-----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, KwJElNWRkXcS0BZRDanm1G1o15+Og+2/D+pSu4Cq2EKw+WwPc5rn/jEFNaMg/LtY GCYmDYhMJfaSbV/Q6ZLgnA== 0000100790-96-000003.txt : 19960325 0000100790-96-000003.hdr.sgml : 19960325 ACCESSION NUMBER: 0000100790-96-000003 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960322 SROS: CSX SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNION CARBIDE CORP /NEW/ CENTRAL INDEX KEY: 0000100790 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS, MATERIALS, SYNTH RESINS & NONVULCAN ELASTOMERS [2821] IRS NUMBER: 131421730 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-01463 FILM NUMBER: 96537411 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-K405 1 FORM Securities and Exchange Commission, Washington, D.C. 20549 Annual Report on Form 10-K for the year ended December 31, 1995. Filed pursuant to Section 13 of the Securities Exchange Act of 1934. Commission file number 1-1463 Union Carbide Corporation 1995 10-K Union Carbide Corporation Tel. (203) 794-2000 39 Old Ridgebury Road State of incorporation: New York Danbury, Connecticut 06817-0001 IRS identification number: 13-1421730 Securities registered pursuant to Section 12(b) of the Act: Class of security: Registered on: Common Stock ($1 par value) New York Stock Exchange Chicago Stock Exchange, Incorporated The Pacific Stock Exchange Incorporated Share Purchase Rights Plan New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: NONE At February 29, 1996, 134,453,586 shares of common stock were outstanding. Non-affiliates held 133,670,038 of those shares, of which the aggregate market value was $6.015 billion. 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 ("the Act") during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X Documents incorporated by reference: Annual report to stockholders for the year ended December 31, 1995 (Parts I and II) Proxy statement for the annual meeting of stockholders to be held on April 24, 1996 (Part III) Table of Contents Part I Item 1: Business 1 Item 2: Properties 3 Item 3: Legal Proceedings 4 Item 4: Submission of Matters to a Vote of Security Holders 4 Part II Item 5: Market for Registrant's Common Equity and Related Stockholder Matters 5 Item 6: Selected Financial Data 5 Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations 5 Item 8: Financial Statements and Supplementary Data 5 Item 9: Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 5 Part III Item 10: Directors and Executive Officers of the Registrant 6 Item 11: Executive Compensation 8 Item 12: Security Ownership of Certain Beneficial Owners and Management 8 Item 13: Certain Relationships and Related Transactions 8 Part IV Item 14: Exhibits, Financial Statement Schedules, and Reports on Form 8-K 9 Signatures 12 Exhibit Index 13 Cautionary statement for the purposes of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995: All statements in this Form 10-K report that do not reflect historical information are forward looking statements. These include statements incorporated herein by reference to the 1995 annual report to stockholders. 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. Some of these factors are discussed further in Part I, Item 1: Business. Definition of terms: See the inside back cover page of the 1995 annual report to stockholders. Terms defined there are used herein. Printed on Recycled, Recyclable Paper Part I Item 1. Business General-Union Carbide operates in two business segments of the chemicals and plastics industry, Specialties & Intermediates and Basic Chemicals & Polymers. 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 gas and petrochemicals industries. The Basic Chemicals & Polymers segment converts hydrocarbon feedstocks, principally liquefied petroleum gas and naphtha, into polyethylene, polypropylene and ethylene oxide/glycol for sale to third-party customers, as well as propylene, ethylene and ethylene oxide for consumption by the Specialties & Intermediates segment. The profitability of the Basic Chemicals & Polymers segment of the chemicals and plastics industry is highly cyclical, whereas that of the Specialties & Intermediates segment is less cyclical. Consequently, Union Carbide's results are subject to the swings of the cycle in the basic chemicals and polymers segment. See inside front cover, pages 6 through 8, and "Summary and Outlook" on pages 10 through 12 of the 1995 annual report to stockholders for further information about Union Carbide's businesses, and Note 3 on pages 26 through 27 of the 1995 annual report to stockholders for financial information about Union Carbide's business segments. Union Carbide does not produce against a backlog of firm orders; production is geared primarily to the level of incoming orders and to projections of future demand. Inventories of finished products, work in process and raw materials are maintained to meet delivery requirements of customers and Union Carbide's production schedules. At year-end 1995, 11,521 people were employed worldwide in manufacturing facilities, laboratories and offices around the world. Raw Materials, Products and Markets-See information herein and in the 1995 annual report to stockholders on pages 6 through 8. Unless otherwise indicated, the products of Union Carbide are sold principally by its own sales force, directly to customers. Union Carbide believes it has contracts or commitments for, or readily available sources of, hydrocarbon feedstocks and fuel supplies to meet its anticipated needs in all major product areas. The corporation's operations are dependent upon the availability of hydrocarbon feedstocks and fuels which are purchased from diverse domestic and international sources, including independent oil and gas producers as well as integrated oil companies. The availability and price of hydrocarbon feedstocks, energy and finished products are subject to plant interruptions and outages and to market and political conditions in the U.S. and elsewhere. Operations and products at times may be adversely affected by legislation, government regulations, shortages, or international or domestic events. The business segments of Union Carbide are not dependent to a significant extent upon a single customer or a few customers. Patents; Trademarks; Research and Development-Union Carbide owns a large number of United States and foreign patents that relate to a wide variety of products and processes, has pending a substantial number of patent applications throughout the world, and is licensed under a number of patents. These patents expire at various times over the next 20 years. Such patents and patent applications in the aggregate are material to Union Carbide's competitive position. No one patent is considered to be material; however, the patent portfolio relating to the UNIPOL process technology is, in the aggregate, considered to be material. Union Carbide also has a large number of trademarks. The UNION CARBIDE, UCAR and UNIPOL trademarks are material; no other single trademark is material. Part I (Cont.) Essentially all of Union Carbide's research and development activities are company-sponsored. The principal research and development facilities of Union Carbide are indicated in the discussion of Properties (Item 2) of this Form 10-K report. In addition to the facilities specifically indicated there, product development and process technology laboratories are maintained at some plants. Union Carbide spent $144 million in 1995, $136 million in 1994, and $139 million in 1993 on company-sponsored research activities to develop new products, processes, or services, or to improve existing ones. Environment-See Costs Relating to Protection of the Environment on pages 13 through 14 of the 1995 annual report to stockholders and Note 16 on pages 36 through 37 thereof. Insurance-Union Carbide's policy is to obtain public liability insurance coverage at terms and conditions and a price that management considers fair and reasonable. Union Carbide's management believes Union Carbide has public liability insurance in an amount sufficient to meet its current needs in light of pending, threatened, and future litigation and claims. There is no assurance, however, that Union Carbide will not incur losses beyond the limits, or outside the coverage, of its insurance. Such insurance is subject to substantial deductibles. Competition-Each of the major product and service areas in which Union Carbide participates is highly competitive. In some instances competition comes from manufacturers of the same products as those produced by Union Carbide and in other cases from manufacturers of different products which may serve the same markets as those served by Union Carbide's products. Some of Union Carbide's competitors, such as companies principally engaged in petroleum operations, have more direct access to hydrocarbon feedstocks, and some have greater financial resources than Union Carbide. The Specialties & Intermediates segment is characterized by differentiated products and is less subject to external changes in supply/demand relationships than the Basic Chemicals & Polymers segment. In this segment, competition is based on product functionality and quality, and prices are a function of demand for the product, with the more unique products commanding significant premiums. The Basic Chemicals & Polymers segment is characterized by large volume commodity products and is subject to external changes in supply/demand relationships, including changes in the strength of the overall economy, customer inventory levels, industry manufacturing capacity and operating rates and raw material feedstock costs. Participants in this segment compete for business primarily on the basis of price and efficient delivery systems. See pages 6 through 8 of the 1995 annual report to stockholders for information about each segment's principal products, competitive position and major competitors. Union Carbide is a major marketer of petrochemical products throughout the world. Products that the corporation markets are largely produced in the United States, while products marketed by the corporation's joint ventures are principally produced outside the United States. Competitive products are produced throughout the world. In 1995, the corporation made significant investments in acquisitions and joint ventures outside the United States. During 1996, the corporation expects to continue making investments in acquisitions and joint ventures. Union Carbide's international operations face competition from local producers and global competitors and a number of other risks inherent in carrying on business outside the United States, including risks of nationalization, expropriation, restrictive action by local governments and changes in currency exchange rates. Part I (Cont.) Item 2. Properties In management's opinion, current facilities, together with planned expansions, will provide adequate production capacity to meet Union Carbide's planned business activities. Capital expenditures are discussed on pages 16 and 17 of the 1995 annual report to stockholders. Listed below are the principal manufacturing facilities operated by Union Carbide worldwide. Research and engineering facilities are noted. Most of the domestic properties are owned in fee. Union Carbide maintains numerous domestic sales offices and warehouses, substantially all of which are leased premises under relatively short-term leases. All principal international manufacturing properties are owned or held under long-term leases. International administrative offices, technical service laboratories, sales offices and warehouses are owned in some instances and held under relatively short-term leases in other instances. The corporation's headquarters are located in Danbury, Connecticut, and are leased. Principal domestic manufacturing facilities and the principal products manufactured there are as follows: Location City Principal Product(s) Specialties & Intermediates Segment California Torrance Latexes Georgia Tucker Latexes Illinois Alsip Latexes Louisiana Greensburg Hydroxyethyl cellulose derivatives Louisiana Taft Acrolein and derivatives, acrylic monomers, caprolactone, UV-cured coatings, cycloaliphatic epoxides, glycol ethers, ethyleneamines, oxo alcohols New Jersey Bound Brook Polyols, polyethylene compounding New Jersey Edison Lanolin derivatives New Jersey Somerset Latexes New York Mamaroneck Lanolin derivatives Puerto Rico Bayamon Latexes Texas Garland Latexes Texas Seadrift Ethanolamines, glycol ethers, surfactants, polyethylene compounding Texas Texas City Organic acids and esters, alcohols, surfactants, vinyl acetate, solution vinyl resins, heat transfer fluids West Virginia Institute Caprolactone derivatives, polyethylene glycol, hydroxyethyl cellulose, polyethylene oxide, surfactants, ethylidene norbornene, glutaraldehyde, acetone and derivatives West Virginia South Charleston Alkyl alkanolamines, brake fluids, miscellaneous specialty products, polyalkylene glycols, surfactants, specialty ketones, polyvinyl acetate resins, heat transfer fluids Basic Chemicals & Polymers Segment Louisiana Norco Polypropylene Louisiana Taft Ethylene oxide and glycol, olefins Louisiana Taft (Star Plant) Polyethylene New Jersey Bound Brook Recycled plastics Texas Seadrift Ethylene oxide and glycol, olefins, polyethylene, polypropylene Texas Texas City Olefins Part I (Cont.) Research and development for the Specialties & Intermediates segment is carried on at technical centers in Bound Brook, Edison and Somerset, New Jersey; Tarrytown, New York; Cary, North Carolina; and South Charleston, West Virginia. Research and development for the Basic Chemicals & Polymers segment is carried on at technical centers in Bound Brook and Somerset, New Jersey; and South Charleston, West Virginia. Process and design engineering for both segments is conducted at a technical center in South Charleston, West Virginia, in support of domestic and foreign projects. Principal international manufacturing facilities and the principal products manufactured there are as follows: Country City Principal Product(s) Specialties & Intermediates Segment Belgium Antwerp Hydroxyethyl cellulose Belgium Vilvoorde Lanolin derivatives Brazil Aratu Hydroxyethyl cellulose Brazil Cubatao Polyethylene compounding Dubai, UAE Jebel Ali Free Trade Zone Latex Ecuador Guayaquil Latex France Chocques Glycol ethers, brake fluid Indonesia Jakarta Latex Malaysia Seremban Latex People's Republic of China Guangdong Province Latex Philippines Batangas Latex Sri Lanka Ekala Latex Thailand Nonthaburi Latex United Kingdom Wilton Glycol ethers, ethanolamines Basic Chemicals & Polymers Segment Canada Boucherville Molded polyethylene products Canada Prentiss Ethylene glycol United Kingdom Wilton Ethylene oxide and glycol Research and development for the Specialties & Intermediates segment is carried on at international facilities in Antwerp, Belgium; Cubatao, Brazil; Montreal East, Canada; Jurong, Singapore; Meyrin (Geneva), Switzerland; and Wilton, United Kingdom. Research and development for the Basic Chemicals & Polymers segment is carried on at international facilities in Montreal East, Canada. Item 3. Legal Proceedings See Note 16 of Notes to Financial Statements on pages 36 through 37 of the 1995 annual report to stockholders. In June 1991 Union Carbide Corporation, on behalf of certain affiliates, registered with the U.S. Environmental Protection Agency to participate in a compliance audit program to determine compliance with a provision of the Toxic Substances Control Act. Stipulated penalties under the program are anticipated to be $1 million. Item 4. Submission of Matters to a Vote of Security Holders The corporation did not submit any matters to a stockholder vote during the last quarter of 1995. Part II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters Market and dividend information for the corporation's common stock is contained on pages 18 and 19 of the 1995 annual report to stockholders. Information about the stock exchanges where the stock is traded in the United States is listed on page 39 of the 1995 annual report to stockholders. The declaration of dividends is a business decision made from time to time by the Board of Directors based on the corporation's earnings and financial condition and other factors the Board considers relevant. The number of stockholders of record of the corporation's common stock is contained on page 1 of the 1995 annual report to stockholders. Item 6. Selected Financial Data Information pertaining to consolidated operations is included under the captions "From the Income Statement," and "From the Balance Sheet (At Year- End)", and dividend information is included under the caption "Other Data" in the Selected Financial Data on page 19 of the 1995 annual report to stockholders. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations See the information covered in the 1995 annual report to stockholders on pages 10 through 17. Item 8. Financial Statements and Supplementary Data The consolidated balance sheet of Union Carbide Corporation and subsidiaries at December 31, 1995 and 1994, and the consolidated statements of income, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1995, together with the report thereon of KPMG Peat Marwick LLP dated January 19, 1996, are contained on pages 20 through 38 of the 1995 annual report to stockholders. Quarterly income statement data is contained on page 18 of the 1995 annual report to stockholders. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Union Carbide has not had any disagreements covered by this item with KPMG Peat Marwick LLP, its independent auditors. Part III Item 10. Directors and Executive Officers of the Registrant For background information on the Directors of Union Carbide Corporation whose terms are expected to continue after the annual meeting of stockholders and persons nominated to become Directors, see pages 7 through 10 of the proxy statement for the annual meeting of stockholders to be held on April 24, 1996. James M. Hester, age 71, who has been a director of the corporation since 1963, will not stand for reelection at the annual meeting of stockholders and will cease to be a director at that time. The principal executive officers of the corporation are as follows. Data is as of March 22, 1996. Name Age Position Year First Elected William H. Joyce 60 Chairman of the Board, President and Chief Executive Officer 1993 Joseph S. Byck 54 Vice-President 1991 James F. Flynn 53 Vice-President 1993 Joseph E. Geoghan 58 Vice-President, General Counsel and Secretary 1987 Thomas D. Jones 61 Vice-President and Treasurer 1993 Malcolm A. Kessinger 52 Vice-President 1991 Lee P. McMaster 53 Vice-President 1993 Joseph C. Soviero 57 Vice-President 1993 Roger B. Staub 61 Vice-President 1993 Ronald Van Mynen 58 Vice-President, Health, Safety and Environment 1992 Philip T. Wright 64 Vice-President 1995 John K. Wulff 47 Vice-President, Chief Financial Officer and Controller 1988 There are no family relationships between any officers or directors of the corporation. There is no arrangement or understanding between any officer and any other person pursuant to which the officer was elected an officer. An officer is elected by the Board of Directors to serve until the next annual meeting of stockholders and until his successor is elected and qualified. The table on the next page gives a summary of the positions held during at least the past five years by each officer. Each of the officers has been employed by the corporation or a subsidiary of the corporation for the past five years. Part III (Cont.) Name Position Years Held William H. Joyce Chairman of the Board, President and Chief Executive Officer 1996 to present President and Chief Executive Officer 1995 to 1995 President and Chief Operating Officer 1993 to 1995 President, Union Carbide Chemicals and Plastics Company Inc. 1993 to 1994 Executive Vice-President 1991 to 1993 Executive Vice-President, Union Carbide Chemicals and Plastics Company Inc. 1990 to 1993 Vice-President 1990 to 1991 Joseph S. Byck Vice-President 1991 to present Vice-President, Union Carbide Chemicals and Plastics Company Inc. 1991 to 1994 Vice-President, Business Development and Planning, Union Carbide Chemicals and Plastics Company Inc. 1989 to 1991 James F. Flynn Vice-President 1993 to present Vice-President, General Manager Solvents & Coatings Materials Division 1989 to 1993 Joseph E. Geoghan Vice-President, General Counsel and Secretary 1990 to present Thomas D. Jones Vice-President and Treasurer 1993 to present Vice-President, Treasurer and Principal Financial Officer, Union Carbide Chemicals and Plastics Company Inc. 1992 to 1994 Associate Treasurer 1992 to 1993 Assistant Treasurer 1987 to 1992 Malcolm A. Kessinger Vice-President 1991 to present Vice-President, Human Resources, Union Carbide Chemicals and Plastics Company Inc. 1990 to 1994 Lee P. McMaster Vice-President 1993 to present President, Industrial Chemicals Division 1992 to 1993 Vice-President, General Manager, Polyolefins Division 1989 to 1992 Part III (Cont.) Joseph C. Soviero Vice-President 1993 to present President, Specialty Chemicals Division 1983 to 1993 Roger B. Staub Vice-President 1993 to present President, Polyolefins Division 1990 to 1993 Ronald Van Mynen Vice-President, Health, Safety and Environment 1992 to present Vice-President, Health, Safety and Environmental Affairs Union Carbide Chemicals and Plastics Company Inc. 1985 to 1994 Philip T. Wright Vice-President 1995 to present Group Vice-President, Union Carbide Chemicals and Plastics Company Inc. 1990 to 1994 John K. Wulff Vice-President, Chief Financial Officer and Controller 1996 to present Vice-President, Controller and Principal Accounting Officer 1989 to 1996 Item 11. Executive Compensation See pages 20 through 22 of the proxy statement for the annual meeting of stockholders to be held on April 24, 1996. Item 12. Security Ownership of Certain Beneficial Owners and Management See pages 23 and 24 of the proxy statement for the annual meeting of stockholders to be held on April 24, 1996. Item 13. Certain Relationships and Related Transactions No reportable transactions in 1995. Part IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K UNION CARBIDE CORPORATION (a) The following documents are filed as part of this report: 1. The consolidated financial statements set forth on pages 20 through 37 and the Independent Auditors' Report set forth on page 38 of the 1995 annual report to stockholders are incorporated by reference in this Form 10-K Annual Report. 2. The Report on Schedule of KPMG Peat Marwick LLP appears on page 10 of this Form 10-K Annual Report. 3. The following schedule should be read in conjunction with the consolidated financial statements incorporated by reference in Item 8 of this Form 10-K Annual Report. Schedules other than those listed have been omitted because they are not applicable. Page in this Form 10-K Report Valuation and Qualifying Accounts (Schedule II), three years ended December 31, 1995 11 (b) No reports on Form 8-K were filed for the three months ended December 31, 1995. (c) Exhibits-See Exhibit Index on pages 13 through 17 for exhibits filed with this Annual Report on Form 10-K. UOP (d) Audited financial statements of UOP, with Report of Independent Accountants thereon, appearing on pages 17 through 39 of the Corporation's 1993 Form 10-K, have been filed pursuant to Regulation S-X, Rule 3.09 and are incorporated by reference herein. UOP is a general partnership between EM Sector Holdings Inc. and Catalysts, Adsorbents and Process Systems, Inc., wholly owned subsidiaries of AlliedSignal Inc. and the corporation, respectively. Part IV (Cont.) Report of Independent Auditors The Board of Directors Union Carbide Corporation Under date of January 19, 1996, we reported on the consolidated balance sheets of Union Carbide Corporation and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of income, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1995, as contained on pages 20 through 37 in the 1995 annual report to stockholders. These consolidated financial statements and our report thereon are incorporated by reference in the annual report on Form 10-K for the year 1995. In connection with our audits of the aforementioned consolidated financial statements, we also have audited the related financial statement schedule as listed in Item 14(a)3. This financial statement schedule is the responsibility of the company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. As discussed in Note 1 to the consolidated financial statements, in 1993 the company changed its method of accounting for postemployment benefits. KPMG Peat Marwick LLP Stamford, Conn. January 19, 1996 Part IV (Cont.) Schedule II-Valuation and Qualifying Accounts Union Carbide Corporation and Consolidated Subsidiaries Deductions Items determined to be uncollectible, Additions less recovery Balance at Charged to of amounts Balance at beginning costs and previously end of of period expenses written off period Millions of dollars, year ended December 31, 1995 Allowance for doubtful accounts $11 $5 $5 $11 Millions of dollars, year ended December 31, 1994 Allowance for doubtful accounts $12 $2 $3 $11 Millions of dollars, year ended December 31, 1993 Allowance for doubtful accounts $ 9 $5 $2 $12 Signatures Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the corporation has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Union Carbide Corporation March 22, 1996 /s/John K. Wulff by: John K. Wulff Vice-President, Chief Financial Officer and Controller Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the corporation and in the capacities indicated on March 22, 1996. /s/William H. Joyce /s/John J. Creedon /s/Robert D. Kennedy William H. Joyce John J. Creedon Robert D. Kennedy Director, Chairman of the Board, Director Director President and Chief Executive Officer /s/Joseph E. Geoghan /s/C. Fred Fetterolf /s/Ronald L. Kuehn, Jr. Joseph E. Geoghan C. Fred Fetterolf Ronald L. Kuehn, Jr. Director, Vice-President, Director Director General Counsel and Secretary /s/John K. Wulff /s/Rainer E. Gut /s/Rozanne L. Ridgway John K. Wulff Rainer E. Gut Rozanne L. Ridgway Vice-President, Chief Financial Director Director Officer and Controller /s/James M. Hester /s/William S. Sneath James M. Hester William S. Sneath Director Director /s/Vernon E. Jordan, Jr. Vernon E. Jordan, Jr. Director Exhibit Index Exhibit No. 3.1 Restated Certificate of Incorporation as filed May 2, 1994 (See Exhibit 3.1 of the Corporation's 1994 Form 10-K). 3.2 By-Laws of the Corporation as adopted April 26, 1994 (See Exhibit 3.2 of the Corporation's 1994 Form 10-K). 4.1 Indenture dated as of August 1, 1992, among Union Carbide Chemicals and Plastics Company Inc. ("UCC&P"), Union Carbide Corporation and Chemical Bank, Trustee, for debt securities (See Exhibit 4.1.1 of the Corporation's Form S-3 filed December 9, 1992, File No. 33-55560). 4.2 The Corporation will furnish to the Commission upon request any other debt instrument referred to in item 601(b)(4)(iii)(A) of Regulation S-K. 4.3 Rights Agreement, dated as of July 26, 1989, as amended and restated as of May 27, 1992, between the Corporation and Chemical Bank (successor to Manufacturers Hanover Trust Company), as Rights Agent (See Exhibit 4(a) of the Corporation's Form 8 filed June 1, 1992). 10.1.1 Credit Agreement dated as of November 4, 1994, among the Corporation, the banks listed therein, the co-agents listed therein, Morgan Guaranty Trust Company of New York, as documentation agent, and Chemical Bank, as administrative agent and auction agent (See Exhibit 10.1.1 of the Corporation's 1994 Form 10-K). 10.1.2 Amendment to Credit Agreement dated as of October 27, 1995, among the Corporation, the banks listed therein, the co-agents listed therein, Morgan Guaranty Trust Company of New York, as documentation agent, and Chemical Bank, as administrative agent and auction agent. 10.2 Indemnity Agreement dated as of July 25, 1986, between the Corporation and Robert D. Kennedy. The Indemnity Agreement filed with the Commission is substantially identical in all material respects, except as to the parties thereto and dates thereof, with Indemnity Agreements between the Corporation and each other person who is a director or officer of the Corporation (See Exhibit 10.2 of the Corporation's 1992 Form 10-K). 10.3 Agreement, dated as of October 2, 1986, among UCC&P, GAF Corporation, GAF Chemicals Corporation, Jay & Company, Inc., Mayfair Investments, Inc. and Samuel J. Heyman (See Exhibit 10.3 of the Corporation's 1992 Form 10-K). 10.4 Transfer Agreement dated as of January 1, 1989, between UCC&P and Praxair, Inc. ("Praxair") (formerly named "Union Carbide Industrial Gases Inc."), as amended (See Exhibits 10.06, 10.07, 10.08 and 10.09 of Praxair's Form 10 dated March 10, 1992, as amended by Form 8s dated May 22, 1992, June 9, 1992 and June 12, 1992 ("Praxair Form 10")). 10.5 Transfer Agreement dated as of January 1, 1989, between UCC&P and Union Carbide Coatings Service Corporation ("UCCS"), as amended (See Exhibits 10.14, 10.15 and 10.16 of Praxair Form 10). 10.6 Amended and Restated Realignment Indemnification Agreement dated as of June 4, 1992, among the Corporation, UCC&P, Praxair, UCAR Carbon Company Inc. ("UCAR") and UCCS (See Exhibit 10.23 of Praxair Form 10). 10.7 Environmental Management, Services and Liabilities Allocation Agreement dated as of January 1, 1990, among the Corporation, UCC&P, UCAR, Praxair, and UCCS, as amended (See Exhibits 10.13 and 10.22 of Praxair Form 10). 10.8.1 Danbury Lease Agreements dated as of January 1, 1989, between UCC&P and Praxair, as amended (See Exhibit 10.26 of Praxair Form 10). Exhibit Index (Cont.) Exhibit No. 10.8.2 Fourth Amendment to Carbide Center Lease between UCC&P and Praxair dated July 1, 1992 (See Exhibit 10.14b of Praxair's 1993 Form 10-K). 10.8.3 Fifth Amendment to Carbide Center Lease between the Corporation and Praxair dated June 30, 1994 (See Exhibit 10.8.3 of the Corporation's 1994 Form 10-K). 10.8.4 Second Amendment to Linde Data Center Lease between UCC&P and Praxair dated July 2, 1992 (See Exhibit 10.14a of Praxair's 1993 Form 10K). 10.8.5 Third Amendment to Linde Data Center Lease between the Corporation and Praxair dated June 30, 1994 (See Exhibit 10.8.5 of the Corporation's 1994 Form 10-K). 10.9.1 Tax Disaffiliation Agreement dated as of June 4, 1992, between the Corporation and Praxair (See Exhibit 10.20 of Praxair Form 10). 10.9.2 Tax Settlement Agreement dated as of May 31, 1994, between the Corporation and Praxair (See Exhibit 10.9.2 of the Corporation's 1994 Form 10-K). 10.10.1 Employee Benefits Agreement dated as of June 4, 1992, between the Corporation and Praxair (See Exhibit 10.25 of Praxair Form 10). 10.10.2 First Amendatory Agreement to the Employee Benefits Agreement dated May 31, 1994 (See Exhibit 10.10.2 of the Corporation's 1994 Form 10-K). 10.11.1 Danbury Lease-Related Services Agreement dated as of June 4, 1992, among the Corporation, UCC&P and Praxair (See Exhibit 10.24 of Praxair Form 10). 10.11.2 First Amendment to Danbury Lease Related Services Agreement dated June 30, 1994 (See Exhibit 10.11.2 of the Corporation's 1994 Form 10-K). 10.12 Additional Provisions Agreement dated as of June 4, 1992, between the Corporation, UCC&P, Praxair and UCCS (See Exhibit 10.21 of Praxair Form 10). 10.13.1 1984 Union Carbide Stock Option Plan (See Exhibit 10.7.1 of the Corporation's 1991 Form 10-K). 10.13.2 Resolutions adopted by the Board of Directors of the Corporation on January 22, 1986, with respect to the 1984 Union Carbide Stock Option Plan (See Exhibit 10.7.2 of the Corporation's 1991 Form 10-K). 10.13.3 Resolutions adopted by the Board of Directors of the Corporation on April 17, 1986, with respect to the 1984 Union Carbide Stock Option Plan (See Exhibit 10.7.3 of the Corporation's 1991 Form 10-K). 10.13.4 Amendment to the 1984 Union Carbide Stock Option Plan effective June 1, 1989 (See Exhibit 10.13.4 of the Corporation's 1994 Form 10-K). 10.14.1 1988 Union Carbide Long-Term Incentive Plan (See Exhibit 10.14.1 of the Corporation's 1993 Form 10-K). 10.14.2 Amendment to the 1988 Union Carbide Long-Term Incentive Plan effective June 1, 1989 (See Exhibit 10.14.2 of the Corporation's 1994 Form 10-K). 10.14.3 Amendment to the 1988 Union Carbide Long-Term Incentive Plan effective August 1, 1989 (See Exhibit 10.14.3 of the Corporation's 1994 Form 10-K). 10.14.4 Resolutions adopted by the Board of Directors of the Corporation on February 26, 1992, with respect to stock options granted under the 1984 Union Carbide Stock Option Plan and the 1988 Union Carbide Long-Term Incentive Plan (See Exhibit 10.14.4 of the Corporation's 1992 Form 10-K). Exhibit Index (Cont.) Exhibit No. 10.14.5 Resolutions adopted by the Compensation and Management Development Committee of the Board of Directors of the Corporation on June 30, 1992, with respect to stock options granted under the 1984 Union Carbide Stock Option Plan and the 1988 Union Carbide Long-Term Incentive Plan (See Exhibit 10.14.5 of the Corporation's 1992 Form 10-K). 10.15.1 1983 Union Carbide Bonus Deferral Program (See Exhibit 10.8.1 of the Corporation's 1991 Form 10-K). 10.15.2 Amendment to the 1983 Union Carbide Bonus Deferral Program effective January 1, 1992 (See Exhibit 10.15.2 of the Corporation's 1992 Form 10-K). 10.16.1 1984 Union Carbide Cash Bonus Deferral Program (See Exhibit 10.9.1 of the Corporation's 1991 Form 10-K). 10.16.2 Amendment to the 1984 Union Carbide Cash Bonus Deferral Program effective January 1, 1986 (See Exhibit 10.9.2 of the Corporation's 1991 Form 10-K). 10.16.3 Amendment to the 1984 Union Carbide Cash Bonus Deferral Program effective January 1, 1992 (See Exhibit 10.16.3 of the Corporation's 1992 Form 10-K). 10.17.1 Equalization Benefit Plan for Participants of the Retirement Program Plan for Employees of Union Carbide Corporation and its Participating Subsidiary Companies (See Exhibit 10.11 of the Corporation's 1991 Form 10-K). 10.17.2 Amendment to the Equalization Benefit Plan effective January 1, 1994 (See Exhibit 10.18.2 of the Corporation's 1994 Form 10-K). 10.18.1 Supplemental Retirement Income Plan (See Exhibit 10.12.1 of the Corporation's 1991 Form 10-K). 10.18.2 Amendment to the Supplemental Retirement Income Plan effective January 1, 1994 (See Exhibit 10.19.3 of the Corporation's 1994 Form 10-K). 10.18.3 Amendment to the Supplemental Retirement Income Plan effective January 1, 1995. 10.19.1 1992 Stock Compensation Plan for Non-Employee Directors of Union Carbide Corporation (See Appendix A of the Corporation's proxy statement for the annual meeting of the stockholders held on April 22, 1992). 10.19.2 Resolution adopted by the Board of Directors of the Corporation on June 30, 1992, with respect to the 1992 Stock Compensation Plan for Non-Employee Directors of Union Carbide Corporation (See Exhibit 10.20.2 of the Corporation's 1992 Form 10-K). 10.20.1 Severance Compensation Agreement, dated July 21, 1992, between the Corporation and Ronald Van Mynen. The Severance Compensation Agreement filed with the Commission is substantially identical in all material aspects, except as to the parties thereto and dates thereof, with Agreements between the Corporation and other officers and employees of the Corporation (See Exhibit 10.21.1 of the Corporation's 1994 Form 10-K). 10.20.2 Amendment of Severance Compensation Agreement, dated September 24, 1993, between the Corporation and Ronald Van Mynen. Identical amendments, except as to the parties thereto, were entered into between the Corporation and other officers and employees of the Corporation (See Exhibit 10.21.2 of the Corporation's 1994 Form 10-K). Exhibit Index (Cont.) Exhibit No. 10.21 Resolution adopted by the Board of Directors of the Corporation on November 30, 1988, with respect to an executive life insurance program for officers and certain other employees (See Exhibit 10.22 of the Corporation's 1993 Form 10-K). 10.22 1994 Union Carbide Variable Compensation Plan (See Exhibit 10.23.2 of the Corporation's 1993 Form 10-K). 10.23.1 Union Carbide Corporation Benefits Protection Trust (See Exhibit 10.24.1 of the Corporation's 1994 Form 10-K). 10.23.2 Amendment to the Union Carbide Corporation Benefits Protection Trust effective October 23, 1991 (See Exhibit 10.18.2 of the Corporation's 1991 Form 10-K). 10.23.3 Amendment to the Union Carbide Corporation Benefits Protection Trust effective January 1, 1994 (See Exhibit 10.24.3 of the Corporation's 1994 Form 10-K). 10.24 Resolutions adopted by the Board of Directors of the Corporation on February 24, 1988, with respect to the purchase of annuities to cover liabilities of the Corporation under the Equalization Benefit Plan for Participants of the Retirement Program Plan for Employees of Union Carbide Corporation and its Participating Subsidiary Companies and the Supplemental Retirement Income Plan (See Exhibit 10.25 of the Corporation's 1994 Form 10-K). 10.25 Resolutions adopted by the Board of Directors of the Corporation on June 28, 1989, with respect to the purchase of annuities to cover liabilities of the Corporation under the Supplemental Retirement Income Plan (See Exhibit 10.26 of the Corporation's 1994 Form 10-K). 10.26 Union Carbide Corporation Non-Employee Directors' Retirement Plan (See Exhibit 10.27 of the Corporation's 1994 Form 10-K). 10.27 1994 Union Carbide Long-Term Incentive Plan (See Exhibit 10.28 of the Corporation's 1994 Form 10-K). 10.28 Restated Compensation Deferral Program effective October 1, 1995. 10.29 Excess Long-Term Disability Plan effective January 1, 1994 (See Exhibit 10.30 of the Corporation's 1994 Form 10-K). 10.30 1995 Union Carbide Performance Incentive Plan (See Appendix A of the Corporation's proxy statement for the annual meeting of stockholders held on April 26, 1995). 10.31.1 Recapitalization and Stock Purchase and Sale Agreement dated as of November 14, 1994 among Union Carbide Corporation, Mitsubishi Corporation, UCAR International Inc. and UCAR International Acquisition Inc. (See Exhibit 10.31 of the Corporation's 1994 Form 10-K). 10.31.2 Underwriting Agreement and Subscription Agreement each dated August 9, 1995 among the Corporation, UCAR and the several underwriters listed therein (See Exhibits 1.1 and 1.2, respectively, of UCAR's Amendment No. 2 to Form S-1, filed August 8, 1995, File No. 33-94698). 11 Computation of Earnings per Share For The Five Years Ended December 31, 1995. 13 The Corporation's 1995 annual report to stockholders (such report, except for those portions which are expressly referred to in this Form 10-K, is furnished for the information of the Commission and is not deemed "filed" as part of the Form 10-K). 21 Subsidiaries of the Corporation. 23.1 Consent of KPMG Peat Marwick LLP. Exhibit Index (Cont.) Exhibit No. 23.2 Consent of Price Waterhouse LLP. 27 Financial Data Schedule 99 1993 audited financial statements of UOP, with Report of Independent Accountants thereon (See pages 17 through 39 of the Corporation's 1993 Form 10-K). On May 1, 1994, Union Carbide Corporation was merged into UCC&P and UCC&P changed its name to "Union Carbide Corporation." Wherever an exhibit listed above refers to another exhibit or document (e.g., "See Exhibit 6 of...."), that exhibit or document is incorporated herein by such reference. A copy of any exhibit listed above may be obtained on written request to the Secretary's Department, Union Carbide Corporation, Section E-4, 39 Old Ridgebury Road, Danbury, CT 06817-0001. The charge for furnishing any exhibit is 25 cents per page plus mailing costs. EX-10 2 EXHIBIT 10.1.2 Exhibit 10.1.2 AMENDMENT NO. 1 TO CREDIT AGREEMENT AMENDMENT NO. 1 dated as of October 27, 1995 to the $1,000,000,000 Credit Agreement dated as of November 4, 1994 (the "Credit Agreement") among UNION CARBIDE CORPORATION (the "Borrower"), the Banks party thereto, the Co-Agents party thereto, Morgan Guaranty Trust Company of New York, as Documentation Agent and Chemical Bank, as Administrative Agent and Auction Agent. W I T N E S S E T H: The parties hereto agree as follows: SECTION 1. Definitions. Unless otherwise specifically defined herein, each term used herein which is defined in the Credit Agreement has the meaning assigned to such term in the Credit Agreement. SECTION 2. Amendment of Section 1.01. The definition of the term "Termination Date" contained in Section 1.01 of the Credit Agreement is amended by changing the date, "November 3, 1999" to "November 3, 2000." SECTION 3. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. SECTION 4. Counterparts; Effectiveness. This Amendment may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Amendment shall become effective as of the date hereof upon receipt by the Administrative Agent of counterparts hereof duly executed by the Borrower, each of the Banks, the Co-Agents, the Documentation Agent, the Administrative Agent and the Auction Agent (or, in the case of any party as to which an executed counterpart shall not have been received, receipt by the Administrative Agent of telegraphic, telex, telecopy or other written confirmation from such party of execution of a counterpart hereof by such party). IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their respective authorized officers as of the day and year first above written. UNION CARBIDE CORPORATION By /s/ Thomas D. Jones Title: Vice President and Treasurer 39 Old Ridgebury Road Danbury, CT 06817-0001 Telecopy number: (203) 794-5135 Attention: Vice President and Treasurer $59,166,666.67 ABN AMRO BANK N.V., NEW YORK BRANCH as a Co-Agent and a Bank By /s/ David A. Mandell Title: Vice President By /s/ David W. Stack Title: Assistant Vice President $59,166,666.67 BANK OF AMERICA ILLINOIS, as a Co-Agent and a Bank By /s/ Nancy McGaw Title: Managing Director $59,166,666.67 THE BANK OF NEW YORK, as a Co-Agent and a Bank By /s/ Nancy McEwen Title: Vice President $59,166,666.67 THE BANK OF NOVA SCOTIA, as a Co-Agent and a Bank By /s/ Terry K. Fryett Title: Vice President $59,166,666.67 BANQUE NATIONALE DE PARIS, as a Co-Agent and a Bank By /s/ Richard L. Sted Title: Senior Vice President By /s/ Thomas N. George Title: Vice President $59,166,666.67 CIBC INC., as a Co-Agent and a Bank By /s/ Julia C. Collins Title: Vice President $59,166,666.66 CHEMICAL BANK, as a Bank By /s/ Scott S. Ward Title: Vice President $59,166,666.67 CREDIT SUISSE, as a Co-Agent and a Bank By /s/ David W. Kratovil Title: Member of Senior Management By /s/ Chris T. Horgen Title: Associate $59,166,666.67 MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as a Bank By /s/ James S. Finch Title: Vice President $59,166,666.67 NATIONSBANK OF NORTH CAROLINA, N.A., as a Co-Agent and a Bank By /s/ Margaret K. Vandenberg Title: Senior Vice President $37,500,000.00 BANCA COMMERCIALE ITALIANA By /s/ Charles Dougherty Title: Vice President By /s/ S. Kim Title: Assistant Vice President $37,500,000.00 BARCLAYS BANK PLC By /s/ J. Onischuk Title: Associate Director $37,500,000.00 FUJI BANK LIMITED By /s/ Yoshihiko Shiotsugu Title: Vice President & Manager $37,500,000.00 ROYAL BANK OF CANADA By /s/ John M. Crawford Title: Senior Manager $37,500,000.00 THE SUMITOMO BANK, LIMITED By /s/ Yoshinori Kawamura Title: Joint General Manager $37,500,000.00 SWISS BANK CORPORATION By /s/ William S. Lutkins Title: Associate Director, Credit Risk By /s/ H. Clark Worthley Title: Associate Director $37,500,000.00 TORONTO DOMINION (NEW YORK), INC. By /s/ R. C. Bingham Title: Managing Director $20,833,333.33 COMMERZBANK AG NEW YORK BRANCH By /s/ Juergen Boysen Title: Senior Vice President By /s/ Michael D. Hintz Title: Vice President $20,833,333.33 GENERALE BANK By /s/ Alain Verschueren Title: Senior Vice President By /s/ Carlos Faucon Title: Senior Vice President $20,833,333.33 INSTITUTO BANCARIO SAN PAOLO DI TORINO, S.P.A. By /s/ Wendell Jones Title: Vice President By /s/ Robert Wurster Title: First Vice President $20,833,333.33 MARINE MIDLAND BANK By /s/ William M. Holland Title: Vice President $20,833,333.33 MELLON BANK, N.A. By /s/ Daniel A. Brailer Title: First Vice President $20,833,333.33 NATIONAL BANK OF KUWAIT By /s/ Muhannad Kamal Title: Executive Manager By /s/ Stephen A. Larson Title: Executive Manager $20,833,333.33 SOCIETE GENERALE By /s/ Robert Petersen Title: Vice President Total Commitments: $1,000,000,000.00 ================= MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Documentation Agent By /s/ James S. Finch Title: Vice President 60 Wall Street New York, New York 10260 Attention: James Finch Telex number: 177615 Telecopy number: (212) 648-5014 CHEMICAL BANK, as Administrative Agent By /s/ Scott S. Ward Title: Vice President 270 Park Avenue New York, New York 10017-2070 Attention: Scott S. Ward Telecopy number: (212) 270-3125 CHEMICAL BANK, as Auction Agent By /s/ Scott S. Ward Title: Vice President 270 Park Avenue New York, New York 10017-2070 Attention: Scott S. Ward Telecopy number: (212) 270-3125 EX-10 3 EXHIBIT 10.18.3 Exhibit 10.18.3 FOURTH AMENDMENT TO THE UNION CARBIDE CORPORATION SUPPLEMENTAL RETIREMENT INCOME PLAN The Union Carbide Corporation Supplemental Retirement Income Plan (the "Plan") is hereby amended as follows: 1. The third sentence of the General Section of the Plan is hereby amended in its entirety as follows: "Specifically, the purpose of this plan is to provide a retirement benefit, determined without regard to Code Section 415 or Code Section 401(a)(17), equal to the excess of the retirement benefit which would be provided by (1) the Retirement Program Plan if (a) average monthly compensation included (i) deferred cash bonuses awarded under designated incentive compensation plans and (ii) base salary deferred under the Compensation Deferral Program, and (b) all cash bonuses, whether deferred or not, were averaged separately from base compensation, and (2) the Equalization Benefit Plan, over the retirement benefit actually provided by the Retirement Program Plan and the Equalization Benefit Plan." 2. A new Section 3(e) is hereby added to Article II of the Plan to read as follows: "(e) For purposes of the calculation under subpart (c) of this Section 3, "base salary" shall include any base salary deferred by an employee pursuant to the terms of the Union Carbide Compensation Deferral Program, or any successor plan, in the calendar year in which it would otherwise have been paid." 3. The amendment set forth herein shall be effective as of January 1, 1995. UNION CARBIDE CORPORATION By: EX-10 4 EXHIBIT 10.28 Exhibit 10.28 UNION CARBIDE COMPENSATION DEFERRAL PROGRAM (As Amended and Restated October 1, 1995) UNION CARBIDE COMPENSATION DEFERRAL PROGRAM ARTICLE I PURPOSE 1.1 The purpose of this Program is to (i) allow Eligible Employees under the Variable Compensation Plans to defer a portion or all of their Variable Compensation, (ii) allow Eligible Employees to defer a portion of their base salary, (iii) allow Eligible Employees to defer a portion or all of their lump sum payments otherwise payable from the SRIP and/or Equalization Plan, and (iv) restore to Eligible Employees a portion of their matching contribution under the Savings Program which is limited by restrictions imposed under Section 401(a)(17) of the Code. 1.2 This Program shall be effective for amounts payable on or after January 1, 1995. ARTICLE II DEFINITIONS 2.1 "Administrative Committee" means the Administrative Committee of the Retirement Program Plan for Employees of Union Carbide Corporation and its Participating Subsidiary Companies and certain Non-Qualified Employee Benefit Plans of Union Carbide Corporation. 2.2 "Aggregate Compensation" means the sum of a Participant's Compensation and Deferred Compensation. 2.3 "Annual Plan" means the 1994 Union Carbide Variable Compensation Plan or such successor plan thereto maintained by the Corporation. 2.4 "Applicable Equity Investment Fund Rate" means the difference between the value of each of the applicable investment funds elected by a Participant under Section 8.2 of this Program: Fidelity Asset Manager, Fidelity Equity Income Fund, Fidelity Growth Company Fund, Fidelity Contrafund and Fidelity Overseas Fund, determined on a fund by fund basis, as of (i) the later of the Date of Deferral or the effective date of a Participant's election under Section 8.2(c), and (ii) the relevant valuation date for determining the amount of earnings of such investment fund in accordance with Section VIII. Such value shall include any hypothetical dividends and hypothetical capital gains distributions paid on such investment fund during the period for which the Applicable Equity Investment Fund Rate is being determined, as if such hypothetical dividends or hypothetical capital gains distributions are reinvested when payable in additional shares of such fund. The value of a respective investment fund for purposes of this Section 2.4, shall mean the net asset value of such investment fund as reported by such fund. 2.5 "Beneficiary" means the person, persons or estate entitled (as determined under Article VII) to receive payment under this Program following a Participant's death. 2.6 "Change in Control" means the occurrence of any of the following: (1) A change in control of the Corporation would be required to be reported in response to item 1(a) of the current Report of Form 8-K, as in effect on the date hereof, pursuant to Sections 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), whether or not the Corporation is then subject to such reporting requirement; (2) there shall be consummated (A) any consolidation or merger of the Corporation in which the Corporation is not the continuing or surviving corporation or pursuant to which shares of the Corporation's common stock would be converted into cash, securities or other property, other than a merger of the Corporation in which the holders of the Corporation's common stock immediately prior to the merger have the same proportion and ownership of common stock of the surviving corporation immediately after the merger, or (B) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Corporation, provided, that the divestiture of less than substantially all of the assets of the Corporation in one transaction or a series of related transactions, whether effected by sale, lease, exchange, spin-off, sale of the stock or merger of a subsidiary or otherwise, shall not constitute a Change in Control; (3) any "person" or "group" within the meaning of Sections 13(d) and 14(d) (2) of the Exchange Act (A) becomes the "beneficial owner" as defined in Rule 13d-3 under the Exchange Act of more than 20% of the then outstanding voting securities of the Corporation, otherwise than through a transaction or transactions arranged by, or consummated with the prior approval of, the board of directors of the Corporation, or (B) acquires by proxy or otherwise the right to vote for the election of directors, for any merger or consolidation of the Corporation or for any other matter or question more than 20% of the then outstanding voting securities of the Corporation, otherwise than through an arrangement or arrangements consummated with the prior approval of the board of directors of the Corporation; (4) during any period of twenty-four consecutive months, Present Directors and/or New Directors cease for any reason to constitute a majority of the Board of Directors of the Corporation. For purposes of this Agreement, "Present Directors" shall mean individuals who at the beginning of such consecutive twenty-four month period were members of the Board and "New Directors" shall mean any director whose election by the Board of Directors of the Corporation or whose nomination for election by the Corporation's stockholders was approved by a vote of at least two-thirds of the Directors then still in office who were Present Directors or New Directors. Notwithstanding the foregoing, a Change of Control shall not be deemed to occur pursuant to subparagraph (2), above, solely because twenty percent (20%) or more of the combined voting power of the Corporation's then outstanding securities is acquired by one or more employee benefit plans maintained by the Corporation. 2.7 "Code" means the Internal Revenue Code of 1986, as amended from time to time. 2.8 "Compensation Committee" means the Compensation and Management Development Committee of the Board of Directors of the Corporation. 2.9 "Compensation" means, solely for purposes of this Program, a Participant's taxable base salary, taxable Variable Compensation awarded under a Variable Compensation Plan and any compensation that is deferred by the Participant to any other plan maintained by the Corporation which satisfies the requirements of Code Sections 125 or 401(k). 2.10 "Corporation" means Union Carbide Corporation, a New York Corporation, any predecessor thereof and any successor thereof by merger, consolidation or otherwise. 2.11 "Date of Deferral" means (i) with respect to Variable Compensation, the date on which the Corporation issues checks for Variable Compensation awards for a given Service Year, (ii) with respect to base salary deferral, the date on which the relevant salary would be paid, (iii) with respect to matching contributions made by the Corporation pursuant to Section 5.4 of this Program, December 31st and (iv) with respect to amounts which would otherwise have been paid from the SRIP or Equalization Plan, the date on which lump sum amounts would have otherwise been distributed in accordance with the terms of such Plan. 2.12 "Deferred Compensation" means the amount of Compensation deferred by a Participant under this Program pursuant to Section 5.3 of this Program. 2.13 "Disability" means a Participant's total physical or mental inability to perform any work for compensation or profit in any occupation for which the Participant is reasonably qualified by reason of training, education or ability, and which inability is adjudged to be permanent, as determined by the Administrative Committee or its designee. 2.14 "Eligible Employee" means (i) an individual who, at the Date of Deferral, is employed in the United States by the Corporation, or one of its subsidiaries that is participating in this Program, and is a participant in the Annual Plan or the Mid- Management Plan or is otherwise approved for participation in this Program by the Compensation Committee. 2.15 "Equalization Plan" means the Equalization Benefit Plan for Participants in the Retirement Program Plan for Employees of Union Carbide Corporation and its Participating Subsidiary Companies. 2.16 "Exchange Act" means the Securities Exchange Act of 1934 as amended. 2.17 "Fixed Income Rate" means the rate of interest for the Fixed Income Fund under the Savings Program, in effect from time to time. 2.18 "Mid-Management Plan" means the 1994 Union Carbide Mid-Management Variable Compensation Plan. 2.19 "Participant" means an Eligible Employee who (i) elects in advance to defer a portion of his or her base salary in accordance with Section 5.3 of this Program, (ii) elects in advance to defer a portion or all of his or her variable compensation for a given Service Year under one of the Variable Compensation Plans in accordance with Article V.2 of this Program, if one were to be paid to such Participant for that year, and who is in fact subsequently awarded Variable Compensation for that year, payable during the following calendar year on the Date of Deferral, (iii) elects in advance under this Program to defer his or her lump sum distribution from the SRIP or Equalization Plan or (iv) is a participant in the Savings Program for a given calendar year and receives compensation (as defined in Section 1.12 of the Savings Program) for such calendar year in an amount which is in excess of the compensation which may be considered under Section 1.12 of the Savings Program because of the limitations imposed by Code Section 401(a)(17). 2.20 "Program" means this Union Carbide Compensation Deferral Program. 2.21 "Retirement" means (a) for participants in the Retirement Program, the date on which a Participant attains age 65 or is eligible for a non-actuarially reduced pension benefit under the Retirement Program and actually retires from employment with the Corporation and (b) for those employees who are not participants in the Retirement Program, the date on which a Participant attains age 65, attains age 62 with at least 10 years of service or whose age and service totals at least 85 and actually retires from employment with the Corporation. 2.22 "Retirement Program" means The Retirement Program Plan for Employees of Union Carbide Corporation and its Participating Subsidiary Companies. 2.23 "Savings Program" means The Savings Program for Employees of Union Carbide Corporation and Participating Subsidiary Companies. 2.24 "Service Year" means one of the calendar years on and after 1994, as to which an election may be made in accordance with Article V, and in respect of which Variable Compensation may be paid during the following calendar year on the Date of Deferral. 2.25 "SRIP" means the Union Carbide Corporation Supplemental Retirement Income Plan. 2.26 "UCC Discounted Stock Value Rate" means the UCC Stock Value Rate except that the value of the Corporation's common stock as of the Date of Deferral pursuant to which earnings shall accrue at the UCC Stock Value Rate, shall be determined as if purchased as a ten percent (10%) discount. 2.27 "UCC Stock Value Rate" means the difference between the value of the Corporation's common stock as of the later of (i) the Date of Deferral or the effective date of a Participant's election under Section 8.2 pursuant to which earnings shall accrue at the UCC Stock Value Rate and (ii) the relevant date of determination of the amount of earnings in accordance with Section 8.2(c) of this Program. Such value shall include the value of any hypothetical dividends paid on the common stock during the period for which the UCC Stock Value Rate is being determined, as if such hypothetical dividends were reinvested when payable (at a five percent (5%) discount) in additional shares of the Corporation's common stock as determined on the later of the Date of Deferral or the effective date of a Participant's election under Section 8.2(c) pursuant to which earnings shall accrue at the UCC Stock Value Rate. The value of the Corporation's common stock for purposes of this Section 2.27, shall mean the closing price of the stock on the New York Stock Exchange - Composite Transaction on the relevant date of determination. 2.28 "Unforeseen Emergency" means an event beyond the control of the Participant that would result in severe financial hardship to the Participant if early withdrawal of the Participant's Variable Compensation deferral were not permitted. Whether a Participant has an Unforeseen Emergency shall be determined by the Administrative Committee, except that if a Participant is subject to Section 16 of the Exchange Act, the Compensation Committee shall determine if such Participant has an Unforeseen Emergency. 2.29 "Variable Compensation" means any amounts awarded in accordance with one of the Variable Compensation Plans. 2.30 "Variable Compensation Plans" means, collectively, the Annual Plan, the Mid-Management Plan and any other variable compensation plan authorized by the Compensation Committee to participate in this Program. ARTICLE III ADMINISTRATION 3.1 Except as otherwise indicated, the Compensation Committee shall supervise the administration and interpretation of this Program, may establish administrative regulations to further the purpose of this Program and shall take any other action necessary to the proper operation of this Program. All decisions and acts of the Compensation Committee shall be final and binding upon all Participants, their Beneficiaries and all other persons. ARTICLE IV ELIGIBILITY 4.1 To be eligible to participate in this Program for a given year, a person must have become an Eligible Employee not later than the day on or before the date which an Eligible Employee must make the election provided for in Article V of this Program for that year and either be employed by the Corporation on the Date of Deferral for that year, or be eligible to receive a lump sum payment under the Equalization Plan or SRIP. ARTICLE V DEFERRALS 5.1 During each of the years this Program is in effect, Eligible Employees shall be informed of the opportunity to participate in this Program. An Eligible Employee choosing to participate in this Program must make an election to do so on or before the date designated by the Administrative Committee and otherwise in accordance with such procedures as may be established by the Administrative Committee. 5.2 (a) While an election to defer Variable Compensation under one of the Variable Compensation Plans shall be irrevocable when made until the next scheduled annual election period, participation in this Program with respect to Variable Compensation shall become effective only on the Date of Deferral and only if, on such date, the Eligible Employee receives an award under one of the Variable Compensation Plans (or would have received an award but for an election to defer under this Program). Variable Compensation awards, if any, for services performed in calendar years 1994 and 1995, must be deferred during the 1994 annual election period. Variable Compensation awards, if any, for services performed in calendar years 1996 and beyond, must be deferred during the annual election period immediately preceding the calendar year in which such services will be performed. Notwithstanding the foregoing, an Eligible Employee who becomes eligible to participate in this Program after January 1, 1995 may elect to defer a Variable Compensation award during the calendar year in which services will be performed; provided, however, he or she makes an election to defer within 31 days after becoming eligible to participate in this Program. (b) An Eligible Employee must elect to defer his or her base salary for services performed in calendar year 1995 during the 1994 annual election period. Participation in this Program shall become effective only on the Date of Deferral and only if, on such date, the Eligible Employee remains employed with the Corporation. Base salary for services performed in calendar years 1996, and beyond, must be deferred during the annual election period immediately preceding the calendar year in which such services will be performed. A Participant may suspend his or her election to defer his or her base salary (but may not otherwise reduce or change an election mid-year) at any time; provided, however, that such Eligible Employee may not resume deferrals of base salary until the following calendar year. Notwithstanding the foregoing, an Eligible Employee who becomes eligible to participate in this Program after January 1, 1995, may elect to defer a portion of his or her base salary during the calendar year in which services will be performed; provided he or she makes an election to defer within 31 days after becoming eligible to participate in this Program. (c) A Participant must elect to defer lump sum payments that he or she would otherwise receive in accordance with the terms of the SRIP or Equalization Plan during the annual election period immediately preceding the calendar year in which such payments would otherwise be received. 5.3 (a) On or before the date designated by the Administrative Committee and otherwise in accordance with such procedures as may be established, a Participant may elect voluntarily to defer (i) up to 100% of the Participant's award under the Variable Compensation Plans (in 10% increments), (ii) up to 25% of his or her base salary (in 5% increments) and/or (iii) up to 100% of his or her lump sum payment from the SRIP or Equalization Plan. Effective with elections made with respect to payments that would otherwise be received in 1996 or later, (i) only up to 85% of Variable Compensation may be deferred, and the 10% increments will apply only for the first 80% of such deferrals, and (ii) base salary may be deferred in increments of 1% up to the first 5% and 5% increments thereafter. (b) A Participant must elect, during any applicable calendar year, to defer in the aggregate a minimum of $2,000 of his base salary, Variable Compensation or lump sum payment from the SRIP or Equalization Plan in order to participate in this Program. Notwithstanding any provision in this Program to the contrary, if a Participant fails to defer at least $2,000 of his base salary, Variable Compensation or lump sum payment from the SRIP or Equalization Plan in any calendar year, the Administrative Committee may, in its sole discretion, require such Participant to irrevocably elect to defer a minimum of $2,000 in the calendar year immediately following thereafter in order to participate in this Program. 5.4 (a) The Corporation shall credit a Participant with an amount equal to 75% of a Participant's deemed annual contribution as determined under subsection (b) of this Section 5.4. (b) A Participant's deemed annual contribution shall equal A multiplied by B, where A and B are as follow: A equals that portion of a Participant's compensation in excess of the limits contained in Code Section 401(a)(17) (as defined in Section 1.12 of the Savings Program without regard to Code Section 401(a)(17), and without regard to any deferrals under this Program), up to $235,840 which is deferred under this Program. Such $235,840 shall be adjusted at the same time and in the same manner as the limitation described in Code Section 415(d)(3); and B equals the percentage of such Participant's compensation (as defined under Section 1.12 of the Savings Program) which has been contributed to the Savings Program for the applicable calendar year as a Basic Deduction pursuant to Section 2.7.2 of the Savings Program. (c) The Corporation shall credit each Participant with the amount determined pursuant to subsection (a) of this Section 5.4, in arrears, on each Deferral Date; provided that such Participant remains eligible to participate in this Program and is employed by the Corporation on the Deferral Date. Notwithstanding the foregoing, the Corporation shall not credit a Participant with the amount determined pursuant to subsection (a) of this Section 5.4 (as of the Participant's termination of employment) if the Participant terminates employment with the Corporation during a calendar year for any reason, except if the Participant's employment is terminated by reason of death, Disability, Retirement or termination by the Corporation other than for cause. ARTICLE VI PAYMENTS TO PARTICIPANTS AND BENEFICIARIES 6.1 Time of Payment. (a) Subject to subsections (b), (c) and (d) of this Section 6.1, a Participant shall begin to receive payment of his or her deferrals, and any earnings accruals credited under Article VIII, during the January next following his or her date of termination of employment. (b) (i) Notwithstanding any provision in this Program to the contrary, a Participant may elect to commence receipt of payments of any amounts deferred upon a specific future payment date which is at least five years after the Date of Deferral or such shorter schedule as the Compensation Committee may determine. Such payments must begin no later than the calendar year in which the Participant attains age 70 1/2. A Participant making such an election shall receive his or her lump sum payment in the January next following his or her future payment date or, if applicable, such Participant shall receive installment payments in accordance with Section 6.2. (ii) With respect to a Participant who has attained age 55 at the time of the election of his or her deferral, the five year period described in subsection (i) shall instead be one year with respect to deferrals of base salary or Variable Compensation. (iii) A Participant is limited to two future fixed year payments. The amounts paid out in such fixed year payments (if prior to termination of employment) may not exceed the sum of a Participant's deferral of base salary or Variable Compensation under this Program. Effective for elections made in November, 1995 or later, up to four such fixed payment dates may be elected. (c) A Participant who has not yet terminated employment, but has an Unforeseen Emergency, may receive any or all of his or her Variable Compensation and base salary deferrals, excluding any earning accruals credited to him or her pursuant to Article VIII of this Program; provided that the Participant may not receive an amount greater than the amount necessary to meet the Unforeseen Emergency and any amounts necessary to pay federal, state and local income taxes or penalties reasonably anticipated to result from a withdrawal under this Section 6.1. Earning accruals will remain in the Program and continue to accrue earnings under Article VIII until the payment date or dates described in Article VI. (d) Notwithstanding any provision in this Program to the contrary, a Participant may, on the applicable Date of Deferral or at any time thereafter prior to a Change in Control, elect to receive payment of his or her entire account balance under this Program at such time as the Board of Directors of the Corporation determines that a Change in Control has occurred. Such payment shall be made in a lump sum within 45 days after the Change in Control. 6.2 Form of Payments. (a) A Participant may elect to receive payments under this Program in annual or quarterly installments. Such installments must commence as described in Section 6.1, and must be completed by the calendar year in which the Participant attains age 85. (b) A Participant may elect to receive installment payments either (i) annually during each January or (ii) quarterly, commencing in the January that payment was otherwise due in accordance with Section 6.1. If a Participant does not elect the form of his or her installment payments, such installment payments shall be made annually during each January. (c) If a Participant does not elect the form of his or her payments, such payments shall be made in a lump sum payment. (d) A Participant may change the form of payment previously elected only one time and subject to the following restrictions: (i) such election is made in the calendar year that the Participant terminates employment, to be effective no earlier than the following calendar year; (ii) the election is subject to the consent of the Administrative Committee. (e) 1. If a Participant dies at any time prior to receiving any portion of his or her account balance under this Program, payment shall be made to the Participant's Beneficiary as follows: (A) If the Participant's Beneficiary is his or her surviving spouse, such Participant's entire account balance under this Program shall be paid as follows: (i) ten annual installments or a shorter schedule, if so elected by the surviving spouse, or (ii) a lump sum payment payable on or about the January 1st following the Participant's death. (B) If the Participant's Beneficiary is someone other than his or her surviving spouse, such Participant's entire account balance under this Program shall be paid in a lump sum payment as soon as practical following the Participant's death. 2. If a Participant dies at any time after payment of his or her account balance under this Program has begun, such Participant's Beneficiary shall continue to receive payment of the Participant's account in the same manner as the Participant elected, or such shorter payment schedule as elected by the Beneficiary. (f) If any lump sum distribution otherwise payable under this Program would be disallowed in any part as a deduction to the Corporation in accordance with Section 162(m) (or a successor Section) of the Internal Revenue Code, the Compensation Committee may determine to distribute the amount of such benefit in installments such that the Participant or Beneficiary shall receive the maximum amount permissible in each installment and still preserve the Corporation's full tax deduction. 6.3 Amount of Payment (a) If a Participant is terminated by the Corporation for cause, he or she shall receive the lesser of (A) any amounts he or she actually deferred under Article V, less any previous payments made or (B) his or her account balance under this Program. Such payment shall be made in a lump sum payment as soon as administratively practical following the Participant's termination of employment; provided, however, that such Participant will forfeit all Earnings Accruals credited to him or her pursuant to Article VIII. (b) If a Participant voluntarily separates from employment with the Corporation or retires under the Retirement Program with an actuarially reduced pension, he or she shall receive, (i) with respect to deferral elections made before 1995, a lump sum payment equal to the lesser of (A) any amounts he or she actually deferred under this Program, plus credits to his or her account at the Fixed Income Rate from his or her Date of Deferral less any previous payments made or (B) his or her account balance under this Program, and (ii) with respect to deferral elections made in 1995 and later, his or her account balance. Such payments will be made as soon as administratively practical after the Participant's termination of employment. Notwithstanding the foregoing, a Participant who retires under the Retirement Program with an actuarially reduced pension may elect to receive his or her payments in any form described in Section 6.2. (c) If a Participant terminates employment on account of Retirement, Disability, death, or through action of the Corporation taken without cause, such Participant (or Beneficiary) shall be entitled to receive the full amount of his or her account balance. 6.4 Payment in U.S. Dollars. All payments under this Program shall be made in U.S. dollars. 6.5 Reduction of Payments. All payments under this Program shall be reduced by any and all tax payments that the Corporation is required to withhold pursuant to applicable law. ARTICLE VII BENEFICIARIES 7.1 A Participant may at any time, and from time to time, prior to his or her death designate one or more Beneficiaries to receive any payments to be made following the Participant's death. If no such designation is on file with the Corporation at the time of a Participant's death, the Participant's Beneficiary shall be the beneficiary or beneficiaries named in the beneficiary designation most recently filed by the Participant under the Corporation's Savings Program. If a Participant has not effectively designated a beneficiary under the Savings Program, or if no designated beneficiary has survived the Participant, the Participant's Beneficiary shall be the Participant's surviving spouse, or, if no spouse has survived the Participant, the estate of the deceased Participant. If an individual Beneficiary cannot be located for a period of one year following the Participant's death, despite mail notification to the Beneficiary's last known address, and if the Beneficiary has not made a written claim for benefits within such period to the Administrative Committee, the Beneficiary shall be treated as having predeceased the Participant. The Administrative Committee may require such proof of death and such evidence of the right of any person to receive all or part of a deceased Participant account balance, as the Administrative Committee may consider appropriate. The Administrative Committee may rely upon any direction by the legal representatives of the estate of a deceased Participant, without liability to any other person. ARTICLE VIII EARNINGS ACCRUALS 8.1 Each Participant's account balance under this Program shall be credited with earnings from the Date of Deferral through the date such deferral is paid out or withdrawn pursuant to Article VI. Earnings under this Section 8.1 shall accrue at the rate elected in accordance with Section 8.2. 8.2 (a) Earnings accruing in accordance with Section 8.1 shall accrue at (i) the Fixed Income Rate, (ii) the UCC Stock Value Rate, (iii) the UCC Discounted Stock Value Rate, (iv) the Applicable Equity Investment Fund Rate or (v) a combination of the four rates. An election to use the UCC Discounted Stock Value Rate shall be effective for not less than one (1) year. Amounts deferred pursuant to Section 5.2(c) cannot accrue at the UCC Discounted Stock Rate. Notwithstanding the foregoing, if a Participant has elected under Section 6.1 to receive payment of his or her account balance upon termination of employment, and such Participant's employment is terminated by the Corporation without cause, such Participant may then receive a distribution based on the UCC Discounted Stock Value Rate even if one (1) year has not yet passed since the relevant Date of Deferral. (b) Subject to subparagraph (c), a Participant shall designate at the time of his or her election to defer any amounts under this Program which accrual rate or rates shall apply to his or her deferrals (deferrals of matching contributions made pursuant to Section 5.4 shall be allocated to the same accrual rates as those selected for base salary deferrals for the same year); provided such elections must be in whole percentage points. Such elections shall be effective as of the Date of Deferral through the date such deferral is paid out or withdrawn pursuant to Article VI. (c) A Participant may, one time each calendar month, elect to change the accrual rate under this Section 8.2 with respect to any or all previous deferrals under this Program; provided, however, that Participants may elect to utilize the UCC Discounted Stock Value Rate with respect to future deferrals only, and not for the reallocation of any prior deferrals. Participants may utilize the UCC Stock Value Rate only for reallocation of previous deferrals. ARTICLE IX GENERAL PROVISIONS 9.1 Prohibition of Assignment of Transfer. Any assignment, hypothecation, pledge or transfer of a Participant's or Beneficiary's right to receive payments under this Program shall be null and void and shall be disregarded, except to the extent required by law. 9.2 Program Not to Be Funded. The Corporation is not required, for the purpose of funding this Program, to segregate any monies from its general funds, create any trusts, or make any special deposits, and the right of a Participant or Beneficiary to receive a payment under this Program shall be no greater than the right of an unsecured general creditor of the Corporation. 9.3 Effect of Participation. Neither selection as a Participant, nor an election to participate or participation in this Program, shall entitle a Participant to receive awards under the Variable Compensation Plans, SRIP or Equalization Plan or a matching contribution under the Savings Program, or affect the Corporation's right to discharge a Participant. 9.4 Communications To Be in Writing. All elections, requests and communications to the Corporation or its designated agent from Participants and Beneficiaries, and all communications to such persons from the Corporation, shall be in writing, and in such form and manner, and within such time, as the Corporation shall determine. In lieu of the foregoing, the Corporation may install a telephonic voice response system for such elections, requests and communications. 9.5 Absence of Liability. No officer, director or employee of the Corporation shall be personally liable for any acts or omission to act under this Program or, except in circumstances involving bad faith, for such officer's, director's or employee's own act or omission to act. 9.6 Titles for Reference Only. The titles given herein to sections and subsections are for reference only and are not to be used to interpret the provisions of this Program. 9.7 New York Law To Govern. All questions pertaining to the construction, regulation, validity and effect of the provisions of this Program shall be determined in accordance with New York law. 9.8 Amendment. The Compensation Committee may amend this Program at any time, but no amendment may be adopted which alters the payments due Participants or Beneficiaries, as of the date of the amendment, or the times at which payments are due, without the consent of each Participant affected by the amendment and of each Beneficiary (of a then deceased Participant) affected by the amendment. In addition, any amendment which does not increase the Corporation's annual cost of any past or future benefits under this Program by more than $500,000, change the eligibility requirements, or impact the ability of officers to utilize the UCC Discounted Stock Value Rate or the UCC Stock Value Rate, may be authorized by the Administrative Committee. 9.9 Program Termination. The Compensation Committee may terminate this Program for any reason and at any time. In the event of such termination, the accounts of each Participant or Beneficiary under this Program shall become immediately payable in accordance with Section 6.1; provided that the Compensation Committee, in its sole discretion, upon Program termination or at any time thereafter, may decide to make lump sum payments in lieu of annual payments. UNION CARBIDE CORPORATION By: EX-11 5 EPS COMPUTATION EXHIBIT 11 UNION CARBIDE CORPORATION AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE FOR THE FIVE YEARS ENDED DECEMBER 31, 1995 (In millions of dollars except per share amounts) Year Ended December 31, 1995 1994 Earnings Per Share - Primary Income (loss) from continuing operations $ 925 $ 389 Less: Preferred stock dividend 13 13 Net income (loss) from continuing operations for primary income calculation 912 376 Income from discontinued operations - - Cumulative effect of accounting changes - - Net income (loss) - common stockholders $ 912 $ 376 Weighted average number of common and common equivalent shares applicable to primary earnings per share calculation Weighted average number of shares outstanding 137,219,676 149,904,755 Dilutive effect of stock options 4,443,980 4,270,033 141,663,656 154,174,788 Earnings per share - primary Income (loss) from continuing operations $ 6.44 $ 2.44 Discontinued operations - - Cumulative effect of accounting changes - - Net income (loss) - common stockholders $ 6.44 $ 2.44 Earnings Per Share Assuming Full Dilution Income (loss) from continuing operations $ 925 $ 389 Plus: Interest on convertible debentures (net of taxes) - - Less: Additional ESOP contribution resulting from assumed conversion of preferred stock 1 1 Income (loss) from continuing operations for fully diluted income calculation 924 388 Income from discontinued operations - - Cumulative effect of accounting changes - - Net income (loss) for fully diluted income calculation $ 924 $ 388 Weighted average number of common and common equivalent shares applicable to fully diluted earnings per share calculation Weighted average number of shares outstanding 137,219,676 149,904,755 Dilutive effect of stock options 4,819,502 4,439,006 Shares issuable upon conversion of UCC convertible debentures - - Shares issuable upon conversion of UCC convertible preferred stock 16,341,367 16,542,644 158,380,545 170,886,405 Per share assuming full dilution Income (loss) from continuing operations $ 5.83 $ 2.27 Discontinued operations - - Cumulative effect of accounting changes - - Net income (loss) $ 5.83 $ 2.27 Year Ended December 31, 1993 1992 Earnings Per Share - Primary Income (loss) from continuing operations $ 165 $ 119 Less: Preferred stock dividend 13 17 Net income (loss) from continuing operations for primary income calculation 152 102 Income from discontinued operations - 67 Cumulative effect of accounting changes (97) (361) Net income (loss) - common stockholders $ 55 $ (192) Weighted average number of common and common equivalent shares applicable to primary earnings per share calculation Weighted average number of shares outstanding 147,821,255 129,723,738 Dilutive effect of stock options 3,549,905 2,625,735 151,371,160 132,349,473 Earnings per share - primary Income (loss) from continuing operations $ 1.00 $ 0.76 Discontinued operations - 0.51 Cumulative effect of accounting changes (0.64) (2.73) Net income (loss) - common stockholders $ 0.36 $(1.46) Earnings Per Share Assuming Full Dilution Income (loss) from continuing operations $ 165 $ 119 Plus: Interest on convertible debentures (net of taxes) 4 17 Less: Additional ESOP contribution resulting from assumed conversion of preferred stock 1 7 Income (loss) from continuing operations for fully diluted income calculation 168 129 Income from discontinued operations - 67 Cumulative effect of accounting changes (97) (361) Net income (loss) for fully diluted income calculation $ 71 $ (165) Weighted average number of common and common equivalent shares applicable to fully diluted earnings per share calculation Weighted average number of shares outstanding 147,821,255 129,723,738 Dilutive effect of stock options 4,244,866 4,038,716 Shares issuable upon conversion of UCC convertible debentures 4,482,931 15,774,784 Shares issuable upon conversion of UCC convertible preferred stock 16,796,109 14,655,935 173,345,161 164,193,173 Per share assuming full dilution Income (loss) from continuing operations $ 0.97 $ 0.78 Discontinued operations - 0.41 Cumulative effect of accounting changes (0.56) (2.20) Net income (loss) $ 0.41 * $(1.01)* Year Ended December 31, 1991 Earnings Per Share - Primary Income (loss) from continuing operations $ (116) Less: Preferred stock dividend 19 Net income (loss) from continuing operations for primary income calculation (135) Income from discontinued operations 107 Cumulative effect of accounting changes - Net income (loss) - common stockholders $ (28) Weighted average number of common and common equivalent shares applicable to primary earnings per share calculation Weighted average number of shares outstanding 126,449,140 Dilutive effect of stock options 327,068 126,776,208 Earnings per share - primary Income (loss) from continuing operations $(1.06) Discontinued operations 0.84 Cumulative effect of accounting changes - Net income (loss) - common stockholders $(0.22) Earnings Per Share Assuming Full Dilution Income (loss) from continuing operations $ (116) Plus: Interest on convertible debentures (net of taxes) 17 Less: Additional ESOP contribution resulting from assumed conversion of preferred stock 4 Income (loss) from continuing operations for fully diluted income calculation (103) Income from discontinued operations 107 Cumulative effect of accounting changes - Net income (loss) for fully diluted income calculation $ 4 Weighted average number of common and common equivalent shares applicable to fully diluted earnings per share calculation Weighted average number of shares outstanding 126,449,140 Dilutive effect of stock options 392,058 Shares issuable upon conversion of UCC convertible debentures 9,718,310 Shares issuable upon conversion of UCC convertible preferred stock 15,116,167 151,675,675 Per share assuming full dilution Income (loss) from continuing operations $(0.68) Discontinued operations 0.71 Cumulative effect of accounting changes - Net income (loss) $ 0.03* * Fully diluted per share amounts are not presented in the consolidated statements of income where amounts are antidilutive.
EX-13 6 1995 ANNUAL REPORT UNION CARBIDE CORPORATION 1995 ANNUAL REPORT (The cover depicts a hexagon (the Union Carbide logo hexagon) horizontally split by a stress line. The top half of the hexagon is embossed with "Specialties & Intermediates", and the bottom half is embossed with "Basic Chemicals & Polymers". On and around the hexagon appears the reflection of a chemical manufacturing facility.) Contents 1 Financial Highlights Summary comparison of 1995 and 1994 results. 2 Chairman's Letter Bill Joyce reviews 1995 performance and discusses operations in the context of strategy and long-term outlook. 6 Specialties & Intermediates/Basic Chemicals & Polymers Carbide's principal products, services, major manufacturing sites and competitors. 9 Financial Index Management's discussion and analysis, financial statements and notes. 39 Corporate Information Important dates, names, addresses, telephone numbers and other information. 40 Directors and Corporate Officers Information on directors, corporate officers and other senior corporate staff. Inside Back Cover A Chemical Glossary, Definition of Terms Definitions of chemical and nonchemical terms used in this report. At a Glance Union Carbide Corporation is a worldwide chemicals and polymers company with sales of nearly $5.9 billion. 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 50 percent-owned joint ventures whose combined revenues totaled more than $3.5 billion in 1995. Union Carbide operates two business segments, Specialties & Intermediates and Basic Chemicals & Polymers. Specialties & Intermediates converts basic and intermediate chemicals such as propylene, ethylene and ethylene oxide into thousands of products sold to industrial customers in many markets, including paints and coatings, wire and cable, household and personal care products, agriculture, food and oil and gas. In addition, the Specialties & Intermediates segment licenses olefins- based technologies and offers other specialized technology licensing and services. Revenues of the Specialties & Intermediates segment have averaged 73 percent of total consolidated results over the past three years, and sales volumes 55 percent. Basic Chemicals & Polymers converts various hydrocarbon feedstocks, including liquefied petroleum products and naphtha, into the basic building- block chemicals ethylene and propylene (also known as olefins). The segment then uses state-of-the-art process technologies to convert manufactured and purchased olefins into polyethylene (the world's most widely used plastic), and polypropylene (one of the world's fastest-growing, large-volume plastics). UCC also converts ethylene into ethylene oxide, which is used to make ethylene glycol (for polyester fiber, film and resin, and automotive antifreeze) and many other products. Basic Chemicals & Polymers also provides ethylene, propylene, and ethylene oxide as raw materials to the Specialties & Intermediates segment. The leading Union Carbide end markets as a percentage of sales are: o Paints, coatings and adhesives 23% o Packaging and consumer plastics 18% o Wire and cable 13% o Textile 11% o Household and personal care 7% o Automotive, including antifreeze 5% o Agricultural and food 3% o Oil and gas 2% o Industrial cleaners 2% Financial Highlights Dollar amounts in millions (except per share figures) 1995 1994 For the Year Net sales $ 5,888 $ 4,865 Operating profit 1,348 551 Net income - common stockholders 915 379 Per common share - Primary 6.44 2.44 Per common share - Fully diluted 5.83 2.27 Cash dividends 103 113 Per common share 0.75 0.75 Capital expenditures 542 409 At Year-End Total assets $ 6,256 $ 5,028 Total debt 1,323 946 UCC stockholders' equity 2,045 1,509 Per common share 15.14 10.45 Common shares outstanding (thousands) 135,108 144,412 Common stockholders of record 53,648 55,049 Employees 11,521 12,004 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 1996; cost reduction targets; return on capital goals; development, production and acceptance of new products and process technologies; ongoing and planned capacity additions and expansions; joint ventures; and include Management's Discussion and 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. Growing Stronger in Specialties & Intermediates (Contained within this section is a picture of William H. Joyce, Chairman, President and Chief Executive Officer.) It's a pleasure in my first letter to shareholders as chairman and CEO to report that Carbide had a banner year in 1995, posting record earnings, launching joint ventures in key overseas markets, introducing new products and expanding profitable businesses. The year just ended was the first full year after completing our four-year profit improvement program, which eliminated $575 million of costs. The program produced benefits almost from the start, but our 1995 performance confirmed the full effect. Net income of $915 million rose 141 percent compared to the prior year, on sales of $5.9 billion, up 21 percent compared to 1994. Fully diluted earnings per share rose 157 percent to $5.83. Carbide also generated sufficient cash flow to buy back stock, reducing outstanding shares by 9.3 million during the year (16.9 million since the beginning of 1993), to fund ambitious growth plans and to do both while maintaining a comfortably low 39 percent debt-to-capital ratio. We also sharpened our focus on Carbide's core chemicals and plastics operations by selling our remaining interest in UCAR International, a manufacturer of carbon and graphite electrodes, for net proceeds of $542 million. So when Carbide people talk about unlocking shareholder value, we mean what we say. Our stock price of $37.50 at year-end 1995 was 28 percent ahead of where it closed at the end of 1994, and 230 percent ahead of where it was in mid-1992, when we started operations as a company committed solely to the chemical industry. If you owned Carbide stock in January of 1991 and reinvested the dividends and the July 1992 special distribution, the value of your investment would have appreciated 563 percent by year-end 1995, an average annualized return of 46 percent. The remarkable gains of the past several years may be tough to repeat, but Carbiders everywhere, nearly all of whom are shareholders, will be giving it all we have. At this writing there is still a good deal of uncertainty about chemical markets in 1996. If customers begin rebuilding their depleted inventories, and if the number and duration of ethylene plant shutdowns is about normal during the year, we think supplies will be tighter and markets stronger than many expect. That would mean firmer prices, possibly moving up as 1996 progresses. We also believe that with our new cost structure and streamlined work processes, and with our Specialties & Intermediates segment now contributing more to total sales and income, Carbide can post competitive results in any 1996 scenario. Indeed, the role of these less cyclical businesses has become so important to understanding Carbide's prospects that we began in the third quarter of 1995 to report separately the sales, operating profit and other financial data of our Specialties & Intermediates (S&I) segment and our more cyclical Basic Chemicals & Polymers (BC&P) segment. We think there's a lot of room to grow profitably in Basic Chemicals & Polymers, but our stake in the less cyclical Specialties & Intermediates is even larger. The S&I segment accounted for 70 percent of our total sales revenue in 1995 and, excluding special items, 62 percent of our operating profit. And we supported the segment with $392 million, 72 percent of our 1995 capital program of $542 million. The S&I segment also demonstrated its growing competitive strength in 1995. For example: o Unipol Systems began preparations for an early 1996 commercial-scale trial of new proprietary metallocene catalyst-based Unipol Process technology. Successful development will mean that Carbide can continue to offer customers the widest range of polyethylene products. Manufacturers of film for such high-volume markets as shrink-wrap and packaging will be the first customers for the new resins, which offer outstanding toughness and clarity. o Unipol Systems also added five new licensees during the year for Unipol Process technology, bringing the worldwide total to 72, and sold three more licenses to existing licensees for expansions. o Specialty Polymers and Products increased sales volume by 9.7 percent during 1995 and reduced its cost per pound of product sold by 5.7 percent. o Specialty Polyolefins' concentration on Asian and other overseas markets for its wire and cable insulation and jacketing led to 11 percent volume growth in those markets in the face of weaker U.S. demand. o Industrial Performance Chemicals (IPC) boosted its share of the U.S. market for aircraft anti-icing fluids by about 50 percent during the year, to an estimated 75 percent, with a new fluid that provides longer-lasting anti-icing protection. IPC also is seeking independent lab certification of a new, dual- purpose fluid that airline customers can use either for deicing aircraft or as an anti-icer, to keep ice from forming. Moreover, continuing cost reductions will benefit both the S&I and BC&P segments. In October we announced an annual net savings target of $637 million by year-end 2000 (in then-current dollars) compared to costs in 1993, the bottom of the last chemical business cycle. Of that total, $96 million of reductions is targeted for the S&I segment, and $282 million of reductions for the BC&P segment to help it achieve, before the end of the decade, the goal of at least break-even performance at the bottom of the chemical business cycle. Both segments also will benefit from most of the other elements of the cost- reduction program, including a targeted $156 million of savings from a massive information technology (IT) program under way throughout the company. The IT program will integrate and dramatically improve the speed and efficiency of virtually every business activity that depends on data, from accounting to order processing to research and development to environmental reporting. Other major initiatives target savings from new manufacturing efficiencies, reduced distribution costs and more cost-efficient engineering support and project installation. As for 1995, our performance not only made for a great year, but also reaffirmed our belief in Carbide's long-term growth and profit potential. For example, our 39.2 percent return on capital (ROC) - profit after-tax but before interest charges, divided by total invested capital - was well above the 32 percent that was our goal for the peak of the chemical business cycle. We also believe that reaching our 1993 to 2000 cost-savings target would enable Carbide to exceed the 8 percent ROC goal we thought we could earn at the bottom of the chemical business cycle. We had said at the start of our profit improvement program that we believed Carbide should earn an average 15 percent ROC over the full cycle, about double our ROC over the last full chemical cycle. But our performance in the 1993 bottom, and then in the upturn that began in mid-1994 (but never reached the peak margins of 1988-89), suggests that we can do even better. And there were other welcome surprises. Not only have cost reductions substantially improved the performance and prospects of our larger businesses, but a number of smaller businesses that had been steady but unremarkable performers are now posting returns that support investment for growth. For example, we're investing in new capacity for propionic acid, an integral part of our oxo chemical business that is recognized as a world leader in technology. Major markets for propionic acid include feed and food additives, herbicides and chemical intermediates. We're also adding capacity at our South Charleston, W.Va., plant for synthetic base resin for chewing gum, another of our less-cyclical specialty businesses with new luster. Demand for chewing gum has taken off with the move to smoke-free workplaces and the rapid growth of Asian and East European markets. Whether in our smaller businesses or our largest, we continue to concentrate efforts and resources where Carbide has a clear competitive advantage. Our solvents and intermediates business, the leading North American supplier of these materials to the paint and coatings industry, has just completed a 300 million-pound-capacity butanol expansion at our Taft, La., plant using our advanced proprietary technologies. We're planning another facility of similar size at Taft, slated for 1998 start-up. Our Taft plant will also increase capacity of acrolein by one third over the next two years. Acrolein is used mainly as an intermediate to produce biocides and in a product of ours that is sold for use in the production of animal nutritional supplements - primarily for poultry feed. We are increasing capacity for this acrolein-based intermediate by 40 percent at Taft. And Taft is boosting capacity for acrylate esters by 80 million pounds, to 365 million pounds, and adding 50 million pounds of capacity for the acrylic acid from which the esters are derived. The esters are building-block chemicals for polymers used in paints and coatings, inks, textiles, adhesives and plastic products. Our Texas City, Tex., plant completed a vinyl acetate expansion, boosting capacity to 720 million pounds. Vinyl acetate is used in adhesives and architectural coatings and for the emulsion resins in paper coatings and construction products. A key competitive advantage in these growing markets stems from Carbide's low-cost, low-pressure process for making oxo alcohols, the principal raw materials in the manufacture of esters. The Unipol II facility at our Star plant in Taft, La., started up at midyear 1995. Although equipment problems will delay production of our new high- strength, easy-processing, linear low-density polyethylene resins, the plant has been operating at full capacity, producing other polyethylene film resins. And we expect our new ethylene propylene rubber business to begin commercial-scale operations in the fourth quarter of 1996. A 200 million- pound-capacity reactor nearing completion at our Seadrift, Tex., plant will supply the new materials. After several years of lab and production line trials, they are near full qualification for commercial production at some of the world's largest manufacturers of hose and tubing, construction materials and automotive trim. Several joint ventures and acquisitions completed in '95 also reflect Carbide's strategy of putting our chips on businesses that can benefit from our technology and other competitive advantages. Aspell Polymeres, our French joint venture with Elf Atochem, will use Unipol Process technology and other proprietary Union Carbide technologies to manufacture polyethylene resins and compounds at very competitive costs for the European market. Carbide will market all the wire and cable compounds manufactured by the venture. Polimeri Europa, the joint venture formed last year with EniChem of Milan, a major European polyethylene producer, will use Unipol Process technology to attain a low-cost position in European commodity polyethylene markets. With 2.9 billion pounds of product, the venture is one of Europe's leading suppliers of these resins. We also formed a joint venture in Korea with BP Chemicals and Samsung Fine Chemicals to manufacture vinyl acetate monomer for the Asia-Pacific market. The new capacity will help us keep abreast of customer needs and also support the rapid growth of Carbide's latex business in the Asia-Pacific region. The acquisition in 1995 of certain ethylene oxide derivatives businesses from Imperial Chemical Industries (ICI) of London greatly strengthens Carbide's competitive position in the U.K. and continental Europe. It also strengthens our position as worldwide market leader in ethylene glycol, ethanolamines and glycol ethers, as well as our solid position in brake fluids. The former ICI businesses performed well in their first year in the Carbide fold, setting a slate of production records. Carbide also signed an agreement to acquire the polypropylene assets and business of Shell Oil Company. Polypropylene is one of the world's fastest- growing, large-volume plastics and a natural fit with Carbide's other polyolefin product lines. We completed the purchase in January 1996. Carbide's Unipol polypropylene process is among the most widely used in the world, with 26 licensees accounting for 3.8 billion pounds of world capacity. The Shell acquisition, combined with our own expansion activities, will bring Carbide's total polypropylene production capacity to 800 million pounds a year. And in July we finalized the agreement with Petrochemical Industries Company and Boubyan Petrochemical Company of Kuwait to establish Equate Petrochemical Company, a joint venture that will build and operate a world-scale petrochemicals complex in Kuwait. Construction is moving ahead on schedule toward the mid-1997 target date for completion. We have high hopes for Equate, whose raw material and technology advantages will make this venture a formidable world-scale competitor in polyethylene and ethylene glycol markets. As in any year, no matter how good, there are bound to be disappointments, and 1995 was no exception. We set an ambitious annual volume growth target that we failed to meet in 1995, mainly due to operating problems that slowed production at some key units in the first half and to customer inventory destocking of certain product lines that reduced demand in the second half. But we used the downtime to replace aging equipment, tighten inspection routines, beef up training and implement other programs that should result in marked improvement in equipment reliability. Growth and cost control are the twin routes to improved productivity, and Carbiders are well aware that we must do better in 1996. With respect to our health, safety and environmental performance, we were gratified that for the fourth year in a row there were no fatalities at any Carbide location and that our employee injury and illness rates were down by 28 percent compared to 1994. We had no major process incidents in 1995, but we can do a better job of preventing spills. We are determined to rank with the best companies in our industry when it comes to preventing spills, and I believe we are doing what it takes to get there. (For more information about our environmental performance and the progress made in implementing the Chemical Manufacturers Association's Responsible Care codes of management practice - the main drivers of industry performance improvement - write to Carbide's Public Affairs Department for our Responsible Care progress report.) On a personal note, James M. Hester, who has served on Carbide's board with great distinction since 1963, will not stand for reelection, in accordance with the board's retirement policy. We will miss his support, experience and wise counsel. Finally, I want to use this space to note the debt of gratitude that all of us at Carbide owe to Bob Kennedy, who retired as chairman at the end of 1995. It was Bob who championed the separation of Union Carbide into several sharply focused companies. He could see what others missed - that the parts would be viable and vibrant on their own, and that their accomplishments as individual companies would surpass anything they achieved together in what we now call "the old Carbide." He also knew that shareholders and employees alike would benefit from the change. Bob is a gentleman and a friend. He will be sorely missed by all of us. William H. Joyce Feb. 28, 1996 (Within the preceding section, the following three phrases are repeated in larger type within colored boxes: - - when Carbide people talk about unlocking shareholder value, we mean what we say - - we continue to concentrate efforts and resources where Carbide has a clear competitive advantage - - growth and cost control are the twin routes to improved productivity). Principal Products and Services Dollar amounts in millions Customer Sales(a) 1995 1994 1993 ($) 4,123 1,765 3,636 1,229 3,487 1,153 (%) 70 30 75 25 75 25 a) After intersegment eliminations. See Note 3 to the financial statements. Operating Profit (Loss)(b) 1995 1994 1993 ($) 709 444 634 (22) 526 (208) (%) 61 39 104 (4) 165 (65) b) Excludes Other segment. See Note 3 to the financial statements. Capital Expenditures 1995 1994 1993 ($) 392 150 253 156 240 155 (%) 72 28 62 38 61 39 (Below these three tables is a legend indicating that the left-hand-side number for every year in every table pertains to the Specialties & Intermediates Segment, and the right-hand-side number for every year in every table pertains to the Basic Chemicals & Polymers Segment. Above each of the three tables is a hexagon (the Union Carbide logo hexagon) depicting via different colors (blue and gray) each Segment's proportionate share of customer sales, operating profit (loss) and capital expenditures, respectively.) Specialties & Intermediates Segment Industrial Performance Chemicals Gordon D. Mounts - VP, General Manager Union Carbide manufactures a broad range of ethylene oxide derivatives and formulated glycol products. 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. Formulated glycol products include Ucar and 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. Manufacturing Sites - Taft, La.; Seadrift and Texas City, Tex.; Institute and South Charleston, W.Va.; Wilton, U.K. Major Competitors - BASF; Dow Chemical; Huntsman ; Rhone-Poulenc Specialty Polyolefins F. Don Ryan - VP, General Manager 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 applications. Other specialty polyolefin products are used in adhesives, flexible tubing and beer- and soda-can six-pack carriers. Manufacturing Sites - Bound Brook and Somerset, N.J.; Seadrift, Tex.; Antwerp, Belgium; Cubatao, Brazil; joint ventures at Gonfreville, France, and Kawasaki, Japan Major Competitors - AT Plastics; Borealis AS; Mitsui Petrochemical; Quantum Chemicals; Ube Industries Unipol Systems Roger B. Staub - Corporate VP, General Manager 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. Manufacturing Sites - Norco, La.; Bound Brook, N.J.; Houston and Seadrift, Tex.; South Charleston, W.Va. Major Competitors - BASF; British Petroleum; Mitsui Petrochemical; Montell Polyolefins; Phillips Chemicals Solvents and Intermediates James F. Flynn - Corporate VP, General Manager Solvents and Intermediates supplies one of the industry's broadest product lines of solvents and intermediates. Its products include aldehydes, acids and alcohols, including high-quality synthetic and fermentation ethanol; esters; glycol ethers (Carbitol and Cellosolve solvents); ketones, and monomers (vinyl acetate and acrylics for polymers and waterborne coatings). Its principal customers are the paints and coatings industries, and many of its products are also used widely in cosmetics and personal care preparations, adhesives, household and institutional products, drugs and pharmaceuticals, fuel and lube oil additives and agricultural products. The company's Unicarb System is a pollution-reducing, supercritical fluid technology that can cut costs and reduce volatile organic compounds in spray-applied coatings by up to 80 percent. Manufacturing Sites - Taft, La.; Seadrift and Texas City, Tex.; Institute, W.Va.; Wilton, U.K. Major Competitors - Eastman Chemical; Hoechst Celanese; BASF; Shell Chemical Specialty Polymers and Products Ucar Emulsion Systems Eugene J. Boros - VP, General Manager Carbide manufactures and markets numerous specialty products. It targets sharply defined market segments for many of its technologies. Specialty Industrial Products produces acrolein derivatives, glutaraldehyde, vinyl methyl ether, ethylidene norbornene (ENB), specialty ketones and biocides used to control microorganisms in applications such as sterilants, water treatment, papermaking, metalworking, oil field operations and industrial preservatives. Performance Polymers includes Polyox water-soluble resins used in personal care products, pharmaceuticals, inks and thermoplastics; and polyvinyl acetate resins used in chewing-gum resins, low-profile additives, Neulon polyester modifiers, fast-cure additives and pigmentable systems, and Ucure reactive modifiers. Coating Materials reaches markets for paints, coatings, inks, substrates and other materials for magnetic tape, food and beverage packaging, plastics and orthopedic materials. Its products include Cellosize hydroxyethyl cellulose (HEC); Ucar solution vinyl resins; Tone caprolactone-based materials, and cycloaliphatic epoxides, including Cyracure ultraviolet-curing products and Flexol plasticizers. Amerchol Corporation, a Union Carbide subsidiary, manufactures and sells a wide variety of lanolin-, glucose- and cellulose-based materials for personal care products. Manufacturing Sites - Taft and Greensburg, La.; Edison, N.J.; Mamaroneck, N.Y.; Texas City, Tex.; Institute and South Charleston, W.Va.; Antwerp and Vilvoorde, Belgium; Aratu, Brazil 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. Ucar Emulsion Systems products, used in exterior and interior house paints, include Ucar latex products (acrylics and vinyl-acrylics that impart enhanced staining, weather and scrub resistance to paints) and Polyphobe thickeners. Manufacturing Sites - Torrance, Calif.; Tucker, Ga.; Alsip, Ill.; Somerset, N.J.; Bayamon, P.R.; Garland, Tex. ; Guayaquil, Ecuador; Jakarta, Indonesia; Seremban, Malaysia; Guangdong Province, People's Republic of China; Batangas, Philippines; Ekala, Sri Lanka; Nonthaburi, Thailand; Jebel Ali Free Trade Zone, Dubai, United Arab Emirates Major Competitors - Rohm & Haas; Air Products; Reichhold Chemicals UOP Joseph C. Soviero - Corporate VP, Corporate Ventures and Purchasing UOP, a company owned equally by Carbide and AlliedSignal Inc., is a leading international supplier of process technologies, catalysts, molecular sieves and adsorbents to the petrochemical and gas-processing industries. Manufacturing Sites - Mobile, Ala.; Anaheim and Eldorado Hills, Calif.; McCook, Ill.; Shreveport, La.; Tonawanda, N.Y.; Shanghai, China; Reggio, Italy; Brimsdown, U.K. Major Competitors - UOP's competitve position varies widely from one product/market segment to another. Competitors include domestic and foreign companies, both diversified and specialized. Basic Chemicals & Polymers Segment Ethylene Oxide/Glycol Lee P. McMaster - Corporate VP, General Manager Union Carbide is the world's leading producer of ethylene oxide/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. Other ethylene oxide-based glycol products include di-, tri-, and tetraethylene glycols used as chemical intermediates and in dehydrating natural gas. Manufacturing Sites - Taft, La.; Seadrift and Texas City, Tex.; Institute, W.Va.; Prentiss, Alberta, Canada; Wilton, U.K.; a joint venture at Prentiss, Alberta, Canada Major Competitors - Dow Chemical; Huntsman; Occidental Chemical; Saudi Basic Industries; Shell Chemical Olefins Vince F. Villani - VP, General Manager Union Carbide manufactures about three-quarters of its ethylene requirements and more than one-half of its propylene requirements. Ethylene and propylene are the key raw materials for Union Carbide's olefins-chain businesses. Manufacturing Sites - Taft, La.; Seadrift and Texas City, Tex.; a joint venture at Montreal, Quebec, Canada Unipol Polymers Kevin P. Lynch - VP, General Manager Union Carbide is a leading manufacturer of polyethylene, the world's most widely used plastic. Unipol Polymers produces and markets low-, linear low-, medium- and high-density polyethylenes used in high-volume applications such as housewares, milk and water bottles, grocery sacks, trash bags, packaging and water and gas pipes, 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. Unipol Polymers also processes and markets postconsumer recycled polyethylene resins (under the Curbside Blend and Prisma trademarks) used to produce plastic trash cans and personal care product, bleach and detergent bottles. Manufacturing Sites - Taft, La. (Star Plant); Bound Brook, N.J.; Seadrift, Tex.; Boucherville, Quebec, Canada; a joint venture at Montreal, Quebec, Canada Major Competitors - Chevron Chemical; Dow Chemical ; Exxon Chemical; Novacor Chemical; Quantum Chemicals See page 15 for additional information on Polimeri Europa and other joint venture manufacturing sites. Financial Index 10 Management's Discussion and Analysis 10 Results of Operations 16 Liquidity, Capital Resources and Other Financial Data 18 Quarterly Data 19 Selected Financial Data 20 Consolidated Statement of Income 21 Consolidated Balance Sheet 22 Consolidated Statement of Cash Flows 23 Consolidated Statement of Stockholders' Equity 24 Notes to Financial Statements 24 Note 1 - Summary of Significant Accounting Policies 25 Note 2 - Financial Instruments 26 Note 3 - Business and Geographic Segment Information 28 Note 4 - Other Expense (Income) - Net 28 Note 5 - Acquisitions and Divestitures 29 Note 6 - Income Taxes 30 Note 7 - Supplementary Balance Sheet Detail 31 Note 8 - Interest Expense 31 Note 9 - Partnerships and Corporate Joint Ventures 31 Note 10 - Long-Term Debt 32 Note 11 - Convertible Preferred Stock - ESOP 32 Note 12 - UCC Stockholders' Equity 33 Note 13 - Leases 33 Note 14 - Retirement Programs 35 Note 15 - Incentive Plans 36 Note 16 - Commitments and Contingencies 38 Management's Statement of Responsibility for Financial Statements 38 Independent Auditors' Report Management's Discussion and Analysis RESULTS OF OPERATIONS Millions of dollars (except per share figures) 1995 1994 1993 Net sales $5,888 $4,865 $4,640 Operating profit(a) 1,348 551 297 Interest expense 89 80 70 Pre-tax income 1,259 471 227 Net income before cumulative effect of change in accounting principle(b) 925 389 165 Net income - common stockholders 915 379 58 Per share, primary: Net income before cumulative effect of change in accounting principle $ 6.44 $ 2.44 $ 1.00 Net Income 6.44 2.44 0.36 Per Share, Fully Diluted(c) 5.83 2.27 - a) See Note 3 to the financial statements for a discussion of the special items included in operating profit. b) Effective Jan. 1, 1993, the corporation adopted Financial Accounting Standard (FAS) 112, "Employers' Accounting for Postemployment Benefits." c) Fully diluted per share amounts are not presented where amounts are antidilutive. (Included within this section, on pages 10 and 11, are six bar charts which provide the following data for the Specialties & Intermediates Segment (S&I) and the Basic Chemicals & Polymers Segment (BC&P): (1) Average Customer Selling Price (Cents/pound) S&I BC&P 1995 58.0 30.0 1994 51.3 21.6 1993 54.0 21.0 (2) Variable Margin (Millions of dollars) S&I BC&P Total 1995 1,906 965 2,871 1994 1,748 480 2,228 1993 1,754 362 2,116 (3) Volume (Millions of pounds) S&I BC&P Total 1995 7,112 5,878 12,990 1994 7,093 5,680 12,773 1993 6,454 5,502 11,956 (4) Unit Variable Margin (Cents/pound) S&I BC&P 1995 26.8 16.4 1994 24.6 8.5 1993 27.2 6.6 (5) Fixed Costs (Millions of dollars) S&I BC&P Total 1995 as reported (a) 1,122 423 1,545 1995 constant 1990 $ (a) 980 369 1,349 1994 as reported 1,067 395 1,462 1994 constant 1990 $ 948 351 1,299 1993 as reported 1,130 414 1,544 1993 constant 1990 $ 1,031 378 1,409 1992 as reported 1,225 424 1,649 1992 constant 1990 $ 1,147 398 1,545 1991 as reported 1,267 456 1,723 1991 constant 1990 $ 1,221 439 1,660 (6) Fixed Costs per Pound (Cents/pound) S&I BC&P 1995 (a) 15.8 7.2 1994 15.0 7.0 1993 17.5 7.5 1992 19.0 7.7 1991 20.6 9.2 Below the preceding two tables appears the following: a) Excludes 1995 charge of $68 million for postemployment benefits. Also included within this section, on page 11, is a bar chart which provides the following data: Employee Productivity Number of Thousand of pounds employees per employee 1995 11,521 1,128 1994 12,004 1,064 1993 13,051 916 1992 15,075 794 1991 16,705 665 ) Summary and Outlook Union Carbide operates two business segments, Specialties & Intermediates and Basic Chemicals & Polymers. 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. The Basic Chemicals & Polymers segment converts hydrocarbon feedstocks, principally liquefied petroleum gas and naphtha, into polyethylene and ethylene oxide/glycol for sale to third-party customers, as well as propylene, ethylene and ethylene oxide for consumption by the Specialties & Intermediates segment. In contrast to those of the Specialties & Intermediates segment, 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 and plant operating rates. 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/glycol throughout the year. This improvement, coupled with modest volume increases, lower average feedstock costs, continued benefits from ongoing productivity improvement programs and strong partnership earnings, contributed to the year's very strong operating profits in both the Specialties & Intermediates and Basic Chemicals & Polymers segments. In addition, net income was enhanced by a nonrecurring after-tax gain associated with the sales of the corporation's investment in UCAR International Inc., only partially offset by a number of nonrecurring after-tax losses. During most of the preceding two-year period, corporate results were negatively affected by low margins in ethylene oxide/glycol and polyethylene, leading, in turn, to operating losses in the Basic Chemicals & Polymers segment. Specialties & Intermediates reported increased operating profit in each of the past three years, reflecting the benefits of improved volumes, cost reduction programs and good partnership results. Highlights of 1995 included: o Start-up of a new Unipol II polyethylene facility and a 300 million- pound-capacity butanol unit at Taft, La.; incremental expansion of certain Specialties & Intermediates production facilities, and completion of significant infrastructure projects. o Acquisition of certain ethylene oxide derivative businesses from Imperial Chemical Industries of London. o Commencement of operations of Polimeri Europa, a joint venture with EniChem of Milan, to develop, manufacture and sell polyethylene resins in Europe. o Commencement of operations of Aspell Polymeres, a joint venture with Elf Atochem of Paris, to manufacture polyethylene resins and compounds for the European wire and cable industries and other markets. o Formation of Equate, a joint venture with two Kuwaiti companies, Petrochemical Industries Company and Boubyan Petrochemical Company, to design, construct, operate and market products from a world-scale petrochemicals complex in Kuwait. o Formation of a joint venture with BP Chemicals and Samsung Fine Chemicals Company to manufacture vinyl acetate monomer in Korea for the Asia-Pacific market. o Announcement of the acquisition of Shell Oil Company's polypropylene assets. This acquisition was completed in January 1996. o Sales of the corporation's remaining interest in UCAR International for net cash proceeds of $542 million. o Repurchase of 14.1 million common shares, bringing the total number of shares repurchased since the beginning of 1993 to 29.4 million. o Announcement of ongoing cost reduction initiatives, with a combined annual savings target of $637 million by year-end 2000 in then-current dollars compared to costs in 1993. Lower average polyethylene pricing is expected to negatively affect Basic Chemicals & Polymers operating profits, as well as earnings of partnerships and companies carried at equity, at least through the first half of 1996. Whether this trend will continue beyond that will depend on the strength of U.S. and global economies as well as on the availability of ethylene supplies and customer demand for polyethylene. Specialties & Intermediates should continue to perform well, although any weakness in the overall economy will affect its results. Specialties & Intermediates Millions of dollars 1995 1994 1993 Sales $4,123 $3,636 $3,487 Operating profit 709 634 526 Depreciation and amortization 194 169 177 Capital expenditures 392 253 240 Identifiable assets 3,527 3,111 2,869 1995 Compared with 1994 Sales revenues of the Specialties & Intermediates segment 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 (sales revenues less variable manufacturing and distribution costs) increased by 9 percent from 1994 to 1995, it declined as a percentage of sales, from 48.1 percent to 46.2 percent, because of increased raw material costs. Gross margin (variable margin less fixed manufacturing and distribution costs) 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. The segment's 1995 selling, administration and other expenses (SA&O) included a charge of $48 million for postemployment benefits, including severance. Excluding this charge, SA&O increased by $27 million, or 12.1 percent, reflecting increased profit sharing, as well as 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. 1994 Compared with 1993 The segment's sales revenues increased 4.3 percent, as a result of a 9.9 percent increase in volume partially offset by a 5.0 percent decline in average selling prices. Although variable margin remained stable, it declined as a percentage of sales from 50.3 percent in 1993 to 48.1 percent in 1994. Excluding the OrganoSilicon business (OSi), sold in July 1993, the 1993 variable margin would have been 49.9 percent. Gross margin as a percentage of sales declined to 27.9 percent in 1994 from 29.0 percent in 1993 (28.6 percent excluding OSi). Fixed manufacturing and distribution costs, excluding OSi, increased 4.4 percent versus 1993, notwithstanding the even greater year-to- year increase in volume. SA&O declined 19.0 percent to $224 million (a 12.7 percent decline excluding OSi from the 1993 totals) as the segment benefited from the corporation's ongoing cost reduction/work process improvement programs. Research and development expenditures remained stable on a year-to-year basis (increased 8 percent excluding OSi, as a result of new developmental projects). Operating profit in 1994 increased to $634 million from $526 million in 1993. Included in 1994 operating profit were nonrecurring gains of $81 million on the sale of a manufacturing site and distribution terminal in Hong Kong and $24 million on the sale of the corporation's preferred stock investment in the segment's former OSi business, and a nonrecurring charge of $68 million for litigation costs and other costs related to divested operations. The 1993 operating profit included a gain of $54 million from the sale of the OSi business and a loss of $9 million on the sale of a medical device company. Basic Chemicals & Polymers Millions of dollars 1995 1994 1993 Sales $2,080 $1,411 $1,324 Operating profit (loss) 444 (22) (208) Depreciation and amortization 112 105 99 Capital expenditures 150 156 155 Identifiable assets 2,095 1,511 1,363 1995 Compared with 1994 Sales revenues of the Basic Chemicals & Polymers segment 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/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, including severance. 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. 1994 Compared with 1993 The segment's sales revenues increased 6.6 percent, reflecting a 3.2 percent increase in volume and a 2.9 percent increase in average customer selling prices. After falling through midyear, average selling prices rose through the third and fourth quarters, while raw material feedstock prices declined slightly from 1993. Variable margin as a percentage of sales was 34.0 percent in 1994, in comparison to 27.3 percent in 1993. Gross margin as a percentage of sales rose to 12.7 percent in 1994, as compared to 3.0 percent in 1993. Fixed manufacturing and distribution costs decreased $21 million, or 6.5 percent, versus 1993, notwithstanding the year-to-year increase in volumes. SA&O remained relatively stable on a year-to-year basis, as did research and development expenditures. Operating losses declined 89.4 percent, to $22 million in 1994 from $208 million in 1993. Included in the 1993 operating loss was a $46 million charge from the shutdown of an ethylene oxide/glycol manufacturing facility in Canada and a loss of $9 million on the write-down of a Canadian business. Other Millions of dollars 1995 1994 1993 Operating profit (loss) $195 $(61) $(21) The Other segment includes the operating profit (loss) of noncore activities and financial transactions. Over the past three years, the corporation has pursued programs to minimize investments in noncore assets. With the sales of its remaining interest in UCAR International in 1995, these programs have been substantially completed. Sale of the UCAR International investment resulted in a nonrecurring pre-tax gain of $381 million, included in 1995 operating profit. This gain was partially offset by a $191 million charge for unused office space 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. In 1993 the operating loss included a gain of $8 million from the sale of a corporate aircraft. 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 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. In addition, worldwide capital expenditures relating to environmental protection in 1995 totaled $49 million, compared with $57 million and $51 million in 1994 and 1993, 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 136 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, 1995, the corporation's accruals for environmental remediation totaled $327 million ($297 million in 1994). Approximately 59 percent of the accrual (54 percent in 1994) pertains to estimated future expenditures for site investigation and cleanup, and approximately 41 percent (46 percent in 1994) pertains to estimated expenditures for closure and postclosure activities. See Note 16 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 $163 million at Dec. 31, 1995. 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 1995 dollars, should average about $140 million annually over the next five years. Worldwide capital expenditures for environmental protection, also expressed in 1995 dollars, are expected to average about $46 million annually over the same period. Management anticipates that future annual costs for environmental protection after 2000 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. Such excess costs, if any, could have a material adverse effect on consolidated results of operations in a given quarter or year. Litigation The corporation and its consolidated subsidiaries are involved in a number of legal proceedings and claims with both private and governmental parties. These cover a wide range of matters, including, but not limited to, product liability; governmental regulatory proceedings; health, safety and environmental matters; employment; patents; contracts, and taxes. In addition, the corporation 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 note to the financial statements. In some of these legal proceedings and claims, the cost of remedies that may be sought or damages claimed is substantial. While it is impossible at this time to determine with certainty the ultimate outcome of any such legal proceedings and claims, management believes that adequate provisions have been made for probable losses with respect thereto and that such ultimate outcome, after provisions therefor, will not have a material adverse effect on the consolidated financial position of the corporation but could have a material effect on consolidated results of operations in a given quarter or year. Should any losses be sustained in connection with any of such legal proceedings and claims in excess of provisions therefor, they will be charged to income in the future. Partnerships and Corporate Joint Ventures The corporation has for many years participated in a number of businesses through 50 percent-owned partnerships and corporate joint ventures. On a combined basis, the unconsolidated sales of these entities totaled $3.9 billion in 1995, compared to $2.8 billion in 1994. The most significant of these businesses include: Partnerships: UOP - a worldwide supplier of process technology, catalysts, molecular sieves and adsorbents (see page 8 for manufacturing sites). Petromont - a Canada-based polyethylene resins producer with a facility at Montreal, Quebec, Canada. Union Carbide/Shell Polypropylene - a U.S.-based producer of specialty polypropylene and licensor of polypropylene technology. In January 1996 the corporation acquired Shell Oil Company's interest in this partnership. World Ethanol - a U.S.-based supplier of ethanol. Aspell Polymeres - a French producer of polyolefins, with a facility at Gonfreville, France. Corporate Joint Ventures: Polimeri Europa - a Europe-based producer of ethylene and polyethylene resins, with facilities at Dunkirk, France; Oberhausen, Germany, and Brindisi, Ferrara, Gela, Priolo and Ragusa, Italy. Nippon Unicar - a Japan-based producer of commodity and specialty polyolefins resins, with a facility at Kawasaki, Japan. Alberta & Orient Glycol - a Canada-based producer of ethylene glycol, with a facility at Prentiss, Alberta, Canada. UCAR International - UCC's interest sold in 1995. Following is a summary of partnership and corporate joint venture results for the past three years. Millions of dollars Partnerships Corporate Joint Ventures 1995 1994 1993 1995 1994 1993 Combined sales $2,146 $1,616 $1,445 $1,731 $1,206 $1,144 UCC share of partnership income 152 98 67 - - - UCC share of net income of corporate joint ventures - - - 46 55 16 UCC share of dividends and distributions 90 83 82 7 45 10 Partnership income increased in 1995, primarily due to increased earnings from UOP and Petromont. In 1994 the increase was largely due to improved results from Petromont and the polypropylene partnership. The 1995 decline in the UCC share of net income of corporate joint ventures was due to the sales of the corporation's interest in UCAR International, partially offset by the addition of the Polimeri Europa joint venture. UCC share of net income of corporate joint ventures improved in 1994, largely due to improved results from UCAR International. In July 1995 the corporation and two Kuwaiti corporations formed a joint venture, Equate Petrochemical Company, to design, construct, operate and market products from a 650,000 metric-tons-per-year ethylene plant, a 450,000 metric-tons-per-year Unipol polyethylene unit and 340,000 metric-tons-per-year ethylene glycol facility in Shuaiba, Kuwait. The complex is expected to cost approximately $2 billion, including working capital requirements, by mid-1997, its planned start-up date. The corporation has obtained insurance for political risk on its 45 percent equity interest in the venture. The corporation invested $134 million in Equate in 1995. In January 1996 the corporation severally guaranteed $225 million of Equate debt. The remaining debt financing for the venture is expected to be in place during the latter part of 1996. UCC expects its several guarantees of Equate debt to approximate $600 million during the period of the facility's construction. These guarantees will end once certain completion tests are met, which is expected to occur by 2000. In January 1996 the corporation acquired the polypropylene assets and business of Shell Oil Company. Included are Shell's polypropylene technology and manufacturing facilities, as well as polypropylene assets previously held jointly by Union Carbide and Shell Oil. Interest Expense Interest expense rose $9 million to $89 million in 1995 as a result of increased borrowings, partially offset by increased capitalized interest and lower interest rates. The 1994 increase of $10 million to $80 million was due to rising interest rates. Provision for Income Taxes The effective tax rate was 30.2 percent in 1995 as compared to 29.1 percent and 34.4 percent in 1994 and 1993, 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 research and development tax credits. The effective tax rates in 1995 and 1993 were increased as a result of taxes provided on the sale of businesses (UCAR International in 1995 and OSi in 1993). Accounting Change In 1995 the corporation adopted FAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The effect of the adoption was not material. In 1994 the corporation adopted FAS 115, "Accounting for Certain Investments in Debt and Equity Securities." The effect of the adoption was not material. In 1993 the corporation recorded a noncash after-tax charge of $97 million as a result of adopting FAS 112, "Employers' Accounting for Postemployment Benefits." The charge represents the cumulative effect of the accounting standard and is set forth separately in the Consolidated Statement of Income. Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," effective for years beginning after Dec. 15, 1995, permits companies either to adopt a new method of accounting for employee stock options and similar equity instruments or to continue following the historical accounting method with supplemental pro forma disclosures. The corporation will continue its historical practice, and provide the necessary pro forma information when it adopts the standard in 1996. LIQUIDITY, CAPITAL RESOURCES AND OTHER FINANCIAL DATA Cash Flow from Operations Cash flow from operations increased by $202 million to $763 million in 1995, as compared with 1994, due to increased earnings partially offset by an increase of working capital. Other noncash charges include a $191 million charge for future minimum lease payments on unused office space. Net gains on investing transactions include a $381 million gain on the sales of the corporation's remaining investment in UCAR International. Cash Flow Used for Investing Cash flow used for investing includes capital expenditures, investments and proceeds from the sales of investments and assets. Capital expenditures increased to $542 million in 1995, from $409 million in 1994 and $395 million in 1993. Major projects include, within the Specialties & Intermediates segment, a butanol unit and a cogeneration facility at Taft, La.; an ethylene propylene rubber project at Seadrift, Tex., and an energy systems renewal project at Texas City, Tex., and, within the Basic Chemicals & Polymers segment, a Unipol II polyethylene facility at Taft, La. (Star plant). An upgrade to the information technology infrastructure in preparation for the installation of integrated information technology systems throughout the company is a major project involving all segments. Over the past three years 44 percent of capital expenditures was directed at new capacity, 47 percent to cost reduction and replacement, and 9 percent to environmental, safety and health facilities. Of these expenditures, 93 percent was in the U.S. and Puerto Rico. Investments during 1995 included the $216 million acquisition of a 50 percent interest in Polimeri Europa and a $134 million investment in the Equate joint venture. Investments during 1994, totaling $16 million, included a $26 million investment in a Brazilian ethylene company and a return of investment of $30 million from a financing affiliate. Investments during 1993 totaled $39 million, including a $13 million investment in Petromont. Net proceeds from the sale of investments in 1995 included $542 million from the sales of the corporation's remaining interest in UCAR International. In 1994 proceeds from the sale of investments included $86 million from the sale of the corporation's preferred stock investment in OSi. The purchase of fixed and other assets in 1995 included the $71 million purchase of certain ethylene oxide derivative businesses in the U.K. 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. In 1993 proceeds from the sale of fixed and other assets included $220 million related to the sale of the OSi business and $18 million from the sale of a corporate aircraft. At Dec. 31, 1995, the cost of completing authorized construction projects was estimated to be $921 million, of which $17 million is covered by firm commitments. Future construction expenditures are anticipated to be sourced through operating cash flows and borrowings. During 1996 the corporation expects to continue making investments in acquisitions and joint ventures. The cost of these investments is expected to be funded from operating cash flows and borrowings. In January 1996 the corporation completed the purchase of the polypropylene assets and business of Shell Oil Company, and in February 1996 the corporation announced its planned acquisition of a Brazilian vinyl acetate monomer manufacturer. 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 1995 totaled $57 million, compared to $360 million in 1994 and $378 million in 1993. In June 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. During 1995, pursuant to a share repurchase program authorized by the board of directors, the corporation repurchased 14.1 million shares of its common stock for $425 million, at an average effective price of $30.06 per share, bringing the total amount repurchased since the beginning of 1993 to 29.4 million shares for $829 million, at an average effective price of $28.18 per share. In 1995 the corporation extended its 1994 bank credit agreement to Nov. 3, 2000, providing the corporation with $1 billion in credit through that date. Several options are available to borrow at various rates on a revolving basis. At Dec. 31, 1995, there were no outstanding borrowings under the credit agreement. Debt Ratios Total debt outstanding at year-end for the past three years was: Millions of dollars 1995 1994 1993 Domestic $1,254 $862 $895 International 69 84 71 Total $1,323 $946 $966 Year-end ratios of total debt to total capital were: 1995 1994 1993 Debt ratio 39.0% 38.2% 40.3% Total debt consists of short-term debt, long-term debt and the current portion of long-term debt. Total capital consists of total debt plus minority stockholders' equity in consolidated subsidiaries and UCC stockholders' equity. (Included within this section, on page 17, is a bar chart which provides the following data: Shares Repurchased (thousands) Net of reissuances Total 1995 9,305 14,127 1994 6,135 11,624 1993 1,413 3,688 ) Quarterly Data Union Carbide Corporation and Subsidiaries Millions of dollars 1Q 2Q 3Q 4Q Year 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 1994 Net sales $1,126 $1,177 $1,252 $1,310 $4,865 Cost of sales 856 906 953 958 3,673 Gross profit 270 271 299 352 1,192 Depreciation and amortization 67 67 69 71 274 Operating profit 92 106 140 213 551 Net income(a) 63 73 96 157 389 Net income - common stockholders 61 70 94 154 379 Dollars per common share 1Q 2Q 3Q 4Q Year 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 1994 Primary net income $ 0.39 $ 0.44 $ 0.61 $ 1.01 $ 2.44 Fully diluted net income 0.37 0.42 0.57 0.93 2.27 Cash dividends 0.1875 0.1875 0.1875 0.1875 0.75 Market price - high(b) 26.13 28.63 35.88 35.13 35.88 Market price - low(b) 21.75 21.50 26.00 26.38 21.50 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 Danbury 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. Net income for the first quarter of 1994 included an after-tax net loss of $8 million, or $0.05 per share, fully diluted, due to a gain on the sale of a preferred stock investment in the OrganoSilicon business; a charge from the write-down and sale of the corporation's stockholding in Union Carbide India Limited, and a loss on the sale of the corporation's interest in a uranium mill and certain uranium mines. Net income for the fourth quarter of 1994 included an after-tax net gain of $10 million, or $0.06 per share, fully diluted, due to a gain on the sale of a manufacturing facility and distribution terminal in Hong Kong and a charge for litigation and other costs primarily related to divested operations. b) Prices are based on New York Stock Exchange Composite Transactions Selected Financial Data Union Carbide Corporation and Subsidiaries
Millions of dollars (except per share figures), year ended December 31, 1995 1994 1993 1992 From the Income Statement Net sales $5,888 $4,865 $4,640 $4,872 Cost of sales 4,100 3,673 3,589 3,764 Research and development 144 136 139 155 Selling, administration and other expenses 387(a) 290 340 383 Depreciation and amortization 306 274 276 293 Interest expense 89 80 70 146 Partnership income (loss) 152 98 67 60 Pre-tax income (loss) from continuing operations 1,259 471 227 178 Provision (credit) for income taxes 380 137 78 45 UCC share of net income (loss) from corporate investments carried at equity 46 55 16 (14) Income (loss) from continuing operations 925 389 165 119 Income from discontinued operations - - - 67 Cumulative effect of change in accounting principles - - (97) (361) Net income (loss) - common stockholders 915 379 58 (187) Per common share Primary - Income (loss) from continuing operations $ 6.44 $ 2.44 $ 1.00 $ 0.76 - Net income (loss) 6.44 2.44 0.36 (1.46) Fully diluted(b) - Income from continuing operations 5.83 2.27 - - - Net income 5.83 2.27 - - From the Balance Sheet (At Year-End) Net current assets of continuing operations $ 858 $ 329 $ 233 $ 66 Total assets 6,256 5,028 4,689 4,941 Long-term debt 1,285 899 931 1,113 Other long-term obligations 834 537 378 277 Total capital 3,392 2,479 2,395 2,710 UCC stockholders' equity 2,045 1,509 1,428 1,238 UCC stockholders' equity per common share 15.14 10.45 9.49 9.32 Other Data Cash dividends on common stock $ 103 $ 113 $ 110 $ 114 Cash dividends per common share 0.75 0.75 0.75 0.875 Special distribution per common share - - - 15.875 Market price per common share - high(c) 42.75 35.88 23.13 17.13(d) Market price per common share - low(c) 25.50 21.50 16.00 10.88(d) Common shares outstanding (thousands) 135,108 144,412 150,548 132,865 Capital expenditures 542 409 395 359 Employees - continuing operations 11,521 12,004 13,051 15,075 Selected Financial Ratios Total debt/total capital 39.0% 38.2% 40.3% 54.3% Return on capital(e) 39.2% 18.0% 7.7% 6.9% Income from continuing operations/ average UCC stockholders' equity 52.1% 26.5% 12.4% 6.8% Cash dividends on common stock/income from continuing operations 11.1% 29.0% 66.7% 95.8% Millions of dollars (except per share figures), year ended December 31, 1991 1990 1989 1988 From the Income Statement Net sales $4,877 $5,238 $5,613 $5,525 Cost of sales 3,787 3,876 3,909 3,696 Research and development 157 157 143 124 Selling, administration and other expenses 408 466 442 394 Depreciation and amortization 287 278 261 255 Interest expense 228 269 268 172 Partnership income (loss) (22) 70 82 95 Pre-tax income (loss) from continuing operations (147) 365 780 978 Provision (credit) for income taxes (50) 130 257 381 UCC share of net income (loss) from corporate investments carried at equity (21) (42) 27 33 Income (loss) from continuing operations (116) 188 530 608 Income from discontinued operations 107 120 43 54 Cumulative effect of change in accounting principles - - - - Net income (loss) - common stockholders (28) 308 573 662 Per common share Primary - Income (loss) from continuing operations $(1.06) $ 1.34 $ 3.76 $ 4.48 - Net income (loss) (0.22) 2.19 4.07 4.88 Fully diluted(b) - Income from continuing operations - 1.34 3.63 4.29 - Net income - 2.13 3.92 4.66 From the Balance Sheet (At Year-End) Net current assets of continuing operations $ 209 $ 7 $ 22 $ 14 Total assets 6,826 7,389 7,355 7,327 Long-term debt 1,160 2,058 2,060 2,271 Other long-term obligations 428 357 572 594 Total capital 4,694 5,338 5,319 4,805 UCC stockholders' equity 2,239 2,373 2,383 1,836 UCC stockholders' equity per common share 17.55 18.88 16.83 13.34 Other Data Cash dividends on common stock $ 126 $ 138 $ 140 $ 155 Cash dividends per common share 1.00 1.00 1.00 1.15 Special distribution per common share - - - - Market price per common share - high(c) 22.63 24.88 33.25 28.38 Market price per common share - low(c) 15.13 14.13 22.75 17.00 Common shares outstanding (thousands) 1127,607 125,674 141,578 137,602 Capital expenditures 400 381 483 380 Employees - continuing operations 16,705 17,722 18,032 17,258 Selected Financial Ratios Total debt/total capital 52.0% 54.0% 49.9% 56.1% Return on capital(e) - 8.4% 21.2% 24.5% Income from continuing operations/ average UCC stockholders' equity - 7.9% 25.1% 39.4% Cash dividends on common stock/income from continuing operations - 73.4% 26.4% 25.5% a) Selling, administration and other expenses in 1995 include a charge of $68 million for postemployment benefits, including severance. b) Fully diluted per share amounts are not presented where amounts are antidilutive. c) Prices are based on New York Stock Exchange Composite Transactions. d) 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. e) Return on capital is computed by dividing income by beginning of year capital. Income consists of income from continuing operations, less preferred dividends, plus after-tax interest cost (net of interest income received from Praxair), plus income from minority interests. Capital consists of the components described below, adjusted for the corporation's Praxair-related assets and the cumulative effect of the changes in accounting principles. Total debt consists of short-term debt, long-term debt and current portion of long-term debt. Total capital consists of total debt plus minority stockholders' equity in consolidated subsidiaries and UCC stockholders' equity.
Consolidated Statement of Income Union Carbide Corporation and Subsidiaries
Millions of dollars (except per share figures), year ended December 31, 1995 1994 1993 Net Sales $5,888 $4,865 $4,640 Cost of sales, exclusive of depreciation and amortization 4,100 3,673 3,589 Research and development 144 136 139 Selling, administration and other expenses 387 290 340 Depreciation and amortization 306 274 276 Interest expense 89 80 70 Partnership income 152 98 67 Other expense (income) - net (245) 39 66 Income Before Provision for Income Taxes 1,259 471 227 Provision for income taxes 380 137 78 Income of Consolidated Companies 879 334 149 Income from corporate investments carried at equity 46 55 16 Net Income Before Cumulative Effect of Change in Accounting Principle 925 389 165 Cumulative effect of change in accounting principle - - (97) Net Income 925 389 68 Preferred stock dividends, net of income taxes 10 10 10 Net Income - Common Stockholders $ 915 $ 379 $ 58 Earnings per Common Share Primary - Net income before cumulative effect of change in accounting principle $ 6.44 $ 2.44 $ 1.00 - Cumulative effect of change in accounting principle - - (0.64) - Net income - common stockholders 6.44 2.44 0.36 Fully diluted(a) 5.83 2.27 - Cash Dividends Declared per Common Share $ 0.75 $ 0.75 $ 0.75 a) Fully diluted per share amounts are not presented where amounts are antidilutive. The Notes to Financial Statements on pages 24 through 37 should be read in conjunction with this statement.
Consolidated Balance Sheet Union Carbide Corporation and Subsidiaries
Millions of dollars at December 31, 1995 1994 Assets Cash and cash equivalents $ 449 $ 109 Notes and accounts receivable 996 898 Inventories 544 390 Other current assets 207 217 Total Current Assets 2,196 1,614 Property, plant and equipment 6,357 5,889 Less: Accumulated depreciation 3,549 3,347 Net Fixed Assets 2,808 2,542 Companies carried at equity 739 418 Other investments and advances 84 88 Total Investments and Advances 823 506 Other assets 429 366 Total Assets $6,256 $5,028 Liabilities and Stockholders' Equity Accounts payable $ 316 $ 326 Short-term debt and current portion of long-term debt 38 47 Accrued income and other taxes 259 179 Other accrued liabilities 725 733 Total Current Liabilities 1,338 1,285 Long-term debt 1,285 899 Postretirement benefit obligation 480 488 Other long-term obligations 834 537 Deferred credits 201 242 Minority stockholders' equity in consolidated subsidiaries 24 24 Convertible preferred stock - ESOP 146 148 Unearned employee compensation - ESOP (97) (104) UCC stockholders' equity Common stock Authorized - 500,000,000 shares Issued - 154,609,669 shares 155 155 Additional paid-in capital 343 369 Translation and other equity adjustments (15) (59) Retained earnings 2,145 1,333 2,628 1,798 Less: Treasury stock, at cost - 19,501,701 shares (10,197,367 in 1994) 583 289 Total UCC Stockholders' Equity 2,045 1,509 Total Liabilities and Stockholders' Equity $6,256 $5,028 The Notes to Financial Statements on pages 24 through 37 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, 1995 1994 1993 Operations Income from continuing operations $ 925 $ 389 $ 165 Noncash charges (credits) to net income Depreciation and amortization 306 274 276 Deferred income taxes (29) 31 (34) Other noncash charges 186 88 65 Net gains on investing transactions (379) (100) (52) Increase in working capital(a) (242) (151) (9) Long-term assets and liabilities (4) 30 46 Cash Flow From Operations 763 561 457 Investing Capital expenditures (542) (409) (395) Investments (360) (16) (39) Sale of investments 552 87 29 Sale of fixed and other assets 54 138 266 Purchase of fixed and other assets (71) - - Cash Flow Used for Investing (367) (200) (139) Financing Change in short-term debt (3 months or less) (11) 8 (263) Proceeds from short-term debt 6 43 - Repayment of short-term debt - (48) (36) Proceeds from long-term debt 402 18 320 Repayment of long-term debt (22) (36) (262) Issuance of common stock 116 111 57 Purchase of common stock (425) (337) (70) Payment of dividends (116) (126) (124) Other (7) 7 - Cash Flow Used for Financing (57) (360) (378) Effect of exchange rate changes on cash and cash equivalents 1 - (3) --Change in cash and cash equivalents 340 1 (63) --Cash and cash equivalents beginning-of-year 109 108 171 Cash and Cash Equivalents End-of-Year $ 449 $ 109 $ 108 Cash Paid for Interest and Income Taxes Interest (net of amount capitalized) $ 68 $ 89 $ 67 Income taxes 329 74 44 a) Net change in working capital by component (excluding cash and cash equivalents, deferred income taxes and short-term debt): (Increase) decrease in current assets Notes and accounts receivable $(111) $(206) $ 5 Inventories (144) (22) 11 Other current assets 8 (19) 16 Increase (decrease) in payables and accruals 5 96 (41) (Increase) in working capital $(242) $(151) $ (9) The Notes to Financial Statements on pages 24 through 37 should be read in conjunction with this statement.
Consolidated Statement of Stockholders' Equity Union Carbide Corporation and Subsidiaries
1995 Shares Millions (in thousands) of dollars Common Stock Balance at January 1 154,610 $ 155 Issued: For the Dividend Reinvestment and Stock Purchase Plan - For employee savings and incentive plans - Conversion of debentures - Balance at December 31 154,610 $ 155 Additional Paid-In Capital Balance at January 1 $ 369 Proceeds from the sale of put options 2 Reclassification of put option obligations (21) Issued: For the Dividend Reinvestment and Stock Purchase Plan 1 For employee savings and incentive plans (8) Conversion of debentures - 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 Less: 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 January 1 154,610 $ 155 Issued: For the Dividend Reinvestment and Stock Purchase Plan - For employee savings and incentive plans - Conversion of debentures - Balance at December 31 154,610 $ 155 Additional Paid-In Capital Balance at January 1 $ 366 Proceeds from the sale of put options 3 Reclassification of put option obligation (3) Issued: For the Dividend Reinvestment and Stock Purchase Plan 1 For employee savings and incentive plan 2 Conversion of debentures - 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 Less: 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 1993 Shares Millions (in thousands) of dollars Common Stock Balance at January 1 135,513 $ 136 Issued: For the Dividend Reinvestment and Stock Purchase Plan 134 - For employee savings and incentive plans 2,463 2 Conversion of debentures 16,500 17 Balance at December 31 154,610 $ 155 Additional Paid-In Capital Balance at January 1 $ 100 Proceeds from the sale of put options 1 Reclassification of put option obligations (2) Issued: For the Dividend Reinvestment and Stock Purchase Plan 2 For employee savings and incentive plans 19 Conversion of debentures 246 Balance at December 31 $ 366 Translation and Other Equity Adjustments Balance at January 1 $ (71) Translation and other adjustments (11) Sale of businesses (2) Balance at December 31 $ (84) Retained Earnings Balance at January 1 $ 1,119 Net income - common stockholders 58 Cash dividends on common stock (110) Balance at December 31 $ 1,067 Less: Treasury Stock Balance at January 1 2,649 $ 46 Common stock repurchase program 3,688 71 Issued: For the Dividend Reinvestment and Stock Purchase Plan (322) (6) For employee savings and incentive plans (1,953) (35) Balance at December 31 4,062 $ 76 Total Stockholders' Equity $ 1,428 The Notes to Financial Statements on pages 24 through 37 should be read in conjunction with this statement.
Notes to Financial Statements 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 3. 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) 121, "Accounting for the Impairment of Long-Lived Assets and for Long- Lived Assets to Be Disposed Of" in 1995. The effect of the adoption of FAS 121 was not material. Effective Jan. 1, 1994, the corporation adopted FAS 115, "Accounting for Certain Investments in Debt and Equity Securities." The effect of the adoption of FAS 115 was not material. Effective Jan. 1, 1993, the corporation adopted FAS 112, "Employers' Accounting for Postemployment Benefits." The cumulative effect of the change in the method of accounting for postemployment benefits is reported in the 1993 Consolidated Statement of Income. 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, 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 swap agreements and forward rate agreements (FRAs) that hedge debt accrue and are recognized over the lives of the agreements. Gains and losses on foreign currency forward contracts and foreign currency options used to hedge firm commitments are deferred and recognized as part of the related foreign currency transactions. Foreign currency forward contracts and options 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 59 percent of inventory amounts before application of the LIFO method at Dec. 31, 1995 (65 percent at Dec. 31, 1994) 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 $276 million and $275 million higher than reported at Dec. 31, 1995 and 1994, 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. During 1995, the corporation reduced the depreciable lives of certain computer equipment, resulting in an increase in depreciation expense of $12 million ($8 million after-tax). 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 ($14 million in 1995, $13 million in 1994 and $12 million in 1993). 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. 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 adjusted net income - common stockholders by the weighted average number of common shares outstanding, common stock equivalents related to dilutive stock options and common shares issuable upon conversion of debentures and convertible preferred stock. The number of common shares used to compute earnings per share amounts was as follows: 1995 1994 1993 Primary 141,663,656 154,174,788 151,371,160 Fully diluted 158,380,545 170,886,405 173,345,161 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, 1995 and 1994, the carrying amounts approximate fair value because of the short maturity of these instruments. The corporation had foreign currency forward contracts of $32 million at Dec. 31, 1995 ($67 million at Dec. 31, 1994) to hedge fluctuations in the dollar value of short-term foreign currency receivables and payables. Deferred gains and losses on these contracts are not material. Investments - The corporation's investments in equity companies, partnerships and other businesses generally involve joint ventures for which it is not practicable to determine fair values. 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 value of $200 million included in Other assets in the Consolidated Balance Sheet at Dec. 31, 1995 and 1994. Debt - The corporation uses various types of financial instruments, including interest rate swaps and FRAs, to manage exposure to financial market risk caused by interest rate fluctuations. See Note 10 for a discussion of debt instruments. Other Financial Instruments - In the first half of 1994, as the risk of cyclically higher interest rates increased, the corporation unwound its positions in interest rate swaps and FRAs designated to offset earnings fluctuations due to cyclical business conditions, resulting in a before-tax charge to Other expense (income) - net of $9 million. Outstanding foreign currency forward contracts and options used as a means of offsetting earnings fluctuations from anticipated foreign currency cash flows totaled $173 million at Dec. 31, 1995 ($182 million at Dec. 31, 1994). During 1995 and 1994 their average fair values were nominal. These contracts resulted in a nominal gain in 1995 ($6 million net loss in 1994). Carrying and Fair Values - The carrying values and fair values of the corporation's investments, receivables and debt financial instruments at Dec. 31, 1995 and 1994, are summarized in the table below. Fair values are based on quoted market values, where available, or discounted cash flows (principally long-term debt). An interest rate swap held at Dec. 31, 1995 (see Note 10) had a nominal carrying amount and fair value. Put options on equity securities are discussed in Note 12. Millions of dollars At December 31, 1995 1994 Carrying Fair Carrying Fair Assets (liabilities) Amount Value Amount Value Investments and receivables $ 284 $ 286 $ 288 $ 288 Short- and long-term debt (1,323) (1,389) (946) (896) 3. Business and Geographic Segment Information The company's operations are classified into two business segments, Specialties & Intermediates and Basic Chemicals & Polymers. 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 derivatives - polyethylene and ethylene oxide/glycol. The corporation's noncore operations and financial transactions are included in the Other segment. Millions of dollars 1995 1994 1993 Net Sales Specialties & Intermediates $4,123 $3,636 $3,487 Basic Chemicals & Polymers 2,080 1,411 1,324 Intersegment eliminations (315) (182) (171) Total $5,888 $4,865 $4,640 Operating Profit (Loss) Specialties & Intermediates $ 709 $ 634 $ 526 Basic Chemicals & Polymers 444 (22) (208) Other 195 (61) (21) Total $1,348 $ 551 $ 297 Depreciation and Amortization Specialties & Intermediates $ 194 $ 169 $ 177 Basic Chemicals & Polymers 112 105 99 Total $ 306 $ 274 $ 276 Capital Expenditures Specialties & Intermediates $ 392 $ 253 $ 240 Basic Chemicals & Polymers 150 156 155 Total $ 542 $ 409 $ 395 Identifiable Assets Specialties & Intermediates $3,527 $3,111 $2,869 Basic Chemicals & Polymers 2,095 1,511 1,363 Other 634 406 457 Total $6,256 $5,028 $4,689 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. 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 Danbury 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 certain uranium mines. The 1993 operating profit of the Specialties & Intermediates segment includes a $54 million gain from the sale of OSi and a $9 million loss on the sale of a medical device company. The 1993 operating profit of the Basic Chemicals & Polymers segment includes a $46 million charge from the shutdown of a Canadian ethylene oxide/glycol manufacturing facility and a $9 million loss on the write-down of a Canadian business. Other 1993 operating profit includes a gain of $8 million on the sale of a corporate aircraft. Millions of dollars 1995 1994 1993 Net Sales United States & Puerto Rico(a) $4,071 $3,535 $3,443 Canada 142 136 130 Europe 719 474 454 Latin America 227 218 241 Far East & Other 729 502 372 International operations 1,817 1,330 1,197 Total UCC Consolidated $5,888 $4,865 $4,640 a) Includes export sales of $732 million in 1995 ($532 million in 1994 and $604 million in 1993). Operating Profit (Loss) United States & Puerto Rico $1,228 $ 433 $ 299 Canada 36 14 (53) Europe 50 12 18 Latin America 12 16 6 Far East & Other 29 74 28 International operations 127 116 (1) Intersegment eliminations (7) 2 (1) Total Operating Profit 1,348 551 297 Less: Interest Expense (89) (80) (70) Income Before Provision for Income Taxes $1,259 $ 471 $ 227 Identifiable Assets(a) United States & Puerto Rico $4,433 $3,670 $3,470 Canada 277 244 255 Europe 404 281 245 Latin America 191 190 124 Far East & Other 322 244 166 International operations 1,194 959 790 Intersegment eliminations (5) (7) (28) Total Identifiable Assets 5,622 4,622 4,232 Other 634 406 457 Total Assets $6,256 $5,028 $4,689 a) 1994 and 1993 reclassified to conform to the 1995 presentation. 4. Other Expense (Income) - Net The following is an analysis of Other expense (income) - net: Millions of dollars 1995 1994 1993 (Gains) losses on sales and disposals of businesses and other assets(a) $(387) $ (67) $ 14 Foreign currency adjustments 6 16 31 Unused space charge(b) 191 - - Other(c) (55) 90 21 $(245) $ 39 $ 66 a) 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 a preferred stock investment in OSi; a $24 million charge from the write-down and sale of the corporation's stockholding in Union Carbide India Limited, and a $12 million loss on the sale of the corporation's interest in a uranium mill and certain uranium mines. Includes for 1993 a $54 million gain from the sale of OSi; a $46 million charge from the shutdown of a Canadian ethylene oxide/glycol manufacturing facility; a $9 million loss on the sale of a medical device company; a $9 million loss on the write-down of a Canadian business, and a gain of $8 million on the sale of a corporate aircraft. b) See Note 13. c) Includes for 1995 $17 million of investment income. Includes for 1994 $68 million for litigation costs and other costs related to divested operations. Includes income of $5 million and charges of $7 million and $10 million in 1995, 1994 and 1993, respectively, related to discontinued and noncore businesses. 5. Acquisitions and Divestitures On Jan. 26, 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) and eliminated the corporation's share of ongoing future earnings from UCAR. On Aug. 9, 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). If these transactions had occurred effective Jan. 1, 1995, the corporation's income from corporate investments carried at equity and net income - common stockholders for the year ended Dec. 31, 1995, would have been reduced by $4 million, and earnings per share would have decreased $0.03 per share, primary and fully diluted. If these transactions had occurred effective Jan. 1, 1994, the corporation's income from corporate investments carried at equity and net income - common stockholders for the year ended Dec. 31, 1994, would have been reduced by $54 million, and earnings per share would have decreased $0.35 per share, primary, or $0.32 per share, fully diluted. On March 31, 1995, the corporation acquired 50 percent of the equity of Polimeri Europa S.r.l., from EniChem S.p.A. 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. The purchase price for the corporation's 50 percent of the joint venture's equity was 323 million German Deutschemarks ($216 million). If this acquisition had occurred effective Jan. 1, 1995, the corporation's income from corporate investments carried at equity and net income - common stockholders for the year ended Dec. 31, 1995, would have increased by $27 million, and earnings per share would have increased $0.19 per share, primary, or $0.17 per share, fully diluted. If this acquisition had occurred effective Jan. 1, 1994, the corporation's income from corporate investments carried at equity, net income - common stockholders and earnings per share for the year ended Dec. 31, 1994, would not have been affected. If both the Polimeri Europa equity acquisition and the UCAR recapitalization and sale transactions had occurred effective Jan. 1, 1995, the corporation's income from corporate investments carried at equity and net income - common stockholders for the year ended Dec. 31, 1995, would have increased by $23 million, or $0.16 per share, primary, or $0.14 per share, fully diluted. If these transactions had occurred effective Jan. 1, 1994, the corporation's income from corporate investments carried at equity and net income - common stockholders for the year ended Dec. 31, 1994, would have decreased by $54 million, or $0.35 per share, primary, or $0.32 per share, fully diluted. The weighted average number of common shares used for the pro forma earnings per share calculations for the year ended Dec. 31, 1995 and 1994, is 141,663,656 and 154,174,788 primary, respectively, and 158,380,545 and 170,886,405 fully diluted, respectively. On Feb. 1, 1995, the corporation purchased certain ethylene oxide derivative businesses from Imperial Chemical Industries of London for $71 million. On July 15, 1995, the corporation and two Kuwaiti corporations, Petrochemical Industries Company and Boubyan Petrochemical Company, formed Equate Petrochemical Company, their joint venture for development of a world- scale petrochemicals complex in Kuwait. Construction of the facility is targeted for a mid-1997 completion date. At Dec. 31, 1995, the corporation had invested $134 million in Equate. In January 1996 the corporation severally guaranteed $225 million of Equate debt. In January 1996 the corporation completed the purchase of the polypropylene assets and business of Shell Oil Company. The purchased assets, located in the U.S., comprise Shell's polypropylene technology and manufacturing facilities and polypropylene assets previously held jointly by both companies. 6. 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 1995 1994 1993 Income (loss) before provision for income taxes: U.S. $1,137 $362 $235 Non-U.S. 122 109 (8) $1,259 $471 $227 The following is an analysis of income tax expense:
1995 1994 Millions of dollars Current Deferred Current Deferred U.S. Federal income taxes $332 $(24) $ 77 $46 U.S. business and research and experimentation tax credits (17) - (10) - U.S. state and local taxes based on income 47 (7) 4 (2) Non-U.S. income taxes 47 2 35 (13) 409 (29) 106 31 Provision for Income Taxes $380 $137 1993 Millions of dollars Current Deferred U.S. Federal income taxes $ 60 $(21) U.S. business and research and experimentation tax credits (9) - U.S. state and local taxes based on income 19 2 Non-U.S. income taxes 42 (15) 112 (34) Provision for Income Taxes $78
The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows:
Depreciation and amortization $ - $392 Postretirement benefits other than pensions 213 - Postemployment benefits and severance costs 36 - Environmental and litigation 147 - Sale/leaseback and related deferrals 109 - Other 153 191 Gross deferred tax assets and liabilities 658 583 Net Deferred Tax Asset $75 Depreciation and amortization $ - $354 Postretirement benefits other than pensions 221 - Postemployment benefits and severance costs 25 - Environmental and litigation 147 - Sale/leaseback and related deferrals 45 - Other 177 216 Gross deferred tax assets and liabilities 615 570 Net Deferred Tax Asset $45
Net noncurrent deferred tax liabilities of $62 million ($91 million in 1994) are included in Deferred credits in the Consolidated Balance Sheet. Net current deferred tax assets of $132 million ($129 million in 1994) are included in Other current assets. Net noncurrent deferred tax assets of $5 million ($7 million in 1994) are included in Other assets. In 1995 and 1994 there were $6 million in non-U.S. net operating loss carryforwards included in the deferred tax assets above. Undistributed earnings of affiliates intended to be reinvested indefinitely amounted to approximately $393 million at Dec. 31, 1995 ($374 million at Dec. 31, 1994). 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 1995 1994 1993 Tax at statutory Federal rate 35.0% 35.0% 35.0% Taxes related to operations outside the U.S. 0.1 - 3.1 U.S. state and local taxes based on income 1.0 0.2 5.7 Foreign sales corporation (1.4) (2.8) (4.0) Business credits (1.4) (2.1) (4.0) Other, net (3.1) (1.2) (1.4) Consolidated effective income tax rate 30.2% 29.1% 34.4% 7. Supplementary Balance Sheet Detail Millions of dollars at December 31, 1995 1994 Notes and accounts receivable Trade $ 824 $ 726 Other 183 183 1,007 909 Less: Allowance for doubtful accounts 11 11 $ 996 $ 898 Inventories Raw materials and supplies $ 117 $ 103 Work in process 46 41 Finished goods 381 246 $ 544 $ 390 Property, plant and equipment Land and improvements $ 307 $ 296 Buildings 380 351 Machinery and equipment 5,221 4,847 Construction in progress and other 449 395 $ 6,357 $ 5,889 Other assets Deferred charges $ 163 $ 129 Insurance recovery receivables 145 103 Long-term receivables 55 97 Patents, trademarks and goodwill 66 37 $ 429 $ 366 Other accrued liabilities Accrued accounts payable $ 241 $ 266 Payrolls 53 61 Severance and relocation costs 14 36 Environmental remediation costs 65 62 Postretirement benefit obligation 28 34 Employee profit sharing 85 49 Other 239 225 $ 725 $ 733 Other long-term obligations Environmental remediation costs $ 262 $ 235 Product liability costs 180 138 Impairment of unused office space 158 - Postemployment benefits 87 42 Other 147 122 $ 834 $ 537 Translation and other equity adjustments Canada $ (43) $ (48) Europe 15 (17) Far East & Other 13 6 $ (15) $ (59) 8. Interest Expense The following is an analysis of Interest expense: Millions of dollars 1995 1994 1993 Interest incurred(a) $119 $ 93 $ 84 Less: Interest capitalized and other adjustments 30 13 14 $ 89 $ 80 $ 70 a) Includes $12 million, $17 million and $17 million in 1995, 1994 and 1993, respectively, representing the interest component of certain leases. 9. 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, as well as a Union Carbide/Shell polypropylene partnership, the balance of which was acquired in January 1996 (see Note 5). Partnerships Millions of dollars 1995 1994 1993 Net sales(a) $2,146 $1,616 $1,445 Cost of sales 1,312 954 863 Depreciation 66 51 50 Partnership income 283 229 199 UCC Share of Partnership Income $ 152 $ 98 $ 67 Current assets $ 599 $ 494 Noncurrent assets 824 735 Total assets 1,423 1,229 Current liabilities 483 309 Noncurrent liabilities 441 455 Total liabilities 924 764 Net assets 499 465 UCC Equity $ 243 $ 220 a) Includes $177 million net sales to the corporation in 1995 ($209 million in 1994 and $175 million in 1993). 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 and several smaller entities. See Note 5. 20% - 50% Corporate Investments Millions of dollars 1995 1994 1993 Net sales(a) $1,731 $1,206 $1,144 Cost of sales 1,221 817 823 Depreciation 119 58 55 Net income 96 109 36 UCC Share of Net Income $ 46 $ 55 $ 16 Current assets $ 811 $ 622 Noncurrent assets 1,886 920 Total assets 2,697 1,542 Current liabilities 713 457 Noncurrent liabilities 922 676 Total liabilities 1,635 1,133 Net assets 1,062 409 UCC Equity $ 496 $ 198 a) Includes $167 million net sales to the corporation in 1995 ($73 million in 1994 and $46 million in 1993). Dividends and distributions received from partnerships and corporate joint ventures aggregated $97 million in 1995 ($128 million in 1994 and $92 million in 1993). 10. Long-Term Debt Millions of dollars at December 31, 1995 1994 6.75% Notes due 2003 $ 125 $ 125 6.79% Debentures due 2025 250 - 7.00% Notes due 1999 175 175 7.50% Debentures due 2025 150 - 7.875% Debentures due 2023 175 175 8.75% Debentures due 2022 125 125 Pollution control and other facility obligations 246 248 Other debt - various maturities and interest rates 53 70 1,299 918 Less: Payments to be made within 1 year 14 19 $1,285 $ 899 On June 1, 1995, the corporation completed a $400 million, two-part public offering of debt securities. It consisted of $150 million principal amount of 7.5 percent 30-year debentures due June 1, 2025, and $250 million principal amount of 6.79 percent 30-year debentures due June 1, 2025, with a one-time option for investors to redeem the bonds on June 1, 2005. The corporation has a credit agreement with a group of banks, providing the corporation with $1 billion in credit through Nov. 3, 2000. 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. At Dec. 31, 1995, there were no outstanding borrowings under the credit agreement. The credit agreement and other indentures contain covenants, normal for these types of instruments, that place certain limits on the ability of UCC to merge with another entity, incur debt or create liens on assets. In addition, the credit agreement requires the corporation to meet net worth, leverage and interest coverage tests. Pollution control and other facility obligations represent state, commonwealth and local governmental bond financing of pollution control and other facilities, and are treated for accounting and tax purposes as debt of the corporation. These tax-exempt obligations mature at various dates from 1996 through 2023 and have an average annual effective rate of 7.3 percent. At Dec. 31, 1995, the corporation had one open swap position in the notional amount of $23 million ($48 million at Dec. 31, 1994), for which the corporation receives a fixed rate and pays a floating rate. The corporation's exposure to counterparty creditworthiness is not material. The average and effective interest rates in 1995 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, 1995, was 4.0 percent (6.2 percent as of Dec. 31, 1994). Payments due on long-term debt in the four years following 1996 are: 1997, $7 million; 1998, $7 million; 1999, $180 million; and 2000, $4 million. 11. Convertible Preferred Stock - ESOP The Union Carbide Corporation Employee Stock Ownership Plan (ESOP) is an integral part of the Savings 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 and 1993) on eligible employee contributions. At the corporation's option, ESOP shares may be redeemed either in cash or the corporation's common stock when employees make withdrawals from their accounts. It has been UCC's policy to redeem ESOP shares with cash. The cost of the ESOP is recognized as incurred and was $4 million in 1995 ($6 million in 1994 and 1993). Reductions in ESOP costs in 1995 were due primarily to appreciation in the corporation's common stock. At Dec. 31, 1995, 16.2 million preferred shares were outstanding, 5.4 million of which were credited to employees' accounts, including 0.6 million credited during 1995. 12. UCC Stockholders' Equity In 1989 the board of directors adopted a stockholder rights plan and declared a dividend of one Right for each outstanding share of common stock. Each Right entitles its holder, under certain circumstances, to buy a share of common stock at a purchase price of $37.67 (subject to adjustment). The Rights may not be exercised until 10 days after a person or group acquires 20 percent or more of UCC's common stock, or announces a tender offer that, if consummated, would result in 20 percent or more ownership of the common stock. Until then, separate Rights certificates will not be issued, nor will the Rights be traded separately from the stock. Should an acquirer become the beneficial owner of 20 percent of the common stock, and under certain additional circumstances, Union Carbide Corporation stockholders (other than the acquirer) would have the right to buy common stock in Union Carbide Corporation, or in the surviving enterprise if the corporation is acquired, having a value equal to 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. The corporation's independent directors may redeem the Rights by a majority vote during the 10-day period following public announcement that a person or group has acquired 20 percent of UCC's common stock. On July 26, 1995, the board of directors of the corporation increased the number of shares that may be repurchased under the existing common stock repurchase program to 40 million shares. Through Dec. 31, 1995, the corporation had repurchased 29,439,478 shares since inception of the program in 1993 (14,127,218 during 1995) at an average effective price of $28.18 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 6.4 million shares of common stock to UCC, at specified prices upon exercise of the options. Since inception of this program through Dec. 31, 1995, options representing 4,563,800 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 700,000 shares remain outstanding at Dec. 31, 1995. Premiums received since inception of the program have reduced the average price of repurchased shares to $28.18 per share from $28.36. 13. Leases Leases that meet the criteria for capitalization have been classified and accounted for as capital leases. For operating leases, primarily involving facilities and distribution equipment, the future minimum rental payments under leases with remaining noncancelable terms in excess of one year are: Year ending Millions of dollars 1996 $ 73 1997 71 1998 56 1999 53 2000 50 Subsequent to 2000 291 Total minimum payments 594 Future sublease rentals 115 Net Minimum Rental Commitments $479 The present value of the net minimum rental payments amounts to $349 million, of which $301 million pertains to the Danbury headquarters lease. Total lease and rental payments (net of sublease rental of $20 million in 1995, $20 million in 1994 and $10 million in 1993) were $67 million, $65 million and $98 million for 1995, 1994 and 1993, respectively. The corporation is contingently required to pay certain domestic lease obligations assigned to Praxair Inc. in the event of Praxair's default, the present value of which totals $23 million. If such a payment is required, the corporation has a legal right to set off any such amounts paid against amounts it may owe to Praxair. 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 Danbury 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. 14. Retirement Programs Pension Benefits The noncontributory defined benefit retirement program of Union Carbide Corporation ("U.S. Retirement Program") covers substantially all U.S. employees and certain employees in other countries. Pension benefits are based primarily on years of service and compensation levels prior to retirement. Pension coverage for employees of the corporation's non-U.S. consolidated subsidiaries is provided through separate plans, to the extent deemed appropriate. Obligations under such plans are principally provided for by depositing funds with trustees. The components of net periodic pension cost for the plans combined are as follows: Millions of dollars 1995 1994 1993 Service cost - benefits earned during the period $ 44 $ 51 $ 48 Interest cost on projected benefit obligation 197 180 182 Return on plan assets (gain) loss Actual (904) 154 (430) Deferred 692 (212) (355) (201) 229 (201) Amortization of net gain (6) (9) (9) Net Periodic Pension Cost $ 23 $ 21 $ 20 The funded status of the plans combined was as follows: Millions of dollars at December 31, 1995 1994 Actuarial present value of plan benefits: Accumulated benefit obligation Vested $ 2,596 $ 2,037 Nonvested 127 113 2,723 2,150 Projected benefit obligation 2,986 2,398 Fair value of plan assets, primarily invested in common stocks and fixed-income securities 3,173 2,414 Plan assets in excess of projected benefit obligation 187 16 Unamortized net asset at transition (77) (80) Unamortized prior service cost 22 25 Unrecognized (gains) losses - net (103) 35 Prepaid (Accrued) Pension Cost $ 29 $ (4) Pension obligations are valued using the 1983 Group Annuity Mortality Table. The actuarial assumptions used were as follows: At December 31, 1995 1994 Discount rate for determining projected benefit obligation 6.75% 8.50% Rate of increase in compensation levels 4.00% 5.75% Expected long-term rate of return on plan assets 8.25% 8.50% Postretirement Benefits Other Than Pensions The corporation and certain of its consolidated subsidiaries provide health care and life insurance benefits for eligible retired employees and their eligible dependents. These benefits are provided through various insurance companies and health care providers. 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 12.50 percent in 1995, 9.75 percent in 1996, 8.75 percent in 1997, falling incrementally to a 5.25 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, 1995, by $26 million and the aggregate of service and interest cost components of net periodic postretirement benefit costs by $2 million. Measurement of the accumulated postretirement benefit obligation was based on the same 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 and fixed-income securities. The components of net periodic postretirement benefit cost are as follows: Millions of dollars 1995 1994 1993 Service cost - benefits earned during the period $ 11 $ 12 $ 12 Interest cost 35 32 32 Return on plan assets (gain) loss Actual (8) 1 (5) Deferred 6 (2) (3) (2) 3 (2) Amortization of net gain (21) (21) (21) Net Periodic Postretirement Benefit Cost $ 23 $ 21 $ 21 The funded status of the postretirement benefit obligation was as follows: Millions of dollars at December 31, 1995 1994 Accumulated postretirement benefit obligations: Retirees $361 $354 Fully eligible active plan participants 75 78 Other active plan participants 26 20 462 452 Fair value of plan assets (21) (19) Accumulated postretirement benefits in excess of plan assets 441 433 Unrecognized gains - net 67 89 Accrued Unfunded Postretirement Benefit Obligations $508 $522 The accumulated postretirement benefit obligation for retirees is net of $134 million at Dec. 31, 1995 ($130 million at Dec. 31, 1994), which is reimbursed to the corporation in part by previously owned businesses under ongoing benefit-sharing agreements. Deferred Compensation Plan During 1994 the board of directors approved an unfunded, nonqualified deferred compensation plan for certain key employees, offering them an election to defer a portion of their gross pay beginning Jan. 1, 1995. 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. The cumulative effect of adopting FAS 112 as of Jan. 1, 1993, resulted in a $97 million after-tax charge to 1993 earnings ($0.64 per common share). FAS 112 requires that postemployment benefits expected to be paid before retirement, principally severance, be accrued over employees' working lives. This charge includes postemployment benefits based on normal year-to-year attrition rates, giving effect to the corporation's cost reduction program as of Jan. 1, 1993. 15. Incentive Plans In 1994 stockholders approved the 1994 Union Carbide Long-Term Incentive Plan for key employees, which replaced the 1988 Union Carbide Long-Term Incentive Plan. The 1994 plan, effective until the 1997 shareholders' meeting, provides for granting incentive and nonqualified stock options; stock appreciation rights; exercise payment rights; grants of stock, including restricted stock, and performance awards. Holders of options may be granted the right to receive payments of amounts equal to the regular cash dividends paid to holders of the corporation's common stock during the period an option is outstanding. The number of shares granted or subject to options cannot exceed 7.5 million under the plan. Option prices are equal to the closing price of the corporation's common stock on the date of the grant, as listed on the New York Stock Exchange Composite Transactions. Options generally become exercisable 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 1995. No further awards can be made under either the 1988 or 1984 plan programs. Options granted under both plans are still outstanding and have terms similar to nonqualified stock options under the 1994 plan. Changes during 1995 in outstanding shares under option were as follows: Thousands of shares Weighted 1995 Total Average Price Outstanding at January 1 13,807 $15.702 Granted 1,270 40.375 Exercised (1,667) 11.369 Canceled or expired (60) 27.253 Outstanding at December 31 13,350 $18.539 Options outstanding at Dec. 31, 1995, ranged in price from $6.699 to $40.375 per share, of which 10.2 million options were generally exercisable at prices ranging from $6.699 to $21.625 per share. Options were exercised during 1995 at prices ranging from $1.00 to $21.625 per share. 16. 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. The net present value of the fixed and determinable portion of obligations under these purchase commitments at Dec. 31, 1995 (at current exchange rates, where applicable), are presented in the following table. Millions of dollars 1996 $ 72 1997 65 1998 56 1999 49 2000 25 2001 to expiration of contracts 107 Total $374 Environmental - The corporation is subject to loss contingencies resulting from environmental laws and regulations, which include obligations to remove or mitigate the effects on the environment of the disposal or release of certain wastes and substances at various sites. The corporation has established accruals 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 Dec. 31, 1995, the corporation had established environmental remediation accruals in the amount of $327 million ($297 million in 1994), of which $262 million is classified as Other long-term obligations ($235 million in 1994). These accruals have two components, estimated future expenditures for site investigation and cleanup and estimated expenditures for closure and postclosure activities. In addition, the corporation had environmental loss contingencies of $163 million at Dec. 31, 1995. The corporation has sole responsibility for the remediation of approximately half 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, 1995, included $245 million for these sites ($233 million at Dec. 31, 1994), of which $109 million ($97 million at Dec. 31, 1994) was for estimated future expenditures for site investigation and cleanup and $136 million ($136 million at Dec. 31, 1994) was for estimated future expenditures for closure and postclosure activities. In addition, $82 million of the corporation's environmental loss contingencies at Dec. 31, 1995, 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 $47 million ($49 million at Dec. 31, 1994), of which $26 million ($26 million at Dec. 31, 1994) was for estimated future expenditures for site investigation and cleanup and $21 million ($23 million at Dec. 31, 1994) was for estimated future expenditures for closure and postclosure activities. In addition, $15 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, 1995, included $82 million for estimated future expenditures for site investigation and cleanup at these sites ($63 million at Dec. 31, 1994). In addition, $81 million of the corporation's environmental loss contingencies related to these sites. The largest of these sites is also a nonoperating site. Of the above accruals, this site accounted for $16 million ($21 million at Dec. 31, 1994) for estimated future expenditures for site investigation and cleanup. In addition, $6 million of the above environmental loss contingencies related to this site. 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 in 1995, $153 million in 1994 and $149 million in 1993. Other - The corporation sold certain receivables with recourse to various banks for proceeds of $63 million in 1995 ($101 million in 1994). At Dec. 31, 1995, approximately $7 million remained due ($11 million in 1994). The fair value of the recourse provisions at Dec. 31, 1995, approximates the carrying value. The corporation and its consolidated subsidiaries had additional contingent obligations at Dec. 31, 1995, totaling $58 million, of which $34 million related to guarantees of debt. Litigation - The corporation is one of a number of defendants named in approximately 4,600 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. Subsequently, the District Court 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. Recently 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, 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 $244 million, and related insurance recovery receivables of $145 million, resulting in net before-tax charges of $99 million for nonenvironmental litigation. At December 31, 1995, the corporation had nonenvironmental litigation loss contingencies of $38 million. Criminal proceedings continue in India, arising out of the 1984 gas release from the Bhopal plant of Union Carbide India Limited. The corporation has not appeared in those proceedings. In the opinion of counsel for the corporation, under generally recognized legal principles, the criminal proceedings should not have adverse financial consequences for the corporation outside of India. The carrying value of the remaining proceeds from sale of the corporation's stock in Union Carbide India Limited, which remain subject to the attachment order of the Bhopal criminal court, is zero. 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. 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. William H. Joyce John K. Wulff Chairman, President and Vice-President, Chief Financial Chief Executive Officer Officer and Controller Danbury, Conn. Jan. 19, 1996 Independent Auditors' Report To the Stockholders and Board of Directors of Union Carbide Corporation: We have audited the accompanying consolidated balance sheet of Union Carbide Corporation and subsidiaries as of Dec. 31, 1995 and 1994, 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, 1995. 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, 1995 and 1994, and the results of their operations and their cash flows for each of the years in the three-year period ended Dec. 31, 1995, in conformity with generally accepted accounting principles. As discussed in Note 1 to the consolidated financial statements, in 1993 the company changed its method of accounting for postemployment benefits. KPMG Peat Marwick LLP Stamford, Conn. Jan. 19, 1996 Corporate Information 1996 Annual Meeting The 1996 annual meeting of stockholders will be held on Wednesday, April 24, at the John C. Creasey 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 Chemical Mellon. 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, 1995, will be available in April 1996. 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. The booklet is available on written request to the secretary. Responsible Care Progress Report This report covers health, safety and environmental progress at Union Carbide. Information includes performance data for U.S. and international locations, goals and progress toward full implementation of Responsible Care management practices in the U.S. To obtain a copy, write to Union Carbide Corporation, 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, Tomm F. Sprick, assistant manager, financial communications, Public Affairs Department, Section L-4505, 39 Old Ridgebury Road, Danbury, CT 06817-0001 (Telephone: 203-794-6992). Directors 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 and Environmental Affairs (HS&EA) Committees. C. Fred Fetterolf is a retired director, president and chief operating officer of Aluminum Company of America. A UCC director since 1987, he chairs the HS&EA Committee and serves on the Audit, Compensation & Management Development and Nominating Committees. Joseph E. Geoghan is vice-president, general counsel and secretary of Union Carbide, and has been a director since 1990. He serves on the Executive and Public Policy Committees. Rainer E. Gut is chairman of Credit Suisse and CS Holding, Zurich, Switzerland. A UCC board member since 1994, he is a member of the Compensation & Management Development, Finance & Pension and Nominating Committees. James M. Hester is president of The Harry Frank Guggenheim Foundation. A director since 1963, he is chairman of the Public Policy Committee and serves on the Audit, Executive and Nominating Committees. Vernon E. Jordan, Jr. is a partner with Akin, Gump, Strauss, Hauer & Feld. He is chairman of the Nominating Committee and a member of the Compensation & Management Development, Finance & Pension and Public Policy Committees. He has been a board member since 1987. William H. Joyce is 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 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, HS&EA and Nominating Committees. Rozanne L. Ridgway is co-chair of the Atlantic Council of the United States. A director since 1990, she is a member of the Audit, HS&EA, Nominating and Public Policy Committees. William S. Sneath is a director of various corporations and retired chairman and chief executive officer of Union Carbide Corporation. He chairs the Finance & Pension Committee and serves on the Executive, HS&EA and Nominating Committees. He has been a director since 1969. In accordance with the board's retirement policy, Dr. Hester, who has served on the board with distinction for more than 32 years, will not stand for reelection. 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 and Intermediates Joseph E. Geoghan Vice-President, General Counsel and Secretary Thomas D. Jones Vice-President and Treasurer Malcolm A. Kessinger Vice-President, Human Resources Lee P. McMaster Vice-President, General Manager, Ethylene Oxide/Glycol Joseph C. Soviero Vice-President, Corporate Ventures and Purchasing Roger B. Staub Vice-President, General Manager, Unipol Systems Ronald Van Mynen Vice-President, Health, Safety and Environment Philip T. Wright Vice-President John K. Wulff Vice-President, Chief Financial Officer and Controller Other Senior Corporate Staff David L. Brucker Vice-President, Engineering and Operations John L. Gigerich Vice-President, Information Systems W. William Lindner Vice-President, Purchasing Philip F. McGovern Vice-President, Tax John P. Yimoyines Vice-President, Venture Management A Chemical Glossary Monomer - a reactive chemical that can be converted into a polymer. For example, ethylene is a monomer that is made into polyethylene. Polymer - a chain or network made up of many monomer units, such as ethylene. All plastics are polymers. Ethylene - a reactive chemical made from natural gas or crude oil components. In Carbide's olefins units, ethylene is the starting material from which many of the company's chemical products are made. Propylene - a basic chemical made from crude oil and natural gas components. It is used as a starting material to produce many of Carbide's chemical products. Olefins - the generic name for ethylene, propylene and other unsaturated hydrocarbons made from components of crude oil or natural gas. Olefins are the starting materials from which most of Union Carbide's chemical products are made. Ethylene Oxide - a chemical made from ethylene and oxygen. It combines with other chemicals to produce a wide range of products, such as ethylene glycol, and surfactants for detergents and cleaning products. Ethylene Glycol - a chemical made from ethylene oxide and water. It is used to make polyester fiber, resin and film, and automotive antifreeze and engine coolants. Polyethylene - the world's most widely used plastic, made by reacting ethylene and other olefins to form polymers. Union Carbide uses its low-pressure Unipol Process technology to make most of its polyethylene. Polypropylene - one of the world's fastest-growing, large-volume plastics, made by reacting propylene with itself or with other olefins to form polymers. Union Carbide uses its low-pressure Unipol Process and other processes to make polypropylene. Solvent - a liquid chemical used to dissolve other chemicals. For example, butyl alcohol and related solvents are manufactured, starting from propylene, using Union Carbide's low-pressure Oxo process. Definition of Terms Unless the context otherwise requires, the terms below refer to the following: Union Carbide Corporation, Union Carbide Corporation, Union Carbide, Carbide, the parent company, and its the corporation, we, our, consolidated subsidiaries the company, UCC Domestic United States and Puerto Rico Domestic operations Operations of Union Carbide in this area, including exports International operations Operations of Union Carbide in areas of the world other than the United States and Puerto Rico The use of these terms is for convenience of reference only. The consolidated subsidiaries are separate legal entities that are managed by, and accountable to, their respective boards of directors. CARBITOL, CARBOWAX, CELLOSIZE, CELLOSOLVE, CURBSIDE BLEND, CYRACURE, FLEXOL, FLEXOMER, NEULON, NORKOOL, POLYOX, POLYPHOBE, PRISMA, SELEXOL, TERGITOL, TONE, TRITON, TUFLIN, UCAR, UCARSOL, UCARTHERM, UCON, UCURE, ULTRA, UNICARB, UNIPOL, and UNION CARBIDE are trademarks of Union Carbide. RESPONSIBLE CARE is a registered service mark of the Canadian Chemical Producers Association and the Chemical Manufacturers Association. Printed on Recycled, Recyclable Paper. EX-21 7 SIGNIFICANT SUBSIDIARIES EXHIBIT 21 Percentage of Voting State or Securities Sovereign Owned By Power of Immediate Name of Company Incorporation Parent Union Carbide Corporation (the "Corporation") New York - % Subsidiaries included in the Consolidated Financial Statements except where noted otherwise: Amerchol Corporation Delaware 100.00 Benefit Capital Management Corporation Delaware 100.00 Blue Creek Coal Company, Inc. Delaware 100.00 Calidria Corporation Delaware 100.00 Catalysts, Adsorbents & Process Systems, Inc. Maryland 100.00 Dexter Realty Corporation Delaware 100.00 KTI Chemicals, Inc. Delaware 100.00 Prentiss Glycol Company Delaware 100.00 Seadrift Pipeline Corporation Delaware 100.00 UCAR Emulsion Systems FZE Dubai 100.00 UCAR Emulsion Systems International, Inc. Delaware 100.00 UCAR Louisiana Pipeline Company Delaware 100.00 UCAR Pipeline Inc. Delaware 100.00 UCAR, Polimeros y Quimicos C.A. Ecuador 100.00 UCAR Resinas Caribe Inc. Delaware 100.00 UCAR Vanor (Proprietary) Limited South Africa 100.00 Ucex (U.K.) Limited England 100.00 Umetco Minerals Corporation Delaware 100.00 Union Carbide Argentina S.A.I.C.S. Argentina 100.00 Union Carbide Asia Limited Hong Kong 100.00 Union Carbide Asia Pacific, Inc. Delaware 100.00 Union Carbide Benelux N.V. Belgium (1) Union Carbide do Brasil S/A Brazil 100.00 Union Carbide Caribe Inc. Delaware 100.00 Union Carbide Canada Inc. Canada 100.00 Union Carbide Chemicals and Plastics Technology Corporation Delaware 100.00 Union Carbide Chemicals (Australia) Pty. Ltd. Australia 100.00 Union Carbide Chemicals Korea Limited Korea 100.00 Union Carbide Chemicals (Malaysia) Sdn. Bhd. Malaysia 100.00 Union Carbide Comercial, C.A. Venezuela 100.00 Union Carbide Customer Services Pte. Ltd. Singapore 100.00 Union Carbide Engineering and Hydrocarbons Service Company, Inc. Delaware 100.00 Union Carbide Ethylene Oxide/Glycol Company Delaware 100.00 Union Carbide Eurofinance B.V. Netherlands 100.00 Union Carbide (Europe) S.A. Switzerland 100.00 Union Carbide Foreign Sales Corporation US Virgin Is. 100.00 (1) 99.83% of the voting securities of Union Carbide Benelux N.V. is owned by Union Carbide Corporation; and 00.17% by Union Carbide (Europe) S.A. Percentage of Voting State or Securities Sovereign Owned By Power of Immediate Name of Company Incorporation Parent Union Carbide Formosa Co., Ltd. Taiwan 100.00 Union Carbide (Guangdong Zhongshan) Company Limited China 100.00 P.T. Union Carbide Indonesia Indonesia 100.00 Union Carbide Imaging Systems, Inc. Delaware 100.00 Union Carbide Inter-America Inc. Delaware 100.00 Union Carbide Inter-America Inc. New Jersey 100.00 Union Carbide Investimentos e Participacoes S/C Ltda. Brazil 100.00 Union Carbide Japan K.K. Japan 100.00 Union Carbide Limited England 100.00 Union Carbide Pan America, Inc. Delaware 100.00 Union Carbide Philippines (Far East) Inc. Philippines 100.00 Union Carbide Quimicos y Plasticos, S.A. de C.V. Mexico 100.00 Union Carbide Services Eastern Limited Hong Kong 100.00 Union Carbide South Africa (Proprietary) Limited South Africa 100.00 Union Carbide Subsidiary L, Inc. Delaware 100.00 Union Carbide Thailand Limited Thailand 100.00 Union Polymers Sdn. Bhd. Malaysia 60.00 Westbridge Insurance Ltd. Bermuda 100.00 Companies reported in the Consolidated Financial Statements on an Equity in Net Assets Basis included: Asian Acetyls Rep. of Korea 33.00 Alberta & Orient Glycol Company Limited Canada 50.00 Aspell Polymeres SNC France 50.00 Commercial Alcohols Limited Canada 50.00 Equate Petrochemical Company K.S.C. Kuwait 45.00 Nippon Unicar Company Limited Japan 50.00 Petromont and Company, Limited Partnership Canada 49.95 Petromont Inc. Canada 50.00 Polimeri Europa S.r.l. Italy 50.00 Seadrift Polypropylene Company Texas 50.00 Shawinigan Pipeline Reg'd. Canada 50.00 Union Carbide Lanka Limited Sri Lanka 49.00 UOP New York 50.00 Union Showa K.K. Japan 50.00 World Ethanol Company Illinois 50.00 * * * * * * * * * * * * The names of the Corporation's other consolidated subsidiaries and companies carried on an equity in net assets basis are not listed. These subsidiaries and companies, if considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary. In addition, the Corporation has investments in other subsidiaries and 20-to-50%-owned companies for which financial statements are not submitted because all such subsidiaries and companies, considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary. EX-23 8 ACCOUNTANTS' CONSENT EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS The Board of Directors Union Carbide Corporation We consent to the incorporation by reference in each of the Registration Statements of Union Carbide Corporation on Form S-3 (Nos. 33-26185 and 33-60705), and on Form S-8 (Nos. 2-90419, 33-22125, 33-38714, 33-53573 and 33-58931) of our reports dated January 19, 1996, relating to the consolidated balance sheets of Union Carbide Corporation and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of income, stockholders' equity and cash flows and related schedule for each of the years in the three-year period ended December 31, 1995, appearing and incorporated by reference, in the annual report on Form 10-K of Union Carbide Corporation for the year ended December 31, 1995. Our reports refer to a change in accounting principles as described in Note 1 to the consolidated financial statements. KPMG PEAT MARWICK LLP Stamford, Connecticut March 20, 1996 EX-23 9 ACCOUNTANTS' CONSENT EXHIBIT 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectuses constituting part of the Registration Statements on Form S-3 (Nos. 33-26185 and 33-60705) and the Registration Statements on Form S-8 (File Nos. 2-90419, 33-22125, 33-38714, 33-53573 and 33-58931) of Union Carbide Corporation of our report dated January 24, 1994 relating to the consolidated financial statements of UOP and its subsidiaries appearing on page 17 of Union Carbide Corporation's Annual Report on Form 10-K for the year ended December 31, 1993, which is incorporated by reference in this Annual Report on Form 10-K. PRICE WATERHOUSE LLP Chicago, Illinois March 19, 1996 EX-27 10 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNION CARBIDE CORPORATION'S FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000100790 UNION CARBIDE CORPORATION 1,000,000 12-MOS DEC-31-1995 DEC-31-1995 449 0 1007 11 544 2196 6357 3549 6256 1338 1285 146 0 155 1890 6256 5888 5888 4100 4100 450 0 89 1259 380 925 0 0 0 915 6.44 5.83
-----END PRIVACY-ENHANCED MESSAGE-----