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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
[ ] 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 Identification No.)
incorporation or organization)
39 OLD RIDGEBURY ROAD, J-4, DANBURY, CONNECTICUT 06817-0001
- ------------------------------------------------ ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 207-7700
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
As of September 30, 1996, 46,497,915 shares of common stock, par value $.01 per
share, were outstanding.
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TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements:
-----------------------------
Consolidated Balance Sheets as of September 30, 1996
and December 31, 1995............................................ Page 3
Consolidated Statements of Operations for the Three Months
Ended September 30, 1996 and 1995 and for the Nine Months Ended
September 30, 1996 and 1995...................................... Page 4
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1996 and 1995................................ Page 5
Consolidated Statement of Stockholders' Equity (Deficit) for the
Nine Months Ended September 30, 1996............................. Page 7
Notes to Consolidated Financial Statements........................ Page 8
Item 2. Management's Discussion and Analysis of Financial Condition
-------------------------------------------------------------------
and Results of Operations................................... Page 12
-------------------------
PART II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K.......................... Page 18
------------------------------------------
SIGNATURE.............................................................. Page 19
INDEX TO EXHIBITS...................................................... Page E-1
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- ----------------------------
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in millions, except per share data )
September 30, December 31,
ASSETS 1996 1995
---- ----
(Unaudited)
Current assets:
Cash and cash equivalents......................... $ 91 $ 53
Notes and accounts receivable..................... 176 180
Inventories:
Raw materials and supplies..................... 35 28
Work in process................................ 97 78
Finished goods................................. 39 30
------- ------
171 136
Prepaid expenses.................................. 37 34
------- ------
Total current assets...................... 475 403
------- ------
Property, plant and equipment....................... 1,036 1,013
Less: accumulated depreciation...................... 656 635
------- ------
Net fixed assets.......................... 380 378
------- ------
Company carried at equity........................... 16 18
Other assets........................................ 42 65
------- ------
Total assets.............................. $ 913 $ 864
======= ======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.................................. $ 46 $ 56
Short-term debt................................... 37 31
Payments due within one year on long-term debt.... 1 1
Accrued income and other taxes.................... 42 50
Other accrued liabilities......................... 78 90
------- ------
Total current liabilities................. 204 228
------- ------
Long-term debt...................................... 596 636
Other long-term obligations......................... 132 137
Deferred income taxes............................... 17 20
Minority stockholders' equity in consolidated
entities.......................................... 4 5
Common stock subject to "puts"...................... - 8
Less: related loans to management.................. - (3)
------- ------
Stockholders' equity (deficit):
Preferred stock - par value $.01; authorized
- 10,000,000 shares; issued - none............. - -
Common stock - par value $.01; authorized
- 100,000,000 shares; issued - 46,497,915
shares....................................... - -
Additional paid-in capital.......................... 496 485
Cumulative foreign currency translation adjustment.. (115) (116)
Retained earnings (deficit)......................... (421) (536)
------- ------
Total stockholders' equity (deficit)........ (40) (167)
------- ------
Total liabilities and stockholders'
equity (deficit)........................ $ 913 $ 864
======= ======
See accompanying Notes to Consolidated Financial Statements.
3
PART I (Cont.)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Dollars in millions, except per share data)
(Unaudited)
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
1996 1995 1996 1995
---- ---- ---- ----
Net sales .................................................................... $ 227 $ 220 $ 711 $ 657
Cost of sales ................................................................ 141 136 436 411
-------- -------- -------- --------
Gross profit ................................................................. 86 84 275 246
Research and development ..................................................... 2 2 6 5
Selling, administrative and other expenses ................................... 21 39 66 87
Restructuring costs .......................................................... - - - 30
Other (income) expense (net) ................................................. - (2) 1 (4)
-------- -------- -------- --------
Operating profit ........................................................ 63 45 202 128
Interest expense ............................................................. 16 26 47 75
-------- -------- -------- --------
Income before provision for income taxes ................................ 47 19 155 53
Provision for income taxes ................................................... 14 8 52 60
-------- -------- -------- --------
Income (loss) of consolidated entities .................................. 33 11 103 (7)
Less: minority stockholders' share of income ................................. - 1 - 4
Plus: UCAR share of net income from company carried at equity ................ 2 3 5 5
-------- -------- -------- --------
Income (loss) before extraordinary charge and cumulative
effect of change in accounting principles ............................. 35 13 108 (6)
Extraordinary charge, net of tax ............................................. - 16 - 18
-------- -------- -------- --------
Income (loss) before cumulative effect of change in
accounting principles ................................................. 35 (3) 108 (24)
Cumulative effect on prior years of change in accounting for inventories ..... - - 7 -
-------- -------- -------- --------
Net income (loss) ..................................................... $ 35 $ (3) $ 115 $ (24)
======== ======== ======== ========
Primary net income per common share (Note 7) (Pro forma in 1995):
Income before cumulative effect of change in accounting principles ........ $ 0.72 $ 0.58 $ 2.22 $ 1.22
Cumulative effect on prior years of change in accounting for inventories... - - 0.15 -
-------- -------- -------- --------
Primary net income per share .......................................... $ 0.72 $ 0.58 $ 2.37 $ 1.22
======== ======== ======== ========
Weighted average common shares outstanding
(Pro forma in 1995) (in thousands) .................................. 48,619 48,759 48,405 48,693
======== ======== ======== ========
See accompanying Notes to Consolidated Financial Statements.
4
PART I (Cont.)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Increase in Cash and Cash Equivalents
(Dollars in millions)
(Unaudited)
Nine Months
Ended September 30,
-------------------
1996 1995
---- ----
Cash flow from operating activities:
Net income (loss) ........................................ $ 115 $ (24)
Extraordinary charge, net of tax ......................... - 18
Cumulative effect on prior years of change in
accounting for inventories ............................ (7) -
Non-cash (credits) charges to net income (loss):
Depreciation ........................................... 28 30
Deferred income taxes .................................. 17 (8)
Restructuring costs .................................... - 30
Vesting of performance stock options ................... - 19
Other non-cash charges ................................. 10 1
Working capital * ........................................ (53) (12)
Long-term assets and liabilities ......................... (5) 9
----- -----
Net cash provided by operating activities ............ 105 63
----- -----
Cash flow from investing activities:
Capital expenditures ..................................... (37) (44)
Purchase of minority shares in subsidiary ................ (3) (53)
Redemption/sale of assets ................................ 1 2
----- -----
Net cash used in investing activities ................ (39) (95)
----- -----
Cash flow from financing activities:
Short-term debt .......................................... 6 (13)
Long-term debt borrowings ................................ 2 960
Long-term debt reductions ................................ (42) (477)
Financing costs .......................................... (1) (64)
Sale of common stock, net of loans to management ......... 7 427
Cash distribution to stockholders ........................ - (756)
----- -----
Net cash (used in) provided by financing activities .. (28) 77
----- -----
Net increase in cash and cash equivalents ................. 38 45
Effect of exchange rate changes on
cash and cash equivalents ............................... - (3)
Cash and cash equivalents at beginning of period .......... 53 60
----- -----
Cash and cash equivalents at end of period ................ $ 91 $ 102
===== =====
(Continued)
5
PART I (Cont.)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
Nine Months
Ended September 30,
-------------------
1996 1995
---- ----
Supplemental disclosures of cash flow information:
Net cash paid during the periods for:
Interest expense ....................................... $ 46 $ 60
Income taxes ........................................... 39 26
*Net change in working capital by component (excluding
cash and cash equivalents, deferred income taxes and
short-term debt):
(Increase) decrease in current assets:
Notes and accounts receivable:
Sale of receivables .............................. $ 3 $ -
Other changes .................................... (2) (11)
Inventories .......................................... (25) (11)
Prepaid expenses and other current assets ............ 4 -
Increase (decrease) in payables and accruals ............ (33) 10
---- ----
Working capital .................................. $(53) $(12)
==== ====
See accompanying Notes to Consolidated Financial Statements.
6
PART I (Cont.)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity (Deficit)
Nine Months Ended September 30, 1996
(Dollars in millions)
(Unaudited)
Cumulative
Foreign
Additional Currency Retained Total
Common Paid-in Translation Earnings Stockholders'
Stock Capital Adjustment (Deficit) Equity (Deficit)
----- ------- ---------- --------- ----------------
Balance at December 31, 1995................... $ - $ 485 $ (116) $ (536) $ (167)
Exercise of employee stock options............. - 4 - - 4
Tax benefit arising from exercise
of employee stock options................... - 3 - - 3
Reclassification of:
Common stock subject to "puts"............. - 8 - - 8
Related loans to management................ - (3) - - (3)
Registration cost of offering................. - (1) - - (1)
Translation adjustments....................... - - 1 - 1
Net income.................................... - - - 115 115
----- ------ ------- ----- -------
Balance at September 30, 1996................. $ - $ 496 $ (115) $ (421) $ (40)
===== ====== ======= ======= =======
See accompanying Notes to Consolidated Financial Statements.
7
PART I (Cont.)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Cont.)
(Unaudited)
(1) INTERIM FINANCIAL PRESENTATION
The interim Consolidated Financial Statements are unaudited; however, in
the opinion of management, they have been prepared in accordance with
Rule 10-01 of Regulation S-X adopted by the Securities and Exchange
Commission ("Commission") and reflect all adjustments (all of which are
of a normal, recurring nature) which are necessary for a fair statement
of the financial condition, results of operations, cash flows and changes
in stockholders' equity (deficit) for the periods presented. Results of
operations for the nine months ended September 30, 1996 are not
necessarily indicative of the results that may be expected for the entire
fiscal year ending December 31, 1996.
As used in these Notes, references to "UCAR" mean UCAR International
Inc., to "Global" mean UCAR Global Enterprises Inc., a direct,
wholly-owned subsidiary of UCAR, and to the "Company" mean UCAR and its
subsidiaries (including Global), collectively. Separate financial
statements of Global are not presented because they would not be material
to holders of senior subordinated notes. The Company's investment in EMSA
(Pty.) Ltd. ("EMSA"), a 50%-owned company, is carried on the equity basis
and its proportional share of the net income of EMSA is reported under
the caption "UCAR share of net income from company carried at equity". At
September 30, 1996, retained earnings (deficit) included $37 million
representing UCAR's share of the undistributed earnings (prior to foreign
currency translation adjustment) of EMSA.
(2) UCAR GLOBAL ENTERPRISES INC.
UCAR has no material assets, liabilities or operations other than those
that result from its ownership of 100% of the outstanding common stock of
Global.
The following is a summary of the consolidated assets and liabilities of
Global and its subsidiaries at September 30, 1996 and December 31, 1995
and their consolidated results of operations for the three month and nine
month periods ended September 30, 1996 and 1995:
September 30, December 31,
1996 1995
---- ----
(Dollars in millions)
Assets:
Current assets ............................ $ 475 $ 403
Non-current assets ........................ 438 461
------ ------
Total assets ........................... $ 913 $ 864
====== ======
Liabilities:
Current liabilities ....................... $ 204 228
Non-current liabilities ................... 745 793
------ ------
Total liabilities ...................... $ 949 $1,021
====== ======
Minority stockholders' equity in
consolidated entities .................. $ 4 $ 5
====== ======
8
PART I (Cont.)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Cont.)
(Unaudited)
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
1996 1995 1996 1995
---- ---- ---- ----
(Dollars in millions)
Net sales ............................ $ 227 $ 220 $ 711 $ 657
Gross profit ......................... 86 84 275 246
Income (loss) before extraordinary
charge and cumulative effect of
change in accounting principles .... 35 13 108 (6)
Net income (loss) .................... 35 (3) 115 (24)
(3) CHANGE IN ACCOUNTING FOR INVENTORIES
Effective January 1, 1996, the Company changed its method of determining
LIFO inventories. The new methodology provides specifically identified
parameters for defining new items within the LIFO pool which the Company
believes improves the accuracy of costing those items.
The Company recorded income of $7 million (after related income taxes of
$4 million) as the cumulative effect on prior years of this change in
accounting for inventories. The Company believes this change will not
materially impact the Company's ongoing results of operations.
(4) INCOME TAXES
In connection with the leveraged recapitalization of the Company in
January 1995 ("Recapitalization"), certain foreign subsidiaries borrowed
and repatriated funds to the United States. In the three months ended
March 31, 1995, the Company recorded a tax liability of $37 million in
connection therewith.
(5) RESTRUCTURING COSTS
The Company recorded restructuring costs of $30 million in the three
months ended March 31, 1995 to write-off fixed assets of $22 million and
accrue $8 million of related shutdown costs in connection with a project
to close certain high cost manufacturing operations and to add modern
lower cost manufacturing operations at the Company's North American
graphite electrode plants.
9
PART I (Cont.)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Cont.)
(Unaudited)
(6) OTHER (INCOME) EXPENSE - NET
The following is an analysis of other (income) expense (net):
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
1996 1995 1996 1995
---- ---- ---- ----
(Dollars in millions)
Foreign currency adjustments........... $ - $ 3 $ 1 $ (1)
Interest income ....................... (2) (6) (7) (19)
Loss on sales and disposals of assets.. - - 1 1
Brazilian monetary correction ......... - - - 2
Bank fees due to Recapitalization ..... 1 - 1 7
Other ................................. 1 1 5 6
---- ---- ---- ----
$ - $ (2) $ 1 $ (4)
==== ===== ==== ====
(7) EARNINGS PER SHARE
Primary Net Income Per Share
Primary net income per share is computed by dividing net income by the
weighted average number of common shares outstanding during the period.
The weighted average number of common shares outstanding includes common
stock equivalents calculated in accordance with the "treasury stock
method," wherein the net proceeds from the exercise thereof are assumed
to be used to repurchase outstanding shares of common stock at the
average market price for the period. Fully diluted earnings per share is
not significantly different than primary net income per share and,
therefore, has not been presented.
Pro Forma Net Income Per Share
For the unaudited pro forma net income per share data presented on the
Consolidated Statements of Operations, historical net loss for the three
month and nine month periods ended September 30, 1995 has been adjusted
as if the Recapitalization and the Company's initial public offering
("Initial Offering"), redemption of senior subordinated notes
("Redemption") and refinancing of credit facilities ("Refinancing") had
occurred as of January 1, 1995 and to exclude the extraordinary charge
and the non-recurring effects of the Recapitalization and the Initial
Offering. The weighted average number of common shares outstanding
reflects shares of common stock outstanding after the Initial Offering,
including common stock equivalents calculated in accordance with the
"treasury stock method," wherein the net proceeds from the exercise
thereof are assumed to be used to repurchase outstanding shares of common
stock at $25.80 (the average price for the three
10
PART I (Cont.)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Cont.)
(Unaudited)
months ended September 30, 1995) and $24.42 (the average price for the
nine months ended September 30, 1995).
The following table is a summary of the pro forma adjustments to net loss
for the periods presented:
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
1995 1995
---- ----
(Dollars in millions)
Net loss as reported in the Consolidated Financial Statements ............ $ (3) $(24)
Pro forma effects of the Recapitalization (after tax):
Compensation expense related to the Company's long
term incentive compensation plan................................. - 1
Senior subordinated credit facility expense.......................... - 4
Net adjustment to interest........................................... - (3)
Taxes due to Recapitalization ....................................... - 37
Pro forma effects of the Initial Offering and Redemption (after tax):
Accelerated vesting of performance stock options
and matching shares.............................................. 12 12
Net adjustment to interest........................................... 2 9
Extraordinary charge................................................. 16 18
Pro forma effects of the Refinancing (after tax):
Net adjustment to interest........................................... 2 6
---- ----
Pro forma net income...................................................... $ 29 $ 60
==== ====
11
PART I (Cont.)
UCAR INTERNATIONAL INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
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OF OPERATIONS
-------------
GENERAL
As used herein, references to "UCAR" mean UCAR International Inc., to "Global"
mean UCAR Global Enterprises Inc., a direct, wholly-owned subsidiary of UCAR,
and to the "Company" mean UCAR and its subsidiaries (including Global),
collectively.
On January 26, 1995, the Company consummated a leveraged recapitalization
("Recapitalization"). On August 15, 1995, UCAR completed an initial public
offering ("Initial Offering") of its common stock, par value $.01 per share
("Common Stock"). On September 11, 1995, the Company acquired substantially all
of the outstanding common stock of its Brazilian subsidiary, UCAR Carbon S.A.,
held by public shareholders in Brazil. On September 15, 1995, the Company
redeemed $175 million aggregate principal amount of Senior Subordinated Notes
("Subordinated Notes") at a redemption price equal to 110% of the aggregate
principal amount thereof, plus accrued interest thereon of approximately $4
million ("Redemption"). On October 19, 1995, the Company refinanced its existing
credit facilities ("Recapitalization Bank Facilities") and entered into new
credit facilities ("Senior Bank Facilities") at more favorable interest rates
and with more favorable covenants.
In March 1996, certain stockholders of UCAR sold an aggregate of 16,675,000
shares of Common Stock in a secondary public offering ("Secondary Offering"). In
the Secondary Offering, Blackstone Capital Partners II Merchant Banking Fund
L.P. and its affiliates (collectively, "Blackstone"), Chemical Equity Associates
and certain members of management sold approximately 15,449,000 shares, 826,000
shares and 400,000 shares, respectively. After the Secondary Offering,
Blackstone owned approximately 20% of the outstanding shares of Common Stock.
UCAR did not sell any shares in the Secondary Offering and did not receive any
proceeds from the shares sold by the selling stockholders. Approximately 193,000
of the shares sold by management consisted of shares issued upon the exercise of
vested stock options concurrently with the Secondary Offering and the Company
received proceeds of approximately $1.5 million from the exercise of such
options.
RESULTS OF OPERATIONS
Three Month and Nine Month Periods Ended September 30, 1996 as Compared to Three
Month and Nine Month Periods Ended September 30, 1995
Net sales of $227 million in the third quarter of 1996 ("1996 Third Quarter")
represent a 3% increase over net sales of $220 million in the third quarter of
1995 ("1995 Third Quarter"). Graphite electrode sales were $166 million in the
1996 Third Quarter as compared to $165 million in the 1995 Third Quarter. While
net sales of graphite electrodes remained flat, the volume of graphite
electrodes sold declined 6% to 49,000 metric tons in the 1996 Third Quarter from
52,000 metric tons in the 1995 Third Quarter. This decline was primarily due to
a reduction in shipments in Western Europe and in some export markets as
customers drew down on inventories previously built-up as a result of a
reduction in steel shipments. The average selling price (in dollars and net of
changes in currency exchange rates) for
12
PART I (Cont.)
UCAR INTERNATIONAL INC.
the Company's graphite electrodes rose by 4% per metric ton in the 1996 Third
Quarter as compared to the 1995 Third Quarter. Net sales of graphite specialty
products in the 1996 Third Quarter increased 15% to $30 million from $26 million
in the 1995 Third Quarter. This increase was primarily due to strong demand in
all its product lines and a 6% price increase (in dollars) which became
effective on January 1, 1996. Net sales of carbon specialty products were $22
million in the 1996 Third Quarter as compared to $21 million in the 1995 Third
Quarter. Net sales of Grafoil(Registered) were $9 million in the 1996 Third
Quarter as compared to $7 million in the 1995 Third Quarter. Strong demand for
Grafoil(Registered) gaskets in the transportation industry was the main reason
for the increase.
Net sales in the nine months ended September 30, 1996 (the "1996 Period") were
$711 million, an increase of 8% over net sales of $657 million in the nine
months ended September 30, 1995 (the "1995 Period"). Net sales of graphite
electrodes were $519 million in the 1996 Period as compared to $492 million in
the 1995 Period. The volume of graphite electrodes sold declined by 5,700 metric
tons, or 4%, in the 1996 Period as compared to the 1995 Period, primarily for
the reason described above. The average selling price (in dollars and net of
changes in currency exchange rates) for the Company's graphite electrodes rose
by 7% per metric ton in the 1996 Period as compared to the 1995 Period. Net
sales of graphite specialty products in the 1996 Period increased 19% to $94
million from $79 million in the 1995 Period, due to both increased demand and
selling price. Net sales of carbon specialty products increased 20% to $71
million in the 1996 Period from $59 million in the 1995 Period. This increase
was due primarily to the 6% price increase described above. Net sales of
Grafoil(Registered) were $27 million in the 1996 Period as compared to $26
million in the 1995 Period.
Cost of sales increased 4% to $141 million in the 1996 Third Quarter from $136
million in the 1995 Third Quarter. This increase was primarily due to the
increased volume of carbon specialty and graphite specialty products sold. In
the 1996 Period, cost of sales increased 6% to $436 million from $411 million in
the 1995 Period, also due primarily to the increased volume of carbon specialty
and graphite specialty products sold.
As a result of the changes described above, the Company's gross profit margin
decreased to 37.9% in the 1996 Third Quarter from 38.2% in the 1995 Third
Quarter. In the 1996 Period, gross profit margin increased to 38.7% from 37.4%
in the 1995 Period.
Selling, administrative and other expenses decreased to $21 million in the 1996
Third Quarter from $39 million in the 1995 Third Quarter. For the 1996 Period,
selling, administrative and other expenses decreased to $66 million from $87
million in the 1995 Period. These decreases are primarily due to the fact that
there was an $18 million expense in the 1995 Third Quarter as a result of the
accelerated vesting of performance stock options and restricted matching stock
while there was no such charge in the 1996 Period.
Restructuring costs of $30 million were incurred in the 1995 Period in
connection with a project, approved by UCAR's Board of Directors in January
1995, which involved the closure of certain high cost manufacturing operations
and the addition of modern lower cost manufacturing operations at the Company's
North American graphite electrode plants ("Rationalization Project"). The
Rationalization
13
PART I (Cont.)
UCAR INTERNATIONAL INC.
Project is expected to yield approximately $23 million in annual cost savings,
with approximately $20 million expected to be realized in 1996 and the full $23
million expected to be realized in 1997 (in each case, as compared to 1994).
These restructuring costs include fixed asset write-offs of $22 million and $8
million of facility closing expenses and environmental clean-up costs. Except
for the Rationalization Project, no restructuring costs were incurred in the
1995 Period or the 1996 Period.
Other (income) expense (net) was nil in the 1996 Third Quarter as compared to
income of $2 million in the 1995 Third Quarter. This change was primarily due to
a $4 million decrease in interest income and a $3 million increase in exchange
gains on transactions denominated in foreign currencies. Certain hedge
transactions have been implemented to mitigate the currency exposure for the
Company on a global basis. Other (income) expense (net) for the 1996 Period was
$1 million of expense as compared to income of $4 million for the 1995 Period.
The major changes between the 1996 Period and the 1995 Period were a $12 million
decrease in interest income and a $6 million expense in the 1995 Period
associated with a back-up senior subordinated credit facility provided by
Chemical Bank in connection with the Recapitalization.
Operating profit in the 1996 Third Quarter was $63 million (27.8% of net sales)
as compared to $45 million (20.5% of net sales) in the 1995 Third Quarter. In
the 1996 Period, operating profit was $202 million (28.4% of net sales) as
compared to $128 million (19.5% of net sales) in the 1995 Period. Excluding the
restructuring costs of $30 million, the nonrecurring expense of $6 million
associated with the senior subordinated credit facility, the $18 million
included in selling, administrative and other expenses as result of accelerated
vesting of performance stock options and restricted matching stock and the $2
million included in other expenses due to accelerated payments under the
Company's long term incentive compensation plan which were accelerated as a
result of the Recapitalization, operating profit in the 1995 Period would have
been $184 million (28.0% of net sales).
Interest expense decreased to $16 million in the 1996 Third Quarter from $26
million in the 1995 Third Quarter. The average outstanding total debt in the
1996 Third Quarter was $634 million as compared to $866 million in the 1995
Third Quarter, and the average annual interest rate in the 1996 Third Quarter
was 9.7% as compared to 11.3% in the 1995 Third Quarter. Interest expense
decreased to $47 million in the 1996 Period as compared to $75 million in the
1995 Period. The average outstanding total debt was $649 million and the average
annual interest rate was 9.6% in the 1996 Period as compared to an average
outstanding total debt of $855 million and an average annual interest rate of
10.8% in the 1995 Period.
The provision for income taxes was $14 million in the 1996 Third Quarter as
compared to $8 million in the 1995 Third Quarter. The increase was primarily due
to higher pre-tax income, partially offset by reductions of deferred tax
valuation allowances. The provision for income taxes was $52 million in the 1996
Period as compared to $60 million in the 1995 Period. The decrease was primarily
due to the fact that there were taxes of approximately $37 million in the 1995
Period associated with the Recapitalization which were not incurred in the 1996
Period, partially offset by the effect of higher pre-tax income.
14
PART I (Cont.)
UCAR INTERNATIONAL INC.
LIQUIDITY AND CAPITAL RESOURCES
Debt
At September 30, 1996, the Company had total debt of $634 million as compared to
$668 million at December 31, 1995. The Company had a stockholders' deficit of
$40 million at September 30, 1996 as compared to $167 million at December 31,
1995.
Inventory Levels and Working Capital
Inventory levels at any specified date are affected by increases in inventories
of raw materials to meet anticipated increases in sales of finished products,
customer buy-ins and other factors affecting net sales from quarter to quarter.
Inventory levels increased to $171 million at September 30, 1996 from $136
million at December 31, 1995. This increase was primarily due to an $11 million
LIFO accounting method change, a $4 million temporary build-up of inventory in
North America due to the Rationalization Project and a $20 million increase of
inventory in Europe as a result of a reduction in graphite electrode shipments
in Western Europe and some export markets described above.
The Company's working capital increased to $271 million at September 30, 1996
from $175 million at December 31, 1995. The increase was primarily due to the
increase in inventory described above, a decrease of $24 million in current
liabilities and a $38 million increase in cash and cash equivalents. Cash and
cash equivalents at September 30, 1996 included $40 million held by the
Company's Brazilian subsidiary.
Capital Expenditures
Capital expenditures aggregated $37 million (including $4 million for the
Rationalization Project) in the 1996 Period as compared to $44 million
(including $19 million for the Rationalization Project) in the 1995 Period.
Capital expenditures have been and will be made during 1996 to maintain existing
facilities and equipment, to achieve cost savings and to improve operating
efficiency (including the Rationalization Project and other restructuring and
reengineering projects). The Company expects capital expenditures in 1996 to
total approximately $60 million (including expenditures relating to the
Rationalization Project which were pre-funded as part of the Recapitalization).
Capital expenditures for environmental protection have not been and are not
expected to be a significant factor with respect to the Company's capital
expenditures as a whole.
Acquisitions
On September 11, 1996, the Company announced its intention to pursue the
purchase of a controlling interest in Graphite PLC, which operates a graphite
electrode business in Viazma, Russia. The Company intends to purchase Graphite
PLC through a tender offer to its major shareholders, which include members of
the board of directors and employees of Graphite PLC. It is anticipated that the
transaction will be completed by December 31, 1996. The total estimated
investment is $50 million and includes
15
PART I (Cont.)
UCAR INTERNATIONAL INC.
the purchase of shares, a working capital infusion, the assumption of certain
short-term debt and other expenses.
On May 21, 1996, the Company announced its intention to pursue the purchase of
70% of the outstanding shares of Carbone Savoie, S.A., a wholly-owned subsidiary
of a competitor and a manufacturer of carbon cathode blocks. While the final
purchase price will not be determined until after satisfactory completion of due
diligence, it is estimated that the purchase price will not exceed 200 million
French Francs.
Both acquisitions are subject to satisfaction of a number of conditions,
including receipt of governmental approvals. The Company intends to finance both
acquisitions from existing cash, cash flow from operations and borrowings under
its revolving credit facility.
Restrictions on Dividends and Distributions
Under the Senior Bank Facilities, UCAR and Global are generally permitted to pay
dividends to their respective stockholders only in an annual amount up to the
greater of $15 million or a specified percentage of adjusted consolidated net
income.
The indenture relating to the Subordinated Notes restricts the payment of
dividends by Global to UCAR if (a) at the time of such proposed dividend, Global
is unable to meet certain indebtedness incurrence and income tests or (b) the
total amount of the dividend paid exceeds specified aggregate limits based on
consolidated net income and net proceeds from asset and stock sales and certain
other transactions. Such restrictions are not applicable to dividends (i) in
respect of UCAR's administrative fees and expenses and (ii) for the specific
purpose of the purchase or redemption by UCAR of capital stock held by present
or former officers of the Company up to $5 million per year or $25 million in
the aggregate.
CHANGES IN ACCOUNTING PRINCIPLES
Effective January 1, 1996, the Company changed its method of determining LIFO
inventories. The new methodology provides specifically identified parameters for
defining new items within the LIFO pool which the Company believes improves the
accuracy of costing those items.
The Company recorded income of $7 million (after related income taxes of $4
million) as the cumulative effect on prior years of this change in accounting
for inventories. The Company believes this change will not materially impact the
Company's ongoing results of operations.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") 123, "Accounting for Stock-Based
Compensation" which is effective for years beginning after December 15, 1995.
SFAS 123 permits a fair value based method of accounting for employee stock
compensation plans. It also allows a company to continue to use the intrinsic
value method of accounting prescribed by Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25"). Companies electing to
continue to use the accounting prescribed by
16
PART I (Cont.)
UCAR INTERNATIONAL INC.
APB 25 must make pro forma disclosures of net income and net income per share as
if the fair value based method of accounting defined in SFAS 123 had been
applied. The Company intends to continue the method of accounting for
stock-based compensation prescribed by APB 25; accordingly, the adoption of SFAS
123 will have no effect on the Company with the exception of expanded
disclosures required under SFAS 123.
17
PART II. OTHER INFORMATION
UCAR INTERNATIONAL INC.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------------------------------------------
(a) EXHIBITS
The exhibits listed in the following table have been filed as part of this
Quarterly Report on Form 10-Q.
Exhibit
Number Description of Exhibit
------ ----------------------
10.28(a) Third Amendment to UCAR International Inc. Compensation Deferral
Program effective as of January 1, 1996
10.41(b) First Amendment to The UCAR Carbon Retirement Plan effective
February 25, 1991
10.41(c) Third Amendment to such Retirement Plan effective, as to
paragraph 2, as of January 26, 1995 and as to paragraphs 1 and
3-5, as of January 1, 1997
10.50(a) Second Amendment to UCAR International Inc. Benefits Protection
Trust effective as of January 1, 1996
11 Statement re: computation of per share earnings
27 Financial Data Schedule
(b) Reports on Form 8-K
No Report on Form 8-K was filed during the quarter for which this Quarterly
Report on Form 10-Q is filed.
18
UCAR INTERNATIONAL INC.
SIGNATURE
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
UCAR INTERNATIONAL INC.
Date: October 31, 1996 By: /s/ William P. Wiemels
----------------------
William P. Wiemels
Vice President, Chief
Financial Officer and Treasurer
(Principal Financial Officer)
19
UCAR INTERNATIONAL INC.
INDEX TO EXHIBITS
Exhibit No. Description Page
10.28(a) Third Amendment to UCAR International Inc. Compensation
Deferral Program effective as of January 1, 1996............ E-2
10.41(b) First Amendment to The UCAR Carbon Retirement Plan
effective February 25, 1991................................. E-4
10.41(c) Third Amendment to such Retirement Plan effective, as to
paragraph 2, as of January 26, 1995 and as to paragraphs 1
and 3-5, as of January 1, 1997.............................. E-6
10.50(a) Second Amendment to UCAR International Inc. Benefits
Protection Trust effective as of January 1, 1996............ E-8
11 Statement re: computation of per share earnings............. E-11
27 Financial Data Schedule..................................... E-12
E-1