________________________________________________________________________________
________________________________________________________________________________
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 June 30, 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
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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 June 30, 1998, 44,974,425 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 June 30, 1998
and December 31, 1997......................................... Page 3
Consolidated Statements of Operations for the Three Months
ended June 30, 1998 and 1997 and for the Six Months ended
June 30, 1998 and 1997........................................ Page 4
Consolidated Statements of Cash Flows for the Six Months
ended June 30, 1998 and 1997.................................. Page 5
Consolidated Statement of Stockholders' Equity (Deficit) for the
Six Months ended June 30, 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 14
-------------------------
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings....................................... Page 22
---------------------------
Item 4. Submission of Matters to a Vote of Security Holders..... Page 26
-------------------------------------------------------------
Item 6. Exhibits and Reports on Form 8-K........................ Page 27
-------------------------------------------
SIGNATURE........................................................... Page 28
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)
June 30, December 31,
ASSETS 1998 1997
---- ----
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents........................ $ 70 $ 58
Short-term investments........................... 35 20
Notes and accounts receivable.................... 235 242
Inventories:
Raw materials and supplies.................... 57 50
Work in process............................... 151 125
Finished goods................................ 42 31
------ ------
250 206
Prepaid expenses................................. 33 40
------ ------
Total current assets.................... 623 566
------ ------
Property, plant and equipment...................... 1,286 1,289
Less: accumulated depreciation..................... 727 724
------ ------
Net fixed assets........................ 559 565
Other assets....................................... 91 102
------ ------
Total assets............................ $ 1,273 $ 1,233
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable................................. $ 65 $ 76
Short-term debt.................................. 45 76
Payments due within one year on long-term debt... 57 52
Accrued income and other taxes................... 31 36
Other accrued liabilities........................ 226 262
------ ------
Total current liabilities............... 424 502
------ ------
Long-term debt..................................... 675 604
Other long-term obligations........................ 310 313
Deferred income taxes.............................. 46 47
Minority stockholders' equity in consolidated
entities......................................... 14 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, 47,376,852 shares issued at
June 30, 1998, 47,330,570 shares issued at
December 31, 1997.............................. - -
Additional paid-in capital....................... 521 520
Accumulated other comprehensive income(loss)..... (147) (130)
Retained earnings (deficit)...................... (478) (544)
------ ------
(104) (154)
Less: cost of common stock held in treasury,
2,402,427 shares............................... (92) (92)
------ ------
Total stockholders' equity (deficit).... (196) (246)
------ ------
Total liabilities and stockholders'
equity (deficit)...................... $ 1,273 $ 1,233
====== ======
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 Six Months
Ended June 30, Ended June 30,
-------------- --------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales .............................................................. $ 248 $ 290 $ 492 $ 528
Cost of sales .......................................................... 152 180 303 330
------ ------ ------ ------
Gross profit ........................................................... 96 110 189 198
Research and development ............................................... 2 2 4 4
Selling, administrative and other expenses ............................. 26 27 52 50
Other (income) expense (net) ........................................... - - 4 1
------ ------ ------ ------
Operating profit ................................................ 68 81 129 143
Interest expense ....................................................... 19 16 35 31
------ ------ ------ ------
Income before provision for income taxes ........................ 49 65 94 112
Provision for income taxes ............................................. 17 22 27 34
------ ------ ------ ------
Income of consolidated entities ................................. 32 43 67 78
Minority stockholders' share of income ................................. 1 1 1 1
UCAR share of net income from company carried at equity ................ - - - 2
------ ------ ------ ------
Net income ...................................................... $ 31 $ 42 $ 66 $ 79
====== ====== ====== ======
BASIC EARNINGS PER COMMON SHARE:
Basic net income per share ......................................... $ 0.70 $ 0.93 $ 1.47 $ 1.71
Weighted average common shares outstanding (IN THOUSANDS) .......... 44,961 45,770 44,950 46,247
====== ====== ====== ======
DILUTED EARNINGS PER COMMON SHARE:
Diluted net income per share ....................................... $ 0.67 $ 0.89 $ 1.41 $ 1.64
Weighted average common shares outstanding (IN THOUSANDS) .......... 46,708 47,724 46,689 48,249
====== ====== ====== ======
</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) Six Months
Ended June 30,
CASH FLOW FROM OPERATING ACTIVITIES: 1998 1997
---- ----
Net income ............................................. $ 66 $ 79
Non-cash charges to net income:
Depreciation .................................... 26 24
Deferred income taxes ........................... 1 -
Other non-cash charges .......................... 3 4
Working capital*........................................ (95) (71)
Long-term assets and liabilities ....................... 7 5
---- ----
NET CASH PROVIDED BY OPERATING ACTIVITIES ....... 8 41
---- ----
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures ................................... (29) (28)
Purchase of subsidiaries, net of cash acquired ......... - (123)
Proceeds from the sale of short-term investments ....... 12 15
Purchase of short-term investments ..................... (27) (28)
Sale of assets ......................................... 2 1
---- ----
NET CASH USED IN INVESTING ACTIVITIES ........... (42) (163)
---- ----
CASH FLOW FROM FINANCING ACTIVITIES:
Short-term debt ........................................ (31) 20
Long-term debt borrowings .............................. 209 168
Long-term debt reductions .............................. (133) (57)
Sale of common stock ................................... 1 3
Financing costs ........................................ - (2)
Purchase of treasury stock ............................. - (48)
Tax benefit arising from exercise of employee stock
options .............................................. - 3
---- ----
NET CASH PROVIDED BY FINANCING ACTIVITIES ....... 46 87
---- ----
Net increase (decrease) in cash and cash equivalents ....... 12 (35)
Cash and cash equivalents at beginning of period ........... 58 95
---- ----
CASH AND CASH EQUIVALENTS AT END OF PERIOD ................. $ 70 $ 60
==== ====
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Net cash paid during the periods for:
Interest expense .................................... $ 33 $ 29
Income taxes ........................................ 32 38
*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 ....................... $ (2) $ (35)
Inventories ......................................... (47) 3
Prepaid expenses and other current assets ........... - (3)
Antitrust investigations and related lawsuits and claims. (13) -
Decrease in payables and accruals ....................... (33) (36)
---- ----
WORKING CAPITAL ................................. $ (95) $ (71)
==== ====
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)
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 ................................ - - - 66 - 66
Other comprehensive income (loss):
Foreign currency translation adjustment.. - - (17) - - (17)
---- ---- ----- ----- ---- ----
Comprehensive income ...................... - - (17) 66 - 49
Exercise of employee stock options ........ - 1 - - - 1
---- ---- ----- ----- ---- -----
BALANCE AT JUNE 30, 1998 .................. $ - $ 521 $ (147) $ (478) $ (92) $ (196)
==== ==== ===== ===== ==== =====
</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 (the "Commission") and reflect all adjustments (all of which
are of a normal, recurring nature) which are necessary for a fair
presentation of consolidated financial position, results of operations
and cash flows for the periods presented. Results of operations for the
six months ended June 30, 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, as a result 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 six
months ended June 30, 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 adopted SFAS 130 during the first
quarter of 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 June 30, 1998 and 1997 was $23 million and $42
million, respectively. Comprehensive income for the six months ended June
30, 1998 and 1997 was $49 million and $75 million, respectively. The
Company does not provide for U.S. income taxes on foreign currency
translation
7
<PAGE>
PART I (Cont.)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
adjustments since it does not expect to pay such taxes as its investment
in foreign subsidiaries is essentially permanent in duration.
(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:
June 30, December 31,
1998 1997
---- ----
(Dollars in millions)
Assets:
Current assets............................ $ 623 $ 566
Non-current assets........................ 650 667
------ ------
Total assets........................... $ 1,273 $ 1,233
====== ======
Liabilities:
Current liabilities........................ $ 424 502
Non-current liabilities.................... 1,031 964
------ ------
Total liabilities....................... $ 1,455 $ 1,466
====== ======
Minority stockholders' equity in
consolidated entities................... $ 14 $ 13
====== ======
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
1998 1997 1998 1997
---- ---- ---- ----
(Dollars in millions)
Net sales.......................... $ 248 $ 290 $ 492 $ 528
Gross profit....................... 96 110 189 198
Net income .................... 31 42 66 79
(3) AMENDMENTS TO CREDIT FACILITIES
Global's senior bank credit facilities (the "Senior Bank Facilities") and
the indenture (the "Subordinated Note Indenture") relating to Global'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, Global 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. 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
8
<PAGE>
PART I (Cont.)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
make additional borrowings thereunder, Global would need to, among other
things, make certain representations, including representations as to the
absence of material adverse changes in the business, financial condition
or results of operations and the absence of material legal proceedings.
In light of the antitrust investigations and related lawsuits and claims,
no assurance can be given that Global will be able to make those
representations or make additional borrowings thereunder. In addition,
even if Global 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, Global 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, Global's consolidated
coverage ratio (as defined) is less than those specified ratios. As a
result, under the Subordinated Note Indenture, Global 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) EARNINGS PER SHARE
Basic and diluted earnings per share are calculated based upon the
provisions of SFAS 128 using the following data:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
1998 1997 1998 1997
---- ---- ---- ----
(Dollars in millions)
<S> <C> <C> <C> <C>
Weighted average common shares
outstanding for basic calculation.... 44,961,005 45,770,451 44,950,275 46,246,861
Add: effect of stock options.......... 1,746,956 1,953,396 1,738,841 2,002,489
---------- ---------- ---------- ----------
Weighted average common shares
outstanding, adjusted for diluted
calculation.......................... 46,707,961 47,723,847 46,689,116 48,249,350
========== ========== ========== ==========
</TABLE>
9
<PAGE>
PART I (Cont.)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
The calculation of weighted average common shares outstanding for the
diluted calculation excludes the consideration of stock options for
1,948,840 and 755,139 shares in each of the three months ended June 30,
1998 and 1997, respectively, and 1,361,540 and 758,628 shares in each of
the six months ended June 30, 1998 and 1997, respectively, because the
exercise of these options would not have been dilutive for either period.
(5) CONTINGENCIES
ANTITRUST INVESTIGATIONS
In 1997, the Company was served with subpoenas to produce documents to a
grand jury convened by attorneys for the U.S. 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, 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 the antitrust laws
of the European Union. On April 24, 1998, pursuant to an agreement
between the DOJ and UCAR, UCAR pled guilty 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. The fine is payable in six annual
installments of $20 million, $15 million, $15 million, $18 million, $21
million and $21 million, respectively, commencing July 23, 1998. The
agreement was approved by the District Court and, as a result, the
Company will not be subject to prosecution by the DOJ with respect to any
other violations of the federal antitrust laws occurring prior to April
24, 1998. The payment due July 23, 1998 was timely made. The plea has
made it more difficult for the Company to defend against civil antitrust
lawsuits and claims.
The Canadian Competition Bureau (the "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 Cdn$10 million. Under Section 46 of the Canadian Act, the amount
of the fine is discretionary and there is no maximum. The Company has
been required to produce documents and witnesses in Canada.
In June 1998, the Company became aware that Japanese antitrust
authorities have commenced an investigation of producers and distributors
of graphite electrodes. The Company has no facilities or employees in
Japan and has not sold a material quantity of graphite electrodes in
Japan. The independent distributor of the Company's products in Japan
has, however, been required to produce documents and witnesses in Japan.
The Company is cooperating with the EU authorities and the Competition
Bureau in their investigations. It is possible that antitrust
investigations could be initiated by authorities in other jurisdictions.
10
<PAGE>
PART I (Cont.)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
ANTITRUST LAWSUITS
In 1997, UCAR and other producers of graphite electrodes were served with
complaints commencing various antitrust class action lawsuits.
Subsequently, the complaints were either withdrawn without prejudice to
refile or consolidated into a single complaint (called the "antitrust
class action"). In the consolidated complaint, the plaintiffs allege that
the defendants violated federal antitrust laws and seek, among other
things, an award of treble damages resulting from such alleged
violations. In the consolidated complaint, the proposed class consists of
all persons who purchased graphite electrodes in the United States
(called the "class") directly from the defendants during the period from
January 1, 1992 through August 15, 1997 (called the "class period"). In
1998, UCAR and other producers of graphite electrodes were served with a
complaint commencing a civil antitrust lawsuit (called the "opt-out
lawsuit"). The plaintiffs named in the complaint consist of 27
steelmakers in the United States. In the complaint, the plaintiffs allege
that the defendants violated federal antitrust laws and seek, among other
things, an award of treble damages resulting from such alleged antitrust
violations.
Through August 10, 1998, the Company had entered into agreements to
settle both the antitrust class action and the opt-out lawsuit as well as
antitrust claims by nine other steelmakers who negotiated directly with
the Company. The settlements cover approximately 75% of the actual and
potential claims in the United States arising out of alleged antitrust
violations occurring prior to the date of the respective agreements in
connection with the sale of graphite electrodes. The aggregate amount of
the settlements is approximately $80 million. Although each settlement is
unique, in the aggregate they consist primarily of current and deferred
cash payments with some product credits and discounts. The aggregate
amount of the settlements and percentage of covered claims could vary
depending on the steelmakers who are ultimately included in the class and
the amount of their purchases of graphite electrodes. If aggregate
purchases of graphite electrodes during the class period by steelmakers
who are ultimately included in the class total less than a specified
threshold, the Company has the option to withdraw from the settlement of
the antitrust class action. The Company currently expects that most of
the potential members of the class will be included in the class and,
accordingly, will be covered by the settlement.
In 1998, UCAR, other producers of graphite electrodes, Union Carbide
Corporation and Mitsubishi Corporation were served with a complaint
commencing a civil lawsuit. The plaintiffs named in the complaint are
Nucor Corporation and Nucor-Yamato Corporation (collectively, "Nucor").
In the complaint, the plaintiffs allege that the defendants violated
federal antitrust laws and that Union Carbide Corporation and Mitsubishi
Corporation violated applicable state fraudulent transfer laws. The
complaint seeks, among other things, an award of treble damages resulting
from such alleged antitrust violations and an order to have payments made
by UCAR to Union Carbide Corporation and Mitsubishi Corporation in
connection with the Company's leveraged recapitalization in January 1995
declared to be fraudulent conveyances and returned to UCAR for purposes
of enabling UCAR to satisfy any judgments resulting from such alleged
antitrust violations.
Certain other steelmakers in the United States have also served the
Company or its Canadian subsidiary, respectively, with complaints
commencing civil lawsuits. The Company and other
11
<PAGE>
PART I (Cont.)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
producers of graphite electrodes have been named as defendants in some or
all of such complaints. The complaints contain allegations and seek
damages similar to those contained in the complaint served in connection
with the opt-out lawsuit, except that, in the case of the complaint
served on the Company's Canadian subsidiary, the plaintiffs seek, among
other things, only an award of actual damages. Under Canadian law (unlike
U.S. law), there is no provision for an award of treble damages for
antitrust violations. These lawsuits are in their early stages. The
Company intends to vigorously defend against these lawsuits. The Company
may at any time, however, settle these lawsuits and is actively
negotiating with Nucor and these steelmakers, as well as several other
steelmakers who are not parties to any lawsuit and wish to enter into
separate settlements with the Company, to settle their lawsuits and
claims.
The Company anticipates that additional civil 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. Certain current and former officers and
directors are named as defendants. UCAR is named as a nominal defendant.
In the complaint, the plaintiff alleges that the defendants breached
their fiduciary duties in connection with alleged non-compliance by the
Company and its employees with antitrust laws. The plaintiff 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
the Company resulting from such alleged breaches and sales. In May 1998,
UCAR and the individual defendants filed a motion to dismiss the
complaint on the grounds that plaintiff failed to make a demand upon
UCAR's Board of Directors prior to commencing the lawsuit and to
sufficiently allege that such a demand would have been futile. In
response to the motion, plaintiff requested and obtained court permission
to file an amended complaint. The amended complaint was served in July
1998. A second motion to dismiss has been filed. This lawsuit is in its
early stages.
SECURITIES CLASS ACTION LAWSUITS
In April and May 1998, complaints commencing securities class action
lawsuits were filed. UCAR, certain current officers and directors were
named as defendants. The proposed class consists of all persons who
purchased common stock during the period from August 1995 through March
1998. The complaints allege 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
complaints seek, among other things, to recover damages resulting from
such alleged violations. The lawsuits have been consolidated into a
single action and the Florida State Board of Administration has been
designated as lead plaintiff (without prejudice to defendants' right to
contest such designation on the basis that such plaintiff would not be an
adequate class representative). Plaintiffs have indicated an intent to
file a consolidated amended complaint. This lawsuit is in its early
stages.
12
<PAGE>
PART I (Cont.)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
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 early stages and no evaluation of liability can yet be made, no
amounts have been accrued with respect to the shareholder derivative or
securities class action lawsuits.
(6) SUBSEQUENT EVENTS
Effective August 7, 1998, UCAR adopted a Stockholder Rights Plan (the
"Rights Plan") under which one preferred stock purchase right (a "Right")
will be distributed as a dividend for each outstanding share of common
stock. Each Right will entitle a stockholder to buy one one-thousandth of
a share of a new series of preferred stock for $110 upon the occurrence
of certain events. Rights will be exercisable once a person or group
acquires 15% or more of the outstanding shares of common stock (except
that, for certain existing stockholders who currently own more than 15%,
the threshold is 22.5%) or 10 days after a person or group announces a
tender offer for 15% or more of the outstanding shares of common stock.
No certificates will be issued unless the Rights become exercisable.
Under certain circumstances, all Rights holders, except the person or
group holding or seeking to acquire 15% or more of the outstanding shares
of common stock, will be entitled to purchase shares of common stock at
50% of the price at which such shares traded prior to the acquisition or
announcement. Alternatively, if UCAR is acquired after the Rights become
exercisable, the Rights will entitle such holders to buy the acquiring
company's shares at a similar discount. UCAR can redeem the Rights for
one cent per Right under certain circumstances. If not redeemed, the
Rights will expire on August 7, 2008.
13
<PAGE>
PART I (Cont.)
UCAR INTERNATIONAL INC.
INTRODUCTION TO PART I, ITEM 2, AND PART II, ITEM 1
Unless otherwise indicated, references to "UCAR" mean UCAR International Inc.
and to the "Company" mean UCAR, its subsidiaries (including UCAR Global
Enterprises Inc. ("Global") and EMSA (Pty.) Ltd. ("EMSA")), 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, financial information of the Company includes UCAR Grafit,
UCAR Elektroden and Carbone Savoie since their respective acquisitions in late
1996 and early 1997 and EMSA since the acquisition in April 1997 of the 50% of
its equity not previously owned by the Company on a consolidated basis. For
dates and periods prior to April 1997, financial information of the Company
includes EMSA using the equity method.
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 and sales of
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, and costs, margins and
earnings. 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 for or prices of graphite electrodes, the occurrence of unanticipated
events or circumstances relating to antitrust investigations or antitrust,
shareholder derivative or securities 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
Quarterly Report on Form 10-Q for the quarter ended March 31, 1998 and UCAR's
Annual Report on Form 10-K for the year ended December 31, 1997 (collectively,
the "Prior Reports").
This Quarterly Report on Form 10-Q contains descriptions of developments in
various matters described in the Prior Reports. 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"), a waiver of breaches, if any, of certain covenants under and amendments
to Global'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 Prior Reports 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.
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PART I (Cont.)
UCAR INTERNATIONAL INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- --------------------------------------------------------------------------------
OF OPERATIONS
-------------
GENERAL
In November 1996, the Company acquired 90% of the equity of UCAR Grafit in
Vyazma, Russia. Thereafter, the Company increased its ownership to 99% 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 were accounted
for as purchases.
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 recovering from the economic downturn that commenced in 1996. The
Company has benefited from this recovery. Conversely, an economic downturn in
the Asia Pacific region began in 1997 and is still continuing. The Asia Pacific
region accounts for approximately 10% of the Company's graphite electrode
business net sales. The Company believes that net sales to customers in the Asia
Pacific region, and other regions (such as Eastern Europe, Africa, South America
and the Middle East) that typically export steel products into the Asia Pacific
region, will be adversely impacted during at least the second half of 1998. The
adverse impact results from the decline in such region's steel production rates
and the corresponding delay in such customers' orders for graphite electrodes.
Since 1997, the Company has been subject to antitrust investigations by U.S. and
foreign governmental agencies and named as a defendant in a related antitrust
class action and antitrust lawsuits as well as a shareholder's derivative
lawsuit and securities class actions. 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. 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. Through August 10, 1998, the Company had reached settlements
covering approximately 75% of the actual and potential claims by steelmakers in
the United States for antitrust violations in connection with the sale of
graphite electrodes. The aggregate amount of the settlements is approximately
$80 million. The aggregate amount of the settlements and percentage of covered
claims could vary depending on the steelmakers who are ultimately included in
the settlement for the antitrust class action. The Company currently expects
that most of the steelmakers who could be covered by the antitrust class action
settlement will be covered. No assurance can be given, however, that such will
be the case. Although each settlement is unique, in the aggregate they consist
primarily of current and deferred cash payments with some product credits and
discounts. The fine and settlements are within the amounts used by the Company
for purposes of determining the $340 million charge. It is possible that
additional investigations and that additional
15
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PART I (Cont.)
UCAR INTERNATIONAL INC.
lawsuits may be commenced. Although the $340 million charge represents the
Company's best estimate as to the amount of such potential liabilities and
expenses as of the date of this Quarterly Report on Form 10-Q, actual
liabilities and expenses could be materially higher or lower than such
estimates. In addition, the shareholder derivative lawsuit and securities class
actions are still in their early stages and no evaluation of potential liability
with respect thereto has yet been made.
The Company will be required to obtain additional financing to meet its
obligations in connection with antitrust investigations and related lawsuits and
claims which become due in the fourth quarter of 1998. The Company believes that
it will be able to obtain such additional financing in a timely manner on
acceptable terms. No assurance can be given, however, that such will be the
case. Failure to obtain such additional financing in a timely manner, on
acceptable terms or otherwise, could have a material adverse effect on the
Company.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1998 AS COMPARED TO THREE MONTHS ENDED JUNE 30, 1997
Net sales of $248 million in the 1998 second quarter represented a 15% decrease
from net sales of $290 million in the 1997 second quarter. This decrease was
primarily due to lower net sales of graphite electrodes.
Net sales of graphite electrodes declined 16% to $174 million in the 1998 second
quarter from $208 million in the 1997 second quarter. The decrease in net sales
of graphite electrodes was attributable primarily to a decrease of 9,000 metric
tons, or 14%, in the volume of graphite electrodes sold to 55,000 metric tons in
the 1998 second quarter from 64,000 metric tons in the 1997 second quarter. The
reduced volume of graphite electrodes sold represented $28 million of lower net
sales. The decrease in the volume of graphite electrodes sold was primarily due
to the continuing economic turmoil in the Asia Pacific region. This economic
turmoil is affecting steelmakers in that region as well as those regions which
typically export steel to the Asia Pacific region and is adversely affecting the
demand for graphite electrodes as well as pricing in those regions.
The average selling price per metric ton (in U.S. dollars and net of changes in
currency exchange rates) of the Company's graphite electrodes was $3,072 in the
1998 second quarter as compared to $3,138 in the 1997 second quarter. The
decrease in the average price was primarily a result of the continued
strengthening of the U.S. dollar as compared to many of the currencies in which
the Company sells its products, reducing net sales by $9 million in the 1998
second quarter as compared to the 1997 second quarter. Local price increases for
graphite electrodes, implemented in certain countries where the Company sells
its products, added $3 million in net sales, partly offsetting the impact of the
continued strengthening of the U.S. dollar.
Net sales of non-graphite electrode businesses combined were $74 million in the
1998 second quarter as compared to $82 million in the 1997 second quarter. In
the 1998 second quarter, net sales of carbon refractories and carbon electrodes
to the steel industry declined $4 million due to reduced demand for
16
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PART I (Cont.)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
furnace relines and net sales of carbon electrodes to the silicon metals
industry declined $3 million due to lower demand from customers in the Asia
Pacific region.
Cost of sales were $152 million in the 1998 second quarter as compared to $180
million in the 1997 second quarter. This decrease was due primarily to lower
volumes of graphite electrodes, carbon electrodes and carbon refractories sold.
As a result of the changes described above, gross profit was $96 million, or
38.5% of net sales, in the 1998 second quarter as compared to $110 million, or
38.0% of net sales, in the 1997 second quarter. The improvement in the gross
profit margin was due primarily to continuing cost improvements and favorable
product mix in the aluminum industry products business and was achieved despite
the impact of lower volumes of graphite electrodes, carbon electrodes and carbon
refractories sold and the strengthening of the U.S. dollar.
Selling, administrative and other expenses remained stable at $26 million, or
10.5% of net sales, for the 1998 second quarter as compared to $27 million, or
9.3% of net sales, for the 1997 second quarter, despite the inclusion of the
Acquired Companies. The selling, administrative and other expenses of the
Acquired Companies currently constitute a higher percentage of net sales than
for the Company's pre-existing businesses.
As a result of the changes described above, operating profit in the 1998 second
quarter was $68 million, or 27.4% of net sales, as compared to $81 million, or
27.9% of net sales, in the 1997 second quarter.
Interest expense was $19 million in the 1998 second quarter as compared to $16
million in the 1997 second quarter. This increase was primarily due to imputed
interest expense on the non-interest-bearing $110 million antitrust fine,
payable in six annual installments, and the increase in average total debt
outstanding. The average total debt outstanding was $788 million with an average
interest rate of 8.8% in the 1998 second quarter as compared to $769 million
with an average interest rate of 8.6% in the 1997 second quarter.
Provision for income taxes was $17 million in the 1998 second quarter as
compared to $22 million in the 1997 second quarter. The effective tax rate was
35% for the 1998 second quarter as compared to 34% for the 1997 second quarter.
As a result of the changes described above, net income for the 1998 second
quarter was $31 million, a decrease of 26% from net income of $42 million in the
1997 second quarter.
SIX MONTHS ENDED JUNE 30, 1998 AS COMPARED TO SIX MONTHS ENDED JUNE 30, 1997.
Net sales of $492 million in the first six months of 1998 represented a 7%
decrease from net sales of $528 million in the first six months of 1997. This
decrease was primarily attributable to lower net sales of graphite electrodes.
Net sales of graphite electrodes accounted for 69% of total net sales in the
first six months of 1998 as compared to 70% of total net sales in the first six
months of 1997.
17
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PART I (Cont.)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
Net sales of graphite electrodes declined 8% to $341 million in the first six
months of 1998 from $370 million in the first six months of 1997. The decrease
in net sales of graphite electrodes was attributable primarily to a decrease of
5,000 metric tons, or 4%, in the volume of graphite electrodes sold to 107,000
metric tons in the first six months of 1998 from 112,000 metric tons sold in the
first half of 1997. The reduced volume of graphite electrodes sold represented
$16 million of lower net sales. The decrease in volume of graphite electrodes
sold was primarily due to the continuing economic turmoil in the Asia Pacific
region. The impact of this economic turmoil was partially offset by the
incremental net sales in the first half of 1998 of the acquired graphite
electrode businesses in South Africa and Berlin.
The average selling price per metric ton (in U.S. dollars and net of changes in
currency exchange rates) of the Company's graphite electrodes was $3,065 in the
first six months of 1998 as compared to $3,172 in the first six months of 1997.
The decrease in the average price was primarily a result of the continued
strengthening of the U.S. dollar as compared to many of the currencies in which
the Company sell its products, reducing net sales by approximately $15 million
in the first half of 1998 as compared to the first half of 1997. Local price
increases for graphite electrodes, implemented in certain countries where the
Company sells its products, added $7 million in net sales, partly offsetting the
impact of the continued strengthening of the U.S. dollar. In addition, the
average price was adversely impacted by the inclusion of the Acquired Companies.
The Acquired Companies 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.
Net sales of the Company's non-graphite electrode businesses combined were $151
million in the first half of 1998 as compared to $158 million in the first six
months of 1997. Net sales of carbon refractories to the steel industry declined
$6 million due to reduced demand for furnace relines and net sales of carbon
electrodes to the silicon metals industry declined $3 million during the first
six months of 1998 due to lower demand from customers in the Asia Pacific
region.
Cost of sales were $303 million in the first six months of 1998 as compared to
$330 million in the first six months of 1997. This decrease was due primarily to
lower volumes of graphite electrodes, carbon electrodes and carbon refractories
sold.
As a result of the changes described above, gross profit was $189 million, or
38.3% of net sales, in the first six months of 1998 as compared to $198 million,
or 37.5% of net sales, in the first six months of 1997. The improvement in the
gross profit margin was due primarily to continuing cost improvements and
favorable product mix in the aluminum industry products business and was
achieved despite the impact of lower volumes of graphite electrodes, carbon
electrodes and carbon refractories sold and the strengthening of the U.S.
dollar.
Selling, administrative and other expenses remained stable at $52 million, or
10.6% of net sales, in the first six months of 1998, as compared to $50 million,
or 9.5% of net sales, in the first six months of 1997, despite the inclusion of
the Acquired Companies. The selling, administrative and other expenses of the
18
<PAGE>
PART I (Cont.)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
Acquired Companies currently constitute a higher percentage of net sales than
they do for the Company's pre-existing businesses.
Other expense (net) was $4 million in the first six months of 1998 as compared
to $1 million of other expense (net) in the first six months of 1997. This
change was primarily due to $5 million of consulting fees associated with
projects that the Company is undertaking to further improve operating
efficiency, integrate worldwide operations and generate earnings growth.
As a result of the changes described above, operating profit in the first six
months of 1998 was $129 million, or 26.2% of net sales, as compared to $143
million, or 27.1% of net sales, in the first six months of 1997.
Interest expense was $35 million in the first six months of 1998 as compared to
$31 million in the first six months of 1997. This increase is primarily due to
the increase in average total debt outstanding and the imputed interest expense
on the non-interest-bearing $110 million antitrust fine, payable in six annual
installments. The average total debt outstanding in the first half of 1998 was
$767 million with an average interest rate of 8.7% as compared to $711 million
with an average annual interest rate of 8.8% in the first half of 1997.
Provision for income taxes was $27 million in the first half of 1998 as compared
to $34 million in the first half of 1997. The effective tax rate was 29% for the
first half of 1998 as compared to 30% for the first half of 1997. Provision for
income taxes for the first half of 1998 reflects benefits realized from global
integration and other projects.
As a result of the changes described above, net income for the first half of
1998 was $66 million, a decrease of 16% from the net income of $79 million for
the first half of 1997.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW PROVIDED BY OPERATIONS
Cash flow from operations was $8 million during the first six months of 1998 as
compared to $41 million during the first six months of 1997. This decrease was
primarily due to a $95 million increase in working capital during the first six
months of 1998, partially offset by higher non-cash charges, and to lower net
income. The increase in working capital was primarily due to increases in
inventory combined with decreases in payables and accrued liabilities. In the
first six months of 1998, inventory increased $47 million as a result of a
decline in net sales resulting from the economic turmoil in the Asia Pacific
region. In the same period, payables and accrued liabilities decreased $33
million primarily because the Company did not adjust its trade payment practices
to reflect its lower net sales.
19
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PART I (Cont.)
UCAR INTERNATIONAL INC.
CASH USED IN INVESTING ACTIVITIES
The Company used $42 million in investing activities in the first six months of
1998 as compared to $163 million in the first six months of 1997. In the first
half of 1998, investing activities consisted primarily of $29 million of capital
expenditures, a portion of which was to complete cost reduction and production
efficiency projects begun in prior years, and $15 million of net purchases of
short-term investments by the Company's Brazilian subsidiary.
In the first six months of 1997, investing activities consisted primarily of the
purchase of 70% of the equity in Carbone Savoie, an investment in UCAR
Electroden to finance the acquisition of the graphite electrode business of EKL,
an increase in the investment in UCAR Grafit, and the acquisition of the
outstanding shares of EMSA held by the Company's former 50%-joint-venture
partner in EMSA. The cash flow used in these activities aggregated $123 million.
Additional investing activities consisted of $28 million of capital expenditures
and $13 million of net purchases of short-term investments by the Company's
Brazilian subsidiary.
CASH FLOW FROM FINANCING ACTIVITIES
Cash flow from financing activities was $46 million in the first six months of
1998 as compared to $87 million in the first six months of 1997. In the first
half of 1998, financing activities consisted primarily of $76 million of
borrowings under the Senior Bank Facilities prior to and in connection with
obtaining the limited waiver in April 1998. These borrowings were used primarily
to finance the increase in working capital.
In the first six months of 1997, financing activities consisted primarily of
borrowings of $100 million under the Senior Bank Facilities and $11 million of
other long-term debt to finance a portion of the acquisition of the Acquired
Companies and net short-term borrowings of $20 million by certain foreign
subsidiaries to meet local cash needs, partially offset by $48 million of
purchases of treasury stock.
PLANS TO MANAGE LIQUIDITY
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 June 30, 1998, the Company had total debt of
$777 million and a stockholders' deficit of $196 million as compared to total
debt of $732 million and a stockholders' deficit of $246 million at December 31,
1997. At June 30, 1998, cash, cash equivalents and short-term investments were
$105 million as compared to $78 million at December 31, 1997.
The Company believes that its cash, cash equivalents and short-term investments
together with cash flow from operations will enable it to meet its debt service
and trade obligations when due in the ordinary course of business during the
third and fourth quarters of 1998. The Company believes that such resources will
enable it to meet its obligations in connection with antitrust investigations
and related
20
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PART I (Cont.)
UCAR INTERNATIONAL INC.
lawsuits and claims which become due in the third quarter of 1998. The Company
will, however, be required to obtain additional financing to meet its
obligations in connection with antitrust investigations and related lawsuits and
claims which become due in the fourth quarter of 1998. The Company believes that
it will be able to obtain such additional financing in a timely manner on
acceptable terms. No assurance can be given, however, that such will be the
case. Failure to obtain such additional financing in a timely manner, on
acceptable terms or otherwise, could have a material adverse effect on the
Company, including the risks and uncertainties described in the Prior Reports.
21
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PART II. OTHER INFORMATION
UCAR INTERNATIONAL INC.
ITEM 1. LEGAL PROCEEDINGS
ANTITRUST INVESTIGATIONS
In 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 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. 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 April 24, 1998, pursuant to an agreement between the DOJ
and UCAR, the DOJ charged UCAR 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 and to restrict non-conspiring producers' access to
manufacturing technology for graphite electrodes. In addition, pursuant to the
agreement, UCAR pled guilty 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. The fine is
payable in six annual installments of $20 million, $15 million, $15 million, $18
million, $21 million and $21 million, respectively, commencing July 23, 1998.
The agreement was approved by the District Court and, as a result, the Company
will not be subject to prosecution by the DOJ with respect to any other
violations of the federal antitrust laws occurring prior to April 24, 1998. The
payment due July 23, 1998 was timely made. The plea has made it more difficult
for the Company to defend against civil antitrust lawsuits and claims.
The Canadian Competition Bureau (the "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 Cdn$10
million. Under Section 46 of the Canadian Act, the amount of the fine is
discretionary and there is no maximum. The Company has been required by the
Competition Bureau to produce documents and witnesses in Canada.
In June 1998, the Company became aware that Japanese antitrust authorities have
commenced an investigation of producers and distributors of graphite electrodes.
The Company has no facilities or employees in Japan and has not sold a material
quantity of graphite electrodes in Japan. The independent distributor of the
Company's products in Japan has, however, been required to produce documents and
witnesses in Japan.
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PART II. OTHER INFORMATION
UCAR INTERNATIONAL INC.
The Company is cooperating with the EU authorities and the Competition Bureau in
their investigations. It is possible that antitrust investigations could be
initiated by authorities in other jurisdictions.
ANTITRUST LAWSUITS
In 1997, UCAR and other producers of graphite electrodes were served with
complaints commencing various antitrust class action lawsuits. Subsequently, the
complaints were either withdrawn without prejudice to refile or consolidated
into a single complaint in the District Court entitled IN RE GRAPHITE ELECTRODES
ANTITRUST LITIGATION (called the "antitrust class action lawsuit"). In the
consolidated complaint, the plaintiffs allege that the defendants violated
federal antitrust laws and seek, among other things, an award of treble damages
resulting from such alleged violations. In the consolidated complaint, the
proposed class consists of all persons who purchased graphite electrodes in the
United States (called the "class") directly from the defendants during the
period from January 1, 1992 through August 15, 1997 (called the "class period").
In 1998, UCAR and other producers of graphite electrodes were served with a
complaint commencing a civil antitrust lawsuit in the District Court (called the
"opt-out lawsuit"). The plaintiffs named in the complaint consist of 27
steelmakers in the United States. In the complaint, the plaintiffs alleged that
the defendants violated federal antitrust laws and seek, among other things, an
award of treble damages resulting from such alleged antitrust violations.
Through August 10, 1998, the Company had entered into agreements to settle both
the antitrust class action and the opt-out lawsuit as well as antitrust claims
by nine other steelmakers who negotiated directly with the Company. The
settlements cover approximately 75% of the actual and potential claims in the
United States arising out of alleged antitrust violations occurring prior to the
date of the respective agreements in connection with the sale of graphite
electrodes. The aggregate amount of the settlements is approximately $80
million. Although each settlement is unique, in the aggregate they consist
primarily of current and deferred cash payments with some product credits and
discounts. The aggregate amount of the settlements and percentage of covered
claims could vary depending on the steelmakers who are ultimately included in
the class and the amount of their purchases of graphite electrodes. If aggregate
purchases of graphite electrodes during the class period by steelmakers who are
ultimately included in the class total less than a specified threshold, the
Company has the option to withdraw from the settlement of the antitrust class
action. The Company currently expects that most of the potential members of the
class will be included in the class and, accordingly, will be covered by the
settlement.
In 1998, UCAR, other producers of graphite electrodes, Union Carbide Corporation
and Mitsubishi Corporation were served with a complaint commencing a civil
lawsuit in the District Court. The plaintiffs named in the complaint are Nucor
Corporation and Nucor-Yamato Corporation (collectively, "Nucor"). In the
complaint, the plaintiffs allege that the defendants violated federal antitrust
laws and that Union Carbide Corporation and Mitsubishi Corporation violated
applicable state fraudulent transfer laws. The complaint seeks, among other
things, an award of treble damages resulting from such alleged antitrust
violations and an order to have payments made by UCAR to Union Carbide
Corporation and Mitsubishi Corporation in connection with the Company's
leveraged recapitalization in January 1995
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PART II. OTHER INFORMATION
UCAR INTERNATIONAL INC.
declared to be fraudulent conveyances and returned to UCAR for purposes of
enabling UCAR to satisfy any judgments resulting from such alleged antitrust
violations.
Certain other steelmakers in the United States have also served the Company or
its Canadian subsidiary, respectively, with complaints commencing civil lawsuits
in various courts. The Company and other producers of graphite electrodes have
been named as defendants in some or all of such complaints. These steelmakers
have not been major purchasers of graphite electrodes. The complaints contain
allegations and seek damages similar to those contained in the complaint served
in connection with the opt-out lawsuit, except that, in the case of the
complaint served on the Company's Canadian subsidiary, the plaintiffs seek,
among other things, only an award of actual damages. Under Canadian law (unlike
U.S. law), there is no provision for an award of treble damages for antitrust
violations. These lawsuits are in their early stages. The Company intends to
vigorously defend against these lawsuits. The Company may at any time, however,
settle these lawsuits and is actively negotiating with Nucor and these
steelmakers, as well as several other steelmakers who are not parties to any
lawsuit and wish to enter into separate settlements with the Company, to settle
their lawsuits and claims.
The Company anticipates that additional civil 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). 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, then Vice President and Chief Financial
Officer, Peter B. Mancino, General Counsel, Vice President and Secretary, and
Fred C. Wolf, then Vice President, Administration and Strategic Projects,
together with Robert D. Kennedy, current Chairman of the Board, and Messrs.
Cartledge and Hall, current directors, and Glenn H. Hutchins, Howard A. Lipson,
Peter G. Peterson and Stephen A. Schwarzman, former directors, are named as
defendants. UCAR is named as a nominal defendant. The plaintiff named in the
complaint is David Jaroslawicz. In the complaint, the plaintiff alleges that the
defendants breached their fiduciary duties in connection with alleged
non-compliance by the Company and its employees with antitrust laws. The
plaintiff 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 the Company resulting from such alleged breaches and sales. In May
1998, UCAR and the individual defendants filed a motion to dismiss the complaint
on the grounds that plaintiff failed to make a demand upon UCAR's Board of
Directors prior to commencing the lawsuit and to sufficiently allege that such a
demand would have been futile. In response to the motion, plaintiff requested
and obtained from the Court permission to file an amended complaint. The amended
complaint was served in July 1998. A second motion to dismiss has been filed.
This lawsuit is in its early stages.
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PART II. OTHER INFORMATION
UCAR INTERNATIONAL INC.
SECURITIES CLASS ACTION LAWSUIT
In April and May 1998, complaints commencing securities class actions were filed
in the United States District Court for the District of Connecticut. UCAR, David
A. Stockman, a former director, and each of Messrs. Krass, Hart, Mancino,
Wiemels, Wolf, Cartledge, Hall, Hutchins, Kennedy, Lipson, Peterson and
Schwarzman are named as defendants. The proposed class consists of all persons
who purchased common stock during the period from August 1995 through March
1998. 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 complaints seek,
among other things, to recover damages resulting from such alleged violations.
The lawsuits have been consolidated into a single action and the Florida State
Board of Administration has been designated as lead plaintiff (without prejudice
to defendants' right to contest such designation on the basis that such
plaintiff would not be an adequate class representative). Plaintiffs have
indicated an intent to file a consolidated amended complaint. UCAR does not
expect to respond to any such complaint until late 1998. This lawsuit is in its
early stages.
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 early stages and no
evaluation of liability can yet be made, no amounts have been accrued with
respect to the shareholder derivative or securities class action lawsuits.
25
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PART II. OTHER INFORMATION
UCAR INTERNATIONAL INC.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -------------------------------------------------------------
On June 4, 1998, UCAR held its annual meeting of stockholders in Danbury,
Connecticut. The stockholders elected the following directors with corresponding
votes for and withheld:
NUMBER OF NUMBER OF
NAME OF DIRECTOR SHARES VOTED FOR SHARES WITHHELD
---------------- ---------------- ---------------
R. Eugene Cartledge.......... 40,945,471 166,261
Alec Flamm................... 40,543,818 567,914
John R. Hall................. 40,945,144 166,588
Robert D. Kennedy............ 40,544,017 567,715
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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
------ ----------------------
10.22 UCAR International Inc. Management Stock Option Plan amended
and restated as of March 30, 1998.
27.1 Financial Data Schedule for the second quarter of 1998 (for
Commission use only)
27.2 Restated Financial Data Schedule for the second 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.
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PART II. OTHER INFORMATION
UCAR INTERNATIONAL INC.
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: August 14, 1998 By: /s/ Corrado F. De Gasperis
--------------------------
Corrado F. De Gasperis
Controller
(PRINCIPAL FINANCIAL OFFICER)
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UCAR INTERNATIONAL INC.
INDEX TO EXHIBITS
EXHIBIT NO.
10.22 UCAR International Inc. Management Stock Option Plan amended and
restated as of March 30, 1998.
27.1 Financial Data Schedule for the Second Quarter of 1998 (for
Commission use only)
27.2 Restated Financial Data Schedule for the Second Quarter of 1997 (for
Commission use only)
E-1
EXHIBIT 10.22
THE UCAR INTERNATIONAL INC.
MANAGEMENT STOCK OPTION PLAN
This Management Stock Option Plan was originally adopted by
the Board of Directors of UCAR International Inc., a Delaware corporation (the
"Company"), as of the Effective Date (as defined below). It was subsequently
amended. This document (the "Plan") restates in one document this Management
Stock Option Plan as amended through March 30, 1998.
ARTICLE I
PURPOSE OF PLAN
The Plan has been adopted by the Board to provide for the
grant of certain stock options under certain circumstances to certain management
employees and non-employee directors of the Company and its Subsidiaries as a
part of the compensation and incentive arrangements for such employees and
directors. The Plan is intended to advance the best interests of the Company by
allowing such persons 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 or service of the Company and its Subsidiaries. It is anticipated that
the availability of stock options under the Plan will also enhance the Company's
and its Subsidiaries' 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" , if relevant to a particular Participant, shall have
the meaning of "Cause" set forth in such Participant's Option Agreement.
<PAGE>
"CEO" shall mean the Chief Executive Officer of the Company.
"CHANGE OF CONTROL" shall mean:
(i) the date that any "person" (as such term is used
in Section 13(d) and 14(d) of the Exchange Act) is or becomes
the beneficial owner (as defined below, 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, 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.
For purposes of clause (i), "beneficial owner" has the same meaning as defined
in Rules 13d-3 and 13d-5 under the Exchange Act, which shall in any event
include having the power to vote (or cause to be voted at such person's
direction) pursuant to contract, irrevocable proxy or otherwise, directly or
indirectly, voting power of the Company.
"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.
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"DETERMINATION DATE" shall mean the last day of the Plan Year.
"DIRECTOR" shall mean any individual who is a member of the
Board and who is not an employee of the Company or a Subsidiary.
"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 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.
3
<PAGE>
"EFFECTIVE DATE" shall mean the Recapitalization Closing Date.
"EMPLOYEE" shall mean any employee of the Company or any of
its Subsidiaries and, unless otherwise indicated, any Director.
"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" , if relevant to a particular Participant, shall
have the meaning of "Good Reason" set forth in such 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.
"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.
4
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"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.
"RECAPITALIZATION AGREEMENT" shall mean the 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.
"RECAPITALIZATION CLOSING DATE" shall mean the Closing Date of
the Recapitalization (i.e., January 26, 1995).
"RECAPITALIZATION PRICE" shall mean the per share price paid
in the Recapitalization (i.e., $7.60).
"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.
"TIME OPTIONS" shall mean the Options described in Section 5.1
hereof.
5
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"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
3.1 OPTION SHARES. The aggregate number of shares of Common
Stock with respect to which Options may be granted under the Plan shall not
exceed 6 million shares; 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.
3.2 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 or
the Board shall determine and shall be reserved by the Committee or the Board
for issuance under this Plan; provided, however, that any of such shares of
Common Stock issued upon exercise of options granted to officers or directors of
the Company on or after March 31, 1998 shall consist of treasury shares which
shall have been previously listed on the New York Stock Exchange. 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 of the Company and its Subsidiaries
pursuant to this Plan or any other plan or agreement approved by the Committee.
ARTICLE IV
GRANT OF OPTIONS
4.1 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) and the Board shall grant Options
to Directors. Except as otherwise provided herein, the Committee or the Board
shall establish the terms and conditions applicable to Options granted by it at
the time of grant, which terms and conditions shall be set forth in the relevant
Option Agreement.
4.2 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. For purposes of the initial grant of Options
hereunder, the Exercise Price of Options shall be the Recapitalization Price.
4.3 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).
6
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ARTICLE V
EXERCISABILITY OF OPTIONS
5.1 TIME OPTIONS. Except as otherwise provided in the relevant
Option Agreement or Section 5.3(b), all Time Options granted pursuant to this
Plan shall become exercisable in accordance with the following schedule:
Exercisable Percentages
-----------------------
Prior to December 31, 1995 0%
On or after December 31, 1995 20%
On or after December 31, 1996 40%
On or after December 31, 1997 60%
On or after December 31, 1998 80%
On or after December 31, 1999 100%
5.2 PERFORMANCE OPTIONS. Except as otherwise provided in the
relevant Option Agreement or Section 5.3(b):
(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).
5.3 ACCELERATION EVENTS.
(a) Notwithstanding anything in this Article V to the
contrary: Time Options awarded to Employees (other than Directors) shall become
exercisable upon the first to occur of the following Acceleration Events: (i) a
Participant's death or Disability, (ii) a Change of Control, and (iii) to the
extent provided in a Participant's Option Agreement, a Participant's termination
without Cause or resignation for Good Reason; and Time Options awarded to
Directors shall become exercisable upon the first to occur of the following
Acceleration Events: (i) a Director ceases to be a Director on account of death
or Disability or (ii) a Change of Control. The Committee or the Board may, in
its discretion, accelerate the exercisability of Options at any time and for any
reason.
7
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(b) All outstanding Time Options and Performance Options
(other than Performance Options for the 1999 Plan Year) granted on or before
March 17, 1998 have become vested and exercisable.
ARTICLE VI
EXERCISE OF OPTIONS
6.1 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 descent and
distribution.
6.2 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
substantially in the form attached hereto as ANNEX I (or in such other similar
form as the Committee or the Board 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, on or after
an initial Public Offering, upon a Participant's request, with the Committee's
or the Board's consent, 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.
6.3 [Omitted]
6.4 CONDITIONAL EXERCISE IN CONTEMPLATION OF AN ACCELERATION
EVENT. In contemplation of an Acceleration Event, a Participant may
conditionally exercise at least 15 days prior to such event all or a portion of
his Options which are exercisable and which will become exercisable upon the
occurrence of the Acceleration Event. Such conditional exercise shall become
null and void if the anticipated Acceleration Event does not occur within six
(6) months following the date of such conditional exercise. A conditional
exercise shall become binding upon a Participant (and such Participant shall
become obligated to pay the Exercise Price therefor) upon the occurrence of the
Acceleration Event.
6.5 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
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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
7.1 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 or
upon such earlier time as provided in the Option Agreements (the "Expiration
Date").
7.2 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
8.1 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.
8.2 REGISTRATION OF OPTION SHARES. The Company shall file, at
its own expense, a registration statement on Form S-8 to register the Option
Shares.
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8.3 TRANSFER OF OPTIONS. Options may not be Transferred (other
than by will or descent), except that Options may be pledged, assigned or
otherwise Transferred to the Company to secure indebtedness on any Employee
Loan.
ARTICLE IX
ADMINISTRATION
9.1 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.
9.2 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.
9.3 COMMITTEE AUTHORITY. The Committee and the Board 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
and Board's determinations on matters within its authority shall be conclusive
and binding upon the Participants, the Company and all other Persons.
ARTICLE X
MISCELLANEOUS
10.1 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.
10.2 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
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and the Exercise Prices specified therein and other amendments to the Plan as
the Board, in good faith, determines to be appropriate and equitable.
10.3 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 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.
10.4 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.
10.5 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), 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.
10.6 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.
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Annex I
EXERCISE NOTICE
---------------
(Applicable After an Initial Public Offering)
This Exercise Notice (this "NOTICE") is given by the undersigned
participant ("Participant") to UCAR International Inc., a Delaware corporation
(the "Company"), in connection with the Participant's exercise of an Option
granted pursuant to the Company's Management Stock Option Plan (the "Plan") to
purchase Option Shares (as defined in the Plan). Capitalized terms used but not
defined herein shall have the respective meanings ascribed to them in the Plan.
1. PURCHASE AND SALE OF OPTION SHARES.
Upon delivery to the Company of (i) this Notice, (ii) the
aggregate Exercise Price for the Option Shares purchased hereunder by certified
check, bank draft or money order made payable to "UCAR International Inc." and
(iii) the Option to which the Option Shares relates, the Company shall sell and
issue to Participant, the Option Shares that Participant elects to purchase
hereunder.
2. EFFECT OF EXERCISE. Participant acknowledges and agrees
that:
a. neither the issuance of the Option Shares to
Participant nor any provision contained herein shall entitle
Participant to remain in the employment of the Company and its
Subsidiaries or affect the right of the Company to terminate
Participant's employment at any time for any reason;
b. the Company shall be entitled to withhold from any
amounts due and payable by the Company to Participant (or secure
payment from Participant in lieu of withholding) the amount of any
withholding or other tax due from the Company with respect to such
Option Shares and the Company may defer issuance until indemnified to
its satisfaction; and
c. The Option Shares issued in connection herewith
hereunder, are issued as a part of the compensation and incentive
arrangements between the Company and Participant.
3. RESTRICTION ON OPTION SHARES. Participant acknowledges that
the Option Shares being purchased hereunder are being issued pursuant to the
Plan, the terms and conditions of which are incorporated herein as if set forth
fully herein.
4. TAX TREATMENT.
PARTICIPANT IS ADVISED THAT IT MAY BE IN PARTICIPANT'S OWN BEST
INTEREST TO MAKE AN EFFECTIVE ELECTION WITH THE INTERNAL REVENUE
SERVICE UNDER SECTION 83(b) OF THE INTERNAL REVENUE
12
<PAGE>
CODE OF 1986, AS AMENDED, AND THE REGULATIONS PROMULGATED THEREUNDER IN
CONNECTION WITH THE EXERCISE OF OPTIONS HEREUNDER, AND THAT PARTICIPANT
SHOULD CONSULT WITH PARTICIPANT'S TAX ADVISOR ABOUT THE DESIRABILITY OF
AND PROCEDURE FOR MAKING SUCH AN ELECTION BEFORE EXERCISING THE OPTION
TO WHICH THIS NOTICE RELATES.
IN WITNESS WHEREOF, the Participant has executed this Notice
as of the date written below.
Number of Shares of Common Stock Acquired: _________
Aggregate Exercise Price: _________
_______________________________ _______________
Signature of Participant Date
_______________________________ ________________
Print Participant's Name Participant's Social
Security No.
Participant's Residence Address: Mailing Address, if different
from Residence Address:
_______________________________ ___________________________
Street Street
_______________________________ ___________________________
City State Zip Code City State Zip Code
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
REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 70
<SECURITIES> 35
<RECEIVABLES> 198
<ALLOWANCES> 6
<INVENTORY> 250
<CURRENT-ASSETS> 623
<PP&E> 1,286
<DEPRECIATION> 727
<TOTAL-ASSETS> 1,273
<CURRENT-LIABILITIES> 424
<BONDS> 675
0
0
<COMMON> 0
<OTHER-SE> (196)
<TOTAL-LIABILITY-AND-EQUITY> 1,273
<SALES> 492
<TOTAL-REVENUES> 492
<CGS> 303
<TOTAL-COSTS> 303
<OTHER-EXPENSES> 4
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 35
<INCOME-PRETAX> 94
<INCOME-TAX> 27
<INCOME-CONTINUING> 66
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 66
<EPS-PRIMARY> 1.47
<EPS-DILUTED> 1.41
</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
REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 60
<SECURITIES> 13
<RECEIVABLES> 215 <F2>
<ALLOWANCES> 6
<INVENTORY> 213
<CURRENT-ASSETS> 557
<PP&E> 1,296
<DEPRECIATION> 714
<TOTAL-ASSETS> 1,201
<CURRENT-LIABILITIES> 279
<BONDS> 667
0
0
<COMMON> 0
<OTHER-SE> 31
<TOTAL-LIABILITY-AND-EQUITY> 1,201
<SALES> 528
<TOTAL-REVENUES> 528
<CGS> 330
<TOTAL-COSTS> 330
<OTHER-EXPENSES> 4
<LOSS-PROVISION> (1)
<INTEREST-EXPENSE> 31
<INCOME-PRETAX> 112
<INCOME-TAX> 34
<INCOME-CONTINUING> 79
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 79
<EPS-PRIMARY> 1.71<F1>
<EPS-DILUTED> 1.64<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 June 30, 1997 figure has been corrected to properly reflect only trade
notes and accounts receivable.
</FN>
</TABLE>
