________________________________________________________________________________
________________________________________________________________________________
FORM 10-Q
---------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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(Mark One)
[ 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 ....................
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Commission file number: (1-13888)
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UCAR INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)
Delaware 06-1385548
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
---------------
39 Old Ridgebury Road 06817-0001
Danbury, Connecticut (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (203) 207-7700
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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 [ ]
As of September 30, 1997, 45,920,429 shares of common stock, par value $.01 per
share, were outstanding.
________________________________________________________________________________
________________________________________________________________________________
<PAGE>
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements:
-------------------------------
Consolidated Balance Sheets as of September 30, 1997
and December 31, 1996........................................ Page 3
Consolidated Statements of Operations for the Three Months
ended September 30, 1997 and 1996 and for the Nine Months
ended September 30, 1997 and 1996............................ Page 4
Consolidated Statements of Cash Flows for the Nine Months
ended September 30, 1997 and 1996............................ Page 5
Consolidated Statement of Stockholders' Equity (Deficit) for the
Nine Months ended September 30, 1997......................... Page 6
Notes to Consolidated Financial Statements..................... Page 7
Item 2. Management's Discussion and Analysis of Financial Condition
---------------------------------------------------------------------
and Results of Operations.............................. Page 11
-------------------------
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings...................................... Page 18
---------------------------
Item 6. Exhibits and Reports on Form 8-K....................... Page 19
------------------------------------------
SIGNATURE.......................................................... Page 20
INDEX TO EXHIBITS.................................................. Page E-1
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- ----------------------------
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in millions, except per share data)
September 30, December 31,
ASSETS 1997 1996
---- ----
CURRENT ASSETS: (Unaudited)
Cash and cash equivalents........................... $ 72 $ 95
Short-term investments.............................. 15 -
Notes and accounts receivable....................... 233 185
Inventories:
Raw materials and supplies....................... 49 39
Work in process.................................. 126 100
Finished goods................................... 31 37
------ -----
206 176
Prepaid expenses.................................... 23 27
------ -----
Total current assets....................... 549 483
------ -----
Property, plant and equipment......................... 1,269 1,087
Less: accumulated depreciation........................ 720 653
------ -----
Net fixed assets........................... 549 434
------ -----
Company carried at equity............................. - 18
Other assets.......................................... 87 53
------ -----
Total assets............................... $ 1,185 $ 988
====== =====
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable.................................... $ 59 $ 67
Short-term debt..................................... 71 53
Payments due within one year on long-term debt...... 31 1
Accrued income and other taxes...................... 38 37
Other accrued liabilities........................... 85 91
------ -----
Total current liabilities.................. 284 249
------ -----
Long-term debt........................................ 629 581
Other long-term obligations........................... 149 138
Deferred income taxes................................. 48 16
Minority stockholders' equity in consolidated entities 13 6
------ -----
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, par value $.01, 10,000,000 shares
authorized, none issued........................... - -
Common stock, par value $.01, 100,000,000 shares
authorized, 47,322,179 shares issued at
September 30, 1997, 46,614,724 shares issued at
December 31, 1996................................. - -
Additional paid-in capital.......................... 508 498
Cumulative foreign currency translation adjustment.. (126) (116)
Retained earnings (deficit)......................... (268) (384)
------ -----
114 (2)
Less cost of common stock held in treasury,
1,401,750 shares ................................. (52) -
------ -----
Total stockholders' equity (deficit).... 62 (2)
------ -----
Total liabilities and stockholders' equity
(deficit).............................. $ 1,185 $ 988
====== =====
See accompanying Notes to Consolidated Financial Statements.
3
<PAGE>
<TABLE>
PART I (Cont.)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in millions, except per share data)
(Unaudited)
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales.............................................................. $ 278 $ 227 $ 806 $ 711
Cost of sales.......................................................... 174 141 504 436
------ ------ ------ ------
Gross profit........................................................... 104 86 302 275
Research and development............................................... 3 2 7 6
Selling, administrative and other expenses............................. 25 21 75 66
Other (income) expense (net)........................................... 5 - 6 1
------ ------ ------ ------
Operating profit................................................ 71 63 214 202
Interest expense....................................................... 17 16 48 47
------ ------ ------ ------
Income before provision for income taxes........................ 54 47 166 155
Provision for income taxes............................................. 17 14 51 52
------ ------ ------ ------
Income of consolidated entities................................. 37 33 115 103
Less: minority stockholders' share of income........................... - - 1 -
Plus: UCAR share of net income from company carried at equity.......... - 2 2 5
------ ------ ------ ------
Income before cumulative effect of change in
accounting principle.......................................... 37 35 116 108
Cumulative effect on prior years of change in
accounting for inventories......................................... - - - 7
------ ------ ------ ------
Net income...................................................... $ 37 $ 35 $ 116 $ 115
====== ====== ====== ======
PRIMARY NET INCOME PER COMMON SHARE:
Income before cumulative effect of change in
accounting principle............................................ $ 0.77 $ 0.72 $ 2.42 $ 2.22
Cumulative effect on prior years of change in
accounting for inventories...................................... - - - 0.15
------ ------ ------ ------
Primary net income per share................................ $ 0.77 $ 0.72 $ 2.42 $ 2.37
====== ====== ====== ======
Weighted average common shares outstanding
(in thousands).............................................. 47,711 48,619 48,074 48,405
====== ====== ====== ======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
4
<PAGE>
PART I (Cont.)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(Dollars in millions)
(Unaudited)
Nine Months
Ended September 30,
-------------------
1997 1996
---- ----
CASH FLOW FROM OPERATING ACTIVITIES:
Net income ................................................ $ 116 $ 115
Cumulative effect on prior years of change in
accounting for inventories................................ - (7)
Non-cash charges to net income:
Depreciation.and amortization........................... 38 28
Deferred income taxes................................... (8) 17
Other non-cash charges.................................. 5 10
Working capital*........................................... (48) (53)
Long-term assets and liabilities........................... 6 (5)
---- ----
NET CASH PROVIDED BY OPERATING ACTIVITIES............. 109 105
---- ----
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures....................................... (46) (37)
Purchase of subsidiaries, net of cash acquired............. (124) (3)
Purchases of short-term investments........................ (15) -
Redemption/sale of assets.................................. 1 1
---- ----
NET CASH USED IN INVESTING ACTIVITIES................. (184) (39)
---- ----
CASH FLOW FROM FINANCING ACTIVITIES:
Short-term debt............................................ 18 6
Long-term debt borrowings.................................. 168 2
Long-term debt reductions.................................. (90) (42)
Sale of common stock....................................... 5 3
Financing costs............................................ (2) -
Purchase of treasury stock................................. (52) -
Tax benefit arising from exercise of employee stock options 5 3
---- ----
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES... 52 (28)
---- ----
Net increase (decrease) in cash and cash equivalents........ (23) 38
Cash and cash equivalents at beginning of period............ 95 53
---- ----
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 72 $ 91
==== ====
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Net cash paid during the periods for:
Interest expense......................................... $ 50 $ 46
Income taxes............................................. 53 39
*Net change in working capital by component (excluding
cash and cash equivalents, short-term investments,
deferred income taxes and short-term debt):
(Increase) decrease in current assets:
Notes and accounts receivable:
Sale of receivables............................... $ (1) $ 3
Other changes..................................... (22) (2)
Inventories........................................... 7 (25)
Prepaid expenses and other current assets............. (1) 4
Decrease in payables and accruals....................... (31) (33)
---- ----
WORKING CAPITAL................................... $ (48) $ (53)
==== ====
See accompanying Notes to Consolidated Financial Statements.
5
<PAGE>
<TABLE>
PART I (Cont.)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(Dollars in millions)
(Unaudited)
<CAPTION>
Cumulative
Foreign
Additional Currency Retained Total
Common Paid-in Translation Earnings Treasury Stockholders'
Stock Capital Adjustment (Deficit) Stock Equity (Deficit)
----- ------- ---------- --------- ----- ----------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996........... $ - $ 498 $ (116) $ (384) $ - $ (2)
Exercise of employee stock options..... - 6 - - - 6
Tax benefit arising from exercise
of employee stock options........... - 5 - - - 5
Purchase of treasury stock............. - - - - (52) (52)
Cost of secondary offering............. - (1) - - - (1)
Translation adjustments................ - - (10) - - (10)
Net income............................. - - - 116 - 116
----- ----- ----- ----- ----- -----
BALANCE AT SEPTEMBER 30, 1997.......... $ - $ 508 $ (126) $ (268) $ (52) $ 62
===== ===== ===== ===== ===== =====
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
6
<PAGE>
PART I (Cont.)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Cont.)
(Unaudited)
(1) INTERIM FINANCIAL PRESENTATION
The interim Consolidated Financial Statements are unaudited; however, in
the opinion of management, they have been prepared in accordance with
Rule 10-01 of Regulation S-X adopted by the Securities and Exchange
Commission ("Commission") and reflect all adjustments (all of which are
of a normal, recurring nature) which are necessary for a fair statement
of financial condition, results of operations, cash flows and changes in
stockholders' equity (deficit) for the periods presented. Results of
operations for the nine months ended September 30, 1997 are not
necessarily indicative of the results that may be expected for the entire
year ending December 31, 1997.
As used in these Notes, references to "UCAR" mean UCAR International
Inc., to "Global" mean UCAR Global Enterprises Inc., a direct,
wholly-owned subsidiary of UCAR, and to the "Company" mean UCAR and its
subsidiaries (including Global), collectively. Separate financial
statements of Global are not presented because they would not be material
to holders of senior subordinated notes.
(2) UCAR GLOBAL ENTERPRISES INC.
UCAR has no material assets, liabilities or operations other than those
that result from its ownership of 100% of the outstanding common stock of
Global.
The following is a summary of the consolidated assets and liabilities of
Global and its subsidiaries and their consolidated results of operations:
September 30, December 31,
1997 1996
---- ----
Assets: (Dollars in millions)
Current assets................ $ 549 $ 483
Non-current assets............ 636 505
------ ------
Total assets............... $ 1,185 $ 988
====== ======
Liabilities:
Current liabilities........... $ 284 $ 249
Non-current liabilities....... 826 735
------ ------
Total liabilities.......... $ 1,110 $ 984
====== ======
Minority stockholders' equity in
consolidated entities............ $ 13 $ 6
====== ======
7
<PAGE>
PART I (Cont.)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Cont.)
(Unaudited)
Three Months Nine Months
Ended September 30, Ended September 30,
1997 1996 1997 1996
---- ---- ---- ----
(Dollars in millions)
Net sales............................. $ 278 $ 227 $ 806 $ 711
Gross profit.......................... 104 86 302 275
Income before cumulative effect of
change in accounting principles..... 37 35 116 108
Net income ........................... 37 35 116 115
(3) CHANGE IN ACCOUNTING FOR INVENTORIES
Effective January 1, 1996, the Company changed its method of determining
LIFO inventories. The new methodology provides specifically identified
parameters for defining new items within the LIFO pool which the Company
believes improves the accuracy of costing those items.
The Company recorded income of $7 million (after related income taxes of
$4 million) as the cumulative effect on prior years of this change in
accounting for inventories. The Company believes this change will not
materially impact the Company's on-going results of operations.
(4) AMENDMENTS TO CREDIT FACILITIES
On March 19, 1997, the Company's senior secured bank credit facilities
(the "Senior Bank Facilities") were amended to reduce the interest rates
on amounts outstanding thereunder, to increase the amount available under
its revolving credit facility to $250 million from $100 million and to
change the covenants to allow more flexibility in uses of free cash flow
for acquisitions, capital expenditures and stock repurchases. The
interest rates applicable to the Senior Bank Facilities were reduced from
an adjusted LIBOR plus a margin ranging from 1.00% - 2.00% to an adjusted
LIBOR plus a margin ranging from 0.75% - 1.50%.
(5) STOCK REPURCHASE PROGRAM
On February 10, 1997, UCAR's Board of Directors authorized a program to
repurchase up to $100 million of common stock at prevailing prices from
time to time in the open market or otherwise depending on market
conditions and other factors, without any established minimum or maximum
time period or number of shares. On April 8, 1997, concurrent with the
1997 Secondary Offering (as defined below) and as part of this program,
UCAR repurchased 1,300,000 shares of common stock from Blackstone (as
defined below) for $47.5 million (the "Blackstone Share Repurchase"). In
the three months ended September 30, 1997, the Company repurchased
101,750 shares of common stock for $4.5 million under this program.
8
<PAGE>
PART I (Cont.)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Cont.)
(Unaudited)
(6) SECONDARY OFFERING
On April 8, 1997, 6,411,227 shares of common stock were sold by
Blackstone Capital Partners II Merchant Banking Fund L.P. and its
affiliates (collectively, "Blackstone") in a secondary public offering
(the "1997 Secondary Offering"). After the 1997 Secondary Offering and
the Blackstone Share Repurchase, Blackstone ceased to be a principal
stockholder of UCAR. UCAR did not sell any shares in, or receive any
proceeds from, the 1997 Secondary Offering.
(7) INCOME TAXES
In the nine months ended September 30, 1997 and 1996, the Company paid
$53 million and $39 million, respectively, to various taxing authorities
and provided $51 million and $52 million, respectively, for income tax
expense. In the nine months ended September 30, 1997, income tax expense
was lower than the amount computed by applying the United States Federal
income tax rate primarily due to tax credits recognized in the United
States associated with research and development expenses and tax benefits
recognized in Italy and Spain associated with capital expenditures and
fixed asset revaluations, respectively.
(8) EARNINGS PER SHARE
Primary net income per share is computed by dividing net income by the
weighted average number of common shares outstanding during the period.
The weighted average number of common shares outstanding includes common
stock equivalents calculated in accordance with the "treasury stock
method," wherein the net proceeds from the exercise thereof are assumed
to be used to repurchase outstanding shares of common stock at the
average market price for the period. Fully diluted earnings per share is
not significantly different than primary net income per share and,
therefore, has not been presented.
(9) CONTINGENCIES
On June 5, 1997, the Company was served with subpoenas issued by the
United States District Court for the Eastern District of Pennsylvania to
produce documents to a grand jury convened by attorneys for the Antitrust
Division of the United States Department of Justice ("DOJ") and a related
search warrant. Counsel for the Company has been informed by the DOJ that
the grand jury is investigating whether there has been any violation of
Federal antitrust laws by producers of graphite electrodes. Concurrently,
the antitrust enforcement authorities of the European Union ("EU
authorities") visited offices of the Company's French subsidiary for
purposes of gathering information to determine whether there has been any
violation by producers of graphite electrodes of the antitrust laws of
the European Union. Subsequently, the Company was served with subpoenas
in the United States to produce documents relating to carbon electrodes
and bulk
9
<PAGE>
PART I (Cont.)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Cont.)
(Unaudited)
graphite. The Company, through its counsel, is cooperating with the DOJ
and the EU authorities. At this time, as far as the Company is aware, no
governmental authority has made a finding or allegation that any person
or company violated any antitrust law. No provision for any liability
related to such matters has been made in the Consolidated Financial
Statements.
On June 17, 1997, UCAR was served with a complaint commencing a putative
class action lawsuit alleging violations of Federal antitrust laws.
Subsequently through October 30, 1997, UCAR has been served with four
additional complaints commencing similar lawsuits. UCAR and other
graphite electrode producers are named as defendants in each complaint.
None of the complaints contains any specific allegations of the factual
basis underlying such violations, and all of the complaints appear to be
based on the existence of the previously announced grand jury
investigation. In each complaint, the proposed class consists of all
persons who purchased graphite electrodes in the United States directly
from the defendants during the period from 1992 through the present. Each
complaint seeks, among other things, an award of treble damages resulting
from the alleged antitrust violations. Subsequently, one of the lawsuits
was withdrawn without prejudice to re-file and all of the other lawsuits
were consolidated into a single action. The Company has filed a motion to
dismiss the consolidated complaint. On October 10, 1997, the District
Court ordered a nine month stay of certain formal discovery proceedings.
Since the consolidated lawsuit is still in its early stages no
determination of potential liability has been made. The Company intends
to vigorously defend against these lawsuits. No provision for any
liability related to such matters has been made in the Consolidated
Financial Statements.
10
<PAGE>
PART I (Cont.)
UCAR INTERNATIONAL INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- --------------------------------------------------------------------------------
OF OPERATIONS
-------------
This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Actual results,
events and circumstances could differ materially from those set forth in such
statements due to various factors. Such factors include the possibility that
announced additions to electric arc furnace steel production capacity may not
occur, that increased electric arc furnace steel production may not occur or
result in increased demand or higher prices for graphite electrodes, that
acquired manufacturing capacity may not be fully utilized, that technological
advances expected by the Company (as defined herein) may not be achieved or that
unanticipated events or difficulties relating to the recent acquisitions and the
investigation and related lawsuit described below may occur, the impact of
changes in currency exchange rates, changes in economic and competitive
conditions and technological developments, and other risks and uncertainties,
including those set forth in the Company's other filings with the Securities and
Exchange Commission.
As used herein, references to "UCAR" mean UCAR International Inc., to "Global"
mean UCAR Global Enterprises Inc., a direct, wholly-owned subsidiary of UCAR,
and to the "Company" mean UCAR and its subsidiaries (including Global),
collectively.
GENERAL
In 1995, the Company consummated (i) a leveraged recapitalization as a result of
which Blackstone Capital Partners II Merchant Banking Fund L.P. and its
affiliates (collectively, "Blackstone") became the owners of approximately 69%
of the then outstanding shares of common stock (the "Recapitalization"), (ii) an
initial public offering of common stock (the "Initial Offering"), (iii) a
redemption of $175 million principal amount of senior subordinated notes (the
"Subordinated Notes") at a redemption price equal to 110% of the aggregate
principal amount thereof, plus accrued interest of approximately $4 million
thereon (the "Redemption"), (iv) a refinancing of its then existing
recapitalization credit facilities (the "Recapitalization Bank Facilities") with
new credit facilities (the "Senior Bank Facilities") at more favorable interest
rates and with more favorable covenants and (v) the acquisition of substantially
all of the shares of its Brazilian subsidiary owned by public shareholders in
Brazil for an aggregate purchase price of $52 million, plus expenses of $3
million. Subsequent to 1995, the Company acquired additional shares from such
Brazilian shareholders for $3 million. The acquisitions were accounted for as
purchases.
In March 1996, Blackstone and certain other stockholders sold certain shares of
common stock in a secondary public offering (the "1996 Secondary Offering").
After the 1996 Secondary Offering, Blackstone owned approximately 20% of the
then outstanding shares of common stock. UCAR did not sell any shares in, or
receive any proceeds from, the 1996 Secondary Offering.
In November 1996, the Company acquired 90% of the equity of UCAR Grafit OAO
("UCAR Grafit") in Vyazma, Russia. The aggregate investment was $50 million.
Subsequently, the Company increased its investment in UCAR Grafit by $7 million.
In the three months ended March 31, 1997, the Company
11
<PAGE>
PART I (Cont.)
UCAR INTERNATIONAL INC.
acquired 70% of the equity of Carbone Savoie S.A.S. ("Carbone Savoie") for a
purchase price of $33 million and, through a newly-formed 70%-owned subsidiary,
UCAR Elektroden GmbH ("UCAR Elektroden"), acquired the graphite electrode
business of Elektrokohle Lichtenberg AG ("EKL") in Berlin, Germany, for an
aggregate purchase price of $15 million. In April 1997, the Company acquired the
outstanding shares of EMSA (Pty.) Ltd., its 50%-owned affiliate ("EMSA"), held
by the Company's joint venture partner in South Africa, for a purchase price of
$75 million. The acquisition of these businesses and companies (collectively,
the "Recently Acquired Businesses"), which were financed from existing cash
balances, cash flow from operations, short-term borrowings and borrowings under
the Company's revolving credit facility, were accounted for as purchases.
On February 10, 1997, UCAR's Board of Directors authorized a program to
repurchase up to $100 million of common stock at prevailing prices from time to
time in the open market or otherwise depending on market conditions and other
factors, without any established minimum or maximum time period or number of
shares. On April 8, 1997, Blackstone sold shares of common stock in a secondary
public offering (the "1997 Secondary Offering"). Concurrently with the 1997
Secondary Offering and as part of this program, the Company repurchased
1,300,000 shares of common stock from Blackstone for $47.5 million (the
"Blackstone Share Repurchase"). After the 1997 Secondary Offering and the
Blackstone Share Repurchase, Blackstone ceased to be a principal stockholder of
UCAR. UCAR did not sell any shares in, or receive any proceeds from, the 1997
Secondary Offering. In the three months ended September 30, 1997, the Company
repurchased 101,750 shares of common stock for $4.5 million under this program.
UCAR financed and intends to finance such repurchases from existing cash
balances, cash flow from operations, short-term borrowings and borrowings under
the Company's revolving credit facility.
RESULTS OF OPERATIONS
Three Month and Nine Month Periods ended September 30, 1997 as Compared to Three
Month and Nine Month Periods ended September 30, 1996
Net sales of $278 million in the third quarter of 1997 ("1997 Third Quarter")
represented a 22% increase over net sales of $227 million in the third quarter
of 1996 ("1996 Third Quarter"). The increase was largely attributable to an
increase in net sales of graphite electrodes and aluminum industry products,
partially offset by the impact of a stronger dollar on net sales (in dollar
terms) in certain countries. Net sales of graphite electrodes increased 23% to
$204 million in the 1997 Third Quarter from $166 million in the 1996 Third
Quarter. The increase in net sales of graphite electrodes was attributable to an
increase of 14,400 metric tons, or 29%, in the volume of graphite electrodes
sold to 63,400 metric tons in the 1997 Third Quarter from 49,000 metric tons in
the 1996 Third Quarter. Excluding graphite electrodes sold by the Recently
Acquired Businesses, the volume of graphite electrodes sold increased by 10% to
54,100 metric tons. The Recently Acquired Businesses added $27 million of
graphite electrode net sales on volume of approximately 9,000 metric tons of
graphite electrodes sold. The Company currently believes that total electric arc
furnace steel production will increase at least at the historical trend line
growth rate of 4% per year for the next several years under current economic and
industry conditions. With that growth, the Company currently believes that
graphite electrode demand, net of any decline in
12
<PAGE>
specific consumption, should grow at approximately 2% per year. The average
selling price per metric ton (in dollars and net of changes in currency exchange
rates) for the Company's graphite electrodes was $3,081 in the 1997 Third
Quarter as compared to $3,111 in the 1996 Third Quarter (after taking into
account the average selling price per metric ton of graphite electrodes sold by
the Recently Acquired Businesses in the 1997 Third Quarter and including EMSA in
the 1996 Third Quarter). The average selling price per metric ton (in dollars)
of the Company's graphite electrodes was lower in the 1997 Third Quarter than in
the 1996 Third Quarter as a result of the continued strengthening of the dollar
as compared to other currencies, particularly Western European currencies, and
the impact of the Recently Acquired Businesses. The Recently Acquired Businesses
currently have average selling prices below the company-wide average of the
Company's graphite electrodes business. The Company has already informed
customers in certain markets of local currency price increases to take effect in
the second half of 1997 and first quarter of 1998 in effort to minimize the
impact of the strengthening dollar. Primarily due to the recent acquisition of
Carbone Savoie, net sales of aluminum industry products increased approximately
$13 million to $18 million in the 1997 Third Quarter. Net sales of $56 million
of carbon and graphite specialties and Grafoil(R) in the 1997 Third Quarter were
comparable to those in the 1996 Third Quarter.
Net sales in the nine months ended September 30, 1997 (the "1997 Period") were
$806 million, an increase of 13% over net sales of $711 million in the nine
months ended September 30, 1996 (the "1996 Period"). The increase was largely
attributable to an increase in net sales of graphite electrodes and aluminum
industry products, partially offset by the impact of a stronger dollar on net
sales (in dollar terms) in certain countries. Net sales of graphite electrodes
were $574 million in the 1997 Period as compared to $519 million in the 1996
Period, an increase of 11%. The increase in net sales of graphite electrodes was
attributable to an increase of 21,600 metric tons, or 14%, in the volume of
graphite electrodes sold to 175,400 metric tons in the 1997 Period from 153,800
metric tons in the 1996 Period. Excluding graphite electrodes sold by the
Recently Acquired Businesses, the volume of graphite electrodes sold increased
by 2.5% to 157,700 metric tons. The Recently Acquired Businesses added $55
million of graphite electrode net sales in the 1997 Period on volume of
approximately 17,700 metric tons of graphite electrodes sold. The average
selling price per metric ton (in dollars and net of changes in currency exchange
rates) for the Company's graphite electrodes was $3,105 in the 1997 Period as
compared to $3,082 in the 1996 Period (after taking into account the average
selling price per metric ton of graphite electrodes sold by the Recently
Acquired Businesses in the 1997 Period and including EMSA in the 1996 Period).
Primarily due to the recent acquisition of Carbone Savoie, net sales of aluminum
industry products increased approximately $46 million to $62 million in the 1997
Period. Net sales of $170 million of carbon and graphite specialties and
Grafoil(R) in the 1997 Period were comparable to those in the 1996 Period.
Cost of sales increased 23% to $174 million in the 1997 Third Quarter from $141
million in the 1996 Third Quarter. This increase was primarily due to the impact
of the Recently Acquired Businesses and the increased volume of graphite
electrodes sold. The Recently Acquired Businesses currently have margins below
the company-wide average of the Company's pre-existing businesses. In the 1997
Period, cost of sales increased 16% to $504 million from $436 million in the
1996 Period, also due
13
<PAGE>
PART I (Cont.)
UCAR INTERNATIONAL INC.
primarily to the impact of the Recently Acquired Businesses and the increased
volume of graphite electrodes sold.
As a result of the changes described above, the Company's gross profit margin
decreased to 37.4% in the 1997 Third Quarter from 37.9% in the 1996 Third
Quarter and to 37.5% in the 1997 Period from 38.7% in the 1996 Period. Excluding
the impact of the Recently Acquired Businesses, the gross margin would have
increased to 39.2% in the 1997 Third Quarter and 39.3% in the 1997 Period.
Selling, administrative and other expenses increased to $25 million in the 1997
Third Quarter from $21 million in the 1996 Third Quarter. For the 1997 Period,
selling, administrative and other expenses increased to $75 million from $66
million in the 1996 Period. Excluding the impact of the Recently Acquired
Businesses, selling, administrative and other expenses would have been virtually
unchanged at $21 million in the 1997 Third Quarter and $64 million in the 1997
Period.
Other (income) expense (net) was $5 million of expense in the 1997 Third Quarter
as compared to nil in the 1996 Third Quarter. This change was primarily due to
(i) a $2 million expense as a result of legal fees and other costs associated
with the investigation and related lawsuit described in Item 1. Legal
Proceedings below, (ii) a $2 million expense as a result of consulting fees
associated with projects that the Company is evaluating and undertaking to
further improve operating efficiency, integrate worldwide operations and
generate earnings growth and (iii) a $1 million expense as a result of
amortization of cost in excess of fair value of net assets of Recently Acquired
Businesses. The Company currently anticipates that the expenditures relating to
the investigation and lawsuit will continue at an average rate of approximately
$1.5 million per quarter through 1998. The rate of expenditure will be dependent
on the pace at which the governmental authorities pursue the investigation and
the plaintiffs pursue the lawsuits. The Company currently anticipates that
consulting fees will be approximately $2 million in the fourth quarter of 1997
and will continue to be approximately the same amount through each quarter of
1998. The Company currently anticipates that such projects will have cost pay
back periods of one to two years.
Operating profit in the 1997 Third Quarter was $71 million (25.5% of net sales)
as compared to $63 million (27.8% of net sales) in the 1996 Third Quarter. In
the 1997 Period, operating profit was $214 million (26.6% of net sales) as
compared to $202 million (28.4% of net sales) in the 1996 Period. Excluding the
impact of Recently Acquired Businesses, operating profit margins for the 1997
Third Quarter and the 1997 Period would have been 27.6% and 28.9%, respectively.
Interest expense was stable at $17 million in the 1997 Third Quarter as compared
to $16 million in the 1996 Third Quarter. The average outstanding total debt
balance in the 1997 Third Quarter was $753 million as compared to $634 million
in the 1996 Third Quarter, and the average annual interest rate in the 1997
Third Quarter was 9.0% as compared to 9.7% in the 1996 Third Quarter. The
average outstanding total debt balance was $725 million and the average annual
interest rate was 8.9% in the 1997 Period as compared to an average outstanding
total debt balance of $649 million and an average annual interest rate of 9.6%
in the 1996 Period.
14
<PAGE>
PART I (Cont.)
UCAR INTERNATIONAL INC.
The provision for income taxes was $17 million in the 1997 Third Quarter as
compared to $14 million in the 1996 Third Quarter. The provision for income
taxes was $51 million in the 1997 Period as compared to $52 million in the 1996
Period. In the 1997 Period, the provision for income taxes was lower than the
amount computed by applying the United States Federal income tax rate primarily
due to tax credits recognized in the United States associated with research and
development expenses and tax benefits recognized in Italy and Spain associated
with capital expenditures and fixed asset revaluations, respectively.
As a result of the changes described above, net income for the 1997 Third
Quarter was $37 million, an increase of 6% from net income of $35 million in the
1996 Third Quarter. The increase includes the effect of a combined net loss of
$2.5 million in the 1997 Third Quarter for UCAR Grafit and UCAR Elektroden, a
portion of which is reflected in the margins discussed above. The net loss was
primarily due to local economic conditions which made it difficult to sell
products for currency and to a historical lack of proper accounting systems
which has fostered an environment where product pricing is not necessarily in
line with costs. The Company is developing third party barter relationships and
implementing cost savings measures for these companies. The Company currently
anticipates that these companies will generate net losses in 1998 and will be
profitable and have margins in line with the company-wide averages of the
Company's pre-existing businesses within three to five years. Net income for the
1997 Period was $116 million, an increase of 7% from net income of $108 million
(excluding a gain of $7 million for a change in accounting for inventories) in
the 1996 Period. The increase includes the effect of a combined net loss of $4
million in the 1997 Period for UCAR Grafit and UCAR Elektroden.
LIQUIDITY AND CAPITAL RESOURCES
The Company's sources of funds have consisted principally of invested capital,
operating cash flow and debt financing from banks and institutional investors.
The Company's uses of those funds (other than for operations) have consisted
principally of debt reduction, capital expenditures, distributions to or
repurchases of equity from stockholders (in connection with the Recapitalization
and the Blackstone Share Repurchase), acquisition of controlling interests in
new companies or businesses and acquisition of minority stockholders' shares of
consolidated subsidiaries. Acquisitions and repurchases under UCAR's stock
repurchase program have been and are expected to be financed from existing cash
balances, cash flow from operations, short-term borrowings and borrowings under
the Company's revolving credit facility.
Debt Financing and Amendments to Credit Facilities
At September 30, 1997, the Company had total debt of $731 million and
stockholders' equity of $62 million as compared to total debt of $635 million
and a stockholders' deficit of $2 million at December 31, 1996. At September 30,
1997, cash, cash equivalents and short-term investments were $87 million as
compared to $95 million at December 31, 1996. The additional borrowings were
made and cash and cash equivalents were used primarily to finance the Blackstone
Share Repurchase and the acquisition of the Recently Acquired Businesses.
15
<PAGE>
PART I (Cont.)
UCAR INTERNATIONAL INC.
On March 19, 1997, the Senior Bank Facilities were amended to reduce the
interest rates on amounts outstanding thereunder, to increase the amount
available under the revolving credit facility to $250 million from $100 million
and to change the covenants to allow more flexibility in uses of free cash flow
for acquisitions, capital expenditures and stock repurchases.
Inventory Levels and Working Capital
During the 1997 Period, working capital increased by $31 million. Excluding the
impact of the Recently Acquired Businesses, working capital decreased by $13
million during the 1997 Period. Notes and accounts receivable increased $11
million mainly due to increased net sales. The increase was due to net sales
which were partially offset by foreign currency translation adjustments
resulting from the continued strengthening of the dollar as compared to other
currencies. Accounts payable, accrued income taxes and other accrued liabilities
decreased by $52 million primarily as a result of foreign currency translation
adjustments as well as decreases in tax liabilities and accrued liabilities and
accounts payable of the Recently Acquired Businesses. Short-term debt and
payments due within one year on long-term debt increased by $18 million and $30
million, respectively. These increases were the result of increased short-term
borrowings by certain foreign subsidiaries to meet local cash needs and current
installment payments due in 1998 under the Senior Bank Facilities, respectively.
Inventory levels declined by $18 million partially as a result of foreign
currency translation adjustments. Inventory levels at any specified date are
affected by increases in inventories of raw materials to meet anticipated
increases in sales of finished products, customer buy-ins and other factors
affecting net sales from quarter to quarter. Cash, cash equivalents and
short-term investments were $8 million lower at September 30, 1997 than at
December 31, 1996.
Capital Expenditures
Capital expenditures aggregated $46 million in the 1997 Period as compared to
$37 million in the 1996 Period. The Company expects capital expenditures in 1997
to total between approximately $75 million and $80 million (including
approximately $15 million for capital improvements relating to facilities held
by Recently Acquired Businesses). Most of the Company's capital expenditures
have been, and are expected to be, made to maintain existing facilities and
equipment, achieve cost savings and improve operating efficiencies.
Restrictions on Dividends and Distributions
Under the Senior Bank Facilities, as amended on March 19, 1997, Global and UCAR
are generally permitted to pay dividends to their respective stockholders and
repurchase common stock only in an aggregate cumulative amount subsequent to
March 19, 1997 equal to a percentage, ranging from 50% to 65% based on certain
financial tests, of cumulative adjusted consolidated net income subsequent to
December 31, 1996 (provided that (i) in any event, dividends and repurchases
aggregating up to $15 million are permitted in any twelve-month period and (ii)
dividends and repurchases that were permitted during the period from October 19,
1995 through December 31, 1996 but not paid or made (not
16
<PAGE>
PART I (Cont.)
UCAR INTERNATIONAL INC.
exceeding $45,000,000) may be paid or made during 1997 in addition to dividends
and repurchasesotherwise permitted in 1997). In addition, if certain financial
tests are not met, total dividends and repurchases in any year may not exceed
$65,000,000. In addition, Global is permitted to pay dividends to UCAR (i) in
respect of UCAR's administrative fees and expenses and (ii) for the specific
purpose of the purchase or redemption by UCAR of capital stock held by present
or former officers of the Company up to $5 million per year or $25 million in
the aggregate. In general, amounts which are permitted to be paid as dividends
in a year but are not so paid may be paid in subsequent years. The indenture
relating to the Subordinated Notes also limits the payment of dividends by
Global to UCAR.
CHANGES IN ACCOUNTING PRINCIPLES
Effective January 1, 1996, the Company changed its method of determining LIFO
inventories. The new methodology provides specifically identified parameters for
defining new items within the LIFO pool which the Company believes improves the
accuracy of costing those items. The Company recorded income of $7 million
(after related income taxes of $4 million) as the cumulative effect on prior
years of this change in accounting for inventories. The Company believes this
change will not materially impact the Company's on-going results of operations.
Prior to the acquisition of the outstanding shares of EMSA on April 22, 1997,
the Company's investment in EMSA was carried on the equity basis and its
proportional share of the net income was reported in income under the caption
"UCAR share of net income from company carried at equity." The Consolidated
Financial Statements have not been restated to reflect the increased ownership
of EMSA at any date or for any period prior to the date of acquisition.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") 128, "Earnings per Share", which is
effective for financial statements for both interim and annual periods ending
after December 15, 1997. SFAS 128 requires presentation of basic and diluted per
share amounts for income from continuing operations and for net income. The
Company does not expect the adoption of SFAS 128 to materially impact earnings
per share.
17
<PAGE>
PART II. OTHER INFORMATION
UCAR INTERNATIONAL INC.
ITEM 1. LEGAL PROCEEDINGS
- ---------------------------
On June 5, 1997, the Company was served with subpoenas issued by the United
States District Court for the Eastern District of Pennsylvania (the "District
Court") to produce documents to a grand jury convened by attorneys for the
Antitrust Division of the United States Department of Justice ("DOJ") and a
related search warrant. Counsel for the Company has been informed by the DOJ
that the grand jury is investigating whether there has been any violation of
Federal antitrust laws by producers of graphite electrodes. Concurrently,
representatives of the European Union Directorate General IV, the antitrust
enforcement authorities of the European Union (the "EU authorities"), visited
the offices of the Company's French subsidiary for purposes of gathering
information to determine whether there has been any violation by producers of
graphite electrodes of Article 85-1 of the Treaty of Rome, the antitrust law of
the European Union. Subsequently, the Company was served with subpoenas in the
United States to Produce documents relating to carbon electrodes and bulk
graphite. The Company, through its counsel, is cooperating with the DOJ and the
EU authorities. At this time, as far as the Company is aware, no governmental
authority has made a finding or allegation that any person or company violated
any antitrust law. No provision for any liability related to such matters has
been made in the Consolidated Financial Statements.
On June 17, 1997, the Company was served with a complaint commencing a putative
class action lawsuit in the United States District Court for the Western
District of Pennsylvania. Subsequently through October 30, 1997, the Company has
been served with four additional complaints commencing similar lawsuits in the
District Court. UCAR, SGL Carbon Corporation and The Carbide/Graphite Group,
Inc. are named as defendants in each complaint. SGL Carbon AG is named as a
defendant in each of the four subsequently served complaints. The plaintiff
named in the first served complaint is Erie Forge and Steel, Inc., and the
plaintiffs named in the other complaints respectively are: Kentucky Electric
Steel Corporation, Koppel Steel Corporation and Newport Steel Corporation; Al
Tech Specialty Steel Corporation; Caparo Steel Company; and Cascade Steel
Rolling Mills, Inc. In each complaint, the plaintiffs allege that the defendants
violated Federal antitrust laws. None of the complaints contains any specific
allegations of the factual basis underlying such violations, and all of the
complaints appear to be based on the existence of the previously announced grand
jury investigation. In each complaint, the proposed class consists of all
persons who purchased graphite electrodes in the United States directly from the
defendants during the period from 1992 through the present. Each complaint
seeks, among other things, an award of treble damages resulting from the alleged
antitrust violations. On August 5, 1997, the four lawsuits filed in the District
Court were consolidated into a single action in the District Court entitled In
re: Graphite Electrodes Antitrust Litigation. On August 21, 1997, the first
served complaint was withdrawn without prejudice to re-file. On October 10,
1997, the District Court ordered a nine-month stay of certain formal discovery
proceedings. The Company has filed a motion to dismiss the consolidated
complaint. Since the consolidated lawsuit is still in its early stages, no
determination of potential liability has been made. The Company intends to
vigorously defend against these lawsuits. No provision for any liability related
to such matters has been made in the Consolidated Financial Statements.
18
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
(a) EXHIBITS
The exhibits listed in the following table have been filed as part of this
Quarterly Report on Form 10-Q.
Exhibit
Number Description of Exhibit
------ ----------------------
10.22 UCAR International Inc. Amended and Restated Management Stock
Option Plan, effective as of January 26, 1997 (restated to delete
provisions which have ceased to be operative)
11 Statement re: computation of per share earnings
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
No Report on Form 8-K was filed during the quarter for which this Quarterly
Report on Form 10-Q is filed.
19
<PAGE>
UCAR INTERNATIONAL INC.
SIGNATURE
Pursuant to the requirement 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.
UCAR INTERNATIONAL INC.
Date: October 31, 1997 By: /s/ William P. Wiemels
----------------------
William P. Wiemels
Vice President, Chief
Financial Officer and Treasurer
(Principal Financial Officer)
20
<PAGE>
UCAR INTERNATIONAL INC.
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
10.22 UCAR International Inc. Amended and Restated Management Stock
Option Plan, effective as of January 26, 1997 (restated to
delete provisions which have ceased to be operative)
11 Statement re: computation of per share earnings
27 Financial Data Schedule
E-1
EXHIBIT 10.22
THE UCAR INTERNATIONAL INC.
AMENDED AND RESTATED MANAGEMENT STOCK OPTION PLAN
This Management Stock Option Plan is hereby adopted by the Board of
Directors of UCAR International Inc., a Delaware corporation (the "Company"), as
of the Effective Date (as defined below).
ARTICLE I
PURPOSE OF PLAN
The Plan is adopted by the Board for certain management employees of
the Company and its Subsidiaries as a part of the compensation and incentive
arrangements for such employees. The Plan is intended to advance the best
interests of the Company by allowing such employees to acquire an ownership
interest in the Company, thereby motivating them to contribute to the success of
the Company and to remain in the employ of the Company and its Subsidiaries. It
is anticipated that the availability of stock options under the Plan will also
enhance the Company's ability to attract and retain individuals of exceptional
talent to contribute to the sustained progress, growth and profitability of the
Company.
ARTICLE II
DEFINITIONS
For purposes of the Plan, except where the context clearly indicates
otherwise, the following terms shall have the meanings set forth below:
"ACCELERATION EVENT" shall mean an event with respect to which the Plan
provides for the acceleration of the exercisability of Options, as provided in
Section 5.3.
"AFFILIATE" shall mean, with respect to any Person, (i) any other
Person that directly or indirectly Controls, is Controlled by or is under common
Control with such Person, or (ii) any director, officer, partner or employee of
such Person or any Person specified in clause (i) above.
"BOARD" shall mean the Board of Directors of the Company.
"CAUSE" shall have the meaning of "Cause" set forth in a Participant's
Option Agreement.
"CEO" shall mean the Chief Executive Officer of the Company.
"CHANGE OF CONTROL" shall mean the date that:
(i) any "person" (as such term is used in Section 13(d) and
14(d) of the Exchange Act), other than Blackstone Capital Partners II Merchant
Banking Fund L.P. and its Affiliates ("BLACKSTONE"), is or becomes the
beneficial owner (as defined in clause (i)(A) above, except that such person
shall be deemed to have "beneficial ownership" of all shares that any such
person has the right to acquire, whether such right is exercisable immediately
or only after the passage of time), directly or indirectly, of more than 35% of
the total voting power of the Company; or
(ii) the date, following the expiration of any period of two
consecutive years,
<PAGE>
that individuals, who at the beginning of such period
constituted the Board of Directors of the Company (together with any new
directors whose election by such Board of Directors whose nomination for
election by the shareholders of the Company was approved by a vote of 66-2/3% of
the directors of the Company then still in office who were either directors at
the beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
Board of Directors of the Company then in office.
"CODE" shall mean the Internal Revenue Code of 1986, as
amended, and any successor statute.
"COMMITTEE" shall mean the Organization and Compensation
Committee of the Board.
"COMMON STOCK" shall mean the common stock of the Company, par
value $.01.
"COMPANY" shall mean UCAR International Inc., a Delaware
corporation.
"CONTROL" (including, with correlative meaning, all
conjugations thereof) shall mean with respect to any Person, the ability of
another Person to control or direct the actions or policies of such first
Person, whether by ownership of voting securities, by contract or otherwise.
"CUMULATIVE EBITDA" shall mean with respect to any Performance
Option, the sum of the EBITDA for the period commencing on the Grant Date and
ending on the last day of the Plan Year preceding the Determination Date.
"CUMULATIVE EBITDA TARGETS" shall mean with respect to any
Performance Option, the sum of the EBITDA Targets for the period commencing on
the Grant Date and ending on the last day of the Plan Year preceding the
Determination Date.
"DETERMINATION DATE" shall mean the last day of the Plan Year.
"DISABILITY" shall mean the inability of a Participant to
perform in all material respects his duties and responsibilities to the Company,
or any Subsidiary of the Company, by reason of a physical or mental disability
or infirmity which inability is reasonably expected to be permanent and has
continued i) for a period of six consecutive months, or (ii) such shorter period
as the Company may determine. A Participant (or his representative)shall furnish
the Company with satisfactory medical evidence documenting the Participant's
disability or infirmity.
"EBITDA" shall mean, with respect to the Company and its
Subsidiaries on a consolidated basis for any period, the consolidated net income
of the Company and its Subsidiaries for such period, as determined in accordance
with generally accepted accounting principles consistently applied, PLUS, to the
extent deducted in computing such consolidated net income, without duplication,
the sum of (a) income tax expenses and withholding tax expenses incurred in
connection with cross-border transactions involving non-domestic Subsidiaries,
(b) interest expense, (c) depreciation expense and amortization expense, (d) any
special charges and any extraordinary or non-recurring losses, (e) monitoring
and management fees paid to Blackstone, (f) other noncash items reducing
consolidated net income, and (h) noncash exchange, translation on performance
losses relating to any foreign currency hedging
2
<PAGE>
transactions or currency fluctuations, MINUS, to the extent added in computing
such consolidated net income, without duplication, (i) interest income, (ii)
extraordinary or non-recurring gains, (iii) other noncash items increasing
consolidated net income, (iv) noncash exchange, translation or performance gains
relating to any foreign currency hedging transactions or currency fluctuations,
and (v) all non-cash pension accruals related to FAS '87; PROVIDED that all
effects of the Recapitalization shall be eliminated in computing EBITDA.
"EBITDA TARGET" shall mean with respect to each Plan Year, the
amount set forth in the following table opposite such Plan Year:
Plan Year Ending EBITDA Target
---------------- -------------
December 31, 1995 $ 216,900,000
December 31, 1996 $ 223,400,000
December 31, 1997 $ 256,600,000*
December 31, 1998 $ 271,700,000*
December 31, 1999 $ 287,800,000*
and such other targets as are established by the Committee after consultation
with the CEO with respect to subsequent Plan Years. Asterisked EBITDA Targets
shall not be more than the stated amount but may be adjusted downward by the
Committee, in its sole discretion and shall otherwise be subject to the
provisions of Section 10.3.
"EFFECTIVE DATE" shall mean the Recapitalization Closing Date.
"EMPLOYEE" shall mean any employee of the Company or any of
its Subsidiaries.
"EMPLOYEE LOAN" shall mean any loan made to a Participant on
the Recapitalization Closing Date to assist the Participant in paying certain
income tax liability.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
as amended.
"EXERCISABLE PERCENTAGE" shall mean, with respect to any
Option, the cumulative percentage of the total number of Shares subject to such
Option (measured as of the Grant Date) which a Participant has the right to
receive upon exercising the Option.
"EXERCISE PRICE" shall mean the amount that a Participant must
pay to exercise an Option with respect to one share of Common Stock subject to
such Option, as determined in Section 4.2.
"FAIR MARKET VALUE" shall mean, with respect to any Common
Stock, the average of the high and low trading prices of the 20 business days
immediately preceding the day of the valuation.
"GOOD REASON" shall have the meaning of "Good Reason" set
forth in a Participant's Option Agreement.
"GRANT DATE" shall mean with respect to the initial grant of
Options hereunder, the Recapitalization Closing Date, and thereafter shall mean
the date an Option is granted pursuant to this Plan.
3
<PAGE>
"OPTION" shall mean, with respect to any Participant, (a) any
Time Option or Performance Option, and (b) any option, warrant or right to
acquire shares of the capital stock of the Company issued in respect of an
option referred to in clause (a) above, by way of distribution or in connection
with a merger, consolidation, reorganization or other recapitalization.
"OPTION AGREEMENT" shall mean the Option Agreement between a
Participant and the Company, substantially in the form of agreement attached
hereto as EXHIBIT A.
"OPTION SHARES" shall mean, with respect to any Participant,
(a) any shares of Common Stock (or other shares of capital stock of the Company)
issuable or issued by the Company upon exercise of any Option by such
Participant, and (b) any shares of the capital stock of the Company issuable or
issued in respect of any of the securities described in clause (a) above, by way
of stock dividend, stock split, merger, consolidation, reorganization or other
recapitalization.
"PARTICIPANT" shall mean any individual who holds an
outstanding Option granted under this Plan.
"PERFORMANCE OPTIONS" shall mean the Options described in
Section 5.2 hereof.
"PERSON" shall mean an individual, a partnership, a
corporation, an association, a joint stock company, a trust, a joint venture, an
unincorporated organization and a governmental entity or any department, agency
or political subdivision thereof.
"PLAN" shall mean this Management Stock Option Plan, as
amended from time to time.
"PLAN YEAR" shall mean initially the short plan year beginning
January 26, 1995 and ending on December 31, 1995, and thereafter each of the
calendar years from 1996 through 2007.
"PUBLIC OFFERING" shall mean the sale of shares of Common
Stock pursuant to an effective registration statement under the Securities Act,
which results in an active trading market in Common Stock. If the Common Stock
is listed on a national securities exchange or is quoted on the NASDAQ National
Market, it shall be deemed to be actively traded.
"RECAPITALIZATION" shall mean the recapitalization of the
Company pursuant to the Recapitalization Agreement dated as of November 14, 1994
among Union Carbide Corporation, a New York corporation, Mitsubishi Corporation,
a Japanese corporation, the Company, and UCAR International Acquisition Inc., a
Delaware corporation owned by Blackstone.
"RECAPITALIZATION CLOSING DATE" shall mean January 26, 1995.
"SECURITIES ACT" shall mean the Securities Act of 1933, as
amended.
"SUBSIDIARY" shall mean any corporation of which the Company
owns, directly or through one or more Subsidiaries, a fifty percent (50%) or
more equity interest in such corporation or has the right to nominate fifty
percent (50%) or more of the members of the board of directors or other
governing body of the corporation.
4
<PAGE>
"TIME OPTIONS" shall mean the Options described in Section 5.1
hereof.
"TRANSFER" shall mean, with respect to any Option, the gift,
sale, assignment, transfer, pledge, hypothecation or other disposition (whether
for or without consideration and whether voluntary, involuntary or by operation
of law) of such Option or any interest therein.
ARTICLE III
LIMITATION ON AVAILABLE OPTION SHARES
III.1 OPTION SHARES. The aggregate number of shares of Common
Stock with respect to which Options may be granted under the Plan shall not
exceed 137.63 shares, which represents 12% of the Company's Common Stock
(including the Option Shares) as of the Effective Date; PROVIDED, HOWEVER, that
the aggregate number of shares of Common Stock with respect to which Options may
be granted shall be subject to adjustment in accordance with the provisions of
Section 10.2 below.
III.2 STATUS OF OPTION SHARES. The shares of Common Stock for
which Options may be granted under the Plan may be either authorized and
unissued shares, treasury shares or a combination thereof, as the Committee
shall determine and shall be reserved by the Committee for issuance under this
Plan. To the extent any Options are forfeited, expire or are terminated prior to
exercise, the Option Shares in respect of which such Options were issued shall
become available for reissuance to Employees pursuant to this Plan or any other
plan or agreement approved by the Committee.
ARTICLE IV
GRANT OF OPTIONS
IV.1 OPTIONS. Options shall initially be granted by the
Board of Directors. Thereafter, the Committee shall grant Options to Employees
(after consultation with the Chief Executive Officer).
IV.2 EXERCISE PRICE. The Exercise Price of Options granted
hereunder shall be the Fair Market Value of the Shares subject to the Option,
determined as of the Grant Date.
IV.3 FORM OF OPTION. Options granted under this Plan shall
be non-qualified stock options and are not intended to be "incentive stock
options" within the meaning of Section 422 of the Code or any successor
provisions. Options shall be exercisable with respect to the number of Shares
covered by the Option to the extent they become exercisable (as determined
pursuant to Article VI) and shall thereafter be exercisable until they expire or
are terminated (as determined pursuant to Article VIII).
ARTICLE V
EXERCISABILITY OF OPTIONS
V.1 TIME OPTIONS. Except as otherwise provided in the
Option Agreements, all Time Options granted pursuant to this Plan shall be
immediately exercisable.
5
<PAGE>
V.2 PERFORMANCE OPTIONS.
(a) Performance Options shall become exercisable with
respect to 20% of the Shares subject to such Option, on each Determination Date
that the Company's EBITDA for a Plan Year equals or exceeds the EBITDA Target
for that Plan Year (and with respect to the first Plan Year, EBITDA for the
entire calendar year).
(b) If, after the Grant Date of a Performance Option,
the Company's EBITDA for a Plan Year is less than 100% of the EBITDA Target for
such Plan Year ( a "Missed Year"), no such Performance Option shall become
exercisable with respect to any additional Shares (the "Missed Shares") on the
Determination Date for such Plan Year. If, in any Plan Year subsequent to a
Missed Year EBITDA exceeds the EBITDA Target for such Plan Year AND Cumulative
EBITDA exceeds the Cumulative EBITDA Targets, then Performance Options shall
become exercisable with respect to the Missed Shares attributable to such Missed
Year (but only to the extent such Option has not otherwise terminated).
V.3 ACCELERATION EVENTS. All Time Options not already
exercisable shall become exercisable upon the Participant's termination of
employment on account of death or Disability or upon the satisfaction of
conditions set forth in Participant's Option Agreement. The Committee may, in
its discretion, accelerate the exercisability of Options at any time and for any
reason.
ARTICLE VI
EXERCISE OF OPTIONS
VI.1 RIGHT TO EXERCISE. During the lifetime of a
Participant, Options may be exercised only by such Participant (except that, in
the event of his Disability, Options may be exercised by his or her legal
guardian or legal representative). In the event of the death of a Participant,
exercise of Options shall be made only by the executor or administrator of the
deceased Participant's estate or the Person or Persons to whom the deceased
Participant's rights under the Option shall pass by will or the laws of the
descent and distribution.
VI.2 PROCEDURE FOR EXERCISE. Options may be exercised in
whole or in part with respect to any portion that is exercisable. To exercise an
Option a Participant (or such other Person who shall be permitted to exercise
the Option as set forth in Section 6.1) must complete, sign and deliver to the
Company (to the attention of the Company's Secretary) a notice of exercise in
such form as the Committee may from time to time adopt and provide to a
Participant (the "EXERCISE NOTICE"), together with payment in full of the
Exercise Price multiplied by the number of shares of Common Stock with respect
to which the Option is exercised. Payment of the Exercise Price shall be made in
cash (including check, bank draft or money order). A Participant's right to
exercise the Option shall be subject to the satisfaction of all conditions set
forth in the Exercise Notice. In lieu of paying the Exercise Price, upon a
Participant's request, the Company shall give the Participant a number of shares
of Common Stock equal to (A) divided by (B) where (A) is the excess of the (i)
the Fair Market Value of a share of Common Stock, over (ii) the Exercise Price,
multiplied by (iii) the number of shares for which the Option is being
exercised, and (B) is the Fair Market Value of a share of Common Stock.
VI.3 [Omitted]
VI.4 [Omitted]
6
<PAGE>
VI.5 WITHHOLDING OF TAXES. The Company shall withhold from
any Participant from any amounts due and payable by the Company to such
Participant (or secure payment from such Participant in lieu of withholding) the
amount of any withholding or other tax due from the Company with respect to any
Option Shares issuable under the Plan, and the Company may defer such issuance
unless indemnified to its satisfaction.
ARTICLE VII
EXPIRATION OF OPTIONS
VII.1 EXPIRATION DATE. Options shall expire at 5:00 p.m.
Eastern Standard Time on the day prior to the twelfth anniversary of the Grant
Date (the "Expiration Date") or upon such earlier time as provided in the Option
Agreements.
VII.2 LIMITED STOCK APPRECIATION RIGHT. Upon a Participant's
request, the Company may, in its sole discretion, cancel any Option (in whole or
in part) granted hereunder and pay the affected Participant, the excess of the
(i) the Fair Market Value of a share of Common Stock, over (ii) the Exercise
Price, multiplied by (iii) the number of shares for which the Option is being
cancelled (the "CANCELLATION AMOUNT"); PROVIDED, HOWEVER, that coincident with
any transaction which is reasonably likely to result in a Change of Control the
Company may in its sole discretion, without a Participant's consent, cancel any
Option (in whole or in part) granted hereunder and pay the affected Participant
the Cancellation Amount.
ARTICLE VIII
RIGHTS AND LIMITATIONS
VIII.1 DIVIDEND EQUIVALENTS. (a) If the Board declares a
special or extraordinary dividend in connection with a recapitalization,
reorganization, restructuring or other nonrecurring corporate event to the
holders of its Common Stock, the Company shall pay to an escrow account on
behalf of each Participant an amount (the "Dividend Equivalent") equal to the
dividend they would have received had they directly owned each Option Share
subject to the Time Options and each Option Share with respect to which
Performance Options are vested.
(b) Upon a Participant's exercise of an Option, the
Company shall offset the Exercise Price of each Option Share subject to Options
in respect of which a Dividend Equivalent was paid by the Dividend Equivalent
set aside with respect to such Option Share. Any Dividend Equivalent in excess
of the Exercise Price shall be paid in cash at the time the dividend is paid.
(c) If the Options of a Participant with respect to
which a Dividend Equivalent is set aside are terminated or cancelled prior to
the date the Options are exercised, the Participant shall forfeit the right to
the Dividend Equivalent and any amounts set aside in the Participant's escrow
account in respect of such Dividend Equivalent shall revert to the Company.
VIII.2 REGISTRATION OF OPTION SHARES. The Company has filed,
and shall use its best efforts to keep effective while any Options remain
outstanding, at its own expense, a registration statement on Form S-8 to
register the Option Shares.
7
<PAGE>
VIII.3 TRANSFER OF OPTIONS. Options may not be Transferred
(other than by will or descent).
ARTICLE IX
ADMINISTRATION
IX.1 PLAN ADMINISTRATOR. This Plan shall be administered by
the Committee; provided, however, that the Committee may delegate to the CEO
responsibility for the routine administration of the Plan.
IX.2 COMMITTEE OPTION GRANTS. The Committee shall have the
authority to select Employees to receive Options and to grant Options (except
for the initial grant of Options, which shall be granted by the Board) to
Employees in such amounts as it shall determine, in its full discretion, after
consultation with the Chief Executive Officer.
IX.3 COMMITTEE AUTHORITY. The Committee shall have the sole
and complete responsibility and authority to (a) interpret and construe the
terms of this Plan, (b) correct any defect, error or omission or reconcile any
inconsistency in the Plan or in any Option granted hereunder, and (c) make all
other determinations and take all other actions necessary or advisable for the
implementation and administration of the Plan. The Committee's determinations on
matters within its authority shall be conclusive and binding upon the
Participants, the Company and all other Persons.
IX.4 [Omitted]
ARTICLE X
MISCELLANEOUS
X.1 AMENDMENT, SUSPENSION AND TERMINATION OF PLAN. No
suspension, termination or amendment of or to the Plan shall affect adversely
the rights of any Participant with respect to Options issued hereunder prior to
the date of such suspension, termination or amendment without the consent of
such holder.
X.2 ADJUSTMENTS.
(a) PERFORMANCE TARGETS. The Committee, in consultation
with the Chief Executive Officer, shall adjust the performance targets for Plan
Years following the Plan Year in which an initial Public Offering occurs so that
the Performance Options continue to represent equivalent value for equivalent
performance.
(b) CHANGES IN COMMON STOCK. In the event of a stock
dividend, stock split, or share combination, the Committee shall make such
adjustments in the number and type of shares authorized by the Plan, the number
and type of shares covered by outstanding Options and the Exercise Prices
specified therein and other amendments to the Plan as the Board, in good faith,
determines to be appropriate and equitable.
X.3 FUTURE ACQUISITIONS OR DISPOSITIONS. The EBITDA Targets
are based upon certain revenue and expense assumptions about the future business
of the Company and its Subsidiaries as of the Effective Date. Accordingly, if
the Company or any Subsidiary
8
<PAGE>
acquires, by purchase or otherwise, or disposes of, by sale of stock or assets,
the business, property, or fixed assets, of another Person, which acquisition or
disposition, either singly or together with one or more other such transactions,
will, in the Board's good faith determination, affect the Company's EBITDA, the
Committee shall, in good faith, adjust the EBITDA Targets to reflect the
projected effect of such transaction or transactions.
X.4 NO RIGHT TO PARTICIPATE. Except as otherwise agreed to
by the Company, no Employee shall have a right to be selected as a Participant
or, having been so selected, to be selected again to receive a grant of Options.
X.5 NO EMPLOYMENT CONTRACT. Nothing in this Plan shall
interfere with or limit in any way the right of the Company or any of its
Subsidiaries to terminate any Participant's employment at any time (with or
without Cause as defined in the Participant's Employment Agreement, if
applicable), nor confer upon any Participant any right to continued employment
by the Company or any of its Subsidiaries for any period of time or to continue
such employee's present (or any other) rate of compensation.
X.6 CONSTRUCTION OF PLAN. This terms of this Plan shall be
administered in accordance with the laws (excluding conflict of interest laws)
of the State of New York.
9
EXHIBIT 11
<TABLE>
UCAR INTERNATIONAL INC.
COMPUTATION OF EARNINGS PER SHARE
(Dollars in millions, except per share data)
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
____________________________________________________
1997 1996
_______________________ _______________________
Fully Fully
Primary Diluted Primary Diluted
__________ __________ __________ __________
<S> <C> <C> <C> <C>
Income before cumulative effect of change in accounting principle............ $ 36.8 $ 36.8 $ 34.8 $ 34.8
Cumulative effect on prior years of change in accounting for inventories..... - - 0.1 0.1
__________ __________ __________ __________
Net income - common stockholders.................................... $ 36.8 $ 36.8 $ 34.9 $ 34.9
Weighted average number of common and common equivalent shares
applicable to each earnings per share calculation:
Weighted average number of shares outstanding............................. 45,837,779 45,837,779 46,323,935 46,323,935
Dilutive effect of stock options.......................................... 1,873,554 1,910,165 2,294,804 2,351,921
__________ __________ __________ __________
47,711,333 47,747,944 48,618,739 48,675,856
========== ========== ========== ==========
Net income per common share (A):
Income before cumulative effect of change in accounting principle......... $ 0.77 $ 0.77 $ 0.72 $ 0.72
Cumulative effect on prior years of change in accounting for inventories.. - - - -
__________ __________ __________ __________
Net income per share................................................ $ 0.77 $ 0.77 $ 0.72 $ 0.72
========== ========== ========== ==========
(A) Fully diluted earnings per share is not significantly different than primary net income per share and, therefore, has not been
presented on the face of the Consolidated Statements of Operations.
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
____________________________________________________
1997 1996
_______________________ _______________________
Fully Fully
Primary Diluted Primary Diluted
__________ __________ __________ __________
<S> <C> <C> <C> <C>
Income before cumulative effect of change in accounting principle............ $ 116.1 $ 116.1 $ 107.7 $ 107.7
Cumulative effect on prior years of change in accounting for inventories..... - - 7.1 7.1
__________ __________ __________ __________
Net income - common stockholders.................................... $ 116.1 $ 116.1 $ 114.8 $ 114.8
========== ========== ========== ==========
Weighted average number of common and common equivalent shares
applicable to each earnings per share calculation:
Weighted average number of shares outstanding............................. 46,114,803 46,114,803 46,173,537 46,173,537
Dilutive effect of stock options.......................................... 1,959,510 1,994,787 2,231,759 2,271,278
__________ __________ __________ __________
48,074,313 48,109,590 48,405,296 48,444,815
========== ========== ========== ==========
Net income per common share (A):
Income before cumulative effect of change in accounting principle......... $ 2.42 $ 2.41 $ 2.22 $ 2.22
Cumulative effect on prior years of change in accounting for inventories.. - - 0.15 0.15
__________ __________ __________ __________
Net income per share................................................ $ 2.42 $ 2.41 $ 2.37 $ 2.37
========== ========== ========== ==========
(A) Fully diluted earnings per share is not significantly different than primary net income per share and, therefore, has not been
presented on the face of the Consolidated Statements of Operations.
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY CONSOLIDATED FINANCIAL INFORMATION EXTRACTED FROM
THE CONSOLIDATED FINANCIAL STATEMENTS OF UCAR INTERNATIONAL INC. INCLUDED IN ITS
QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1997 AND ITS
QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1996, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000931148
<NAME> UCAR INTERNATIONAL INC.
<MULTIPLIER> 1,000,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> SEPT-30-1997 SEPT-30-1996
<CASH> 72 91
<SECURITIES> 15 0
<RECEIVABLES> 239 188
<ALLOWANCES> 6 12
<INVENTORY> 206 171
<CURRENT-ASSETS> 549 475
<PP&E> 1269 1036
<DEPRECIATION> 720 656
<TOTAL-ASSETS> 1185 913
<CURRENT-LIABILITIES> 284 204
<BONDS> 629 596
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 62 (40)
<TOTAL-LIABILITY-AND-EQUITY> 1185 913
<SALES> 806 711
<TOTAL-REVENUES> 806 711
<CGS> 504 436
<TOTAL-COSTS> 504 436
<OTHER-EXPENSES> 7 6
<LOSS-PROVISION> (1) 1
<INTEREST-EXPENSE> 48 47
<INCOME-PRETAX> 166 155
<INCOME-TAX> 51 52
<INCOME-CONTINUING> 116 108
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 7
<NET-INCOME> 116 115
<EPS-PRIMARY> 2.42 2.37
<EPS-DILUTED> 2.41 2.37
</TABLE>
