 Fully diluted $ 1.12 $ 1.44 Cash dividends declared per common share $ 0.1875 $ 0.1875 (a) Selling, administration and other expenses include: Selling $ 32 $ 32 Administration 28 35 Other expenses 18 16 $ 78 $ 83 The Notes to Condensed Consolidated Financial Statements on Pages 7 through 10 should be read in conjunction with this statement. UNION CARBIDE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF INCOME Millions of dollars (Except per share figures) Six Months ended June 30, 1996 1995 NET SALES $ 3,060 $ 2,994 Cost of sales, exclusive of depreciation and amortization 2,249 2,102 Research and development 76 70 Selling, administration and other expenses(a) 159 158 Depreciation and amortization 154 155 Interest expense 37 41 Partnership income (63) (95) Other income - net (19) (45) INCOME BEFORE PROVISION FOR INCOME TAXES 467 608 Provision for income taxes 131 181 INCOME OF CONSOLIDATED COMPANIES 336 427 Income (loss) from corporate investments carried at equity (6) 31 NET INCOME 330 458 Preferred stock dividend, net of income taxes 5 5 NET INCOME - COMMON STOCKHOLDERS $ 325 $ 453 Earnings per common share Primary $ 2.34 $ 3.16 Fully diluted $ 2.13 $ 2.86 Cash dividends declared per common share $ 0.375 $ 0.375 (a) Selling, administration and other expenses include: Selling $ 64 $ 63 Administration 59 63 Other expenses 36 32 $ 159 $ 158 The Notes to Condensed Consolidated Financial Statements on Pages 7 through 10 should be read in conjunction with this statement. UNION CARBIDE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET Millions of dollars June 30, Dec. 31, 1996 1995 ASSETS Cash and cash equivalents $ 78 $ 449 Notes and accounts receivable 1,079 996 Inventories 515 544 Other current assets 184 207 Total current assets 1,856 2,196 Property, plant and equipment 6,875 6,357 Less: Accumulated depreciation 3,673 3,549 Net fixed assets 3,202 2,808 Companies carried at equity 739 739 Other investments and advances 94 84 Total investments and advances 833 823 Other assets 443 429 Total assets $6,334 $6,256 LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $ 342 $ 316 Short-term debt and current portion of long-term debt 92 38 Accrued income and other taxes 196 259 Other accrued liabilities 660 725 Total current liabilities 1,290 1,338 Long-term debt 1,288 1,285 Postretirement benefit obligation 490 480 Other long-term obligations 858 834 Deferred credits 264 201 Minority stockholders' equity in consolidated subsidiaries 28 24 Convertible preferred stock - ESOP 145 146 Unearned employee compensation - ESOP (94) (97) Stockholders' equity: Common stock authorized - 500,000,000 shares Common stock issued - 154,609,669 shares 155 155 Additional paid-in capital 328 343 Translation and other equity adjustments (26) (15) Retained earnings 2,420 2,145 2,877 2,628 Less: Treasury stock, at cost-23,953,501 shares (19,501,701 shares in 1995) 812 583 Total stockholders' equity 2,065 2,045 Total liabilities and stockholders' equity $6,334 $6,256 The Notes to Condensed Consolidated Financial Statements on Pages 7 through 10 should be read in conjunction with this statement. UNION CARBIDE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS Millions of dollars Six Months ended June 30, 1996 1995 Increase (decrease) in cash and cash equivalents OPERATIONS Income $ 330 $ 458 Noncash charges (credits) to net income Depreciation and amortization 154 155 Deferred income taxes 24 (62) Other noncash charges 7 128 Net gains on investing transactions (1) (217) Increase in working capital(a) (106) (301) Long-term assets and liabilities 16 25 Cash Flow From Operations 424 186 INVESTING Capital expenditures (363) (211) Investments and acquisitions (excluding cash acquired) (262) (309) Sale of investments - 344 Sale of fixed and other assets 12 47 Cash Flow Used for Investing (613) (129) FINANCING Change in short-term debt (three months or less) 68 2 Proceeds from short-term debt 21 - Repayment of short-term debt (26) - Proceeds from long-term debt - 402 Repayment of long-term debt (5) (14) Issuance of common stock 87 46 Purchase of common stock (272) (325) Payment of dividends (56) (58) Other 1 2 Cash Flow From (Used for) Financing (182) 55 Effect of exchange rate changes on cash and cash equivalents - 1 Change in cash and cash equivalents (371) 113 Cash and cash equivalents beginning-of-period 449 109 Cash and cash equivalents end-of-period $ 78 $ 222 Cash paid for interest and income taxes Interest (net of amount capitalized) $ 32 $ 55 Income taxes $ 110 $ 195 _____________ (a) Net change in certain components of working capital (excluding non-cash transactions): (Increase) decrease in current assets Notes and accounts receivable $ (58) $(155) Inventories 68 (50) Other current assets 4 (30) Decrease in payables and accruals (120) (66) Increase in working capital $(106) $(301) The Notes to Condensed Consolidated Financial Statements on Pages 7 through 10 should be read in conjunction with this statement. UNION CARBIDE CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. Consolidated Financial Statements In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments necessary for a fair statement of the results for the interim periods. These adjustments consist of only normal recurring adjustments. The accompanying statements should be read in conjunction with the Notes to Financial Statements of Union Carbide Corporation and Subsidiaries ("the corporation" or "UCC") in the 1995 annual report to stockholders. 2. Acquisitions On January 18, 1996, the corporation completed the purchase of the polypropylene assets and business of Shell Oil Company. The purchased assets, located in the U.S., are comprised of Shell's polypropylene technology and manufacturing facilities and polypropylene assets previously held jointly by both companies. Additionally, on February 28, 1996, the corporation completed the purchase of 95 percent of the outstanding shares of Companhia Alcoolquimica Nacional, a Brazilian producer of vinyl acetate monomer. The polypropylene resin business is part of the Basic Chemicals & Polymers Segment, while the polypropylene licensing and catalyst businesses and the Brazilian vinyl acetate monomer business are included within the Specialties & Intermediates Segment. 3. Common Stock On July 24, 1996, the board of directors of the corporation increased the number of shares that may be repurchased under the existing common stock repurchase program to 50 million shares. Through June 30, 1996, since inception of its common share repurchase program, the corporation repurchased 36,813,978 shares (7,374,500 during 1996) at an average effective price of $31.06 per share. The corporation intends to acquire additional shares from time to time at prevailing market prices, at a rate consistent with the combination of corporate cash flow and market conditions. In conjunction with the corporation's common stock buyback program, put options were sold in a series of private placements entitling the holders to sell 8,172,581 shares of common stock to UCC, at specified prices upon exercise of the options. Since inception of this program, through June 30, 1996, options representing 5,986,381 common shares have expired unexercised, while options representing 1,136,200 shares were exercised for $35 million, or an average price of $30.86 per share. Options representing 1,050,000 shares remain outstanding at June 30, 1996. Premiums received since the inception of the program have reduced the average price of repurchased shares from $31.28 per share to $31.06 per share. 4. Inventories Millions of dollars June 30, Dec. 31, 1996 1995 Raw materials and supplies $ 108 $ 117 Work in process 51 46 Finished goods 356 381 $ 515 $ 544 5. Commitments and Contingencies The corporation has entered into 3 major agreements for the purchase of ethylene-related products and 2 other purchase agreements in the U.S. and Canada. The net present value of the fixed and determinable portion of these obligations at June 30, 1996 totaled $373 million. The corporation is subject to loss contingencies resulting from environmental laws and regulations, which include obligations to remove or mitigate the effects on the environment of the disposal or release of certain wastes and substances at various sites. The corporation has established accruals in current dollars for those hazardous waste sites where it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. The reliability and precision of the loss estimates are affected by numerous factors, such as different stages of site evaluation, the allocation of responsibility among potentially responsible parties and the assertion of additional claims. The corporation adjusts its accruals as new remediation requirements are defined, as information becomes available permitting reasonable estimates to be made, and to reflect new and changing facts. At June 30, 1996, the corporation had established environmental remediation accruals in the amount of $331 million. These accruals have two components, estimated future expenditures for site investigation/cleanup and estimated future expenditures for closure/postclosure activities. In addition, the corporation had environmental loss contingencies of $164 million. The corporation has sole responsibility for the remediation of approximately half of its environmental sites. These sites are well advanced in the investigation/cleanup stage. The corporation's environmental accruals at June 30, 1996 included $240 million for these sites, of which $112 million was for estimated future expenditures for site investigation/cleanup and $128 million was for estimated future expenditures for closure/postclosure activities. In addition, $81 million of the corporation's environmental loss contingencies related to these sites. The site with the largest total potential cost to the corporation is a non-operating site. Of the above accruals, this site accounted for $47 million, of which $26 million was for estimated future expenditures for site investigation/cleanup and $21 million was for estimated future expenditures for closure/postclosure activities. In addition, $16 million of the above environmental loss contingencies related to this site. The corporation does not have sole responsibility at the remainder of its environmental sites. All of these sites are in the investigation/cleanup stage. The corporation's environmental accruals at June 30, 1996 included $91 million for estimated future expenditures for site investigation/cleanup at these sites. In addition, $83 million of the corporation's environmental loss contingencies related to these sites. The largest two of these sites are also non-operating sites. Of the above accruals, these sites accounted for $25 million for estimated future expenditures for site investigation/cleanup. In addition, $25 million of the above environmental loss contingencies related to these sites. In 1995, worldwide expenses of continuing operations related to environmental protection for compliance with Federal, state and local laws regulating solid and hazardous wastes and discharge of materials to air and water, as well as for waste site remedial activities, totaled $138 million. Expenses in 1994 and 1993 were $153 million and $149 million, respectively. While estimates of the costs of environmental protection for 1996 are necessarily imprecise, the corporation estimates that the level of these expenses will not change materially. At June 30, 1996, the corporation had invested approximately $139 million in Equate Petrochemical Company K.S.C., its Kuwaiti joint venture, and had severally guaranteed up to $225 million of Equate debt. Additional significant commitments are anticipated. The corporation had additional contingent obligations at June 30, 1996 of $56 million, principally related to guarantees of debt, obligations assumed by purchasers of UCC facilities for which UCC is primarily liable, discounted receivables from customers and performance agreements. The corporation is one of a number of defendants named in approximately 4,400 lawsuits, some of which have more than one plaintiff, involving silicone breast implants. The corporation was not a manufacturer of breast implants but did supply generic bulk silicone materials to certain manufacturers. Also, the corporation in 1990 acquired and in 1992 divested the stock of a small specialty silicones company that, among other things, supplied silicone gel intermediates and silicone dispersions for breast implants. In 1993, most of the suits that were brought in Federal courts were consolidated for pre-trial purposes in the United States District Court, Northern District of Alabama. In 1994, the corporation provisionally joined a multi-billion dollar settlement of the claims consolidated in that Court. The District Court later determined that the total amount of current claims likely to be approved for payment under the original settlement schedule would substantially exceed the funds available. Consequently, the defendants and the Plaintiffs' Negotiating Committee, at the request of the court, initiated negotiations to reconsider the structure and funding of the settlement. Subsequently, certain defendants, including the corporation, proposed, and the court approved, a revised settlement program. While the corporation cannot predict the number of claimants who will participate in the settlement, based on sample data prepared under supervision of the court, the corporation estimates that its maximum expenditures under the revised agreement should not exceed $100 million prior to insurance recovery. Although insurance coverage is subject to issues as to scope and application of policies, retention limits, exclusions and policy limits, and the insurers have reserved their right to deny coverage, the corporation believes that after probable insurance recoveries neither the settlement nor litigation outside the settlement will have a material adverse effect on the consolidated financial position of the corporation. In addition to the above, the corporation and its consolidated subsidiaries are involved in a number of legal proceedings and claims with both private and governmental parties. These cover a wide range of matters including, but not limited to: product liability; governmental regulatory proceedings; health, safety and environmental matters; employment; patents; contracts and taxes. In some of these legal proceedings and claims, the remedies that may be sought or damages claimed is substantial. The corporation has recorded nonenvironmental litigation accruals of $227 million, and related insurance recovery receivables of $134 million, resulting in net before-tax charges of $93 million for nonenvironmental litigation. At June 30, 1996, the corporation had nonenvironmental litigation loss contingencies of $44 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. DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Overview The corporation reported second quarter 1996 net income available to common stockholders of $170 million, or $1.12 per share, fully diluted ($1.23 per share, primary). For the first six months of 1996, net income available to common stockholders was $325 million, or $2.13 per share, fully diluted ($2.34 per share, primary). For the corresponding quarter in 1995, the corporation reported earnings of $225 million, or $1.44 per share, fully diluted ($1.59 per share, primary). For the first six months of 1995, net income available to common stockholders was $453 million, or $2.86 per share, fully diluted ($3.16 per share, primary). The corporation's earnings for the quarter ending June 30, 1996 were affected by lower average selling prices and higher feedstock costs as compared to the same quarter in 1995. Earnings for the six month period ending June 30, 1996 were further impacted by weather-related problems that affected first quarter operations. As a result of these factors, margins for both the second quarter and the first six months of 1996 were lower than those of the corresponding prior year periods. The impact of these declining margins was mitigated somewhat by improved volumes in both business segments. Barring more adverse conditions in the world's economy, the outlook for the Specialties & Intermediates segment is good. Volumes are expected to remain strong, and margins should improve modestly as raw material increases received in the second quarter are passed on through selling prices in the third quarter. Within the Basic Chemicals & Polymers segment, barring more adverse conditions in the world's economy, the corporation anticipates that polyethylene and polypropylene selling prices will increase from second quarter 1996 levels, while ethylene glycol prices are expected to decline, possibly bottoming-out by the end of the third quarter. Basic Chemical & Polymer volumes are expected to remain at current levels. Results of Operations Revenues increased 1.2 percent in the second quarter and 2.2 percent in the first six months of 1996 in comparison to the comparable periods in 1995. Declining average selling prices in the current year were more than offset by the effect of increasing volumes. Second quarter volumes increased 12.4 percent versus the 1995 period, while first half volumes increased by 9.7 percent. Average unit prices declined by 9.9 percent and 6.7 percent for the quarter and six month periods, respectively. The combined impact of falling selling prices and rising feedstock costs have caused current year margins to decline in comparison to last year. The corporation's variable margin for the second quarter of 1996 was 45.0 percent, compared to 46.2 percent in the second quarter of 1995. For the six month period ending June 30, 1996, variable margin was 45.2 percent as opposed to 48.0 percent in the same period last year. Gross margin (variable margin less fixed manufacturing and distribution costs) declined to 26.2 percent for the second quarter of 1996 from 28.4 percent for the second quarter of 1995, and declined to 26.5 percent for the six months ending June 30, 1996 from 29.8 percent for the six months ending June 30, 1995. Fixed manufacturing and distribution costs increased 6.4 percent in the second quarter, and 4.8 percent in the first six months of 1996, compared to the same periods of 1995, primarily due to the acquisition of Shell Oil Company's polypropylene assets and business. Industry Segments The company's operations are classified into two main business segments, Specialties & Intermediates and Basic Chemicals & Polymers. The Specialties & Intermediates segment includes the corporation's specialty chemicals and specialty polymers product lines, licensing, solvents and chemical intermediates. The Basic Chemicals & Polymers segment includes the corporation's ethylene and propylene manufacturing operations as well as the production of first level ethylene and propylene derivatives - polyethylene, ethylene oxide/glycol and polypropylene. The corporation's non-core operations and financial transactions are included in "Other". Information about the corporation's operations in its business segments for the second quarter and six month periods of 1996 and 1995 follows. Sales of the Basic Chemicals & Polymers segment include intersegment sales, principally ethylene oxide, which are made at the estimated market value of the products transferred. Operating profit represents income before interest expense and the provision for income taxes. Quarter ended Six Months ended June 30, June 30, Millions of dollars 1996 1995 1996 1995 Sales Specialties & Intermediates $1,109 $1,056 $2,186 $2,103 Basic Chemicals & Polymers 527 557 1,046 1,025 Intersegment Eliminations (77) (72) (172) (134) Total $1,559 $1,541 $3,060 $2,994 Operating Profit Specialties & Intermediates $ 190 $ 207 $ 383 $ 417 Basic Chemicals & Polymers 47 100 105 208 Other 8 1 16 24 Total $ 245 $ 308 $ 504 $ 649 Depreciation and Amortization Specialties & Intermediates $ 48 $ 45 $ 94 $ 100 Basic Chemicals & Polymers 31 27 60 55 Total $ 79 $ 72 $ 154 $ 155 Capital Expenditures Specialties & Intermediates $ 132 $ 91 $ 266 $ 152 Basic Chemicals & Polymers 45 37 97 59 Total $ 177 $ 128 $ 363 $ 211 Sales of the Specialties & Intermediates segment increased 5.0 percent to $1,109 million in the second quarter of 1996 over that of 1995, and increased 3.9 percent to $2,186 million in the first six months of 1996 compared to the first six months of 1995. Operating profit for the second quarter of 1996 was $190 million, as compared to $207 million for the same quarter of 1995; operating profit was $383 million for the first half of 1996, versus $417 for the same period of 1995, which included an increase of $12 million in depreciation expense related to a reduction in the depreciable lives of certain computer equipment. Increases in volumes, offset by declines in average selling prices, accounted for the sales increases. Sales of the Basic Chemicals & Polymers segment declined 5.4 percent to $527 million in the second quarter of 1996 versus that of 1995, and increased 2.0 percent to $1,046 million in the first six months of 1996 compared to the first six months of 1995. Operating profit for the second quarter of 1996 declined to $47 million from $100 million for the second quarter of 1995, and also declined on a year-to-date basis to $105 million from $208 million in the corresponding period of the prior year. The second quarter sales decline is attributable to decreased selling prices, partially offset by increased volumes from the newly acquired polypropylene business. The same factors are behind the sales increase for the first six months of the year, although the declines in selling prices were not so great as to offset the increases in polyethylene and polypropylene volumes. Selling, administrative and other expenses declined $5 million in the second quarter of 1996 versus the same quarter of 1995, and increased $1 million in the first six months of 1996 over the same period of 1995. Partnership income declined $14 million in the second quarter of 1996 and $32 million in the first half of 1996, as a result of decreased earnings for Petromont due to lower polyethylene prices, and the elimination of the earnings of the polypropylene partnership with Shell Oil Company, which was acquired in January of 1996 and is now included in consolidated earnings. Other expense (income) - net for the first half of 1996 included a charge for the discontinuance of the Basic Chemicals & Polymers segment's high density polyethylene recycle resin operation. Included in the first half of 1995 were the following items: a $220 million gain on the corporation's reduction of its equity interest in UCAR and a non-cash charge of $191 million for future lease payments on unused office space, primarily at the corporation's Danbury headquarters. Interest expense declined by $8 million to $14 million in the quarter ended June 30, 1996 versus the comparable 1995 quarter, and declined $4 million to $37 million in the first six months of 1996 versus the same period of 1995, due to an increase in capitalized interest associated with the corporation's increased capital program. Income from corporate investments carried at equity declined to $7 million in the second quarter of 1996 from $26 million in the second quarter of 1995, and to a loss of $6 million for the first half of 1996 from income of $31 million in the first half of 1995, due to a decline in the earnings of Polimeri Europa as the result of increased raw material prices and decreased selling prices in Europe, and the recognition of preliminary operating expenses, which will continue to be incurred until plant start-up which is expected to be in mid-1997, by Equate Petrochemical Company. Estimates of future expenses related to environmental protection for compliance with Federal, state and local laws regulating solid and hazardous wastes and discharge of materials to air and water, as well as for waste site remedial activities, and of future capital expenditures relating to environmental protection, have not changed materially since December 31, 1995. The reliability and precision of the loss estimates are affected by numerous factors, such as different stages of site evaluation, the allocation of responsibility among potentially responsible parties and the assertion of additional claims. The corporation's environmental exposures are discussed in more detail in the Commitments and Contingencies footnote to the financial statements on pages 8 through 10 of this report on Form 10-Q. The corporation continues to be named as one of a number of defendants in lawsuits, some of which have more than one plaintiff, involving silicone gel breast implants. The corporation supplied bulk silicone materials to certain companies that at various times were involved in the manufacture of breast implants. These cases are discussed in more detail in the "Commitments and Contingencies" footnote to the financial statements on pages 8 through 10 of this report on Form 10-Q. Financial Condition - June 30, 1996 Cash flow from operations was $424 million for the first six months of 1996, compared to $186 million in the comparable period of 1995. Decreased earnings in the first six months of 1996 versus the first six months of 1995 were offset by lower working capital requirements as well as reduced tax payments. Net gains on investing transactions were significantly higher in the first half of 1995 because of the gain on the reduction of the corporation's equity interest in UCAR during that period. Other noncash charges of $128 million in the first six months of 1995 included the $191 million charge for future lease payments on unused office space. Cash flow used for investing totaled $613 million in the first six months of 1996, and $129 million in the first six months of 1995. In the first quarter of 1996, the corporation purchased the polypropylene assets and business of Shell Oil Company and 95 percent of the outstanding shares of Companhia Alcoolquimica Nacional, a Brazilian producer of vinyl acetate monomer. In the prior year's first six months, investments and acquisitions included the acquisition of a 50 percent equity interest in Polimeri Europa and the ethylene oxide derivatives businesses of ICI, while sale of investments reflected the sale of half of the corporation's 50 percent equity interest in UCAR International Inc. Capital expenditures increased to $363 million in the first six months of 1996 in comparison to $211 million in the first six months of 1995. Major projects include an ethylene propylene rubber project at Seadrift, Tex., within the Specialties & Intermediates Segment; a cogeneration facility at Taft, La., within both business segments; and an upgrade to the information technology infrastructure, which involves all segments. Cash flow used for financing in the first six months of 1996 was $182 million, as compared to cash flow provided from financing of $55 million in the comparable 1995 period. The 1996 period included net common stock repurchases of $185 million under the existing common stock repurchase program, while net common stock repurchases during the 1995 period totaled $279 million. Through the first half of 1996 the corporation has purchased 7.4 million shares of common stock for $314 million. Since 1993, the corporation has purchased 36.8 million shares of common stock for $1.143 billion. On July 24, 1996, the corporation's board of directors authorized an increase of 10 million in the number of shares that may be repurchased under the existing common stock repurchase program to a total of 50 million shares. The corporation intends to acquire additional shares from time to time at prevailing market rates consistent with the combination of corporate cash flow and market conditions. Cash dividends to common stockholders amounted to $56 million and $58 million for the six month periods ended June 30, 1996 and 1995, respectively. In the first half of 1995, the corporation completed a $400 million, two-part public offering of debt securities which was used in part to refinance existing short term debt. The corporation's ratio of debt to total capital increased to 39.7 percent at June 30, 1996 from 39.0 percent at December 31, 1995. At June 30, 1996, there were no outstanding borrowings under the existing bank credit agreement aggregating $1 billion. At June 30, 1996, the corporation had invested approximately $139 million in Equate Petrochemical Company K.S.C., its Kuwait joint venture, and had severally guaranteed up to $225 million of Equate debt. Additional significant commitments are anticipated. PART II. OTHER INFORMATION Item 1. Legal Proceedings See Note 5 to the corporation's condensed consolidated financial statements on pages 8 through 10 of this 10-Q Report. Item 5. Other Information On August 8, 1996, the corporation signed a memorandum of understanding with Exxon Chemical Company to form a 50/50 joint venture to research, develop, market and license technologies for the production of polyethylene. The technologies to be offered by the venture will be based on the corporation's UNIPOL I and UNIPOL II gas-phase processes and catalyst systems, and Exxon Chemical's EXXPOL metallocene catalyst systems and super condensed mode technology gas-phase process improvement. The new company, targeted to be operational by the end of 1996, also will manufacture and sell metallocene catalysts for polyethylene production. Exxon Chemical and the corporation will each separately retain their production and sales of polyethylene resins. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. The following exhibits are filed as part of this report: 11 - Computation of Earnings Per Share 27 - Financial Data Schedule. (b) No reports on Form 8-K were filed for the three months ended June 30, 1996. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. UNION CARBIDE CORPORATION (Registrant) Date: August 8, 1996 By: /s/John K. Wulff JOHN K. WULFF Vice-President and Chief Financial Officer EXHIBIT INDEX Exhibit Page No. Exhibit No. 11 Computation of Earnings Per Share 18 27 Financial Data Schedule 19 EX-11 2 EPS COMPUTATION Exhibit 11 UNION CARBIDE CORPORATION AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE (In millions of dollars except per share amounts)
Quarter Ended June 30, 1996 1995 Earnings Per Share - Primary Income $ 173 $ 228 Less: Preferred stock dividend 3 4 Net income available to common stockholders for primary income calculation $ 170 $ 224 Weighted average number of common and common equivalent shares applicable to primary earnings per share calculation Weighted average number of shares outstanding 133,389,682 136,695,246 Dilutive effect of stock options 4,593,584 4,191,071 137,983,266 140,886,317 Earnings per share - primary $ 1.23 $ 1.59 Earnings Per Share - Fully Diluted Income $ 173 $ 228 Weighted average number of common and common equivalent shares applicable to fully diluted earnings per share calculation Weighted average number of shares outstanding 133,389,682 136,695,246 Dilutive effect of stock options 4,593,584 4,543,319 Shares issuable upon conversion of UCC convertible preferred stock 16,134,750 16,381,572 154,118,016 157,620,137 Earnings per share - fully diluted $ 1.12 $ 1.44 Six Months Ended June 30, 1996 1995 Earnings Per Share - Primary Income $ 330 $ 458 Less: Preferred stock dividend 6 7 Net income available to common stockholders for primary income calculation $ 324 $ 451 Weighted average number of common and common equivalent shares applicable to primary earnings per share calculation Weighted average number of shares outstanding 133,946,048 138,768,552 Dilutive effect of stock options 4,667,864 4,118,041 138,613,912 142,886,593 Earnings per share - primary $ 2.34 $ 3.16 Earnings Per Share - Fully Diluted Income $ 330 $ 458 Weighted average number of common and common equivalent shares applicable to fully diluted earnings per share calculation Weighted average number of shares outstanding 133,946,048 138,768,552 Dilutive effect of stock options 4,667,864 4,620,613 Shares issuable upon conversion of UCC convertible preferred stock 16,167,454 16,404,862 154,781,366 159,794,027 Earnings per share - fully diluted $ 2.13 $ 2.86
EX-27 3 FINANCIAL DATA SCHEDULE
5 EXHIBIT 27 - FINANCIAL DATA SCHEDULE - UNION CARBIDE CORPORATION THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNION CARBIDE CORPORATION'S FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000100790 UNION CARBIDE CORPORATION 1,000,000 6-MOS DEC-31-1996 JUN-30-1996 78 0 1079 0 515 1856 6875 3673 6334 1290 1288 145 0 155 1910 6334 3060 3060 2249 2249 230 0 37 467 131 336 0 0 0 325 2.34 2.13
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