________________________________________________________________________________
________________________________________________________________________________
FORM 10-Q
---------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the transition period from ....................
to ....................
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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
---------------
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 March 31, 1998, 44,956,725 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 March 31, 1998
and December 31, 1997........................................ Page 3
Consolidated Statements of Operations for the Three Months
ended March 31, 1998 and 1997................................ Page 4
Consolidated Statements of Cash Flows for the Three Months
ended March 31, 1998 and 1997................................ Page 5
Consolidated Statement of Stockholders' Equity (Deficit) for the
Three Months ended March 31, 1998............................ Page 6
Notes to Consolidated Financial Statements..................... Page 7
Item 2. Management's Discussion and Analysis of Financial Condition
--------------------------------------------------------------------
and Results of Operations............................... Page 16
-------------------------
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings........................................ Page 21
-------------------------
Item 6. Exhibits and Reports on Form 8-K......................... Page 22
----------------------------------------
SIGNATURE.......................................................... Page 23
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)
March 31, December 31,
ASSETS 1998 1997
---- ----
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents....................... $ 51 $ 58
Short-term investments.......................... 34 20
Notes and accounts receivable................... 228 242
Inventories:
Raw materials and supplies................... 56 50
Work in process.............................. 140 125
Finished goods............................... 31 31
------ ------
227 206
Prepaid expenses................................ 35 40
------ ------
Total current assets................... 575 566
------ ------
Property, plant and equipment..................... 1,287 1,289
Less: accumulated depreciation.................... 730 724
------ ------
Net fixed assets....................... 557 565
Other assets...................................... 98 102
------ ------
Total assets........................... $ 1,230 $ 1,233
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable................................ $ 61 $ 76
Short-term debt................................. 80 76
Payments due within one year on long-term debt.. 53 52
Accrued income and other taxes.................. 30 36
Other accrued liabilities....................... 231 262
------ ------
Total current liabilities.............. 455 502
------ ------
Long-term debt.................................... 623 604
Other long-term obligations....................... 313 313
Deferred income taxes............................. 46 47
Minority stockholders' equity in consolidated
entities........................................ 13 13
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, 47,359,152 shares issued at
March 31, 1998, 47,330,570 shares issued at
December 31, 1997............................. - -
Additional paid-in capital...................... 520 520
Accumulated other comprehensive income (loss)... (139) (130)
Retained earnings (deficit)..................... (509) (544)
------ ------
(128) (154)
Less: cost of common stock held in treasury,
2,402,427 shares.............................. (92) (92)
------ ------
Total stockholders' equity (deficit)... (220) (246)
------ ------
Total liabilities and stockholders'
equity (deficit)..................... $ 1,230 $ 1,233
====== ======
See accompanying Notes to Consolidated Financial Statements.
3
<PAGE>
PART I (CONT.)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in millions, except per share data)
(Unaudited)
Three Months
Ended March 31,
---------------
1998 1997
---- ----
Net sales................................................... $ 244 $ 238
Cost of sales............................................... 151 150
------ ------
Gross profit......................................... 93 88
Research and development.................................... 2 2
Selling, administrative and other expenses.................. 26 23
Other (income) expense (net)................................ 4 1
------ ------
Operating profit..................................... 61 62
Interest expense............................................ 16 15
------ ------
Income before provision for income taxes............. 45 47
Provision for income taxes.................................. 10 12
------ ------
Income of consolidated entities...................... 35 35
Less: minority stockholders' share of income................ - -
Plus: UCAR share of net income from company
carried at equity......................................... - 2
------ ------
Net income........................................... $ 35 $ 37
====== ======
BASIC EARNINGS PER COMMON SHARE:
Basic net income per share............................. $ 0.77 $ 0.79
Weighted average common shares outstanding
(in thousands)........................................ 44,940 46,736
====== ======
DILUTED EARNINGS PER COMMON SHARE:
Diluted net income per share........................... $ 0.74 $ 0.76
Weighted average common shares outstanding
(in thousands)........................... 46,670 48,788
====== ======
See accompanying Notes to Consolidated Financial Statements.
4
<PAGE>
PART I (CONT.)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
(Unaudited)
Three Months
Ended March 31,
---------------
1998 1997
---- ----
CASH FLOW FROM OPERATING ACTIVITIES:
Net income ................................................. $ 35 $ 37
Non-cash charges to net income:
Depreciation and amortization............................. 14 11
Deferred income taxes..................................... 1 5
Other non-cash charges.................................... 7 1
Working capital*............................................ (65) (49)
Long-term assets and liabilities............................ 3 3
---- ----
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES..... (5) 8
---- ----
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures........................................ (13) (11)
Purchase of subsidiaries, net of cash acquired.............. - (55)
Purchases of short-term investments......................... (19) -
Maturity of short-term investments.......................... 4 -
Redemption/sale of assets................................... - 4
---- ----
NET CASH (USED IN) INVESTING ACTIVITIES................. (28) (62)
---- ----
CASH FLOW FROM FINANCING ACTIVITIES:
Short-term debt borrowings.................................. 19 26
Short-term debt reductions.................................. (14) (15)
Long-term debt borrowings................................... 45 49
Long-term debt reductions................................... (24) (26)
Sale of common stock........................................ - 3
Financing costs............................................. - (2)
Tax benefit arising from exercise of employee stock options - 1
---- ----
NET CASH PROVIDED BY FINANCING ACTIVITIES............... 26 36
---- ----
Net (decrease) in cash and cash equivalents................... (7) (18)
Cash and cash equivalents at beginning of period.............. 58 95
---- ----
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................... $ 51 $ 77
==== ====
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Net cash paid during the periods for:
Interest expense.......................................... $ 20 $ 21
Income taxes.............................................. 13 12
*Net change in working capital by component (excluding
cash and cash equivalents, short-term investments,
deferred income taxes and short-term debt, and net
of effects of purchases of subsidiaries):
(Increase) decrease in current assets:
Notes and accounts receivable:
Impact of accelerated collection from the sale of
receivables......................................... $ (1) $ 5
Other changes......................................... 7 -
Inventories.............................................. (25) (5)
Prepaid expenses......................................... 1 (4)
Decrease in payables and accruals........................... (47) (45)
---- ----
WORKING CAPITAL......................................... $ (65) $ (49)
==== ====
See accompanying Notes to Consolidated Financial Statements.
5
<PAGE>
<TABLE>
PART I (CONT.)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
(UNAUDITED)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(Dollars in millions)
(Unaudited)
<CAPTION>
Accumulated
Other
Additional Comprehensive Retained Total
Common Paid-in Income Earnings Treasury Stockholders'
Stock Capital (Loss) (Deficit) Stock Equity (Deficit)
----- ------- ------ --------- ----- ----------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1997.............. $ - $ 520 $ (130) $ (544) $ (92) $ (246)
Net income................................ - - - 35 - 35
Other comprehensive income (loss):
Foreign currency translation adjustment. - - (9) - - (9)
- - - -
Comprehensive income...................... - - - - - 26
---- ---- ----- ----- ---- -----
BALANCE AT MARCH 31, 1998................. $ - $ 520 $ (139) $ (509) $ (92) $ (220)
==== ==== ===== ===== ==== =====
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
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 (the "Commission") and reflect all adjustments (all of which
are of a normal, recurring nature) which are necessary for a fair
presentation of financial position, results of operations and cash flows
for the periods presented. Results of operations for the three months
ended March 31, 1998 are not necessarily indicative of the results of
operations that may be expected for the entire year ending December 31,
1998.
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.
Foreign Currency Translation
Effective January 1, 1997, because of significant increases in the rate
of inflation in Mexico, the Company changed its functional currency in
Mexico to the U.S. dollar. Accordingly, translation gains and losses are
included in the Consolidated Statements of Operations for the three
months ended March 31, 1998 and 1997, respectively.
Effective January 1, 1998, Brazil is no longer considered to be a highly
inflationary economy. Accordingly, unrealized gains and losses resulting
from translating assets and liabilities of the Brazilian operations into
U.S. dollars are accumulated in an equity account in the balance sheet
until such time as the Brazilian operations are sold or substantially or
completed liquidated.
Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") 130, "Reporting Comprehensive
Income," which is effective for fiscal years beginning after December 15,
1997. SFAS 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. The Company has adopted SFAS 130 in the three
months ended March 31, 1998 and earlier periods have been restated to
conform with SFAS 130. Comprehensive income of the Company consists of
net income and foreign currency translation adjustments. Comprehensive
income for the three months ended March 31, 1998 and 1997 was $26 million
and $33 million, respectively. The Company does not provide for U.S.
income taxes on foreign currency translation adjustments since it does
not provide for such taxes on undistributed earnings of foreign
subsidiaries.
7
<PAGE>
PART I (CONT.)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
(UNAUDITED)
Acquisitions
On November 10, 1996, the Company purchased 90% of the equity of UCAR
Grafit OAO ("UCAR Grafit"), which operated a graphite electrode business
in Vyazma, Russia, through a tender offer to its major shareholders,
which included its directors and employees. The aggregate investment was
$50 million. Thereafter, the Company increased its ownership to 96% (at
December 31, 1997) of such equity for an additional investment of $7
million.
On January 2, 1997, the Company acquired 70% of the outstanding shares of
Carbone Savoie, a wholly owned subsidiary of Pechiney S.A., for a
purchase price of $33 million. Carbone Savoie is the leading manufacturer
of carbon cathode blocks, which are consumed in the production of
aluminum.
On February 1, 1997, the Company, through its newly formed 70%-owned
subsidiary, UCAR Elektroden GmbH ("UCAR Elektroden"), purchased the
graphite electrode business of Elektrokohle Lichtenberg AG ("EKL") in
Berlin, Germany. The 30% minority interest in UCAR Elektroden is held by
a private German company. UCAR Elektroden and UCAR Grafit work in tandem,
with UCAR Elektroden manufacturing newly formed green electrodes and UCAR
Grafit baking, pitch impregnating, rebaking and graphitizing those
electrodes. The aggregate purchase price paid by UCAR Electroden for EKL
was $15 million.
On April 22, 1997, the Company purchased the shares of its then 50%-owned
joint venture affiliate, EMSA (Pty) Ltd. ("EMSA"), held by the Company's
joint venture partner. EMSA operates a graphite electrode manufacturing
facility and sales office in South Africa. The purchase price was $75
million.
These acquisitions were accounted for as purchases and, accordingly, the
purchase prices have been allocated to the assets purchased and
liabilities assumed based upon the fair values at the dates of purchase.
The Company recorded $20 million and $6 million of goodwill in connection
with the acquisitions of EMSA and UCAR Grafit, respectively. 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 purchase.
(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:
8
<PAGE>
PART I (CONT.)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
(UNAUDITED)
March 31, December 31,
1998 1997
---- ----
(Dollars in millions)
Assets:
Current assets...................... $ 575 $ 566
Non-current assets.................. 655 667
------ ------
Total assets.................... $ 1,230 $ 1,233
====== ======
Liabilities:
Current liabilities................. $ 455 $ 502
Non-current liabilities............. 982 964
------ ------
Total liabilities............... $ 1,437 $ 1,466
====== ======
Minority stockholders' equity in
consolidated entities.................. $ 13 $ 13
====== ======
Three Months
Ended March 31,
1998 1997
---- ----
(Dollars in millions)
Net sales................................ $ 244 $ 238
Gross profit............................. $ 93 $ 88
Net income .............................. $ 35 $ 37
(3) AMENDMENTS TO CREDIT FACILITIES
The Company's senior bank credit facilities (the "Senior Bank
Facilities") and the indenture (the "Subordinated Note Indenture")
relating to the Company's senior subordinated notes (the "Subordinated
Notes") contain a number of significant financial and restrictive
covenants and other provisions which have been impacted as a result of
the charge of $340 million ($310 million after tax) against results of
operations for 1997 for potential liabilities and expenses in connection
with antitrust investigations and related lawsuits and claims. In April
1998, the Company obtained a limited waiver of certain covenants of the
Senior Bank Facilities and, in connection therewith, borrowed $35 million
under the revolving credit facility on April 13, 1998. From January 1,
1998 through April 12, 1998, the Company increased its net borrowings
under the revolving credit facility by $26 million. As of April 13, 1998,
after giving effect to outstanding letters of credit and the $35 million
borrowed under the revolving credit facility on that date, $76 million
was available for borrowing under the revolving credit facility. In order
to make additional borrowings thereunder, the Company would need to,
among other things, make certain representations,
9
<PAGE>
PART I (CONT.)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
(UNAUDITED)
including representations as to the absence of material adverse changes
in the business, financial condition or results of operations of the
Company and the absence of material legal proceedings. In light of the
antitrust investigations and related lawsuits and claims, no assurance
can be given that the Company will be able to make those representations
or make additional borrowings thereunder. In addition, even if the
Company is able to make additional borrowings thereunder, such ability
may be limited by certain covenants contained in the Subordinated Note
Indenture. Under the Subordinated Note Indenture, subject to certain
exceptions, the Company may not incur additional indebtedness if its
consolidated coverage ratio (as defined) is less than certain specified
ratios. As a result of the $340 million charge, the Company's
consolidated coverage ratio (as defined) is less than those specified
ratios. As a result, under the Subordinated Note Indenture, the Company
cannot incur additional indebtedness except under the exceptions referred
to above. The waiver does not restrict the lenders under the Senior Bank
Facilities from declaring that there has been a breach, after giving
effect to the $340 million charge, of material adverse change
representations made in the past.
Any or a combination of these and other circumstances described in UCAR's
Annual Report on Form 10-K for the year ended December 31, 1997 (the
"Annual Report") could result in the occurrence of an event of default
under the Senior Bank Facilities. The occurrence of an event of default,
which is not waived, would permit the lenders under the Senior Bank
Facilities to, among other things, accelerate all indebtedness
outstanding thereunder by declaring all amounts borrowed thereunder to be
immediately due and payable, together with accrued and unpaid interest.
In addition, the lenders could foreclose upon collateral pledged to
secure repayment of such indebtedness and the commitments of the lenders
to make further extensions of credit under the Senior Bank Facilities
would be terminated. Under the cross-acceleration provisions of the
Subordinated Note Indenture, the holders of Subordinated Notes would
thereupon likewise be able to accelerate all indebtedness outstanding
under the Subordinated Notes.
(4) STOCK REPURCHASE PROGRAM
In 1997, UCAR repurchased 2,402,427 shares of common stock for an
aggregate of $92 million of common stock under its stock repurchase
program. There were no repurchases of shares of common stock in the 1998
first quarter.
(5) EARNINGS PER SHARE
Basic and diluted earnings per share are calculated based upon the
provisions of SFAS 128, adopted in 1997, using the following data:
10
<PAGE>
PART I (CONT.)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
(UNAUDITED)
Three Months
Ended March 31,
---------------
1998 1997
---- ----
Weighted average common shares outstanding
for basic calculation........................ 44,939,545 46,736,178
Add: Effect of stock options.................. 1,730,726 2,051,582
---------- ----------
Weighted average common shares outstanding,
adjusted for diluted calculation............ 46,670,271 48,787,760
========== ==========
The calculation of weighted average common shares outstanding for the
diluted calculation excludes the consideration of stock options for
774,240 and 762,117 shares in each of the three months ended March 31,
1998 and 1997, respectively, because the exercise of these options would
not have been dilutive for either period.
(6) CONTINGENCIES
Antitrust 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 (the "DOJ") and a related search warrant in connection with an
investigation as to whether there has been any violation of federal
antitrust laws by producers of graphite electrodes. Concurrently,
representatives of Directorate General IV of the European Union, the
antitrust enforcement authorities of the European Union (the "EU
authorities"), visited offices of the Company's French subsidiary for
purposes of gathering information to determine whether there has been any
violation of Article 85-1 of the Treaty of Rome, the antitrust law of the
European Union. In addition, on June 5, 1997, one of the Company's
competitors in the graphite electrode industry, The Carbide/Graphite
Group, Inc. ("C/G"), announced that the DOJ had granted it the
opportunity to participate in the DOJ's Corporate Leniency Program and
that it was cooperating with the government. Subsequently, the Company
was served with subpoenas in the United States to produce documents
relating to, among other things, its carbon electrode and bulk graphite
businesses. In December 1997, UCAR's Board of Directors appointed a
special committee of outside directors, consisting of John R. Hall and R.
Eugene Cartledge, to exercise the power and authority of UCAR's Board of
Directors in connection with antitrust investigations and related
lawsuits and claims. On February 23, 1998, the DOJ announced that it had
charged Showa Denko Carbon, Inc. ("SDC"), a U.S. subsidiary of Showa
Financing K.K., a Japanese firm, and unnamed co-conspirators with
participating from 1993 until January 1997 in an international conspiracy
involving meetings and conversations in the Far East, Europe and the
United States resulting in agreements to fix prices and allocate market
shares worldwide, to restrict co-conspirators' capacity
11
<PAGE>
PART I (CONT.)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
(UNAUDITED)
and to restrict non-conspiring producers' access to manufacturing
technology for graphite electrodes. The DOJ further announced that SDC
has agreed to plead guilty, pay a fine of $29 million and cooperate in
its investigation and that other cases were likely to be filed.
On April 24, 1998, pursuant to an agreement with the DOJ, UCAR pled
guilty in the District Court to a one-count charge of violating federal
antitrust laws in connection with the sale of graphite electrodes and was
sentenced to pay a non-interest-bearing fine in the aggregate amount of
$110 million, payable in six annual installments. The Company will be
required to make annual payments of $20 million, $15 million, $15
million, $18 million, $21 million and $21 million, respectively,
commencing July 23, 1998. Under the agreement approved by the District
Court, the Company will not be subject to prosecution by the DOJ with
respect to any other antitrust violations occurring prior to April 24,
1998. The fine is within the amounts used by the Company for purposes of
determining the $340 million charge described below. The plea makes it
more difficult to defend against civil antitrust lawsuits.
The Company has become aware that the Canadian Competition Bureau has
commenced a criminal investigation as to whether there has been any
violation of the Canadian Competition Act (the "Canadian Act") by
producers of graphite electrodes. Under Section 45 of the Canadian Act,
the maximum fine is Can$10 million. It is possible that Section 46 of the
Canadian Act may be implicated in the investigation. Under Section 46,
the amount of the fine is discretionary, and there is no maximum. The
Company, through its counsel, is cooperating with the DOJ, the EU
authorities and the Canadian Competition Bureau in their continuing
investigations. It is possible that antitrust investigations could be
initiated by authorities in other jurisdictions.
On June 17, 1997, UCAR was served with a complaint commencing a putative
class action lawsuit in the United States District Court for the Western
District of Pennsylvania. Subsequently, the Company was served with four
additional complaints commencing similar lawsuits in the District Court.
UCAR, SGL Carbon Corporation ("SGL Carbon"), a U.S. subsidiary of SGL
Carbon AG ("SGL"), a German corporation, and C/G, are named as defendants
in each complaint. SGL is also named as a defendant in each of the four
subsequently served complaints. In each complaint, the plaintiffs alleged
that the defendants violated federal antitrust laws. Each complaint
sought, among other things, an award of treble damages resulting from
such alleged violations. On August 5, 1997, the four complaints filed in
the District Court were consolidated into a single complaint in the
District Court entitled IN RE: GRAPHITE ELECTRODES ANTITRUST LITIGATION.
In the consolidated litigation, the proposed class consists of all
persons who purchased graphite electrodes in the United States directly
from the defendants during the period from January 1, 1992 through August
15, 1997. On August 21, 1997, the first served complaint was withdrawn
without prejudice to refile. UCAR filed a motion to dismiss the
consolidated complaint, which was denied in November 1997 with leave to
renew such motion after discovery is completed. In December 1997, UCAR
filed an answer to the complaint denying liability to the plaintiffs.
Discovery and depositions relating to class certification have begun. The
District Court, however, has ordered a stay of
12
<PAGE>
PART I (CONT.)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
(UNAUDITED)
non-class depositions and certain other discovery until July 1998.
Accordingly, the consolidated lawsuit is still in its early stages. UCAR
intends to vigorously defend against the consolidated lawsuit. UCAR may
at any time, however, settle the lawsuit and any related possible
unasserted claims. UCAR has had discussions in this regard with
plaintiffs' counsel, with those members of the proposed class who have
indicated that they intend to opt out of any class which is certified, as
well as with other potential plaintiffs.
On each of March 30, 1998 and April 3, 1998, UCAR was served with
complaints commencing civil lawsuits in the District Court. UCAR, C/G,
SGL Carbon, SGL and SDC are named as defendants in each complaint.
Additionally, Showa Denko K.K., UCAR Global Enterprises Inc., UCAR Carbon
Company Inc., Union Carbide and Mitsubishi are named as defendants in the
complaint served on April 13, 1998. On April 17, 1998, Republic
Engineered Steels, Inc. filed a complaint commencing a civil lawsuit in
the United States District Court for the Northern District of Ohio. UCAR,
SDC, Showa Denko K.K., C/G, SGL Carbon and SGL are named as defendants.
In each complaint, the plaintiffs allege that the defendants violated
federal antitrust laws. Additionally, in the complaint served on April 3,
1998, the plaintiffs allege that Union Carbide and Mitsubishi violated
applicable state fraudulent transfer laws. Each complaint seeks, among
other things, an award of treble damages resulting from such alleged
antitrust violations. The complaint served on April 3, 1998 also seeks to
have payments made by UCAR to Union Carbide and Mitsubishi in connection
with the recapitalization declared to be fraudulent conveyances and
returned to UCAR for purposes of enabling UCAR to satisfy any judgments
resulting from such alleged antitrust violations. The Company has not
responded to any of these lawsuits and intends to vigorously defend
against these lawsuits. These lawsuits are in their earliest stages. The
Company may at any time, however, settle such lawsuits and any related
possible unasserted claims. The Company has had discussions in this
regard with certain of the plaintiffs and their counsel.
The Company anticipates that additional antitrust lawsuits seeking, among
other things, to recover damages, could be commenced against the Company
in the United States and in other jurisdictions.
Shareholder Derivative Lawsuit
On March 4, 1998, UCAR was served with a complaint commencing a
shareholder derivative lawsuit in the Connecticut Superior Court
(Judicial District of Danbury). Certain current and former directors and
officers are named as defendants. UCAR is named as a nominal defendant.
The complaint alleges that the defendants breached their fiduciary duties
in connection with alleged non-compliance by the Company and its
employees with antitrust laws. The complaint also alleges that certain of
the defendants sold common stock while in possession of materially
adverse non-public information relating to such non-compliance with
antitrust laws. The complaint seeks recovery for UCAR of damages to UCAR
resulting from such alleged breaches
13
<PAGE>
PART I (CONT.)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
(UNAUDITED)
and sales. The complaint does not contain specific allegations of the
factual basis underlying such allegations and appears to be based on the
existence of the previously announced grand jury investigation, the
related consolidated civil lawsuit and the Company's public announcements
and filings with the Commission. This lawsuit is in its earliest stages.
UCAR has not yet responded to the complaint. No evaluation of potential
liability has yet been made with respect to this lawsuit.
Securities Class Action Lawsuit
On each of April 1, 1998 and April 16, 1998, a complaint commencing a
securities class action lawsuit was filed in the United States District
Court for the District of Connecticut. UCAR and certain current and
former officers and directors are named as defendants. The proposed class
consists of all persons who purchased UCAR common stock during the period
from August 15, 1995 through March 13, 1998, in the case of the first
commenced lawsuit, or March 31, 1998, in the case of the second commenced
lawsuit. Each complaint alleges that during such period the defendants
violated securities laws in connection with purchases and sales of common
stock by failing to disclose alleged violations of antitrust laws. The
complaint seeks, among other things, to recover damages resulting from
such alleged violations. UCAR has not yet responded to either complaint.
These lawsuits are in their earliest stages. No evaluation of potential
liability has yet been made with respect to these lawsuits.
Other
The Company is involved in various other legal proceedings incidental to
the conduct of its business. While it is not possible to determine the
ultimate disposition of each of these other proceedings, the Company
believes that the ultimate disposition of such other proceedings will not
have a material adverse effect on the Company.
Earnings Charge
The Company recorded a charge of $340 million ($310 million after tax)
against results of operations for 1997 for potential liabilities and
expenses in connection with antitrust investigations and related lawsuits
and claims. Actual liabilities and expenses could be materially higher or
lower than such amount. In addition, due to the fact such lawsuits are in
their earliest stages and no evaluation of liability can yet be made, no
amounts have been accrued with respect to the shareholder derivative and
securities class action lawsuits.
14
<PAGE>
PART I (Cont.)
UCAR INTERNATIONAL INC.
INTRODUCTION TO PART I, ITEM 2, AND PART II, ITEM 1
Unless otherwise indicated or the context otherwise requires, all references to
"UCAR" mean UCAR International Inc. and to the "Company" mean UCAR, its wholly
and majority owned subsidiaries (including UCAR Global Enterprises Inc.
("Global") and EMSA (Pty.) Ltd. ("EMSA")) and its and their predecessors
(insofar as a predecessor's activities related to the carbon and graphite
products business), collectively, except that such references do not include
UCAR Grafit OAO ("UCAR Grafit"), Carbone Savoie S.A.S. ("Carbone Savoie") or
UCAR Elektroden GmbH ("UCAR Elektroden" and, together with UCAR Grafit, Carbone
Savoie and EMSA, the "Acquired Companies") with respect to time periods prior to
their respective acquisitions. Unless otherwise indicated, all financial
information refers to that of the Company (including the Acquired Companies
(other than EMSA) since their respective acquisitions and EMSA since the
acquisition in April 1997 of the 50% of its equity not previously owned by the
Company) on a consolidated basis (using the equity method for financial
information only for EMSA prior to the acquisition of such equity).
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 (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). These statements include statements about such
matters as electric arc furnace ("EAF") steel production, prices, sales and
demand for graphite electrodes and other products, future operational and
financial performance of pre-existing and acquired businesses, legal fees and
related costs, consulting fees and related projects, costs, margins and earnings
growth. Except as otherwise required to be disclosed in periodic reports
required to be filed by companies registered under the Exchange Act by the rules
of the Securities and Exchange Commission (the "Commission"), the Company has no
duty to update such statements. Actual future events and circumstances
(including future performance, results and trends) could differ materially from
those set forth in such statements due to various factors. Such factors include
the possibility that announced additions to EAF steel production capacity may
not occur or that increased EAF steel production may not result in increased
demand or prices for graphite electrodes, the occurrence of unanticipated events
or circumstances relating to investigations by antitrust authorities or related
antitrust class action, shareholder derivative or securities class action
lawsuits, the assertion of other claims relating to such investigations or
lawsuits or the subject matter thereof, the occurrence of unanticipated events
or circumstances relating to acquired businesses, the occurrence of
unanticipated events or circumstances relating to global integration and other
projects, changes in currency exchange rates, changes in economic and
competitive conditions, technological developments, and other risks and
uncertainties, including those set forth herein and in UCAR's Annual Report on
Form 10-K for the year ended December 31, 1997 (the "Annual Report").
This Quarterly Report on Form 10-Q contains descriptions of developments in
various matters described in the Annual Report. These matters include antitrust
investigations and related lawsuits and claims, a charge of $340 million against
results of operations for 1997 for potential liabilities and expenses associated
therewith, shareholder derivative and securities class action lawsuits, a plea
agreement with the Antitrust Division of the U.S. Department of Justice (the
"DOJ"), and a waiver of breaches, if any, of certain covenants under and
amendments to the Company's senior bank credit facilities (the "Senior Bank
Facilities") and future financing requirements and cash management plans as well
as actual and potential impacts of such matters. Reference is made to the Annual
Report for a description of these matters and impacts and certain risks and
uncertainties associated therewith. Neither the statements contained in this
Quarterly Report on Form 10-Q nor any charge taken by the Company relating to
any legal proceedings shall be deemed to constitute an admission as to any
wrongdoing or liability in connection with the subject matter of such
proceedings.
15
<PAGE>
PART I (Cont.)
UCAR INTERNATIONAL INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
In 1995, the Company consummated a leveraged recapitalization (the
"Recapitalization"), an initial public offering of common stock (the "Initial
Offering") and a redemption (the "Redemption") of a portion of the senior
subordinated notes (the "Subordinated Notes") issued in connection with the
Recapitalization.
In November 1996, the Company acquired 90% of the equity of UCAR Grafit in
Vyazma, Russia. Thereafter, the Company increased its ownership to 96% of such
equity. In 1997, the Company acquired 70% of the equity of Carbone Savoie in
Notre Dame and Venniseux, France and, through a newly formed 70% owned
subsidiary, UCAR Elektroden, acquired the graphite electrode business of
Elektrokohle Lichtenberg AG ("EKL") in Berlin, Germany. The Company also
acquired the outstanding shares of EMSA in South Africa, held by the Company's
former 50% joint venture partner in EMSA. The acquisitions of UCAR Grafit,
Carbone Savoie, EMSA and the graphite electrode business of EKL (collectively,
the "Acquired Companies") were accounted for as purchases. The Company has no
plans to make any further material acquisitions in the near term.
The Company is a global company and serves every geographic market worldwide.
Accordingly, it is always impacted in varying degrees, both positively and
negatively, as country or regional market conditions fluctuate. In 1997, Western
Europe began to recover from the economic downturn that commenced in 1996. In
addition, an economic downturn in the Asia Pacific region began in 1997 which is
still continuing.
The Company recorded a charge of $340 million ($310 million after tax) against
results of operations for 1997 for potential liabilities and expenses in
connection with antitrust investigations and related civil class action and
other lawsuits and claims. Actual liabilities and expenses could be materially
higher or lower than such amount. In April 1998, pursuant to an agreement with
the DOJ, UCAR pled guilty to a one-count charge of violating antitrust laws in
the sale of graphite electrodes and was sentenced to pay a non-interest-bearing
fine in the aggregate amount of $110 million, payable in six annual installments
of $20 million, $15 million, $15 million, $18 million, $21 million and $21
million, respectively, commencing July 23, 1998. Under the agreement, UCAR will
not be subject to prosecution by the DOJ with respect to any other antitrust
violations occurring prior to April 24, 1998, the date on which the agreement
received court approval. UCAR has also been named as a defendant in a
shareholder derivative lawsuit and two securities class action lawsuits, each of
which is based, in part, on the subject matter of such antitrust investigations.
Due to the fact that such lawsuits are in their earliest stages and no
evaluation of liability can yet be made, no amounts have been accrued with
respect to shareholder derivative and securities class action lawsuits. In
addition, the Company obtained a limited waiver of breaches, if any, of certain
covenants under the Senior Bank Facilities (the "Waiver"). In connection
therewith, the Company borrowed an additional $35 million under the revolving
credit facility and
16
<PAGE>
PART I (Cont.)
UCAR INTERNATIONAL INC.
agreed to grant a security interest in substantially all of its assets to the
lenders under the Senior Bank Facilities.
RESULTS OF OPERATIONS
Three Months Ended March 31,1998 As Compared To Three Months Ended March 31,1997
Net sales of $244 million in the 1998 first quarter represented a 3% increase
over net sales of $238 million in the 1997 first quarter. The increase in net
sales was primarily attributable to the acquired graphite electrode businesses
in South Africa, Russia and Germany, which added net sales of $24 million in the
1998 first quarter as compared to $2 million in the 1997 first quarter.
Net sales of graphite electrodes increased 3% to $167 million in the 1998 first
quarter from $162 million in the 1997 first quarter. The increase in net sales
of graphite electrodes was attributable to an increase of 3,600 metric tons, or
7%, in the volume of graphite electrodes sold to 52,600 metric tons in the 1998
first quarter from 49,000 metric tons in the 1997 first quarter. The acquired
graphite electrode businesses had $24 million of net sales on volume of
approximately 8,600 metric tons of graphite electrodes sold. Net sales of
graphite electrodes in the 1998 first quarter, excluding the acquired graphite
electrode businesses, declined $17 million, or 11%, from the 1997 first quarter.
Excluding the acquired graphite electrode businesses, the volume of graphite
electrodes sold decreased by 9% to 44,000 metric tons. The continuing economic
turmoil in the Asia Pacific region, which is affecting steelmakers in that
region as well as in Eastern Europe, resulted in a lower volume of graphite
electrodes sold to those regions. Although North America also experienced lower
volumes of graphite electrodes sold in the 1998 first quarter as compared to the
1997 first quarter, this decline was measured against higher-than-normal volume
in the 1997 first quarter, mainly due to customer buy-ins in advance of
announced price increases, which became effective in the 1997 first quarter. The
lower volumes in the Asia Pacific region, Eastern Europe and North America were
partially offset by higher volume in Western Europe as this region continues its
economic recovery. The Company currently expects its volume of graphite
electrodes sold for all of 1998 to rebound to approximately year-ago levels.
The average selling price per metric ton (in U.S. dollars and net of changes in
currency exchange rates) for the Company's graphite electrodes was $3,058 in the
1998 first quarter as compared to $3,186 in the 1997 first quarter. This average
selling price per metric ton of the Company's graphite electrodes was lower in
the 1998 first quarter than in the 1997 first quarter primarily as a result of
the continued strengthening of the U.S. dollar as compared to other currencies,
particularly Western European currencies, and the impact of the Acquired
Companies. The strengthening of the U.S. dollar resulted in lower U.S. dollar
equivalent sales of graphite electrodes of approximately $6 million which was
partially offset by price increases on graphite electrodes in certain countries
in Western Europe that added $4 million to net sales. The acquired graphite
electrode businesses currently have average selling prices below the companywide
average of the Company's pre-existing graphite electrode businesses primarily
because their product mix consists of lower grade graphite electrodes which sell
at lower prices.
17
<PAGE>
PART I (Cont.)
UCAR INTERNATIONAL INC.
Net sales of aluminum industry products remained steady at $22 million in each
of the 1998 first quarter and the 1997 first quarter. Net sales of carbon
electrodes, carbon and graphite specialties and GRAFOIL(R) flexible graphite
were $55 million in the 1998 first quarter as compared to $54 million in the
1997 first quarter.
Cost of sales remained steady at $151 million in the 1998 first quarter as
compared to $150 million in the 1997 first quarter, notwithstanding the increase
in the volume of graphite electrodes sold and the impact of the Acquired
Companies which have had, and continue to have, margins below the companywide
average of the Company's pre-existing businesses. This stability was due
primarily to the Company's ongoing efforts to improve operating efficiencies and
reduce costs of both the Acquired Companies and its pre-existing businesses as
well as an increase in capacity utilization, partially offset by increases in
the cost of raw materials.
As a result of the changes described above, the Company's gross profit margin
increased to 38.1% in the 1998 first quarter from 37.0% in the 1997 first
quarter. Excluding the acquired graphite electrode businesses, gross profit
margins would have been 39.7% for the 1998 first quarter.
Selling, administrative and other expenses increased to $26 million in the 1998
first quarter from $23 million in the 1997 first quarter primarily due to the
impact of the acquired graphite electrode businesses.
Other (income) expense (net) was $4 million of expense in the 1998 first quarter
as compared to $1 million of expense in the 1997 first quarter. This change was
primarily due to $2 million of consulting fees associated with projects that the
Company is undertaking to further improve operating efficiency, integrate
worldwide operations and generate earnings growth. The Company anticipates that
consulting fees will continue to be approximately $2 million through each
quarter of 1998.
Operating profit in the 1998 first quarter was $61 million, or 25.2% of net
sales, as compared to $62 million, or 26.1% of net sales, in the 1997 first
quarter. Excluding the acquired graphite electrode businesses, the operating
profit margin would have been 26.7% for the 1998 first quarter, an improvement
of 60 basis points.
Interest expense was $16 million in the 1998 first quarter as compared to $15
million in the 1997 first quarter. The average outstanding total debt balance in
the 1998 first quarter was $747 million as compared to $653 million in the 1997
first quarter, and outstanding total debt was $24 million higher at March 31,
1998 than at December 31, 1997. The average annual interest rate in the 1998
first quarter was 8.53% as compared to 9.01% in the 1997 first quarter. The
decline in the average annual interest rate was primarily attributable to
decreases in interest rates resulting from the amendment of the Senior Bank
Facilities in March 1997. The Company believes that interest rates under the
Senior Bank Facilities will be higher in 1998 than they otherwise would have
been as a result of amendments thereto made in connection with the Waiver.
Income taxes were $2 million lower in the 1998 first quarter as compared to the
1997 first quarter. The effective tax rate for the 1998 first quarter was 22
percent as compared to 26 percent in the 1997 first
18
<PAGE>
PART I (Cont.)
UCAR INTERNATIONAL INC.
quarter. The lower rate, when compared to the U.S. Federal Statutory Rate, was
primarily due to the Company's tax exemption in Brazil and certain one-time
foreign tax benefits and incentives of approximately $4 million and $3 million
in 1998 and 1997, respectively.
Primarily as a result of the changes described above, net income for the 1998
first quarter was $35 million, a decrease of 5% from net income of $37 million
in the 1997 first quarter. The Acquired Companies accounted for an incremental
net loss of $691,000 in the 1998 first quarter primarily due to the loss of $2.5
million for UCAR Grafit. The Company expects that increased revenues resulting
from new marketing efforts and ongoing cost improvements will begin to be
reflected in positive operating profits for UCAR Grafit in 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company's sources of funds have consisted principally of invested capital,
cash flow from operations and debt financing. The Company's uses of those funds
(other than for operations) have consisted principally of debt reduction
(including the Redemption with proceeds from the Initial Offering), capital
expenditures, distributions to stockholders (including repurchases of common
equity), acquisition of controlling interests in new companies or businesses and
acquisition of minority stockholders' shares of consolidated subsidiaries. Since
the Recapitalization, acquisitions and repurchases under UCAR's stock repurchase
program have been financed from existing cash balances, cash flow from
operations, short-term borrowings and borrowings under the Company's revolving
credit facility.
Debt Financing
The Company is highly leveraged. The Company's indebtedness is expected to
increase and its liquidity is expected to decrease in connection with, among
other matters, liabilities and expenses arising out of antitrust investigations
and related lawsuits and claims. At March 31, 1998, the Company had total debt
of $756 million and a stockholders' deficit of $220 million as compared to total
debt of $732 million and a stockholders' deficit of $246 million at December 31,
1997. At March 31, 1998, cash, cash equivalents and short-term investments were
$85 million as compared to $78 million at December 31, 1997.
In April 1998, the Company obtained the Waiver and, in connection therewith,
borrowed $35 million under the revolving credit facility. The Company believes
that the $35 million, together with cash flow from operations (after deducting
cash used for capital expenditures) will enable it to meet its debt service,
trade and other obligations when due in the ordinary course of business during
the second and third quarters of 1998, including the $20 million payment due to
the DOJ in July 1998 and other current obligations in connection with antitrust
investigations and related lawsuits and claims. There can be no assurance,
however, that such will be the case or that the Company will be able to borrow
additional funds under the revolving credit facility or otherwise if necessary
to meet those or other obligations. In addition, although no assurance can be
given that such would be the case and subject to the risks and uncertainties
described in the Annual Report, the Company believes, based on its expected cash
flow
19
<PAGE>
PART I (Cont.)
UCAR INTERNATIONAL INC.
from operations and taking into account its efforts to maximize funds available
to meet its obligations and other plans and opportunities described in the
Annual Report, it will be able to restructure its capitalization and manage its
working capital and cash flow to permit it to meet its other obligations as they
become due.
Inventory Levels, Working Capital and Other Long-Term Obligations
During the 1998 first quarter, working capital increased by $56 million. Notes
and accounts receivable decreased $14 million mainly due to reduced net sales
from the 1997 fourth quarter and foreign currency translation adjustments
resulting from the continued strengthening of the U.S. dollar as compared to
other currencies. Accounts payable, accrued income taxes and other accrued
liabilities decreased by $52 million primarily as a result of decreases in tax
liabilities, accrued liabilities and accounts payable as well as foreign
currency translation adjustments. Short-term debt increased by $4 million. This
increase was the result of increased short-term borrowings by certain foreign
subsidiaries to meet local cash needs. Inventory levels increased by $21
million. 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 $7 million
higher at March 31, 1998 than at December 31, 1997.
Capital Expenditures
Capital expenditures aggregated $13 million in the 1998 first quarter as
compared to $11 million in the 1997 first quarter. The Company expects capital
expenditures in 1998 to total approximately $55 million, most of which are
expected to be made to maintain existing facilities and equipment.
20
<PAGE>
PART II. OTHER INFORMATION
UCAR INTERNATIONAL INC.
ITEM 1. LEGAL PROCEEDINGS
Antitrust Proceedings
On April 24, 1998, pursuant to an agreement with the DOJ, UCAR pled guilty in
the United States District Court for the Eastern District of Pennsylvania (the
"District Court") to a one-count charge of violating federal antitrust laws in
connection with the sale of graphite electrodes and was sentenced to pay a
non-interest-bearing fine in the aggregate amount of $110 million, payable in
six annual installments. The Company will be required to make annual payments of
$20 million, $15 million, $15 million, $18 million, $21 million and $21 million,
respectively, commencing July 23, 1998. Under the agreement approved by the
District Court, the Company will not be subject to prosecution by the DOJ with
respect to any other antitrust violations occurring prior to April 24, 1998. The
plea makes it more difficult to defend against civil antitrust lawsuits.
On April 17, 1998, Republic Engineered Steels, Inc. filed a complaint commencing
a civil lawsuit in the United States District Court for the Northern District of
Ohio. Showa Denko Carbon, Inc., Showa Denko K.K., The Carbide/Graphite Group,
Inc., SGL Carbon AG, SGL Carbon Corporation and UCAR are named as defendants.
The allegations made and remedies sought in the complaint are similar to those
in the civil antitrust lawsuits described in the Annual Report. This lawsuit is
in its earliest stages. UCAR has not yet responded to the complaint and intends
to vigorously defend against this lawsuit. The Company may at any time, however,
settle this lawsuit and any possible unasserted claims.
Securities Class Action Lawsuit
On April 16, 1998, a complaint commencing a securities class action lawsuit was
filed in the United States District Court for the District of Connecticut. UCAR,
Robert P. Krass, former Chairman of the Board, President and Chief Executive
Officer, Robert J. Hart, former Senior Vice President and Chief Operating
Officer, William P. Wiemels, Vice President and Chief Operating Officer, Peter
B. Mancino, General Counsel, Vice President and Secretary, and Fred C. Wolf,
Vice President and Chief Financial Officer, are named as defendants. The
plaintiff named in the complaint is Alan Broadwin. The proposed class consists
of all persons who purchased common stock during the period from August 15, 1995
through March 31, 1998. The allegations made and remedies sought in the
complaint are similar to those in the securities class action lawsuit described
in the Annual Report. UCAR has not yet responded to this complaint. This lawsuit
is in its earliest stages. No evaluation of potential liability has yet been
made with respect to this lawsuit.
21
<PAGE>
PART II. OTHER INFORMATION
UCAR INTERNATIONAL INC.
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
------ ----------------------
10.49 Plea Agreement executed April 7, 1998
27.1 Financial Data Schedule for the First Quarter of 1998 (for
Commission use only)
27.2 Restated Financial Data Schedule for the First Quarter of 1997
(for Commission use only)
(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.
22
<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: May 14, 1998 By: /s/ Fred C. Wolf
----------------
Fred C. Wolf
Vice President and Chief
Financial Officer
(Principal Financial Officer)
23
<PAGE>
UCAR INTERNATIONAL INC.
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
10.49 Plea Agreement executed April 7, 1998
27.1 Financial Data Schedule for the First Quarter of 1998 (for
Commission use only)
27.2 Restated Financial Data Schedule for the First Quarter of 1997 (for
Commission use only)
E-1
EXHIBIT 10.49
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
UNITED STATES OF AMERICA )
) Criminal No. 98-
v. )
)
UCAR INTERNATIONAL INC. )
)
Defendant. )
PLEA AGREEMENT
--------------
The United States of America and UCAR International Inc. (hereinafter UCAR
International) hereby enter into the following Plea Agreement pursuant to Rule
11(c)(l)(C) of the Federal Rules of Criminal Procedure ("Fed. R. Crim. P."):
RIGHTS OF DEFENDANT
-------------------
1. UCAR International understands its right:
(a) to be represented by an attorney;
(b) to be charged by Indictment;
(c) to plead not guilty to any criminal charge brought againstit;
(d) to have a trial by jury, at which it would be presumed not
guilty of the charge and the United States would have to prove it guilty beyond
a reasonable doubt;
(e) to confront and cross-examine witnesses against it and to
subpoena witnesses in its defense at trial;
(f) to appeal its conviction if it is found guilty at trial; and
(g) to appeal the imposition of sentence against it.
<PAGE>
AGREEMENT TO PLEAD GUILTY
AND WAIVE CERTAIN RIGHTS
------------------------
2. UCAR International waives the rights set out in Paragraph 1 (b)-(f)
above. UCAR International also waives the right to appeal the imposition of
sentence against it, so long as the sentence imposed is consistent with the
recommendation in Paragraph 8 of this Plea Agreement. Pursuant to Rule 7(b),
Fed. R. Crim. P., UCAR International will waive indictment and plead guilty
pursuant to Fed. R. Crim. P. 11 (c)(1)(C) to a one-count Information, to be
filed in the United States District Court for the Eastern District of
Pennsylvania. The Information will charge UCAR International with participating
in a conspiracy to suppress and eliminate competition by fixing the price and
allocating the volume of graphite electrodes sold in the United States and
elsewhere, beginning at least as early as July 1992 and continuing until at
least June 1997, in violation of the Sherman Antitrust Act, 15 U.S.C. ss. 1.
3. Pursuant to the terms of this Plea Agreement, the defendant will
plead guilty at arraignment to the criminal charge described in Paragraph 2
above, and will make a factual admission of guilt to the Court in accordance
with Rule 11, Fed. R. Crim. P., as set forth in Paragraph 4 below.
FACTUAL BASIS FOR OFFENSE CHARGED
---------------------------------
4. Had this case gone to trial, the United States would have presented
evidence to prove the following facts.
(a) For purposes of this Plea Agreement, the "relevant period" is
that period beginning at least as early as July 1992 and continuing until at
least June 1997. Throughout the relevant period, UCAR Carbon Company was a
corporation organized and existing under the laws of Delaware. UCAR
International was formed in November
2
<PAGE>
1993 and exists under the laws of Delaware as a holding company and the parent
of UCAR Carbon Company and its affiliates. UCAR Carbon Company and UCAR
International have their principal places of business in Danbury, Connecticut.
During the relevant period, UCAR International, through UCAR Carbon Company and
its other subsidiaries, was a manufacturer of graphite electrodes. Graphite
electrodes are large columns used to conduct electricity in electric arc furnace
steel making in the United States and elsewhere. During the relevant period,
UCAR International, through UCAR Carbon Company and its other subsidiaries, was
engaged in the sale of graphite electrodes in the United States and elsewhere.
(b) During the relevant period, UCAR International, through several
of its officers and employees, participated in a conspiracy among the major
graphite electrode manufacturing companies, the primary purposes of which were
to fix the price and allocate the volume of graphite electrodes sold in the
United States and elsewhere. In furtherance of the conspiracy, UCAR
International, through several of its officers and employees, engaged in
conversations and attended meetings with representatives of the other major
graphite electrode producing firms. During such meetings and conversations,
agreements were reached as to the prices the firms would charge for, and the
volumes the firms would sell of, graphite electrodes in the United States and
elsewhere.
(c) During the relevant period, graphite electrodes sold by one or
more of the conspirator firms, and equipment and supplies necessary to the
production and distribution thereof, as well as payments therefor, traveled in
interstate and foreign commerce. The business activities of UCAR International
and co-conspirators in connection with the production and sale of graphite
electrodes affected by this conspiracy
3
<PAGE>
were within the flow of, and substantially affected, interstate and foreign
trade and commerce.
(d) Substantial quantities of graphite electrodes affected by this
conspiracy were sold by UCAR International and other conspirators to customers
in the Eastern District of Pennsylvania.
POSSIBLE MAXIMUM SENTENCE
-------------------------
5. UCAR International understands that the maximum penalty which
may be imposed against it upon conviction for a violation of the Sherman
Antitrust Act is a fine in an amount equal to the largest of:
(a) $10 million (15 U.S.C. ss. 1);
(b) twice thc gross pecuniary gain derived from the crime; or
(c) twice the gross pecuniary loss caused to the victims of the
crime (18 U.S.C.ss. 3571(d)).
6. In addition, UCAR International understands that:
(a) pursuant to ss. 8B1.1(a)(2) of the United States Sentencing
Commission Guidelines ("U.S.S.G."), the Court may order it to pay restitution to
the victims of the offense;
(b) pursuant to 18 U.S.C. ss. 3013(a)(2)(B) the Court is
required to order the defendant to pay a $400.00 special assessment upon
conviction for the charged crime; and
(c) a term of probation of at least one year, but not more than
five years, may be imposed (18 U.S.C. ss. 3561(c)(l)).
4
<PAGE>
SENTENCING GUIDELINES
---------------------
7. Sentencing for the offense to be charged will be conducted pursuant
to the U.S.S.G. manual in effect on the day of sentencing. Pursuant to U.S.S.G.
ss. 1B1.8, self-incriminating information provided to the United States pursuant
to this Plea Agreement will not be used to increase the volume of affected
commerce attributable to UCAR International or in determining the applicable
Guidelines range.
SENTENCING AGREEMENT
--------------------
8. Pursuant to Rule 11 (e)(l)(C), Fed. R. Crim. P., the United States
and UCAR International agree that the appropriate disposition of the case is,
and agree jointly to recommend that the Court impose, pursuant to 18 U.S.C. ss.
3571(d), a sentence requiring UCAR International to pay a fine to the United
States in the amount of $110 million.
(a) The $110 million shall be payable as follows:
(1) the first payment in the amount of $20 million will be due
within ninety days from the date of imposition of sentence; and
(2) thereafter, the defendant shall make five payments, each
on the yearly anniversary of the date of sentencing, according to the following
schedule: $15 million on the first anniversary of the date of sentencing; $15
million on the second anniversary of the date of sentencing; $18 million on the
third anniversary of the date of sentencing; $21 million on the fourth
anniversary of the date of sentencing; and $21 million on the fifth anniversary
of the date of sentencing.
(b) Pursuant to 18 U.S.C. ss. 3612(f)(3)(A), interest shall be
waived due to UCAR International's inability to pay.
5
<PAGE>
(c) UCAR International understands that the Court will order it to
pay a $400.00 special assessment pursuant to 18 U.S.C. ss. 3013(a)(2)(B) and
U.S.S.G. ss. 8E1.1 in addition to any fine imposed.
(d) The United States and UCAR International jointly submit that
this Plea Agreement, together with the record that will be created by the United
States and UCAR International at sentencing and the further disclosure described
in Paragraph 9 of this Plea Agreement, provides sufficient information
concerning UCAR International, the offense charged in this case, and UCAR
International's role in the offense to enable the meaningful exercise of
sentencing authority by the Court under 18 U.S.C. ss. 3553. The United States
and UCAR International will jointly request that the Court accept UCAR
International's guilty plea and immediately impose sentence on the day of
arraignment pursuant to the provisions of Rule 32(b)(1), Fed. R. Crim. P., and
U.S.S.G. ss. 6A1.1.
(e) The United States and UCAR International understand that the
Court retains complete discretion to accept or reject the agreed-upon
recommendation provided for in this Plea Agreement. If the Court does not accept
the recommended sentence, this Plea Agreement will be void and UCAR
International will be free to withdraw its guilty plea (Fed. R. Crim. P. 11
(e)(4)). If UCAR International does withdraw its plea of guilty, this Plea
Agreement, the guilty plea and any statements made in connection with or in
furtherance of the plea or this Plea Agreement, or in the course of discussions
leading to the plea or the Plea Agreement, shall not be admissible against UCAR
International in any criminal or civil proceeding (Fed. R. Crim. P. 11 (c)(6)).
9. Subject to the full and continuing cooperation of UCAR
International described in Paragraph 11 of this Plea Agreement, and prior to
sentencing in the case, the United States will fully advise the Court of the
fact, manner and extent of UCAR
6
<PAGE>
International's ongoing cooperation and its commitment to prospective
cooperation with the United States' investigation and prosecutions, all facts
relating to UCAR International's involvement in the charged offense, and all
other relevant conduct.
10. The United States and UCAR International agree that the Guidelines
fine range exceeds the agreed-upon recommended fine. The United States agrees
that, based on UCAR International's ongoing cooperation, the United States would
have moved the court for a downward departure pursuant to U.S.S.G. ss. 8C4.1,
but for the fact that the amount of the fine that the United States would have
recommended as a downward departure for substantial assistance provided still
would have exceeded UCAR International's ability to pay. The United States and
UCAR International further agree that the agreed-upon recommended fine is
appropriate pursuant to U.S.S.G. ss. 8C3.3(b) due to the inability of UCAR
International to pay a fine greater than that recommended without jeopardizing
its continued viability. The United States agrees that it will not seek a
restitution order with respect to the offense charged in the Information since
civil actions seeking damages on behalf of victims have already been filed.
UCAR INTERNATIONAL'S COOPERATION
--------------------------------
11. UCAR International, including its subsidiaries, will fully and
truthfully cooperate with the United States in the prosecution of this case, the
conduct of the current federal investigation of violations of the federal
antitrust and related criminal laws in the sale of graphite and carbon products,
any other federal investigation resulting therefrom, and any litigation or other
proceeding arising or resulting from any such investigation to which the United
States is a party ("Federal Proceeding"). Such cooperation shall include, but
not be limited to:
7
<PAGE>
(a) the production to the United States of all documents (except
documents qualified as privileged under the laws of the United States) and other
materials relevant to any Federal Proceeding in the possession, custody, or
control of UCAR International or its subsidiaries, wherever located, requested
by the United States in connection with any Federal Proceeding; and
(b) the use of its best efforts to secure the ongoing full and
truthful cooperation, as defined in Paragraph 12 of this Plea Agreement, of
current directors, officers, and employees of UCAR International and its
subsidiaries (excluding Robert P. Krass, Robert J. Hart, Raymond Pelletier, and
George Schwegler), including making such persons available upon reasonable
notice in the United States and elsewhere at UCAR International's expense for
interviews, grand jury and trial testimony, and other judicial proceedings in
connection with any Federal Proceeding.
12. The full and truthful cooperation of any person subject to
Paragraph 11(b) above shall include, but not be limited to:
(a) making available, in the United States, all relevant
non-privileged documents (including claimed personal documents) and other
materials to attorneys and agents of the United States;
(b) upon reasonable notice by the United States, making himself
available in the United States and elsewhere for interviews with attorneys and
agents of the United States;
(c) responding fully and truthfully to all inquiries of the
United States in connection with any Federal Proceeding, without falsely
implicating any person or intentionally withholding any information;
8
<PAGE>
(d) otherwise giving the United States access to knowledge or
information he may have relevant to any such Federal Proceeding; and
(e) when called upon to do so by the United States, testifying in
trial and grand jury or other proceedings in the United States fully,
truthfully, and under oath, subject to the penalties of perjury (18 U.S.C. ss.
1621), making false statements or declarations in grand jury or court
proceedings (18 U.S.C. ss. 1623) and contempt (18 U.S.C. ss.ss. 401-402), in
connection with any such Federal Proceeding.
GOVERNMENT'S AGREEMENT
----------------------
13. The United States agrees to the following.
(a) Subject to the exceptions noted in Paragraph 13(c), the
United States will not bring criminal charges against any current director,
officer, or employee of UCAR International and its subsidiaries (excluding
Robert P. Krass, Robert J. Hart, Raymond Pelletier, and Georges Schwegler) for
any act or offense committed prior to the date of this Plea Agreement and while
such person was employed by UCAR International or its subsidiaries, that was
undertaken in furtherance of any attempted or completed antitrust conspiracy
involving the sale of graphite or carbon products ("Relevant Offense").
(b) Should the United States determine that any current director,
officer, or employee of UCAR International or its subsidiaries may have
information relevant to any Federal Proceeding, the United States may request
such person's cooperation pursuant to the terms of this Plea Agreement by
written request delivered to counsel for the individual (with a copy to the
undersigned counsel for UCAR International) or, if the
9
<PAGE>
individual is not known by the United States to be represented, to the
undersigned counsel for UCAR
International.
(c) In the event that any person requested to provide cooperation
pursuant to Paragraph 13(b) fails to comply with such person's obligations under
Paragraph 12 of this Plea Agreement, then the terms of this Plea Agreement as
they pertain to such person shall be rendered null and void, and the agreement
not to prosecute such person granted in this Plea Agreement shall be void.
(d) Except as provided in Paragraph 13(e), information provided
to the United States pursuant to the terms of this Plea Agreement pertaining to
any Relevant Offense committed prior to the date of this Plea Agreement, and
while such person was employed by and acting as an employee of UCAR
International or its subsidiaries, or any information directly or indirectly
derived from such information, may not be used against such person in a criminal
case, except a prosecution for perjury (18 U.S.C. ss. 1621), making a false
statement or declaration in grand jury or court proceedings (18 U.S.C. ss.
1623), or obstruction of justice (18 U.S.C. ss. 1503).
(e) In the event a person who provides information to the United
States pursuant to this Plea Agreement fail to comply fully with his obligations
under Paragraph 12 of this Plea Agreement, the agreement in Paragraph 13(d) not
to use such information, or any information directly or indirectly derived from
such information, against such person in a criminal case shall be void.
(f) The non-prosecution terms of this paragraph do not apply to
any civil liability to the United States, to any violation of thc federal tax or
securities laws, or to any crime of violence.
10
<PAGE>
14. Upon tender of the guilty plea called for by this Plea Agreement,
and subject to the cooperation requirements of Paragraph 11 of this Plea
Agreement, the United States agrees that it will not bring further criminal
charges against UCAR International or its subsidiaries for any Relevant Offense
committed prior to the date of this Plea Agreement. The non-prosecution terms of
this paragraph do not apply to any civil liability to the United States, to any
violation of the federal tax or securities laws, or to any crime of violence.
15. The United States agrees that when any person travels to the
United States for interviews, court appearances, or grand jury appearances,
pursuant to this Plea Agreement, the United States will take no action, based
upon any offense subject to this Plea Agreement, to subject such person to
arrest, service of process, or prevention from departing the United States. This
paragraph does not apply to an individual's commission of perjury (18 U.S.C. ss.
1621), making a false statement or declaration in grand jury or court
proceedings (18 U.S.C. ss. 1623), obstruction of justice (18 U.S.C. ss. 1503),
or contempt (18 U.S.C. ss.ss. 401-402) in connection with any testimony provided
in trial, grand jury, or other judicial proceedings in the United States.
16. UCAR International understands that it may be subject to
administrative action by federal or state agencies other than the United States
Department of Justice, Antitrust Division, based upon any conviction resulting
from this Plea Agreement, and that this Plea Agreement in no way controls
whatever action, if any, such other agencies may take. However, the United
States Department of Justice, Antitrust Division, agrees that, if requested, it
will advise the appropriate officials of any governmental agency considering
administrative action against UCAR International, based upon any conviction
resulting from this Plea Agreement, of the fact, manner, and extent of the
cooperation of
11
<PAGE>
UCAR International, as described herein, as a matter for such agency to consider
before determining what administrative actions, if any, to take with regard to
UCAR International.
REPRESENTATION BY COUNSEL
-------------------------
17. UCAR International has been represented by counsel and is fully
satisfied that its attorneys have provided competent legal representation. UCAR
International has thoroughly reviewed this Plea Agreement and acknowledges that
counsel has advised it of the nature of the charges, any possible defenses to
the charges, and the nature and range of possible sentences.
VOLUNTARY PLEA
--------------
18. UCAR International's decision to enter into this Plea Agreement
and UCAR International's decision to tender a plea of guilty are freely and
voluntarily made and are not the result of force, threats, assurances, promises,
or representations other than the representations contained in this Plea
Agreement. There have been no promises or representations to UCAR International
as to whether thc Court will accept or reject this Plea Agreement.
VIOLATION OF PLEA AGREEMENT
---------------------------
19. UCAR International agrees that, should the United States determine
in good faith, during the period any Federal Proceeding is pending that UCAR
International has failed to provide full cooperation (as described in Paragraph
11 of this Plea Agreement) or otherwise has violated any other provision of this
Plea Agreement, the United States may notify counsel for UCAR International in
writing by personal or overnight delivery or facsimile transmission of its
intention to void any of its obligations under this Plea
12
<PAGE>
Agreement (except its obligations under this paragraph). UCAR International may
seek court review of any determination made by the United States under this
paragraph.
ENTIRETY OF AGREEMENT
---------------------
20. This Plea Agreement constitutes the entire agreement between the
United States and UCAR International concerning the disposition of the criminal
charges in this case. This Plea Agreement cannot be modified except in writing
signed by the United States and UCAR International.
21. The undersigned Vice President, General Counsel, and Secretary of
UCAR International is authorized to enter this Plea Agreement on behalf of UCAR
International as evidenced by the Resolution of the Board of Directors of UCAR
International attached hereto and incorporated herein by reference.
22. A facsimile signature shall be deemed an original signature for
the purpose of executing this Plea Agreement.
DATED: Respectfully submitted,
/s/ Kevin R. Sullivan /s/ Wendy Bostwick Norman
- --------------------------- --------------------------
KEVIN R. SULLIVAN WENDY BOSTWICK NORMAN
WILLIAM BLUMENTHAL LUCY P. MCCLAIN
GRACE M. RODRIGUEZ ROGER L. CURRIER
Counsel for UCAR JOSEPH MUOIO, R.
International Inc.
Attorneys, Antitrust Division
/s/ Peter B. Mancino U.S. Department of Justice
- -------------------- Philadelphia Office
PETER B. MANCINO 170 S. Independence Mall West
Vice President, General Counsel Philadelphia, PA 19106
and Secretary Tel.: (215) 597-7401
UCAR International Inc.
13
<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
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1998 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>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 51
<SECURITIES> 34
<RECEIVABLES> 198
<ALLOWANCES> 6
<INVENTORY> 227
<CURRENT-ASSETS> 575
<PP&E> 1,287
<DEPRECIATION> 730
<TOTAL-ASSETS> 1,230
<CURRENT-LIABILITIES> 455
<BONDS> 623
0
0
<COMMON> 0
<OTHER-SE> (220)
<TOTAL-LIABILITY-AND-EQUITY> 1,230
<SALES> 244
<TOTAL-REVENUES> 244
<CGS> 151
<TOTAL-COSTS> 151
<OTHER-EXPENSES> 2
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16
<INCOME-PRETAX> 45
<INCOME-TAX> 10
<INCOME-CONTINUING> 35
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 35
<EPS-PRIMARY> .77
<EPS-DILUTED> .74
</TABLE>
<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
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1997, 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>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 77
<SECURITIES> 0
<RECEIVABLES> 176 <F2>
<ALLOWANCES> 6
<INVENTORY> 200
<CURRENT-ASSETS> 505
<PP&E> 1,190
<DEPRECIATION> 694
<TOTAL-ASSETS> 1,066
<CURRENT-LIABILITIES> 242
<BONDS> 599
0
0
<COMMON> 0
<OTHER-SE> 35
<TOTAL-LIABILITY-AND-EQUITY> 1,066
<SALES> 238
<TOTAL-REVENUES> 238
<CGS> 150
<TOTAL-COSTS> 150
<OTHER-EXPENSES> 2
<LOSS-PROVISION> (1)
<INTEREST-EXPENSE> 15
<INCOME-PRETAX> 47
<INCOME-TAX> 12
<INCOME-CONTINUING> 37
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 37
<EPS-PRIMARY> .79 <F1>
<EPS-DILUTED> .76 <F1>
<FN>
<F1> Restated in accordance with Statement of Financial Accounting Standards No.
128 "Earnings Per Share" which was adopted retroactively as of December 31,
1997.
<F2> The March 31, 1997 figure has been corrected to properly reflect only trade
notes and accounts receivable.
</FN>
</TABLE>
