-----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, IdJb33VbTEmKRSkHb0igMb/HToIHCNF09ir+y8doz+Leuh+hZK5mlMmAERuo+iZn L1KHOVII9H8b4lWT+yzswQ== 0000100790-97-000016.txt : 19970811 0000100790-97-000016.hdr.sgml : 19970811 ACCESSION NUMBER: 0000100790-97-000016 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970808 SROS: CSX SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNION CARBIDE CORP /NEW/ CENTRAL INDEX KEY: 0000100790 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL ORGANIC CHEMICALS [2860] IRS NUMBER: 131421730 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-01463 FILM NUMBER: 97654136 BUSINESS ADDRESS: STREET 1: 39 OLD RIDGEBURY RD CITY: DANBURY STATE: CT ZIP: 06817-0001 BUSINESS PHONE: 2037942000 MAIL ADDRESS: STREET 1: 39 OLD RIDGEBURY RD CITY: DANBURY STATE: CT ZIP: 06817-0001 FORMER COMPANY: FORMER CONFORMED NAME: UNION CARBIDE CORP DATE OF NAME CHANGE: 19890806 FORMER COMPANY: FORMER CONFORMED NAME: UNION CARBIDE & CARBON CORP DATE OF NAME CHANGE: 19710317 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D C 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1997 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 1-1463 UNION CARBIDE CORPORATION (Exact name of registrant as specified in its charter) New York 13-1421730 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 39 Old Ridgebury Road, Danbury, CT 06817-0001 (Address of principal executive offices) (Zip Code) 203-794-2000 Registrant's telephone number, including area code (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No _______ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at July 31, 1997 Common Stock, $1 par value 124,218,449 shares Total number of sequentially numbered pages in this filing, including exhibits thereto: 20 UNION CARBIDE CORPORATION AND SUBSIDIARIES INDEX PART I. FINANCIAL INFORMATION PAGE Financial Statements Condensed Consolidated Statement of Income - Quarter ended June 30, 1997 and 1996......................... 3 Condensed Consolidated Statement of Income - Six months ended June 30, 1997 and 1996...................... 4 Condensed Consolidated Balance Sheet - June 30, 1997 and December 31, 1996.......................... 5 Condensed Consolidated Statement of Cash Flows - Six months ended June 30, 1997 and 1996...................... 6 Notes to Condensed Consolidated Financial Statements............. 7-10 Discussion and Analysis of Results of Operations and Financial Condition........................................ 11-15 PART II. OTHER INFORMATION Item 1. Legal Proceedings....................................... 16 Item 2. Changes in Securities................................... 16 Item 6. Exhibits and Reports on Form 8-K........................ 16 Signature........................................................ 17 Exhibit Index.................................................... 18 PART I. FINANCIAL INFORMATION UNION CARBIDE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF INCOME Millions of dollars (Except per share figures) Quarter ended June 30, 1997 1996 NET SALES $ 1,666 $ 1,559 Cost of sales, exclusive of depreciation and amortization 1,220 1,150 Research and development 41 40 Selling, administration and other expenses(a) 75 78 Depreciation and amortization 87 79 Partnership income 37 37 Other income (expense) - net 11 (4) INCOME BEFORE INTEREST EXPENSE AND PROVISION FOR INCOME TAXES 291 245 Interest expense 19 14 INCOME BEFORE PROVISION FOR INCOME TAXES 272 231 Provision for income taxes 79 65 INCOME OF CONSOLIDATED COMPANIES AND PARTNERSHIPS 193 166 Minority interest 5 - Income from corporate investments carried at equity 3 7 NET INCOME 191 173 Preferred stock dividend, net of income taxes 3 3 NET INCOME - COMMON STOCKHOLDERS $ 188 $ 170 Earnings per common share Primary $ 1.41 $ 1.23 Fully diluted $ 1.28 $ 1.12 Cash dividends declared per common share $ 0.1875 $ 0.1875 (a) Selling, administration and other expenses include: Selling $ 31 $ 32 Administration 34 28 Other expenses 10 18 $ 75 $ 78 The Notes to Condensed Consolidated Financial Statements on Pages 7 through 10 should be read in conjunction with this statement. UNION CARBIDE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF INCOME Millions of dollars (Except per share figures) Six months ended June 30, 1997 1996 NET SALES $ 3,304 $ 3,060 Cost of sales, exclusive of depreciation and amortization 2,451 2,249 Research and development 81 76 Selling, administration and other expenses(a) 155 159 Depreciation and amortization 169 154 Partnership income 72 63 Other income - net 18 19 INCOME BEFORE INTEREST EXPENSE AND PROVISION FOR INCOME TAXES 538 504 Interest expense 38 37 INCOME BEFORE PROVISION FOR INCOME TAXES 500 467 Provision for income taxes 145 131 INCOME OF CONSOLIDATED COMPANIES AND PARTNERSHIPS 355 336 Minority interest 8 (1) Income (loss) from corporate investments carried at equity 1 (7) NET INCOME 348 330 Preferred stock dividend, net of income taxes 5 5 NET INCOME - COMMON STOCKHOLDERS $ 343 $ 325 Earnings per common share Primary $ 2.54 $ 2.34 Fully diluted $ 2.31 $ 2.13 Cash dividends declared per common share $ 0.375 $ 0.375 (a) Selling, administration and other expenses include: Selling $ 62 $ 64 Administration 63 59 Other expenses 30 36 $ 155 $ 159 The Notes to Condensed Consolidated Financial Statements on Pages 7 through 10 should be read in conjunction with this statement. UNION CARBIDE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET Millions of dollars June 30, Dec. 31, 1997 1996 ASSETS Cash and cash equivalents $ 115 $ 94 Notes and accounts receivable 1,079 1,047 Inventories 544 541 Other current assets 185 191 Total current assets 1,923 1,873 Property, plant and equipment 7,424 7,159 Less: Accumulated depreciation 3,855 3,750 Net fixed assets 3,569 3,409 Companies carried at equity 701 695 Other investments and advances 64 77 Total investments and advances 765 772 Other assets 513 492 Total assets $6,770 $6,546 LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $ 273 $ 268 Short-term debt and current portion of long-term debt 88 112 Accrued income and other taxes 96 133 Other accrued liabilities 674 765 Total current liabilities 1,131 1,278 Long-term debt 1,467 1,487 Postretirement benefit obligation 470 473 Other long-term obligations 812 811 Deferred credits 345 301 Minority stockholders' equity in consolidated subsidiaries 279 29 Convertible preferred stock - ESOP 140 144 Unearned employee compensation - ESOP (82) (91) Stockholders' equity: Common stock - authorized - 500,000,000 shares - issued - 154,609,669 shares 155 155 Additional paid-in capital 317 370 Translation and other equity adjustments (49) (33) Retained earnings 2,925 2,629 Less: Treasury stock, at cost-30,580,343 shares (28,169,324 shares in 1996) 1,140 1,007 Total stockholders' equity 2,208 2,114 Total liabilities and stockholders' equity $6,770 $6,546 The Notes to Condensed Consolidated Financial Statements on Pages 7 through 10 should be read in conjunction with this statement. UNION CARBIDE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS Millions of dollars Six months ended June 30, 1997 1996 Increase (decrease) in cash and cash equivalents OPERATIONS Net income $ 348 $ 330 Noncash charges (credits) to net income Depreciation and amortization 169 154 Deferred income taxes 37 24 Other (10) 7 Net gains on investing transactions - (1) Increase in working capital(a) (151) (106) Long-term assets and liabilities 10 16 Cash Flow From Operations 403 424 INVESTING Capital expenditures (328) (363) Investments, advances and acquisitions (excluding cash acquired) (43) (262) Sale of fixed and other assets 1 12 Cash Flow Used for Investing (370) (613) FINANCING Change in short-term debt (3 months or less) (41) 68 Proceeds from short-term debt 20 21 Repayment of short-term debt - (26) Proceeds from long-term debt 14 - Repayment of long-term debt (20) (5) Issuance of common stock 25 87 Purchase of common stock (176) (272) Proceeds from subsidiary preferred stock 246 - Payment of dividends (66) (56) Other (13) 1 Cash Flow Used for Financing (11) (182) Effect of exchange rate changes on cash and cash equivalents (1) - Change in cash and cash equivalents 21 (371) Cash and cash equivalents beginning-of-period 94 449 Cash and cash equivalents end-of-period $ 115 $ 78 Cash paid for interest and income taxes Interest (net of amount capitalized) $ 38 $ 32 Income taxes $ 60 $ 110 _____________ (a) Net change in certain components of working capital (excluding non-cash expenditures): (Increase) decrease in current assets Notes and accounts receivable $ (31) $ (58) Inventories (3) 68 Other current assets 8 4 Decrease in payables and accruals (125) (120) Increase in working capital $(151) $(106) The Notes to Condensed Consolidated Financial Statements on Pages 7 through 10 should be read in conjunction with this statement. UNION CARBIDE CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. Consolidated Financial Statements In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments necessary for a fair statement of the results for the interim periods. These adjustments consist of only normal recurring adjustments. The accompanying statements should be read in conjunction with the Notes to Financial Statements of Union Carbide Corporation and Subsidiaries ("the corporation" or "UCC") in the 1996 annual report to stockholders. 2. Common Stock On July 23, 1997, the board of directors of the corporation increased the number of shares that may be repurchased under the existing common stock repurchase program by 10 million shares to an aggregate of 60 million shares since inception of the program. Through June 30, 1997, since inception of its common share repurchase program, the corporation repurchased 46.0 million shares (3.7 million during 1997) at an average effective price of $33.69 per share. The corporation intends to acquire additional shares from time to time at prevailing market prices, at a rate consistent with the combination of corporate cash flow and market conditions. In conjunction with the corporation's common stock buyback program, put options were sold in a series of private placements entitling the holders to sell 11.5 million shares of common stock to UCC, at specified prices upon exercise of the options. Through June 30, 1997, since inception of this program, options representing 8.7 million common shares have expired unexercised, while options representing 2.1 million shares were exercised for $79 million, or an average price of $37.05 per share. Options representing 0.7 million shares remain outstanding at June 30, 1997. Premiums received since the inception of the program, recorded as additional paid-in capital, have reduced the average price of repurchased shares from $33.95 per share to $33.69 per share. 3. Inventories Millions of dollars June 30, Dec. 31, 1997 1996 Raw materials and supplies $ 131 $ 114 Work in process 57 54 Finished goods 356 373 $ 544 $ 541 4. Commitments and Contingencies 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 these obligations at June 30, 1997 totaled $325 million. The corporation is subject to loss contingencies resulting from environmental laws and regulations, which include obligations to remove or remediate the effects on the environment of the disposal or release of certain wastes and substances at various sites. The corporation has established accruals in current dollars for those hazardous waste sites where it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. The reliability and precision of the loss estimates are affected by numerous factors, such as different stages of site evaluation, the allocation of responsibility among potentially responsible parties and the assertion of additional claims. The corporation adjusts its accruals as new remediation requirements are defined, as information becomes available permitting reasonable estimates to be made, and to reflect new and changing facts. At June 30, 1997, the corporation had established environmental remediation accruals in the amount of $288 million. These accruals have two components, estimated future expenditures for site investigation and cleanup and estimated future expenditures for closure and postclosure activities. In addition, the corporation had environmental loss contingencies of $141 million. The corporation has sole responsibility for the remediation of approximately 40 percent of its environmental sites. These sites are well advanced in the investigation and cleanup stage. The corporation's environmental accruals at June 30, 1997 included $197 million for these sites, of which $72 million was for estimated future expenditures for site investigation and cleanup and $125 million was for estimated future expenditures for closure and postclosure activities. In addition, $73 million of the corporation's environmental loss contingencies related to these sites. The site with the largest total potential cost to the corporation is a nonoperating site. Of the above accruals, this site accounted for $31 million, of which $17 million was for estimated future expenditures for site investigation and cleanup and $14 million was for estimated future expenditures for closure and postclosure activities. In addition, $20 million of the above environmental loss contingencies related to this site. The corporation does not have sole responsibility at the remainder of its environmental sites. All of these sites are in the investigation and cleanup stage. The corporation's environmental accruals at June 30, 1997 included $91 million for estimated future expenditures for site investigation and cleanup at these sites. In addition, $68 million of the corporation's environmental loss contingencies related to these sites. The largest two of these sites are also nonoperating sites. Of the above accruals, these sites accounted for $33 million for estimated future expenditures for site investigation and cleanup. In addition, $16 million of the above environmental loss contingencies related to these sites. In 1996, 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 $110 million. Expenses in 1995 and 1994 were $138 million and $153 million, respectively. While estimates of the costs of environmental protection for 1997 are necessarily imprecise, the corporation estimates that the level of these expenses will be somewhat greater than that experienced in 1996. The corporation has severally guaranteed 45 percent (approximately $608 million at June 30, 1997) of EQUATE Petrochemical Company's ("EQUATE") debt and working capital financing needs until certain completion tests are achieved; thereafter, a $54 million several guarantee will provide ongoing support. The corporation also severally guaranteed certain sales volume targets until EQUATE's sales capabilities are proved. In addition, the corporation has pledged its shares in EQUATE as security for EQUATE's debt. The corporation has political risk insurance coverage for its equity investment and, until the completion tests are concluded, substantially all of its guarantee of EQUATE's debt. EQUATE is considering the possible refinancing of its debt. The corporation had additional contingent obligations at June 30, 1997 of $69 million, of which $33 million related to guarantees of debt. The corporation is one of a number of defendants named in approximately 4,500 lawsuits, some of which have more than one plaintiff, involving silicone breast implants. The corporation was not a manufacturer of breast implants but did supply generic bulk silicone materials to certain manufacturers. Also, the corporation in 1990 acquired and in 1992 divested the stock of a small specialty silicones company that, among other things, supplied silicone gel intermediates and silicone dispersions for breast implants. In 1993, most of the suits that were brought in Federal courts were consolidated for pre-trial purposes in the United States District Court, Northern District of Alabama. In 1995, after the District Court rejected an initial settlement proposal, certain defendants, including the corporation, proposed, and the court approved, a revised settlement program. While the corporation cannot predict the number of claimants who will participate in the settlement, based on sample data prepared under supervision of the court, the corporation estimates that its maximum expenditures under the revised agreement should not exceed $100 million prior to insurance recovery. Although insurance coverage is subject to issues as to scope and application of policies, retention limits, exclusions and policy limits, and the insurers have reserved their right to deny coverage, the corporation believes that after probable insurance recoveries neither the settlement nor litigation outside the settlement will have a material adverse effect on the consolidated financial position of the corporation. In addition to the above, the corporation and its consolidated subsidiaries are involved in a number of legal proceedings and claims with both private and governmental parties. These cover a wide range of matters including, but not limited to, product liability; governmental regulatory proceedings; health, safety and environmental matters; employment; patents; contracts and taxes. In some of these legal proceedings and claims, the cost of remedies that may be sought or damages claimed is substantial. The corporation has recorded nonenvironmental litigation accruals of $182 million, and related insurance recovery receivables of $135 million. At June 30, 1997, the corporation had nonenvironmental litigation loss contingencies of $44 million. While it is impossible at this time to determine with certainty the ultimate outcome of any legal proceedings and claims referred to in this note, management believes that adequate provisions have been made for probable losses with respect thereto and that such ultimate outcome, after provisions therefor, will not have a material adverse effect on the consolidated financial position of the corporation, but could have a material effect on consolidated results of operations in a given quarter or year. Should any losses be sustained in connection with any of such legal proceedings and claims, in excess of provisions therefor, they will be charged to income in the future. 5. Minority Interest On January 30, 1997, a newly formed real estate investment trust subsidiary issued $250 million of preferred stock bearing a current dividend yield of 14 percent for 10 years and 1 percent thereafter. On July 25, 1997, the corporation mortgaged domestic real estate with a fair market value of approximately $500 million in conjunction with this transaction. The preferred stock may be redeemed if, as a result of a change in tax laws, rules or regulations, dividends on the preferred stock or interest paid on the mortgage note is not fully deductible for Federal income tax purposes. As of June 30, 1997, the effect of any such redemption on the corporation's results of operations would be immaterial. DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Overview The corporation reported second quarter 1997 net income available to common stockholders of $188 million, or $1.28 per common share, fully diluted ($1.41 per common share, primary). For the first six months of 1997, net income available to common stockholders was $343 million, or $2.31 per common share, fully diluted ($2.54 per common share, primary). For the corresponding quarter in 1996, the corporation reported earnings of $170 million, or $1.12 per common share, fully diluted ($1.23 per common share, primary). For the first six months of 1996, net income available to common stockholders was $325 million, or $2.13 per common share, fully diluted ($2.34 per common share, primary). The corporation's earnings for the quarter and six month periods ended June 30, 1997 increased compared to the same periods in 1996. For the second quarter, net sales increased compared to the prior year period as a result of improved sales volumes in both of the corporation's segments. In addition, the Basic Chemicals & Polymers segment benefited from increased polyethylene prices. In contrast, average selling prices for the Specialties & Intermediates segment were lower than in the second quarter of 1996. Raw material costs continued to decline from very high levels at the beginning of 1997 to levels which, in the second quarter of 1997, were comparable to those of the prior year period. For the first half of 1997, the positive impact of improved volumes in both segments and improved polyethylene pricing in the Basic Chemicals & Polymers segment was partially offset by the effect of higher average raw material costs. Looking ahead to the third quarter, the corporation anticipates continued strong demand and improved pricing for ethylene glycol coupled with stable raw material costs in the Basic Chemicals & Polymers segment. Average selling prices should improve in the Specialties & Intermediates segment. However, the impact of these price increases in the Specialties & Intermediates segment is likely to be mitigated by the effect of higher transfer prices for ethylene oxide (manufactured by the Basic Chemicals & Polymers segment for the Specialties & Intermediates segment) and potential tightness in propylene, key raw materials for the Specialties & Intermediates segment. Results of Operations Net sales increased 6.9 percent in the second quarter and 8.0 percent in the first half of 1997, as compared to the same periods in 1996. These increases were driven by a 4.6 percent and 8.8 percent increase in customer volume for the second quarter and six month periods, respectively, as compared to similar periods in 1996. Average selling prices increased slightly for the second quarter and decreased slightly for the first half in comparison to the same periods in 1996. Variable margin (net sales less variable manufacturing and distribution costs) was 44.5 percent and 43.4 percent for the current three and six month periods, respectively, compared to 45.0 percent and 45.2 percent, respectively, for the same periods in 1996. Although variable margin as a percent of sales declined in each period, variable margin dollars increased $40 million, or 5.7 percent, and $51 million, or 3.7 percent, for the second quarter and first six months of 1997, respectively, as compared to the same periods in 1996. Increased volumes in both segments and increased polyethylene selling prices in the Basic Chemical & Polymers segment contributed to the increases in variable margin dollars for these periods. Increased raw material costs coupled with decreases in the average selling prices for products in the Specialties & Intermediates segment, however, limited variable margin improvement for the first half of 1997 compared to the prior year. Gross margin (variable margin less fixed manufacturing and distribution costs), as a percent of sales, remained relatively stable for the second quarter and six month periods ended June 30, 1997 as compared to the same periods in 1996. Industry Segments The company's operations are classified into two main business segments, Specialties & Intermediates and Basic Chemicals & Polymers. The Specialties & Intermediates segment includes the corporation's specialty chemicals and polymers product lines, licensing and solvents and chemical intermediates. The Basic Chemicals & Polymers segment includes the corporation's ethylene and propylene manufacturing operations as well as the production of first level ethylene and propylene derivatives - polyethylene, polypropylene, ethylene oxide and ethylene glycol. The corporation's noncore operations and financial transactions are included in the Other segment. Information about the corporation's operations in its business segments for the second quarter and six month periods of 1997 and 1996 follows. Sales of the Basic Chemicals & Polymers segment include intersegment sales, principally ethylene oxide, which are made at the estimated market value of the products transferred. Operating profit represents income before interest expense and provision for income taxes. Quarter ended Six months ended June 30, June 30, Millions of dollars 1997 1996 1997 1996 Sales Specialties & Intermediates $1,139 $1,109 $2,261 $2,186 Basic Chemicals & Polymers 604 527 1,201 1,046 Intersegment Eliminations (77) (77) (158) (172) Total $1,666 $1,559 $3,304 $3,060 Operating Profit Specialties & Intermediates $ 191 $ 190 $ 375 $ 383 Basic Chemicals & Polymers 101 47 163 105 Other (1) 8 - 16 Total $ 291 $ 245 $ 538 $ 504 Depreciation and Amortization Specialties & Intermediates $ 55 $ 48 $ 106 $ 94 Basic Chemicals & Polymers 32 31 63 60 Total $ 87 $ 79 $ 169 $ 154 Capital Expenditures Specialties & Intermediates $ 103 $ 132 $ 191 $ 266 Basic Chemicals & Polymers 87 45 137 97 Total $ 190 $ 177 $ 328 $ 363 Net sales of the Specialties & Intermediates segment increased $30 million or 2.7 percent in the current quarter over the same quarter in 1996, and $75 million or 3.4 percent in the current six month period as compared to the same six months of 1996. Operating profit for the second quarter of 1997 was $191 million, compared to $190 million for the same quarter of 1996; operating profit was $375 million for the first half of 1997, versus $383 million for the comparable period in 1996. For the three and six month periods ended June 30, 1997, this segment benefited from a 5.2 percent and 9.2 percent increase in volume, respectively, compared to similar periods in 1996, partially offset by a decline in average selling prices of 2.5 percent and 5.3 percent, respectively. Net sales of the Basic Chemicals & Polymers segment increased $77 million, or 14.6 percent in the current quarter over the same quarter of 1996 and $155 million or 14.8 percent in the first half of 1997 over the first half of 1996. Operating profit showed considerable improvement of $54 million and $58 million, respectively, in the current quarter and six month periods ended June 30, 1997 compared to the same periods in 1996. These increases were the result of a 12.4 percent and 9.9 percent increase in average selling prices in the quarter and six months of 1997, respectively, versus the comparable periods of 1996. In addition to the growth in the average selling prices, customer volume levels increased 3.9 percent and 8.3 percent for the same periods. Selling, administration and other expenses declined $3 million and $4 million in the second quarter and the first six months of 1997, respectively, versus comparable periods of 1996. Partnership income in the second quarter of 1997 was consistent with the second quarter of 1996. For the first half of 1997 partnership income increased $9 million, as compared to the same period in 1996 due to increased earnings of Petromont and UOP. Other income (expense) - net increased $15 million in the second quarter of 1997, and decreased $1 million in the first half of 1997, as compared to the same periods in 1996, largely due to decreased interest income offset in the second quarter by lack of a charge comparable to that taken in 1996 for the discontinuance of the high density polyethylene recycle resin operation. Interest expense increased $5 million to $19 million for the second quarter of 1997 compared to the second quarter a year ago and remained stable for the first half of 1997 compared to the first half of 1996. The increase from the second quarter of 1996 to the second quarter of 1997 was the result of a decrease in capitalized interest associated with the corporation's capital program and an increase in the corporation's long-term debt. Income (loss) from corporate investments carried at equity decreased $4 million from income of $7 million in the second quarter of 1996 to income of $3 million in the same period of 1997. Lower earnings quarter to quarter are the result of an increase in preliminary operating expenses associated with EQUATE Petrochemical Company ("EQUATE") which are expected to continue until plant start-up in the second half of 1997. For the first half of 1997, income (loss) from corporate investments carried at equity increased by $8 million to $1 million due to improved Polimeri Europa results partially offset by the preliminary operating expenses being incurred by EQUATE. Estimates of future expenses related to environmental protection for compliance with Federal, state and local laws regulating solid and hazardous wastes and discharge of materials to air and water, as well as for waste site remedial activities have not changed materially since December 31, 1996. The reliability and precision of the loss estimates are affected by numerous factors, such as different stages of site evaluation, the allocation of responsibility among potentially responsible parties and the assertion of additional claims. The corporation's environmental exposures are discussed in more detail in the "Commitments and Contingencies" footnote to the financial statements on pages 7 through 10 of this report on Form 10-Q. The corporation continues to be named as one of a number of defendants in lawsuits involving silicone gel breast implants. The corporation supplied bulk silicone materials to certain companies that at various times were involved in the manufacture of breast implants. These cases are discussed in more detail in the "Commitments and Contingencies" footnote to the financial statements on pages 7 through 10 of this report on Form 10-Q. Accounting Changes Statement of Financial Accounting Standards No. 128 ("Statement 128"), "Earnings Per Share", will require presentation of "basic" and "diluted" earnings per share for periods ending after December 15, 1997. Had Statement 128 been in effect, "basic" and "diluted" earnings per common share would have been $1.46 and $1.28, respectively, in the second quarter of 1997 ($1.27 and $1.12 per common share, respectively, in the second quarter of 1996) and $2.63 and $2.31, respectively, for the six months ended June 30, 1997 ($2.42 and $2.13 per common share, respectively, for the six months ended June 30, 1996). Financial Condition - June 30, 1997 Cash flow from operations for the first six months of 1997 was $403 million, down from $424 million in the first six months of 1996. Increased working capital requirements more than offset the effect of higher net income and non-cash charges (credits) to net income. Cash flow used for investing totaled $370 million, down from $613 million in the comparable period of 1996. The majority of this decline is due to decreases of $219 million in investments, advances and acquisitions. Significant investments and acquisitions in the first half of 1996 included the purchases of the polypropylene assets and business of Shell Oil Company and 95 percent of the outstanding shares of Companhia Alcoolquimica Nacional, a Brazilian producer of vinyl acetate monomer. Major capital projects in progress in the first half of 1997 included a new CARBOWAX polyethylene glycol and TERGITOL surfactants facility, an ethanolamine unit and an olefins expansion, all at Taft, La., as well as an upgrade of information technology infrastructure. Capital expenditures are expected to approximate 1996 levels by the end of 1997. Major capital projects in 1996 included an ethylene propylene rubber facility at Seadrift, Tex., as well as new cogeneration facilities at Texas City, Tex. and Taft, La., and an upgrade of information technology infrastructure. The upgrade of information technology systems, expected to be completed by 1999, will also address technological issues related to the year 2000. The corporation is reviewing all internal processes and hardware and software issues, and is also discussing with its vendors and customers the possibility of any interface difficulties which may affect the corporation. To date, no significant concerns have been identified. Cash flow used for financing in the first half of 1997 was $11 million in comparison to $182 million in the first half of 1996. The first half of 1997 included common stock repurchases of 3.7 million shares for cash of $176 million under the existing common stock repurchase program. On July 23, 1997, the corporation's board of directors authorized an increase in the number of shares that may be repurchased under the existing common stock repurchase program by 10 million shares to an aggregate of 60 million shares since the inception of the program. The corporation intends to acquire additional shares from time to time at prevailing market rates consistent with the combination of corporate cash flow and market conditions. On January 30, 1997, a newly formed real estate investment trust subsidiary issued $250 million of preferred stock bearing a current dividend yield of 14 percent for 10 years and 1 percent thereafter. Cash dividends, including those paid to preferred shareholders of the real estate investment trust subsidiary, totaled $66 million, while net repayments of debt totaled $27 million. The corporation's ratio of debt to total capital decreased to 38.5 percent at June 30, 1997 from 42.7 percent at December 31, 1996. At June 30, 1997 there were no outstanding borrowings under the existing major bank credit agreement aggregating $1 billion. PART II. OTHER INFORMATION Item 1. Legal Proceedings See Note 4 to the corporation's consolidated financial statements on pages 7 through 10 of this report on Form 10-Q. Item 2. Changes in Securities (c) Sales of Unregistered Securities During the first half of 1997, put options were sold to institutional investors in a series of private placements exempt from registration under Section 4(2) of the Securities Act of 1933, entitling the holders to sell 1,300,000 shares of Union Carbide Corporation common stock to the corporation, at prices ranging from $44.50 to $45.00 per share. Premiums received for the sales of the options totaled $1,465,000. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits The following exhibits are filed as part of this report: 11 - Computation of Earnings Per Share 27 - Financial Data Schedule. (b) No reports on Form 8-K were filed for the three months ended June 30, 1997. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. UNION CARBIDE CORPORATION (Registrant) Date: August 8, 1997 By: /s/John K. Wulff JOHN K. WULFF Vice-President, Chief Financial Officer and Controller EXHIBIT INDEX Exhibit Page No. Exhibit No. 11 Computation of Earnings Per Share 19 27 Financial Data Schedule 20 EX-11 2 Exhibit 11 UNION CARBIDE CORPORATION AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE (In millions of dollars except per share amounts)
Quarter Ended June 30, 1997 1996 Earnings Per Share - Primary Net Income $ 191 $ 173 Less: Preferred stock dividend 3 3 Appreciation on redeemed preferred stock 6 - Net income for primary income calculation $ 182 $ 170 Weighted average number of common and common equivalent shares applicable to primary earnings per share calculation Weighted average number of shares outstanding 124,687,095 133,389,682 Dilutive effect of stock options 4,074,872 4,593,584 128,761,967 137,983,266 Earnings per share - primary $ 1.41 $ 1.23 Earnings Per Share - Fully Diluted Net income for primary income calculation $ 182 $ 170 Add back: Preferred stock dividend 3 3 Net income for fully diluted income calculation $ 185 $ 173 Weighted average number of common and common equivalent shares applicable to fully diluted earnings per share calculation Weighted average number of shares outstanding 124,687,095 133,389,682 Dilutive effect of stock options 4,074,872 4,593,584 Shares issuable upon conversion of UCC convertible preferred stock 15,593,263 16,134,750 144,355,230 154,118,016 Earnings per share - fully diluted $ 1.28 $ 1.12 Six Months Ended June 30, 1997 1996 Earnings Per Share - Primary Net Income $ 348 $ 330 Less: Preferred stock dividend 6 6 Appreciation on redeemed preferred stock 12 - Net income for primary income calculation $ 330 $ 324 Weighted average number of common and common equivalent shares applicable to primary earnings per share calculation Weighted average number of shares outstanding 125,542,213 133,946,048 Dilutive effect of stock options 4,153,873 4,667,864 129,696,086 138,613,912 Earnings per share - primary $ 2.54 $ 2.34 Earnings Per Share - Fully Diluted Net income for primary income calculation $ 330 $ 324 Add back: Preferred stock dividend 6 6 Net income for fully diluted income calculation $ 336 $ 330 Weighted average number of common and common equivalent shares applicable to fully diluted earnings per share calculation Weighted average number of shares outstanding 125,542,213 133,946,048 Dilutive effect of stock options 4,202,843 4,667,864 Shares issuable upon conversion of UCC convertible preferred stock 15,722,461 16,167,454 145,467,517 154,781,366 Earnings per share - fully diluted $ 2.31 $ 2.13
EX-27 3
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNION CARBIDE CORPORATION'S FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000100790 UNION CARBIDE CORPORATION 1,000,000 6-MOS DEC-31-1997 JUN-30-1997 115 0 1079 0 544 1923 7424 3855 6770 1131 1467 140 0 155 2053 6770 3304 3304 2451 2451 250 0 38 500 145 348 0 0 0 348 2.54 2.31 OTHER EXPENSES ARE EQUAL TO RESEARCH AND DEVELOPMENT OF 81 AND DEPRECIATION AND AMORTIZATION OF 169.
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