Document daXwOzRpbjX1jjX9Ew3Kkd1pe

r. UNION CARBIDE CORPORATION . Chemicals St Plastics Development Division 270 Park Avenue, New York 10017 R. S. Wishart, Jr. E. A. Barr M. P. Ballmer M. T. Bolmer J. L. Brannon T. W. Carmody W. L. Carrick R. H. Gregory (2) T. F. Hart L. P. Jehle F. H. Larronde W. R. Lewis J. L. Marsh J. V. Murray L. S. O'Rourke A. E. Pufahl J. A. Riddle F. H. Roberts N. J. Setter S. P. Smith S. L. Tyler J. R. Wilkinson J. Winterhaler D. Varoli W. S. Young A workshop on our Asbestos Business is scheduled to be held on Friday, October 11, 1968, at 10:00 a. m. in the 26th floor conference room. An outline of the planned discussion, along with the associated charts, is attached. Your attendance and participation will be appreciated. "i FDD/lr Att. 10-8-68 v F. D. Dexter CALIDRIA ASBESTOS WORKSHOP OCTOBER 11, 1968 CALIDRIA ASBESTOS WORKSHOP October 11, 1968 Introduction Chart Number A. Purpose 1. Review of performance versus plan, 1967 and 1968 year to date. 2. Review significant events since last review. 3. Outline alternative courses of action for the Calidria Asbestos business. 4. Present key facets of the recommended course of action. B. Background of Calidria Asbestos Business 1. Organization. 2. Investment; GFI $3,285M Net Book Value $1,607M end 1968 (estimated) 3. Location, size and nature of deposit. 4. King City, California plant; wet benefication process. 5. Product line and major uses. 6. Major customers 1968; volume and product sold. 1 2 3 4 5 Performance vs. Plan A. 1967 1. Total NIFS $ 1, 609M vs. plan of $3, 80 1M or 42. 3% of plan. 2. Total Operating Income ($97 1M) vs. plan of $637M. B. 1968 1. Total NIFS a. For first 8 months $1, 100M vs. plan of $1, 763M or 62. 3% of plan. b. Estimate for year $1, 800M vs. plan of $2, 912M or 62% of plan. 2. Total Operating Income a. For first 8 months ($490M) vs. plan of ($635M) or 77. 1% of plan (i. e. 22. 8% better than plan). b. Estimate for year ($741M) vs. plan of ($812M) or 91.2% of plan (i. e. 9% better than plan). 3. NIFS performance vs. plan for first 8 months by market area. 6 7 8 Significant Events Since Last Review (April, 1967) A. Factors Influencing Performance 1. Penetration into papei market failed to meet expectations. 2. Restricted operations resulted in high plant costs. 3. Growth of resin grade products slow. 4. Lack of exposure; only recently being corrected. B. Other Significant Events 1. R-G 244 (silica treated asbestos) semi-works plant started up in first quarter. Capital cost of semi-works plant $60M. 2. Yield of fibre from ore raised from average of about 48% to about 60% during last year and a half. 3. Finished product inventories reduced from 6, 460 tons at start 1968 to 2, 920 tons at end of August. 4. Montello, Inc. , set up as distributor to oil well drilling industry and Harrisons Crosfield Ltd. set up as west coast sales agent for resin grade products. 5. Trade name "Calidria" adopted. 6. Initiation and pursuit of active merchandizing program. Alternative Courses of Action for the Calidria Asbestos Business A. Major Alternatives 1. Continue to Operate a. Principal advantages are that (1) over the long run the business can be profitable and (2) carve out production payment could be used to enhance cash flow. b. Principal disadvantage is that cost elements of a slowly growing business would continue. 2. Divest in Part; Form a Joint Venture with Another Company a. Principal advantages are that (1) it would provide better continuity than following alternatives and (2) UCC's continued participation could make partial divestment easier than total divestment. b. Principal disadvantages are that (1) the venture could be difficult to run effectively and (2) UCC would continue to bear a share of overhead and plant costs. 3. Divest During 1969 with Goal of Completion by Mid-Year. a. Principal advantage would be the opportunity to maximize return from the divestment. b. Principal disadvantage is the continuation of overhead and plant costs during part of 1969. 3. 4. Divest Before End of 1968 a. Principal advantage is elimination of overhead and plant costs in 1969. b. Principal disadvantage is difficulty in divesting quickly on other than a distress sales price basis; it approaches alternate 5 in effect. 5. Immediate Abandonment a. Principal advantages are (1) its simplicity and (2) the rapid curtailment of overhead and plant costs. b. Principal disadvantages are (1) disruptive effect on customers who buy asbestos and other UCC products and (2) difficulty of salvaging any income from the sales of the assets. Chart No. B. Key Facets of Recommended Alterative (#3 above) 1. Baseline economics; continue to operate as a unified business - 1969 est. ROII ($135M) - 197 3 est. ROII $ 1, 8 12M (adjusted for effect of depletion allowance) - 10 yr. NPV (10% discount rate with 1969 year 1) is $4. 5MM. 2. Major Action Required a. Prepare brochure for prospective purchasers. b. Consolidation of asbestos activities. c. Set up Calidria Asbestos as a separate wholly owned subsidiary of UCC and organize it accordingly. d. Select list of prospective purchasers or select a suitable intermediary. e. Define the terras for divestment 3. Key Points in Major Action Items a. Brochure - Physical assets - Market picture - Technology (Process & Product) - Patents (Terms to be stated in cover letter) b. Consolidate activities - Marketing - Billing - Other accounting c. Subsidiary - Mechanics - Tax factors - Operational factors d. Prospect list; desirable characteristics of potential purchaser - Marketing capabilities -- Technical capabilities - Captive use - Cash position - Profit goals - Diversification goals 11 12 e. Terms - Cash, royalties or both? - Price range - Stoc'". exchange possibilities - ABC type transaction C. Other Considerations 4. cc > r3 :2 -j DC o u. 2 Q> 'O H U . >/ VC < ASBESTOS INVESTMENT M$ GFI PLANT & EQUIPMENT PLANT LAND MINERAL RIGHTS & LAND 2, 600 238 447 3, 285 NET BOOK VALUE 12/31/68 (EST.) 922 238 447 1, 607 3 L i I C A LID R IA ASBESTOS PRODUCT LIN E co O H co HW O (Q W co P ft < f1--t1 o zHP ft ft co H W ft ft w ft o 2HP: ft O o 2) P o ft ft P W 2: ft o 0 zl-H ft o o HcoP > ft W ft P co co p ft 5 o 2HP H-l HHP-| to W > co W ft (--I < H zHP ot-J ft ft co ft > CO ft ft M < H 2t--:i o-3 M ft CO H <0 O ft w p H W ft ft W ft P z z w ft o ft w ft co H ft <; ft c w co z < CO W > co ft ft H a p H ft P ft z ft ft o-- ft w ft co 2i--i; CO ft ft w[h CO W H P ft p pi c < 2: < P < O ft ft Q H ft p ft < ft ft. Z O H W U-- Dh 0. om in in in o HP ww o <m in o o o o co *- '"P N "P o (\J o CO oro H HHP H ft O ft P O ft ft --Oo1( 0 cn ^4* --w 6 CO oo 6 cn ^copn i 0 CO *o-p <\J 6 CO ^o"pp 0 ft P ft ft 0HP ft -P 0 ft iiC-nPO 1 H nj 0i oi <HP Z ft o fHtP P < O H HHP O ozHP ft ft o ft 4 PRINCIPAL CUSTOMERS NAME PRODUCT BOISE CASCADE CONWED LONGVIEW FIBER BROWN COMPANY RIEGEL PAPER KENTILE DAUBERT J. W. MORTELL MONTELLO HPP HPP HPO T - 135 T-135 SG- 100 R-G 110 R-G 144 SUP. VISB. OTHER CUSTOMERS ( >,40 ABOVE CUTOFF) THRU M# AUGUST, 1968 M$ 2400 1200 1200 364 360 4900 900 242 1400 12966 7692 20658 131 60 66 53 52 123 52 29 48 614 386 1100 ASBESTOS O & R 1967 NIFS PRDT COST & DIST. GROSS INCOME OVERHEAD OPER. INCOME ROI INCOME PLAN, M$ 3, 801 2, 090 1, 711 1, 074 637 327 ACTUAL M$ % OF PLAN 1,609 42 1, 648 82 (39) -- 932 87 (971) (1, 346) --- 1968 ASBESTOS BUSINESS O & R _____M$ _______________ 7 NIFS PRDT COST & DIST. GROSS INCOME OVERHEAD OPER. INCOME 8 MONTHS ACTUAL PLAN 1, 100 948 152 642 (490) 1,763 1, 713 50 685 ` (635) YEAR ' EST. ACT. PLAN 1, 800 1, 515 285 1,026 (741) 2,912 2,695 217 1,029 (812) ASBESTOS SALES BY MARKET AREA, M$ MARKET AREA PULP & PAPER FLOORING NEW POLYMERS EXPORT TOTAL YEAR 1967 1, 042 343 99 125 1, 609 1968 8 MOS. PLAN 1968 8 MOS. 1,090 617 232 180 182 186 269 117 1,773 1,100 1968 8 MOS. % PLAN 57 78 102 43 62 FACTORS INFLUENCING PERFORMANCE 1. SALES INTO PULP AND PAPER MARKETS 2. HIGH UNIT COST - LOW PRODUCTION 3. SLOW GROWTH OF RESIN GRADE PRODUCTS 4. LACK OF EXPOSURE (EXCEPTING PAPER AREA) ASBESTOS PERFORMANCE AND PROJECTIONS, PAPER MARKET M$ 1967 PLAN ACTUAL 2, 651* 1. 167* 1971 PLAN APRIL 1967 FEB. 1968 JULY 1968 6, 180 3, 700 (INTERPOLATED) 1, 362 * INCLUDES EXPORT (ACTUAL $125M) SIGNIFICANT EVENTS 1. START UP OF R-G 244 PLANT 2. IMPROVED RAW MATERIAL EFFICIENCY 3. REDUCTION OF FINISHED PRODUCT INVENTORY 4. MONTELLO AS A DISTRIBUTOR; HARRISONS & CROSFIELD AS SALES AGENT 5. TRADE NAME "CALIDRIA" ADOPTED 6. ACTIVE MERCHANDIZING PROGRAM 1. OVERHEAD REDUCTION 2. TOO MANY PROGRAMS 3. COMMITMENT IN MANY PROGRAMS 4. CALIDRIA ASBESTOS DIVESTABLE 5. GOOD RETURN POSSIBLE O M2 O < H 2 <> P <co Q Pi O "3 5 CO H CO O O H 2 W Pi P O 2 2 P Pi CO Eh CO o >h U Eh P P W 2 Oi--i o co P P Q 2 < O' o O' H 2t-H CO Eh CO O U W S o CO 2 P H 2 O Eh Eh CO U OW Pi O P w p CQ u P fa W O P W >E-I H co Pi W _ < (L CQ P Eh g O Pi Pi CI--O4 co p H W cl P O ^ H CO CO ow < 2t--I fa CO op co CQ W CO CO O Pi Eh P CO OW o CQ co w >E--4 Eh < 2 < <1--4 Pi PE--< Pi P W <; Eh u P < >H EHhH PE--4 Pi wh-4 CQ CO << w o < Eh El-Hh U\ O Pi P w Eh CO >H EE--h4 W >4--4 PP 2 < > p < 2 Pi w Eh 2E--4 >H HP 2P O <HH U Eh Pi o *"3 < 2 Pi U o 2 O P W Pi Pi P < P co 2 O Eh CO fa Eh o CO O U Eh 2 W O' vOO' c-H s Ep--4 P O < Eh Pi 2P OHH U Eh Eh < CO 2 W 2w O^ M CO P PO W OU w Pi p H 2 W > Eh oo v0Os 2E--4 o o noO P 2 W Eh Pi < o 2E--I W Pi O P Pi fa 2E--4 P P w CQ Eh Eh Eh CO CO co WWW >E--I >E--4 >E--I QQP CO ^ LD T ASBESTOS PROJECTED ECONOMICS 1969 1971 1973 NIFS PRDT COST & DIST. GROSS INCOME OVERHEAD OPER. INCOME ROII ROII ADJ. FOR DEPLETION 3, 210 2, 155 1, 055 925 130 (135) (135) 4, 455 2, 525 1, 930 1, 135 795 530 834 5, 850 3,080 '2, 770 1, 325 1, 445 1, 180 1, 812 NPV 1969 THRU 1978, AT 10% DISCOUNT RATE = $4, 517M (ASSUMES PLANT CAPACITY REACHED IN 197 3 AND NO CHANGE THRU 1978) MAJOR ACTIONS REQUIRED A. PREPARE BROCHURE B. CONSOLIDATE ACTIVITIES C. SET UP CALIDRIA ASBESTOS AS SUBSIDIARY D. SELECT LIST OF PROSPECTS OR A SUITABLE INTERMEDIARY E. DEFINE TERMS FOR DIVESTITURE az X S3 P CQ < H co W W oPi Oi--i Pm co Pi Pm W CO < a z--< m X co w< p CQ CO CO O Q W pt-si ap a os tfl- 2 2 x < E-i > Pi * <w W S Pi O Pm W Q Pi O O U 2 ffl co < PJ O O <M vO vO --1 O in o <m" o o Tt< (V4 o O' O' pinH prH- H00 X < H Pi to sO in in r- o r- 00 E-i U w l~i co CO Pi Pm KM <o zPi W Pm X p Pm O <E-i <O E-i CO p Eh X Pi p Pm W X w >1 co CO Eh Eh >W X <P W CO CO O X X Z Pi W CO CO O P Eh CO Eh > zX o o dCQ O HH E-i < Pi < w K-l o a x l-H Eh < Pi CO W kr . < W Z Eh' CO W kP om in (M co CO << QQ WW 22 PP co CO CO CO << W WEh Eh << Pi Pi XX << Eh Eh co E-i W E-i W x X < oCQ W Pm CO Pm o o X o Pi ,,* 1967 NIFS VERSUS PLAN BY MARKET AREA MARKET AREA PULP & PAPER C. F. & R. NEW POLYMERS EXPORT TOTAL 1967 NIFS 1,047 343 99 125 1,609 PLAN 2, 260 950 200 390 3, 800 % 46 36 48 32 42 0~S. H o in W CM co H vO pH vO or-H CO SO r- wr ^ ' CO h in m cO in nO --* o 00 r--r M1 _,_ r--. --* CM CO in o 00 o sO in CO sO CO rH w *--H" o 00 #h *--- o o m p*wH n--h- in rH CO r-H '--- T* o o roH CM CO CO o oo IT) o Eh in O O Eh *-H CO m 00 00 m CO CM < rrH- H H rU 00 CO m m vO CM O CO DU O PER ATIO N EXPENSE CO o o o 00 4-> (0 w <03 o r-H CM CO m sO t^- 00 W 3* sO 0s H sO 0s r-H sO rc-Hn sO rO-H" sO O' rH nO o rH sO cn rH sO 0s H NO rO-H' Eh O' \D OH' O' N HO' Pc p H< a ffi 00 O' o H Eh sO pcHo HCO HO' wQQ Q Q 2 2: 2: Z 2: Mw ww .Eh . s pH CM CO Z Oi--i Eh S O w a p w p U OOP >CO w oEh co P P Op < P P5 O O p CO WP P P co P P P p rt P hoi CO P Eh <5 Eh CO W oPi 2 vO 2 <0- oPi wz 0 co rt w P oPc w vO OBJ 1 CO 2 pi CO 0 wzo W uh*i o CM w CO OP 1 (M 2 oPi woz CO WhhOii CO < W Eh co Pi < Eh W co PW 1-H 1 0< ow COJ Z Pi ^ \ Ou 2HH: a2H--;< < Pi W oP o0 V A| .'J. *- CO 2H: CO D PQ P wEh < wPw2i: PW<Ephj wWz P| 0 0 o O A| CO D Eh < ffi <CoO ffi <uCO AI - O S o e$ (\JEh CO pH CO TjH < Eh Pi W Eh Pc < II QW Eh < Ph hw2a; CO O UNION CAP.31D5 CORPORATION DIVISION dept. SHEET uc MO. 0.- in u1 S * UNION CA33IDE CORPORATION DIVISION DEPT. SHEET HO. OF UNION CAR3IDE CORPORATION DIVISION DEPT.. SHEET. UC 442.10 PSIN7ZT IN : NO. OF / (9 A ~ '9 UNION CARBIDE CORPORATION DIVISION L'C DEPTNO. SHEET OP sTfD IN V 5 A UNION CARBIDE CORPORATION DlYIS'lO/i DEPT. SHEET CC 442-1 S>STC3 I v V K. HO. CF iz? ./? n Bi c /' y By t A' C ,? / n UNION CARBIDE CORPORATION Division OcTT SHEET t; <4;.o OF SUBJECTlPATE---------------------------------------- I". S A. 1. UCC is cdnsidering divestment of the Calidria Asbestos business and will plan to do so if a financially attractive and otherwise suitable offer is received. The business will continue to be actively conducted by UCC while this is being investigated and it is anticipated that, in the event the business is sold, the purchaser will follow the market pattern set by UCC. 2. UCCJs decision to consider an offer for the Calidria Asbestos business is made on the bases that: a. UCC is aiming to concentrate its newer program efforts in areas more directly served by UCC's special expertise and technology. Although the Calidria Asbestos business has an attractive financial future, it is not as closely related to UCC's basic skills as are many of its other programs. b. The Calidria Asbestos business is a clearly defined, separate activity of UCC and thus represents a well structured divestment opportunity. This is not true of some businesses, which form a part of a large plant or operational complex. c. UCC's Calidria Asbestos assets, consisting of plant, mineral reserve, patents and customers, are tangible and of significant value. UCC thus believes that a good return can be realized from sale of this business. 3. UCC fully intends to continue prosecuting the Calidria Asbestos business activity and will provide a continuing supply of material to all customers during this period.