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FORM 10-Q/A No. 1
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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, 1999
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)
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3102 West End Avenue
Suite 1100 37203
Nashville, Tennessee (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (615) 760-8227
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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, 1999, 45,082,530 shares of common stock, par value $.01 per
share, were outstanding.
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<PAGE>
EXPLANATORY NOTE
This Amendment No. 1 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1999 is filed to correct certain information
contained in the Consolidated Financial Statements, the Notes to Consolidated
Financial Statements and Management's Discussion and Analysis of Financial
Condition and Results of Operations and, therefore, only contains Part I, Items
1 and 2 and Part II, Item 6. The error and correct information were first
disclosed in the Registrant's earnings release for the third quarter of 1999
which was filed on October 27, 1999 in a Current Report on Form 8-K.
<PAGE>
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements:
Consolidated Balance Sheets as of December 31, 1998
and June 30, 1999............................................. Page 3
Consolidated Statements of Operations for the Three Months
ended June 30, 1998 and 1999 and for the Six Months
ended June 30, 1998 and 1999.................................. Page 4
Consolidated Statements of Cash Flows for the Six Months
ended June 30, 1998 and 1999.................................. Page 5
Consolidated Statement of Stockholders' Equity (Deficit) for the
Six Months ended June 30, 1999................................ Page 6
Notes to Consolidated Financial Statements...................... Page 7
Introduction to Part I, Items 2 and 3, and Part II, Item 1........ Page 17
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. Page 20
PART II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K......................... Page 32
SIGNATURE.......................................................... Page 33
INDEX TO EXHIBITS.................................................. Page E-1
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in millions, except per share data)
December 31, June 30,
ASSETS 1998 1999
---- ----
Current assets: Unaudited)
Cash and cash equivalents....................... $ 58 $ 18
Short-term investments.......................... 11 7
Notes and accounts receivable................... 198 190
Inventories:
Raw materials and supplies.................... 58 54
Work in process............................... 150 137
Finished goods................................ 56 52
------- -------
264 243
Prepaid expenses................................ 47 28
------- -------
Total current assets.................. 578 486
------- -------
Property, plant and equipment..................... 1,220 1,144
Less: accumulated depreciation.................... 752 716
------- -------
Net fixed assets...................... 468 428
Other assets...................................... 91 92
------- -------
Total assets.......................... $1,137 $1,006
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable................................ $ 67 $ 83
Short-term debt................................. 19 3
Payments due within one year on long-term debt.. 63 70
Accrued income and other taxes.................. 28 29
Other accrued liabilities....................... 198 144
------- -------
Total current liabilities............. 375 329
------- -------
Long-term debt.................................... 722 674
Other long-term obligations....................... 266 241
Deferred income taxes............................. 48 47
Minority stockholders' equity in consolidated
entities........................................ 13 12
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, 47,411,296 shares issued at
December 31, 1998, 47,425,836 shares issued at
June 30, 1999................................. - -
Additional paid-in capital...................... 521 523
Accumulated other comprehensive income (loss)... (157) (201)
Retained earnings (deficit)..................... (566) (532)
Less: cost of common stock held in treasury,
2,226,498 shares at December 31, 1998,
2,343,306 shares at June 30, 1999............. (85) (87)
------- -------
Total stockholders' equity (deficit).. (287) (297)
------- -------
Total liabilities and stockholders'
equity (deficit).................... $1,137 $1,006
======= =======
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 1999 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales............................................ $ 248 $ 211 $ 492 $ 413
Cost of sales........................................ 152 138 303 277
----- ----- ----- -----
Gross profit...................................... 96 73 189 136
Research and development............................. 2 2 4 4
Selling administrative and other expenses............ 26 23 52 45
Other (income) expense (net)......................... - (3) 4 (6)
----- ----- ----- -----
Operating profit.................................. 68 51 129 93
Interest expense..................................... 19 22 35 44
----- ----- ----- -----
Income before provision for income taxes.......... 49 29 94 49
Provision for income taxes........................... 17 8 27 13
----- ----- ----- -----
Income of consolidated entities................... 32 21 67 36
Less: Minority stockholders' share of income......... 1 1 1 2
----- ----- ----- -----
Net income........................................ $ 31 $ 20 $ 66 $ 34
===== ===== ===== =====
Basic earnings per common share:
Net income per share.............................. $ 0.70 $ 0.45 $ 1.47 $ 0.76
Weighted average common shares outstanding
(in thousands).................................... 44,961 45,083 44,950 45,138
====== ====== ====== ======
Diluted earnings per common share:
Net income per share.............................. $ 0.67 $ 0.44 $ 1.41 $ 0.74
Weighted average common and common equivalent
shares outstanding (in thousands)................. 46,708 46,507 46,689 46,504
====== ====== ====== ======
</TABLE>
See accompanying Notes to Consolidated Financial Statements
4
<PAGE>
<TABLE>
PART I. (Cont.)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
(Unaudited)
<CAPTION>
Six Months
Ended June 30,
Cash flow from operating activities: 1998 1999
---- ----
<S> <C> <C>
Net income ................................................................... $ 66 $ 34
Non-cash charges to net income:
Depreciation and amortization............................................... 26 23
Deferred income taxes....................................................... 1 6
Other non-cash charges...................................................... 3 14
Working capital *............................................................. (95) (36)
Long-term assets and liabilities.............................................. 7 (2)
----- -----
Net cash provided by operating activities.............................. 8 39
----- -----
Cash flow from investing activities:
Capital expenditures.......................................................... (29) (27)
Purchases of short-term investments........................................... (27) (17)
Maturity of short-term investments............................................ 12 21
Sale of assets................................................................ 2 3
----- -----
Net cash used in investing activities.................................. (42) (20)
----- -----
Cash flow from financing activities:
Short-term debt borrowings (reductions), net.................................. (31) (16)
Long-term debt borrowings..................................................... 209 59
Long-term debt reductions..................................................... (133) (98)
Sale of common stock.......................................................... 1 -
Dividends paid to minority shareholder........................................ - (1)
----- -----
Net cash provided by (used in) financing activities.................... 46 (56)
----- -----
Net increase (decrease) in cash and cash equivalents............................ 12 (37)
Effect of exchange rate changes on cash and cash equivalents.................... - (3)
Cash and cash equivalents at beginning of period................................ 58 58
----- -----
Cash and cash equivalents at end of period...................................... $ 70 $ 18
===== =====
Supplemental disclosures of cash flow information:
Net cash paid during the period for:
Interest expense....................................................... $ 33 $ 40
Income taxes........................................................... 32 18
* Net change in working capital due to the following components:
(Increase) decrease in current assets:
Notes and accounts receivable.......................................... $ (2) $ 4
Inventories............................................................ (47) 6
Increase (decrease) in accounts payable and accruals.......................... (33) 3
Antitrust investigations and related lawsuits and claims, net................. (13) (35)
Restructuring payments........................................................ - (14)
----- -----
Working capital........................................................ $ (95) $ (36)
===== =====
</TABLE>
See accompanying Notes to Consolidated Financial Statements
5
<PAGE>
<TABLE>
PART I (Cont.)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(Dollars in millions)
(Unaudited)
<CAPTION>
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> <C> <C>
Balance at December 31, 1998.................. $ - $ 521 $ (157) $ (566) $ (85) $(287)
Comprehensive income (loss):
Net income................................. - - - 34 - 34
Foreign currency translation adjustments... - - (44) - - (44)
--- ----- ----- ----- ---- -----
Total comprehensive income (loss)............. - - (44) 34 - (10)
Acquisition of treasury shares................ - 2 - - (2) -
--- ----- ----- ----- ---- -----
Balance at June 30, 1999................. $ - $ 523 $ (201) $ (532) $ (87) $ (297)
=== ===== ===== ===== ==== =====
</TABLE>
6
<PAGE>
PART I. (Cont.)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Cont.)
(Unaudited)
(1) Interim Financial Presentation
The interim Consolidated Financial Statements are unaudited; however, in
the opinion of management, they have been prepared in accordance with Rule 10-01
of Regulation S-X adopted by the Securities and Exchange Commission and reflect
all adjustments (all of which are of a normal, recurring nature) which are
necessary for a fair presentation of financial position, results of operations
and cash flows for the periods presented. Results of operations for the six
months ended June 30, 1999 are not necessarily indicative of the results of
operations that may be expected for the entire year ending December 31, 1999.
Important Terms
The following terms are used to identify various companies or groups of
companies, markets or other matters in the Consolidated Financial Statements.
"UCAR" refers to UCAR International Inc. only. UCAR is our public parent
company and the issuer of the common stock mentioned in the Consolidated
Financial Statements.
"UCAR Global" refers to UCAR Global Enterprises Inc. only. UCAR Global is a
holding company and a direct wholly owned subsidiary of UCAR. UCAR Global is the
only subsidiary directly owned by UCAR. UCAR Global is the issuer of our
outstanding 12% senior subordinated notes due 2005 (the "Subordinated Notes")
and is the primary borrower under our senior secured bank credit facilities (the
"Senior Bank Facilities").
"Subsidiaries" refers to those companies which, at the relevant time, were
majority owned or wholly owned directly or indirectly by UCAR or its
predecessors described below. All of UCAR's subsidiaries have been wholly owned
(with de minimis exceptions in the case of certain foreign subsidiaries) from at
least January 1, 1996 through June 30, 1999, except for: our German subsidiary,
which was acquired in early 1997 and 70% owned until early 1999 when it became
100% owned; Carbone Savoie S.A.S., which was acquired in early 1997 and has been
70% owned; and our South African subsidiary, which was 50% owned until April
1997, when it became 100% owned.
"We," "us" or "our" refers collectively to UCAR, its subsidiaries and its
and their predecessors to the extent those predecessors' activities related to
the graphite and carbon business or, if the context so requires otherwise,
individually to UCAR or UCAR Global.
Business and Structure We operate in two business segments: graphite
electrodes, and graphite and carbon products. We develop, manufacture and market
graphite and carbon products, including electrodes, for the steel, ferroalloy,
aluminum, chemical, aerospace and transportation industries. Our principal
products are graphite electrodes, graphite and carbon cathodes, graphite and
carbon specialties, carbon electrodes and flexible graphite.
7
<PAGE>
(1) Interim Financial Presentation (Cont.)
Foreign Currency Translation
Generally, except for operations in Russia and Mexico, unrealized gains and
losses resulting from translating foreign subsidiaries' assets and liabilities
into U.S. dollars are accumulated in other comprehensive income on the
Consolidated Balance Sheets until such time as the operations are sold or
substantially or completely liquidated.
Translation gains and losses relating to operations where high inflation
exists are included in income in the Consolidated Financial Statements. Our
Mexican subsidiary began using the U.S. dollar as its functional currency during
1999, despite its inflationary status, because its sales and purchases are
predominantly U.S. dollar-denominated. Accordingly, its translation gains and
losses are included in income in the Consolidated Financial Statements.
Inventories
Inventories are stated at cost or market, whichever is lower. Cost is
determined generally using the "first-in first-out" method ("FIFO") in the
United States. The "average cost" method is used elsewhere.
Accounting Changes
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") 133, "Accounting for Derivative
Instruments and Hedging Activities," which is effective for all fiscal quarters
of fiscal years beginning after June 15, 2000. We are currently evaluating the
impact of SFAS 133 on our financial position, results of operations and cash
flows.
(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 UCAR
Global and intercompany debt. Separate consolidated financial statements of UCAR
Global are not presented because they would not be materially different than the
Consolidated Financial Statements.
The following is a summary of the consolidated assets and liabilities
of UCAR Global and its subsidiaries and their consolidated results of
operations:
8
<PAGE>
<TABLE>
PART I. (Cont.)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Cont.)
(Unaudited)
<CAPTION>
(2) UCAR Global Enterprises Inc. (Cont.)
December 31, June 30,
1998 1999
---- ----
(Dollars in millions)
<S> <C> <C>
Assets:
Current assets.................................................. $ 578 $ 486
Non-current assets.............................................. 559 520
-------- ---------
Total assets................................................ $ 1,137 $ 1,006
======== =========
Liabilities:
Current liabilities............................................. $ 375 $ 329
Non-current liabilities......................................... 1,036 962
-------- ---------
Total liabilities........................................... $ 1,411 $ 1,291
======== =========
Minority stockholders' equity in consolidated entities............... $ 13 $ 12
======== =========
</TABLE>
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1998 1999 1998 1999
---- ---- ---- ----
(Dollars in millions) (Dollars in millions)
<S> <C> <C> <C> <C>
Net sales................................. $ 248 $ 211 $ 492 $ 413
Gross profit.............................. 96 73 189 136
Net income................................ 31 20 66 34
</TABLE>
(3) 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 1999 1998 1999
Weighted average common shares
<S> <C> <C> <C> <C>
outstanding for basic calculation............... 44,961,005 45,082,530 44,950,275 45,137,550
Add: Effect of stock options........................ 1,746,956 1,424,260 1,738,841 1,366,351
---------- ---------- ---------- ----------
Weighted average common shares
outstanding, adjusted for diluted calculation... 46,707,961 46,506,790 46,689,116 46,503,901
========== ========== ========== ==========
</TABLE>
The calculation of weighted average common shares outstanding for the
diluted calculation excludes the consideration of stock options for 1,948,840
and 1,853,030 shares in each of the three
9
<PAGE>
PART I. (Cont.)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Cont.)
(Unaudited)
(3) Earnings Per Share (Cont.)
months ended June 30, 1998 and 1999, respectively, and 1,361,540 and 1,987,904
shares in each of the six months ended June 30, 1998 and 1999, respectively,
because the exercise of these options would not have been dilutive for that
period.
(4) Segment Reporting
We have two reportable operating segments: graphite electrodes, and
graphite and carbon products. The graphite electrode segment produces and
markets graphite electrodes to electric arc furnace and ladle furnace
steelmakers. The graphite and carbon products segment produces and markets
carbon electrodes, flexible graphite, graphite and carbon cathodes, and graphite
and carbon specialties. These reportable segments are managed separately because
of the different products and markets they serve.
We evaluate the performance of our operating segments based on gross
profit. Intersegment sales and transfers are not material. The following tables
summarize financial information concerning our reportable segments.
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1998 1999 1998 1999
---- ---- ---- ----
(Dollars in millions) (Dollars in millions)
Net sales to external customers:
<S> <C> <C> <C> <C>
Graphite electrodes............................. $ 173 $ 141 $ 340 $ 273
Graphite and carbon products.................... 75 70 152 140
------- ------- ------- ------
Consolidated net sales....................... $ 248 $ 211 $ 492 $ 413
======= ======= ====== ======
Gross profit:
Graphite electrodes............................. $ 66 $ 54 $ 133 $ 98
Graphite and carbon products.................... 30 19 56 38
------- -------- --------- -------
Consolidated gross profit.................... $ 96 $ 73 $ 189 $ 136
======= ======== ====== ======
</TABLE>
(5) Restructuring Plan
In September 1998, we recorded a restructuring charge of $86 million in
connection with a global restructuring and rationalization plan to reduce costs
and improve operating efficiencies. The principal actions of the plan involve
the closure of manufacturing operations in Welland, Canada and Berlin, Germany,
and the centralization and consolidation of administrative and financial
functions. These actions, which will result in the elimination of approximately
430 administrative and manufacturing positions, are expected to be completed in
1999.
10
<PAGE>
PART I. (Cont.)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Cont.)
(Unaudited)
(5) Restructuring Plan (Cont.)
The following is a summary of activity relating to the accrued liabilities
associated with the restructuring plan:
<TABLE>
<CAPTION>
Balance at 1999 Balance at
December 31, 1998 Payments June 30, 1999
----------------- -------- -------------
<S> <C> <C> <C>
Severance and related costs................... $ 30 $ 11 $ 19
Plant shut down and related costs............. 18 2 16
Postmonitoring and environmental.............. 9 1 8
------- ----- ------
$ 57 $ 14 $ 43
======= ===== ======
</TABLE>
Our Berlin plant ceased production activities in 1998. Our Welland plant
ceased production activities in April 1999. In addition, the relocation of our
corporate headquarters to Nashville, Tennessee was completed during the 1999
first quarter.
Cash payments of $14 million were made in the 1999 first half. Payments of
$3 million were associated with our Berlin plant, and payments of $11 million
were associated with our Welland plant. Approximately 256 positions were
eliminated in the 1999 first half. The restructuring accrual is included in
other accrued liabilities on the Consolidated Balance Sheets.
(6) Contingencies
Antitrust Investigations
On June 5, 1997, we were served with subpoenas to produce documents to a
grand jury convened by the U.S. Department of Justice (the "DOJ") and a related
search warrant in connection with a criminal investigation as to whether there
has been any violation of U.S. federal antitrust laws by producers of graphite
electrodes. Concurrently, the antitrust enforcement authority of the European
Union (the "EU authority") visited offices of one of our French subsidiaries for
purposes of gathering information in connection with an investigation as to
whether there has been any violation of the antitrust law of the European Union
by those producers. In October 1997, we were served with subpoenas by the DOJ to
produce documents relating to, among other things, our carbon electrode and bulk
graphite businesses.
In December 1997, UCAR's Board of Directors appointed a special committee
of outside directors to exercise its power and authority in connection with
antitrust investigations and related lawsuits and claims. On March 13, 1998, the
then Chairman of the Board, President and Chief Executive Officer and the then
Senior Vice President and Chief Operating Officer retired and resigned from all
positions with us.
11
<PAGE>
PART I. (Cont.)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Cont.)
(Unaudited)
(6) Contingencies (Cont.)
On April 7, 1998, pursuant to a plea agreement between the DOJ and UCAR,
the DOJ charged UCAR and unnamed co-conspirators with participating from at
least July 1992 until at least June 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 in the
United States and elsewhere, to restrict co-conspirators' capacity and to
restrict non-conspiring producers' access to manufacturing technology for
graphite electrodes. On April 24, 1998, pursuant to the plea agreement, UCAR
pled guilty to a one-count charge of violating U.S. 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, commencing in 1998. The plea agreement was
approved by the court and, as a result, we will not be subject to prosecution by
the DOJ with respect to any other violations of the U.S. federal antitrust laws
occurring prior to April 24, 1998. The payments due in 1998 and 1999 were timely
made. The next installment payment of $15 million is due in April 2000.
In April 1998, we became aware that the Canadian Competition Bureau (the
"Competition Bureau") had commenced a criminal investigation as to whether there
has been any violation of Canadian antitrust laws by producers of graphite
electrodes. In March 1999, pursuant to a plea agreement with the Competition
Bureau, our Canadian subsidiary pled guilty to a one count charge of violating
Canadian antitrust laws in connection with the sale of graphite electrodes and
was sentenced to pay a fine of Cdn. $11 million. The plea agreement was approved
by the relevant court and, as a result, we will not be subject to prosecution by
the Competition Bureau with respect to any antitrust violations occurring prior
to the date of the plea agreement. The fine was timely paid.
The guilty pleas have made it more difficult for us to defend against other
investigations as well as civil lawsuits and claims.
In June 1998, we became aware that the Japanese Fair Trade Commission (the
"JFTC") had commenced an investigation as to whether there has been any
violation of Japanese antitrust laws by producers and distributors of graphite
electrodes. We believe that, among other things, we have good defenses to any
claim that we are subject to the jurisdiction of the JFTC. In March 1999, the
JFTC issued a "warning" letter to the four Japanese graphite electrode
producers. While the JFTC did not issue a "warning" letter to us, the "warning"
letter issued to the Japanese producers did reference us as a member of an
alleged cartel.
We have been vigorously protecting, and intend to continue to vigorously
protect, our interests in connection with the investigations described above. We
may, however, at any time settle any possible unresolved charges. We are
cooperating with the EU authority in its investigation and with the DOJ and the
Competition Bureau in their continuing investigations of others. It is possible
that antitrust investigations seeking, among other things, to impose fines and
penalties against us could be initiated by authorities in other jurisdictions.
12
<PAGE>
PART I. (Cont.)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Cont.)
(Unaudited)
(6) Contingencies (Cont.)
Antitrust Lawsuits
In 1997, various producers of graphite electrodes (including us) 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 (the "antitrust class action lawsuit").
The plaintiffs allege that the defendants violated U.S. federal antitrust laws
in connection with the sale of graphite electrodes and seek, among other things,
an award of treble damages resulting from such alleged violations. In August
1998, the court certified a class of plaintiffs consisting of all persons who
purchased graphite electrodes in the United States (the "class") directly from
the defendants during the period from July 1, 1992 through June 30, 1997 (the
"class period").
In 1998, various producers of graphite electrodes (including us) were
served with a complaint by about 27 steelmakers in the United States commencing
a separate civil antitrust lawsuit (the "opt-out lawsuit"). The plaintiffs
allege that the defendants violated U.S. federal antitrust laws in connection
with the sale of graphite electrodes and seek, among other things, an award of
treble damages resulting from such alleged antitrust violations.
In 1998, various producers of graphite electrodes (including us), Union
Carbide Corporation ("Union Carbide") and Mitsubishi Corporation ("Mitsubishi")
were served with a complaint by Nucor Corporation and an affiliate commencing a
civil antitrust and fraudulent transfer lawsuit (the "Nucor lawsuit"). The
plaintiffs allege that the producer defendants violated U.S. federal antitrust
laws in connection with the sale of graphite electrodes and that payments to
Union Carbide and Mitsubishi in connection with our leveraged recapitalization
in January 1995 violated applicable state fraudulent transfer laws. The
plaintiffs seek, among other things, an award of treble damages resulting from
such alleged antitrust violations and an order to have payments made by us to
Union Carbide and Mitsubishi in connection with our recapitalization returned to
us for purposes of enabling us to satisfy any judgments resulting from such
alleged antitrust violations.
In 1998, various producers of graphite electrodes (including us) were
served with a petition by Chaparral Steel Company and two affiliates commencing
a separate civil antitrust lawsuit (the "Texas lawsuit"). The plaintiffs allege
that the defendants violated Texas antitrust laws in connection with the sale of
graphite electrodes and seek, among other things, an award of treble damages
resulting from such alleged violations.
In 1998, certain other steelmakers in the United States and Canada also
served various producers of graphite electrodes (including us) with complaints
commencing five separate civil antitrust lawsuits (four in the United States and
one in Canada) in various courts (the "other lawsuits"). The plaintiffs allege
that the defendants violated applicable antitrust laws (and applicable
conspiracy laws, in the case of the lawsuit in Canada) in connection with the
sale of graphite electrodes and seek, among other things, an award of treble
damages (in the case of lawsuits in the
13
<PAGE>
PART I. (Cont.)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Cont.)
(Unaudited)
(6) Contingencies (Cont.)
United States) or actual and punitive damages (in the case of the lawsuit in
Canada) resulting from such alleged violations.
In 1999, various producers of graphite electrodes (including us) were
served with a complaint by about 26 steelmakers and related parties, all but one
of whom are located outside the United States, commencing a separate civil
antitrust lawsuit in the United States (the "foreign customer lawsuit"). The
plaintiffs allege that the defendants violated U.S. federal antitrust laws in
connection with the sale of graphite electrodes sold or sourced from the United
States and those sold and sourced outside the United States. The plaintiffs
seek, among other things, an award of treble damages resulting from such alleged
antitrust violations. We believe that, among other things, we have strong
defenses against claims alleging that purchases of graphite electrodes outside
the United States are actionable under U.S. federal antitrust laws.
In April 1999, various producers of graphite electrodes (including us) were
served with a complaint by Bayou Steel Corporation and an affiliate commencing a
separate civil antitrust lawsuit (the "Bayou lawsuit"). The plaintiffs allege
that the defendants violated U.S. federal antitrust laws in connection with the
sale of graphite electrodes and seek, among other things, an award of treble
damages resulting from such alleged violations.
Certain steelmakers in other countries who purchased graphite electrodes
from us, and certain customers who purchased other products from us, have
threatened to commence civil antitrust lawsuits against us in the United States
and other jurisdictions.
Through July 31, 1999, we have settled the antitrust class action lawsuit,
the opt-out lawsuit, the Nucor lawsuit, all of the other lawsuits (in Canada as
well as in the United States), certain of the threatened civil antitrust
lawsuits and certain possible civil antitrust claims by customers who negotiated
directly with us. The settlements to which we are a party cover, among other
things, virtually all of the actual and potential claims against us (but not
other defendants) by steelmakers in the United States and Canada arising out of
alleged antitrust violations occurring prior to the date of the respective
settlements in connection with the sale of graphite electrodes. The only
material exceptions are the Texas lawsuit, the foreign customer lawsuit, the
Bayou lawsuit and possible claims by steelmakers in the United States and Canada
whose aggregate purchases of graphite electrodes do not constitute a material
portion of our sales of graphite electrodes in the United States and Canada.
Although each settlement is unique, in the aggregate the settlements consist
primarily of current and deferred cash payments with some product credits and,
in a few instances, discounts. Through July 31, 1999, all payments due under the
settlements have been timely made.
The Texas lawsuit, the foreign customer lawsuit and the Bayou lawsuit have
not been settled and are still in their early stages. We have been vigorously
defending, and intend to continue to vigorously defend, against the Texas
lawsuit, the foreign customer lawsuit and the Bayou lawsuit as well as all
threatened civil antitrust lawsuits and possible civil antitrust claims,
including those mentioned above. We may at any time, however, settle the Texas
lawsuit, the foreign customer
14
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PART I. (Cont.)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Cont.)
(Unaudited)
(6) Contingencies (Cont.)
lawsuit and the Bayou lawsuit as well as any threatened lawsuits and possible
claims and are actively negotiating settlements with certain customers or their
counsel.
It is possible that additional civil antitrust lawsuits seeking, among
other things, to recover damages could be commenced against us in the United
States and other jurisdictions.
Earnings Charge
We recorded a pre-tax charge of $340 million against results of operations
for 1997 as a reserve for potential liabilities and expenses in connection with
antitrust investigations and related lawsuits and claims. The $340 million
reserve is calculated on a basis net of imputed interest on installments
payments of the DOJ fine. Actual liabilities and expenses (including settled
investigations, lawsuits and claims as well as the continuing investigation by
the EU authority and unsettled pending, threatened and possible lawsuits and
claims mentioned above) could be materially higher than $340 million. To the
extent that these liabilities and expenses are reasonably estimable, at July 31,
1999, $340 million continues to represent our estimate of these liabilities and
expenses. In the aggregate, the fines and settlements described above as well as
related defense costs and other expenses are within the amounts we used to
evaluate the $340 million charge.
Through June 30, 1999, an aggregate of $180 million of fines, settlements
and expenses have been paid and an aggregate of $8 million of imputed interest
has been paid. As of June 30, 1999, $160 million remains in the reserve and,
based on information known to us at July 31, 1999, the aggregate amount of
remaining committed payments for fines and settlements was about $87 million and
the aggregate amount of remaining committed payments for imputed interest was
about $12 million. About $32 million of these payments for fines and settlements
are due before June 30, 2000. Amounts due under the settlement of the antitrust
class action may be increased if additional claims are filed by members of the
class or if it is determined that steelmakers outside the United States who
purchased graphite electrodes invoiced and sourced within the United States are
members of the class and such steelmakers file claims thereunder.
Shareholder Derivative Lawsuit
In March 1998, UCAR was served with a complaint commencing a shareholder
derivative lawsuit. Certain former and current directors and officers are named
as defendants. UCAR is named as a nominal defendant. The plaintiff alleges that
the defendants breached their fiduciary duties in connection with alleged
non-compliance by us and our employees with antitrust laws and 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 and
seeks recovery for UCAR of damages to us resulting from these alleged breaches
and sales. In 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
15
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PART I. (Cont.)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Cont.)
(Unaudited)
(6) Contingencies (Cont.)
that such a demand would have been futile. In June 1999, the motion was granted.
The plaintiff has filed a notice indicating he intends to appeal the dismissal.
This lawsuit is being pursued for recovery from the individual defendants
on behalf of (and payable to) UCAR and any indemnification obligations which
UCAR may have to the individual defendants would result from judgments or
settlements in favor of UCAR. As a result, we believe that UCAR's ultimate
exposure in this lawsuit is limited to defense costs and possibly reimbursement
of certain of plaintiff's attorneys' fees and expenses.
Securities Class Action Lawsuit
In April and May 1998, UCAR was served with complaints commencing
securities class actions. The complaints have been consolidated into a single
complaint and a consolidated amended complaint was served in September 1998. The
defendants named in the consolidated amended complaint are UCAR and certain
former and current directors and officers. The proposed class consists of all
persons (other than the defendants) who purchased common stock during the period
from August 1995 through March 1998. The plaintiffs allege that, during such
period, the defendants violated U.S. federal securities laws in connection with
purchases and sales of common stock by making material misrepresentations and
omissions regarding alleged violations of antitrust laws and seek, among other
things, to recover damages resulting from such alleged violations. UCAR and each
of the individual defendants has filed a motion to dismiss the complaint.
We have been vigorously defending, and intend to continue to vigorously
defend, against this lawsuit. We may at any time however, settle this lawsuit
and are in discussions with our insurance carriers and plaintiff's counsel. This
lawsuit is still in its early stages and no evaluation of liability related to
this lawsuit can yet be made. As mentioned above, the guilty pleas have made it
more difficult to defend against claims asserted against us.
(7) Financial Instruments
Certain of the Company's foreign subsidiaries sold receivables of $43
million in the 1998 first half and $34 million in the 1999 first half.
Receivables sold with recourse remaining on the Consolidated Balance Sheets were
$15 million at June 30, 1998 and $2 million at June 30, 1999.
16
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PART I. (Cont.)
UCAR INTERNATIONAL INC.
Introduction to Part I, Items 2 and 3, and Part II, Item 1
Important Terms
We use the following terms to identify various companies or groups of
companies, markets or other matters. These terms help to simplify the
presentation of information in this Report.
UCAR refers to UCAR International Inc. only. UCAR is our public parent
company and the issuer of the common stock covered by this Report.
UCAR Global refers to UCAR Global Enterprises Inc. only. UCAR Global is a
holding company and a direct wholly owned subsidiary of UCAR. UCAR Global is the
only subsidiary directly owned by UCAR. UCAR Global is the issuer of our
outstanding 12% senior subordinated notes due 2005 (the "Subordinated Notes")
and is the primary borrower under our senior secured bank credit facilities (the
"Senior Bank Facilities").
Subsidiaries refers to those companies which, at the relevant time, were
majority owned or wholly owned directly or indirectly by UCAR or its
predecessors described below. All of UCAR's subsidiaries have been wholly owned
(with de minimis exceptions in the case of certain foreign subsidiaries) from at
least January 1, 1996 through June 30, 1999, except for: our German subsidiary,
which was acquired in early 1997 and 70% owned until early 1999 when it became
100% owned; Carbone Savoie S.A.S. ("Carbone Savoie"), which was acquired in
early 1997 and has been 70% owned; and our South African subsidiary, which was
50% owned until April 1997, when it became 100% owned.
We, us or our refers collectively to UCAR, its subsidiaries and its and
their predecessors to the extent those predecessors' activities related to the
graphite and carbon business or, if the context so requires otherwise,
individually to UCAR or UCAR Global.
Presentation of Financial, Market and Legal Data
Separate consolidated financial statements of UCAR Global are not presented
because they would not be materially different than the Consolidated Financial
Statements.
We present our financial information on a consolidated basis, including all
subsidiaries where our ownership is greater than 50%. We do not restate
financial information for periods prior to the acquisition of subsidiaries. This
means that the financial information for our German subsidiary and Carbone
Savoie is consolidated, since their acquisitions, on each line of the
Consolidated Financial Statements and the equity of the other 30% owners in
those subsidiaries is reflected on the single line entitled "minority
stockholders' share of income."
References to cost in the context of our low-cost producer strategy do not
include the unusual or non-recurring charges identified in the Consolidated
Financial Statements in our Annual Report on Form 10-K for the year ended
December 31, 1998 (the "Annual Report") on the lines entitled "antitrust
investigations and related lawsuits and claims," "restructuring charge" or
"impairment loss on Russian assets" or the impact of accounting changes.
17
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PART I. (Cont.)
UCAR INTERNATIONAL INC.
Unless otherwise noted, all cost savings and reductions are estimates based
on a comparison to costs in 1998 or the 1998 fourth quarter and on the
assumption that net sales and other operating conditions are the same in 1999,
2000, 2001 and thereafter as they were in 1998.
Neither any statements in this Report nor any charge taken by us relating
to any legal proceedings constitute an admission as to any wrongdoing or
liability.
Reference is made to the Annual Report for background information on
various contingencies and other matters related to circumstances affecting us
and our industry.
Forward Looking Statements
This Report contains forward looking statements. These include statements
about such matters as future production of steel in electric arc furnaces,
future prices and sales of and demand for graphite electrodes and other
products, future operational and financial performance of various businesses,
plans and programs relating to strategies and divestiture, joint venture,
operating, global integration and capital projects, legal matters and related
fees and costs, consulting fees and related projects, and future costs, cost
savings and reductions, margins and earnings. The words "estimate," "project,"
"believe," "anticipate," "intend" and "expect" and similar expressions identify
some of these statements. Except as otherwise required for periodic reports
required to be filed by public companies with the SEC pursuant to the SEC's
rules, we have no duty to update these statements.
Actual future events and circumstances (including future performance,
results and trends) could differ materially from those set forth in these
statements due to various factors. These factors include:
o the possibility that global economic conditions may not improve or may worsen;
o the possibility that announced or anticipated additions to capacity for
producing steel in electric arc furnaces or announced or anticipated
reductions in graphite electrode manufacturing capacity may not occur;
o the possibility that increased production of steel in electric arc furnaces
may not result in increased demand for or prices or sales of graphite
electrodes;
o the occurrence of unanticipated events or circumstances relating to pending
antitrust investigations or pending antitrust, shareholder derivative or
securities lawsuits;
o the commencement of investigations or lawsuits relating to the same subject
matter as these pending investigations or lawsuits;
o the occurrence of unanticipated events or circumstances relating to our plans
or projects; and
18
<PAGE>
PART I. (Cont.)
UCAR INTERNATIONAL INC.
o changes in currency exchange rates, changes in regional economic conditions,
changes in competitive conditions, technological developments, and other risks
and uncertainties, including those described in this Report and the Annual
Report.
No assurance can be given that any future strategic alliances or
divestitures described in this Report or the Annual Report will be completed or
as to the timing or terms of any such transaction.
19
<PAGE>
PART I. (Cont.)
UCAR INTERNATIONAL INC.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
We are the world's largest manufacturer of high quality graphite and carbon
electrodes and cathodes as well as flexible graphite. We sell our products in
more than 80 countries and have manufacturing facilities on four continents. We
operate in two business segments: graphite electrodes, which are our principal
products, and graphite and carbon products, which include carbon electrodes,
graphite and carbon cathodes, flexible graphite, and graphite and carbon
specialties. Our graphite and carbon products business segment contributes about
one-third of our net sales.
Graphite electrodes, our principal products, are consumed primarily in the
production of steel in electric arc furnaces, the steelmaking technology used by
all "mini-mills." Mini-mills constitute the growth sector of the steel industry.
Graphite electrodes are also used for refining steel in ladle furnaces and in
other smelting processes. Carbon electrodes are used primarily in the production
of silicon metal, which is used in the manufacture of aluminum. Cathodes are
used as lining for furnaces that smelt aluminum. Flexible graphite, which we
sell under the tradename GRAFOIL(R), is used in gaskets and for other sealing
purposes. In addition to the steel and metals industries, we sell our products
to the semiconductor, automotive, aerospace, chemical and transportation
industries.
We have the largest share of the free trading markets in all of our major
product lines except for graphite specialties. We believe that our average cost
of sales of our graphite electrodes is currently the lowest among major
producers in our industry. In addition to our large market shares and position
as a low-cost producer of high quality products, we believe that our strengths
include our new management team, our global manufacturing base (which includes
multiple low cost locations and fully integrated state-of-the-art facilities),
our exceptional customer technical service, our diversified customer base and
our record of product innovation and process improvement.
Our strategic goal is to be the best global manufacturer and customer
service-driven company with the best product performance in the graphite and
carbon industry. We are focused on reducing costs and improving operating
efficiencies, improving product performance and technical and commercial
customer service, and developing and expanding new and existing profitable
technologies. We seek to be the lowest cost supplier in the industry and to use
that to our competitive advantage. We seek to use our strategies and build on
our strengths to leverage earnings growth within existing product lines and
through new product innovation and penetration of related new and niche markets.
Global Restructuring and Rationalization Plan and Other Initiatives. In
September 1998, UCAR's Board of Directors adopted a global restructuring and
rationalization plan, which we believe is the most aggressive major cost
reduction plan currently being implemented in the graphite and carbon industry.
The plan is intended to enhance stockholder value by focusing on optimizing
margins, maximizing cash flow, generating growth in earnings and strengthening
competitiveness through operating and overhead cost reduction and plant
rationalization. The plan is also intended, over the long term, to strengthen
our position as a low cost supplier to the steel and metals industries
20
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PART I. (Cont.)
UCAR INTERNATIONAL INC.
and, over the near term, to respond to global economic conditions that have been
adversely impacting our customers.
The plan had a positive impact on earnings in the 1999 second quarter and
we believe that the plan will continue to have a positive impact on earnings,
particularly in the second half of 1999. Under the plan, which includes plant
rationalization, plant cost reductions and overhead cost reductions, targeted
annual cost savings are $64 million in 1999 with an annualized run rate of about
$80 million by the end of 1999, about $111 million by the end of 2000 and about
$135 million by the end of 2001 and thereafter. We also believe that the plan
will reduce working capital needs and improve efficiencies.
Planned plant rationalization is on or ahead of schedule. Savings under the
global restructuring and rationalization plan were ahead of target for the 1999
second quarter, aggregating $21 million. We achieved savings of $15 million in
cost of sales, including $13 million in graphite electrode cost of sales ($250
per metric ton) and $2 million in graphite and carbon products cost of sales, as
well as savings of $6 million in overhead and taxes.
For the 1999 first half, savings under the plan aggregated $31 million. We
achieved savings of $19 million in cost of sales, including $16 million in
graphite electrode cost of sales ($160 per metric ton) and $3 million in
graphite and carbon products cost of sales, as well as savings of $12 million in
overhead and taxes. We expect to exceed our savings targets of $64 million in
1999 and an annualized run rate of $80 million by the end of 1999.
Consistent with our strategic goals, we are seeking strategic alliances to
enhance our strengths and growth in existing product lines and related new and
niche markets. Our relationship with Aluminium Pechiney S.A. in the cathode
business is an example of a successful strategic alliance. Current areas of
focus include our graphite and carbon specialties business and our flexible
graphite business, where we see possible applications in the fuel cell,
semiconductor and flame retardant industries. Alliances may be structured as
joint ventures, licensing, supply or other arrangements. We may also divest or
rationalize parts of certain businesses in our graphite and carbon products
business segment.
Global Economic Conditions. We are a global company and serve every
geographic market worldwide. Accordingly, we are always impacted in varying
degrees, both positively and negatively, as country or regional conditions
affecting the markets for our products fluctuate.
In 1998, the economic downturn in the Asia Pacific region directly or
indirectly affected most of the worldwide markets for our products. This
downturn directly affected demand for steel and other metals in the Asia Pacific
region. To the extent that certain regions (such as Eastern Europe, Africa,
South America and the Middle East) were major exporters of steel and other
metals to the Asia Pacific region, this downturn also affected demand for their
products. In some instances, those exporters sought to sell their products in
other regions (such as North America and Western Europe), thereby adversely
affecting demand for steel and other metals produced in those other regions. All
of these factors resulted in a reduction in global demand for and production of
steel and other metals. As a result, our customers sought to reduce their
inventories of supplies (such as inventories of electrodes) as well as reduce
their production rates. All of these circumstances
21
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PART I. (Cont.)
UCAR INTERNATIONAL INC.
adversely affected demand for graphite electrodes and some of our other
products. We experienced downward pressure in certain markets on pricing of
graphite electrodes and some of our other products beginning in early 1998.
These circumstances negatively impacted our results of operations in 1998 and in
the 1999 first quarter.
As a result of the continued strength of the U.S. economy and the beginning
of recovery in other areas of the global economy, we believe that worldwide
electric arc furnace steel production is beginning to recover from that
downturn. Signs of recovery which we see include price increases of various
steel end products that we believe are being implemented and operating rates of
electric arc furnace steelmakers that we believe are increasing.
We are benefiting from that recovery. Our volume of graphite electrodes
sold increased by 10% in the 1999 second quarter as compared to the 1999 first
quarter. We continue seeing an increase in customer orders for graphite
electrodes, and we expect that prices for our graphite electrodes (in local
currencies) should continue stabilizing. We believe this recovery could increase
1999 second half graphite electrode shipments to about 15 percent over a rather
weak first half. The areas of caution are the continued strengthening of the
U.S. dollar, softer prices in certain parts of the world and the lack of any
signs of graphite electrode price improvement in the export markets.
Demand for some of our other products is also beginning to improve. In
particular, we have seen increased demand for cathodes from the aluminum
industry, and flexible graphite demand has remained healthy. The demand for
certain products sold to the silicon metals industry has remained weak. Pricing
for most products in our graphite and carbon products business segment has also
remained weak.
Highlights of Second Quarter Operating Results. Net sales increased by $9
million, operating profit increased by $9 million and net income increased by $6
million in the 1999 second quarter from depressed levels in the 1999 first
quarter, primarily as a result of the improvement in economic conditions and the
cost savings described above.
Earnings for the 1999 second quarter were $0.44 per diluted share, a 47%
increase over the 1999 first quarter earnings of $0.30 per diluted share. Gross
profit margin improved from 31.2% in the 1999 first quarter to 34.6% in the 1999
second quarter, and operating profit margins improved from 20.8% to 24.2%,
respectively, despite depressed volumes, reduced selling prices and the negative
impact of a stronger U.S. dollar on selling prices. Gross profit for the
graphite electrode business segment was $54 million (38.3% of net sales) in the
1999 second quarter as compared to $44 million (33.3% of net sales) in the 1999
first quarter. Gross profit for the graphite and carbon products business
segment was $19 million (27.1% of net sales) for both the 1999 first and second
quarters. Our improvement is largely attributable to the internal programs
undertaken by new management.
These results are substantially below those in the 1998 second quarter
because of the impact of global economic conditions which worsened throughout
1998 and into the 1999 first quarter.
Refinancing, Management of Liquidity and Debt Reduction. In November 1998,
the Senior Bank Facilities were refinanced and the indenture governing the
Subordinated Notes (the
22
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PART I. (Cont.)
UCAR INTERNATIONAL INC.
"Subordinated Note Indenture") was amended. In connection with the refinancing,
we obtained additional term debt of $210 million.
Following the refinancing, the covenants under the Senior Bank Facilities
are more restrictive than they had been. The covenants do, however, allow us to
implement our global restructuring and rationalization plan. Further, the
covenants do not restrict our ability to draw on our revolving credit facility
unless payments and reserves with respect to the litigation matters described
below exceed $400 million (adjusted for certain imputed interest expense).
We are continuing to manage our liquidity as described in the Annual
Report. Cash flow from operations for the 1999 second quarter was $78 million
(before net antitrust fines, settlements and expenses of $17 million and
restructuring payments of $9 million). Cash flow from changes in our working
capital (before net antitrust fines, settlements and expenses and restructuring
payments) was $67 million more in the 1999 second quarter than in the 1999 first
quarter. This improvement reflects both improvements in our results of
operations and our focus on improving cash management (including short term
investments, short term debt and prepaid expenses as well as cash and cash
equivalents), reducing inventories, factoring and reducing accounts receivable,
and improving payment timing and terms of accounts payable. Total debt decreased
by $93 million to $747 million at the end of the 1999 second quarter from $840
million at the end of the 1999 first quarter. Net debt (total debt less cash,
cash equivalents and short term investments) at June 30, 1999 was $722 million,
a decrease of $43 million from March 31, 1999. Other measures of liquidity and
financial strength at June 30, 1999 and for the 1999 second quarter are somewhat
below those at June 30, 1998 and for the 1998 second quarter, however,
reflecting the impact of global economic conditions which worsened throughout
1998 and into the 1999 first quarter, largely offset by the cost savings and
working capital improvements described above. We believe that, under current
economic and other factors and conditions affecting us and our industry, we will
be able to successfully continue to implement our plans to manage liquidity.
Litigation Matters. Since 1997, we have been served with subpoenas, search
warrants and information requests by antitrust authorities in the United States,
the European Union and elsewhere in connection with antitrust investigations. In
addition, civil antitrust lawsuits have been commenced and threatened against us
and other producers and distributors of graphite electrodes in the United States
and elsewhere. We recorded a pre-tax charge against results of operations for
1997 in the amount of $340 million as a reserve for estimated potential
liabilities and expenses in connection with antitrust investigations and related
lawsuits and claims. In April 1998, UCAR pled guilty to a one-count charge of
violating U.S. federal antitrust laws in connection with the sale of graphite
electrodes and was sentenced to pay a fine in the aggregate amount of $110
million, payable in six annual installments, of which $90 million is treated as
a fine and $20 million is treated as imputed interest for accounting purposes.
In March 1999, our Canadian subsidiary pled guilty to a one-count charge of
violating Canadian antitrust laws in connection with the sale of graphite
electrodes and was sentenced to pay a fine of Cdn. $11 million. We have settled
virtually all of the graphite electrode antitrust claims by steelmakers in the
United States and Canada as well as antitrust claims by certain other customers.
None of the settlement or plea agreements contain restrictions on future prices
of our graphite electrodes. We are continuing to cooperate with the antitrust
authority in the European Union in its investigation. Through June 30, 1999, we
have paid an aggregate of $180 million of fines, settlements and expenses and an
aggregate of $8 million of
23
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PART I. (Cont.)
UCAR INTERNATIONAL INC.
imputed interest. In the aggregate, the fines, settlements and expenses are
within the amounts we used for purposes of evaluating the $340 million charge.
Actual liabilities and expenses could be materially higher than such charge. We
currently believe that recovery under our insurance will not materially offset
liabilities which have or may have or may become due in connection with
antitrust investigations or related lawsuits or claims.
UCAR has been named as a nominal defendant in a shareholder derivative
lawsuit and is a defendant in a securities class action lawsuit, each of which
is based, in part, on the subject matter of the antitrust investigations,
lawsuits and claims. We do not believe that the outcome of the shareholder
derivative lawsuit will have a material adverse effect on us. The securities
class action is still in its early stages and no evaluation of potential
liability can yet be made. The guilty pleas have made it more difficult to
defend against other investigations, lawsuits and claims.
Currency Matters. We incur manufacturing costs and sell our products in
multiple currencies. As a result, in general, our results of operations and
financial condition are affected by changes in currency exchange rates and by
inflation in countries with highly inflationary economies where we have
manufacturing facilities. To manage certain exposures to risks caused by changes
in currency exchange rates, we engage in hedging activities and use various
off-balance financial investments. To account for translation of foreign
currencies into U.S. dollars for consolidation and reporting purposes, we record
foreign currency translation adjustments in accumulated other comprehensive
income (loss) as part of stockholders' equity in the Consolidated Balance
Sheets, except in the case of operations in highly inflationary economies (or
which predominantly use the U. S. dollar for their purchases and sales) where we
record foreign currency translation gains and losses as part of other (income)
expense (net) in the Consolidated Statement of Operations. We also record
foreign currency transaction gains and losses as part of other (income) expense
(net).
During the 1999 first half, many of the currencies in which we manufacture
and sell our products weakened against the U.S. dollar. The most significant
change occurred in Brazil, where the Brazilian currency devalued about 45%
against the U.S. dollar during the 1999 first half. In the 1999 first half, our
stockholders' equity decreased by $44 million as a result of cumulative
translation adjustments, including $32 million associated with our Brazilian
subsidiary. In the 1999 first half, the net impact of currency changes included
in other (income) expense (net) was nil, after taking into account $1 million as
a result of cumulative foreign currency translation gains and $1 million of
foreign currency transaction losses (including $3 million of unrealized gains
associated with the U.S. dollar-denominated assets and liabilities of our
Brazilian subsidiary).
Results of Operations
Three Months Ended June 30, 1999 as Compared to Three Months Ended June 30,
1998. Net sales of $211 million in the 1999 second quarter represented a $37
million, or 15%, decrease from $248 million in the 1998 second quarter. Gross
profit of $73 million in the 1999 second quarter represented a $23 million, or
24%, decrease from $96 million in the 1998 second quarter. Gross profit margin
was 34.6% in the 1999 second quarter as compared to 38.7% in the 1998 second
quarter.
24
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PART I. (Cont.)
UCAR INTERNATIONAL INC.
The decrease in net sales and gross profit was primarily due to lower
volumes and sales revenue per metric ton and the impact of currency exchange
rate changes. The lower volumes and sales revenue per metric ton were due
primarily to changes in global economic conditions that reduced demand for steel
and other metals. This, in turn, reduced demand for most of our products,
particularly graphite electrodes. The decrease in gross profit margin was
primarily due to the fact that the percentage decrease in net sales was greater
than a corresponding decrease in cost of sales.
Graphite Electrode Business Segment. Net sales of graphite electrodes
decreased 18%, or $32 million, to $141 million in the 1999 second quarter from
$173 million in the 1998 second quarter. The decrease was primarily attributable
to a reduction of 3,600 metric tons, or 7%, in the volume of graphite electrodes
sold to 51,300 metric tons in the 1999 second quarter from 54,900 metric tons in
the 1998 second quarter. The reduced volume of graphite electrodes sold
represented about $11 million of the $32 million decrease in net sales.
The average sales revenue per metric ton (in U.S. dollars and net of
changes in currency exchange rates) of our graphite electrodes was $2,691 in the
1999 second quarter as compared to $3,072 in the 1998 second quarter. The
reduced average sales revenue per metric ton represented about $21 million of
the $32 million decrease in net sales. Included in the reduction in average
sales revenue per metric ton is the lowering of prices by our Brazilian
subsidiary because of competitive cost advantages resulting from the Brazilian
currency devaluation, which accounted for about $6 million of the $21 million
decrease in net sales. Other currency exchange rate changes also accounted for
about $6 million of the $21 million decrease in net sales. The balance of the
$21 million decrease in net sales was largely attributable to changes in product
mix and, to a lesser extent, volume concessions in export markets.
Cost of sales for graphite electrodes decreased 19%, or $20 million, to $87
million in the 1999 second quarter from $107 million in the 1998 second quarter.
Gross profit declined 18%, or $12 million, to $54 million in the 1999 second
quarter from $66 million in the 1998 second quarter. Gross profit margin for
graphite electrodes increased to 38.3% in the 1999 second quarter from 38.2% in
the 1998 second quarter, despite the reduced average sales revenue per metric
ton.
The decrease in cost of sales was primarily due to lower volumes. Lower
volumes adversely affect our capacity utilization rate, which typically has the
effect of increasing cost of sales per metric ton since the same fixed costs
must be absorbed by a smaller quantity of products. The increase in gross profit
margin, however, was primarily due to cost savings from our global
rationalization and restructuring plan.
Graphite and Carbon Products Business Segment. Net sales of graphite and
carbon products decreased 7%, or $5 million, to $70 million in the 1999 second
quarter from $75 million in the 1998 second quarter. The decrease was primarily
due to the global economic conditions that resulted in lower demand and lower
prices for graphite specialties sold to the semiconductor, aerospace and
aircraft industries, partially offset by increased demand for graphite cathodes
sold to the aluminum industry. Demand for and net sales of our other products
remained relatively stable.
Cost of sales for graphite and carbon products increased 13%, or $6
million, to $51 million in the 1999 second quarter from $45 million in the 1998
second quarter. The impact of changes in
25
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PART I. (Cont.)
UCAR INTERNATIONAL INC.
product mix and cost increases, which increased cost of sales, were partially
offset by cost savings. As a result of the changes described above, gross profit
declined 37%, or $11 million, to $19 million in the 1999 second quarter from $30
million in the 1998 second quarter. Gross profit margin for graphite and carbon
products decreased to 27.1% in the 1999 second quarter from 40.0% in the 1998
second quarter. The decrease in gross profit margin was due to the combination
of a decrease in net sales and increase in cost of sales.
Operating Profit for Us as a Whole. Operating profit in the 1999 second
quarter was $51 million, or 24.2% of net sales, as compared to $68 million, or
27.4% of net sales, in the 1998 second quarter. The decrease in operating profit
was primarily due to lower gross profit.
Selling, administrative and other expenses decreased to $23 million in the
1999 second quarter from $26 million in the 1998 second quarter primarily due to
lower corporate administration expenses resulting from cost savings under our
global rationalization and restructuring plan and reduced variable compensation
expense.
Other (income) expense (net) was income of $3 million in the 1999 second
quarter as compared to nil in the 1998 second quarter. The change was primarily
due to a reduction in consulting fees and gain of $2 million from the sale of
the assets of our spray cooled systems business. Interest income was lower in
the 1999 second quarter due to a decrease in short-term investments.
Other Items Affecting Us as a Whole. Interest expense increased to $22
million in the 1999 second quarter from $19 million in the 1998 second quarter.
The increase primarily resulted from imputed interest expense of $1 million
associated with the $110 million antitrust fine payable to the DOJ in six annual
installments and higher interest expense of $2 million associated with increased
debt levels and higher interest rates. Average outstanding total debt was $817
million in the 1999 second quarter as compared to $788 million in the 1998
second quarter. The average annual interest rate was 9.9% in the 1999 second
quarter as compared to 8.8% in the 1998 second quarter. These average annual
interest rates exclude imputed interest on the antitrust fine. The increase in
the average annual interest rate was due to an increase in the margin over LIBOR
which we pay under the Senior Bank Facilities as a result of the refinancing
completed in November 1998, partially offset by a decrease in LIBOR. We incurred
additional debt in 1998 and early in the 1999 second quarter to finance a
portion of the fines and settlements paid in connection with antitrust
investigations and related lawsuits and claims.
Provision for income taxes was $8 million in the 1999 second quarter as
compared to $17 million in the 1998 second quarter. During the 1999 second
quarter, the provision for income taxes reflected a 27% effective rate, which is
lower than the U.S. federal income tax rate of 35%, primarily due to higher
earnings from consolidated entities with lower effective rates. During the 1998
second quarter, the provision for income taxes reflected a 34% effective rate.
The lower rate in the 1999 second quarter was primarily due to earnings of
consolidated entities with lower effective rates relative to 1998 and higher
effective tax rates on dividends of earnings taxed in the U.S.
As a result of the changes described above, net income was $20 million in
the 1999 second quarter, a decrease of 35% from net income of $31 million in the
1998 second quarter.
26
<PAGE>
PART I. (Cont.)
UCAR INTERNATIONAL INC.
Six Months Ended June 30, 1999 as Compared to Six Months Ended June 30,
1998. Net sales of $413 million in the 1999 first half represented a $79
million, or 16%, decrease from net sales of $492 million in the 1998 first half.
Gross profit of $136 million in the 1999 first half represented a $53 million,
or 28%, decrease from gross profit of $189 million in the 1998 first half. Gross
profit margin was 32.9% in the 1999 first half as compared to 38.4% in the 1998
first half.
The decrease in net sales and gross profit was primarily due to lower
volumes and sales revenue per metric ton and the impact of currency exchange
rate changes. The lower volumes and sales revenue per metric ton were due
primarily to changes in global economic conditions that reduced demand for steel
and other metals. This, in turn, reduced demand for most of our products,
particularly graphite electrodes. The decrease in gross profit margin was
primarily due to the fact that the percentage decrease in net sales was greater
than a corresponding decrease in cost of sales.
Graphite Electrode Business Segment. Net sales of graphite electrodes
decreased 20%, or $67 million, to $273 million in the 1999 first half from $340
million in the 1998 first half. The decrease was primarily attributable to a
reduction of 9,600 metric tons, or 9%, in the volume of graphite electrodes sold
to 97,900 metric tons in the 1999 first half from 107,500 metric tons in the
1998 first half. The reduced volume of graphite electrodes sold represented
about $29 million of the $67 million decrease in net sales.
The average sales revenue per metric ton (in U.S. dollars and net of
changes in currency exchange rates) of our graphite electrodes was $2,723 in the
1999 first half as compared to $3,065 in the 1998 first half. The reduced
average sales revenue per metric ton represented about $38 million of the $67
million decrease in net sales. The reduction in average sales revenue per metric
ton was partially due to the lowering of prices by our Brazilian subsidiary
because of competitive cost advantages resulting from the Brazilian currency
devaluation, which accounted for about $12 million of the $38 million decrease
in net sales. Other currency exchange rate changes also accounted for about $9
million of the $38 million decrease in net sales. The balance of the $38 million
decrease in net sales was largely attributable to changes in product mix and, to
a lesser extent, volume concessions in export markets.
Cost of sales for graphite electrodes decreased 15%, or $32 million, to
$175 million in the 1999 first half from $207 million in the 1998 first half.
Gross profit declined 26%, or $35 million, to $98 million in the 1999 first half
from $133 million in the 1998 first half. Gross profit margin for graphite
electrodes decreased to 35.9% in the 1999 first half from 39.1% in the 1998
first half.
The decrease in cost of sales was primarily due to lower volumes and cost
savings. Lower volumes adversely affect our capacity utilization rate, which
typically has the effect of increasing cost of sales per metric ton since the
same fixed costs must be absorbed by a smaller quantity of products. The
decrease in gross profit margin was primarily due to reduced average sales
revenue per metric ton.
Graphite and Carbon Products Business Segment. Net sales of graphite and
carbon products decreased 8%, or $12 million, to $140 million in the 1999 first
half from $152 million in the 1998 first half. The decrease was primarily due to
the global economic conditions that resulted in lower
27
<PAGE>
PART I. (Cont.)
UCAR INTERNATIONAL INC.
demand and lower prices for carbon electrodes sold to the silicon metals
industry and for graphite specialties sold to the semiconductor, aerospace and
aircraft industries, partially offset by increased demand for graphite cathodes
sold to the aluminum industry. Demand for and prices of our other products
remained relatively stable.
Cost of sales for graphite and carbon products increased 6%, or $6 million,
to $102 million in the 1999 first half from $96 million in the 1998 first half.
The impact of cost increases and changes in product mix, which increased cost of
sales, were partially offset by cost savings. As a result of the changes
described above, gross profit declined 32%, or $18 million, to $38 million in
the 1999 second quarter from $56 million in the 1998 second quarter. Gross
profit margin for graphite and carbon products decreased to 27.1% in the 1999
first half from 36.8% in the 1998 first half. The decrease in gross profit
margin was primarily due to the combination of a decrease in net sales and
increase in cost of sales.
Operating Profit of Us as a Whole. Operating profit in the 1999 first half
was $93 million, or 22.5% of net sales, as compared to $129 million, or 26.2% of
net sales, in the 1998 first half. The decrease in operating profit was
primarily due to lower gross profit.
Selling, administrative and other expenses decreased to $45 million in the
1999 first half from $52 million in the 1998 first half primarily due to lower
corporate administration expenses resulting from cost savings under our global
rationalization and restructuring plan and reduced variable compensation
expense.
Other (income) expense (net) was income of $6 million in the 1999 first
half as compared to expense of $4 million in the 1998 first half. The change was
primarily due to a reduction in consulting fees, currency exchange rate
translation and foreign currency transaction gains, and a gain of $2 million on
the sale of the assets of our spray cooled systems business. Interest income was
lower in the 1999 first half due to a decrease in short-term investments.
Other Items Affecting Us as a Whole. Interest expense increased to $44
million in the 1999 first half from $35 million in the 1998 first half. The
increase primarily resulted from imputed interest expense of $2 million
associated with the $110 million antitrust fine payable to the DOJ in six annual
installments and higher interest expense of $7 million associated with increased
total debt. Average outstanding total debt was $825 million in the 1999 first
half as compared to $767 million in the 1998 first half. The average annual
interest rate was 9.9% in the 1999 first half as compared to 8.7% in the 1998
first half. These average annual interest rates exclude imputed interest on the
antitrust fine. The increase in the average annual interest rate was due to an
increase in the margin over LIBOR which we pay under the Senior Bank Facilities
as a result of the refinancing completed in November 1998, partially offset by a
decrease in LIBOR. We incurred additional debt in 1998 and early in 1999 to
finance a portion of the fines and settlements paid in connection with antitrust
investigations and related lawsuits and claims.
Provision for income taxes was $13 million in the 1999 first half as
compared to $27 million in the 1998 first half. During the 1999 first half, the
provision for income taxes reflected a 27% effective rate, which is lower than
the U.S. federal income tax rate of 35%, primarily due to earnings
28
<PAGE>
PART I. (Cont.)
UCAR INTERNATIONAL INC.
from consolidated entities with lower effective rates. For the 1998 first half,
the provision for income taxes reflected a 28% effective rate.
As a result of the changes described above, net income was $34 million in
the 1999 first half, a decrease of 48% from net income of $66 million in the
1998 first half.
Liquidity and Capital Resources
Our sources of funds have consisted principally of invested capital, cash
flow from operations, and debt financing. Our uses of those funds (other than
for operations) have consisted principally of debt reduction, capital
expenditures, and payment of fines, liabilities and expenses in connection with
antitrust investigations and related lawsuits and claims.
We are highly leveraged and have substantial obligations in connection with
antitrust investigations and antitrust and securities lawsuits and claims. We
had total debt of $747 million and a stockholders' deficit of $297 million at
June 30, 1999 as compared to total debt of $804 million and a stockholders'
deficit of $287 million at December 31, 1998. Cash, cash equivalents and
short-term investments were $25 million at June 30, 1999 as compared to $69
million at December 31, 1998.
Debt (net of cash, cash equivalents and short-term investments) was $722
million at June 30, 1999 as compared to $735 million at December 31, 1998.
Cash Flow Provided by Operating Activities. Cash flow provided by operating
activities was $39 million in the 1999 first half as compared to $8 million in
the 1998 first half. This improvement of $31 million resulted primarily from a
lower use of cash flow for working capital of approximately $59 million, offset
by lower net income (including non-cash items) of approximately $19 million and
an increased use of cash associated with long term assets and liabilities of $9
million.
Use of cash flow for working capital was $36 million in the 1999 first
half, an improvement of $59 million from a use of $95 million in the 1998 first
half. The improvement occurred despite the use of $35 million for payment of net
fines, settlements and expenses in connection with antitrust investigations and
related lawsuits and claims during the 1999 first half (as compared to $13
million in the 1998 first half) and the use of $14 million for restructuring
payments during the 1999 first half. The improvement was due primarily to
reductions in the use of cash of $53 million for inventories, $36 million for
payables and accruals, and $6 million for receivables. The working capital
improvement resulted from improved cash and inventory management, as well as
from factoring $27 million of trade accounts receivable in the 1999 first half.
Cash Flow Used in Investing Activities. We used $20 million of cash flow in
investing activities during the 1999 first half as compared to $42 million
during the 1998 first half. This improvement of $22 million was primarily due to
a reduction in cash used in short term investments by our Brazilian subsidiary
of $19 million and a reduction in cash used for capital expenditures of $2
million. In addition, cash provided from the sale of our spray cooled systems
business assets was $3
29
<PAGE>
PART I. (Cont.)
UCAR INTERNATIONAL INC.
million in the 1999 first half, as compared to cash provided from the sale of
assets in the ordinary course of business of $2 million in the 1998 first half.
Cash Flow Provided by (Used in) Financing Activities. Cash flow used in
financing activities was $56 million in the 1999 first half as compared to cash
provided by financing activities of $46 million in the 1998 first half.
Financing activities from long term debt consisted of $39 million of net
payments under the Senior Bank Facilities in the 1999 first half as compared to
$76 million of net borrowings in the 1998 first half. The net payments made in
the 1999 first half were funded primarily through improved cash and inventory
management and decreased working capital requirements as compared to the 1998
first half. Net short-term debt reductions were $16 million in the 1999 first
half as compared to $31 million in the 1998 first half. Net short-term debt
reductions were lower in the 1999 first half due to lower short-term borrowings
by our Brazilian subsidiary and lower borrowings by other non-U.S. subsidiaries
to meet local cash needs.
Accounting Changes
In June 1998, the Financial Accounting Standards Board issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities," which is
effective for all fiscal quarters of fiscal years beginning after June 15, 2000.
We are currently evaluating the impact of SFAS 133 on our financial position,
results of operations and cash flows.
Year 2000 Issue
The Year 2000 issue results from the fact that many computer programs were
written using two rather than four digits to define the applicable year. Any
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in processing
errors, miscalculations or failures causing disruptions of operations,
including, among other things, temporary inability to process transactions or
otherwise engage in similar normal business activities.
In 1996, we decided to upgrade and integrate substantially all of our
systems, both domestic and foreign. As part of this process, for the past three
years, we have been remediating our existing systems so that they are Year 2000
compliant. Remediation consists of identifying, analyzing, replacing or
modifying, and testing our existing systems so that they are Year 2000
compliant. Testing includes documentation review. In addition, for the past
three years, when we have installed or plan to install new systems, whether
installed as part of this upgrade and integration, as part of process
improvement or cost reduction projects or otherwise, we believe that they have
been, or will be at the time of installation, Year 2000 compliant.
We identified the following systems that required analysis for Year 2000
compliance: finance and control systems; local and wide area networks;
production process systems and instrumentation; stand-alone and networked
personal computers; and other business equipment and site systems.
Substantially all of our personal computers and our finance and control
systems have been analyzed, modified or replaced, and tested and are Year 2000
compliant. Remediation of our
30
<PAGE>
PART I. (Cont.)
UCAR INTERNATIONAL INC.
production process systems and instrumentation, local and wide-area networks,
and other business equipment and site systems has been substantially completed.
Independent verification of our Year 2000 compliance efforts was
substantially completed in the 1999 second quarter.
We have conducted surveys of customers, suppliers and service providers to
determine whether they have any Year 2000 issues which, if not addressed, could
have a material impact on us. Based on responses which we have received from
these surveys, we believe that customers and critical suppliers and service
providers representing about 90% of our business activities involving third
parties will be Year 2000 compliant on a timely basis. The critical suppliers
and service providers who responded negatively to our surveys do not represent
sole suppliers or service providers where an interruption in supply or service
would materially impair continued normal business activities. No utility
provider responded negatively to our survey. Follow up is ongoing with
customers, suppliers and service providers that have not responded to our
surveys. On-site visits are planned to evaluate the Year 2000 compliance status
of critical suppliers and service providers.
We are continuing the development of contingency plans to respond to risks
of either one or more of our systems not being Year 2000 compliant or our
customers or critical suppliers or service providers not being Year 2000
compliant on a timely basis. We expect to have these plans finalized and in
place by the end of the 1999 third quarter. Our contingency plans will place
particular emphasis on the completion of remediation by our manufacturing
operations and the ability of certain electric utility providers that supply
electric power to our manufacturing operations to be Year 2000 compliant on a
timely basis. Contingency plans will include consideration of alternative
sources of supply or service, customer communication plans and plant and
business response plans.
The failure to sufficiently remediate Year 2000 issues in a timely fashion
could pose substantial risks for us. These risks include possible manufacturing
system malfunctions, including shutdowns. The extent of these risks to us is
uncertain at this time.
We estimate that the aggregate incremental cost we will incur for internal
and external services in connection with Year 2000 issues will be about $3
million. We estimate that about $2 million of the cost was incurred prior to
1999. Internal costs consist principally of payroll costs for our information
systems group.
31
<PAGE>
PART II. (Cont.)
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 Report.
Exhibit
Number Description of Exhibit
27.1 Financial Data Schedule for the quarter ended
June 30, 1999 (for Commission use only)
(Incorporated by reference to the Company's 10-Q
filed on August 11, 1999)
27.2A Restated Financial Data Schedule for the quarter
ended June 30, 1999 (for Commission use only)
(b) Reports on Form 8-K
No Report on Form 8-K was filed during the quarter for which this
Report is filed.
32
<PAGE>
UCAR INTERNATIONAL INC.
SIGNATURE
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
UCAR INTERNATIONAL INC.
Date: November 15, 1999 By: /s/ Corrado F. De Gasperis
--------------------------
Corrado F. De Gasperis
Controller
(Principal Accounting Officer)
33
<PAGE>
UCAR INTERNATIONAL INC.
INDEX TO EXHIBITS
Exhibit No. Description Page No.
27.2A Restated Financial Data Schedule for the quarter ended June
30, 1999 (for Commission use only)
E-1
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary consolidated financial information extracted
from the Consolidated Financial Satements of UCAR International, Inc., included
in its form 10-Q for the quarter ended June 30, 1999 and is qualified in its
entirety by by reference tosuch Consolidated Financial Statements.
</LEGEND>
<CIK> 0000931148
<NAME> UCAR INTERNATIONAL INC.
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-01-1999
<PERIOD-END> Jun-30-1999
<CASH> 18
<SECURITIES> 7
<RECEIVABLES> 144
<ALLOWANCES> 5
<INVENTORY> 243
<CURRENT-ASSETS> 486
<PP&E> 1144
<DEPRECIATION> 716
<TOTAL-ASSETS> 1006
<CURRENT-LIABILITIES> 329 <F1>
<BONDS> 674
0
0
<COMMON> 0
<OTHER-SE> (297)<F1>
<TOTAL-LIABILITY-AND-EQUITY> 1006
<SALES> 413
<TOTAL-REVENUES> 413
<CGS> 277
<TOTAL-COSTS> 277
<OTHER-EXPENSES> 4
<LOSS-PROVISION> 1
<INTEREST-EXPENSE> 44 <F1>
<INCOME-PRETAX> 49 <F1>
<INCOME-TAX> 13 <F1>
<INCOME-CONTINUING> 36 <F1>
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 34 <F1>
<EPS-BASIC> 0.76 <F1>
<EPS-DILUTED> 0.74 <F1>
<FN>
<F1> Restated for computational error in interest accrual.
</FN>
</TABLE>
