-----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, HzKJDvG3pmssSaJPy/5rAOcMqDFThITUkTin5u0HA7fUMmPbYsMqWBh0cgxLeOoo mE0dj9z5diQSPxdaj9j9oA== 0000100790-98-000006.txt : 19980515 0000100790-98-000006.hdr.sgml : 19980515 ACCESSION NUMBER: 0000100790-98-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980514 SROS: CSX SROS: NYSE SROS: PCX 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: 98620158 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 FORM 10-Q 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 March 31, 1998 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 April 30, 1998 Common Stock, $1 par value 136,191,099 shares Total number of sequentially numbered pages in this filing, including exhibits thereto: 20 INDEX PART I. FINANCIAL INFORMATION PAGE Financial Statements Condensed Consolidated Statement of Income - Union Carbide Corporation and Subsidiaries - Quarter Ended March 31, 1998 and 1997........................ 3 Condensed Consolidated Balance Sheet - Union Carbide Corporation and Subsidiaries - March 31, 1998 and December 31, 1997............................................ 4 Condensed Consolidated Statement of Cash Flows - Union Carbide Corporation and Subsidiaries - Quarter Ended March 31, 1998 and 1997......................... 5 Notes to Condensed Consolidated Financial Statements - Union Carbide Corporation and Subsidiaries................... 6-10 Management's Discussion and Analysis of Financial Condition and Results of Operations...................................... 11-15 PART II. OTHER INFORMATION Item 1. Legal Proceedings....................................... 16 Item 4. Submission of Matters to a Vote of Security Holders..... 16 Item 6. Exhibits and Reports on Form 8-K........................ 17 Signature........................................................ 18 Exhibit Index.................................................... 19 All statements in this quarterly report on Form 10-Q that do not reflect historical information are forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward looking statements are subject to risks and uncertainties. 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; currency exchange rates; interest rates; global economic conditions, particularly in Asia; disruption in railroad and other transportation facilities; competitive technology positions; failure by the corporation to achieve technology objectives; and failure by the corporation to achieve cost reduction targets or complete projects on schedule. - 2 - PART I. FINANCIAL INFORMATION UNION CARBIDE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF INCOME
Millions of dollars (Except per share figures) Quarter ended March 31, 1998 1997 NET SALES $ 1,561 $ 1,638 Cost of sales, exclusive of depreciation and amortization 1,161 1,231 Research and development 37 40 Selling, administration and other expenses(a) 84 80 Depreciation and amortization 95 82 Partnership income 37 35 Other income - net 11 7 INCOME BEFORE INTEREST EXPENSE AND PROVISION FOR INCOME TAXES 232 247 Interest expense 27 19 INCOME BEFORE PROVISION FOR INCOME TAXES 205 228 Provision for income taxes 59 66 INCOME OF CONSOLIDATED COMPANIES 146 162 Minority interest 1 3 Loss from corporate investments carried at equity 3 2 NET INCOME 142 157 Preferred stock dividend, net of income taxes - 2 NET INCOME - COMMON STOCKHOLDERS $ 142 $ 155 Earnings per common share Basic $ 1.03 $ 1.17 Diluted $ 1.01 $ 1.03 Cash dividends declared per common share $ 0.2250 $ 0.1875 (a) Selling, administration and other expenses include: Selling $ 26 $ 31 Administration 29 29 Other expenses 29 20 $ 84 $ 80 The Notes to Condensed Consolidated Financial Statements on Pages 6 through 10 should be read in conjunction with this statement.
- 3 - UNION CARBIDE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET
Millions of dollars March 31, Dec. 31, 1998 1997 ASSETS Cash and cash equivalents $ 37 $ 20 Notes and accounts receivable 1,057 993 Inventories 609 604 Other current assets 255 249 Total current assets 1,958 1,866 Property, plant and equipment 7,837 7,707 Less: Accumulated depreciation 3,998 3,927 Net fixed assets 3,839 3,780 Companies carried at equity 715 690 Other investments and advances 72 73 Total investments and advances 787 763 Other assets 493 555 Total assets $7,077 $6,964 LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $ 271 $ 273 Short-term debt and current portion of long-term debt 516 429 Accrued income and other taxes 42 75 Other accrued liabilities 658 727 Total current liabilities 1,487 1,504 Long-term debt 1,456 1,458 Postretirement benefit obligation 461 464 Other long-term obligations 707 738 Deferred credits 465 419 Minority stockholders' equity in consolidated subsidiaries 34 33 Stockholders' equity: Common stock - authorized - 500,000,000 shares - issued - 154,609,669 shares 155 155 Additional paid-in capital 61 47 Other equity adjustments (2) (3) Retained earnings 3,186 3,074 Accumulated other comprehensive loss (87) (101) Unearned employee compensation - ESOP (72) (80) Less: Treasury stock, at cost-18,183,360 shares (17,666,164 shares in 1997) 774 744 Total stockholders' equity 2,467 2,348 Total liabilities and stockholders' equity $7,077 $6,964 The Notes to Condensed Consolidated Financial Statements on Pages 6 through 10 should be read in conjunction with this statement.
- 4 - UNION CARBIDE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Millions of dollars Quarter ended March 31, 1998 1997 Increase (decrease) in cash and cash equivalents OPERATIONS Net income $ 142 $ 157 Noncash charges (credits) to net income Depreciation and amortization 95 82 Deferred income taxes 40 17 Other noncash charges 14 (2) Increase in working capital(a) (151) (81) Long-term assets and liabilities (4) 3 Cash Flow From Operations 136 176 INVESTING Capital expenditures (146) (138) Investments, advances and acquisitions (excluding cash acquired) (5) (45) Sale of fixed and other assets 3 - Cash Flow Used for Investing (148) (183) FINANCING Change in short-term debt (3 months or less) 80 (35) Proceeds from short-term debt 7 - Proceeds from long-term debt - 14 Repayment of long-term debt (1) (7) Issuance of common stock 13 18 Purchase of common stock (49) (73) Proceeds from subsidiary preferred stock - 246 Payment of dividends (30) (27) Other 9 (10) Cash Flow From Financing 29 126 Effect of exchange rate changes on cash and cash equivalents - (1) Change in cash and cash equivalents 17 118 Cash and cash equivalents beginning-of-period 20 57 Cash and cash equivalents end-of-period $ 37 $ 175 Cash paid for interest and income taxes Interest (net of amount capitalized) $ 18 $ 10 Income taxes $ 8 $ 7 (a) Net change in certain components of working capital (excluding non-cash expenditures): (Increase) decrease in current assets Notes and accounts receivable $ (61) $ (35) Inventories (5) (12) Other current assets 2 3 Decrease in payables and accruals (87) (37) Increase in working capital $(151) $ (81) The Notes to Condensed Consolidated Financial Statements on Pages 6 through 10 should be read in conjunction with this statement.
- 5 - 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 1997 annual report to stockholders. Unrealized gains and losses resulting from translating foreign subsidiaries' assets and liabilities into U.S. dollars generally are recognized as part of "Comprehensive income", as described in Note 2, and are included in "Accumulated other comprehensive loss" on the Condensed Consolidated Balance Sheet until such time as the subsidiary is sold or substantially or completely liquidated. Translation gains and losses relating to operations located in Latin American countries, where hyperinflation exists, and to international operations using the U.S. dollar as their functional currency are included in the Condensed Consolidated Statement of Income. Effective January 1, 1998, Brazil is no longer considered a hyperinflationary economy. Marketable securities have been reclassified from "Cash and cash equivalents" to "Other current assets" to conform to the current period's presentation. 2. Comprehensive Income In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("Statement") No. 130, "Reporting Comprehensive Income." This Statement, which the corporation adopted in the first quarter of 1998, establishes standards for reporting and displaying comprehensive income and its components in a full set of general-purpose financial statements. The financial statements for earlier periods have been reclassified to reflect application of the provisions of Statement No. 130. (In millions of dollars) Quarter Ended March 31, 1998 1997 Net income $ 142 $ 157 Other comprehensive income/(loss): Unrealized gains and losses on available-for-sale securities, net of reclassification adjustment, net of tax 6 (2) Foreign currency translation adjustments 8 (17) Total comprehensive income $ 156 $ 138 - 6 - 3. Earnings Per Share (In millions of dollars except per share amounts) Quarter Ended March 31, 1998 1997 Basic - Net income $ 142 $ 157 Less: Dividends on ESOP shares, pre-tax - 3 Appreciation on ESOP shares redeemed for cash - 6 Net income - common stockholders, for basic calculation $ 142 $ 148 Weighted average number of shares outstanding for basic calculation 136,875,966 126,406,832 Earnings per share $1.03 $1.17 Diluted - Net income - common stockholders, for basic calculation $ 142 $ 148 Add: Dividends on ESOP shares, pre-tax - 3 Net income - common stockholders, for diluted calculation $ 142 $ 151 Weighted average number of shares outstanding for basic calculation 136,875,966 126,406,832 Add: Effect of stock options 3,534,250 4,227,498 Shares issuable upon conversion of UCC's convertible ESOP shares - 15,853,095 140,410,216 146,487,425 Earnings per share $1.01 $1.03 4. Inventories Millions of dollars Mar. 31, Dec. 31, 1998 1997 Raw materials and supplies $ 165 $ 135 Work in process 55 62 Finished goods 389 407 $ 609 $ 604 5. Common Stock Since inception of its 60 million common share repurchase program through March 31, 1998, the corporation has repurchased 50.4 million shares (1.1 million during the first quarter of 1998) at an average effective price of $34.94 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. - 7 - 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 12.9 million shares of common stock to UCC, at specified prices upon exercise of the options. Since inception of this program, through March 31, 1998, options representing 9.8 million common shares have expired unexercised, while options representing 3.1 million shares were exercised for $129 million, or an average price of $40.94 per share. There were no outstanding options at March 31, 1998. Premiums received since the inception of the program recorded as additional paid-in capital have reduced the average price of repurchased shares from $35.21 per share to $34.94 per share. 6. Commitments and Contingencies The corporation has entered into 3 major agreements for the purchase of ethylene-related products and 2 other purchase agreements in the U.S. and Canada. The net present value of the fixed and determinable portion of these obligations at March 31, 1998 totaled $282 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 March 31, 1998, the corporation had established environmental remediation accruals in the amount of $247 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 $151 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 March 31, 1998 included $190 million for these sites, of which $75 million was for estimated future expenditures for site investigation and cleanup and $115 million was for estimated future expenditures for closure and postclosure activities. In addition, $85 million of the corporation's environmental loss contingencies related to these sites. The two sites with the largest total potential cost to the corporation are nonoperating sites. Of the above accruals, these sites accounted for $36 million, of which $17 million was for estimated future expenditures for site investigation and cleanup and $19 million was for estimated future expenditures for closure and postclosure activities. In addition, $51 million of the above environmental loss contingencies related to these sites. - 8 - 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 March 31, 1998 included $57 million for estimated future expenditures for site investigation and cleanup at these sites. In addition, $66 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 $10 million for estimated future expenditures for site investigation and cleanup. In addition, $9 million of the above environmental loss contingencies related to this site. In 1997, 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 $100 million. Expenses in 1996 and 1995 were $110 million and $138 million, respectively. While estimates of the costs of environmental protection for 1998 are necessarily imprecise, the corporation estimates that the level of these expenses will be similar to that experienced in 1997. The corporation has severally guaranteed 45 percent (approximately $606 million at March 31, 1998) of EQUATE Petrochemical Company's debt and working capital financing needs until certain completion and financial tests are achieved. If these tests are met, a $54 million several guarantee will provide ongoing support thereafter. 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, through September 30, 1998, substantially all of its guarantee of EQUATE's debt. The corporation had additional contingent obligations at March 31, 1998 of $57 million, of which $27 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, the District Court approved a settlement program proposed by certain defendants, including the corporation. In August 1997, the court ruled that all claims based solely on the supply of generic bulk silicone materials should be dismissed against the corporation. That decision is final with respect to cases in Federal courts, but does not affect the corporation's participation in the settlement program. The corporation believes that after probable insurance recovery neither the settlement nor litigation outside the settlement will have a material adverse effect on the consolidated financial position of the corporation. - 9 - 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 $135 million, and related insurance recovery receivables of $107 million. At March 31, 1998, the corporation had nonenvironmental litigation loss contingencies of $62 million. While it is impossible at this time to determine with certainty the ultimate outcome of any of the 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. 7. Other Accounting Changes Effective January 1, 1998 the corporation adopted Statement No. 131 "Disclosures About Segments of an Enterprise and Related Information," and Statement No. 132 "Employers' Disclosures about Pensions and Other Postretirement Benefits." These Statements address presentation and disclosure matters and will have no impact on the corporation's financial position or results of operations. As required by Statement 131 and Statement 132, compliance with the respective reporting disclosures will be reflected in the corporation's 1998 Annual Report on Form 10-K. In April 1998, the American Institute of Certified Public Accountants ("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." SOP 98-1 is effective for financial statements for fiscal years beginning after December 15, 1998. The corporation is currently evaluating the effect this SOP will have on its financial position and results of operations in the year of adoption. Also in April 1998, the AICPA issued SOP 98-5 "Reporting on the Costs of Start-up Activities." This SOP requires the expensing of certain costs such as pre-operating expenses and organizational costs associated with the corporation's start-up activities, and is effective for years beginning after December 15, 1998. The effect of adoption is required to be accounted for as a cumulative change in accounting principle. The corporation is currently evaluating the effect this SOP will have on its financial position and results of operations in the year of adoption. - 10 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The corporation reported first quarter 1998 net income available to common stockholders of $142 million, or $1.01 per diluted share ($1.03 per basic share). For the corresponding quarter in 1997 the corporation reported net income available to common stockholders of $155 million, or $1.03 per diluted share ($1.17 per basic share). Operating profit of the Specialties & Intermediates segment increased $18 million or 9.8 percent, compared to the first quarter of 1997, largely the result of lower raw material and energy costs, increased volumes, improved partnership income and strong licensing and catalyst revenues. Specialties and Intermediates average selling prices declined 2.4 percent while volume improved in most product lines, notwithstanding declining Asian demand. Operating profit of the Basic Chemicals & Polymers segment declined $26 million, as compared to the same quarter in 1997, due to decreases of 7.9 percent in average customer selling prices and 7.4 percent in customer volume, the effects of which were partially offset by a decline in feedstock costs. This segment experienced declining polyethylene and polypropylene selling prices, a decline in demand from Asian markets and constrained shipments due to U.S. Gulf Coast rail problems. Given the uncertainties associated with the economic crisis in Asia and railroad distribution problems in the U.S. Gulf Coast region, discussion regarding near term operating performance is particularly difficult. In the second quarter of 1998, we anticipate that Specialties & Intermediates operating profit should continue to benefit from reduced raw material and energy costs, improved volumes and tight cost controls. However, it is likely that licensing and partnership results will decrease from the strong results recorded in the first quarter of this year. Basic Chemicals & Polymers average selling prices are expected to continue to decline throughout the second quarter of 1998. The effect of these declines on the operating profit of the Basic Chemicals & Polymers segment should be mitigated somewhat by improved shipments, assuming improvement in U.S. Gulf Coast rail distribution, as well as by modest feedstock cost reductions. Results of Operations Sales decreased 4.7 percent, or $77 million, in the first quarter, compared to the same period of 1997, as the result of a 2.2 percent decrease in volume coupled with a 2.6 percent decline in average selling prices. Volume improvement in the Specialties & Intermediates segment was more than offset by decreases in Basic Chemicals and Polymers segment shipments due to railroad service distribution problems in the U.S. Gulf Coast region and declining Asian demand. Average selling prices declined in both segments, with the most significant deterioration in polyethylene and polypropylene resins. The corporation's variable margin (revenues less variable manufacturing and distribution costs) for the first quarter of 1998 was 45.0 percent, increasing 2.8 percentage points from 42.2 percent in the first quarter of 1997, principally due to lower cost of raw materials in both segments. The current quarter's gross margin (variable margin less fixed manufacturing and distribution costs) as a percentage of sales increased from 24.8 percent in the first quarter of 1997 to 25.6 percent in the current quarter. - 11 - 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 first quarter of 1998 and 1997 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. Millions of dollars Quarter ended March 31, 1998 1997 Sales Specialties & Intermediates $1,120 $1,122 Basic Chemicals & Polymers 518 597 Intersegment Eliminations (77) (81) Total $1,561 $1,638 Operating Profit Specialties & Intermediates $ 202 $ 184 Basic Chemicals & Polymers 36 62 Other (6) 1 Total $ 232 $ 247 Depreciation and Amortization Specialties & Intermediates $ 60 $ 51 Basic Chemicals & Polymers 35 31 Total $ 95 $ 82 Capital Expenditures Specialties & Intermediates $ 90 $ 88 Basic Chemicals & Polymers 56 50 Total $ 146 $ 138 Net sales of the Specialties & Intermediates segment remained relatively flat for the first quarter of 1998 as compared to the first quarter of 1997. A 2.4 percent improvement in volume was offset by a 2.4 percent decline in average selling prices. This segment's operating profit increased $18 million - 12 - or 9.8 percent, compared to the first quarter of 1997. While volume increases were experienced in most product lines, volume in solvents, intermediates & monomers and latex products was adversely affected by declines in Asian demand. Operating profit benefited from lower energy and raw material costs, increased volumes, improved partnership income and strong licensing and catalyst revenue. Net sales of the Basic Chemicals & Polymers segment for the first three months of 1998 declined $79 million or 13.2 percent over the same period in 1997, while segment operating profit declined $26 million. A decline of 7.9 percent in average selling prices was the result of price decreases for polyethylene and polypropylene, partially offset by modestly higher selling prices for ethylene glycol. Additionally, operations of the Basic Chemicals & Polymers segment reflected a customer volume decrease of 7.4 percent related to railroad shipping constraints in the U.S. Gulf Coast region and a decrease in Asian demand for ethylene glycol. Feedstock cost decreases in the first quarter of 1998, compared with the same quarter of 1997, mitigated the effects of reduced selling prices and shipments. Selling, administration and other expenses were $84 million in the first quarter of 1998, versus $80 million in the first quarter of 1997. Depreciation and amortization increased $13 million to $95 million in the first quarter of 1998 compared to the same period in 1997. The increase is principally the result of depreciation associated with completed capital projects. Partnership income increased $2 million, or 5.7 percent, in the first quarter of 1998 versus the comparable quarter in 1997, principally as the result of increased earnings of UOP due to normal variations in quarterly sales activity, offset by certain costs, principally research and development, assumed by Univation. Interest expense increased $8 million in the first quarter of 1998, reflecting the cost of increased short-term borrowings coupled with a decrease in capitalized interest associated with completed capital projects. Loss from corporate investments carried at equity increased from $2 million in the first quarter of 1997 to $3 million in the current quarter. 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, 1997. 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. - 13 - Accounting Changes Effective January 1, 1998 the corporation adopted Statement of Financial Accounting Standards ("Statement") No. 130 "Reporting Comprehensive Income," Statement No. 131 "Disclosures About Segments of an Enterprise and Related Information," and Statement No. 132 "Employers' Disclosures about Pensions and Other Postretirement Benefits." These statements address presentation and disclosure matters and will have no impact on the corporation's financial position or results of operations. The corporation has complied with the disclosure requirements of Statement 130 in the "Comprehensive Income" footnote to the financial statements on page 6 of this report on Form 10-Q. As required by Statement 131 and Statement 132, compliance with the respective reporting disclosures will be reflected in the corporation's 1998 Annual Report on Form 10-K. In April 1998, the American Institute of Certified Public Accountants ("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." SOP 98-1 is effective for financial statements for fiscal years beginning after December 15, 1998. The corporation is currently evaluating the effect this SOP will have on its financial position and results of operations in the year of adoption. Also in April 1998, the AICPA issued SOP 98-5 "Reporting on the Costs of Start-up Activities." This SOP requires the expensing of certain costs such as pre-operating expenses and organizational costs associated with the corporation's start-up activities, and is effective for years beginning after December 15, 1998. The effect of the adoption is required to be accounted for as a cumulative change in accounting principle. The corporation is currently evaluating the effect this SOP will have on its financial position and results of operations in the year of adoption. Year 2000 Issue Most of the corporation's computer and process control systems were designed to use only two digits to represent years. Thus they may not recognize "00" as representing the year 2000, but rather 1900, which could result in errors or system failures. These systems must be corrected in a timely manner to remain functional. The corporation is addressing the year 2000 issue in several ways. Since 1995, the corporation has expended significant funds to upgrade the bulk of its commercial computer systems to enhance the information available to the corporation. This upgrade will correct the year 2000 issue for the computer systems it replaces. The upgrade is being implemented in three parts, the first of which commenced operation in 1998. The remaining parts are scheduled for operation by year-end. The corporation is reviewing the balance of its domestic and international internal processes, including hardware, software and control systems, and is assessing its external relationships to address potential impacts arising from interfaces with customers, suppliers and service providers. Priorities have been set and required system modifications are progressing. The corporation estimates its worldwide expenses related to the year 2000 project could range between $20 and $50 million over the next two years. The corporation believes the year 2000 project will be completed prior to the year 2000. However, considerable work remains to be accomplished in a limited period of time and unforeseen difficulties may arise which could - 14 - adversely affect the corporation's ability to complete its systems modifications correctly, completely, on time and/or within its cost estimate. In addition, there can be no assurance that customers, suppliers and service providers on which the corporation relies will resolve their year 2000 issues accurately, thoroughly and on time. Failure to complete the year 2000 project by the year 2000 could have a material adverse effect on future operating results or financial condition. Financial Condition - March 31, 1998 Cash flow from operations for the first quarter of 1998 was $136 million, a decrease of $40 million from the first quarter of 1997, principally caused by an increase in working capital resulting from increased notes and accounts receivable and decreased payables and accruals offset by an increase in the total of net income and non-cash charges. Cash flow used for investing totaled $148 million, down from $183 million in the comparable period of 1997, principally due to lower investments, advances and acquisitions in 1998, offset by increased capital expenditures. Funding of major capital projects in the first quarter of 1998 include continuing work on an olefins expansion, a new butanol unit and a new CARBOWAX polyethylene glycol and TERGITOL surfactants facility, all at Taft, La.; a new olefins facility, being built jointly with NOVA Chemicals Ltd., and a polyolefins project, both in Canada; continuing work on an ethylene oxide/glycol expansion at Wilton, U.K., and the upgrade of information technology infrastructure. Major capital projects funded during the first quarter 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. Cash flow from financing was $29 million for the first quarter of 1998, as compared with $126 million for the first quarter of 1997. The first quarter of the prior year included proceeds from the issuance, by a subsidiary, of $246 million in preferred stock. These shares were redeemed in the fourth quarter of 1997. The first quarter of 1998 included common stock repurchases of 1.1 million shares for cash of $49 million under the existing common stock repurchase 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. For the first quarter of 1998, cash dividends totaled $30 million, while net cash borrowings were $86 million. In April 1998, the corporation and PETRONAS, the national oil company of Malaysia, agreed to form three joint venture companies that will build and operate a 600,000 metric-tons-per-year ethylene plant, a 385,000 metric-tons-per-year ethylene oxide plant, and a multiple Specialties & Intermediates derivatives plant in Kerteh, Terengganu, Malaysia. The joint ventures' primary marketing focus will be in Southeast Asia. The corporation anticipates funding its approximate $500 million share of the cost of the complex through its 2001 planned startup date with internally generated funds, external debt and project financing. The corporation's ratio of debt to total capital was 44.1 percent at March 31, 1998 as compared to 44.2 percent at December 31, 1997. At March 31, 1998 there were no outstanding borrowings under the existing major bank credit agreement aggregating $1 billion or the corporation's $500 million medium-term note program. - 15 - PART II. OTHER INFORMATION Item 1. Legal Proceedings See Note 6 "Commitments and Contingencies" to the corporation's consolidated financial statements on pages 8 through 10 of this report on Form 10-Q. Item 4. Submission of Matters to a Vote of Security Holders (a) Annual Meeting - April 22, 1998 (b) Election of Directors Proxies for the meeting were solicited pursuant to Regulation 14A. There was no solicitation in opposition to the management's nominees as listed in the proxy statement. All of the management's nominees as listed in the proxy statement were elected. (c) Matters voted upon. Election of Directors Shares Voted Directors Shares For Shares Withheld C. Fred Fetterolf 105,648,021 1,259,800 Joseph E. Geoghan 105,818,156 1,089,665 Rainer E. Gut 104,328,237 2,579,584 Vernon E. Jordan, Jr. 101,456,601 5,451,220 William H. Joyce 105,615,509 1,292,312 Robert D. Kennedy 105,425,829 1,481,992 Ronald L. Kuehn, Jr. 105,804,795 1,103,026 Rozanne L. Ridgway 105,676,405 1,231,416 James M. Ringler 105,730,999 1,176,822 Election required a plurality of the common shares voted. Proposal to Ratify the Appointment of Auditors Shareholders ratified the appointment of KPMG Peat Marwick LLP to conduct the annual audit of the financial statements of the corporation and its consolidated subsidiary companies for the year ending December 31, 1998. The vote was: FOR - 105,698,853 shares or 99.40 percent of the shares voted. AGAINST - 635,509 shares or 0.60 percent of the shares voted. ABSTAIN - 573,459 shares. Ratification required an affirmative vote of a majority of the common shares voted. - 16 - Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. The following exhibits are filed as part of this report: 27 - Financial Data Schedule. (b) No reports on Form 8-K were filed for the three months ended March 31, 1998. - 17 - 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: May 14, 1998 By: /s/John K. Wulff JOHN K. WULFF Vice-President, Chief Financial Officer and Controller - 18 - EXHIBIT INDEX Exhibit Page No. Exhibit No. 27 Financial Data Schedule 20 - 19 - EX-27 2 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from Union Carbide Corporation's Form 10-Q fo the quarter ended March 31, 1998, and is qualified in its entirety by reference to such financial statements. 0000100790 UNION CARBIDE CORPORATION 1,000,000 3-MOS DEC-31-1998 MAR-31-1998 37 0 1057 0 609 1958 7837 3998 7077 1487 1456 0 0 155 2312 7077 1561 1561 1161 1161 132 0 27 205 59 142 0 0 0 142 1.03 1.01 Other expenses are equal to research and development of 37 and depreciation and amortization of 95. The EPS-PRIMARY amount represents basic earnings per share and the EPS-DILUTED amount represents diluted earnings per share, computed in accordance with Statement of Financial Accounting Standards No. 128, "Earnings Per Share."
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