-----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, C3OzXSFScvU/K7AvGYQ1wYQUSpxBUZvkQPSFc78qozWiJ7JMe59kFibmu3xaNzsk Ki6+GOE6d6j4CAOyaNy8yQ== 0000100790-97-000018.txt : 19971114 0000100790-97-000018.hdr.sgml : 19971114 ACCESSION NUMBER: 0000100790-97-000018 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971112 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: SEC FILE NUMBER: 001-01463 FILM NUMBER: 97715054 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 THIRD QUARTER REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D C 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 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 October 31, 1997 Common Stock, $1 par value 137,926,478 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 September 30, 1997 and 1996.................... 3 Condensed Consolidated Statement of Income - Nine months ended September 30, 1997 and 1996................ 4 Condensed Consolidated Balance Sheet - September 30, 1997 and December 31, 1996..................... 5 Condensed Consolidated Statement of Cash Flows - Nine months ended September 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 and Use of Proceeds............... 16 Item 6. Exhibits and Reports on Form 8-K........................ 16 Signature........................................................ 17 Exhibit Index.................................................... 18 PART I. FINANCIAL INFORMATION UNION CARBIDE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF INCOME Millions of dollars (Except per share figures) Quarter ended Sept. 30, 1997 1996 NET SALES $ 1,659 $ 1,538 Cost of sales, exclusive of depreciation and amortization 1,199 1,145 Research and development 37 39 Selling, administration and other expenses(a) 82 80 Depreciation and amortization 87 81 Partnership income 28 43 Other income - net 9 6 INCOME BEFORE INTEREST EXPENSE AND PROVISION FOR INCOME TAXES 291 242 Interest expense 19 18 INCOME BEFORE PROVISION FOR INCOME TAXES 272 224 Provision for income taxes 83 63 INCOME OF CONSOLIDATED COMPANIES AND PARTNERSHIPS 189 161 Minority interest 5 (1) Loss from corporate investments carried at equity 3 1 NET INCOME 181 161 Preferred stock dividend, net of income taxes 2 2 NET INCOME - COMMON STOCKHOLDERS $ 179 $ 159 Earnings per common share Primary $ 1.30 $ 1.19 Fully diluted $ 1.18 $ 1.08 Cash dividends declared per common share $ 0.4125 $ 0.1875 (a) Selling, administration and other expenses include: Selling $ 31 $ 32 Administration 31 32 Other expenses 20 16 $ 82 $ 80 The Notes to Condensed Consolidated Financial Statements on Pages 7 through 10 should be read in conjunction with this statement. UNION CARBIDE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF INCOME Millions of dollars (Except per share figures) Nine months ended Sept. 30, 1997 1996 NET SALES $ 4,963 $ 4,598 Cost of sales, exclusive of depreciation and amortization 3,650 3,394 Research and development 118 115 Selling, administration and other expenses(a) 237 239 Depreciation and amortization 256 235 Partnership income 100 106 Other income - net 27 25 INCOME BEFORE INTEREST EXPENSE AND PROVISION FOR INCOME TAXES 829 746 Interest expense 57 55 INCOME BEFORE PROVISION FOR INCOME TAXES 772 691 Provision for income taxes 228 194 INCOME OF CONSOLIDATED COMPANIES AND PARTNERSHIPS 544 497 Minority interest 13 (2) Loss from corporate investments carried at equity 2 8 NET INCOME 529 491 Preferred stock dividends, net of income taxes 7 7 NET INCOME - COMMON STOCKHOLDERS $ 522 $ 484 Earnings per common share Primary $ 3.84 $ 3.52 Fully diluted $ 3.49 $ 3.20 Cash dividends declared per common share $ 0.7875 $ 0.5625 (a) Selling, administration and other expenses include: Selling $ 93 $ 96 Administration 94 91 Other expenses 50 52 $ 237 $ 239 The Notes to Condensed Consolidated Financial Statements on Pages 7 through 10 should be read in conjunction with this statement. UNION CARBIDE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET Millions of dollars Sept. 30, Dec. 31, 1997 1996 ASSETS Cash and cash equivalents $ 132 $ 94 Notes and accounts receivable 1,064 1,047 Inventories 556 541 Other current assets 202 191 Total current assets 1,954 1,873 Property, plant and equipment 7,577 7,159 Less: Accumulated depreciation 3,886 3,750 Net fixed assets 3,691 3,409 Companies carried at equity 699 695 Other investments and advances 68 77 Total investments and advances 767 772 Other assets 563 492 Total assets $6,975 $6,546 LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $ 307 $ 268 Short-term debt and current portion of long-term debt 93 112 Accrued income and other taxes 141 133 Other accrued liabilities 765 765 Total current liabilities 1,306 1,278 Long-term debt 1,459 1,487 Postretirement benefit obligation 470 473 Other long-term obligations 811 811 Deferred credits 379 301 Minority stockholders' equity in consolidated subsidiaries 275 29 Convertible preferred stock - ESOP 138 144 Unearned employee compensation - ESOP (81) (91) Stockholders' equity: Common stock - authorized - 500,000,000 shares - issued - 154,609,669 shares 155 155 Additional paid-in capital 285 370 Translation and other equity adjustments (80) (33) Retained earnings 3,050 2,629 Less: Treasury stock, at cost-31,391,239 shares (28,169,324 shares in 1996) 1,192 1,007 Total stockholders' equity 2,218 2,114 Total liabilities and stockholders' equity $6,975 $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 Nine months ended Sept. 30, 1997 1996 Increase (decrease) in cash and cash equivalents OPERATIONS Net income $ 529 $ 491 Noncash charges (credits) to net income Depreciation and amortization 256 235 Deferred income taxes 61 48 Other (35) (10) Increase in working capital(a) (63) (117) Long-term assets and liabilities (9) 17 Cash Flow From Operations 739 664 INVESTING Capital expenditures (543) (531) Investments, advances and acquisitions (excluding cash acquired) (54) (267) Sale of fixed and other assets 4 13 Cash Flow Used for Investing (593) (785) FINANCING Change in short-term debt (3 months or less) (48) 239 Proceeds from short-term debt 32 21 Repayment of short-term debt - (26) Proceeds from long-term debt 14 6 Repayment of long-term debt (28) (6) Issuance of common stock 36 115 Purchase of common stock (235) (483) Proceeds from subsidiary preferred stock 246 - Payment of dividends (103) (83) Other (21) 1 Cash Flow Used for Financing (107) (216) Effect of exchange rate changes on cash and cash equivalents (1) (1) Change in cash and cash equivalents 38 (338) Cash and cash equivalents beginning-of-period 94 449 Cash and cash equivalents end-of-period $ 132 $ 111 Cash paid for interest and income taxes Interest (net of amount capitalized) $ 45 $ 41 Income taxes $ 83 $ 150 _____________ (a) Net change in certain components of working capital (excluding non-cash expenditures): (Increase) decrease in current assets Notes and accounts receivable $ (21) $ (37) Inventories (15) 55 Other current assets 4 (15) Decrease in payables and accruals (31) (120) Increase in working capital $ (63) $(117) 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 September 30, 1997, since inception of its common share repurchase program, the corporation repurchased 47.4 million shares (5.1 million during 1997) at an average effective price of $34.18 per share. The corporation intends to acquire additional shares from time to time at prevailing market prices, at a rate consistent with the combination of corporate cash flow and market conditions. In conjunction with the corporation's common stock buyback program, put options were sold in a series of private placements entitling the holders to sell 12.6 million shares of common stock to UCC, at specified prices upon exercise of the options. Through September 30, 1997, since inception of this program, options representing 9.4 million common shares have expired unexercised, while options representing 2.2 million shares were exercised for $84.5 million, or an average price of $37.61 per share. Options representing 1.0 million shares remain outstanding at September 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 $34.45 per share to $34.18 per share. 3. Inventories Millions of dollars Sept. 30, Dec. 31, 1997 1996 Raw materials and supplies $ 129 $ 114 Work in process 56 54 Finished goods 371 373 $ 556 $ 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 September 30, 1997 totaled $313 million. The corporation is subject to loss contingencies resulting from environmental laws and regulations, which include obligations to remove or remediate the effects on the environment of the disposal or release of certain wastes and substances at various sites. The corporation has established accruals in current dollars for those hazardous waste sites where it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. The reliability and precision of the loss estimates are affected by numerous factors, such as different stages of site evaluation, the allocation of responsibility among potentially responsible parties and the assertion of additional claims. The corporation adjusts its accruals as new remediation requirements are defined, as information becomes available permitting reasonable estimates to be made, and to reflect new and changing facts. At September 30, 1997, the corporation had established environmental remediation accruals in the amount of $272 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 $137 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 September 30, 1997 included $203 million for these sites, of which $75 million was for estimated future expenditures for site investigation and cleanup and $128 million was for estimated future expenditures for closure and postclosure activities. In addition, $70 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 are 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 September 30, 1997 included $69 million for estimated future expenditures for site investigation and cleanup at these sites. In addition, $67 million of the corporation's environmental loss contingencies related to these sites. The largest two of these sites are also nonoperating sites. Of the above accruals, these sites accounted for $30 million for estimated future expenditures for site investigation and cleanup. In addition, $19 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 decline as the result of favorable experience associated with remedial activities. The corporation has severally guaranteed 45 percent (approximately $608 million at September 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 September 30, 1997 of $67 million, of which $32 million related to guarantees of debt. The corporation is one of a number of defendants named in approximately 4,900 lawsuits in both Federal and state courts, 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. In August 1997, the court ruled that all claims based solely on the supply of bulk silicone materials should be dismissed against the corporation. That decision is final in Federal court and no longer subject to appeal. While the corporation cannot predict the number of claimants who will participate in the revised 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; trade regulation; 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 $187 million, and related insurance recovery receivables of $147 million. At September 30, 1997, the corporation had nonenvironmental litigation loss contingencies of $56 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. On October 21, 1997, the preferred shares were redeemed for a total of $242 million, including accrued dividends through the redemption date. The effect of such redemption on the corporation's financial position and results of operations was immaterial. 6. Subsequent Event On October 2, 1997 the trustee of the Employee Stock Ownership Plan ("ESOP") exercised its right to convert all shares of the corporation's preferred stock held by the ESOP into the corporation's common stock. As a result of the conversion, the corporation's common stock outstanding at that date was increased by 15,406,191 shares. DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Overview The corporation reported third quarter 1997 net income available to common stockholders of $179 million, or $1.18 per common share, fully diluted ($1.30 per common share, primary). For the first nine months of 1997, net income available to common stockholders was $522 million, or $3.49 per common share, fully diluted ($3.84 per common share, primary). For the corresponding quarter in 1996, the corporation reported earnings of $159 million, or $1.08 per common share, fully diluted ($1.19 per common share, primary). For the first nine months of 1996, net income available to common stockholders was $484 million, or $3.20 per common share, fully diluted ($3.52 per common share, primary). The corporation's net income available to common shareholders for the three and nine month periods ended September 30, 1997 increased 12.6 percent and 7.9 percent as compared to the same periods in 1996. Operating profit of the Basic Chemicals & Polymers segment more than tripled to $125 million, compared to the third quarter of 1996, and increased $143 million or 98.6 percent on a year-to-date basis. Improved sales volumes and selling prices for most Basic Chemicals & Polymers product lines coupled with reduced feedstock costs caused this operating profit improvement. Operating profit of the Specialties & Intermediates segment dropped $32 million or 15.8 percent versus the third quarter of 1996, and decreased $40 million or 6.8 percent on a year-to-date basis. Although Specialties & Intermediates sales volume was strong, up over 9.0 percent year-to-date, average selling prices decreased for most product lines. In part, this reflects the impact of a strong U.S. dollar on the export sales of the segment. Additionally, operating profit comparison of the Specialties & Intermediates segment, with the third quarter of 1996 was adversely impacted by a significant increase in the market-related transfer cost of raw materials, principally ethylene oxide, produced by the Basic Chemicals & Polymers segment. Finally, results of the Specialties & Intermediates segment reflected the impact of costs associated with start-up of the corporation's ethylene propylene rubber project. Although the corporation cannot predict with certainty, it anticipates that fourth quarter 1997 results of the Basic Chemicals & Polymers segment will decline from third quarter 1997 levels as a result of increased average feedstock costs and selling price declines in polyethylene and polypropylene. Demand for ethylene glycol should remain high throughout most of the fourth quarter of 1997. Furthermore, the corporation anticipates that the Specialties & Intermediates segment may experience some seasonal weakness in demand but otherwise should perform in line with the third quarter of 1997 assuming no major change in foreign currency exchange rates and no further deterioration in Gulf Coast rail transportation. Results of Operations Net sales increased 7.9 percent in the third quarter and for the nine months ended September 30, 1997, as compared to the same periods in 1996. Increases were driven by a 5.3 percent and 7.6 percent increase in customer volume for the quarter and nine month period of 1997, respectively, as compared to the three and nine month periods ended September 30, 1996. Average selling prices increased 2.4 percent from the third quarter of 1996 to the third quarter of 1997 due to increases in polyethylene and ethylene glycol pricing. However, average selling prices for the nine month period ended September 30, 1997 remained relatively flat when compared to the same nine months of 1996. Variable margin (net sales less variable manufacturing and distribution costs) for the third quarter of 1997 was 45.0 percent, compared with 43.0 percent in the third quarter of 1996. The increase in variable margin is attributable to lower feedstock costs and higher pricing of polyethylene and ethylene glycol in the Basic Chemicals & Polymers segment. Variable margin for the first nine months of 1997 decreased to 43.9 percent from 44.5 percent for the comparable period in 1996 as a result of lower average selling prices partially offset by reduced feedstock costs. Gross margin (variable margin less fixed manufacturing and distribution costs), as a percent of sales, increased to 27.7 percent for the third quarter of 1997 from 25.6 percent for the third quarter of 1996. However, gross margin remained relatively stable at 26.5 percent for the nine month period ended September 30, 1997 as compared to 26.2 percent for the same nine month period in 1996, due to the decrease in variable margin being offset by a 5.4 percent fixed cost productivity improvement, as measured by fixed costs per pound. Industry Segments The corporation'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 third quarter and nine month period 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 Nine months ended Sept. 30, Sept. 30, Millions of dollars 1997 1996 1997 1996 Sales Specialties & Intermediates $1,141 $1,055 $3,402 $3,241 Basic Chemicals & Polymers 619 552 1,820 1,598 Intersegment Eliminations (101) (69) (259) (241) Total $1,659 $1,538 $4,963 $4,598 Operating Profit Specialties & Intermediates $ 170 $ 202 $ 545 $ 585 Basic Chemicals & Polymers 125 40 288 145 Other (4) - (4) 16 Total $ 291 $ 242 $ 829 $ 746 Depreciation and Amortization Specialties & Intermediates $ 55 $ 50 $ 161 $ 144 Basic Chemicals & Polymers 32 31 95 91 Total $ 87 $ 81 $ 256 $ 235 Capital Expenditures Specialties & Intermediates $ 130 $ 121 $ 321 $ 387 Basic Chemicals & Polymers 85 47 222 144 Total $ 215 $ 168 $ 543 $ 531 Net sales of the Specialties & Intermediates segment increased $86 million or 8.2 percent in the current quarter over the same quarter in 1996, and $161 million or 5.0 percent in the current nine month period as compared to the same nine months of 1996. Operating profit for the third quarter of 1997 was $170 million, compared to $202 million for the same quarter of 1996; operating profit was $545 million for the nine months ended September 30, 1997, versus $585 million for the comparable period in 1996. For the three and nine month periods ended September 30, 1997, this segment benefited from a 9.3 percent and 9.2 percent increase in volume, respectively, compared to the same three and nine month periods in 1996. This benefit was offset by a decline in average selling prices for each period, increased transfer cost of raw material and the strengthening U.S. dollar. Net sales of the Basic Chemicals & Polymers segment increased $67 million, or 12.1 percent in the current quarter over the same quarter of 1996 and $222 million or 13.9 percent in the first nine months of 1997 over the first nine months of 1996. Operating profit showed considerable improvement of $85 million and $143 million, respectively, in the current quarter and nine months ended September 30, 1997, respectively, versus the comparable periods of 1996. The increase in net sales and operating profit for the current quarter from the same quarter of 1996 are due to a 6.4 percent increase in average selling prices, significant decreases in all feedstock costs and stable fixed manufacturing and distribution costs. Customer volumes were only slightly higher in the third quarter of 1997 versus the third quarter of 1996. Increases in net sales and operating profit from the nine months ended September 30, 1996 to the same period in 1997 were the result of an 8.7 percent increase in average selling prices, a 5.7 percent increase in customer volumes, lower cost of ethane and stable fixed manufacturing and distribution costs. Partnership income in the third quarter of 1997 declined to $28 million from $43 million in the third quarter of 1996. The majority of this decline is due to decreased earnings of the UOP partnership related to normal variances in quarterly sales activity. For the first nine months of 1997 partnership income totaled $100 million, as compared to $106 million for the first nine months in 1996. Interest expense remained stable for the quarter and nine month period ended September 30, 1997, as compared to the same periods in 1996. Loss from corporate investments carried at equity increased from a loss of $1 million in the third quarter of 1996 to a loss of $3 million in the same quarter 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 fourth quarter of 1997. For the first nine months of 1997, loss from corporate investments carried at equity decreased to $2 million from a loss of $8 million in 1996, due to improved Polimeri Europa results which were only 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, are expected to decline somewhat from 1996 levels, as a result of favorable experience associated with remedial activities. The reliability and precision of the loss estimates are affected by numerous factors, such as different stages of site evaluation, the allocation of responsibility among potentially responsible parties and the assertion of additional claims. The corporation's environmental exposures are discussed in more detail in the "Commitments and Contingencies" footnote to the financial statements on pages 8 through 10 of this report on Form 10-Q. The corporation continues to be named as one of a number of defendants in lawsuits involving silicone gel breast implants. The corporation supplied bulk silicone materials to certain companies that at various times were involved in the manufacture of breast implants. These cases are discussed in more detail in the "Commitments and Contingencies" footnote to the financial statements on pages 8 through 10 of this report on Form 10-Q. 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 $1.34 and $1.18, respectively, in the third quarter of 1997 ($1.22 and $1.08 per common share, respectively, in the third quarter of 1996) and $3.97 and $3.49, respectively, for the nine months ended September 30, 1997 ($3.64 and $3.21 per common share, respectively, for the nine months ended September 30, 1996). Financial Condition - September 30, 1997 Cash flow from operations for the first nine months of 1997 increased to $739 million from $664 million in the first nine months of 1996, principally due to an increase in net income in the first nine months of 1997 versus the comparable period of 1996, coupled with a reduction in working capital requirements. Cash flow used for investing totaled $593 million, down from $785 million in the comparable period of 1996. This decline was due to decreases of $213 million in investments, advances and acquisitions. Significant investments and acquisitions in the first nine months 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 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. 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 corporation is addressing the Year 2000 issue in several ways. Domestically, the corporation is continuing work on the upgrade of information technology systems, expected to be completed by 1999 to enhance the type of information the corporation will receive and to address technological issues related to the year 2000. Internationally, the corporation continues to implement the upgrade of software, including rewriting certain computer codes to address year 2000 issues. Domestically and internationally, 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. The corporation believes the upgrade of information technology systems will be completed prior to the year 2000, although there can be no assurance of that. Should the corporation be unable to complete the upgrade of information technology systems by the year 2000, the reported financial information may not necessarily be indicative of future operating results and financial condition. Cash flow used for financing in the first nine months of 1997 was $107 million in comparison to $216 million in the first nine months of 1996. The first nine months of 1997 included common stock repurchases of 5.1 million shares for cash of $235 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, at a rate 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. On October 21, 1997 the corporation paid $242 million in cash, of which approximately $157 million was obtained through new debt, to redeem the preferred stock shares and pay accrued dividends through the redemption date. The effect of the redemption will increase interest expense by approximately $4 million each quarter it is outstanding. Had the preferred shares of the real estate investment trust been redeemed on September 30, 1997, the corporation's ratio of debt to total capital would have been 43.2 percent (42.7 percent at December 31, 1996). Cash dividends, including those paid to preferred shareholders of the real estate investment trust subsidiary, totaled $103 million, while net repayments of debt totaled $30 million. On September 24, 1997, the Board of Directors declared an increased common stock dividend of $.225 per share, payable on December 1, 1997. On October 2, 1997 the trustee of the Employee Stock Ownership Plan ("ESOP") exercised its right to convert all shares of the corporation's preferred stock held by the ESOP into the corporation's common stock. As a result of the conversion, the corporation's common stock outstanding at that date was increased by 15,406,191 shares. At September 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 8 through 10 of this report on Form 10-Q. Item 2. Changes in Securities and Use of Proceeds (c) Sales of Unregistered Securities During the first nine months 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 2,410,469 shares of Union Carbide Corporation common stock to the corporation, at prices ranging from $44.50 to $50.00 per share. Premiums received for the sales of the options totaled $2,728,522. 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 September 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: November 12, 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 EPS CALCULATION Exhibit 11 UNION CARBIDE CORPORATION AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE (In millions of dollars except per share amounts)
Quarter Ended Sept. 30, 1997 1996 Earnings Per Share - Primary Net income $ 181 $ 161 Less: Preferred stock dividend 3 3 Appreciation on redeemed preferred stock 12 - Net income for primary income calculation $ 166 $ 158 Weighted average number of common and common equivalent shares applicable to primary earnings per share calculation Weighted average number of shares outstanding 123,957,271 129,104,998 Dilutive effect of stock options 4,195,877 4,331,086 128,153,148 133,436,084 Earnings per share - primary $ 1.30 $ 1.19 Earnings Per Share - Fully Diluted Net income for primary income calculation $ 166 $ 158 Add back: Preferred stock dividend 3 3 Net income for fully diluted income calculation $ 169 $ 161 Weighted average number of common and common equivalent shares applicable to fully diluted earnings per share calculation Weighted average number of shares outstanding 123,957,271 129,104,998 Dilutive effect of stock options 4,195,877 4,576,637 Put options - - Shares issuable upon conversion of UCC convertible preferred stock 15,473,657 16,100,050 143,626,805 149,781,685 Earnings per share - fully diluted $ 1.18 $ 1.08 Nine Months Ended Sept. 30, 1997 1996 Earnings Per Share - Primary Net income $ 529 $ 491 Less: Preferred stock dividend 9 9 Appreciation on redeemed preferred stock 24 - Net income for primary income calculation $ 496 $ 482 Weighted average number of common and common equivalent shares applicable to primary earnings per share calculation Weighted average number of shares outstanding 125,008,093 132,320,586 Dilutive effect of stock options 4,188,264 4,554,764 129,196,357 136,875,350 Earnings per share - primary $ 3.84 $ 3.52 Earnings Per Share - Fully Diluted Net income for primary income calculation $ 496 $ 482 Add back: Preferred stock dividend 9 9 Net income for fully diluted income calculation $ 505 $ 491 Weighted average number of common and common equivalent shares applicable to fully diluted earnings per share calculation Weighted average number of shares outstanding 125,008,093 132,320,586 Dilutive effect of stock options 4,210,746 4,701,880 Put options 3,060 - Shares issuable upon conversion of UCC convertible preferred stock 15,638,615 16,144,822 144,860,514 153,167,288 Earnings per share - fully diluted $ 3.49 $ 3.20
EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNION CARBIDE CORPORATION'S FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000100790 UNION CARBIDE CORPORATION 1,000,000 9-MOS DEC-31-1997 SEP-30-1997 132 0 1064 0 556 1954 7577 3886 6975 1306 1459 138 0 155 2063 6975 4963 4963 3650 3650 374 0 57 772 228 529 0 0 0 529 3.84 3.49 OTHER EXPENSES ARE EQUAL TO RESEARCH AND DEVELOPMENT OF 118 AND DEPRECIATION AND AMORTIZATION OF 256.
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