<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 10-Q
---------------
(MARK ONE)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____________ TO
______________
---------------
COMMISSION FILE NUMBER: 1-13888
---------------
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)
---------------
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
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
As of September 30, 2000, 45,159,162 shares of common stock, par value $.01 per
share, were outstanding.
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION:
ITEM 1. FINANCIAL STATEMENTS:
<S> <C>
Consolidated Balance Sheets as of December 31, 1999
And September 30, 2000.................................................................... Page 3
Consolidated Statements of Operations for the Three Months ended
September 30, 1999 and 2000 and for the Nine Months
ended September 30, 1999 and 2000......................................................... Page 4
Consolidated Statements of Cash Flows for the Nine Months
ended September 30, 1999 and 2000......................................................... Page 5
Consolidated Statement of Stockholders' Equity (Deficit) for the
Nine Months ended September 30, 2000...................................................... Page 7
Notes to Consolidated Financial Statements.................................................. Page 8
INTRODUCTION TO PART I, ITEM 2, AND PART II, ITEM 1............................................. Page 22
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.............................................................. Page 27
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.............................. Page 43
PART II. OTHER INFORMATION:
ITEM 1. LEGAL PROCEEDINGS...................................................................... Page 45
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.............................................. Page 51
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K....................................................... Page 51
SIGNATURE............................................................................................ Page 52
INDEX TO EXHIBITS.................................................................................... Page E-1
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
ASSETS 1999 2000
------------ -------------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents........................................................ $ 17 $ 11
Short-term investments........................................................... 3 -
Notes and accounts receivable.................................................... 171 126
Inventories:
Raw materials and supplies.................................................... 49 47
Work in process............................................................... 113 113
Finished goods................................................................ 42 35
------- -------
204 195
Prepaid expenses and deferred income taxes....................................... 25 33
------- -------
Total current assets................................................. 420 365
------- -------
Property, plant and equipment........................................................ 1,071 1,013
Less: accumulated depreciation....................................................... 673 636
------- -------
Net fixed assets..................................................... 398 377
Other assets......................................................................... 115 120
------- -------
Total assets......................................................... $ 933 $ 862
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable................................................................. $ 80 $ 73
Short-term debt.................................................................. - 4
Payments due within one year on long-term debt................................... 82 22
Accrued income and other taxes................................................... 39 43
Other accrued liabilities........................................................ 114 119
------- -------
Total current liabilities............................................ 315 261
------- -------
Long-term debt....................................................................... 640 696
Other long-term obligations.......................................................... 224 187
Deferred income taxes................................................................ 33 18
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,
47,440,536 shares issued at December 31, 1999,
47,478,644 shares issued at September 30, 2000................................ - -
Additional paid-in capital....................................................... 523 525
Accumulated other comprehensive income (loss).................................... (205) (234)
Retained earnings (deficit)...................................................... (525) (519)
Less: cost of common stock held in treasury, 2,338,038 shares at
December 31, 1999, 2,319,482 shares at September 30, 2000 (86) (85)
------- -------
Total stockholders' equity (deficit)................................. (293) (313)
------- -------
Total liabilities and stockholders' equity (deficit)................. $ 933 $ 862
======= =======
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE>
PART I (CONT'D)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------- -------------------
1999 2000 1999 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales............................................ $ 210 $ 192 $ 623 $ 586
Cost of sales........................................ 140 139 417 420
--------- --------- ---------- ----------
Gross profit.................................... 70 53 206 166
Research and development............................. 3 3 7 8
Selling, administrative and other expenses........... 20 20 65 67
Graphite and carbon restructuring
charges (credits), net.......................... (6) (1) (6) 5
Securities class action and stockholder derivative lawsuits 13 - 13 (1)
Other (income) expense (net)......................... (1) - (7) (1)
----------- --------- ---------- ----------
Operating profit................................ 41 31 134 88
Interest expense..................................... 20 18 64 57
---------- --------- ---------- ----------
Income before provision for income taxes........ 21 13 70 31
Provision for income taxes........................... - 5 13 9
----------- --------- ---------- ----------
Income of consolidated entities............... 21 8 57 22
Less: Minority stockholders' share of income......... - 1 2 2
----------- --------- ---------- ----------
Income before extraordinary item.............. 21 7 55 20
Extraordinary item, net of tax....................... - - - 13
----------- --------- ---------- ----------
Net income...................................... $ 21 $ 7 $ 55 $ 7
========== ========= ========== ===========
BASIC EARNINGS PER COMMON SHARE:
Income before extraordinary item................ $ 0.46 $ 0.16 $ 1.22 $ 0.44
Extraordinary item, net of tax.................. - - - (0.28)
---------- --------- ---------- ----------
Net income per share............................ $ 0.46 $ 0.16 $ 1.22 $ 0.16
========== ========= ========== ==========
Weighted average common shares outstanding
(in thousands).................................. 45,087 45,152 45,120 45,135
========== ========= ========== ==========
DILUTED EARNINGS PER COMMON SHARE:
Income before extraordinary item................ $ 0.45 $ 0.16 $ 1.18 $ 0.43
Extraordinary item, net of tax.................. - - - (0.28)
---------- --------- ---------- -------
- - -
---------- --------- ----------
Net income per share............................ $ 0.45 $ 0.16 $ 1.18 $ 0.15
========== ========= ========== =========
Weighted average common and common
equivalent shares outstanding (in thousands).... 46,747 45,813 46,585 45,910
=========== ========= ========== =========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE>
PART I (CONT'D)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30,
-------------------
CASH FLOW FROM OPERATING ACTIVITIES: 1999 2000
---- ----
<S> <C> <C>
Net income ..................................................................... $ 55 $ 7
Extraordinary item, net of tax................................................... - 13
Non-cash charges to net income:
Depreciation and amortization................................................. 34 32
Deferred income taxes......................................................... 2 (15)
Graphite and carbon restructuring charges (credits), net...................... (6) 5
Securities class action and stockholder derivative lawsuits................... 13 -
Other non-cash charges........................................................ 13 16
Working capital*................................................................. (45) (32)
Long-term assets and liabilities................................................. (6) 14
------- ------
NET CASH PROVIDED BY OPERATING ACTIVITIES................................. 60 40
------- ------
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures............................................................. (42) (35)
Purchases of short-term investments.............................................. (20) -
Maturity of short-term investments............................................... 25 2
Purchase of investment .......................................................... - (1)
Sale of assets................................................................... 4 -
------- ------
NET CASH USED IN INVESTING ACTIVITIES..................................... (33) (34)
------- ------
CASH FLOW FROM FINANCING ACTIVITIES:
Short-term debt borrowings (reductions), net..................................... (18) 4
Revolving credit facility borrowings, net........................................ - 59
Long-term debt borrowings........................................................ 108 657
Long-term debt reductions........................................................ (159) (705)
Dividends paid to minority shareholder........................................... (1) -
Financing costs.................................................................. - (26)
------- ------
NET CASH USED IN FINANCING ACTIVITIES..................................... (70) (11)
------- ------
Net increase (decrease) in cash and cash equivalents................................. (43) (5)
Effect of exchange rate changes on cash and cash equivalents......................... (2) (1)
Cash and cash equivalents at beginning of period..................................... 58 17
------- ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD........................................... $ 13 $ 11
======= ======
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE>
PAET I (CONT'D)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT'D)
(DOLLARS IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30,
-------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: 1999 2000
----- ----
<S> <C> <C>
Net cash paid during the period for:
Interest...................................................................... $ 64 $ 66
======= ======
Income taxes.................................................................. 29 7
======= ======
* Net change in working capital due to the following components:
(Increase) decrease in current assets:
Notes and accounts receivable................................................. $ 15 $ 11
Inventories................................................................... 14 (7)
Prepaid expenses and other current assets..................................... 2 (1)
Decrease in accounts payable and accruals........................................ (10) (12)
Antitrust investigations and related lawsuits and claims......................... (46) (17)
Restructuring payments........................................................... (20) (6)
------- ------
WORKING CAPITAL........................................................... $ (45) $ (32)
======= ======
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6
<PAGE>
PART I (CONT'D)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(DOLLARS IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
ADDITIONAL COMPREHENSIVE RETAINED TOTAL
COMMON PAID-IN INCOME EARNINGS TREASURY STOCKHOLDERS'
STOCK CAPITAL (LOSS) (DEFICIT) STOCK EQUITY (DEFICIT)
----- ------- ------ --------- ----- ----------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1999.............. $ - $ 523 $ (205) $ (525) $ (86) $ (293)
Comprehensive income:
Net income............................. - - - 7 - 7
Other comprehensive income:
Unrealized loss on available-for-sale
securities........................ - - (1) - - (1)
Foreign currency translation
adjustments - - (28) - - (28)
----- ------ ----- ------- ----- -------
Total comprehensive loss.................. - - (29) 7 - (22)
Sale of common stock - stock options...... - 2 - - - 2
Sale of common stock - treasury stock..... - - - (1) 1 -
----- ------- -------- ------- ----- -----
BALANCE AT SEPTEMBER 30, 2000............. $ - $ 525 $ (234) $ (519) $ (85) $ (313)
===== ======= ========= ======== ===== =====
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7
<PAGE>
PART I (CONT'D)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
(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 nine months ended September 30, 2000 are not necessarily
indicative of the results of operations that may be expected for the entire
year ending December 31, 2000.
IMPORTANT TERMS
We use the following terms 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 parent company
and the issuer of the publicly traded common stock covered by the
Consolidated Financial Statements.
"UCAR Global" refers to UCAR Global Enterprises Inc. only. UCAR Global is a
direct wholly owned subsidiary of UCAR and the direct or indirect holding
company for all of our operating subsidiaries. UCAR Global was the issuer
of our previously outstanding 12% senior subordinated notes due 2005 (the
"Subordinated Notes") and was the primary borrower under our prior senior
secured bank credit facilities (the "Prior Senior Facilities").
"UCAR Finance" refers to UCAR Finance Inc. only. UCAR Finance is a direct
wholly owned special purpose finance subsidiary of UCAR and the borrower
under our new senior secured credit facilities (the "New Senior
Facilities").
"Subsidiaries" refers to those companies which, at the relevant time, were
majority owned or wholly owned directly or indirectly by UCAR. 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 September 30, 2000, except for:
o our Russian subsidiary, which was acquired in late 1996 and early
1997 and has been wholly owned since then,
o our German subsidiary, which was acquired in early 1997 and 70%
owned until early 1999, when it became wholly owned in order to
facilitate the cessation of its manufacturing operations,
8
<PAGE>
PART I (CONT'D)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
(1) INTERIM FINANCIAL PRESENTATION (CONT'D)
o Carbone Savoie S.A.S. ("Carbone Savoie"), which was acquired in
early 1997 and has been 70% owned since then, and
o our South African subsidiary, which was 50% owned until April
1997, when it became wholly owned.
"We," "us," or "our" refers collectively to UCAR and its subsidiaries or,
if the context so requires, UCAR, UCAR Global or UCAR Finance,
individually.
FOREIGN CURRENCY TRANSLATION
Generally, except for operations in Russia where high inflation has
existed, unrealized gains and losses resulting from translating assets and
liabilities of foreign operations into U.S. dollars are accumulated in
other comprehensive income (loss) 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 has existed are included in other (income) expense (net) in the
Consolidated Statements of Operations. Our Mexican subsidiary began using
the U.S. dollar as its functional currency during 1999 because its sales
and purchases are predominantly U.S. dollar-denominated. Prior to August
1, 2000, our Swiss subsidiary used the U.S. dollar as its functional
currency. Beginning August 1, 2000 our Swiss subsidiary began using the
euro as its functional currency because its operations became
predominantly euro-denominated.
OTHER ACCOUNTING MATTERS
In 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") 133, "Accounting for Derivative
Instruments and Hedging Activities," which requires that an entity
recognize all derivative instruments as either assets or liabilities in the
statement of financial position and measure those instruments at fair
value. SFAS 133, as amended by SFAS 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133," and SFAS 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities - an amendment of FASB Statement
No. 133," 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 and results of operations in the period of adoption.
In 1999, the staff of the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") 101, "Revenue Recognition in Financial
Statements," which summarizes the staff's views regarding the application
of generally accepted accounting principles to selected revenue
recognition issues. We are evaluating whether SAB 101 will require any
change in our revenue recognition policies and procedures.
9
<PAGE>
PART I (CONT'D)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
(2) EARNINGS PER SHARE
Basic and diluted earnings per share are calculated using the following
share data:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------- -------------------
1999 2000 1999 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average common shares
outstanding for basic calculation............... 45,086,939 45,152,472 45,120,494 45,135,299
Add: Effect of stock options........................ 1,659,962 660,179 1,464,221 774,833
----------- ------------ ----------- ----------
Weighted average common shares
outstanding, adjusted for diluted calculation... 46,746,901 45,812,651 46,584,715 45,910,132
========== ========== ========== ==========
</TABLE>
The calculation of weighted average common shares outstanding for the
diluted calculation excludes the consideration of stock options covering
1,844,958 and 4,200,147 shares in each of the three months ended September
30, 1999 and 2000, respectively, and 1,940,256 and 3,449,723 shares in
each of the nine months ended September 30, 1999 and 2000, respectively,
because the exercise of these options would not have been dilutive for
those periods.
(3) 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, natural, acid-treated and flexible graphite, graphite
and carbon cathodes, and graphite and carbon specialties. These two
segments are managed separately because of the different products and
markets they serve.
We evaluate the performance of our segments based on gross profit.
Intersegment sales and transfers are not material.
10
<PAGE>
PART I (CONT'D)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
(3) SEGMENT REPORTING (CONT'D)
The following tables summarize financial information concerning our
reportable segments.
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------- -------------------
1999 2000 1999 2000
---- ---- ---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Net sales to external customers:
Graphite electrodes............................. $ 144 $ 132 $ 417 $ 398
Graphite and carbon products.................... 66 60 206 188
-------- -------- -------- -------
Consolidated net sales....................... $ 210 $ 192 $ 623 $ 586
======= ======== ======= ======
Gross profit:
Graphite electrodes............................. $ 51 $ 37 $ 149 $ 118
Graphite and carbon products.................... 19 16 57 48
------- -------- ------- ------
Consolidated gross profit.................... $ 70 $ 53 $ 206 $ 166
======= ========= ======= =======
</TABLE>
(4) RESTRUCTURING CHARGES (CREDITS)
In 2000 third quarter, we recorded a restructuring charge of $3 million in
connection with the realignment of our U.S. cathode production to our
facilities in Brazil and France and the reduction of graphite electrode
production capability to accommodate such increased cathode production in
Brazil and France. This was a non-cash charge related to the write-off of
certain fixed assets located at one of our facilities in the U.S.
In 2000 first quarter, we recorded a restructuring charge of $6 million in
connection with a restructuring of our graphite specialties business. The
key elements of the restructuring consist of elimination of certain
product lines and rationalization of operations to reduce costs and
improve profitability of remaining product lines. This rationalization
included discontinuing certain manufacturing processes at one of our
facilities in the U.S. that will be performed at our other facilities in
the future. The charge included estimated severance costs for 65
employees, costs for demolition of selected buildings, and related
environmental costs. During the nine months ended September 30, 2000, we
paid $0.6 million in severance costs. In 2000 third quarter, management
decided not to demolish those buildings. Therefore, we reversed $4 million
of the charge that related to demolition and related environmental costs.
11
<PAGE>
PART I (CONT'D)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
(4) RESTRUCTURING CHARGES (CREDITS) (CONT'D)
In September 1998, we recorded a restructuring charge of $86 million in
connection with a global restructuring and rationalization plan. The
principal actions of the plan involved the closure of manufacturing
operations at our facilities in Canada and Germany, and the centralization
and consolidation of administrative and financial functions. These actions
have eliminated 371 administrative and manufacturing positions through
September 30, 2000.
The following table summarizes activity relating to the accrued expense in
connection with the restructuring charges.
<TABLE>
<CAPTION>
ADJUSTMENTS
AND
CURRENCY
BALANCE AT GRAPHITE AND EXCHANGE BALANCE AT
DECEMBER 31, CARBON RATE SEPT. 30,
1999 RESTRUCTURING PAYMENTS CHANGES 2000
------------ ------------- -------- ------- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Severance and related costs........ $ 13 $ 2 $ (4) $ (1) $ 10
Plant shut down and related costs.. 10 3 (1) (4) 8
Postmonitoring and
environmental.................. 5 1 (1) - 5
------- ----- ----- ------- ---------
$ 28 $ 6 $ (6) $ (5) $ 23
====== ===== ==== ======= =======
</TABLE>
Cash payments of $6 million were made in the nine months ended September
30, 2000. The restructuring accrual is included in other accrued
liabilities on the Consolidated Balance Sheets.
(5) 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 had been any violation of U.S. federal antitrust law by
producers of graphite electrodes. Concurrently, the antitrust enforcement
authority of the European Union (the "EU Competition Authority") visited
the offices of one of our French subsidiaries for purposes of gathering
information in connection with an investigation as to whether there had
been any violation of the antitrust law of the European Community 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.
12
<PAGE>
PART I (CONT'D)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
(5) CONTINGENCIES (CONT'D)
In April 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 U.S.
resulting in agreements to fix prices and allocate market shares in the
U.S. 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 law 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
"DOJ fine"). The DOJ fine is payable in six annual installments of $20
million, $15 million, $15 million, $18 million, $21 million and $21
million, commencing July 23, 1998. The agreement was approved by the court
and, as a result, under the plea agreement, we will not be subject to
prosecution by the DOJ with respect to any other violations of U.S.
federal antitrust law occurring prior to April 1998. The payments due in
1998, 1999 and 2000 were timely made.
In the 2000 first quarter, pursuant to a plea agreement with the DOJ, our
former chief executive officer and chief operating officer, both of whom
retired and resigned from all positions with us in March 1998, pled guilty
to one count charges of violating U.S. federal antitrust law in connection
with the sale of graphite electrodes and were sentenced to terms of
incarceration and payment of fines. In January 2000, a former director of
export sales was indicted by the DOJ on similar charges. We do not intend
to reimburse those officers for their fines or that director of export
sales for any costs or fines he may incur as a result of such indictment.
In January 2000, Mitsubishi Corporation, a former parent of UCAR, was
indicted by the DOJ on a one count charge of aiding and abetting
violations of U.S. federal antitrust law in connection with the sale of
graphite electrodes.
In April 1998, the Canadian Competition Bureau (the "Competition Bureau")
commenced a criminal investigation as to whether there had been any
violation of Canadian antitrust law 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 law 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 court and, as a result, under the plea agreement, we
will not be subject to prosecution by the Competition Bureau with respect
to any other violations of Canadian antitrust law occurring prior to the
date of the plea agreement. The fine was timely paid.
13
<PAGE>
PART I (CONT'D)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
(5) CONTINGENCIES (CONT'D)
In June 1998, we became aware that the Japanese antitrust enforcement
authority had commenced an investigation as to whether there had been any
violation of Japanese antitrust law by producers and distributors of
graphite electrodes. In addition, in October 1999, we became aware that
the Korean antitrust authority had commenced an investigation as to
whether there had been a violation of Korean antitrust law by producers
and distributors of graphite electrodes. We have no facilities or
employees in Japan or Korea. We believe that, among other things, we have
good defenses to any claim that we are subject to the jurisdiction of
either such authority. In March 1999, the Japanese antitrust authority
issued a warning letter to the four Japanese graphite electrode producers.
While the Japanese antitrust authority did not issue a similar warning to
us, the warning letter issued to the Japanese producers did reference us
as a member of an alleged cartel.
In January 2000, the EU Competition Authority issued a statement of
objections initiating proceedings against various producers of graphite
electrodes (including us). The statement alleges that the producers
violated the antitrust law of the European Community and the European
Economic Area in connection with the sale of graphite electrodes. The
statement does not set forth any proposed fines or the impact which
cooperation by us or other producers would have on the respective fines,
if any. The maximum fine for such a violation is ten percent of a
company's revenue during the year preceding the year in which the fine is
assessed. We believe that we have provided substantial cooperation to the
EU Competition Authority and are, therefore, entitled to a reduction in
the amount of any fine which would otherwise be assessed. We believe that
proceedings of this nature typically continue for about nine to twelve
months before any fine is assessed. Any such assessment would be subject
to appeal before the Court of First Instance in Luxembourg, although the
fine or collateral security therefore would be payable about three months
after such assessment.
We are continuing to cooperate with the DOJ and the Competition Bureau in
their continuing investigations of others and with the EU Competition
Authority in its continuing investigation. In connection therewith, we
have produced and are producing documents and witnesses. It is possible
that antitrust investigations seeking, among other things, to impose fines
and penalties could be initiated by authorities in other jurisdictions.
The guilty pleas make it more difficult for us to defend against other
investigations as well as civil lawsuits and claims. 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.
14
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PART I (CONT'D)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
(5) CONTINGENCIES (CONT'D)
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"). In the consolidated complaint, the plaintiffs allege
that the defendants violated U.S. federal antitrust law 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 and 1999, various producers of graphite electrodes (including us)
were served with complaints and petitions by steelmakers in the U.S. and
Canada commencing nine separate civil antitrust lawsuits (the "other
initial lawsuits"). Such complaints and petitions allege that the
defendants violated U.S. federal, Texas or Canadian antitrust laws or
Canadian conspiracy law in connection with the sale of graphite
electrodes.
In 1999, various producers of graphite electrodes (including us) were
served with two complaints commencing two separate civil antitrust
lawsuits (the "foreign customer lawsuits"). The first complaint was filed
by 26 steelmakers and related parties, all but one of whom are located
outside the U.S., and the second complaint was filed by 4 steelmakers, all
of whom are located outside the U.S. In each complaint, the plaintiffs
allege that the defendants violated U.S. federal antitrust law in
connection with the sale of graphite electrodes sold or sourced from the
U.S. and those sold and sourced outside the U.S. The plaintiffs seek,
among other things, an award of treble damages resulting from such alleged
violations. We believe that we have strong defenses against claims
alleging that purchases of graphite electrodes outside the U.S. are
actionable under U.S. federal antitrust law.
In 1999 and 2000, we were served with complaints commencing three civil
antitrust lawsuits related to the sale of carbon electrodes (the "carbon
electrode lawsuits"). Another producer of carbon electrodes is also a
defendant in two of the carbon electrode lawsuits. In the complaints, the
plaintiffs allege that the defendants violated U.S. federal antitrust law
in connection with the sale of carbon electrodes and seek, among other
things, an award of treble damages resulting from such alleged violations.
The guilty pleas described above do not relate to carbon electrodes.
15
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PART I (CONT'D)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
(5) CONTINGENCIES (CONT'D)
Certain customers in other countries who purchased graphite electrodes,
carbon electrodes or other products from us have threatened to commence
civil antitrust lawsuits against us in the U.S. or in other jurisdictions
with respect to the subject matter of the investigations and lawsuits
described above.
Through November 6, 2000, except as described in the next paragraph, we
have settled all of the lawsuits described above, certain of the
threatened civil antitrust lawsuits and certain possible civil antitrust
claims by certain other customers who negotiated directly with us. The
settlements cover virtually all of the actual and potential claims against
us by customers in the U.S. 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. Although each settlement
is unique, in the aggregate they consist primarily of current and deferred
cash payments with some product credits and discounts. All payments
thereunder have been timely paid. Amounts due under the settlement of the
antitrust class action will increase to the extent additional undisputed
claims are filed by members of the class (which includes purchasers of
graphite electrodes who are located outside the U.S. but who purchased
graphite electrodes from our U.S. subsidiaries).
The foreign customer lawsuits and the carbon electrode lawsuits have not
been settled and are still in their early stages. We have been vigorously
defending, and intend to continue to vigorously defend, against these
lawsuits as well as all threatened lawsuits and possible unasserted
claims, including those mentioned above. We may at any time, however,
settle these lawsuits as well as any threatened lawsuits and possible
claims.
It is possible that additional civil antitrust lawsuits seeking, among
other things, to recover damages could be commenced against us in the U.S.
and in other jurisdictions.
ANTITRUST EARNINGS CHARGE
We recorded a 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 is calculated on a basis net of, among other things, imputed
interest on installment payments of the DOJ fine. Actual aggregate
liabilities and expenses could be materially higher than $340 million. To
the extent that aggregate liabilities and expenses, net, are known or
reasonably estimable, at September 30, 2000, $340 million continues to
represent our estimate of such liabilities and expenses. In the aggregate,
the fines and settlements described above and related expenses, net, are
within the amounts used by us to evaluate the $340 million charge.
16
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PART I (CONT'D)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
(5) CONTINGENCIES (CONT'D)
Through September 30, 2000, we have paid an aggregate of $226 million of
fines and net settlement and expense payments and $12 million of imputed
interest. At September 30, 2000, $114 million remains in the accrual and,
based on information known to us at November 6, 2000, the aggregate amount
of remaining committed payments for fines and settlements at September 30,
2000 was about $64 million. The aggregate amount of remaining committed
payments for imputed interest at September 30, 2000 was about $8 million.
About $26 million of the committed payments for fines and settlements are
due on or before September 30, 2001.
(6) NEW LONG-TERM DEBT
On February 22, 2000, we completed a debt recapitalization. We obtained
the New Senior Facilities and used the net proceeds to repay and terminate
the Prior Senior Facilities, to redeem the Subordinated Notes at a
redemption price of 104.5% of the principal amount redeemed, plus accrued
interest, to repay certain other debt and to pay related expenses.
The New Senior Facilities consist of:
o A Tranche A Facility providing for initial term loans of $137
million and of [Euro] 161 million (equivalent to $158 million
at February 22, 2000) to UCAR Finance. The Tranche A Facility
amortizes in quarterly installments over six years, commencing
June 30, 2000, with installments ranging from [Euro] 2 million
in 2000 to [Euro] 17 million in 2005, with the final installment
payable on December 31, 2005.
o A Tranche B Facility providing for initial term loans of $350
million to UCAR Finance. The Tranche B Facility amortizes over
eight years, commencing June 30, 2000, with nominal quarterly
installments during the first six years, and quarterly
installments of $41 million in 2006 and 2007, with the final
installment payable on December 31, 2007.
o A Revolving Facility providing for U.S. dollar and
euro-denominated revolving and swingline loans to, and the
issuance of U.S. dollar-denominated letters of credit for the
account of, UCAR Finance and certain other subsidiaries in an
aggregate principal and stated amount at any time not to exceed
$250 million (or the equivalent in euros at the time of
borrowing). The Revolving Facility terminates on February 22,
2006. As a condition to each borrowing under the Revolving
Facility, we are required to represent, among other things,
that the
17
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PART I (CONT'D)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
(6) NEW LONG-TERM DEBT (CONT'D)
aggregate amount of payments (excluding certain imputed
interest) and additional reserves created in connection with
antitrust, securities and stockholder derivative
investigations, lawsuits and claims do not exceed $340 million
by more than $130 million (which $130 million is reduced by the
amount of certain debt incurred by us that is not incurred
under the New Senior Facilities).
We are required to make mandatory prepayments in the amount of:
o Either 75% or 50% (depending on our ratio of adjusted net debt
to adjusted total EBITDA) of adjusted excess cash flow. The
obligation to make these prepayments, if any, arises after the
end of each year with respect to adjusted excess cash flow
during the prior year.
o 100% of the net proceeds of certain asset sales or certain debt
incurrences.
o 50% of the net proceeds of certain equity securities issuances
by UCAR.
We may make voluntary prepayments under the New Senior Facilities. There
is no penalty or premium due in connection with prepayments (whether
voluntary or mandatory).
UCAR Finance makes intercompany loans of the net proceeds of borrowings
under the New Senior Facilities to UCAR Global's subsidiaries. UCAR, UCAR
Global and each of UCAR Global's subsidiaries have guaranteed, with
certain exceptions, the obligations of UCAR Global's subsidiaries under
the intercompany loans, except that our U.S. subsidiaries have not
guaranteed obligations of our foreign subsidiaries under the intercompany
loans. The obligations of UCAR Global's subsidiaries under the
intercompany loans as well as these guarantees are secured, with certain
exceptions, by first priority security interests in substantially all of
our assets, except that no more than 65% of the capital stock or other
equity interests in our foreign subsidiaries held directly by our U.S.
subsidiaries and no other foreign assets secure obligations or guarantees
of our U.S. subsidiaries. The obligations of UCAR Finance under the New
Senior Facilities are secured, with certain exceptions, by first priority
security interests in all of these intercompany loans (including the
related security interests and guarantees).
UCAR has unconditionally and irrevocably guaranteed the obligations of
UCAR Finance under the New Senior Facilities. This guarantee is secured,
with certain exceptions, by first priority security interests in all of
the outstanding capital stock of UCAR Global and UCAR Finance and all of
the intercompany debt owed to UCAR.
18
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PART I (CONT'D)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
(6) NEW LONG-TERM DEBT (CONT'D)
The interest rates applicable to the Tranche A and Revolving Facilities
are, at our option, either Euro LIBOR plus a margin ranging from 1.00% to
2.75% (depending on our leverage ratio) or the alternate base rate plus a
margin ranging from 0.00% to 1.75% (depending on our leverage ratio). The
interest rate applicable to the Tranche B Facility is, at our option,
either Euro LIBOR plus a margin ranging from 2.50% to 3.00% (depending on
our leverage ratio) or the alternate base rate plus a margin ranging from
1.50% to 2.25% (depending on our leverage ratio). The alternate base rate
is the higher of the prime rate announced by Morgan Guaranty Trust Company
of New York or the federal funds effective rate plus 0.50%. UCAR Finance
pays a per annum fee ranging from 0.375% to 0.500% (depending on our
leverage ratio) on the undrawn portion of the commitments under the
Revolving Facility.
We enter into agreements with financial institutions which are intended to
limit, or cap, our exposure to incurrence of additional interest expense
due to increases in variable interest rates. Use of these agreements is
allowed under the New Senior Facilities.
The New Senior Facilities contain a number of covenants that, among other
things, significantly restrict our ability to sell assets, incur
additional debt, repay or refinance other debt or amend other debt
instruments, create liens on assets, enter into sale and lease back
transactions, make investments or acquisitions, engage in mergers or
consolidations, make capital expenditures, make intercompany dividend
payments to UCAR, pay intercompany debt owed to UCAR, engage in
transactions with affiliates, pay dividends to stockholders of UCAR or
make other restricted payments and that otherwise significantly restrict
corporate activities. UCAR Global is, however, permitted to pay dividends
to UCAR of up to $15 million for the purpose of making an investment in
our subsidiary, Graftech Inc. (formerly known as UCAR Graph-Tech Inc.),
and may also distribute the capital stock of Graftech Inc. to UCAR. In
addition, UCAR may sell to third parties or distribute to UCAR's
stockholders the capital stock of Graftech Inc. Further, we are permitted
to pay dividends on, and repurchase, common stock in an aggregate amount
of up to $25 million, plus up to an additional $25 million if certain
leverage ratio and excess cash flow requirements are satisfied. We are
also permitted to repurchase common stock from present or former
directors, officers or employees in an aggregate amount of up to the
lesser of $5 million per year (with unused amounts permitted to be carried
forward) or $25 million on a cumulative basis since February 22, 2000.
We are required to comply with specified minimum interest coverage and
maximum leverage ratios, which become more restrictive over time, and
limits on annual capital expenditures.
In addition to the failure to pay principal, interest and fees when due,
events of default under the New Senior Facilities include: failure to
comply with covenants; failure to pay when due, or other defaults
19
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PART I (CONT'D)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
permitting acceleration of, other indebtedness exceeding $7.5 million;
judgment defaults in excess of $7.5 million to the extent not covered by
insurance; certain events of bankruptcy; and certain changes in control.
Aggregate payments (based on euro to U.S. dollar exchange rates at
September 30, 2000) due on the Tranche A and B Facilities are: $8 million
in 2000; $26 million in 2001; $61 million in 2002 and 2003; $65 million in
2004 and 2005; and $165 million in 2006 and 2007.
In the 2000 third quarter, pursuant to our debt recapitalization in
February 2000, our Italian subsidiary entered into a $15 million long-term
debt arrangement with a third party lender. We also placed on deposit with
the third party lender funds in the same amount which secure the debt.
Since we have the legal right to set-off, and the intent to do so, such
amounts have been netted and are not reflected separately in the
Consolidated Balance Sheets.
EXTRAORDINARY ITEM
In February 2000, we recorded an extraordinary charge of $21 million ($13
million after tax) related to our debt recapitalization. The extraordinary
charge includes $5 million of bank and third party fees and expenses, $9
million of redemption premium on the Subordinated Notes, and write-off of
$7 million of deferred debt issuance costs.
(7) FINANCIAL INSTRUMENTS
Certain of our subsidiaries sold receivables totaling $84 million in the
2000 first nine months and $54 million in the 1999 first nine months. None
of the receivables sold were recorded on the Consolidated Balance Sheets
at September 30, 2000 and December 31, 1999.
(8) LAWSUIT AGAINST FORMER PARENTS
On February 23, 2000, we commenced a lawsuit against our former parents,
Mitsubishi Corporation and Union Carbide Corporation. The other defendants
are Mitsubishi International Corporation, a U.S. subsidiary of Mitsubishi
Corporation, and two of the respective representatives of Mitsubishi
Corporation and Union Carbide Corporation who served on UCAR's Board of
Directors at the time of our leveraged equity recapitalization in January
1995. In the lawsuit, we allege, among other things, that certain payments
made to our former parents in connection with the recapitalization were
unlawful under the General Corporation Law of the State of Delaware, that
our former parents were unjustly enriched by receipts from their
investments in us and that our former parents aided and abetted breaches
of fiduciary duties owed to us by our former senior management in
connection with illegal graphite electrode price fixing activities. We are
seeking to recover more than $1.5 billion in damages, including interest.
We expect to incur $10 million to $20 million in legal expenses to pursue
20
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PART I (CONT'D)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
this lawsuit through trial. Through September 30, 2000, we incurred $3
million of such legal expenses.
(9) PUBLIC OFFERING OF COMMON STOCK OF GRAFTECH INC.
On July 3, 2000, Graftech Inc. (formerly known as UCAR Graph-Tech Inc.),
our wholly owned operating subsidiary engaged in the natural, acid-treated
and flexible graphite business, filed a registration statement on Form S-1
with the Securities and Exchange Commission related to a proposed initial
public offering of its common stock. A portion of the common stock to be
sold was expected to consist of newly issued shares to be sold by Graftech
Inc. and the balance was expected to consist of outstanding shares to be
sold by our other subsidiary. Costs associated with the offering,
including underwriting discounts, legal, accounting, printing and filing
fees and incremental business realignment and separation costs, are
expected to be paid from the gross proceeds of the offering. We will
record a charge for costs incurred in connection with the offering if we
do not proceed with the offering.
On August 1, 2000, the registration statement filed by Graftech Inc. was
declared effective.
On August 3, 2000, we postponed the initial public offering due to market
conditions.
(10) SUBSEQUENT EVENT - AMENDMENT OF LONG-TERM DEBT
On October 11, 2000, our New Senior Facilities were amended to, among
other things, grant us a less restrictive maximum leverage ratio through
June 30, 2001. In connection therewith, the maximum margin added to either
euro LIBOR or the alternate base rate to determine the interest rates
thereunder was increased by 0.25% and we paid an amendment fee of $2
million.
21
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PART I (CONT'D)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
INTRODUCTION TO PART I, ITEM 2, 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 parent company and
the issuer of the publicly traded common stock covered by this Report.
"UCAR GLOBAL" refers to UCAR Global Enterprises Inc. only. UCAR Global is a
direct, wholly owned subsidiary of UCAR and the direct or indirect holding
company for all our operating subsidiaries. UCAR Global was the issuer of our
previously outstanding 12% senior subordinated notes due 2005 (the "SUBORDINATED
NOTES") and was the primary borrower under our prior senior secured bank credit
facilities (the "PRIOR SENIOR FACILITIES").
"UCAR FINANCE" refers to UCAR Finance Inc. only. UCAR Finance is a direct wholly
owned special purpose finance subsidiary of UCAR and the borrower under our new
senior secured credit facilities (the "NEW SENIOR FACILITIES").
"GRAFTECH" refers to Graftech Inc. only. Graftech (formally know as UCAR
Graph-Tech Inc.) is our wholly owned operating subsidiary engaged in the
development, manufacture and sale of natural, acid-treated and flexible
graphite.
"CARBONE SAVOIE" refers to Carbone Savoie S.A.S. only. Carbone Savoie is a 70%
owned subsidiary engaged, along with two of our wholly owned subsidiaries, in
the development, manufacture and sale of graphite and carbon cathodes.
"SUBSIDIARIES" refers to those companies which, at the relevant time, were
majority owned or wholly owned directly or indirectly by UCAR or its
predecessors to the extent that those predecessors' activities related to the
graphite and carbon business. 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 September 30, 2000, except for:
o our Russian subsidiary, which was acquired in late 1996 and early
1997 and has been wholly owned since then,
o our German subsidiary, which was acquired in early 1997 and 70%
owned until early 1999, when it became wholly owned in order to
facilitate the cessation of its manufacturing operations,
o Carbone Savoie, which was acquired in early 1997 and has been 70%
owned since then, and
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PART I (CONT'D)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
o our South African subsidiary, which was 50% owned until April
1997, when it became wholly owned.
"WE", "US" or "OUR" refers collectively to UCAR and its subsidiaries or, if the
context so requires, UCAR, UCAR Global or UCAR Finance, individually.
"HOME MARKETS" refer to North America, Western Europe, Brazil and South Africa.
We have major manufacturing facilities located in each of these markets, and
these are our largest markets. All other markets are called "EXPORT MARKETS."
"FREE TRADING MARKETS" refers:
o in the case of the graphite electrode, natural, acid-treated and
flexible graphite and graphite specialties industries, the
entire world, excluding China, and
o in the case of the carbon electrode, graphite and carbon cathode
and carbon specialties industries, the entire world, excluding
China and the former Soviet Union.
We sometimes use this term when describing markets for various products because
information about excluded markets is believed to be unreliable or not readily
available. We believe that China is generally a net importer of graphite
electrodes.
PRESENTATION OF FINANCIAL, MARKET AND LEGAL DATA
We present our financial information on a consolidated basis. This means that we
consolidate financial information for all subsidiaries where our ownership is
greater than 50%. We use the equity method to account for 50% or less owned
interests, and 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 (until early 1999, in the case of our German subsidiary) in
those subsidiaries is reflected on the lines entitled "minority stockholders'
equity in consolidated entities" and "minority stockholders' share of income."
References to cost in the context of our low-cost producer strategy do not
include:
o the impact of special, non-recurring or unusual charges or
credits such as those related to lawsuits and claims,
restructurings, impairment losses or inventory write-downs, or
o the impact of accounting changes or expenses incurred in
connection with lawsuits initiated by us.
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PART I (CONT'D)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
Unless otherwise noted, all cost savings and reductions are estimates based on a
comparison to costs in 1998 or the 1998 fourth quarter (annualized) and on the
assumption that net sales and other operating conditions are the same in 1999,
2000, 2001, 2002 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.
Nothing contained herein shall be deemed to constitute an offer to sell or
solicitation of an offer to buy any securities.
Market data relating to the steel industry has been derived from publications by
the International Iron and Steel Institute and other industry sources as well as
our own estimates. Market data relating to the fuel cell industry has been
derived from publications by securities analysts relating to Ballard Power
Systems Ltd. ("BALLARD"), other industry sources and public filings, press
releases and other public documents of Ballard as well as our own estimates.
Market and market share data relating to the graphite and carbon industry as
well as cost information relating to our competitors has been derived from the
sources described above and public filings, press releases and other public
documents of our competitors as well as our own estimates. Although we believe
that this data is reliable, we cannot guarantee the accuracy or completeness of
this data and have not independently verified it. None of the sources mentioned
above has consented to the disclosure or use of data in this Report.
Unless otherwise noted, when we refer to dollars we mean U.S. dollars.
Reference is made to UCAR's Annual Report on Form 10-K for the year ended
December 31, 1999 (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. In addition, from time to time,
we or our representatives have made or may make other forward looking statements
orally or in writing. 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; strategic plans and programs;
impacts of regional and global economic conditions; restructuring, strategic
alliance, investment, acquisition, joint venture, operating, integration, tax
planning, rationalization, financial and capital projects; legal matters and
related costs; consulting fees and related projects; potential offerings, sales,
restructurings and other actions regarding debt or equity securities of our
subsidiaries; and future costs, cost savings and reductions, margins, earnings
and growth. The words "will," "may," "plan," "estimate," "project," "believe,"
"anticipate," "intend," "expect," "could," "should," "would" and similar
expressions identify some of these statements.
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PART I (CONT'D)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
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 or regional economic conditions may
not improve for our products 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 or reductions in graphite electrode manufacturing
capacity may not result in increased demand for, or price or
volume stability or increases for, graphite electrodes,
o the possibility that economic or technological development may
adversely affect the growth in the use of graphite cathodes in
lieu of carbon cathodes in the aluminum smelting process,
o the occurrence of unanticipated events or circumstances relating
to pending antitrust investigations, lawsuits or claims,
o the commencement of new investigations, lawsuits or claims
relating to the same subject matter as the pending
investigations, lawsuits or claims,
o the possibility that the lawsuit against our former parents
initiated by us could be dismissed or settled, our theories of
liabilities or damages could be rejected, material counterclaims
could be asserted against us, legal expenses and distraction of
management could be greater than anticipated, or unanticipated
events or circumstances may occur,
o the possibility of delays in or failure to achieve widespread
commercialization of proton exchange membrane ("PEM") fuel cells
which use flexible graphite-based flow field plates and the
possibility that manufacturers of PEM fuel cells using those
plates may obtain those plates or the flexible graphite used in
them from other sources,
o the possibility that we may not be able to protect our
intellectual property or that intellectual property used by us
infringes the rights of others,
o the possibility of delays in or failure to achieve successful
development and commercialization of new or improved products,
the possibility of delays in meeting or failure to meet
contractually specified development objectives and the possible
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PART I (CONT'D)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
inability to find and successfully complete expansion of
manufacturing capacity to meet growth in demand for new or
improved products, if any,
o the possibility that expected cost savings from our enhanced
global restructuring and rationalization plan, our POWER OF ONE
initiative, the restructuring of our graphite specialties
business and other cost reduction efforts will not be fully
realized,
o the possibility that we may incur unanticipated health, safety or
environmental compliance, remediation or other costs or
experience unanticipated labor difficulties,
o the occurrence of unanticipated events or circumstances relating
to strategic plans or programs, including completion of financial
alternatives to create more value for our stockholders from
Graftech, or relating to restructuring, strategic alliance,
investment, acquisition, joint venture, operating, capital,
integration, tax planning, financial or rationalization projects,
o changes in interest or currency exchange rates, changes in
competitive conditions, changes in inflation affecting our raw
material, energy or other costs, development by others of
substitutes for some of our products and other technological
developments,
o the possibility that changes in financial performance may affect
our compliance with financial covenants under the New Senior
Facilities, and
o other risks and uncertainties, including those described
elsewhere or incorporated by reference in this Report or the
Annual Report.
No assurance can be given that any future strategic alliance, joint venture,
investment or acquisition projects or any potential offering, sale or
restructuring will be completed or as to the timing or terms of any such
transaction.
All subsequent written and oral forward looking statements by or attributable to
us or persons acting on our behalf are expressly qualified in their entirety by
these factors. Except as otherwise required to be disclosed in 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.
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PART I (CONT'D)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
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 have a global business,
selling our products in more than 80 countries and owning 15 manufacturing
facilities located in Brazil, France, Italy, Mexico, Russia, Spain, South
Africa, and the U.S. 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, and includes Graftech, our
wholly owned operating subsidiary engaged in the development, manufacture and
sale of natural and acid-treated as well as flexible graphite.
Graphite electrodes 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 is used in gasket
and other sealing applications, as well as heat shielding applications,
primarily for internal combustion engines, pipe flanges, and chemical and
petrochemical industry process equipment. Our flexible graphite is a natural
graphite based product, while most of our other products are petroleum
coke-based products. We are developing applications for high quality, highly
engineered natural, acid-treated and flexible graphite products and solutions
for customers for applications in fuel cells, thermal management in computers
and other electronic devices, fire protection in construction and building
materials, energy management in devices such as batteries and supercapacitors,
and heat management in high temperature use industrial furnaces. In addition to
the steel and metals industries, we sell graphite and carbon 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.
Our strategic goal is to be the best global, low-cost manufacturer and customer
service-driven company with the best product performance in the graphite and
carbon industry.
We believe that, in addition to our large market shares, our strengths include:
o our global manufacturing base, which includes multiple, fully
integrated, state of the art facilities in diverse geographic
regions,
o our successful global restructuring, reengineering,
rationalization and integration projects and programs that have
generated cost savings, improved operating efficiencies and
reduced our cost structure for manufacturing graphite
electrodes and cathodes, which we believe is currently the
lowest among the major producers in the industry,
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PART I (CONT'D)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
o our management team,
o our exceptional customer service,
o our diversified customer base, and
o our technology and our product innovation and process
improvement capabilities.
To achieve our strategic goal, we are focusing significant efforts on further
reducing costs, improving operating efficiencies and improving product quality
and technical and commercial customer service. We are restructuring our carbon
and graphite specialties business and implementing a global business
transformation initiative entitled POWER OF ONE. We are pursuing strategic
alliances and growth opportunities that enhance or complement our existing
businesses. We are also focusing on developing new related products and
expanding applications for our existing products.
We seek to build on these strengths and use these strategies to generate revenue
growth, maximize free cash flow, reduce leverage and maintain and enhance gross
margins.
RESTRUCTURING, RATIONALIZATION AND COST SAVINGS PLANS
UCAR's Board of Directors adopted a global restructuring and rationalization
plan in September 1998, and we launched new initiatives to enhance the plan in
October 1999. We believe that the plan is the most aggressive major cost
reduction plan currently being implemented in the graphite and carbon industry.
We estimate that the enhanced plan will generate cost savings at an annualized
run rate of about $100 million by the end of 2000 (about $27 million higher than
at the end of 1999), $135 million by the end of 2001 and $165 million by the end
of 2002 and thereafter. We achieved actual cost savings of $73 million in 1999,
exceeding our original target of $64 million. We achieved actual cost savings
(including an annualized reduction in interest expense as a result of our debt
recapitalization completed in February 2000) of $68 million for the 2000 first
nine months.
The original plan included plant rationalization, plant cost reduction and
overhead cost reduction. The plant rationalization phase of the plan involved
the closure of our higher cost manufacturing facilities in Canada and Germany
and the downsizing of our manufacturing facilities in Russia. The overhead cost
reduction phase of the plan included consolidation and relocation of our
corporate headquarter functions to Nashville, Tennessee and our European
administrative functions in our Swiss subsidiary.
We believe that the cost savings under the original plan have enabled us to
strengthen our competitiveness. We also believe, however, that we must continue
to enhance our focus on cost savings to achieve the ultimate objectives of the
plan. Accordingly, in October 1999, we launched new initiatives that we estimate
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PART I (CONT'D)
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will generate additional cost savings at an annualized run rate of $30 million
by the end of 2002.
Cost savings are having a favorable impact on gross margin. We completed a
global benchmarking study during the 1999 third quarter that identified
opportunities for performance improvements and cost savings in certain key
global administrative and transaction processing functions. These opportunities
are being addressed by our POWER OF ONE initiative and should allow for
achievement of our target of reducing selling and administrative expenses to 8%
of net sales by the end of 2002, a reduction of almost 30% as compared to 1998.
We continue to evaluate and refine our debt, working capital and organizational
structures to improve cash management and reduce tax expense. The debt
recapitalization we completed in February 2000, along with our tax planning
initiatives, should allow us to benefit from our existing and anticipated tax
credits, helping us to achieve our targeted effective average annual tax rate of
25% over the four years ending 2002. The majority of the savings expected from
implementation of these initiatives are anticipated to be realized during 2001
and 2002.
Our enhanced plan targets the reduction of gross debt to $550 million by the end
of 2002 and a substantial reduction in annual interest expense. Our ability to
achieve these targets could be affected materially by such factors as changes in
market interest rate levels, further delays in completing or failure to complete
strategic alliance, joint venture or acquisition projects or financial
alternatives to create more value for our stockholders from Graftech, changes in
strategic plans or programs, or changes in conditions affecting us, our industry
or our cost saving, tax planning or other initiatives.
In support of our strategy, we have launched a global business transformation
initiative entitled POWER OF ONE. POWER OF ONE is a coordinated global
self-assessment and business process rationalization and transformation
initiative driving one consistent theme throughout our organization: "becoming
the best." We have mobilized global teams that are reassessing every aspect of
the way we do business. The initiative has already challenged and empowered our
workforce, identified business-to-business opportunities with existing and
potentially new trading partners, and established targets for improving quality,
speed and efficiency across our extended enterprise. The initiative will require
an investment of about $7 million in 2000, of which about $3 million are capital
expenditures, and a total investment of about $25 million over the three years
ending 2002. We believe, however, that most of this investment will be funded
from cost savings expected to be realized.
The POWER OF ONE initiative also includes evaluating every aspect of our supply
chain performance. We expect to achieve non-recurring improvement in cash flow
from operations by reducing inventories, as measured against inventory levels
and based on production levels for the 1999 first nine months (annualized), by
over 20% (or $50 million), reducing inventories to about $180 million and
reducing our cash cycle time by about one-third by the end of 2002.
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PART I (CONT'D)
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During late 1999, our graphite specialties business, which accounted for about
9% of our net sales in 1999, experienced significant adverse change due to a
decline in demand for graphite specialties (particularly from certain segments
of the semiconductor industry), growth in supply due to expansion by other
producers, a decline in prices for graphite specialties, and delays in bringing
new and improved products to market. The assets and inventory of this business
are located primarily at our plant in Clarksburg, West Virginia. Since the
future estimated undiscounted cash flows expected to result from the use of
these assets were below their respective carrying amounts, in the 1999 fourth
quarter we wrote down the carrying value of these assets to their fair market
value. Due to these same factors, in February 2000, we announced that we would
restructure the business. The key elements of the restructuring consist of
elimination of certain product lines, and rationalization of operations to
reduce costs and improve profitability of remaining product lines, including
demolition of certain buildings. Accordingly, in the 2000 first quarter, we
recorded a restructuring charge of $6 million, primarily for severance costs for
65 employees and demolition and related environmental costs. We expect the
restructuring to generate cost savings at an annual run rate of $7 million by
the end of 2001. Subsequently, in 2000 third quarter, we decided not to demolish
the buildings. Therefore, we reversed $4 million of the charge that related to
demolition and related environmental costs.
DEVELOPMENTS RELATING TO OUR GRAPHITE ELECTRODE BUSINESS
We are realigning some of our global manufacturing capacity for graphite
electrodes to our other product lines to optimize our total manufacturing
capabilities in order to seek to maximize profitability. In response to growing
global demand for graphite cathodes from aluminum producers, we have resourced
our U.S. cathode production to our facility in Brazil and one of our facilities
in France. In addition, in connection with the restructuring of our graphite
specialties business, we are transferring the majority our graphite specialties
production from our facility in Clarksburg, West Virginia to the same facility
in France. Certain equipment previously used in Brazil and France to produce
graphite electrodes will now be used to produce graphite cathodes and graphite
specialties. As a result of these actions, our annual graphite electrode
manufacturing capacity will be permanently reduced by about 15,000 metric tons,
to 230,000 metric tons of rated capacity from about 275,000 metric tons of rated
capacity in 1998. Effective capacity is about 95% of rated capacity, so our
effective capacity is now about 220,000 metric tons.
We expect investments required to accommodate these realignments to be funded
from our normal capital expenditure program. We recorded a restructuring charge
of $3 million in the 2000 third quarter in connection with these realignments.
This was a non-cash charge related to the write-off of certain fixed assets
located at our facility in the U.S. These realignments, including completion of
the restructuring of our graphite specialties business, will take three to six
months to fully implement.
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PART I (CONT'D)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
In October 2000, we signed a letter of intent to enter into production and
marketing joint ventures with Jilin Carbon Company ("JILIN") to produce and sell
ultra-high power graphite electrodes in China. It is believed to be the largest
graphite electrode market in the world. Jilin is the largest producer of
graphite electrodes and other graphite and carbon products in China. It produces
about 50,000 metric tons of graphite electrodes annually, and the production
joint venture is expected to replace about 50% of that production with higher
quality and better performing ultra high power graphite electrodes.
The production joint venture is expected to have capacity to manufacture 20,000
metric tons of graphite electrodes annually and to be configured so as to be
expandable to 30,000 metric tons. The production joint venture is expected to
utilize renovated capacity at Jilin's main facility in Jilin City and to
complete additions at another site in Changchun that were begun by Jilin. The
first phase of renovations is expected to be completed by mid-2001. We will
provide cash and technical assistance for a 25% ownership interest in the
production joint venture. The parties intend to form a separate equally owned
joint venture to market and sell the graphite electrodes produced by the
production joint venture. These transactions are subject to customary terms and
conditions, including negotiation of definitive agreements, completion of due
diligence, and receipt of necessary governmental and corporate approvals.
DEBT RECAPITALIZATION
In February 2000, we completed a debt recapitalization. We obtained the New
Senior Facilities, which consist of a $300 million, six year tranche A term loan
facility, a $350 million, eight year tranche B term loan facility and a $250
million, six year revolving credit facility. The tranche A and revolving
facilities are dollar/euro dual currency facilities. We used the net proceeds of
the New Senior Facilities to terminate and repay about $490 million of term debt
outstanding under the Prior Senior Facilities, to redeem all $200 million of the
Subordinated Notes outstanding at a redemption price of 104.5% of the principal
amount redeemed, plus accrued interest, to replace the outstanding borrowings
under our old revolving credit facility, to repay certain other debt and to pay
related expenses.
The debt recapitalization:
o lowered our average interest rate (at market interest rate levels
prevailing at the time of the debt recapitalization) by about 200
basis points (equivalent to a reduction of interest expense of
about $10 million for 2000 and $12 million on an annualized basis
at debt levels prevailing at the time of the debt
recapitalization),
o extends the average maturities of our debt,
o enables us to repay our debt without penalty or premium, and
o increases our ability to repurchase common stock, make
acquisitions and pursue strategic initiatives.
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PART I (CONT'D)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
We recorded an extraordinary charge of $13 million, net of tax, in connection
with our debt recapitalization. The charge includes the redemption premium on
the Subordinated Notes, bank, legal, accounting, filing and other fees and
expenses, and write-off of deferred debt issuance costs.
In October 2000, our New Senior Facilities were amended to, among other things,
increase the maximum leverage ratio permitted thereunder through June 30, 2001.
In connection therewith, we paid an amendment fee of $2 million and increased
the maximum margin which is added to either euro LIBOR or the alternate base
rate in order to determine the interest rate payable thereunder by 25 basis
points (equivalent to an increase in interest expense of about $2 million on an
annualized basis at debt levels prevailing at the time of the debt
recapitalizaion).
DEVELOPMENTS RELATING TO GRAFTECH
In February 2000, we announced that we were studying a number of financial
alternatives to create more value for our stockholders from Graftech.
Subsequently, we announced that we intended to proceed with an initial public
offering of common stock of Graftech. In connection therewith, Graftech filed a
registration statement with the SEC. We also announced that Graftech had entered
into a memorandum of understanding with Mazarin Mining Corporation relating to
possible development of a natural graphite flake deposit in Canada as a source
of high quality, low cost raw material for Graftech.
In June 2000, pursuant to the memorandum of understanding, we purchased from
Mazarin common stock representing about 4% of its outstanding common stock and
warrants to purchase common stock representing about another 4% of its common
stock, for an aggregate of $1 million.
In August 2000, we announced that we were postponing the offering because, under
then current market conditions, we did not believe that the pricing in the
offering would reflect the true enterprise value of Graftech. Accordingly, we
did not believe it was in the long-term best interest of UCAR stockholders to
complete the offering at that time. We will record a charge for costs incurred
in connection with the offering if we do not proceed with the offering.
In 2000, Graftech commenced installation of a new advanced flexible graphite
manufacturing line at our facility in Parma, Ohio. This manufacturing line is
expected to produce products for Ballard and other customers, and installation
is expected to be completed in the 2001 first quarter. We expect to invest $9
million in connection with the installation of this manufacturing line. Graftech
continues to pursue business opportunities relating to applications for flexible
graphite in thermal management, fire protection and energy management as well as
strengthening its relationship with Ballard.
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PART I (CONT'D)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
LITIGATION MATTERS
In February 2000, we commenced a lawsuit against our former parents, Mitsubishi
Corporation ("MITSUBISHI") and Union Carbide Corporation ("UNION CARBIDE"). In
the lawsuit, we allege, among other things, that certain payments made to our
former parents were unlawful, that our former parents were unjustly enriched by
receipts from their investments in us and that our former parents aided and
abetted breaches of fiduciary duties owed to us by our former senior management
in connection with illegal graphite electrode price fixing activities. We are
seeking to recover more than $1.5 billion in damages, including interest. We
expect to incur $10 million to $20 million in legal expenses to pursue this
lawsuit through trial.
Since 1997, we have been served with subpoenas, search warrants and information
requests by antitrust authorities in the U.S., 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 and carbon electrodes in the U.S. and elsewhere. We
recorded a 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 law 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 (the "DOJ FINE"), of which $91 million is treated as a fine
and $19 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 law 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 in connection with antitrust investigations or
related lawsuits or claims contain restrictions on future prices of our graphite
electrodes. Actual liabilities and expenses could be materially higher than such
reserve. The guilty pleas make it more difficult to defend against other
investigations, lawsuits and claims.
GLOBAL ECONOMIC CONDITIONS
We are a global company and serve most geographic markets worldwide.
Accordingly, we are 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 steel and other metals,
semiconductors and certain other products made by our customers. This adversely
affected demand and pricing for graphite electrodes and most of our other
products. These circumstances negatively impacted our results of operations in
1998 and 1999.
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PART I (CONT'D)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
In the 1999 second quarter, worldwide electric arc furnace steel production
began to gradually recover as a result of the strength of the U.S. and European
economies and the beginning of recovery in other areas of the global economy.
Also, in 1999, worldwide production by customers for many of our other products
began to gradually recover.
We benefited from that recovery. Our volume of graphite electrodes sold in our
home markets gradually increased and, in the 2000 second quarter, exceeded 1998
and 1999 levels. We announced graphite electrode price increases for various
geographic markets in April, June, July, August and September 2000 for
implementation in the 2000 second half and in 2001. Our average graphite
electrode prices in the 2000 third quarter were still 10% below those in the
1999 third quarter.
During 2000, demand for most of our other products has been relatively stable.
In particular, we have seen steady demand for graphite cathodes from the
aluminum industry. However, demand for graphite specialties, particularly from
certain segments of the semiconductor industry, and for certain products sold to
the silicon metals industry, has remained weak and demand for flexible graphite
used for end-user industrial and automatic gasket sealing applications has
weakened. Pricing for most products in our graphite and carbon products business
segment has not strengthened.
In the 2000 third quarter, the U.S. and European economies appear to be
weakening, and this is directly or indirectly affecting most of the worldwide
markets for steel and other metals and products made by our customers. This has
and is expected to continue to adversely affect demand and pricing for graphite
electrodes and many of our other products. These circumstances negatively
impacted our results of operations in the 2000 third quarter and are expected to
continue to do so in 2000 fourth quarter and early 2001.
OUTLOOK
During 1997 through 1999, we estimate that an aggregate of about 53 million
metric tons of net new electric arc furnace steelmaking capacity was added
worldwide. We estimate that about 18 million metric tons of that net new
capacity was added in 1999. Further, we believe that a portion of the net new
capacity added in the last three years has not yet become fully operational. We
are aware of about 13 million metric tons of announced net new electric arc
furnace steelmaking production capacity that has been or is scheduled to be
added in 2000 and about 35 million metric tons that is scheduled to be added in
2001 through 2003.
We believe that the graphite electrode manufacturing capacity utilization rate
in the free trading markets was about 91% in 1997, about 85% in 1998, about 87%
in 1999 and about 95% in the 2000 first nine months. Since September 1998, we
have reduced our annual graphite electrode manufacturing capacity by about
45,000 metric tons. We believe that this reduction represented about 6% of
estimated graphite electrode manufacturing capacity in the free trading markets.
Since September 1998, two of our competitors have reduced their annual graphite
electrode manufacturing capacity. Their announced reductions total more than
28,000 metric tons.
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PART I (CONT'D)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
We announced a price increase of [euro]/$150 per metric ton in April 2000 and a
second price increase in July 2000, which together bring the base price up to
[euro]/$2,850 per metric ton for graphite electrodes sold in Western Europe and
up to $2,850 per metric ton in Eastern Europe, Middle East, North Africa and
Asia Pacific (excluding Japan). In June 2000, we announced a $150 per metric ton
price increase for graphite electrodes sold in the U.S. and Canada, bringing the
base price up to $2,975 per metric ton. We have received orders for over 10,000
metric tons of graphite electrodes at the new higher prices, most of which is
expected to be shipped in the 2001 fourth quarter. However, with the majority of
our net sales for the 2000 fourth quarter having been received, we expect that
these price increases will have only limited positive impact on 2000 fourth
quarter net sales. Nonetheless, these price increases should set a positive
stage for price negotiations with customers for 2001. As is typically the case,
we expect these negotiations to occur in the 2000 fourth quarter. The strength
of the dollar as compared to the euro and other currencies in which we sell our
products, as well as competitive pressures, could continue to adversely affect
prices of our graphite electrodes as translated into dollars. This could
adversely affect our earnings in future quarters.
We expect demand for our graphite electrodes in the 2000 fourth quarter and
early 2001 to be adversely affected by a slowdown in global steel production as
well as our efforts to increase graphite electrode prices. We believe that
global steel production is declining due to overproduction in the 2000 first
half as well as weakness in the U.S. and European economies. In anticipation of
possible lower demand next year and continuing our efforts to reduce
inventories, we have reduced operating levels at certain of our facilities,
including layoff of about 70 production employees in North America. Nonetheless,
steel consumption is forecasted by industry sources to rise by another 2% in
2001 from the record levels of 2000. Accordingly, we believe that, once the
steel supply/demand imbalance resulting from overproduction is corrected, demand
for our graphite electrodes will remain stable, assuming that U.S., European and
other regional economies do not experience substantial additional weakness. We
expect to see improvements in selling prices to customers as we continue to
implement our announced price increases next year.
We believe that, on the whole, assuming that U.S., European and other regional
economies do not experience substantial additional weakness, demand for most of
our graphite and carbon products will remain relatively steady in the 2000
fourth quarter and 2001. We have initiated price increases for our cathodes and
graphite specialties. We expect 2000 fourth quarter results for our graphite and
carbon products to be similar to 2000 first nine months results and believe that
the gross profit margin for our graphite and carbon products should improve
going into 2001. Following completion of the restructuring of our graphite
specialties business, we expect its gross profit margin to return to or exceed
the early 1999 level by the end of 2001.
While we continue to implement our strategies, including formation of strategic
alliances, supply chain optimization, working capital and capital structure
improvements, and other cost savings measures, we expect to be impacted by
energy, petroleum products and other inflationary cost increases in the 2000
fourth quarter and 2001.
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PART I (CONT'D)
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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 use various off-balance sheet financial instruments to attempt to hedge these
exposures. To account for translation of foreign currencies into 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 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 1999 and 2000 first nine months, many of the currencies in which we
manufacture and sell our products weakened against the dollar. The most
significant consisted of the weakening of the euro, which devalued about 18%
against the dollar in 1999 and about 12% in the 2000 first nine months, the
weakening of the Brazilian currency, which devalued about 49% against the dollar
during 1999 and about 3% in the 2000 first nine months, and the weakening of the
South African currency, which devalued about 15% in 2000 first nine months.
HIGHLIGHTS OF THIRD QUARTER OPERATING RESULTS
Net sales decreased by $7 million and, primarily as a result, gross profit
decreased by $3 million (and gross profit margin decreased from 28.1% of net
sales to 27.6% of net sales) and operating profit decreased by $2 million (and
operating profit margin decreased to 16.0% of net sales from 17.0% of net
sales), in each case as compared to the 2000 second quarter. However, interest
expense was stable and total overhead decreased by $1 million in the 2000 third
quarter as compared to the 2000 second quarter. Further, net debt decreased by
$17 million at the end of the 2000 third quarter as compared to the end of the
2000 second quarter. Earnings for the 2000 third quarter were $7 million, or
$0.16 per diluted share, as compared to 2000 second quarter earnings of $11
million, or $0.24 per diluted share.
GRAPHITE ELECTRODE BUSINESS SEGMENT. Graphite electrode net sales decreased to
$132 million in the 2000 third quarter from $137 million in the 2000 second
quarter, primarily due to a decrease in sales volume. The decrease in sales
volume was primarily attributable to a slowdown in production by electric arc
furnace steel producers in North America and postponement of shipments to Europe
due to transport strikes relating to the oil crisis. The volume of graphite
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PART I (CONT'D)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
electrodes sold during the 2000 third quarter was 53,900 metric tons, as
compared to 56,800 metric tons in the 2000 second quarter. This reduced net
sales by $7 million. The impact of decreased sales volume was partially offset
by an increase in average prices. The average sales revenue per metric ton in
dollars of graphite electrodes in the 2000 third quarter was $2,406 as compared
to the average in the 2000 second quarter of $2,374. The increase was primarily
due to changes in product mix and price increases, partially offset by changes
in currency exchange rates.
Gross profit for this segment in the 2000 third quarter was $37 million (28.0%
of net sales) as compared to 2000 second quarter gross profit of $41 million
(29.9% of net sales). Cost of sales was negatively impacted by production
inefficiencies and increased energy costs, which more than offset a favorable
impact of changes in currency exchange rates and cost savings initiatives. This
resulted in an increase in cost of sales of $70 per metric in the 2000 third
quarter as compared to the 2000 second quarter.
GRAPHITE AND CARBON PRODUCTS BUSINESS SEGMENT. Net sales of the graphite and
carbon products segment decreased to $60 million in the 2000 third quarter from
$62 million in the 2000 second quarter. The decrease was primarily due to a
decrease in sales volume of cathodes attributable to seasonality and changes in
product mix and, to a lesser extent, a decrease in sales volume of cathodes and
flexible graphite products sold to Graftech's historical sealing market and
changes in currency exchange rates. The decrease was partially offset by an
increase in net sales in refractories and other product lines.
Gross profit for this segment in the 2000 third quarter was $16 million (26.7%
of net sales) as compared to 2000 second quarter gross profit of $15 million
(24.2% of net sales). The increase in gross profit and gross profit margin was
due primarily to increased net sales of refractories, cost improvements
resulting from the restructuring of our graphite specialties business and cost
reduction programs, partially offset by lower net sales.
OTHER ITEMS. Total selling, administrative and other expenses were $20 million
in the 2000 third quarter, a decrease of $3 million from $23 million in the 2000
second quarter, primarily due to reduced spending. Other income was $1 million
lower in the 2000 third quarter than in the 2000 second quarter, primarily due
to lower non-recurring insurance benefits, net of continuing legal expenses
related to our litigation against our former parents and consulting expenses
related to POWER OF ONE. For the 2000 third quarter, the effective income tax
rate recorded was 41%, excluding the impact of special charges. This tax rate
brings the effective income tax rate for the year up to 30%. The increase in the
yearly tax rate is due to a higher percent of income in foreign jurisdictions
with higher tax rates than we had anticipated. This was partially offset by a
$20 million reduction in the 2000 third quarter of the deferred tax asset
valuation allowance on foreign tax credits. This reduction was based on a
reassessment in the 2000 third quarter of our U.S. tax profile and associated
tax planning strategies.
Cash flow from operations was a positive $18 million in the 2000 third quarter,
before antitrust fines and net settlement and expense payments of $1 million and
restructuring payments of $2 million. Net working capital decreased by $4
million in the 2000 third quarter as compared to the 2000 second quarter, before
antitrust fines, net settlement and expense payments and restructuring payments.
Cash flow from working capital was favorably affected by an increase in accounts
payable and accruals and a decrease in inventories. Cash and cash equivalents
totaled $11 million at September 30, 2000. Net debt (total debt less cash, cash
equivalents and short-term investments) was $711 million at September 30, 2000,
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PART I (CONT'D)
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a decrease of $17 million from June 30, 2000. The $17 million reduction was
primarily due to currency translation of euro denominated debt as well as
repayment of $2 million of principal.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000 AS COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1999
Net sales of $192 million in the 2000 third quarter represented a $18 million,
or 9%, decrease from $210 million in the 1999 third quarter. Gross profit of $53
million in the 2000 third quarter represented a $17 million, or 24%, decrease
from $70 million in the 1999 third quarter. Gross profit margin was 27.6% in the
2000 third quarter as compared to 33.3% in the 1999 third quarter.
The decrease in net sales and gross profit was primarily due to lower average
sales revenue per metric ton in dollars.
GRAPHITE ELECTRODE BUSINESS SEGMENT. Net sales of the graphite electrode
business segment declined to $132 million in the 2000 third quarter from $144
million in the 1999 third quarter, primarily due to lower average prices,
changes in product mix and changes in currency exchange rate, partially offset
by increased sales volume. The average sales revenue per metric ton in dollars
of graphite electrodes in the 2000 third quarter was $2,406 as compared to the
1999 third quarter average of $2,662. About 50% of the decline was due to lower
average selling prices and changes in product mix, with the balance due to
changes in currency exchange rates. The volume of graphite electrodes sold
during the 2000 third quarter was 53,900 metric tons, an increase of 2% from the
53,100 metric tons sold in the 1999 third quarter. The lower average sales
revenue per metric ton in dollars reduced net sales by $14 million, and the
higher sales volume increased net sales by $2 million.
Gross profit for this segment in the 2000 third quarter was $37 million (28.0%
of net sales) as compared to gross profit in the 1999 third quarter of $51
million (35.4% net sales). The decrease in gross profit and gross profit margin
was largely due to lower net sales, which more than offset the benefits of
higher production levels on cost per metric ton and cost reduction programs.
Cost of sales also benefited from changes in currency exchange rates.
GRAPHITE AND CARBON PRODUCTS BUSINESS SEGMENT. Net sales of the graphite and
carbon products business segment declined to $60 million in the 2000 third
quarter from $66 million in the 1999 third quarter. While net sales in each of
the major product lines in this segment decreased, most of the change resulted
from the elimination of certain product lines related to the restructuring of
our graphite specialties business, lower prices for most of our products and
changes in currency exchange rates.
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Gross profit for this segment in the 2000 third quarter was $16 million (26.7%
of net sales) as compared to 1999 third quarter gross profit of $19 million
(28.8 percent of net sales). The decrease in gross profit and gross profit
margin of $3 million was mainly due to lower net sales, partially offset by the
positive impact of changes in currency exchange rates on cost of sales.
OPERATING PROFIT FOR US AS A WHOLE. Operating profit in the 2000 third quarter
was $31 million, or 16.2% of net sales, as compared to $41 million, or 19.5% of
net sales, after a charge of $13 million in connection with the settlement of
securities class action and stockholder derivative lawsuits and a credit of $6
million in connection with graphite and carbon products business segment
restructurings, in the 1999 third quarter. The decrease in operating profit was
primarily due to lower gross profit.
Selling, administrative and other expense was stable at $20 million in both the
2000 third quarter and 1999 third quarter. Increased costs related to the POWER
OF ONE initiative were offset by cost savings.
Other (income) expense (net) was nil in the 2000 third quarter as compared to
income of $1 million in the 1999 third quarter.
OTHER ITEMS AFFECTING US AS A WHOLE. Interest expense decreased to $18 million
in the 2000 third quarter from $20 million in the 1999 third quarter. The
decrease was primarily due to lower average interest rates due to our debt
recapitalization in February 2000 and lower total debt. Average outstanding
total debt was $783 million in the 2000 third quarter as compared to $768
million in the 1999 third quarter. The average annual interest rate was 8.2% in
the 2000 third quarter as compared to 9.6% in the 1999 third quarter. These
average annual interest rates exclude imputed interest on the DOJ fine.
Provision for income taxes was $5 million in the 2000 third quarter as compared
to nil in the 1999 third quarter. The effective income tax rate for the 2000
third quarter was 41%, excluding special charges (credits), as compared to the
rate for the 1999 third quarter of 15%. The increase in the tax rate is due to
the fact that we had a higher percent of income in foreign jurisdictions with
higher tax rates than we had anticipated. This was partially offset by a $20
million reduction in the 2000 third quarter of the deferred tax asset valuation
allowance on foreign tax credits. This reduction was based on a reassessment in
the 2000 third quarter of our U.S. tax profile and associated tax planning
strategies.
As a result of the changes described above, net income was $7 million in the
2000 third quarter, a decrease of 67% from net income of $21 million in the 1999
third quarter.
NINE MONTHS ENDED SEPTEMBER 30, 2000 AS COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1999
Net sales of $586 million in the 2000 first nine months represented a $37
million, or 6%, decrease from $623 million in the 1999 first nine months. Gross
profit of $166 million in the 2000 first nine months represented a $40 million,
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UCAR INTERNATIONAL INC. AND SUBSIDIARIES
or 19%, decrease from $206 million in the 1999 first nine months. Gross profit
margin was 28.3% in the 2000 first nine months as compared to 33.1% in the 1999
first nine months.
The decrease in net sales and gross profit was primarily due to lower average
sales revenue per metric ton in dollars, partially offset by higher volumes
sold. Cost savings programs generated savings of $68 million in the 2000 first
nine months. This represented $13 million of incremental savings from the 1999
actual savings (annualized), and we expect to achieve the $20 million of
incremental savings (annualized) targeted for 2000.
GRAPHITE ELECTRODE BUSINESS SEGMENT. Net sales of the graphite electrode
business segment declined to $398 million in the 2000 first nine months from
$417 million in the 1999 first nine months, primarily due to lower average
prices, changes in product mix and changes in currency exchange rates, partially
offset by increased sales volume. The average sales revenue per metric ton in
dollars of graphite electrodes in the first 2000 nine months was $2,420 as
compared to average in the 1999 first nine months of $2,701. About 50% of the
decline was due to lower average selling prices and changes in product mix, with
the balance due to changes in currency exchange rates. The volume of graphite
electrodes sold during the 2000 first nine months was 161,900 metric tons, an
increase of 7% from 151,000 metric tons in the 1999 first nine months. The lower
average sales revenue per metric ton in dollars reduced net sales by $46
million, and the higher sales volume increased net sales by $27 million.
Gross profit for this segment in the first 2000 nine months was $118 million
(29.6% of net sales) as compared to gross profit in the 1999 first nine months
of $149 million (35.7% of net sales). The decrease in gross profit and gross
profit margin was largely due to lower net sales and higher cost of sales due to
higher production levels, which more than offset the benefits of cost reduction
programs. Cost of sales also benefited from changes in currency exchange rates.
GRAPHITE AND CARBON PRODUCTS BUSINESS SEGMENT. Net sales of the graphite and
carbon products business segment declined to $188 million in the 2000 first nine
months from $206 million in the 1999 first nine months. While net sales in each
of the major product lines in this segment decreased, most of the change
resulted from the elimination of certain product lines related to the
restructuring of our graphite specialties business, lower selling prices for
cathodes and carbon electrodes, and changes in currency exchange rates which
more than offset increases in sales volume of cathodes and carbon electrodes.
Gross profit for this segment in the 2000 first nine months was $48 million
(25.5% of net sales) as compared to gross profit in the 1999 first nine months
of $57 million (27.7% of net sales). The decrease in gross profit and gross
profit margin was mainly due to lower net sales.
OPERATING PROFIT FOR US AS A WHOLE. Operating profit was $88 million, or 15.0%
of net sales, in the 2000 first nine months as compared to $134 million, or
21.5% of net sales, after a charge of $13 million in connection with the
settlement of securities class action and stockholder derivative lawsuits and a
credit of $6 million in connection with graphite and carbon products business
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PART I (CONT'D)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
segment restructurings, and after income of $7 million in the 1999 first nine
months. The decrease in operating profit and operating profit margin was
primarily due to lower gross profit.
Selling, administrative and other expense was $67 million in the 2000 first nine
months, an increase of $2 million, or 3%, from $65 million in the 1999 first
nine months. The increase was attributable primarily to costs associated with
the POWER OF ONE initiative and an increase in the number of administrative
employees, partially offset by cost savings.
Other (income) expense (net) was income of $1 million in the 2000 first nine
months as compared to income of $7 million in the 1999 first nine months. Other
income in the 1999 first nine months included a gain of $2 million from the sale
of our spray cooled systems business. Other income in the 2000 first nine months
included nonrecurring insurance benefits and favorable net currency transaction
and translation gains partially offset by legal expenses related to the lawsuit
against our former parents, reduced interest income and reduced miscellaneous
asset sales.
OTHER ITEMS AFFECTING US AS A WHOLE. Interest expense decreased to $57 million
in the 2000 first nine months from $64 million in the 1999 first nine months.
The decrease was due to lower average interest rates due to our debt
recapitalization in February 2000 and lower average outstanding total debt.
Average outstanding total debt was $770 million in the 2000 first nine months as
compared to $825 million in the 1999 first nine months. The average annual
interest rate was 9.2% in the 2000 first nine months as compared to 9.9% in the
1999 first nine months. These average annual interest rates exclude imputed
interest on the DOJ fine.
Provision for income taxes was $9 million in the 2000 first nine months as
compared to $13 million in the 1999 first nine months. The effective income tax
rate for the 2000 first nine months was 30% as compared to the rate for the 1999
first nine months of 23%, excluding special charges (credits). The increase in
the effective tax rate is due to the fact that we had a higher percent of income
in foreign jurisdictions with higher tax rates than we had anticipated. This was
partially offset by a $20 million reduction in the 2000 third quarter of the
deferred tax asset valuation allowance on foreign tax credits. This reduction
was based on a reassessment in the 2000 third quarter of our U.S. tax profile
and associated tax planning strategies.
In the 2000 first nine months, we recorded an extraordinary charge of $13
million, net of tax, for costs, fees and expenses in connection with our debt
recapitalization in February 2000.
As a result of the changes described above, net income before extraordinary item
was $20 million in the 2000 first nine months, a decrease of 64% from net income
of $55 million in the 1999 first nine months.
LIQUIDITY AND CAPITAL RESOURCES
Our sources of funds have consisted principally of invested capital, cash flow
from operations and debt financing. Cash flow for 2000 third quarter from
operations was $17 million (before antitrust fines and net settlement and
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PART I (CONT'D)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
expense payments of $1 million and restructuring payments of $3 million), and
$62 million for the 2000 first nine months (before antitrust fines and net
settlement and expense payments of $17 million and restructuring payments of $6
million). 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 investigations, lawsuits and claims.
We are highly leveraged and have substantial obligations in connection with
investigations, lawsuits and claims. We had total debt of $722 million at both
September 30, 2000 and December 31, 1999 and stockholders' deficit of $313
million at September 30, 2000 as compared to a deficit of $293 million at
December 31, 1999. Cash and cash equivalents and short-term investments were $11
million at September 30, 2000 as compared to $20 million at December 31, 1999.
At September 30, 2000, there was an aggregate of $91 million of borrowings
outstanding under our revolving credit facility. Net debt (total debt net of
cash, cash equivalents and short-term investment) was $711 million at September
30, 2000 as compared to $702 million at December 31, 1999. The increase in net
debt was primarily due to the scheduled third installment of $15 million of the
DOJ fine paid in April 2000, partially offset by the impact of translation of
euro denominated debt. Our liquidity and financial position continue to be
impacted by obligations arising out of antitrust investigations, lawsuits and
claims as well as our financial performance.
CASH FLOW PROVIDED BY OPERATING ACTIVITIES
Cash flow provided by operating activities was $40 million in the 2000 first
nine months as compared to $60 million in the 1999 first nine months. The $20
million decrease in cash flow was due primarily to lower net income before
restructuring charges (credits) and an extraordinary charge, net of tax, for
costs, fees and expenses in connection with our debt recapitalization in
February 2000. Cash flow used in working capital declined by $13 million to $32
million in the 2000 first nine months as compared to $45 million in the 1999
first nine months. The benefits of a reduction in payments for antitrust
investigations and related lawsuits and claims, net, and in restructuring
payments was partially offset by higher inventories before giving effect to
changes in currency exchange rates. Global work process improvements and supply
chain optimization efforts helped to achieve record low inventories of $195
million at September 30, 2000, after giving effect to changes in currency
exchange rates, as compared to a peak of $264 million at the end of 1998. Our
first successful graphite electrode facility implementation of lean
manufacturing and demand-pull processes occurred in the 2000 third quarter.
These activities are currently in process across our global manufacturing
network, and we are expected to result in further inventory reductions through
2001.
CASH FLOW USED IN INVESTING ACTIVITIES
Cash flow used in investing activities was relatively stable at $34 million for
the 2000 first nine months and $33 million for the 1999 first nine months. Most
of the cash flow used in investing activities in both periods was used for
capital expenditures. Capital expenditures in the 2000 first nine months were $7
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PART I (CONT'D)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
million lower than in the 1999 first nine months. In the 2000 first nine months,
we used $1 million to purchase common stock and warrants of Mazarin Mining
Corporation. In the 1999 first nine months, we received $3 million from the sale
of our spray-cool systems business.
CASH FLOW USED IN FINANCING ACTIVITIES
Cash flow used in financing activities was $11 million for the 2000 first nine
months as compared to $70 million in the 1999 first nine months. In the 1999
first nine months, we reduced our total debt from the beginning of the period to
the end of the period by $69 million. In the 2000 first nine months, we
increased our total debt by $15 million. We incurred $26 million ($13 million,
net of tax) of costs, fees and expenses in connection with our debt
recapitalization in February 2000.
ACCOUNTING MATTERS
In 1998, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") 133, "Accounting for Derivative Instruments and
Hedging Activities," which requires that an entity recognize all derivative
instruments as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. SFAS 133, as amended by
SFAS 137, "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133," and SFAS 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities -
an amendment of FASB Statement No. 133," 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 and results of operations in the
period of adoption.
In 1999, the staff of the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") 101, "Revenue Recognition in Financial Statements,"
which summarizes the staff's views regarding the application of generally
accepted accounting principles to selected revenue recognition issues. We are
evaluating whether SAB 101 will require any change in our revenue recognition
policies and procedures.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks primarily from changes in interest rates and
currency exchange rates. To manage our exposure to these changes, we routinely
enter into various transactions that have been authorized according to
documented policies and procedures. We do not use derivatives for trading or
speculative purposes or to generate income.
Our exposure to changes in interest rates results primarily from floating rate
long-term debt tied to LIBOR or euro LIBOR. We enter into agreements with
financial institutions which are intended to limit, or cap, our exposure to
incurrence of additional interest expense due to increases in variable interest
rates. During 1997, we purchased interest rate caps on up to $250 million of
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PART I (CONT'D)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
debt, limiting the floating interest rate factor on this debt to a
weighted-average rate of 8.2% for the period commencing February 1998 and
continuing through various dates ending February 2001. In February 1999, we
purchased interest rate caps on $470 million of debt, limiting the floating
interest rate factor on this debt to 5.1% through 1999. In the 2000 first
quarter, we purchased interest rate caps on $346 million of debt and entered
into interest rate swaps for $100 million of debt, limiting the floating
interest rate factor on this debt to 6.5% through various dates ending in
February 2001. Fees related to these agreements are charged to interest expense
over the term of the agreements.
Our exposure to changes in currency exchange rates results primarily from:
o investments in our foreign subsidiaries and in our share of the
earnings of those subsidiaries, which are denominated in
local currencies,
o raw material purchases made by our foreign subsidiaries in a
currency other than the local currency, and
o export sales made by our subsidiaries in a currency other than the
local currency.
When we deem it appropriate, we may attempt to limit our risks associated with
changes in currency exchange rates through both operational and financial market
activities. Financial instruments are used to attempt to hedge existing
exposures, firm commitments and, potentially, anticipated transactions. We use
forward, option and swap contracts to reduce risk by essentially creating
offsetting currency exposures. We held contracts for the purpose of hedging
against these risks with an aggregate notional amount of about $449 million at
September 30, 2000 and $233 million at December 31, 1999. All of our contracts
mature within one year. All of our contracts are marked-to-market and,
accordingly, transaction gains and losses are reflected in the Consolidated
Statements of Operations. Unrealized gains and losses on our outstanding
contracts were $7 million unrealized gain at December 31, 1999 and $6 million
unrealized loss at September 30, 2000.
We used a sensitivity analysis to assess the potential effect of changes in
currency exchange rates and interest rates on reported earnings for the 2000
first nine months (annualized), assuming such changes had occurred on September
30, 2000. Based on this analysis, a hypothetical 10% weakening or strengthening
in the dollar would have resulted in a change in our annualized earnings of
about $3 million to $6 million. A hypothetical increase in interest rates of 100
basis points across all maturities would have increased our annual interest
expense by about $7 million.
During the 2000 first nine months, many of the currencies of countries in which
we manufacture and sell our products weakened against the dollar. The most
significant change occurred relative to the euro, which devalued by about 12%
against the dollar in the 2000 first nine months. These currency changes
resulted in a $28 million reduction in stockholders' equity in the 2000 first
nine months due to cumulative translation adjustments.
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PART II. (CONT'D)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
ITEM 1. LEGAL PROCEEDINGS
ANTITRUST MATTERS
ANTITRUST INVESTIGATIONS
On June 5, 1997, we were served with subpoenas issued by the United States
District Court for the Eastern District of Pennsylvania (the "DISTRICT COURT")
to produce documents to a grand jury convened by attorneys for the Antitrust
Division of the U.S. Department of Justice (the "DOJ") and a related search
warrant in connection with a criminal investigation as to whether there had been
any violation of U.S. federal antitrust law by producers of graphite electrodes.
Concurrently, representatives of Directorate General-Competition of the
Commission of the European Communities, the antitrust enforcement authority of
the European Union (the "EU COMPETITION AUTHORITY"), visited offices of one of
our French subsidiaries for purposes of gathering information in connection with
an investigation as to whether there had been any violation of the antitrust law
of the European Community 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.
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 U.S. resulting in agreements
to fix prices and allocate market shares in the U.S. 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 law 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 1998.
The plea agreement was approved by the District Court and, as a result, under
the plea agreement, we will not be subject to prosecution by the DOJ with
respect to any other violations of U.S. federal antitrust law occurring prior to
April 1998. The payments due in 1998, 1999 and 2000 were timely made.
In January 2000, pursuant to a plea agreement with the DOJ, Robert P. Krass,
former Chairman of the Board, President and Chief Executive Officer, who retired
and resigned from all positions with us in March 1998, pled guilty to a one
count charge of violating U.S. federal antitrust law in connection with the sale
of graphite electrodes and was sentenced to a term of incarceration and payment
of a fine. In February 2000, pursuant to a plea agreement with the DOJ, Robert
J. Hart, former Senior Vice President and Chief Operating Officer, who retired
and resigned from all positions with us in March 1998, pled guilty to a similar
charge and was sentenced to a term of incarceration and payment of a fine. In
January 2000, George S. Schwegler, former Director, Export Sales Europe, was
indicted by the DOJ on a similar charge. We do not intend to reimburse Messrs.
Krass and Hart for their fines or Mr. Schwegler for any costs or fines he may
incur as a result of such indictment.
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PART II (CONT'D)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
In January 2000, Mitsubishi Corporation, one of our former parents, was indicted
by the DOJ on a one count charge of aiding and abetting violations of U.S.
federal antitrust law in connection with the sale of graphite electrodes.
In April 1998, the Canadian Competition Bureau (the "COMPETITION BUREAU")
commenced a criminal investigation as to whether there had been any violation of
Canadian antitrust law by producers of graphite electrodes. In March 1999,
pursuant to a plea agreement between our Canadian subsidiary and the Competition
Bureau, our Canadian subsidiary pled guilty to a one count charge of violating
Canadian antitrust law in connection with the sale of graphite electrodes and
was sentenced to pay a fine of Cdn.$11 million. The relevant Canadian court
approved the plea agreement and, as a result, under the plea agreement, we will
not be subject to prosecution by the Competition Bureau with respect to any
other violations of Canadian antitrust law occurring prior to the date of the
plea agreement. The fine was timely paid.
We became aware, in June 1998, that the Japanese antitrust enforcement authority
had commenced an investigation as to whether there had been any violation of
Japanese antitrust law by producers and distributors of graphite electrodes. In
addition, we became aware, in October 1999, that the Korean antitrust authority
had commenced an investigation as to whether there had been any violation of
Korean antitrust law by producers and distributors of graphite electrodes. We
have no facilities or employees in Japan or Korea. We believe that, among other
things, we have good defenses to any claim that we are subject to the
jurisdiction of either such authority. In March 1999, the Japanese antitrust
authority issued a warning letter to the four Japanese graphite electrode
producers. While the Japanese antitrust authority did not issue a similar
warning letter to us, the warning letter issued to the Japanese producers did
reference us as a member of an alleged cartel.
In January 2000, the EU Competition Authority issued a statement of objections
initiating proceedings against us and other producers of graphite electrodes.
The statement alleges that we and other producers violated antitrust laws of the
European Community and the European Economic Area in connection with the sale of
graphite electrodes. The statement does not set forth any proposed fines or the
impact which cooperation by us or other producers would have on the respective
fines, if any. The maximum fine for such a violation is ten percent of a
company's revenue during the year preceding the year in which the fine is
assessed. We believe that we have provided substantial cooperation to the EU
Competition Authority and are, therefore, entitled to a reduction in the amount
of any fine which would otherwise be assessed. We believe that proceedings of
this nature typically continue for about nine to twelve months before any fine
is assessed. Any such assessment would be subject to appeal before the Court of
First Instance in Luxembourg, although the fine or collateral security therefore
would be payable three months after such assessment.
We are continuing to cooperate with the DOJ and the Competition Bureau in their
continuing investigations of other producers and distributors of graphite
electrodes. We are also cooperating with the EU Competition Authority in its
on-going investigation. In connection therewith, we have produced and are
producing documents and witnesses. It is possible that antitrust investigations
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PART II (CONT'D)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
seeking, among other things, to impose fines and penalties could be initiated by
authorities in other jurisdictions.
The guilty pleas make it more difficult for us to defend against other
investigations as well as civil lawsuits and claims. 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.
ANTITRUST LAWSUITS
In 1997, we 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 (the "ANTITRUST CLASS ACTION
LAWSUIT"). In the consolidated complaint, the plaintiffs allege that the
defendants violated U.S. federal antitrust law in connection with the sale of
graphite electrodes. In August 1998, the District Court certified a class of
plaintiffs consisting of all persons who purchased graphite electrodes in the
U.S. (the "CLASS") directly from the defendants during the period from July 1,
1992 through June 30, 1997 (the "CLASS PERIOD").
In 1998 and 1999, we and other producers of graphite electrodes were served by
steelmakers in the United States and Canada with complaints and petitions
commencing nine separate civil antitrust lawsuits in various courts (the "OTHER
INITIAL LAWSUITS"). In the complaints and petitions, the plaintiffs allege that
the defendants violated U.S. federal, Texas and Canadian antitrust laws and
Canadian conspiracy law in connection with the sale of graphite electrodes.
In 1999, we and other producers of graphite electrodes were served with two
complaints commencing two separate civil antitrust lawsuits in the District
Court. The first complaint entitled FERROMIN INTERNATIONAL TRADE CORPORATION, ET
AL. V. UCAR INTERNATIONAL INC., ET AL. was filed by 26 steelmakers and related
parties, all but one of whom are located outside the U.S., and the second
complaint entitled BHP NEW ZEALAND LTD. ET AL. V. UCAR INTERNATIONAL INC., ET
AL. was filed by 4 steelmakers, all of whom are located outside the U.S. In each
complaint, the plaintiffs allege that the defendants violated U.S. federal
antitrust law in connection with the sale of graphite electrodes sold or sourced
from the U.S. and those sold and sourced outside the U.S. The plaintiffs seek,
among other things, an award of treble damages resulting from such alleged
antitrust violations. We believe that we have strong defenses against claims
alleging that purchases of graphite electrodes outside the U.S. are actionable
under U.S. federal antitrust law.
In 1999 and 2000, we were served with three complaints commencing three civil
antitrust lawsuits. The first complaint, filed in the District Court, is
entitled GLOBE METALLURGICAL, INC. V. UCAR INTERNATIONAL INC., ET AL. The second
complaint, filed in United States Bankruptcy Court for the Northern District of
Ohio, is entitled IN RE SIMETCO, INC. The third complaint, filed in the United
States District Court for the Southern District of West Virginia, is entitled
ELKEM METALS COMPANY INC and ELKEM METALS COMPANY ALLOY LLP V. UCAR CARBON
COMPANY INC., ET AL. (together with the first and second complaints, the "CARBON
ELECTRODE LAWSUITS"). SGL Carbon AG is also named as a defendant in the first
complaint and SGL Carbon Corporation is also named as a defendant in the third
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PART II (CONT'D)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
complaint. In the complaints, the plaintiffs allege that the defendants violated
U.S. federal antitrust law in connection with the sale of carbon electrodes and
seek, among other things, an award of treble damages resulting from such alleged
violations. The guilty pleas described above do not relate to carbon electrodes.
Certain customers who purchased graphite electrodes, carbon electrodes or other
products from us have threatened to commence antitrust lawsuits against us in
the U.S. or in other jurisdictions with respect to the subject matter of the
investigations and lawsuits described above. We are aware that Messrs. Krass and
Hart have been named as defendants in certain civil antitrust lawsuits. We do
not intend to reimburse them for any of their liabilities or expenses in
connection therewith.
Through November 6, 2000, except as described in the next paragraph, we have
settled all of the lawsuits described above, certain of the threatened civil
antitrust lawsuits and certain possible antitrust claims by certain other
customers who negotiated directly with us. The settlements cover virtually all
of the actual and potential claims against us by customers in the U.S. 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. Although each settlement is unique, in the aggregate they consist
primarily of current and deferred cash payments with some product credits and
discounts. All payments due thereunder have been timely made. Amounts due under
the settlement of the antitrust class action will increase to the extent that
additional undisputed claims are filed by members of the class (which includes
purchasers of graphite electrodes who are located outside the U.S. but who
purchased graphite electrodes from our U.S. subsidiaries).
The foreign customer lawsuits and the carbon electrode lawsuits have not been
settled and are still in their early stages. We have been vigorously defending
against these lawsuits as well as all threatened lawsuits and possible
unasserted claims, including those mentioned above. We may at any time, however,
settle these lawsuits as well as any threatened lawsuits and possible claims.
It is possible that additional civil antitrust lawsuits seeking, among other
things, to recover damages could be commenced against us in the U.S. and in
other jurisdictions.
1997 ANTITRUST 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, among other things, imputed interest on
installment payments of the DOJ fine. Actual aggregate liabilities and expenses
(including settled investigations, lawsuits and claims as well as the on-going
investigation by the EU Competition Authority and unsettled pending, threatened
and possible lawsuits and claims mentioned above) could be materially higher
than $340 million. To the extent that aggregate liabilities and expenses, net,
are known or reasonably estimable, at November 6, 2000, such amount continues to
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PART II (CONT'D)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
represent our estimate of such liabilities and expenses. In the aggregate, the
fines and settlements described above and related expenses, net, are within the
amounts we used to evaluate the $340 million charge.
Through September 30, 2000, we have paid an aggregate of $226 million of fines
and net settlement and expense payments and $12 million of imputed interest. At
September 30, 2000, $114 million remains in the reserve and, based on
information known to us at November 6, 2000, the aggregate amount of remaining
committed payments for fines and settlements at September 30, 2000 was about $64
million. The aggregate amount of remaining committed payments for imputed
interest at September 30, 2000 was about $8 million. About $26 million of the
committed payments for fines and settlements are due on or before September 30,
2001.
STOCKHOLDER DERIVATIVE AND SECURITIES CLASS ACTION LAWSUITS
In March 1998, UCAR was served with a complaint commencing a stockholder
derivative lawsuit in the Connecticut Superior Court (Judicial District of
Danbury). Certain former and current officers and directors were named as
defendants. UCAR was named as a nominal defendant. In October 1999, UCAR and the
individual defendants entered into an agreement settling the lawsuit. The
settlement became final in January 2000.
In April and May 1998, UCAR was served with complaints commencing securities
class actions in the U.S. District Court for the District of Connecticut. The
complaints were consolidated into a single complaint and the Florida State Board
of Administration was designated lead plaintiff. UCAR and certain former and
current officers and directors were named as defendants. The class of plaintiffs
consists of all persons (other than the defendants) who purchased common stock
during the period from August 1995 through March 1998. In October 1999, UCAR and
the individual defendants entered into an agreement settling the lawsuit. The
settlement became final in February 2000.
Under the settlements, a total of $40.5 million was contributed to escrow
accounts for the benefit of former and current stockholders who are members of
the class of plaintiffs for whom the securities class action was brought as well
as plaintiffs' attorney's fees. We contributed $11.0 million and the insurers
under our directors and officers' insurance policies at the time the lawsuits
were filed contributed the balance of $29.5 million. In addition, Mary B.
Cranston, a new outside director acceptable to both UCAR and the Florida State
Board of Administration, the eighth largest state employees' pension fund, was
added to UCAR's Board of Directors. We incurred about $2.0 million of
unreimbursed expenses related to the lawsuits. These expenses, together with the
$11.0 million, were recorded as a charge to operations of $13.0 million in the
1999 third quarter. In the 2000 second quarter, we reversed $1 million of this
charge because actual expenses were lower than anticipated.
OTHER PROCEEDINGS AGAINST US
We are involved in various other investigations, lawsuits, claims and other
legal proceedings incidental to the conduct of our business. While it is not
possible to determine the ultimate disposition of each of them, we do not
49
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PART II (CONT'D)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
believe that their ultimate disposition will have a material adverse effect on
us.
LAWSUIT INITIATED BY US AGAINST OUR FORMER PARENTS
In February 2000, at the direction of a special committee of independent
directors of UCAR's Board of Directors, we commenced a lawsuit in the U.S.
District Court for the Southern District of New York against our former parents,
Mitsubishi and Union Carbide. The other defendants named in the lawsuit are
Mitsubishi International Corporation, a U.S. subsidiary of Mitsubishi
Corporation, and two of the respective representatives of Mitsubishi and Union
Carbide who served on UCAR's Board of Directors at the time of our leveraged
equity recapitalization in 1995, Hiroshi Kawamura and Robert D. Kennedy. Mr.
Kennedy, who was a director of UCAR at the time the lawsuit was commenced,
resigned as such on March 14, 2000.
In the lawsuit, we allege, among other things, that, in January 1995, Mitsubishi
and Union Carbide had knowledge of facts indicating that UCAR had engaged in
illegal graphite electrode price fixing activities and that any determination of
UCAR's statutory capital surplus would be overstated as a result of those
activities. We also allege that certain of their representatives knew or should
have known about those activities. Mitsubishi was indicted by the DOJ in January
2000 for aiding and abetting those activities and was named as a defendant in
several civil antitrust lawsuits commenced by electric arc furnace steel
producers with respect to its alleged participation in those activities. In
addition, we allege that, in January 1995, UCAR did not have the statutory
capital surplus required to lawfully authorize the payments that UCAR made to
its former parents. We also allege that Mitsubishi and Union Carbide were
unjustly enriched by receipts from their investments in UCAR and that they
knowingly induced or actively and substantially assisted former senior
management of UCAR to engage in illegal graphite electrode price fixing
activities in breach of their fiduciary duties to UCAR.
Based on the allegations summarized above, we believe that Mitsubishi and Union
Carbide are liable for more than $1.5 billion in damages, including interest.
Some of our claims provide for joint and several liability; however, damages
from our various claims would not generally be additive to each other.
We believe that our claims are strong, and are confident about the ultimate
outcome. Accordingly, we afforded the defendants the opportunity to settle this
lawsuit in advance of filing the complaint in the interest of achieving a fair
and expeditious resolution. We intend to vigorously pursue this lawsuit to
trial.
The defendants have filed motions to dismiss the lawsuit and motions to
disqualify certain of our counsel from representing us in the lawsuit. We are
vigorously opposing those motions.
Litigation such as this lawsuit is complex. Complex litigation can be lengthy
and expensive. We expect to incur between $10 million and $20 million for legal
expenses to pursue this lawsuit through trial. These expenses will be accounted
as operating expenses and will be expensed as incurred. Through September 30,
2000, we incurred $3 million of such legal expenses. This lawsuit is in its
50
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PART II (CONT'D)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
earliest stages, and the ultimate outcome of litigation such as this lawsuit is
subject to many uncertainties, both substantive and procedural, including
statute of limitation and other defenses, claims for indemnification and other
counterclaims as well as those motions to dismiss and motions to disqualify. We
may at any time settle this lawsuit.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
RECENT SALES OF UNREGISTERED SECURITIES
In the 2000 first nine months, UCAR sold an aggregate of 18,556 shares
of common stock to certain members of senior management under an executive
employee stock purchase program. The shares were sold for an aggregate of
$225,000. These sales were exempt from registration under Section 4(2) of the
Securities Act of 1933 because the shares were sold in transactions not
involving any public offering.
In the 2000 first nine months, certain officers and other employees
elected to defer an aggregate of $1,250,000 of compensation pursuant to our
compensation deferral program, payment of which will be based on the performance
of 81,200 shares of common stock as measured against the market price of the
common stock on the date of deferral. Such transactions were exempt from
registration under Section 4(2) of the Securities Act of 1933 because the
transactions did not involve the public offering of securities.
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
10.7 First Amendment dated as of October 11,
2000 to Credit Agreement dated as of
February 22, 2000 among UCAR International
Inc., UCAR Global Enterprises Inc., UCAR
Finance Inc., the LC Subsidiaries party
thereto, the Lenders party thereto, and
Morgan Guaranty Trust Company of New York,
as Administrative Agent, Collateral Agent
and Issuing Bank
27.1 Financial Data Schedule - 2000 Third
Quarter
27.1A Restated Financial Data Schedule - 2000
Second Quarter
(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.
51
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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 6, 2000 By: /S/ CORRADO F. DEGASPERIS
-------------------------
Corrado F. DeGasperis
VICE PRESIDENT AND
CHIEF INFORMATION OFFICER
(PRINCIPAL ACCOUNTING OFFICER)
52
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UCAR INTERNATIONAL INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
<S> <C>
EXHIBIT NO. DESCRIPTION
10.7 First Amendment dated as of October 11, 2000 to Credit
Agreement dated as of February 22, 2000 among UCAR
International Inc., UCAR Global Enterprises Inc., UCAR
Finance Inc., the LC Subsidiaries party thereto, the Lenders
Party thereto, and Morgan Guaranty Trust Company of New
York, as Administrative Agent, Collateral Agent and Issuing
Bank
27.1 Financial Data Schedule - 2000 Third Quarter
27.1A Restated Financial Data Schedule - 2000 Second Quarter
</TABLE>
E-1
