Union Carbide Corp. yesterday reported a record loss of $543 million for the third quarter, which it attributed to $620 million in special after-tax charges related to a companywide reorganization plan announced in August.
Although the huge write-offs and charges were expected, analysts said the earnings statement underscored fundamental problems plaguing the embattled chemical firm, including the shutdown of its Institute, W.Va., plant following a poison-gas leak on Aug. 11 that injured 136 residents.
In addition, there were fresh rumors yesterday that New Jersey-based GAF Corp. would resume its attempt to take over Carbide within the next few days and that Carbide management is planning a leveraged buyout as a defense.
After eliminating the effect of the special charges, Carbide said it would have earned $77 million for the quarter -- an amount that is equal to its reported profits for the same period last year but down from the $101 million Carbide earned in the second quarter this year. Its sales were down 4 percent to $2.25 billion from $2.34 billion during the same period last year.
The third-quarter earnings were "adversely affected by the continuing depressed pricing and foreign competition in the metals and carbons businesses, the very low level of activity in the electronics industry, soft markets for most chemical and plastic products, and the temporary shutdown of certain facilities at Institute, W. Va.," the company said in a statement.
The $543 million loss translated into a loss of $7.72 a share for stockholders. The $620 million in special charges, which translates into $8.81 a share, stems from a massive corporate shake-up begun on Aug. 29 designed to eliminate excessive overhead and outmoded plants and to reduce a bloated work force -- problems that long have plagued the Danbury, Conn.-based firm.
As part of the shake-up, Carbide said it would lay off 4,000 white- collar workers, sell $500 million in assets and shut plants.
These and related moves cost the company about $1.06 billion in pre-tax losses, including $78 million in personnel-reduction costs, $75 million in inventory write-downs and $678 million in plant write-downs, including the write-off of the firm's mothballed petrochemical plant in Ponce, Puerto Rico. There were also charges of $187 million for facility-closing costs and $43 million in additional depreciation charges.
The company's divestiture program is aimed at shedding chunks of its metals and petrochemical operations so it can focus on more profitable lines, including consumer products, industrial gases and technology services.
Carbide Chairman Warren Anderson said "the polyethylene businesses in Canada and Brazil, the engineering polymers and composites business, and a significant portion of our real property holdings in Tarrytown, N.Y., have joined the metals business as active divestiture projects, and other businesses are under active consideration."
Harvey B. Storch, an analyst with the securities firm of Fahnestock & Co., said the losses were "sort of mind-boggling but not a surprise." He said that a more important development for investors is the increasing speculation that Carbide management is planning to finance a buyout of the company stock, probably by floating so-called "junk bonds" -- high-yield securities that are considered too risky to be rated by bond-rating firms such as Standard & Poor's.
"There's a lot of talk about the possibility of a leveraged buyout," Storch said.